How FDA Rules Made A $15 Drug Cost $400

Mark L. Baum, Wall Street Journal

The theory is that generic drugs should be less expensive than the original. By the time a generic hits the market, the drug’s patent has expired, allowing competition from companies that didn’t spend millions of dollars to develop it. As more options become available, prices are supposed to drop. But because of quirks in America’s regulatory system, it doesn’t always work out this way.

In 2009 the Food and Drug Administration approved a new version of colchicine, which treats symptoms of gout. Prices rose from 25 cents to $6 per pill. Two years later, the agency approved a new hydroxyprogesterone, which helps prevent premature births. It went from $15 to $400 an injection. In 2014 the FDA approved a generic of the man-made hormone vasopressin. Prices jumped from $11 to $138 for an injection.

What explains the counterintuitive price increases? All these prescription drugs fall under a category known as DESI drugs, named for their inclusion in an FDA program called Drug Efficacy Study Implementation. These drugs came to market before 1962, when getting FDA approval for a drug required proving its safety but not its efficacy. Such drugs, manufactured under expired patents, are used by millions of Americans today.

But once the FDA approves a new-drug application for a DESI drug, the existing drug can be pulled from the market. The “new” drug is treated as a material advance because it underwent testing for safety and efficacy—even though the DESI version was proved safe and effective over decades of actual use. The developer of the new drug may also get a new period of market exclusivity that lasts three years.

This makes little sense. Market exclusivity should let pharmaceutical companies recoup their often enormous investments in genuinely new drugs. Giving monopoly protection for what is essentially a generic version of a DESI drug merely enriches sharp-dealing companies while injuring patients.

Another reason generics often face no competition was described by Scott Gottlieb, President Trump’s nominee for FDA commissioner, in these pages last year. He noted that a generic-drug application can cost as much as $15 million. This high upfront cost is part of why would-be manufacturers of generics often pass on the opportunity to compete against branded drugs with smaller markets. This has allowed many pharmaceutical companies to raise prices with impunity.

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