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Mark B McClellan, MD, Ph.D. - Colloquium on Generic Medicine

This text contains Dr. McClellan's prepared remarks. It should be used with the understanding that some material may have been added or deleted during actual delivery.

Speech before
First International Colloquium on Generic Medicine

Remarks by
Mark B McClellan, MD, Ph.D.

Commissioner, Food and Drug Administration

September 25, 2003

It is no accident that my first international speech concerns the topic of improving the development and availability of affordable and safe medicines. This is one of the most important problems that we face today in the United States, in Mexico, in around the world. When it comes to affordable, safe, and innovative medicines, we are facing a global crisis today. This crisis will get worse if we do not take more steps now to start working together to address it. And so that is my main challenge to all of you here today.

If we are all going to enjoy the great benefits that lie ahead in this century from improvements in medical treatments, we need to work together to find better ways to solve the global problem of how we are going to pay for them. Prescription medicines, drugs and biologics, are truly global products today. They can and should benefit all of the people of the world. And so we need a global strategy to get the most benefits from innovative medical treatments for all of the people of the world.

I would like to commend the government of Mexico for the steps you are taking to help achieve this goal. Historically, many Americans have heard about Mexican drugs as a result of certain unregulated “generic” medicines, including knockoffs or different versions of brand-name US drugs that are available cheaply and have increasingly made their way across the border into the U.S. drug supply. There is no assurance that such drugs meet the standards of safety and effectiveness of the United States or Mexico. They may contain incorrect amounts of active ingredients or the wrong ingredients, they may not reach the right blood levels in the body, they may contain toxic impurities, they may not work properly because of improper storage and handling – in short, they may not provide the health benefits that patients should be able to expect from their medicines. And while the dangers of such unapproved drugs are a real and growing concern in the United States, they are an even greater concern for the people of Mexico.

With more new medicines off patent than ever before, Mexico needs a modern generic drug industry that is on par with the world’s gold standards for safety and effectiveness now more than ever. It is the right time for the steps you are taking to make interchangeable generics the standard for Mexico, and you are setting an example for the whole world. It is the right time for all nations that do not yet have well-regulated, high-quality generic drug industries to take the same steps, or to work to import drugs from other nations that do. This is a global health issue, because the drugs of any country are just an Internet click away from being sent anywhere in the world. And it is an urgent issue, because high-quality drugs can do so much today to improve health that none of us should settle for less.

At the FDA, we are looking forward to continuing to support Mexico’s efforts to promote interchangeable generic drugs. We intend to share and exchange our expertise and collaborate with Mexico as you continue the promising work you have started. We are willing to provide similar assistance to other countries that follow Mexico’s example. And we are willing to do this not only out of our concern for international health; we are doing it to help prevent unsafe medications from entering our drug supply as well.

In the United States, improving our own generic drug industry has been one of my top priorities as FDA Commissioner. Generic drugs that are approved by FDA are just as safe and effective as their brand-name counterparts, and they often cost 70 percent less. Consequently, as soon as legitimate drug patents expire, we should all work to make safe and effective generic drugs available. To achieve this goal, within the past year, the FDA has implemented new regulations to prevent legal challenges that inappropriately delay generic competition; we have conducted a bilingual education campaign, in collaboration with many outside groups, on the benefits of generic drugs; and we have announced fundamental reforms and the largest expansion ever of our generic drug program, which we expect to reduce the time for generic drugs to be approved in the U.S. by months.

Generic drugs now account for a majority of prescriptions in the US, and the US has some of the lowest-priced, safe generic drugs available anywhere in the world. Mexico is taking similar steps. Other countries should as well, so that their generics prices will fall and their generics use will increase, as it has done in the US. For example, while half of all prescriptions in the US are for generic drugs, the share in France is under 10 percent, and in many European countries and Canada, 40 percent or less.

I am also very pleased that the interchangeable generic industry in Mexico intends to respect patent rights, so that legitimate brand-name drugs that are still on patent will not be improperly copied. This is very important, because with a far greater number of new drugs and biologics in the development pipeline than ever before, protection of legitimate patents is more essential than ever before. It is essential for the long-term health of the world’s generic drug industries, because without more new drugs being developed and subsequently coming off patent, the generic industry has no future. But it is even more important for the health of all of the people of the world.

New drugs allow children with rheumatoid arthritis to walk and to go to school. New drugs shrink cancerous tumors and they control the advance of HIV. They prevent or halt heart disease, slow the progression of multiple sclerosis, and cure infectious diseases.

New drugs often reduce overall health costs. For diseases such as ulcers, a few pills have replaced major surgery. New drugs also shorten hospitalizations and prevent the costly complications of chronic diseases such as diabetes and high blood pressure. New drugs have been a special blessing to seniors, who are better able to overcome many diseases to live longer and better lives.

In fact, over the last century, the value of gains in life expectancy seen in the US is greater than the total value of all the measured growth in our economic output. New drugs are no small part of this medical miracle. The reduction in US mortality from cardiovascular disease alone has been valued at $1.5 trillion annually during from 1970 to 1990. And for the developing countries of the world, the health improvements have been even more valuable. Drug treatments for infectious diseases and other illnesses of the developing world have permitted even greater gains in life expectancy in developing nations than in countries like the US. Consequently, innovation in drugs and other medical treatments is helping to reduce the worldwide economic inequality that has long resulted from health inequality.

And the promise for the future is even greater. We’re at a stage of scientific progress when a large range of new technologies such as genomics and proteomics are now becoming widely used in the development of new treatments, and these new sciences just might bring about new breakthroughs. Many new drugs currently in clinical trials are no longer scattershot one-size-fits-all treatments, but carefully targeted to be highly effective given the molecular features of a disease in a particular type of patient. These same new sciences also hold promise for making the process for developing new medical technologies faster and more predictable.

These drugs don’t just offer great promise for Americans, or Mexicans, or Canadians, or people in any one nation. We all stand to benefit from these new treatments. We all have a shared interest in medical innovation.

Unfortunately, though, developing new medicines is generally pretty hard work, and it’s increasingly expensive and uncertain. According to some estimates, a new drug costs more than $800 million to develop, and while that exact number has been disputed, none have argued with the fact that the cost of development is large and has doubled over the past decade. And it’s an uncertain process. For every five thousand to ten thousand compounds screened for development, 250 proceed to preclinical testing, only five enter clinical testing and only one results in an application to FDA. And fewer than 1 in 2 that even enter the most expensive phase of clinical testing, so-called Phase 3, actually result in applications to FDA. That’s a costly bet with very long odds – and the only payback to a product developer comes at the end, after all this money is spent, if the drug actually works.

With all of the promising recent developments in biomedical research, I can think of no better use for some our brightest talents and a significant part of our collective resources than to turn these scientific insights into safe and effective new treatments. But without an assurance of payment for success that reflects the value of these new treatments to the world, the developers of new medical products will not do it. They will not risk the high cost and the years of effort in collaboration across an increasingly broad range of scientific disciplines.

As nations are working hard to find ways to tighten price regulations and shift costs elsewhere, we run a serious risk if product developers don’t think they can get a fair payment when they succeed. They’ll stop trying. They’ll turn to products where the prices aren’t regulated, like erectile dysfunction drugs and other lifestyle drugs. Or they’ll turn away from developing new products altogether. We’ve seen this problem in new treatments for the agents of bioterrorism. There is no natural “market,” so product developers have to depend on whatever governments are willing to pay. And as a result, the treatments available to prevent bioterrorist diseases like smallpox haven’t really changed in decades. If holding a patent for a new and innovative product does not mean that its value to world health can be recovered, that means less development of new treatments and less improvement in world health.

If we do not find better ways to share the burden of developing new drugs and biologics, all of us will suffer. The benefits of these treatments are global, and so if we think only of the short-term interest of our own country, we all lose the opportunity for a healthier world. The heart of this problem is that we are not all paying our fair share of the costs of bringing new treatments to the world. And this problem is getting worse.

Our governments need to start by sharing the burden of the increasingly complex basic science that goes into the development of new drugs and biologics. In the United States, we’ve responded to the new opportunities that exist in the lab, by doubling our NIH budget to over $27 billion. As a share of GDP, this is about four times as much as European Union countries spend. But on an interconnected planet, all of this spending turns into biomedical knowledge that is transmitted worldwide for the good of public health worldwide. If other developed countries contributed to this worldwide effort in proportion to their GDP, we would build the foundations for better treatments much faster.

Efforts to fund discoveries in basic science and biomedical “proof of concept” for a potential new medicine are critically important. But every day in our work at FDA, we see that such efforts are not enough to actually produce drugs that are reliably safe and effective for patients. In fact, more than 75 percent of licensed inventions discovered by NIH-funded researchers were no more than a proof of concept, a long way from reliable products.

Government grants cannot solve all of the problems of drug absorption and kinetics, interactions, toxicities, manufacturing concerns, and countless other issues. There are just too many such problems, and solving them is more an art than a science today. That’s why so many promising new treatments that sound good when tested in mice never succeed in humans. This is especially true for the increasing number of biologic drugs, which are much larger and more complex than traditional drugs, and which present unique and complex issues in determining their safety and effectiveness.

If we want to continue to enjoy the global benefits of these new products, we need to all consider the global problem of how we pay for them. Prescription drugs are truly global products today, and we need a global strategy to get the most benefit from new medications for all of the people of the world.

We are partly there. Industrialized nations are increasingly coming to the conclusion that, in general, protecting patents is vital for health. Even though violating patents on, say, new software or electronics might lead to lower prices in the short term, countries understand that the result is fewer innovative products and less economic development. But in contrast to many other products that are increasingly available globally, prescription drugs are different in that the value of holding these patents is limited by increasingly strict government price controls in most countries. In many ways, the economic consequences of overly strict price controls on drugs are no different than violating the patent directly through compulsory licensing to make copies of the drug. Either way, there isn’t likely to be a fair payment based on the value of the new patented product.

This year, Americans, who account for a fraction of prescription drug use worldwide, will pay for about half of all pharmaceutical spending worldwide. By contrast, citizens in the world’s third largest economy, Germany, paid less than five percent. The same kind of drug payment disparity is true for many other developed nations who have about as much ability to pay as Americans do.

Yet on the whole, people in these other nations are getting most of the same kinds of drugs and the many of the same kinds of health benefits as Americans. And it’s not only Americans that seem to be paying an unfair share. Drug prices on average are significantly higher in countries like Poland than they are in France and Germany – even though people in those countries have significantly less economic wealth than the countries of Western Europe.

Why does this happen? After the usually long and extensive development process to show that a drug is safe and effective, all of the R&D costs have been spent. All that’s left are the production costs of making and distributing the medicines themselves. But the remaining production costs only account for about 25 to 50 percent of the total cost of developing and providing a new medicine for a particular country. Obviously, each country would like to pay only this additional cost to obtain the drug for the additional patients in that country. Nobody wants to pay for all the rest of the costs – all the money that has already been spent researching and developing a new medicine and researching and developing its production and labeling.

And some of the world’s richest nations are driving the world’s hardest bargains. In fact, many developed countries are in effect banding together to get the same price. For example, many high-income countries regulate their prices by setting them equal to those in other countries that already have rigid price controls. This system is used in Canada, informally in Japan, and in some countries in Europe. By linking together, they may get even more power to only pay for cost of making additional pills. As a result, many relatively wealthy countries are moving away from covering any significant part of the costs of research and development. They are leaving development costs for nations with less ability or will to extract lower prices.

But unless someone covers the cost of R&D investment, which accounts for 20 percent or more of the revenue from pharmaceuticals, that investment will slow or stop, and so will the improvements in health that we’ve become used to seeing in recent decades.

The United States is now covering most of these costs of developing a new drug to the point where it can be used by the population of the world.

Some have argued -- I think incorrectly -- that other factors account for higher prices in the US. That the U.S. basically deserves its higher prices. One reason, they say, is American drug advertising. Direct-to-consumer advertising in the U.S. has grown a lot, and leads the world. But it’s important to look at the facts. A large amount of research, which we reviewed at an expert conference earlier this week, seems to show that on net such advertising benefits the public health. It gets more people into treatment for conditions that are undertreated in the population. Advertising clearly needs to be regulated, so that consumers and doctors get an accurate picture of the key risks and benefits of a treatment – and we are taking new steps, including developing some new regulatory guidance on how to communicate risk and benefit information to consumers.

But although the ads are highly visible, they account for less than 2 percent of U.S. pharmaceutical spending, and so they can’t be a key driver of drug costs. In fact, the largest part of the marketing costs in the US (about $10 billion) are free samples of drugs, which enable patients to find out if a drug works for them without having to pay for it. That seems like a good way to help patients learn about drugs cheaply.

People have also argued that the higher U.S. costs are for more spending on me-too drugs. I know there is a lot of anger because the drug companies are perceived by some as popularizing drugs that are only slightly different and that may offer only marginal benefits over cheaper alternatives. Some of those criticisms are unfair, since many such drugs do provide subtle but important benefits like fewer side effects or a better dosing schedule. And having multiple drugs in a class means that drug buyers can benefit from more competition. But the fact is that me-too drugs are not a large part of R&D spending. Over the 1990s, for example, only about 20 percent of pharmaceutical R&D spending was devoted to improving or modifying existing products.

Many around the world also believe that US drug prices are higher because our liability system is much more costly. They argue that our liability system encourages lawsuits based on bad outcomes not negligent treatments, and that product developers often incur large payouts in such suits, many of which are of dubious scientific merit.

It is true that our liability system does add significantly to costs compared to other nations, and there are good ideas under consideration in the US on how we can do a better job of making our liability system work more efficiently in compensating those who are injured.

All of these additional costs, many of which are important, cannot account for all of the higher prices that people in the US actually pay.

The truth is that the main reason prices are higher is that our country is paying the bulk of the costs of developing new treatments. That’s got many Americans angry. The highest prices in the world are now paid by some Americans – seniors on fixed incomes – who have little ability to pay and great needs. I hope we will fix this soon by getting them an overdue Medicare drug benefit. But we also need to do more to address the issue of sharing the global burden of developing new treatments.

This is a real public health problem. The difference in payments for drugs is now translating into differences in spending going into drug R&D, as the price controls discourage the R&D needed to develop new products. In 1990, European pharmaceutical firms spent 75 percent more on R&D than American firms. By 2000, American firms spent over a third more than European firms. Even firms that are technically European are moving their most essential operations to the United States.

And the impact of excessive price controls on R&D is translating into an impact on the development of new products. American manufacturers now account for eight of the top 10 worldwide best-selling medicines. And recent studies show that, on average, new medicines reach patients months earlier in the United States than in Europe. Even as Americans are going the other way to get lower prices on some drugs, Canadians have had to cross the border to the United States to get access to new breakthrough medicines like Gleevec that are not available in Canada in a timely or easy way.

Reducing the needed incentives to develop new medicines through excessive price controls is slowing the process of drug development worldwide. If we continue on our current path of trying harder and harder to shift the costs of developing new medicines to someone else, rather than paying our fair share, everyone’s effort to get a free ride on new drugs will grind the global development of new drugs to a halt.

That is unfair and unjust. It’s unfair to Americans, who are bearing an increasing share of the burden, and cannot be expected to do so indefinitely. But it’s also unfair to the citizens of the rest of the world too.

At FDA, my job is to help protect and advance the health of Americans. And I see the current situation as a real threat to advancing our health. The price differences are creating pressures for the importation of unapproved drugs, including drugs offered over the Internet or from untrained storefront operators that promise equivalence to FDA-approved drugs, but are not approved, cannot be effectively regulated under current law by us or other nations, and frequently turn out to be manufactured, shipped, stored, or labeled in ways that make them unsafe.

And high prices are putting some of the most valuable new medicines beyond the means of many Americans. Americans are being forced to choose between regulated drugs that are safe, and “buyer beware” drugs that are affordable. I don’t think Americans or anyone in the world should have to settle for that choice, and we are all working hard on better solutions – including regulatory changes at FDA as well as legislative changes like new prescription drug coverage in Congress.

We also need to think together about new solutions internationally. A lot of people view drug pricing as an either-or choice: Either each country can try its best to get the lowest prices for itself and shift the costs elsewhere, and we may as well do this since everyone else is, because if everyone else does it, there’s no way we to support the development of more valuable new drugs anyway. Or, we can try to encourage very costly drug innovation, but as drug costs keep rising, that seems impossible for any nation to afford.

I don’t agree with this either-or choice. If we work together, we can bring down the costs of developing new drugs, and we can share those costs in a way that’s manageable for all of the countries that benefit from them.

At FDA, we are taking a number of other steps to try and reduce the high cost of developing medications, both new medications and legitimate generics. We want to partner with all of your countries in this effort. A key element of our new planning is what we call “efficient risk management.” In all of our major policies and regulations, we’re seeking to use the best biomedical science, the best risk management science, and the best economic science to achieve our health policy goals as efficiently as possible.

We are trying to make the process for developing new technology less costly, without sacrificing our high standards. We need to make the development process less risky, with greater predictability and less time from concept to bedside. We are also modernizing the way we regulate prescription drug manufacturing, to encourage companies to develop the same kinds of continuous improvement techniques that have reduced costs and improved quality enormously in other high-tech industries like semiconductors.

And we are working on improved data reporting systems from electronic medical records, and on a new electronic product label -- so that patients and doctors can get up to date information about a drug’s risks and benefits in order to make smart decisions. If we do a better job of arming consumers and their doctors with better information, we can avoid costly prescriptions that are inappropriate or unnecessary.

In all of these areas, we are working with international regulatory processes and our counterpart agencies in other nations. If we can harmonize our regulations based on the best and latest science, and the best ideas from around the world, I am confident that we can substantially reduce the cost and uncertainty of developing and using new medicines.

For example, right here in Mexico, we are working with COFEPRIS to develop consistent methods for our regulation of active pharmaceutical ingredients, and extending that harmonization to other areas. And as another example, we are working with the International Committee on Harmonization to develop consistent ways to report adverse events involving medical products around the world.

Our efforts to work together -- in order to harmonize regulations for developing and manufacturing drugs -- can have an enormous impact on their cost. And steps such as improving access to generic drugs after patents expire, and to develop and share better information on the risks and benefits of drugs, can reduce the cost of using medications substantially. But even so, the fact remains that developing new medicines is costly and uncertain. That means we also need to work together to support the cost of research and development if we all want to continue to share in the benefits of medical progress.

With more promising new treatments in the pipeline than ever, I don’t believe the billions of people around the world who are suffering from diseases today that may be treatable in the near future can wait. It is time for developed nations, recognizing their shared interest in bringing better treatments to market, to work together to find ways to fairly share the cost – not just the benefits -- of new drugs.

I don’t have all the answers, but I think it’s time to start the international discussion. For example, one way might be to aim for worldwide drug prices in proportion to a nation’s income. It seems fair that the average price of a new treatment ought to bear some relation to a nation’s income. Developing nations should pay little; rich nations would pay more to support the research and development. If all of the developed countries share this burden together, none need be stuck with very high prices.

I’m very encouraged by some first steps in this direction. Fore example, a recent Doha trade agreement will make available low-cost medications to treat the infectious diseases that are burdening developing countries with little ability to pay. This first-ever international arrangement not only paved the way for greater access to low-cost, up-to-date drugs in developing countries that cannot afford them and really need them. It also required the developed nations of the world to make new promises to avoid reimportation and compulsory licensing, so as not to take advantage of the low prices for peoples who cannot pay.

This is an important first step, but we need to do more. I’m also encouraged that some prominent health officials in Europe are once again talking about the corrosive effects of excessive price regulations. It is time for everyone to take this challenge up for real. This goes for drug and biologic companies too: if they don’t want countries acting in their own short-term interest with price controls, then they too need to work harder to get prices that share the burden fairly, rather than simply putting the greatest burden on those people who are least able to protect themselves against higher prices.

Surely, given the potential for worldwide improvements in medical care in the coming years if we all work together, surely we can find ways to both encourage medical innovation. Surely we can find a way to bring new cures to patients, without forcing them to choose between products that are safe and effective, and those that are affordable.

I know that many are complacent with the current situation, in which the United States has borne the bulk of costs. I know it is not clear how to work together internationally to create better ways to share the burden than are provided by our current trade agreements. But it is clear to me that we cannot carry the lion’s share of this burden for much longer. And the consequences for world health will be grave, if we don’t come up with a better alternative than each nation only acts with its own short-term interest in mind.

And so we all need to be working together to support the development of better medicines we all use, by providing real protection for new patents with fair worldwide pricing. The United States has committed itself to work with the world community on other important health issues. Making sure we take the steps needed to get continued improvements in drug treatments is one of the most important public health issues we will face in this century.

I think this is a wonderful time to be working on public health issues. But it is a challenging time as well, especially so in the area of dealing with global medical innovation. I am confident that, building on interactions like the conference here today, we can all find ways to work together to solve these challenges, so that we continue to realize the full public health benefits of new innovations, and not only fulfill, but exceed the wonderful promise many envisioned when they labeled this the biomedical century.