New Schaeffer Center White Paper Explains Complicated Relationship Between FDA Approvals and Future Innovation

The US Food and Drug Administration (FDA) has been under increased scrutiny, with critics arguing it has relaxed its evidentiary standards by approving drugs with uncertain effectiveness. Adding to the debate, some have argued that approving drugs with uncertain efficacy today will slow the arrival of innovations tomorrow.

A new Schaeffer Center white paper evaluates this claim and finds the relationship between approvals and future innovation is unclear at best, arguing that the FDA should continue to base its decisions solely on safety and efficacy, rather than speculative long-term innovation effects.

Approval decisions in the context of high unmet need and uncertain efficacy

When there is high unmet need and clinical trial data suggesting modest efficacy, the FDA faces a difficult decision: if they choose not to approve the drug, patients are left with few or no other options available.

At the center of the recent scrutiny is aducanumab- an investigational Alzheimer’s disease (AD) drug developed by Biogen and under priority review at the FDA. If approved, it would be the first disease-modifying treatment for AD. But aducanumab’s clinical trial evidence has proven complex and controversial, and several members of the review committee have voiced concerns that approving it could discourage innovation and stunt the development of potentially better performing drugs.

In the white paper, Alison Sexton Ward, Karen Van Nuys and Darius Lakdawalla analyze the underlying economic forces that shape the relationship between FDA approval policy and future innovation.

Degree of future innovation within a disease class determined by five main economic factors

The researchers identify five main factors that together determine the innovation environment in specific cases:

  1. Probability of FDA approval
  2. Total size of the patient population
  3. Post-launch market share
  4. Cost of development
  5. Cost of capital

Within each of these factors, numerous forces influence the complex relationship between FDA approval decisions and future innovation.

For example, FDA approval of the first drug in a disease area will likely stimulate future innovation by sending a positive signal to innovators about the likelihood of future drug approvals. It may also expand the size of the patient population because more patients may seek diagnosis and direct-to-physician and direct-to-consumer advertising could increase disease awareness.

By contrast, approval of highly effective drugs may reduce participation in clinical trials and increase development costs for future drugs, although there is limited evidence that drugs with modest incremental efficacy have this effect.

Sexton Ward and colleagues conclude that economic theory and empirical evidence do not support the broad assumption that approvals of drugs with modest or uncertain efficacy harm innovation or make society worse off.

Funding for this work was provided by the USC Schaeffer Center for Health Policy & Economics, which is supported by a wide variety of public and private entities and donors including Biogen and other companies developing treatments for Alzheimer’s disease. In addition, Lakdawalla reports receiving personal fees or research support from a number of companies which are detailed in the white paper.