From the Editor: Taken Away

December 1, 2006

Pharmaceutical Executive

Volume 0, Issue 0

To one major legal scholar, drug safety regulation isn't just about meeting standards, it's about what you take away from one group of patients in order to benefit the rest.

Stop me if you've heard this one before: Three economists are out hunting deer. After trudging through the woods for an hour or two, they spot an eight-point buck in a clearing. The first economist fires, but his shot is off by two feet to the left. The second economist fires and misses by two feet to the right. The third economist does a little victory dance and shouts, "We got him."

Patrick Clinton

And, on average, they did. The deer, of course, being an individual and not overly concerned with the average accuracy of economists' bullets, presumably walked calmly away. Averages, as useful as they are, leave many individual stories untold. That is the basic concept behind "FDA vs. the Individual," which appears in this issue. The piece is an excerpt from an important new book about pharmaceutical regulation by the distinguished libertarian legal scholar, Richard A. Epstein of the University of Chicago. Epstein has made his mark in analyzing property law, especially as it pertains to takings—government confiscations of property, or government limits on how property can be used.

Though a libertarian, Epstein concedes that sometimes government needs to force individuals to accept terms they'd rather not accept—for example, to agree not to build on property that is environmentally sensitive. His focus is on making sure that when that happens, the individual is properly compensated for his loss.

"The only way you'll persuade the public to understand the urgency of the takings cases is to get people out of the frame of mind where they think that for every dollar that the public body wins, the individual loses a dollar," Epstein noted in an interview in Reason. "What typically happens is the public wins $1 and private owners lose $5 or $10. If you do that hundreds upon hundreds of times each year, you have a major drain on the social welfare of the community."

And what does this have to do with the pharmaceutical industry? Well, it turns out that the concept of takings is a useful way of looking at pharmaceutical regulation. Failure to approve a drug, withdrawal from the market, or even harsh warnings can look very much like takings—from the drug manufacturer and, more importantly, from patients.

Take the case of a drug that is withdrawn for safety reasons. The action creates a public good: It makes most patients a bit safer. But for others, it deprives them of access to a drug that might have helped them. On average, we've created value, but in those individual cases, we've taken it away.

Epstein's point is that it's not good enough merely to look at the average. If the regulatory system is to do the balancing act that is its responsibility, it needs to start thinking more about what it takes away from individuals.

It's an argument Epstein makes eloquently, and you're better off hearing it from him (in the excerpt in this issue, or in his book, Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation) rather than from me.

What's useful about his analysis is that it offers a way out of the trap that currently threatens to dry up the flow of new medicines. As a society, we don't have to choose between the kind of zero-regulation, free-market approach Newt Gingrich used to advocate and the kind of paternalistic, frightened approach that industry critics are calling for now.

There are ways to quantify the tradeoffs behind regulation, and ways to better protect individuals. When we learn how to do that, I imagine, we'll be better off, even on average.