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1
Regulation ofthe Pharmaceutical
-
Biotechnology Industry
Patri
c
ia M. Dan
z
on
Eric L. Keuffel
Revised
January 15, 2013
Patricia Danzon is the Celia Moh Professor of
Health Care
S
yste
m
s, Insurance and Risk
Manage
m
ent at the
W
h
a
rton Schoo
l
, University of Pennsylvania,
and Research Associate of the
NBER. 207 Colonial
P
enn Center, 3641 Locust
W
alk, Philadelphia, PA, 19104
-
6218.
Eric Keu
ff
el is a
n Assistant Professor
in the Risk, Insurance and Healthcare Management
Department at the Fox School of Business, Temple University. 610 Alter Hall, 1801
Liacouras Walk, Philadelphia, PA 19122.
Paper prepared for
:
“Economic Regulation and Its Reform: What Have
We
Learned?” (NBER / University of Chicago Press )
2
Regulation ofthe Pharmaceutical
-
Biotechnology Industry
Introducti
o
n
Phar
m
aceuticals and h
u
m
an biologic products are
reg
u
lated in virtually all as
p
ects of the
product life
-
cycle: safet
y
, efficacy and
m
anufactu
r
ing quality as a conditi
o
n for
m
arket acces
s
;
pro
m
otion; and pricing. Since the regulatory structure dev
e
loped for phar
m
aceuticals has
largely been extended to hu
m
an biologic
m
edicines, we hereafter use “p
h
ar
m
aceutic
al
s” to
include
b
i
ologics, and
w
e note ex
p
li
c
itly wh
e
re b
i
ologics are treated di
ff
erently. The r
a
tion
a
le
for heavy regulationof phar
m
aceuticals is n
o
t
i
n
trinsic
nat
u
ral
m
onopoly
, since any
m
arket
power enjoyed by individual products derives u
l
ti
m
ately from govern
m
ent
-
granted patents
(See
Chapter 2 in this volume for more on natural monopoly)
. Rather, regulation of
m
arket access,
m
anu
f
acturing and promotion arise because product efficacy and safety can
b
e critical to
patie
n
t health but are n
o
t i
m
m
ediately observable
. Evaluating
s
afety and efficacy
a
s a c
o
ndition
of market acce
s
s and
m
onitoring
m
anufacturing
quality and pro
m
otion accuracy o
v
er the
prod
u
ct life
-
cycle are public go
o
ds
that can in theory be efficiently provided by an expert
agency such as the Food and Drug Ad
m
i
nistration
(FDA). By contrast, price regulation is best
understood as a response by pu
b
lic insurers to the fact that insurance makes consu
m
ers price
-
insensitive.
When consu
m
ers are heavily insured, producers of patented products face highly
inelastic de
m
and
and hence can charge higher prices than they would in the absence of
insurance. Price regulation and other rei
m
burs
e
m
ent controls are a response of govern
m
ent
p
ayers to this
interaction of insurance and patents.
Although these considerations
s
uggest that regulationof the
phar
m
aceutical industry is
potentially welfare enhancing, designing the opti
m
al
structure of such regulation is not si
m
ple.
Market access regul
ation
entails both
resource c
o
s
t
s and fore
g
one patient benefits in ter
m
s of
3
fewer drugs and delay of
those that do launch. Measuring these costs, designing the opti
m
al
regulatory structure and finding the
best balance between costs and
benefits has been the subject
of both aca
d
e
m
ic research and policy
debate and
experi
m
entation.
Opti
m
al reg
u
lation
of
pro
m
otion
and the expansion of post
-
marketing regulatory control are
relati
v
ely rece
n
t
exte
n
sion
s
of this debate. On the pricing side, regu
lati
o
n should ideally constrain pricing moral
hazard while preserving insur
a
nce coverage for patients and
sufficient
patent power to assure
in
c
entiv
e
s
f
or
a
ppropri
a
te
r
esearch and develop
m
ent
(R&D). Much has been learned from
the
experience
with
different
price regulatory regi
m
es, mostly in countries with national health
insurance syste
m
s. But designing regulato
r
y structures that are both theoretically sound and
e
m
pirically practical
re
m
ains an i
m
portant theoretical and policy challenge.
In this
p
aper, Section I
d
escri
b
es
t
h
e
technolo
g
ical characteristics
of the
p
har
m
aceutical
sector and the pri
m
ary objectives of regulation.
S
ections II provides an overview of
safety and
efficacy re
g
ulation
in t
h
e US and abroad. Sec
t
i
o
n III reviews the e
m
piri
c
al
evi
d
ence, lessons
lear
n
ed and proposals f
o
r change in safety and efficacy regulation
.
Section IV
discusses
patents
, focusi
n
g
on those aspects of p
h
ar
m
aceutical patenting t
h
at
interact with regulation, which include patent extension policy
and regulatory exclusivities
,
regulation of generic entry, the exten
s
ion of patents to
d
eveloping countries and
affordability
concerns
.
Section V
d
escri
b
es re
g
ulation
of
pric
i
ng, rei
m
burse
m
ent and profit
; the evidence on
effects of this regulatio
n
;
and ev
idence on
industry structure and co
m
petition
.
Section VI
summarizes evidence on phar
m
aceutical pro
m
oti
o
n,
focusing
m
ainly on direct to cons
u
m
er
advertising (DTCA)
in the USA
, wh
i
ch has
beco
m
e
far
m
ore
i
m
portant
ov
e
r the last
15 years
,
following changes in
regulatory oversight that re
m
ain contentious and unsettled. The final
section concludes on lessons learned
a
nd areas for future research.
4
I. Technological Background and
Objectives of Regulation
The phar
m
a
ceutical industry is characterized by unusually high costs of R&D.
Historically, t
he research
-
based industry
has
invest
ed
between 15
-
20 percent of sales in
R
&
D
(CBO, 2006; EFPIA, 2011)
and the R&D cost of bringing a new compound to market was
estimated at $1.3 Billion in 2005 (an
update from the commonly cited $802 million estimated
in
2001
)
, an increase from
$138m in the
1970s and $318
m
in the
1990s
.
(Adams and Brantner,
2006; DiMasi and Grabowski, 2007; DiMasi et
al., 2003; DiMasi et al., 1991; Hansen, 1979)
.
V
ariation in the expected cost exist
s
across therapeutic categories and depends on a range of
factors
(DiMasi et al., 2004)
. Generally, the
high cost per new drug approved
reflects high costs
of pre
-
clinical testing and
human clinical trials, high failure rates and the opportunity cost of
capital tied up during the 8
-
12 years of deve
l
op
m
ent. To so
m
e extent, this high and rising cost
of R&D ref
l
ects regulations that exist in
all industrialized countries, requiring t
h
at new
co
m
p
ounds
m
eet standar
d
s of safety, efficacy and
m
anufacturing
q
uality as a condition of
m
arket access. The
m
ain initial foc
u
s of regulati
o
n since the
1
930s was safety, and this has
ree
m
erged recently as a
critical issue.
Si
nce the 196
0
s
m
ost countries also re
q
uire pre
-
approval
evidence of efficacy,
m
onitor
m
anu
f
acturing quality throughout the product life, and regulate
promotion and advertising
to physicians and consumers.
The economic rationale for these
require
m
ents
derives from
the fact that the risks and
benefits of phar
m
aceuticals are non
-
obvious, can
differ across patients, and can only be known
from
controlled studies in large patient popul
a
tions. Gathering and eva
l
uating such infor
m
ation
is a public
good, and a regulatory agency that
has both
m
edical and statistical expertise can
more accurately and efficiently
m
onitor and e
v
aluate
t
h
e evi
d
ence from
clinical trials than can
individual physicians or patients. However, regulation that requires e
x
te
n
siv
e pre
-
la
u
nch
cli
n
ical trial data on safety and efficacy inc
r
eases the R&D c
o
sts inc
u
rred by fir
m
s, increases
5
delay in launch of new
m
edicines, and
m
ay
reduce the nu
m
ber of drugs developed and the
extent of c
o
mpetition.
T
he size and duration of clin
i
cal tri
als required to
d
etect re
m
ote risks
o
r
cu
m
ulative
r
i
sks
f
rom
long term
the
r
apies
c
an be
large. The rising co
s
t
s
o
f
R&D, combined
with new technologies f
o
r eval
u
ating infor
m
ation,
have pro
m
pted recent i
n
itiati
v
es to
accelerate approvals and opti
m
ally
integrate evidence from
pre
-
ap
p
roval cli
n
ical t
r
ials with
post
-
approval observational experience.
In the US, the statutory regulation
o
f
pha
r
m
aceuticals
t
h
rou
g
h the Food and Drug Ad
m
i
nistration (FDA) is in
a
ddition to
–
and uncoordinated with
the
increasing level of indir
e
ct regulation through tort
liability. Critical unres
o
lved issues in
m
arket access regulation are: (
1
) how
m
uch infor
m
ation on risks and benefits sh
o
uld be
req
u
ired prior
to launch; (2) what is the approp
r
iate trad
e
-
o
f
f
between ben
e
f
its and risks, given
that so
m
e risks are i
n
evitable; and (
3
) what is the a
p
propriate
mi
x of pre
-
and post
-
launch
m
onitoring of risks, what
m
ethods should be used, and what is t
h
e appropriate
m
i
x of
regulation by an expert
agency (s
uc
h as the FDA or an
independent agency) and t
o
rt lia
b
ilit
y
?
A second importa
n
t characteristic ofthe phar
m
aceutical ind
u
stry is the critical role of
patents, which results from
its research intensity. Given the cost structure with high, globally
joint fixed costs of R&D and
low
m
a
rginal cos
t
s of production, patents a
r
e essential to enable
innovator fir
m
s to recoup their R&D invest
m
ents.
However, patents work by enabling innovator
fir
m
s to charge prices above
m
arginal cost, which raises issues of appropriate levels of prices
a
nd profits and appropriate str
u
cture and duration of patents. Concern that prices
m
ay be
excessive is one rationale for price regulation in
m
any countries
(although, as discussed below,
insurance coverage is probably an equally i
m
portant deter
m
inant of
pric
e levels
).
Defining
regul
a
t
ory
c
riteria
f
or a
d
m
itting post
-
pate
n
t gen
e
ric e
n
tra
n
ts
remains
a conte
n
ti
o
us issue, e
ve
n
f
or tra
d
itio
n
al che
m
ical compounds. More co
m
plex and yet to
b
e
fully
resol
v
ed
b
y regulatory
agencies are t
h
e con
d
itions for
a
p
proving
biosimilars
,
that
is, altern
a
tive v
e
rsions of large
6
m
o
lecule, biotechnology products such as proteins,
m
onoclonal antibodies etc. As the nu
m
ber
and utilization of these expensive biologics exp
a
nd, so does concern to establish a low
-
cost
regulatory path for
approval of generic biologics
w
ithout full scale clinical trials, in order to
sti
m
ulate p
o
st
-
patent
p
rice co
m
petition.
The global
n
ature of phar
m
aceutical
p
roducts h
a
s also raised contentious
q
uestions o
v
er
opti
m
al patent regi
m
es in developing countries
and cross
-
nationally. The WTO’s Ag
r
ee
m
ent on
Trade
-
related Aspects of Intell
e
ctual Property Rights (TRIPS) requ
i
res all
m
e
m
ber countries to
recognize 20 year product patents by 2015. However,
in response to concern that patents would
m
ake drugs unaffordabl
e in low inco
m
e countr
i
es, TRIPS per
m
its
m
e
m
b
er states to issue
co
m
pulsory lice
n
ses
under certain conditions, including
a “nation
a
l e
m
ergency.” TRIPS also
leaves decisions on
allowing
parallel i
m
ports to the discret
i
on of individual me
m
ber states. In
m
ost
industrialized countries inclu
d
ing t
h
e US, the tr
a
ditio
n
al r
u
le has been n
a
tional ex
h
au
s
tion
of
pate
n
t rig
h
ts, which
m
eans that a patent holders can bar
the unauthorized i
m
po
r
tation of the
paten
t
ed product (parallel
trade) from
other countries. Proposals i
n the
US to legalize parallel
trade,
including
commercial
drug i
m
portation by wholesalers,
w
ould under
m
ine t
h
e
traditional
rule
of
national exhaustion of patent rig
h
t
s
. If
enacted, this would
u
nder
m
ine manu
f
actur
e
r
s
’
ability to
p
rice
d
i
s
c
ri
m
i
nate between
countries, which could have serious welfare con
s
eq
u
ences
as
d
i
s
cussed bel
o
w.
A third characteri
s
tic ofthe phar
m
aceutical ind
u
s
t
ry is the d
o
m
i
nant role of third party
pay
m
ent through social and private health insur
a
nce. Like any insurance, third party pay
m
ent
for drugs creates
m
oral
h
azard, with incenti
v
es for consu
m
ers to overuse and/or use
unnecessarily expensive drugs. In addition, by
m
aking de
m
and less elastic,
insurance creates
incentives
f
or fir
m
s to charge hig
h
er prices than
they would in the absence
of insurance. In
response to these insurance
-
ind
u
ced distortions, since the 1980s government
-
run health syste
m
s
in
m
ost countries have adopted ela
b
orate
regulatory syste
m
s to control p
h
ar
m
aceutical
7
expenditures, through regulation of
m
anufacturer prices
a
nd/
or rei
m
burs
e
m
ent and
li
m
its on
total drug spending
and
on c
o
mpany revenues. Private insurers in the US also use formularies
of covered drugs, co
-
payments and negotiated prices
; however,
because these private ins
u
rers
m
ust compete for market s
h
are, t
h
eir controls lack the l
e
verage of public payer controls. The
controls adopted by both public and private insurers have significant effects on de
m
and for
phar
m
aceuticals, on the nature of c
o
mpetition a
n
d hence on
p
rofitability, incenti
v
es for R&D
and the su
pply of new
m
edicines.
Because phar
m
aceuticals are potentially glo
b
al products and R&D incentives depend on
expected
g
l
o
bal re
v
enues, national regulat
o
rs face free ri
d
er incenti
v
es.
E
ach country faces a
short run incentive to adopt regul
a
tory policies that
drive its do
m
estic prices to country
-
specific
m
arginal cost, free riding on others to pay for the
joint costs
o
f
R&D. But if
all cou
n
tries pay
only their country
-
specific
m
arginal cost, R&D cannot be sustained. The global nature of
phar
m
aceuticals and the
long R&D lead ti
m
es
–
roughly 12
y
ears from
drug discovery to
product approval, on average
–
m
ake the incenti
v
es for short run free
riding by individual
countries particularly acute.
W
hile there is w
i
despread consensus in support of differential
pricing b
et
w
een the richest and poorest nations, no
consensus exists on a
p
propriate price levels
for these c
o
untries or between
high and
m
i
ddle
-
inco
m
e
countries. In practice, the a
b
ility of
phar
m
aceutical fir
m
s to price
d
i
scri
m
i
nate is di
m
i
nishing as
m
ore countries
ado
p
t national
p
rice
regulatory policies that reference prices in oth
e
r countries and/or legalize drug i
m
portation (also
called parallel trade or i
n
tern
a
tional exhaustion of
patent rights). These cross
-
national price
spillo
v
ers in
turn c
r
eate incenti
v
es
f
or
f
i
r
m
s to delay or n
o
t l
a
unch new drugs in low
p
rice
m
arkets, if these low prices would under
m
ine pote
n
tially higher prices in other
m
arkets. Thus
the design
o
f
each country’s price regulat
o
ry system
can aff
e
ct not o
n
ly their do
m
estic
8
availability of drugs but also availa
bi
lity in other countries t
h
rough price
s
pillo
v
ers in the short
run, and through R&D incenti
v
es in the long run.
Unlike so
m
e other industries, regulat
i
on ofthe phar
m
aceutical industry
h
as not
di
m
i
nished or undergo
n
e fu
nd
a
m
ental changes
o
ver recent
d
ecades, alt
h
ough focus of
m
arket
access regulation has shifted betwe
e
n concerns
f
or safety vs. cost and delays, a
nd the structure
of price/reimbursement
regulation has beco
m
e more
co
m
p
l
ex. The
m
otivations for regulation of
phar
m
aceuticals
i
m
perfect and/or asymmetric
info
r
m
ation for
m
arket access reg
u
lation,
patents and insurance
-
related
m
oral hazard for p
r
ice/reimbursement
re
g
ulation
–
re
m
ain and
have, if anything, increased over ti
m
e. These are sum
m
arized in Table 1.
Re
gulatory trends over ti
m
e within the US and cross
-
national differences pro
v
ide a
wealth of useful
experience from which so
m
e lessons can be lea
r
ned. This r
e
view will
fo
cus
pri
m
arily on US issues and evi
de
nce, reflecting t
h
e do
m
inance of US
-
based literature
.
Moreover,
US
r
e
gulatory policy has a disproportionately
large
effect on the industry, because
the US
m
a
rket accounts for almost fifty perce
n
t of global phar
m
aceutical revenues. Howev
e
r,
we draw extensively on experience from other countries for evidence
on price and
rei
m
burse
m
ent regulation, cross
-
national spillover effects and access to p
h
ar
m
aceuticals in
develo
pi
ng countries.
Insert Table 1
about
here
The appropriate economic
m
odel ofthe ph
a
r
m
aceutical industry is either monopolistic
co
m
petition or ol
igop
o
ly
with product differ
e
ntiation. However, both positive and normative
analysis
m
u
st also take into
account the roles of phy
s
ician prescribing and third party pay
m
ent
as key
determinants of
de
m
and elasticit
i
es and cross
-
p
rice elasticities. Moreover,
m
odels of
opti
m
al pricing
m
ust recognize the i
m
portance of R&D
a
nd fixed costs. In this context, welfare
conclusions about optimal levels of R&D, product variety or drug use are proble
m
atic. Most
9
analysis to date and
m
ost of our discussion are therefore pos
itive rat
h
er t
h
an nor
m
ative.
Although theindustry is characterized by high fix
e
d costs,
m
odels in which fir
m
s
endogenously choose sunk costs, in the form
of either
R&D or
promotion to retain co
m
petitive
advantage and deter co
m
p
e
tition / entry
(Sutton, 1991)
, do not seem
appropriate and appear to
be clearly refuted by t
h
e evidence
o
f
entry over the last two decades by thousands of s
m
all
fi
r
m
s. We return to t
h
is
below.
II. Overview
of Safety and Efficacy
Regulation
1. The US
The first comprehensive federal legislation
regulating food and drugs in the US was the
Pure Food and Drug Act of 1906 (The
W
iley Act)
which required that product labels and
packaging not contain false state
m
ents about curative
effects, but stopp
e
d short of requiring
m
anufacturers to pro
v
ide evidence to prove
safety
or efficacy
(Palumbo FB, 2002)
. The 1938
Food, Drug and Co
s
m
etics Act (FDCA), which r
e
placed the
W
iley Act, required any firm
seeking to market a new che
m
ical entity (
N
CE) to file a new drug application (NDA) to
de
m
onstrate that the drug was safe for use as suggested by the proposed labeling. The Food and
Drug Ad
m
i
nistration (
F
DA) had 180 days to reject the NDA. As new for
m
s of print and radio
advertising
had e
m
erged since the
W
iley Act, the FDCA e
s
tablished jurisdiction over drug
advertising, but policing was left to the Federal Trade Com
m
i
ssion (FTC) rather than the FDA.
This Act al
s
o esta
b
lish
e
d the req
u
ir
e
m
ent that patie
n
t
s obt
a
i
n
a pres
c
ri
p
tion
f
rom
a
physician in
order to obtain retail drugs.
The 1962 Kefauver
-
Harris A
m
endments to the 1938 FDCA were
the outco
m
e of
hearings that were initiated due to concern ov
e
r the proliferation, pricing and advertising of
10
drugs of dubious efficacy. The
final legislation also reflected concern to strengthen safety
require
m
ents, following the thalido
m
ide tragedy that caused hundreds of birth defects in Europe
whereas the drug was still under review in
the US. The 1962 A
m
endments define the
regulations that
largely still operate today. They strengthened safety require
m
ents; added the
require
m
ent that drugs show proof of efficacy, usually by double
blind, rando
m
ized controlled
trials ofthe drug relative to pla
c
ebo; re
m
oved the ti
m
e li
m
it (pr
e
viously 180 days
) within which
the FDA could reject an NDA; extended FDA
regulation to cover c
l
inical testing and
m
anufacturing; and restricted
m
anufacturers’ promotion to
approved indications. Basic
require
m
ents for pro
m
o
t
ional
m
aterials were defined, including that such
m
aterials cannot be
false or
m
i
sleading; they
m
ust
provide a fair balance of ris
k
s and benefits; and they
m
ust
provide a “brief sum
m
a
r
y” of contraindications, side effects and effectiveness. Regulatory
oversight of pro
m
otional
m
aterial was ce
d
ed back
to t
he FDA from
the FTC.
The presumption underlying the re
q
uire
m
ent for proof of efficacy was t
h
at i
m
perfect
and possibly asym
m
etric infor
m
ation prevent
e
d physicians and consu
m
ers from
m
aking
accurate evaluations, leading to wasted expenditures on ineffecti
v
e
drugs and other a
s
sociated
costs, and excessive product differentiation t
h
at under
m
ined price co
m
p
e
tition. Although Phase
III trials, in
v
olving double
-
blinded, rando
m
i
zed placebo
-
co
n
t
rolled trials in large
p
atient
populations,
were initially intended to
esta
b
lish efficacy, over ti
m
e these trial req
u
ire
m
ents have
been expanded to detect re
m
ote risks and/or cu
m
ulative treat
m
ent risks of chronic
m
e
dications.
The size and
duration of cli
n
ical trials, toget
h
er
with increased regulatory review time, added to
de
lay in the launch of new drugs, leading to for
e
gone benefits for consu
m
ers, shorter effective
patent life and foregone revenue f
o
r fir
m
s, albeit with the intent
of avoiding potentially larger
costs for co
n
su
m
ers.
1
Moreover, since so
m
e regulato
r
y costs
are fixed, independent of
[...]... Effects of Safety and Efficacy Regulations: Evidence and Issues 18 1 Costs ofRegulation Much of the early economic analysis ofpharmaceuticalregulation focused on effects ofthe 1962 Kefauver-Harris Amendments on R&D costs, delays in launch of new drugs, decline in the number of new drug introductions and changes in industry structure that occurred in the 1960s and 1970s, raising questions of causation... eligible, off-patent scripts that are filled generically, which can exceed 80% within 3 months of patent expiry in the US The growth of generic share of scripts reflects not only increased generic penetration of compounds that are off-patent but also the growing number of major drugs that are off-patent Several research-based pharmaceutical firms attempted to enter the generics market in the 1990s,... pharmacies capture the margin between the MAC and their acquisition cost, they have strong incentives to substitute the cheapest generics, and this in turn creates incentives for generic suppliers to compete on price If patients want the brand, they must pay the difference between the MAC and the cost ofthe brand (plus any other co-payment) Thus the main customers of generic firms are the large pharmacy... country-specific trials 2 Benefits of Safety and Efficacy Regulation 23 Compared to costs, there are many fewer studies ofthe benefits to consumers from regulationThe only significant attempt to weigh both the benefits and costs ofthe 1962 Amendments is Peltzman’s (1973) study He attempts to measure the benefit associated with the new efficacy standards by comparing the growth of market shares of drugs... appropriate calculation of costs over time, other recent attempts have found similar cost levels.(Adams and Brantner, 2006) Roughly half ofthe total 20 cost is out -of- pocket expense, including spending on drugs that ultimately fail; the remainder is foregone interest or opportunity cost of capital Updating the cost of capital calculation with the Fama-French three factor model rather than the traditional... 1978; Peltzman, 1973; Wiggins, 1981b) Number of new drug launches Grabowski, Vernon et al (1978) report that the number of NCEs fell from 233 in the five-year period 195 7-1 961 to 93 in 196 2-1 966 and 76 in 196 7-1 971 Some decline would be consistent with the intent of the legislation, if some of the prior introductions were ineffective However, the percentage of total ethical drug sales accounted for by... While these survey estimates may be useful benchmarks, they do not necessarily provide an accurate estimate of the counter-factual level of R&D effort in a world without patents Although a full review ofpharmaceutical patents is beyond the scope of this paper, issues that intersect with regulation are briefly reviewed here 1 Patent Length and Conditions for Generic Entry The effective patent life of pharmaceuticals... patients take therapeutic drugs because they are sick; these drugs claim to increase the probability of cure but with no guarantees and with some risk of side effects In these circumstances, if an individual patient is not cured by the drug or suffers an adverse effect, determining whether their condition is inappropriately caused by the drug or is simply the inevitable progression of 30 their disease... industries rely on patents to the extent that thepharmaceuticalindustry does Thepharmaceuticalindustry benefits from the same patent provisions (20 years from filing) available to firms in any industry, except for the special patent term restoration granted for pharmaceuticals under the 1984 Hatch-Waxman Act, to restore time lost in clinical trials (see section II) However, pharmaceutical product patents... quality as a condition of market access However, the optimal integration of post-launch data with the pre-launch RCT data remains an important issue to be resolved A second critical regulatory issue is the optimal mix and coordination of agency regulation and tort liability The theory of optimal policy to control safety when markets suffer from imperfect information generally views regulation and tort