Double Agency

Trump FDA Chief Scott Gottlieb Isn't Pharma's BFF After All

He's showing the industry the free market cuts both ways.
Photographer: Zach Gibson/Getty Images

Scott Gottlieb seems like the pharmaceutical industry's idea of a dream FDA Commissioner, with pharma ties and an ideological bent toward deregulation. 

But he has also been the only member of the Trump administration to follow through on the president's fiery rhetoric about rising drug prices. Pharma claims to like the free market. But in the year ahead, Gottlieb is set to prove how the free market can cut both ways for drugmakers.

Year One

The first year of the Trump administration has been mixed for drugmakers

Source: Bloomberg

Gottlieb is a physician who became the FDA's Deputy Commissioner for Medical and Scientific Affairs in 2005. After leaving the agency in 2007, he served on pharma boards, worked in venture capital and was a resident fellow at the American Enterprise Institute, a conservative think tank. 

Since rejoining the FDA in May as its leader, Gottlieb has been extremely productive. With an eye to bringing down prices, he has presided over record generic-drug approvals and a multi-year high in novel drug approvals, while also working to speed more medical devices to market. His agency has suggested it might be more flexible in approving drugs and will try to get cancer drugs to market more quickly, using data from smaller and faster clinical trials. He has also directed agency policy toward tackling the opioid crisis and curbing tobacco use. 

This is not exactly what Gottlieb's critics expected -- and it's probably not fulfilling all of biopharma's fondest hopes for his tenure, either. The industry isn't monolithic; different sectors have different priorities, and Gottlieb's impact will vary accordingly.

Specialty pharma firms -- those that tend to acquire drugs rather than develop new ones and focus on complicated older medicines -- may come off the worst. Gottlieb's moves have seemed designed to rapidly create trouble for such drugs, including publishing a list of price-hike-prone medicines. Specialty-pharma products featured heavily.

Wipeout

The already battered specialty pharmaceutical business model won't get any help from Scott Gottlieb

Source: Bloomberg

Traditional generic drugmakers are feeling the heat, too. Generic approvals set a new record in the FDA's 2017 fiscal year. New generic-drug applications surged, as well, suggesting next year may break the approval record. 

Rewrite the Record Book

Last year was already a record year for generic drug approvals at the FDA. 2017 saw even more medicines approved

One would assume the uptick in generic approvals is good news for the industry -- more products on the market mean more revenue. But generics are not made equal. When there is a single generic version of a medicine, it is generally priced at a meager discount to the original and is extra-profitable.

But once there are multiple generics on the market, price war follows. And Gottlieb's FDA loves conflict. In the past, first generics for branded medicines were the agency's main priority. Now, the FDA also wants to prioritize applications for medicines when there are fewer than three competing generic options. As a result, the most profitable generic drugs will have a shorter lifespan and see margins rapidly eroded. 

Big pharma may have the most complicated relationship with Gottlieb.

More flexibility in the drug-review process may have benefits -- Eli Lilly & Co., for example, is grateful the FDA recently reversed course on its demand for a new trial for a potential blockbuster arthritis-drug candidate -- but negative consequences are possible, as well. More and more rapid approvals will crowd disease areas, which could lead to price competition and give leverage to pharmacy benefit managers. A world where every treatment area looks like the heavily discounted diabetes market is not especially appealing. 

Big pharma also generates plenty of revenue from older drugs. Gottlieb plans to target the various mechanisms companies use to unnaturally extend drug monopolies. And increased generic productivity means revenue from expired or expiring drugs is likely to evaporate more rapidly than it did in the past. 

Aging

Big pharma companies still depend on older medicines for a majority of their sales

Source: Bloomberg

Smaller biotech companies don't rely on older drugs. And they are especially likely to benefit from Gottlieb's regulatory shifts, given their slim budgets and emphasis on drug development. The ability to get faster approval with smaller trials should be a tailwind. Some are already benefiting. Amicus Therapeutics Inc. saw its share price soar in July after the FDA changed its mind about accepting one of its rare-disease drugs for review.

Others have discovered flexibility can be a double-edged sword. Tesaro Inc., for example, had a seemingly commanding lead in a promising group of new cancer drugs after a broad approval in ovarian cancer patients in March. But then the FDA gave AstraZeneca PLC's competing drug a similarly broad label in August -- even though that company ran a narrower clinical trial -- seemingly endorsing the notion that these medicines may be substitutable. It was a novel move for the FDA, and AstraZeneca competition will shrink the sales potential of Tesaro's medicine and the company's chance of being acquired. 

Gottlieb seems to believe in the price-lowering power of competition. It sounds like a talking point. But it's already working in the generic-drug market. And a series of rapid hepatitis C drug approvals have lowered prices so significantly that it slowed the entire country's drug-spending growth. And he's also shown a willingness to use the FDA's regulatory muscle to combat what he sees as abusive behavior.

This isn't a worst-case scenario for pharma -- nothing Gottlieb is doing will be as impactful as the price curbs other countries employ. 

But the industry is definitely not getting a free pass in 2018. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Max Nisen in New York at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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