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Exploring Human Potential

An FDA Golden Voucher That’s Too Good To Be True.

Posted on | October 3, 2016 | No Comments

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Mike Magee

Thirty-six years ago, as Ronald Reagan assumed the presidency, Congress cried “uncle”, in the face of America’s perceived global non-competitiveness in pharmaceuticals. They had been convinced by the persistent voices of Louis Lasagna and University of Chicago economist Sam Perltzman that there was a “drug lag” in America, and that it was the result of government regulations, inefficiencies, obstructionism, and inadequate financial inducements to encourage civic behavior. They were, after all, businesses driven by profit, and this was America.

What followed was a steady flow of enabling legislation that continues to this day including:

The Bayh-Dole Act in 1980 which freed up 28,000 Federal patents, flowing from NIH funded academic studies, released now for public use by industry, academic medical centers or both.

The Orphan Drug Act of 1983 which granted to creators of drugs treating a condition effecting fewer than 200,000 Americans a range of financial inducements including seven-year market exclusivity, liberal tax credits covering development costs, grants for drug development, and a pathway for fast-track approvals.

The Hatch-Waxman Act of 1984 which liberally extended patent lengths in return for streamlining of competitor generic approvals.

The Prescription Drug User Fee Act (PDUFA) of 1992 which helped fund the FDA with a steady flow of fees from companies submitted new drugs to them for approval in return for improved FDA efficiencies and expedited review of industry applications. (Subsequently re-issued and expanded in 1997, 2002, 2007, and 2012).

Along the way, there were other small and large actions which expanded the number of NIH Federal dollars in support of basic and applied research by academic medicals centers and industry partners, while further incentivizing the ultimate transformation of those patent protected discoveries into new pharmaceutical products. The general understanding has been that money talks, and determines loyalty, which will always be short term. Should a better deal present itself, say a merger that would allow a new address and an “inversion”, making non-taxable profits liquid again, that’s capitalism.

But even within this enabling climate of  shifting loyalties and “I’ll scratch your back, and you scratch mind”, the army of coordinated government relations specialists employed by the Medical-Industrial Complex can go one step too far.

Such is the case with the Priority Review Voucher program that is awaiting reauthorization in the 21st Century Cures Act currently before Congress. The basics of this incentive program were first proposed in a 2006 article in Health Affairs, and inserted into the Food and Drug Administration Amendment Act in 2007. The problem these incentives were intended to address was a series of diseases that disproportionately targeted poor populations around the world who often could not afford to pay for modern drugs. The initial focus was “neglected tropical disease” like malaria. In 2012, the program was expanded to also cover “rare pediatric diseases”.

Here’s how the system works. If you develop a treatment for a disease that falls under these categories, and submit your discovery for review by the FDA, they provide your company with a redeemable voucher that guarantees that one of your future submissions will receive Fast Track review (a decision within 6 months rather than the customary 10 months). That voucher can be assigned to any drug you like. Now that 4 months doesn’t sound like much, unless of course, that voucher was attached to a future block buster, like a statin drug, or if it allowed you to beat a competitor to market by one month, making your drug the first in class to arrive. 

One thing more you need to know about these “Golden Vouchers”. They are transferable. That’s right, rather than use them, you can sell them to the highest bidder; they can be applied to any drug (not just one treating rare or neglected disease); and they are good forever. How much are they worth in the open market? To date, of the nine vouchers granted, four have been sold to other companies for prices between $67 million and $350 million a piece.

Take the case of Sanofi  in 2015. They applied a voucher they paid another company $67.5 million to purchase, to their new first-in-class, statin buster, Praluent, and beat Amgen to market by just over a month. But at least the program has resulted in great innovative breakthroughs that benefited those suffering from rare and neglected disease, right? Well, not exactly.

Novartis was the first to receive this golden certificate. Their submission was for an anti-malarial called Coartem. It had been widely used elsewhere around the world for almost 10 years. Same story for Knight Therapeutics’ Impavido, a drug for leishmaniasis which had already been approved in 14 other countries at the time of its approval in 2010. In fact, six of the nine drugs that have gained vouchers were already well on their way to approval before the program was expanded to include rare pediatric disease in 2012.

When you have legislation ripe with loopholes like this one, you would expect it to attract bottom-feeding, hedge funders and profiteers. And in fact it has. Martin Skhreli, the former CEO of Turing Pharmaceuticals, one year before being supoenaed by Congress to testify on predatory pricing, purchased a majority stake and became CEO of KaloBios. Soon after he was arrested for Security and Exchange fraud, and the company went bankrupt. But planning documents revealed that it was the fledgling company’s plan to hit it big by obtaining a voucher for an old drug for Chagas disease that they had licensed.

Experts are now advising that any re-authorization demand that vouchers be awarded for truly novel discoveries, and that predatory pricing and limitations of access be tied to claw back provisions that allow the government to reclaim the monetary value of the voucher provided. Lesson learned: capitalism only works if you have appropriate and enforceable checks and balances.

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