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Tuesday, May 01, 2007


Senate Discusses Overhauling PDUFA Act; Disincentive to Investment.

The Senate has been recently debating the possibility of overhauling the FDA. It would do this by amending and extending the Prescription Drug User Fee Act created in 1992. The Act was originally created to defray the costs the FDA incurred while reviewing prescription drugs. The FDA's proposal to Congress would have the drug industry pay $393 million in annual fees (Bridges, Associated Press). This spending would go to new drug and food safety measures. It would include provisions to ensure the safety of child drugs and devices as well as the safety and effectiveness of drugs currently on the market. The renewal of the Act also promises to make the approval process of drugs more quick and predictable. The provisions set forward however, do not allow for the importation of drugs nor generic drug approvals (all facts, from attached link, Andrew Bridges, the Associated Press).

This is sort of a grey area of market failure. There is market failure, but it may protect consumers to an extent. It creates a barrier to entry through government licensing, therefore violating perfect competition. It also violates the PC model by heterogeneous products and asymmetrical information. Generic drug companies and foreign companies have been left out of the new provisions so far. This renewal and amendment to the PDUFA Act was brought to the Senate by the FDA itself. There may be rent seeking on the part of the FDA and possibly the large drug corporations. The FDA can not act efficiently, so it seeks legislative coercion for additional aid. The larger drug corporations may not necessarily be too adversely affected by the increased costs, but may benefit from reduced competition. Although the Act promises to cut costs the FDA incurs by reviewing drugs, the Act is still economically inefficient. It seems to limit competition in the prescription drug market. It also promises to make the approval process faster by introducing more legislation into the drug industry.

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