For a subset of the products, the researchers estimated the cost of clinical studies by examining study protocols. They then
compared the costs to the net after-tax contribution margin for each product resulting from an additional six months of product
sales. They found that the net return-to-cost ratios varied widely, from negative returns for products with relatively small
sales volumes to a 73-fold return for a blockbuster drug. In a sensitivity analysis, they estimated that a three-month program
of patent exclusivity would have reduced returns to 36-fold at the upper end of the distribution.
The JAMA study found that the median investment, or cash outflow, needed for the pediatric studies was $10.4 million. However, with
the additional six months of exclusivity, the median net economic benefit to the drug manufacturer was $134 million. Overall,
the study results suggest that the Pediatric Exclusivity Program overcompensates for the costs of pediatric studies of products
with sales greater than $1 billion. Financial incentives for most products are substantial but less extreme, and incentives
for some products are negative.
Footing the Bill
The economic impact of the Pediatric Exclusivity Program has fallen largely on the private sector through the delay of generics
coming to market. Until 2006, the only costs to the federal government were the costs to Medicaid (which are shared with the
states) and the costs to federal providers, such as the Departments of Defense and Veterans Affairs.
However, with the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the federal government
may face the costs of pediatric exclusivity more directly. As the US government begins to pay a larger proportion of costs
for prescription drugs through the Medicare drug benefit, there are likely to be additional challenges to renewing the Pediatric
What the Future Holds
In the current Congress, renewal of the Pediatric Exclusivity Program may be subject to pay-as-you-go provisions, whereby
lawmakers will have to address the costs of the program directly as part of the legislative process. Should the current program
be considered too expensive, lawmakers could consider a number of options to reduce the costs of the program. These alternatives
could include adjusting the incentives to spur more timely data collection on pediatric uses after product launch; prioritizing
data collection for pharmaceutical therapies that are most likely to be used by children, which would require determinations
of the need and the potential public health impact of the new data on children's health; and reducing the size of the financial
incentive to pharma manufacturers.
Restructuring the incentive could include reducing the term of the exclusivity, implementing a tiered incentive structure
based on product sales, and restricting access to the program to drugs for which there is a primary pediatric indication.
A tiered program could cap returns for products with annual sales over a prespecified threshold, say $1 billion, while maintaining
the current six-month incentive for drugs with sales below the threshold. This would require some consideration of product
life cycle and likely sales in the additional exclusivity period to account for product trajectory in the market. Approaches
that reduce the incentive must be sensitive to the limited financial benefits of the program to pharma companies with drugs
that have smaller annual sales.
As an alternative, Congress could consider a grant program allowing the Food and Drug Administration to fund pediatric clinical
research directly so that it can address outstanding pediatric data needs. Because the program affects products that are already
on the market, this approach would augment the expanded safety program likely to be funded by the reauthorization of the Prescription
Drug User Fee Act. However, there is limited infrastructure at FDA for such a grant program and no funding available of the
magnitude needed. Finally, Congress could simply mandate pediatric studies as part of all new drug applications in the United
Until very recently, pediatricians simply had to do without the necessary information about many—even most—of the pharmaceutical
products they prescribed to their patients. In that way, it is clear how significant an impact the Pediatric Exclusivity Program
has had on the practice of medicine in children. However, over the next year, Congress will have to determine how best to
accomplish the goal of ensuring the safe usage of drugs in children within the broader framework of the renewal of the Prescription
Drug User Fee Act.
Kevin A. Schulman, MD, is a professor of medicine and business administration at Duke University and the director of the Health Sector Management
Program at Duke's Fuqua School of Business. He can be reached at email@example.com