Her proposal to lower the cost of generics is not serious.
Elizabeth Warren is grasping. Having failed in her gambit to establish minority status, the 2020 presidential contender is now following the path of her competition.
As Kamala Harris did with the housing crisis, Warren has picked a very real issue — the expense of generic drugs — and decided to address it with a bill that is unlikely to achieve much except gain her personal accolades for “doing something.” And should it pass, it could inhibit efforts to actually resolve the problem, because “something has been done.”
Senator Warren debuted her plan before the holidays in the Washington Post, with the title “It’s time to let the government manufacture generic drugs.” Perhaps the senator thought this would generate buzz and capture attention before she officially launched her bid for the presidency on New Year’s Eve. Given that she followed this announcement with a botched attempt to out-Millennial Alexandria Ocasio-Cortez in an online video, though, perhaps it isn’t going as she desired.
Here’s the real problem Warren is trying to address: There were 356 drug shortages in 2012, up from 154 in 2007 — and strikingly, most of these drugs are no longer under patent. That tells us that the critical problem is not one of manufacturing capacity, for any medical company with the capability to produce these medicines could simply do so, using the relevant formulas. The normal behavior of the market, when there is a shortage of a product, is for a new entrepreneur to start providing that product. The fact that this is not happening suggests there must be some barrier in the way of it.
For each new generic drug, the manufacturer must submit an Abbreviated New Drug Application (ANDA), whose very name reveals that it is itself an improvement on an older process. Before 1984’s Hatch-Waxman Act, new generics had to go through the full clinical trials required of a new medicine, even though they were simply a new source of the very drug that had already been chemically approved. The ANDA pathway is quicker and cheaper, requiring a manufacturer to show that the generic is “bioequivalent” to the brand-name product and that it meets manufacturing standards. Even so, the ANDA pathway is an expensive process, and its cost has increased from about $1–2 million in 2005 to $15 million in 2015.
The process isn’t limited to new providers, either. Should an existing manufacturer want to supply more of its approved medicine, it must go through the approval process again for any new production lines or factories. As a result, it can be too costly to make up the shortfall in supply.
The issues don’t end there. Sometimes, even if a generic manufacturer is willing and able to take on all the costs of this process, brand-name manufacturers can effectively put a stay on generics by preventing generic manufacturers from obtaining samples. In other cases, brand-name drug manufacturers will pay generic manufacturers to stay out of the market. The fact that some critical yet out-of-patent drugs have only a single generic manufacturer has created an opening for speculators who buy decades-old basic medicines and raise the prices dramatically — most infamously in the case of Turing Pharmaceuticals, which purchased the rights to a $13 pill and immediately raised its price to $750. This behavior is not the market in action; it is the manipulation of a regulatory regime for financial gain.
Clearly, something is very wrong. A solution is necessary. But rather than tackle the dense and boring problems that are holding back access to essential drugs, which can’t really be boiled down to a stump-speech line, Warren proposes that the United States government start producing generic drugs under the auspices of a new “Office of Drug Manufacturing,” which would pass off its products to cooperating private companies. In effect, assuming that the office operates at least as well as the average private manufacturer (unlikely though that is), this would simply mean the creation of a new drug company, albeit one with a public imprimatur.
This new company, however, would run into the same hurdles that are faced by private actors — the text of the bill does not lay out a regulatory exemption for this new state-run firm, after all. At most, the office might be willing to take the financial hit of approval costs where a private firm might not, meaning taxpayers would simply pick up the tab to overcome the problems the government created.
What makes Warren’s plan especially insulting is that the senator seems to be aware of some real solutions. In her op-ed, after pitching her bill, she mentions in an aside that it’s necessary to “crack down on the rampant abuse of the patent and regulatory system” and advocates increased drug importation from countries with high safety standards. Both of these are critical areas of reform, but they do not have a place in Warren’s legislation.
There are some clear steps forward for honest reformers. A particularly promising three-part solution is outlined in a Brookings paper by Thomas Bollyky and Aaron Kesselheim. First, they advocate the passage of the Generic Drug User Fee Act Reauthorization, which would help the FDA accelerate its review process for generics, particularly “complex” generics that “are more intricate in formulation or delivery than simple, small-molecule pills,” as well as a policy push to prioritize applications for drugs that currently have only one manufacturer. Second, they propose a “single window” pathway, by which manufacturers could apply for approval from multiple regulatory authorities simultaneously; these could include the United States, Canada, and the EU to begin with and then expand to include the U.K., Australia, New Zealand, and Japan. Each of these regulatory authorities is well respected, and furthermore they have already harmonized many of their best practices (though each regulator would still assess the applications independently). A single application would drastically reduce the costs for a new manufacturer to bring its drug to market without raising safety concerns.
The third prong of Bollyky and Kesselheim’s plan involves importation. Currently, imported generics need to go through the FDA approval process even if they have already been approved by comparable bodies abroad. The effect of this hurdle is stark. Sixty-four percent of drugs with insufficient generic competition in the United States have manufacturers abroad that have been approved by the EU, Canada, and other regulators, yet are out of reach of American patients. They suggest that the pathway be limited to generic versions of drugs that are already approved in the United States but lack sufficient generic competition, and that reciprocal approval be limited to strict regulatory authorities such as those of the EU and Canada. With such a framework in place, quality generic-drug manufacturers abroad could expand their production to meet the demand in the United States, at considerably lower cost than it would take for “a new entrant to obtain an ANDA and build new manufacturing capabilities.”
This framework tackles the factors that have been most critical in limiting competition and raising the costs of medication and keeping people from the care they need. If Senator Warren is serious about generic-drug prices, she ought to consider it. Increasing the FDA’s resources to tackle the backlog, streamlining regulatory practices and importation, and working with foreign partners would be a far more effective and prudent use of funds than an Office of Drug Production — even if it is less suited to the campaign trail.
If Warren’s aim is to be seen as the “serious wonk” compared with figures such as Beto O’Rourke, Kamala Harris, and Cory Booker, she needs to do better. Her vanity project is thoroughly unserious.