The Safety and Efficacy of the FDA

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"The more rapid access to drugs on the market enabled by the Prescription Drug User Fee Act saved the equivalent of 180 to 310 thousand life-years BETWEEN 19XX AND XXXX."

In virtually all developed countries, regulatory authorities provide public oversight of the safety and efficacy of prescription drugs prior to their being approved for marketing. In the United States, the Food and Drug Administration (FDA) conducts such oversight. A central tradeoff facing the FDA involves balancing two goals: fulfilling its mission set by Congress to assure the safety and efficacy of drugs, while at the same time advancing the public health by not slowing down or disabling the innovative process by which new medical products reach the market.

Critics argue that the FDA is not taking enough time in evaluating new drugs, thereby allowing unsafe drugs to be marketed; others have argued that the agency is taking too long, therefore inflicting harmful effects on innovative returns and patient welfare. Surprisingly, little quantitative evidence has been put forward to evaluate the degree to which the speed and safety tradeoff facing the FDA is being resolved efficiently. More generally, there seems to be no suggested quantitative methodology or framework for assessing the economic efficiency of the agency's specific tradeoff. Despite the FDA's strict adherence to evidence-based evaluation of products overseen, there is far less evidence of its own safety and efficacy. Put differently, no product application would pass the FDA approval process with the quality and type of evidence that currently exists for evaluating the FDA policies themselves. The welfare consequences of this lack of methodology and systematic evidence may be quite substantial, as t he FDA is estimated to regulate markets accounting for about 20 percent of consumer spending in the United States.

In Assessing the Safety and Efficacy of the FDA: The Case of the Prescription Drug User Fee Acts (NBER Working Paper No. 11724), authors Tomas Philipson, Ernst Berndt, Adrian Gottschalk, and Matthew Strobeck estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). These acts allowed the agency to charge user-fees to companies while at the same time imposing performance goals on the agency in terms of faster delivery of approval decisions.

The authors find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. The authors find that PDUFA raised consumer welfare by between $5 and $19 billion; thus, the combined social surplus was raised by between $18 and $31 billion.

Converting these economic gains into equivalent health benefits, the authors find that the more rapid access to drugs on the market enabled by the PDUFA saved the equivalent of 180 to 310 thousand life-years BETWEEN 19XX AND XXXX (or is it for "drugs approved between 19xx and xxxx?). Additionally, the authors estimate an upper bound on the adverse effects of the PDUFA, based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons: they find an extreme upper bound of about 56 thousand life-years lost.

Because of the innovative nature of this analysis, the authors offer several cautionary notes. Their methodology only relies on the most common form of data available surrounding the drug approval process, namely, the distribution of approval and withdrawal times of drugs as well as the distribution of sales of the approved drugs. Further, their analysis is based on a number of assumptions and limitations. First, their benefit-cost and social surplus calculations are aggregated over all drug classes. They suggest that further research might fruitfully focus on disaggregating into specific therapeutic areas and "blockbuster" products.

Second, this analysis ends with submissions to the FDA by the end of September 30, 2002 and approved by the FDA up through May 2004. It could be useful to update this approval data.

Third, the authors limit their study to U.S. sales only. Foreign sales of those drugs that are sold in the United States are typically 75 percent to 100 percent of U.S. sales. The authors' calculations did not incorporate the extent to which accelerated approval in the United States affected international approvals and launch dates.

Fourth, to the extent that accelerated FDA approvals resulted in an increase in the duration of patent protection prior to patent expiration, it is possible that the authors' calculations understate producers' benefits from the PDUFA. Two considerations suggest that any such impact is likely to be rather small. First, patent expiration typically takes place 12 or so years following product launch ("effective patent life") and thus, viewed in present value terms at the beginning of PDUFA in 1992, such end-of-product-life benefits are likely to be very small when discounted. Second, under the Hatch-Waxman Act, the maximum amount of time a drug could enjoy market exclusivity was set at 14 years (with possible 6-month extensions for sponsors proving efficacy in the pediatric population). Precisely how many of the drugs in the authors' sample would have run into this exclusivity ceiling is unclear, but the number is likely to be significant. To the extent that this would occur, accelerated FDA approval would no t translate into longer effective patent life.

A final limitation of the study is that the authors did not separately analyze so-called "fast track" options of the agency, which are available to speed up the approval of those drugs the agency determines are more important and urgently needed. However, the authors believe that the impact of this omission is likely to be relatively minor: preliminary analyses by several researchers suggest that the differential impact of such options, and of FDA status on approval times, is small and, in some cases, fast track may even lengthen approval times

-- Les Picker