Book Review

Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation

N Engl J Med 2007; 356:1079-1080March 8, 2007

Article

Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation
By Richard A. Epstein. 283 pp. New Haven, CT, Yale University Press, 2006. $30. ISBN: 978-0-300-11664-9

In the past few years, various books and scholarly articles have portrayed pharmaceutical innovation as plagued by myriad problems, many of which could be addressed through greater (or at least alternative) regulatory intervention. In Overdose, prominent legal scholar Richard Epstein presents a different story. His comprehensive and ambitious discussion proceeds chronologically, starting with the research and development process, moving to Food and Drug Administration (FDA) approval and postapproval marketing, and ending with a discussion of tort liability. Throughout the book, Epstein asserts the theme suggested in his title — that regulatory intervention in the pharmaceutical industry is already too extensive and that proposed interventions would exacerbate rather than ameliorate current difficulties.

Epstein begins by suggesting that the pharmaceutical industry may be the victim of unreasonable expectations because of its past success in picking the “low-hanging fruit” of drug innovation — that is, therapies that are relatively inexpensive to develop but nonetheless have high social value. He appears skeptical that current or future advances in basic science will generate additional low-hanging fruit. Moreover, according to Epstein, the scientific challenge is greatly aggravated by regulatory excess.

Epstein then focuses on strategies that various economists and policy analysts have suggested to address the inefficiencies created by drug patents. He deploys a series of powerful arguments against the practicality of schemes that would regulate pricing, “buy out” drug patents, or use public funding for all stages of drug development.

Epstein is perhaps most critical of what he argues is a tendency on the part of the FDA to be unduly risk-averse. In his view, the FDA's excessive desire to avoid mistakes in drug approval (false positives) causes it to deny approval of many useful drugs (false negatives). In Epstein's estimation, heterogeneity in patient reaction to drugs should lead the FDA to approve all drugs that show benefit for some identified subgroup. Patients, together with their physicians, can then determine “downstream” whether they fall into the particular subgroup that benefits. The theme of market-based differentiation also informs Epstein's defense of “me-too” drugs — patented drugs that fall into the same therapeutic class as other patented drugs but may have somewhat different efficacy or side-effect profiles in particular patients.

The success of Epstein's vision turns in large part on whether information that allows for downstream differentiation is available in most cases. Unfortunately, accurate information may be underproduced by ordinary marketplace mechanisms. Related to this issue is the fact that patients and physicians must be motivated to demand such information. Reductions in the availability of court-imposed damages after the fact (a move advocated by Epstein) may spur patients to demand more comprehensive information at the outset. But Epstein's otherwise impressive account largely ignores an institutional factor that distorts information markets — insurance. Because insured patients bear only indirect financial responsibility for their purchasing decisions — and their physicians typically bear none at all — incentives to parse complicated information about future benefits and risks may be diminished. Certainly, patients and physicians appear to have had little interest in parsing cost–benefit profiles — profiles that might call into question the prices that can be charged for at least some me-too drugs.

Even in the optimistic scenario in which information markets on individualized risk and benefit would be robust and in which physicians and patients (or at least insurers) would pay close attention, the future for pharmaceutical firms might not be rosy. The FDA might approve many more drugs, but the markets for these drugs would be smaller. In the end, the biggest challenge to pharmaceutical companies' current business models may not be government regulation but advances in science that balkanize potential markets.

Arti K. Rai, J.D.
Duke University Law School, Durham, NC 27705
rai@law.duke.edu