Paying for Pharmaceutical Regulation

1. Paying for Pharmaceutical Regulation Warren Kaplan Richard Laing Boston University School of Public Health http://heapol.oupjournals.org/cgi/reprint/18/3/237.pdf

2. ABSTRACT We analysed DRA new drug registration fees for 34 countries Many DRA registration fees for new drug applications for developing/non-OECD countries are less than the current GNP/capita of that country. For many countries new drug application fees are between 1–5 times GNP per capita or between $17 000 and $80 000 for each $1000 spent percapita on healthcare. There is little relationship between DRA registration fees and drug approval times in developing countries. Drug regulatory authority user fees are an important policy instrument to improve access to medicines but for the most part, they are underutilized.

3. BACKGROUND AND SETTING The financial sustainability of a DRA is critical to implementing its regulatory functions but financial sustainabilityof a government DRA DRAs can collect registration fees and various othercharges for the services they provide. There are 50 registration fees for the United Kingdom DRA andover 90 for Australia. These DRAs rely entirely onregistration fees for their support Policy tradeoffs are important. Differential registration fees, presumably designed to encourage locally produced versus imported products, may violate international trade regulations. Moreover, certain DRA registration fees may provide perverse incentives for the pharmaceutical industry. Developing countries should require that DRA registration fees be based on accurate accounting of the cost of services provided. At present levels, these fees could probably be increased without disincentive to the pharmaceutical industry.

4. Study Aims • ON WHAT BASIS DO DRAs SET THEIR REGULATORY FEE STRUCTURE? ARE THEY REALLY DESIGNED AS COST RECOVERY TOOLS? • Analyze the relationship between aggregate economic indictors and DRA drug registration fees indeveloping and some developed countries • Providerecommendations with regard to appropriate fee levels,differential fees for generics, and the policy consequences ofregistration fees for improving DRA effectiveness andimproving access to generic drugs.

5. Methods (II) Based on a questionaire sent to 71 DRAs and from the literature, we analyzed several indices for new drug registration fees. • Ratio of the DRA registration fee to the GNP per capita(GNP/capita: World Bank, calculated by the Atlas method) • Ratio of DRA registration fee to totalamount per capita spent on healthcare (WHO 2000: data ininternational dollars) to new drug registration fee • Ratio of DRA registration fee to totalpharmaceutical market size for the various countries (inretail value; over-the-counter plus prescription sales). (Market size information came from the US Department ofCommerce Commercial Service (United States Departmentof Commerce 2002) and the IMS-HEALTH websites (IMS-HEALTH2002)).

6. GNP/capita, total healthcare/capita and DRA fees for selected countries GNP/capitaTotal healthcare/capita Initial registration fee (US$) (2002) Fee index (US$) (A) US$ (B) NEW DRUG GENERIC (B/A) Algeria1560122641038504.1 Argentina74608231200040001.6 Australia 20240160112650025006.3 Bulgaria 152019311249370.74 Costa Rica 38104895005000.13 Cuba 8001097007000.91 Denmark 320201940840681420.26 Japan 356201759666764 48641.91 Malaysia 33802021001000.03 Singapore 247407505002200.02 South Africa 3020 396 2873 975–1232 0.95 Uganda 300443003001 UK 24430119310293326804.2 USA 34100 3724 309647 0 0 9.1 Zimbabwe 460 64 1000 1000 2.2 Notes: South Africa: range is for generics on EML ($975) and not on EML ($1232) United States: No registration fees for generic products

7. RESULTS (II) • Registration fees for newchemical entities are often higher thanthose for generic products. • Median approval times of Canada, Australia, Europe and the United States for non-fasttrack procedures tend to converge on 15 to 20 months. Japan is the exception. • Data is limited for developing countries but average approval times are often nearly twice as fast major market countries • The limited data for developing countries suggestslittle or norelationship between the magnitude of the new drug registrationfees and DRA approval time

8. RESULTS (I) • DRAs partly or completely financed via full cost recovery/user fees:United States and the United Kingdom, the DRA fee for an initial new drug filing isbetween 4 and 10 times the GNP/capita, for Australia and Zimbabwe it isabout 6 and 2, respectively. • For all other countries, most new drug DRA fees are between only 0.21 and 2.1 of GNP/capita. • DRAs partly or completely financed via full cost recovery/user fees: Between $17500 and $80000 new drug fee for every $1000 spend on healthcare per capita • For non OECD countries, $5283 fee for each $1000 per capita healthcare spent • For OECD countries, about $10000 fee for each $1000 per capita healthcare spent

9. Results (III) Range of DRA new drug fees by national health/economic indicator Indicator CountryScaling factor Gross National Product OECD countriesMedian fee = 1.25 times GNP per capita Per capita Interquartile range: 0.4–2.4 times GNP Non OECD Countries Median fee = 0.45 times GNP per capita Interquartile range: 0.07–1.0 times GNP Total healthcare expenses Per capita OECD Countries Median fee: $10 983 for each $1000 Interquartile range: $4372–37 905 Non OECD Countries Median fee: $5283 for each $1000 per capita Interquartile range: $760–11 029 Total National Pharmaceutical All countries Fee: $1000 for each $384 million of national market Market (Sales) Excluding $1B Markets Fee: $1000 for each $85 million of national market Notes:OECD Countries: Australia, Czech Republic, Denmark, Japan, Netherlands, New Zealand, Poland, Portugal, Slovak Republic, Sweden,United Kingdom, United States. Billion dollar markets: Argentina, Australia, Denmark, India, Ireland, Netherlands, Poland, Portugal, Singapore, Sweden, United Kingdom, United States,Venezuela.

11. Summary • DRAs of developing countries charge lowernew drug registration fees in relationship to their per capita national income than do developed countries • No empirical evidence that DRA newdrugregistration fees are actually set by policyaccording toeither the GNP per capita, the total healthcare expenditureper capita, the size of the pharmaceutical market – or in factany other national level economic indicator

12. Discussion • Higher drug registration fees could easily be charged by developingcountry DRAs. This would not unduly increase costs foreither the pharmaceutical industry, the government or theconsumer. • If new and higherfees were to be charged, it is critical that these additionalfinancial resources go back to the DRA to improve qualityof services. In cases where the generated revenue ends up inthe central government account, it is far more difficult tomake a case for increased fees. • On balance, increased fees (from whatever source) must provide the DRA with sufficient resources to retain competent staff and pay outside consultants and experts to meet DRA performance standards. Without more staff, there is likely to be an increased workload which causes high staff turnover. Poor staff retention can also result in a loss of critical ‘institutional memory’. • Differential (i.e. lower) registration fees for generic drugs would encourage most manufacturers to submit registration dossiers as the cost would be minimal. It is possible that such fees may also encourage low quality manufacturers as well, who might submit applications haphazardly.

13. Conclusions and Recommendations • For most developing countries DRA registration fees probably bear little relationship to the true drug regulatorycosts required for the drug approval process. • Promoting generics through differential, reduced fees should be encouraged in developing countries as a matter of public policy. • To justify increased fees, stakeholders must be able to documentimprovements in service and cost efficiencies. • Key DRA policy discussions should focus on the magnitudeof the registration fees and on the balance between the registration feeportion and the budgeted or appropriated portion to avoid the DRA becoming entirely dependent upon the industry it is meant to regulate.