Why Did The FDA Approve 57 Percent Fewer New Medicines Last Year Than 2015?

captureThe Food and Drug Administration has reported it approved only 19 innovative new medicines last year, versus 51 in 2015. To be sure, 2015 was a high-water mark. Nevertheless, such a dramatic drop signals a problem for patients eager for new treatments. These new drugs, though few, represent advances in the treatment of ovarian cancer, Hepatitis C, and multiple sclerosis, among other diseases.

The FDA excuses itself for the slowdown, claiming it is receiving fewer applications from drug makers. However, this is symptomatic of a vicious circle. The regulatory burden of approval has increased so much, it is contributing to a significant reduction in the rate of return on capital invested in pharmaceutical development. According to new research by Deloitte, the rate of return has collapsed from 10.1 percent in 2010 to 3.7 percent last year.

The problem is that the cost of R&D is stable, but forecast lifecycle sales have declined over the years. This is likely because government-run payment systems are tightening the screws on payment for new medicines. (See, for example, this article on how Germany allows health insurers to act as a cartel, deciding whether to pay for new medicines.)

In the U.S., the government does not give insurers this power, but a large number of voters appear to think the government should cut drug prices using its own power. This invites the question: With the rate of return on capital so low already, who would invest in pharmaceutical innovation under U.S. price controls?

President Obama recently signed the 21st Century Cures Act, which will speed up FDA approvals for some medicines. However, the FDA’s role as a regulatory monopolist persists, and this has negative consequences for patients and innovators.

Comments (4)

Trackback URL | Comments RSS Feed

  1. Paul Nelson says:

    The business model for big pharma is obviously become unstable. In short, it goes as follows: 40% of cash income annually is allocated to profit and promotion. I suspect that we will soon begin to have unexpected shortages of very important medications. We went through this about 5 years ago. It gets solved when the hysteria at the front lines heats up and everyone is willing to pay the increased pricing that subsequently occurs. Just keep people out of the hospital, right! If we can’t figure out what to do about our nation’s worsening maternal mortality ratio, what’s to do about a few hospital days, here and there? The answer is “a lot.” It all seems so odd, right? “CORRECT” Actually, its known as Paradigm Paralysis. And, the true believers in the old paradigm are unable to accept the true basis for the Paradigm shift.

    In the last 150 years since the advent of anesthesia, we have replaced the ownership of a family’s HEALTH to another new institution, called the healthcare industry with the same heft of the “military-industrial complex.” For better or worse, the family traditions of most families were only too willing to let it go. But, as a consequence, the commitment to see that there are grab bars in the bathroom and also that the lady in the corner house needs someone to go to the store once a weak for food..just doesn’t happen spontaneously any more. Or even the occurrence of the daily family meal time. When you see a Primary Physician, does he/she know whether you are a member of a single family, a nuclear family, a blended family or a multi-generational family? If so, does the PCP have easy access to their preferred first names?
    In sum, the cost and availability of medications is “small change” as compared to the root-cause of root-causes as in the loss of social capital, community by community. This has occurred slowly in the last 150 years and worsened by our war time fatigue of the last 26 years. I recall a prior stalemate lost by England because of its Prime Minister and his appeasement of the Nazi dangers. Let’s all resolve to do our jobs as well as possible and voice our needs for better governance at all levels of our nation. I am aware that my home town of Omaha dropped its homicide death rate last year by 40% (maybe only luck). My friends who know about our community believe that several efforts to build social capital within this arena of our community led to this result. Its a start, just like it can be for our nation’s HEALTH.

    • “Allocated to profit?” Investors demand a risk-adjusted return on capital. It is not management’s decision how much to “allocate” to profit, like allocating to R&D versus advertising versus new buildings, etc.

  2. Allan says:

    Are we seeing the realization of Gammon’s Law?

    • Paul Nelson says:


      A new, at least to me, wrinkle on Parkinson’s Law. Another new macro-economic view of the cost of healthcare is the Power Law Distribution curve. It correctly predicts that 5% of the “users” use 80% of the resources and 50% use 5% of then users. Its true implication is that there is no research that identifies the characteristics reliably of the citizens in the lower cost stage of life who eventually end up in the very high utilization stage of life. The absence of any studies to this effect correlates with the absence of any nationally promoted, not controlled, effort to assure that Primary Healthcare is available and accessible for each citizen community by community.

      I located a 1991 note by Milton Friedman on Gammon’s Law. See url. Again, thank-you for the citation.