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Published in: Public Choice 3-4/2022

08-10-2022

Capture and passive predation in times of COVID-19 pandemic

Author: Samira Guennif

Published in: Public Choice | Issue 3-4/2022

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Abstract

In the midst of a health crisis, a drug in development and candidate for COVID-19 contagious disease was granted orphan-drug designation (ODD). This decision by the US Food and Drug Administration was immediately denounced as an abuse of the Orphan Drug Act (ODA). This paper outlines how this decision may be considered as the result of a complex case of capture along the regulatory process. Therefore, a case study of the remdesivir episode is conducted, combining the definition of a framework for the analysis of capture and the identification of stylized facts marking the trajectory of a repositioned drug and candidate for COVID-19. In doing so, arguments are put forward to show to what extent this granting of ODD can be described as the result of a series of captures, a case of weak capture however that calls for an amendment of the ODA to preclude drugs for contagious and communicable epidemic diseases from obtaining orphan status in the first place.

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Footnotes
1
Such as the World Health Organization, South-Centre, Médecins sans Frontières, Knowlegde Ecology International, Public Citizen, USFDA, USPTO, WIPO, Patentoppositions.org, Medspal.org, Cinicaltrials.org, etc.
 
2
A predatory state is “a state that would specify a set of property rights that maximized the revenue of the group in power, regardless of its impact on the wealth of the society as a whole” (North, 1981, p. 22, cited by Vahabi, 2016, 2020).
 
3
This echoes a distinction made by Kay and Vickers (1990) between “structural regulation” and “conduct regulation”. Structural regulation concerns the regulation of the market structure, e.g. the implementation and enforcement of restrictions on entry or exit. Conduct regulation is used to control the behavior of producers and consumers on the market: price control or quality requirements for instance.
 
4
Moreover, the political project cannot be ignored during this period, intended to limit the size of corporations to control their economic and political power (Novak, 2014). Beyond the possibility to undermine market efficiency and consumer welfare, large corporations have considerable resources and economic concentrated powers that are damaging to democracy (Zingales, 2017).
 
5
A clear objective additionally: a peremptory assertion, as public choice theorists abundantly point out (for a review see Mueller, 2003; Butler, 2012).
 
6
In other words, interest groups can influence the outcome of the regulatory process by providing financial or other support to politicians or regulators (Pelztman, 1989, p. 1).
 
7
This definition refers so to what Dal Bo (2006) calls the broad conception of regulatory capture: “the process through which special interests affect state intervention in any of its forms”. In contrast, under a narrow interpretation, “regulatory capture is specifically the process through which regulated monopolies end up manipulating the state agencies that are supposed to control them” (p. 203).
 
8
Groups seek to exploit political processes for their own ends, but they are subject to the free-riding problem.
 
9
For a literature survey on rent-seeking, see Tollison (2012).
 
10
“As a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits” (Stigler, 1971, p. 4).
 
11
What Peltzman (1989) calls “the most notable changes have meant a reduction or substantial elimination of regulatory constraints whose scope is unprecedented in modern American history” (p. 2).
 
12
Works that propose more or less sophisticated mathematical models as noted by Posner (2014), with a particular reference to the imposing contribution of Laffont and Tirole (1993).
 
13
A second generation of works which, in the context of a globalized economy where the rising of regulations at national and international levels are significant, leads to the analysis of the dynamic of a “regulatory capitalism” (Levi-Faure, 2017; Braithwaite, 2011) or a “political capitalism”, where capture is a determining ingredient (Holcombe, 2018). These studies are mainly conducted in the field of political science or international political economy.
 
14
The literature also distinguishes "shallow and deep capture" (Hanson & Yosifon, 2003). The idea is that Stigler's seminal contribution refers to a “shallow capture” that underestimates the “potential depth of capture”, and overlooks a critical degree of capture at work in society.
 
15
In Leeson et al. (2020), there is no such explicit and clear discussion of this in their study of the regulation of medicine (quack medicine) in the nineteenth century in England. Individuals are considered rational and act in pursuit of self-interest.
 
16
“Revolving doors” through which the actors in charge of formulating or applying a regulation in an industry make available valuable “bureaucratic capital”, made up of specific knowledge and special relationships capable of generating a substantial profit for firms able to offer jobs and high salaries (Brezis & Cariolle, 2019).
 
17
Accordingly, public actors may act with impunity for the reason that revolving doors are neither illegal nor condemnable.
 
18
As Etzioni (2009) states capture may occur to “dilute existing regulations” (…) “weaken enforcement of existing regulations”, or even “repeal existing regulations” (p. 323).
 
19
As sums up by North (1991a), rules, norms, procedures, habits, customs, … are institutions, that is “human devised constraints that shape human interaction” (p. 3). As such, they reduce uncertainty and enable transactions to take place (North, 1991b).
 
20
There is a reason widely highlighted in the public choice literature. Industry will not say, when trying to influence political actors, that the adoption of a law will serve its sole interest, but that it will primarily satisfy public interest objectives: domestic security, public health, national competitiveness or sustainable development.
 
21
On websites: USPTO, USFDA, WHO, Clinicaltrials, Medspal and Patentoppositions.
 
22
More precisely, whether repositioning, repurposing, reprofiling, redirecting, retasking, rediscovery or rescuing, these terms refer to the search for new uses or new indications for a known drug: a drug that is already marketed, withdrawn from the market (for health or commercial reasons), or never reached the market (remained in the development stage for lack of proof of safety or efficacy for a first indication). Drug repurposing therefore covers "drug candidates", "abandoned drugs", "approved drugs" and "old drugs" (Langedijk et al., 2015). In all these cases, drug repurposing makes it possible to reduce the costs and development time as well as the risk of failure. These drugs have often passed several stages of clinical development and therefore have demonstrated a known safety or even efficacy profile, and have been marketed for a first indication (Ashburn & Thor, 2004).
 
23
A post-grant opposition and a pre-grant opposition were filed respectively in India in April and in Argentina in May as indicated in Fig. 2 (Medspal website).
 
24
Immediately, Gilead requested the agency to rescind the status, and so renounced all the advantages that came with it (Gilead, 2020b).
 
25
The number of people worldwide living with a rare disease is estimated at 300 million (www.​rarediseasesinte​rnational.​org).
 
26
Especially due to the US Kefauver-Harris amendments to the Food, Drug and Cosmetic Act (or "Drug Efficacy Amendment") passed in 1962. These amendments required drug manufacturers to demonstrate the effectiveness of their drugs for its intended use prior to the FDA approval and marketing. Consequently, the costs of drug development significantly increased due to higher safety and efficacy standards put in place (Haffner, 2016).
 
27
The FDA can approve a second application for the same drug for a different disease indication. This explains why Gilead was entitled to apply for a second ODD for remdesivir and obtained it.
 
28
Initially, this market exclusivity was designed to address the limited opportunities to recoup R&D costs for drug without patent protection since the ODA required that marketing exclusivity could only be granted on non-patentable drugs (biotechnology ones). An amendment removed this requirement in 1985 (Arno et al., 1995).
 
29
The procedure is faster compared to a new drug approval. The registration files provided are lighter for the reason that safety and efficacy standards applied are lower.
 
30
Arno et al. (1995) recalls that in the first place the act covered “any disease condition that occurs so infrequently in the United States that the there is no reasonable expectation that the cost of developing and making available a drug for such disease or condition will be recovered from sales in the United States of such drug”. So to qualify for tax credits, firms were required to submit financial data documenting limited profitability. So rather than be subject to such a financial scrutiny, the pharmaceutical industry sought to base the definition of orphan disease on the size of the affected patient population rather than on profits levels. Accordingly, the ODA was amended in 1984 to modify the definition of a rare disease or condition with a threshold of 200 000 persons arbitrary determined (pp. 233–234).
 
31
This is a legal provision authorizing the temporary suspension of intellectual property rights and the production of generic drugs, in compliance with the TRIPS agreement, and in case notably of health crisis.
 
32
FDA may authorize unapproved medical products or unapproved uses of approved medical products to be used in an emergency to diagnose, treat, or prevent serious or life-threatening diseases when there are no adequate, approved, and available alternatives (www.​fda.​gov).
 
33
Likewise, a global mapping of clinical research on remdesivir shows that this research was widely public. According to the data collected at the end of June 2020 on ClinicalTrials.gov and taking the drug candidates selected by the WHO for clinical research, there were 204 clinical trials conducted in phase 3. Among these, remdesivir was subject to 17.1% of clinical trials in phase 3 of the selected drugs and public research represented nearly 66% for these trials.
 
34
The phenomenon is not new and specific to ODA as reported by Nik-Khah (2014), Carpenter (2010) or Braithwaite and Drahos (2000). Since the beginning of the twentieth century, the pharmaceutical industry had constantly worked to limit the scope of regulation in the pharmaceutical sector on key issues such as patent protection, product safety and efficacy, price control and consumer advertising. This struggle to limit the scope of regulation and implement a poor regulation was especially intensified following the enactment of the 1962 Kefauver-Harris Amendments, which extended the FDA's powers following a health scandal. From that date and the enactment of these amendments, the industry had tirelessly sought to influence legislators through various means not to disband the FDA, but to limit its missions and powers.
 
35
For instance, key stakeholders (above all civil society) are not involved in the review process for orphan drug applications to ensure that the public interest is best served.
 
36
Between 1998 and 2017, the average annual cost of orphan drugs increased 26-fold, while the cost of specialized and traditional drugs doubled (Luzzato et al., 2018). In 2017, the average annual cost of an orphan drug was 124,000 dollars compared to 5000 dollars for a traditional drug (America's Health Insurance Plans, 2019).
 
37
Most of all, when drugs are repurposed and R&D costs are much less expensive than those incurred for the development of new chemical entities.
 
38
Different proposals have been submitted over the years to reform the ODA and prevent the marketing of orphan drugs at high prices, drugs then capable of generating large sales and huge revenues. In particular, proposals have been made with the aim of “precluding drugs for contagious epidemic diseases like HIV/AIDS from obtaining orphan status” (Arno et al., 1995). Proposals have been made to introduce price ceilings, a windfall profits tax on orphan drugs during the seven-year period of market exclusivity, or the revocation of ODD when sales exceed a certain threshold (Sarpatwari & Kesselheim, 2019; Thomas & Caplan, 2019; Kesselheim, 2010; Haffner, 2016). All these proposals have successively been rejected.
 
39
The agency's resources have not evolved favorably in relation to the missions entrusted (mostly compared to the resources allocated to other federal agencies such as the NIH or the CDC). In addition, these resources have increasingly been dependent on the industry that the FDA is supposed to regulate (USFDA, 2021; Institute of Medicine Forum on Drug Discovery, Development, and Translation, 2007).
 
40
The FDA is in a vulnerable position as judge and party in the marketing approval of drugs. As it speeds up the time to market a drug and increases the number of drugs marketed each year, its resources are increasing.
 
41
This has consequences: Franck et al. (2014) found that before the user fee act was approved, 21.2% of medications were withdrawn or had new black box warnings as compared to 26.7% afterwards.
 
42
The authors assert that “the majority of policy changes enacted through PDUFA legislation have favored industry through decreasing regulatory standards, shortening approval times, and increasing industry involvement in FDA decision-making” (p. 287).
 
43
It is rightly pointed out that the introduction of the ODA was not intended to change the pharmaceutical R&D model. As a matter of fact, firms are increasingly seeking to obtain ODD in order to enjoy all the benefits that go with it: notably lower R&D costs, exemption from user fees and a temporary monopoly (Thomas & Caplan, 2019).
 
44
Another concern is that the large number of drugs marketed under ODD means more exemptions from user fees for firms and a loss of revenue for the FDA.
 
45
Firms can artificially target a drug to a disease sub-population and thus try to obtain ODD and all the benefits associated (Reardon, 2014).
 
46
It should be mentioned here that the way pharmaceutical firms set prices has changed drastically over the last decades. Whereas in the past it was a matter of setting a price to cover R&D costs, today it is a matter of claiming a significant share of the savings generated by the use of pharmaceutical products in the health care system. Besides, billions of dollars dedicated to R&D are claimed by the pharmaceutical industry (DiMasi et al., 2016), but also contested (Avorn, 2015; Light & Warburton, 2011).
 
47
Remdesivir shortens time to improvement, but has no significant mortality effect and causes significant side effects (Beigel et al., 2020; WHO, 2020b). However, the drug received an EUA in May 2020, extended in August 2020 and was finally approved for patients age 12 years and older as reported in Fig. 2.
 
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Metadata
Title
Capture and passive predation in times of COVID-19 pandemic
Author
Samira Guennif
Publication date
08-10-2022
Publisher
Springer US
Published in
Public Choice / Issue 3-4/2022
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI
https://doi.org/10.1007/s11127-022-01005-0

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