Elizabeth Warren on Drugs

Elizabeth Warren is grasping. Having failed in her gambit to establish minority status, the 2020 presidential contender is now following the path of her competition. As Kamala Harris did with the housing crisis, Warren has picked a very real issue — the expense of generic drugs — and decided to address it with a bill that is unlikely to achieve much except gain her personal accolades for “doing something.” And should it pass, it could inhibit efforts to actually resolve the problem, because “something has been done.” Senator Warren debuted her plan before the holidays in the Washington Post, with the title “It’s time to let the government manufacture generic drugs.” Perhaps the senator thought this would generate buzz and capture attention before she officially launched her bid for the presidency on New Year’s Eve. Given that she followed this announcement with a botched attempt to out-Millennial Alexandria Ocasio-Cortez in an online video, though, perhaps it isn’t going as she desired. Here’s the real problem Warren is trying to address: There were 356 drug shortages in 2012, up from 154 in 2007 — and strikingly, most of these drugs are no longer under patent. That tells us that the critical problem is not one of manufacturing capacity, for any medical company with the capability to produce these medicines could simply do so, using the relevant formulas. The normal behavior of the market, when there is a shortage of a product, is for a new entrepreneur to start providing that product. The fact that this is not happening suggests there must be some barrier in the way of it. For each new generic drug, the manufacturer must submit an Abbreviated New Drug Application (ANDA), whose very name reveals that it is itself an improvement on an older process. Before 1984’s Hatch-Waxman Act, new generics had to go through the full clinical trials required of a new medicine, even though they were simply a new source of the very drug that had already been chemically approved. The ANDA pathway is quicker and cheaper, requiring a manufacturer to show that the generic is “bioequivalent” to the brand-name product and that it meets manufacturing standards. Even so, the ANDA pathway is an expensive process, and its cost has increased from about $1–2 million in 2005 to $15 million in 2015. The process isn’t limited to new providers, either. Should an existing manufacturer want to supply more of its approved medicine, it must go through the approval process again for any new production lines or factories. As a result, it can be too costly to make up the shortfall in supply. The issues don’t end there. Sometimes, even if a generic manufacturer is willing and able to take on all the costs of this process, brand-name manufacturers can effectively put a stay on generics by preventing generic manufacturers from obtaining samples. In other cases, brand-name drug manufacturers will pay generic manufacturers to stay out of the market. The fact that some critical yet out-of-patent drugs have only a single generic manufacturer has created an opening for speculators who buy decades-old basic medicines and raise the prices dramatically — most infamously in the case of Turing Pharmaceuticals, which purchased the rights to a $13 pill and immediately raised its price to $750. This behavior is not the market in action; it is the manipulation of a regulatory regime for financial gain. Clearly, something is very wrong. A solution is necessary. But rather than tackle the dense and boring problems that are holding back access to essential drugs, which can’t really be boiled down to a stump-speech line, Warren proposes that the United States government start producing generic drugs under the auspices of a new “Office of Drug Manufacturing,” which would pass off its products to cooperating private companies. In effect, assuming that the office operates at least as well as the average private manufacturer (unlikely though that is), this would simply mean the creation of a new drug company, albeit one with a public imprimatur. This new company, however, would run into the same hurdles that are faced by private actors — the text of the bill does not lay out a regulatory exemption for this new state-run firm, after all.

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