To obtain permission to market a drug, the manufacturer must satisfy the FDA that the drug is both safe and effective. Additional testing often enhances safety and effectiveness, but requiring a lot of testing has at least two negative effects. First, it delays the arrival of superior drugs. During the delay, some people who would have lived end up dying. Second, additional testing requirements raise the costs of bringing a new drug to market; hence, many drugs that would have been developed are not, and all the people who would have been helped, even saved, are not.
In addition, because FDA approval is mandatory, industry and medicine must heed FDA standards regardless of their relevance, efficiency, and appropriateness. Not all testing is equally beneficial. The FDA apparatus mandates testing that, in some cases, is not useful or not appropriately designed. The case against the FDA is not that premarket testing is unnecessary but that the costs and benefits of premarket testing would be better evaluated and the trade-offs better navigated in a voluntary, competitive system of drug development.
Three bodies of evidence indicate that the costs of FDA requirements exceed the benefits. In other words, three bodies of evidence suggest that the FDA kills and harms, on net. First, we compare pre-1962 drug approval times and rates of drug introduction with post-1962 approval times and rates of introduction. Second, we compare drug availability and safety in the United States with the same in other countries. Third, we compare the relatively unregulated market of off-label drug uses in the United States with the on-label market. In the final section, before turning to reform options, we also discuss the evidence showing that the costs of FDA advertising restrictions exceed the benefits.
Sam Peltzman (1973) wrote the first serious cost-benefit study of the FDA. He focused his attention on the 1962 Kefauver-Harris Amendments to the Food, Drug, and Cosmetics Act of 1938, which significantly enhanced FDA powers. The amendments added a proof-of-efficacy requirement to the existing proof-of-safety requirement, removed time constraints on the FDA disposition of NDAs, and gave the FDA extensive powers over the clinical testing procedures drug companies used to support their applications.
Using data from 1948 to 1962, Peltzman created a statistical model to predict the yearly number of new drug introductions. The model is based on three variables, the most important of which is the size of the prescription drug market, lagged two years. The idea is that if the prescription drug market were large two years ago, manufacturers would invest more money in research and development, which would pay off two years later in a new drug. (Prior to 1962, it took approximately two years to develop a new drug.) Despite the model ’s simplicity, it tracks the actual number of new drug introductions quite well, as indicated by figure 2.