The Food and Drug Administration (FDA) is currently trying to decide on whether to approve a new drug called Moxduo. It combines morphine and oxycodone and would be a powerful painkilling medication for those with severe pain if it is approved by the FDA.
Of course, there are some who oppose approval of this drug. There are concerns about possible side effects, and there is also obviously a concern over the risk of addiction.
It is common for such debates to take place. Most people want safe drugs that have a low probability of doing harm. But people also want options for various diseases, ailments, and other medical conditions.
If you are a libertarian/free market-oriented, where should you come down on such debates?
The Existence of the FDA
In a truly free market society, there would be no such thing as the FDA — at least not in its current form. Instead, there might be something like a regulatory body set up by a company that doesn’t associate with the government and only relies on voluntary associations.
Unfortunately, because the FDA is a government agency, there is nothing voluntary about it. Not only are you forced to pay for it with your tax money, but you are also forced to live by its decisions.
Drug companies must spend hundreds of millions of dollars or more to bring a new drug to the market. And here, I am not referring to research costs, marketing, patenting, etc. It will cost a company hundreds of millions of dollars just to go through the approval process of the FDA.
For this alone, we can’t know just how many drugs are never even attempted simply because the cost of getting approval would exceed any potential sales.
This particularly hurts those people with less common problems. If you have a rare disease that only affects 1,000 Americans per year, there is little chance a drug company will devote any significant research or expenses to finding a cure.
If you do the math, you’ll quickly realize that you can’t spend hundreds of millions of dollars for FDA approval — on top of the research costs — to only be able to sell a new drug to 1,000 people per year.
But if the disease were deadly or really debilitating, a high percentage of people afflicted with the disease might be willing to try an untested medication. They would weigh the possible risks, and some might conclude that the disease itself poses a higher risk than the untested medication.
Of course, this could happen with both rare and more common diseases. But unfortunately, consumers are not given a choice. Drug companies are not given a choice. Potential life-saving drugs are kept off the market all the time because of the FDA.
There are some drugs that will never exist as long as the mandatory FDA exists. Some won’t get approval because of possible safety concerns. And others will get approved, but we will see people die in the meantime waiting for it.
The people working at the FDA have an incentive to be overly cautious. They don’t want someone to die from the side effects of a drug they approved. On the other hand, when they take their time approving life-saving drugs, they see a lot less blame, if any at all.
I suppose in some ways the American populace is to blame for this. Not only do people accept the FDA and its role, but they also promote this idea of almost perfect safety, even though no such thing exists. At some point, promoting too much safety can actually make things less safe.
Ironically, though, the existence of the FDA also imposes a problem of a false sense of security. When the FDA approves drugs, there is often little other testing done, and consumers will take the drugs with little caution because of the approval. This can be deadly for some when the FDA approves a drug with adverse side effects.
Advisory?
If you are a little less radical than me and don’t oppose the use of taxpayer money to fund the FDA, you can still oppose the fact that it is mandatory.
There is no reason the FDA couldn’t still exist as an advisory agency. Drug companies would not be required to get FDA approval for new drugs, but they could still seek FDA approval for the benefit of its potential consumers.
In this case, consumers could make a decision for themselves on whether or not to take a certain drug. If someone were seeking a safe drug that had been through a lot of testing, then he might choose to take only drugs that have been FDA-approved.
Meanwhile, someone else might decide to take on the risks of an untested drug or a drug that does not have the FDA’s approval.
Underwriters Laboratories
One of the accusations I face as a libertarian is that I am against something simply because I don’t want the government doing it.
If I say something against government education, it is assumed I am against education. If I say something against minimum wage laws, then I am against people earning a living wage.
If the government owned our grocery stores and I stated my opposition to it, some would view that as me supporting starvation. Fortunately, most of our grocery stores are not owned and operated by the government.
In my opposition to the FDA, I am not against safe drugs. I am not against testing drugs. I am not even against the idea of having drugs approved. The only thing I am against is that this is being done by the government.
We can never know exactly how something will work in a free market environment when we currently don’t have one in that area. We don’t know how people will act and what consumers will want.
With that said, we can speculate on how things might look in a free market environment, and we can do that with drug approvals.
Let’s say the FDA were abolished, and nothing took its place. What would happen?
The likely scenario is that companies would step in to offer independent testing and certification of drugs. It might be one company that does most of it, if the company does its job well. Or it might be several companies that offer different kinds of testing and certifications.
If you are a drug company bringing a new drug to the market, you might bring your drug to the “Drug Safety Company” for testing and certification. If your drug passed the tests, the Drug Safety Company would put its stamp of approval on it.
The company might even give a rating to your drug of A, B, C, etc. Maybe an A-rated drug would be deemed the safest for consumer use.
We might see different companies doing different levels of testing. Some companies might gain a better reputation for accuracy in determining the safety of drugs. Such a company could probably charge more for its testing and certification. It might even put some of the others out of business.
This already takes place today — just not with drugs. Underwriters Laboratories does this for thousands of products, yet the company does not use coercion the way the FDA does. Companies want the “UL” seal to show their products have been tested and approved.
Reality for Investors
Until such time that the FDA is abolished — or at least made advisory — we must live with the reality we currently have as investors. This means investing in companies that have the pull and resources to get drugs approved.
Unfortunately, because the FDA is a political agency, it is companies with lobbyists and heavy resources that are most likely to get FDA approvals. It is the big players that are most likely to be profitable.
Smaller drug companies are far riskier, and if you invest in these, you are depending on the politics of the FDA to approve drugs to make you money.
For these reasons, I generally try to avoid investing in drug companies unless there are specific, valid reasons to like a particular company.
If you are looking at investing in a smaller drug company, you are taking on some major risk. Therefore, you should be certain that new research and drugs would be very rewarding… if they get past the FDA.
For a perfect example, check out this little biotech gem right here.
Until next time,
Geoffrey Pike for Wealth Daily
