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Mark B. McClellan, M.D., Ph.D. - European Federation for Pharmaceutical Sciences

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
European Federation for Pharmaceutical Sciences Conference

Basel, Switzerland
Remarks by
Mark B. McClellan, M.D., Ph.D.

Commissioner, Food and Drug Administration

December 8, 2003

One of the greatest global challenges we face is providing access to high-quality, safe medicines for all of our citizens who can benefit from them. Disease and the suffering it creates do not respect international boundary lines. And as our nations are more inter-connected than ever through travel and trade; our response to the public health challenges should be increasingly coordinated as well. And because modern biotechnology holds so much promise for improving the health of all of our populations, I welcome the opportunity to have a much more extensive international dialogue about this problem.

I’ve discussed this international public health issue in several speeches in the last few months, and I must say I’m a little concerned about some of the press reports. I want to emphasize to all of you that my primary objective in this effort is not to increase drug prices and drug spending in other nations besides the United States. Rather, it is to encourage all nations to recognize that, unless we take more steps to work together to reduce costs and provide fair incentives for developing new medicines, we will all end up getting less for the dollars we spend in health care – and more importantly, we will all end up failing to develop better treatments for many diseases that should be treatable around the world in the coming years.

As health care costs keep rising, every country in the world is struggling with a fundamental and growing problem: how can we possibly afford these new products? And so, because of the budget pressures, most countries see only one solution when they look at this problem from a purely nationalistic perspective. They negotiate and apply pressure on new drug prices, to limit drug spending based on what they think the cost of the new drug should be.

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 low price. For example, many high-income countries regulate their prices for new drugs by setting them equal to those in other countries that already have rigid price controls. This system is used by some countries in Europe. By joining forces, they may get even more power to only pay for the 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 others to pay. Instead, we need to answer this question together, because new drugs and devices are and should be global products -- products that should provide similar benefits for everyone, regardless of where they live.

No one disputes that the worldwide benefits of better medicines have been tremendous. In recent decades, life expectancies have been increasing steadily around the world, in no small part due to the worldwide application of better biomedical knowledge. To give you just a few examples, over the last 40 years, early infancy diseases have declined by 80 percent worldwide, ischemic heart disease by 68 percent and hypertensive heart disease by 67 percent. According to data from the Organization for Economic Cooperation and Development, over the past 40 years the use of medicines has helped halve the number of hospital admissions for 12 major diseases including mental illness, infectious diseases, and ulcers.

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.

In addition, new drugs often help reduce overall health costs. For example, for ulcers, a few pills have replaced major surgery. New drugs also shorten hospitalizations, help people avoid costly complications after a heart attack, help them avoid costly and debilitating hip fractures, and prevent the expensive complications of chronic diseases such as diabetes and high blood pressure.

But there is no question about it: nations around the world are finding it increasingly difficult to afford these improvements in health. Health care costs have been rising, as the costs of developing and providing these treatments has been escalating. Today, by some estimates, it costs more than $800 million U.S. dollars in private spending to develop a new drug and demonstrate its safety and effectiveness, to bring it to market in the United States. And by all estimates, the costs of developing new treatments have increased greatly in recent years, more than doubling over the past ten years, with “success rates” of new products still just as low as they’ve ever been.

Worldwide costs of developing and approving new drugs are considerably higher and rising. There are also significant additional costs of bringing the same or a similar drug to market in other countries, with many countries asking for their own unique clinical trials or different tests for reasons that are not clearly related to differences in the physiology of their population. These divergent regulatory approaches add more to the total costs.

And so the process for developing potentially valuable new medicines – of turning sound ideas from insights made inside biomedical laboratories into safe and effective treatments – has steadily become more costly, more financially risky, and more difficult.

Despite what you may read in the papers, America is not altogether different from other nations when it comes to trying to get higher prices. We don’t have one price for each drug set by our national government. But our states, our large government programs, and our large employers who pay for drug insurance are all engaged in the same kind of negotiations. One important difference from many countries is that we don’t have the option to fall back on so-called “compulsory licensing” -- that is, literally taking away the drug patent if you can’t get a price you like.

Nor do we turn a blind eye to those who violate the intellectual properties on new drugs by making copies, essentially stealing their patents. Without strong protections for intellectual property, so that people who invent better products can be rewarded for doing so, the better products won’t come along. In areas other than medical products where intellectual property is important, such as software and other high-tech industries, countries are increasingly realizing this and providing better protection for patents.

At a minimum, I think all countries should make very clear that fair and strong patents on newly discovered drugs are the pivotal incentive for encouraging innovation. The wealthy nations of the world should be clear that “compulsory licensing” – literally appropriating patents if a country doesn’t get a price it likes on a new drug -- is not an appropriate basis for health policy. And they should be clear that patent laws should not be abused, but must be enforced effectively. With these steps in place. America and other nations would be in a more similar position when it comes to the ability to negotiate lower prices.

The problem is, if all we do is focus our efforts on getting lower prices, then all that we will end up paying for is the cost of making and distributing the pills themselves. But these 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 incremental cost to obtain the drug for their own citizens. I don’t blame them. 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, researching and developing its production and labeling, and conducting post-market studies to enable the drug to be used even more effectively. But somebody has to, if we want better treatments.

This process can delay the discovery of new, more innovative treatments, and it can also delay their availability even after they are already developed. In fact, the process by which European governments set reimbursement rates can take up to a year, delaying patients’ access until the government makes the reimbursement determination.

It should be no surprise, then, that a report by the G10 Medicines Group, which reviewed the impact of governmental pharmaceutical, health and enterprise policies in Europe, recommended reducing the time between granting a marketing authorization and pricing and reimbursement decisions. According to the report, “The price negotiating systems and reimbursement structures in a number of Member states can lead to significant delays.”

In the U.S., I think there is increasing public anxiety about drug costs and anger about price differences between the United States and other countries that have almost the same ability to pay as Americans do. Although many Americans are able to get price discounts through their insurance plans that are much better than the prices you read about in the newspapers, millions of Americans do not have good prescription drug coverage.

These patients, often seniors with limited means and great needs, get no help at all when they walk into an American drug store and face the highest retail drug prices in the world. When these people look around the world and see drug prices much lower elsewhere, they get very angry – and I don’t blame them.

Our Congress has just passed legislation to address this problem and President Bush is going to sign it today. Legislation to improve Medicare will not only provide prescription drug coverage for America’s seniors. It will also enable them to band together to get much lower prices. But this is only one step toward addressing the problem of sharing fairly the worldwide burden of developing new drugs.

This year, Americans, who account for a fraction of prescription drug use worldwide, will pay for about half of all pharmaceutical spending worldwide -- half of the spending, even though modern medicines can bring benefits to all of the world’s population.

I’ve talked before about how this isn’t a sustainable situation. We need fairer and better ways to encourage the development of better medicines to help the people of the world. And as I’ve said before, we need to work together on this problem urgently.

I don’t think we can wait any longer. As I mentioned, the heaviest users of prescription drugs in the United States are very soon going to have much better opportunities to negotiate lower prices. That will put more pressure on price negotiations in your own country. And the anger that many Americans feel about this issue is not going to go away until there is a fairer pricing system worldwide for new medicines, with price differences across countries that are viewed as much more equitable than the system today.

And I don’t think that countries can afford any longer to dismiss the price differences today simplistically as a national issue only, with any high spending as the fault of individual health care systems. For example, some have blamed drug advertising as the principal cause for the fact that the U.S. bears the lion’s share of drug spending worldwide. But drug advertising accounts for only about 1% of drug costs in the United States. And as we heard from independent academic experts at a recent conference on drug advertising, the general consensus is that advertising results in many patients who are not treated today getting appropriate treatment. Others blame “me-too” drugs. But such drugs account for only a small fraction of R&D investment today, and if anything, they help reduce drug costs, by reducing the leverage of a drug manufacturer to charge a very high price for their product.

Rather, with the U.S. is paying for the bulk of the costs of drugs worldwide, and those payments are accounting for the bulk of the incentives for developing new medicines. Many of you may not share that view. But I hope that, at the very least, you agree with me that the problem of encouraging the development of better medicines is a global public health problem, and that the world’s current system of paying for drugs is not on course to encouraging valuable innovation at a critical time for medical innovation.

Unless someone covers the cost of investment in R&D, which accounts for a substantial part of the revenue from pharmaceuticals, the investment we need in new medicines will slow or stop, and so will the continuing improvements in health that we’ve come to expect from modern medicine.

We couldn’t be facing this global challenge in affording new medicines at a more critical time. Today, there is an unprecedented level of R&D spending – well over $100 billion worldwide in U.S. dollars, most of it from the private sector, but primed by spending from the U.S. National Institutes of Health (over $27 billion in U.S. Dollars) and other sources. This unprecedented public and especially private spending on research and development is appropriate, because despite all of the achievements of recent decades in improving world health, the potential for new breakthroughs to improve our health has never been greater. And as I will describe in more detail, much of this spending is and should be private development spending, because it involves many difficult applied, developmental problems that are specific to demonstrating the safety and effectiveness of particular drugs – and the ability to manufacture and distribute them reliably and inexpensively. These are costly and difficult practical development problems that must be solved with private incentives, not just with well-intentioned government sponsorship of applied research programs.

We must work together to address this problem now. We’re at a stage when a large range of new technologies such as genomics and proteomics and modern information technology are now becoming widely used in the development of new treatments, and in finding better ways to use existing treatments to get the most value. Many new drugs currently in clinical trials are no longer scattershot one-size-fits-all treatments, but are carefully targeted to be highly effective given the molecular features of a disease in a particular type of patient. And there are more opportunities than ever for learning more through post-approval R&D.

These same new sciences may also hold promise for making the process for developing new medical technologies faster and more predictable, and, we hope, less expensive. But that hasn’t happened yet. In fact, last year, despite the unprecedented R&D investment, the number of truly new drugs FDA approved was at the lowest level in the past two decades.

This decline in approvals was directly related to a decline in the number of submissions of new drug applications. And the number of new biologic applications was down too. So the fact is that all of these new sciences are not yet having a substantial impact on the care of patients. And it’s clear that this is a global pattern: fewer innovative treatments reaching patients worldwide.

Now, I’m an optimist, and I think this downturn and the extremely low “productivity” from all the spending to develop better medicines is temporary, especially if we can find better ways to work together. After all, it takes a long time for new biomedical ideas to make their way down the difficult and uncertain path to safe, effective, and reliable treatments. And this year in the U.S., we’ve seen a bit of an upturn in the number of new drugs and biologics approved. But far better treatments for many more illnesses – the promise of the new biomedical sciences of the 21st century – is by no means a sure thing.

If we don’t find better ways to work together to reduce the costs and uncertainty of developing new treatments, and to provide strong financial incentives for developing valuable innovations, we may not continue to get the improvements in health that we have come to take for granted. And if the needed R&D investments can’t be covered or made less risky, they will slow down. Many European leaders are concerned – I think appropriately – that this slowdown in the development of drugs and biologics by medical companies is occurring already in Europe. At this critical time for progress in medical care, that’s not a good situation for public health worldwide.

Now, those of us in government can’t solve these problems alone. Others need to help more as well, to find better ways to bring affordable medicines to the public, including product developers and academic experts. But I think we too can take some critical steps. And for the sake of our shared public health goals, we need to do it together. If we succeed in realizing these better treatments, all nations can benefit. If we fail, we are all worse off, fated to suffer more deaths and disabilities from diseases that could have been prevented if we had just found better ways to work together. And if we keep trying to force national solutions on global problems, we will keep going right on down this path -- toward medicines that are less affordable, less accessible, and ultimately less safe and effective.

Instead, we need to work together to implement far better policies to assure safety and access to innovative, affordable medicines. The current system is not sustainable. In a world in which our well-being is increasingly linked, no country can really close its doors to what is going on in the world around it. These are global problems, and they require global solutions.

I want to again be clear that a better global solution to this problem doesn’t mean that medical spending needs to go up. I did not come to ask Europe to increase your spending on medicines. The fact that the U.S. is covering a disproportionate share of the bill for R&D into new drugs doesn’t mean that other countries aren’t spending a lot of money on their medications – or many European Union countries need to increase their spending on drugs substantially in order to share the costs of better medicines drugs more fairly. Rather, I came to ask you to work together to find better ways to make better medicines more affordable and accessible worldwide.

It’s how we spend our money and whether we work together that matters. Many countries could do more to encourage innovation in health care by changing the way their dollars are being spent, to get more value for their citizens.

First, most countries need more competition when it comes to generic drugs, which should be made available quickly and used more widely and at lower prices as soon as legitimate drug patents expire. In Italy, for example, a recent study revealed that generic drugs cost almost twice as much as those in the U.S. Furthermore, when looking at unbranded generics specifically, data from this study revealed that prices of U.S. drugs range from a third lower in France to almost half as much in both Italy and Germany.

Price controls may help reduce the prices of new medicines – though as I’ve described, they also threaten the development and availability of new medicines. But prices controls and restrictions on competition for generic medicines and so-called “branded generics” that account for a significant part of drug spending in many countries appears to be getting in the way of saving money worldwide when it comes to generic drugs. Instead, regulation of generics should not restrict prices and choices; it should focus on promoting free and fair generic drug competition, including lower prices for patients that use generic drugs. And since generic drugs are more expensive in most countries, they are not used enough. In the United States today, more than half of all prescriptions are for generic drugs.

This is another case where education and effective competition can help. Giving generic drugs the opportunity to save consumers real money, and educating doctors and patients about the fact that (when properly regulated) they are just as safe and effective as brand-name drugs, and that so-called “branded generics” may not provide any clinical advantage over other approved generics, can reduce medical costs significantly.

The bottom line: It’s possible to redirect billions of dollars in drug spending, through greater use of less expensive generic drugs, permitting greater financial rewards for developing and providing access to valuable new drugs quickly. This approach encourages innovation without spending more money, because more generic competition means that you can’t keep making money on the same old drug for many, many years.

If the savings from more competitive generic prices and wider use of generic drugs are applied to providing better rewards for innovative new drugs, this approach could reduce the inequities in new drug prices across countries, while improving the global incentives to develop better drugs. And it would do so without increasing costs in countries that currently rely too much on price regulation, and without creating the same pressures toward unsafe drug purchases, shortages, and access problems that current policies in many nations are causing.

As I said at the beginning, the point of this international process is not to increase medical spending in any country, but to make sure that all countries are working together to encourage and reward medical innovation at a critical time for medical innovation.

Taking steps to correct these pricing problems would help achieve the goal of sharing the burden for improving medical care more fairly worldwide and helping to make sure that all patients who can benefit from new medicines can get access to them. It would help make it possible for countries to do more to pay for new drugs based on their ability to pay, not based on their ability to extract the lowest possible prices for some pills.

I’m encouraged that some prominent health officials in many nations are also talking about the need to change the current, flawed, unsustainable system. 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 in the international context to get prices that share the burden fairly according to the different incomes of different nations, rather than simply putting the greatest burden on those people who are least able or willing to protect themselves against higher prices.

In addition to making sure that safer and more effective new treatments get appropriate financial rewards, so that they can bring the most benefits to the most people, we need to do more to work together to reduce the costs and the uncertainty of developing and using these treatments. By reducing the costs and uncertainty of developing new medicines worldwide, we can also help reduce the growth in prescription drug costs. At FDA, we are already taking many steps to reduce the high cost of developing medications.

A key element of our new planning is what we call “efficient risk management.” We are using the latest science to try to make the process for developing new medicines less costly. We are also working to reduce the costs of manufacturing products, and the costs and complications associated with using them effectively – all without compromising FDA’s gold standards of safety and effectiveness. In fact, according to a recent study, our new “fast-tracking” of promising new drugs has shaved nearly three years off the time it takes to get potentially life-saving medicines to market.

This emphasis on improving the efficiency of our regulatory activities is a key element of FDA’s new strategic action plan – a plan that I’m proud to say reflects the ideas and perspectives of all of our senior professional staff. This doesn’t just involve “risk management” programs for avoiding adverse events for the drugs we approve – though that’s a piece of it. 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.

And so we’re taking new specific steps to help foster more and more efficient innovation, especially in emerging areas or those of great medical need. Back in January, we announced a new FDA initiative on improving medical innovation. That initiative has several elements. One element of our initiatives for improve medical innovation is the development of “quality systems” for our review procedures.

The idea is to build on our professional staff expertise to identify and apply best management practices internally to our review processes. Another element is more work to develop new guidance documents that I believe can bring more efficiency and predictability to our regulatory process. We’re doing this with collaboration and new support from outside experts, including support from the National Institutes of Health.

Some of the guidances will focus specifically on diabetes, obesity, and cancer. Despite all the innovation that’s already occurred, these are therapeutic areas that remain underserved by effective treatments and that have promising technologies under development today. We’re also developing guidances in new areas of technology development – including pharmacogenomics, novel drug delivery systems, and cell and gene therapy. We intend to complete all of the objectives outlined in our innovation initiative within the next few years, and in many cases, within a matter of months.

We’re doing this because the public needs us to. If we can fulfill our mission of determining whether products are safe and effective at a lower cost and in less time, then this translates into lower R&D costs for innovating, and greater and earlier use of beneficial new products by more patients.

We’re also doing this because we have to. Thanks to the enormous growth in research investments I described, we’re dealing with more complex and innovative products in development than ever before. As discoveries made in the laboratory are flowing into the medical products consumers are using, it means that we’re challenged to upgrade our own science to keep pace with this new innovation and the growing sophistication of our sponsors.

In all of these areas, we are working with international organizations and our counterpart agencies in other nations, because improvements must be shared across nations to have a real impact on the cost of developing new medicines globally. For example, we have been working in international forums like the ICH to develop better, more consistent ways to report adverse events involving medical products around the world. The goal is one up-to-date adverse event reporting system, so any significant event anywhere in the world can be reported with greater accuracy and completeness and lower cost to all of the world’s major regulatory agencies. Toward these ends, we recently signed new memorandums of understanding with the European Union and with SwissMedic. These documents represent a step on the long road toward better international collaboration for better world health. Sharing information is the first step toward working together, effectively, to address our shared public health goals: how we can assure access to safe and innovative medical products on both sides of our border.

We’re also working with other nations to explore new ideas in the regulation of good manufacturing practices, to not only harmonize but modernize our regulation of pharmaceutical manufacturing and significantly reduce the costs of making high-quality drugs reliably worldwide. And we are working on steps to improve competition, availability, and education about generic drugs, which as I’ve said are an underused resource for cost savings among developed nations after legitimate patents have expired.

We need to do even more to harmonize our regulations based on the best and latest science, and the best ideas for regulatory practices from around the world. For example, there is more that we can do on harmonizing the steps required to demonstrate that treatments are safe and effective for our populations. And there’s more we can do to protect research subjects without imposing unnecessary research costs and delays.

And so I reject that the future must be an either-or choice between each country doing the best it can on its own to lower drug prices, and choking off medical innovation in the process, or raising health care costs still further to pay for medical innovation that our nations cannot easily afford when we act alone.

Instead, I’ve outlined today how we can build on our current international collaborations to work together even more to develop global solutions to rising spending for better medicines. 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.

Surely, given the great potential for worldwide improvements in medical care in the coming years if we all work together, surely we can find ways to both bring safe new cures to patients, while making medicines more affordable. We can set an example for a world that is getting smaller every day, and that should be getting healthier every day as well. Thank you.