By Seán Finan

“What makes drug development long and expensive is the need to prove, beyond statistical doubt, that your damn drug works”

Michael Gilman, Biotech Entrepreneur

2017 is going to be terrific. Tremendous, even. Things are going to change, big league.

The new President has promised fantastic reforms to the drug industry. He’s going to get the big players in the pharmaceutical industry around a table and negotiate huge price reductions. Of course, he’s not going to touch their bottom line. If anything, he’s going to improve it. Innovation is being choked by over-regulation and he’s going remove burdensome FDA hurdles. But he has Executive Orders to give and walls to build, so he’s drafting in the very best people to help. We’re still waiting for those people to be officially named. Meanwhile, the media have had a month and a half of fun and speculation. The volume and variety of names being thrown around make it feel like a food fight at a Chinese buffet. One of those names is Peter Thiel.

Thiel was a founding member of Paypal and has spent most of his career working in venture capital in Silicon Valley. He is famously contrarian: a vocal libertarian among Silicon Valley’s democratic elite and the first openly gay man to speak at the Republican National Convention. He has recently been painted as a rather sinister character. Perhaps a little sore after the Gawker incident, the media have highlighted his influence within the Trump transition team and the wider administration; one headline calls him the “shadow president”. His book, Zero to One, has been called the “bible” of Trump’s campaign. Certainly, you could see parallels between its principles and the Trump campaign. For example, when it comes to the short-term financial success of a company, Thiel argues that good marketing can be more important than a good product. But his influence appears to go beyond ideology. It also seems that many of the forerunners for top positions in the new administration have been suggested or championed by Thiel. Apparently, his pick for FDA Commissioner is Jim O’Neill. This is where worry starts to color my morbid fascination.

O’Neill has expressed some extreme views on FDA regulatory reform. He argues that the FDA should abandon the longstanding requirement that a new drug be proven effective. Once it has been proven safe, it should be allowed go straight to market. From there, traditional market forces will weed out the ineffective drugs and reward the effective ones. He argues that removing such a giant regulatory roadblock will increase innovation and reduce costs for pharmaceutical companies, leading to more, better and cheaper drugs for consumers. Perhaps unsurprisingly, it’s quite difficult to find anyone voicing support for this. Many of the main objections have been covered in great depth so I’ll briefly mention two particular angles here.

The Market Will Not Weed Out the Ineffective

“Capitalism moves our country forward. It’s what makes America great…and England okay…and France terrible… When a business fails, it dies and a new, better one takes its place”.

Ron Swanson may be fantastic satire but the growth of Silicon Valley in recent years seems to bear out the truth in the capitalist gospel. Fail early, fail again, fail better is the motto; take risks and let the market decide. This paradigm might be the best way to secure constant innovation and improvement in technology. The trouble is, it’s founded on two assumptions that don’t always hold in healthcare. The first assumption is that failure isn’t durable. When a product is ineffective, it fails and the backers can dust themselves off and begin again, no harm done. The innovators lose money, their backers lose money, some consumers are left with sub-par products but life goes on. If my phone is not quite as waterproof as advertised, I’m left a couple of dollars poorer and maybe a bit wiser. However, if I’m taking a course of unproven beta-line medicine to combat an influenza or even cancer, I could lose a lot more. By the time my physician or I notice that the drug isn’t the silver bullet it was advertised to be, it could be too late. Market forces may well weed the ineffective drugs from the market eventually but that’s small comfort to someone who has spent six months treating a terminal condition with sugar pills.

The second assumption is that when a product is ineffective, consumers will be able to tell. The “waterproof” phone is a good example here too. The average consumer easily understands what “waterproof” is supposed to mean, how the attribute might be tested and what a failed test looks like. But, for the average consumer, a medicine is a credence good. Even if they understand on a basic level what “sick” and “better” look like, it may be impossible for them to evaluate the efficacy of a medicine with enough precision to allow the forces of competition to function properly. You could argue that the experience or judgement of the patient is irrelevant: doctors will be the expert evaluators of efficacy here; the sun, rain and fertile soil in capitalism’s beautiful jungle. Unfortunately, this argument ignores the reasons why we began using controlled, blinded clinical trials in the first place. Individual doctors tend to have a relatively small, heterogeneous pool of patients. Of that pool, they many only have a handful that seem like suitable candidates for a particular drug. Of those, individual traits and pathologies are likely to vary to such a degree that it becomes impossible to say if a drug is effective, whether or not the patient recovers. And all this without even touching on the ethical problems with running a near-useless experiment on a patient seeking treatment.

Lowering Cost of Entry to the Marketplace Will Not Help Small Innovators

Another argument put forward in favor of removing the efficacy requirement for new drug approval begins with the proposition that small innovators barely have the funds to run safety trials and really struggle to fund the expense of efficacy trials. The major pharmaceutical giants are the only ones with the funds to run efficacy trials and therefore theirs are the only drugs that get approved. Small innovators never get a chance to get their product to market. Contrast this with the technology and software boom of Silicon Valley. With few or no barriers to market entry, small companies can get a product to market quickly and cheaply. This lets a few coders in a college dorm room take over a market already dominated by international players. All they need is a good product. Similarly, if small innovators in the pharmaceutical industry had the burden of proving efficacy lifted, they could get their products out and disrupt the stagnant market.

Probably correct so far. But it ignores the fact that removing the barriers to entry for small innovators also removes the barriers to entry for established producers. With bigger pockets, bigger labs and bigger factories comes the ability flood the market with sugar pills that claim to cure everything from bulimia to baldness. This wouldn’t be a problem if competition worked perfectly, but, as discussed above, consumers might not be able to discern between a miracle cure and candy in a brown glass bottle. What’s more, big pharma companies currently derive their profits from “blockbuster” drugs: stables of safe, effective drugs that address some common need. The efficacy of these drugs is used to build a brand of prestige and renown that can do the legwork for the marketing department. A company wants to have every drug that is proven safe and effective associated with their name. If the efficacy requirement is removed, so is the interest in brand name association. Large companies could simply take five different formulations that “might” work, set up five dummy corporations to sell the drugs and find out which one seems to work best on the market and then “buy” the rights to produce that one under the name of the mothership. Far from getting to play on a level field, the small innovator just gets lost in the noise.

Whatever your take on the President’s project to de-regulate and drain the swamp, we shouldn’t forget that some of that swamp water is there for a reason.