The Proposed CREATES Act: How to Fix Legislative Barriers to Competition at the FDA
Written Statement of Geoffrey A. Manne on
“Antitrust Concerns and the FDA Approval Process”
U.S. House of Representatives Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law
Poorly drafted regulations, especially in heavily regulated industries, can create opportunities for anticompetitive abuse. Established companies know how to navigate regulatory mazes, and the complexities of such regimes create innumerable opportunities for nominal compliance at the expense of competition, innovation, and new entry.
The legislative and regulatory impulse when faced with deeply entrenched regulations and their competitive manipulations is often to pile on, either with even more-complex regulatory amendments or else antitrust enforcement that side-steps the root problem, focusing on “fixing” allegedly anticompetitive conduct rather than reforming the underlying laws that facilitate it.
But the government has a questionable track record in promoting competition, not infrequently adopting policies seemingly tailor-made to perpetuate, rather than constrain, harmful conduct.
The FDA Act and the regulations promulgated under it by the agency stand as Exhibit A in this regard. Last year’s controversy over Mylan Pharmaceuticals’ price hike on the EpiPen, for example, is symptomatic of the problem. The market for pharmaceuticals is complicated, but one thing seems clear in the pricing controversy: the FDA has been an effective ally for Mylan in keeping out competitive producers of generic epinephrine auto-injectors. Drug safety is important, of course, but since 1962 the FDA has also reviewed drugs for “efficacy,” which introduced massive delay and uncertainty, arguably without concomitant benefit. And the FDA’s approval and oversight processes for generics and biosimilars, although improved since 1962, continue to impede effective entry. Thus, with the field clear of competitors, it is no surprise that Mylan was able to raise prices. Only following the angry public outcry did the FDA finally accelerate its review process and approve a competing product last month.
But efficacy review is not the FDA’s only regulatory cul de sac through which pharmaceutical manufacturers can employ regulatory policies to keep unwanted competitors off the block. In particular, one aspect of the FDA’s drug safety oversight regime has emerged as a device for some manufacturers to delay generic entry: the Risk Evaluation and Mitigation Strategies, or “REMS,” program.
What I will refer to collectively as the FDA Act’s REMS program comprises two elements that are relevant here: First, it requires branded drug manufacturers to make samples of their drugs available to would-be generic entrants so that they can use them in the lengthy safety and efficacy testing process required to secure FDA approval. Second, it requires brand drug companies to adopt a concerted set of practices and policies aimed at mitigating the risks inherent in the use of most drugs, and additional, more restrictive practices to ensure the safe use of particularly dangerous or addictive drugs — the so-called “REMS with ETASU” (“Elements to Assure Safe Use”). The program also requires that brand manufacturers allow generic entrants to share in these enhanced mitigation processes in order, presumably, to streamline the process and economize on compliance costs.
By forcing collaboration between competitors, the REMS program is practically tailor-made for problems. Although the FDA Act specifically prohibits the use of these regulatory elements to block lower-cost, generic alternatives from entering the market (of course), almost immediately following the law’s enactment, a small handful of branded pharmaceutical companies began using REMS for just that purpose (also, of course).
Some (now-former) FTC commissioners, among others, have raised concerns that brand drug manufacturers can (and do) take advantage of these provisions by adopting tough negotiating positions that, they allege, amount to anticompetitive exclusion requiring agency enforcement. I believe that that would be decidedly the wrong approach to dealing with the issue. These are not properly antitrust problems; they are problems of poor regulatory design.
But it is also true that the program itself exists to implement an underlying policy that may be even worse, and it is likely that reforming a few key elements of the program would help prevent such abuses — but Congress should adopt more fundamental policy changes, as well.
The first part — sharing samples — cannot easily be fixed by removing the required collaboration, at least not without completely revamping (or removing) the FDA’s drug safety and efficacy oversight function (however desirable reform of these functions would be). But the second — sharing REMS programs — can be.