Using Marketable Vouchers to Speed Up Drug Approvals

The Food and Drug Administration recently approved a new drug for leishmaniasis, an extremely rare disease which is spread by sand flies in poor countries. Why would a for-profit company invest in inventing a drug for which there is no way to make a profit?

The FDA offers a prize to any firm that invents a therapy for one of sixteen rare diseases: a priority review voucher (PRV). A company that wins a license for a neglected drug wins a PRV that it can use to get priority review for another drug — perhaps a new treatment for depression or cancer that will bring in billions of dollars of revenue. In that case, the PRV will be worth between $150 million to $300 million. The company that invented the drug for leishmaniasis makes no bones about the value of the PRV to its business:

Knight Therapeutics, of Montreal, is eager to cash in on the voucher. “We’re going to try to sell it for as much as we can,” Jeffrey Kadanoff, Knight’s chief financial officer, tells Shots. “We’d love to make a big headline.” (Shots, NPR)

The PRV is best explained by one of the economists who thought it up, Professor David Ridley of Duke University’s Fuqua School of Business, in this video. The PRV is not perfect, but it is an excellent innovation. It reduces some of the deadweight loss of the FDA’s bureaucratic inertia by redirecting some of the energy devoted to overcoming it to the benefit of the world’s least-fortunate patients.

John R. Graham is a former Senior Fellow at the Independent Institute.
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