FDA Drugs Approvals Slumps to Six-year Low

FDA approved just 22 new medicines for sale in 2016 versus 45 approvals in 2015

In a sign that portends a shake-up of the pharmaceutical industry in 2017, data from the US Food and Drug Administration (FDA) shows that the government agency approved just 22 new medicines for sale, the lowest number since 2010 and sharply down from 45 approvals in 2015, as reported by Reuters on January 02nd, 2017. On the other hand, the European Medicines Agency (EMA) approved 81 new prescription products against a 2015 total of 93. Unlike the FDA, the EMA includes generic drugs in its list. The slowdown points to the fact that the pharmaceuticals industry could be normalizing productivity levels after a spike in approvals in 2014 and 2015, when the number of new drugs approvals reached a 19-year high.f1

According to John Jenkins, the FDA’s director of the office of new drugs, the fall in the number of approved drugs in 2016 could be attributed to many factors. Notably, five new drugs that had been scheduled for approval in 2016 were approved by the end of 2015. There was also a decline in drugs being filed for approval and the FDA rejected or delayed more applications in 2016 than in the previous two years. Some of the delayed drugs may yet go on to win approval in 2017; these include Roche’s multiple sclerosis treatment Ocrevus and Sanofi and Regeneron’s Sarilumab for rheumatoid arthritis.f2

FDA has strict guidelines for drug approvals and companies are required to present clinical trial data backing their new drug applications. Pharmaceutical companies across the world have increased spending on R&D of new drugs. Also, there has been a steady rise in the price of drugs, leaving additional profits for drug companies to invest in research.

Challenges to new drug development

Tougher pricing regime: Pharmaceutical companies remain upbeat about the hunt for new medicines, especially since they are utilizing Big Data technologies to attain deeper insights and improve decision-making in their R&D process. With the emergence of predictive and prescriptive analytics, drug majors are looking to apply data mining technology to drive efficiency, achieve cost-effectiveness, and lessen the time needed for real-time validation in the research, development, sales, marketing, and distribution of medicines. Also, an improved understanding of the genetic basis of other diseases has resulted in full development pipelines at many firms.

However, the main challenge to drug development is that several government agencies, including   President-elect Donald Trump has pledged to clamp down on elevated drug prices, even while the rapidly increasing older population is intensifying pressures on the US health system. Given this scenario, pharmaceuticals companies would have to introduce new pricing models for their top-selling drugs. In the coming years, it would be more difficult for drug firms to get new drugs through the approval process and to secure decent financial returns once they are launched, given resistance from healthcare insurers and governments to the rising cost of medical treatment.

f3Rising cost of R&D: According to consultancy Deloitte, returns on R&D investment at the top 12 pharmaceutical companies fell to just 3.7% in 2016 from a high of 10.1% in 2010. Increasing political pressure over the high prices of many modern medicines is a growing challenge at a time when biotech and pharma companies are developing more drugs targeted at niche patient populations.

The issue is exemplified by the last drug to win FDA approval in 2016. Spinraza, from Biogen Inc. (NASDAQ: BIIB) and Ionis Pharmaceuticals Inc. (NASDAQ: IONS), is the first medicine to treat patients with spinal muscular atrophy, a rare and often fatal genetic disease. It comes at a huge cost of $125,000 per dose. That price, implying a total cost of $625,000 to $750,000 for patients in the first year and $375,000 in subsequent years, is likely to draw major criticism from government agencies and Pharmacy Benefit Managers (PBMs) looking to make this rare drug available to a wider patient population at a more affordable cost.

Availability of cheaper biosimilars: Adding to the pricing pressure for drug companies is the advent of biosimilars, which are cheaper copies of protein-based biotech drugs that are no longer patent protected. They cannot be precisely replicated like conventional chemical drugs, but have been shown to be equivalent in terms of efficacy and side effects. Globally, around 700 biosimilar molecules are undergoing various phases of development, targeting different therapeutic areas.

The advent of biosimilars is expected to benefit insurers, patients, and the medical community. PBMs are expecting the launch of several biosimilars since the patient pool is set to rapidly expand owing to lower prices. PBMs are looking to work on securing pricing deals and benefits with companies that manufacture biosimilars. Express Scripts Holding Company (NASDAQ: ESRX), for instance, expects the launch of 11 biosimilars to save patients $250 billion between 2014 and 2024, as per Bloomberg’s report on September 12th, 2014. Biosimilars will also lead to huge savings for patients covered within the Medicare and Medicaid programs. According to statistics gathered by the Congressional Budget Office, the savings from certain biosimilars will touch $25 billion during 2013-2020, owing to the Biologics Price Competition and Innovation Act of 2009. These savings will lower the cost of insurance, and PBMs will be able to provide more competitive premiums to patients.f4

However, the R&D process of biosimilars is a more expensive process than that of generics. Pharma companies will have to spend between $40 million to $300 million to develop a biosimilar drug in about five years.

With many blockbuster drugs losing patent protection over the next few years, the competition from generic drugs and biosimilars are expected to eat into the profits of major drug companies, forcing them to cut down on manpower, R&D efforts, and marketing. Lower volumes and lower realized prices could indeed become the norm for branded drug makers going forward in 2017, making operations commercially unviable for smaller drug companies. Drug firms would then be forced to channel lesser funds for the development and review of new therapies to treat serious conditions and unmet medical needs.

While the fall in basal drug prices is a boon for patients and PBMs, the growing costs ploughed into R&D, commercialization, and marketing of these drugs is expected to hurt the bottom-line of pharmaceutical companies making these drugs in the future years. It is also getting increasingly tougher than ever for pharma firms to successfully launch new drugs in competitive areas, even with good trial results, as PBMs throw up roadblocks to prescribing drugs.

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