5

Strategies to Better Align Innovations with Disease Burden and Unmet Need

The government has a number of existing policies and programs to encourage innovation in drug development, including several focused specifically on addressing unmet need. Among them are National Institutes of Health (NIH) and other government funding for science; certain Food and Drug Administration (FDA) policies and programs to promote investment, support scientific advancement, and speed drugs to market; and incentives established by Congress, such as those relating to rare and pediatric disease research and development. Various aspects of government funded (and private-market) drug coverage and reimbursement also create incentives and disincentives for drug development. Figure 5-1 provides an overview of the actors that can improve alignment between investment and unmet needs along the drug development cycle, as well as the different levers that can be used to drive changes by these actors. Although this figure depicts the cycle as linear, it is really a cycle that feeds back on itself. This chapter will discuss each of these levers for change in detail.

NIH AND PUBLIC FUNDING

As discussed in Chapter 3, NIH is a key player in the funding of innovative therapeutics through its support of research in basic science, disease biology, and epidemiology. This has contributed significantly to the development of new drugs and provides the foundation by which industry studies advance and serve to derisk investment in new technologies. Publicly funded research has been said to be the “foundation upon which complementary

work on the applied science of drug development could be undertaken by the private sector” (Congressional Budget Office, 2021).

With NIH providing the bulk of funding for basic research, studies indicate that industry investment costs in new drug approvals were cut by nearly half, creating economic efficiencies that make it possible for numerous companies to develop individual products (Galkina Cleary et al., 2023). These and other data indicate that NIH and other public funding is crucial in pharmaceutical discovery (Ledley and Galkina Cleary, 2023).

In addition to funding most early-stage biomedical research in the United States, NIH also funds some later-stage development, including translational research and clinical trials. These efforts occur through both its disease-focused institutes (often coordinating with the NIH Clinical Center) and its separate translation-focused programs—the National Center for Advancing Translational Sciences (NCATS) and the Advanced Research Projects Agency for Health (ARPA-H), discussed later in this section. NIH also directly funds commercialization efforts by providing nondilutive funding to small business to develop early-stage technologies through the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program. More details on the SBIR/STTR programs can be found below.

While it is clear that NIH-funded research is critical to advancing innovation, NIH processes do not clearly prioritize funding for disease areas with high disease burdens and unmet needs. To better understand why, it is helpful to understand the process for setting funding priorities within NIH.

NIH Funding Process

Rather than funding NIH broadly and allowing NIH leadership to allocate funds between each of 27 NIH institutes and centers (ICs), Congress appropriates funds for the ICs directly; those congressional funds broadly determine the amount of money that each IC can distribute. This process begins from the bottom up, with each IC discussing priorities with the NIH director. The NIH director then negotiates the budget for each institute and center with the Department of Health and Human Services (HHS) and the Office of Management and Budget (OMB) but is not able to communicate directly with Congress on funding priorities (IOM, 1998). Congress then appropriates funds to each IC at NIH, taking into account the budget and priorities of the administration. However, Congress does not explicitly consider disease burden or unmet need when allocating funding for each IC (Pierson and Millum, 2022), and, as discussed earlier, Congress does not necessarily have the requisite data to allow for such decision making.

Each IC then determines how to allocate its funds, incorporating input from a number of sources. Each IC has its own mission, budget, leadership,

and funding strategies. However, a significant amount of funding goes toward collaborative funding across ICs, such as activities on women’s health, pain, brain health, chronic diseases, pediatric studies, and others. Funding decisions are made taking into account a number of factors, such as scientific merit, scientific opportunity, current portfolio, congressional mandates (for research on specific diseases, beyond their appropriations for individual institutes and centers), and public health needs. Although disease burden and unmet needs could be considered in a number of these categories, they are not explicitly considered when ICs set their funding priorities.

Each IC has a strategic plan, a director, and advisory councils that help determine the topics for solicited research, such as program announcements, notices of special interest, or requests for information. To decide which research project grants get funded through these solicitations, NIH uses a two-step process for review. First is a peer-review process, using the recently updated Simplified Review Framework, followed by review by the IC advisory council. The new simplified framework for NIH scoring criteria takes three main factors into account for each research project grant: (1) importance of the research; (2) rigor and feasibility; and (3) expertise and resources. Considerations about disease burden and unmet needs could be considered in the importance of research score. However, they are not explicitly addressed as a factor to be examined when scoring the importance of research section. By including considerations of disease burden and unmet need in this scoring criteria, investigators would at least be incentivized to consider how the research they are undertaking meets these important criteria.

As noted in prior chapters, one key barrier to addressing unmet need is gaps in scientific knowledge. The knowledge gaps are best filled through robust government funding into basic science and disease epidemiology, which can elucidate new and promising pathways for drug development. Despite this need for innovative and novel work, NIH has long faced criticisms that it does not fund enough innovative, high-risk/high-reward ideas. For example, grants that include substantial preliminary data and investigators with substantial prior NIH funding and experience are more likely to be funded than new ideas and investigators. In complex areas of science, this can reduce opportunities for novel approaches. For example, NIH has been criticized by its focus on amyloid-targeting therapies for treating Alzheimer’s disease at the expense of other potentially promising avenues, although what is considered a promising avenue may be rather subjective (Piller, 2022).

According to a paper published for the Building a Better NIH project (Sampat et al., 2023), the two strategies to resolve this challenge are to change the peer-review system for evaluating grants or to create programs that specifically target funding for research with a high risk of failure but also a high probability of innovative effect if successful. Although the new

review criteria may help with some of this, particularly by reducing reputational bias that previously favored more senior, established investigators, truly new ideas may not have enough “preliminary data” or be “derisked” enough to obtain funding (NIH, 2024b). Therefore, it is important for NIH to explore creating new programs that specifically fund risky research, especially ones that explicitly target unmet needs. Although NIH does currently have a program through the Common Fund for high-risk, high-reward research (Box 5-1), this program does not explicitly take disease burden and unmet needs into account.

SBIR/STTR Grant Programs

SBIR/STTR grants, collectively known as America’s Seed Fund, provide nondilutive funding to American small businesses for the development and commercialization of innovative technologies (SEED, n.d.). Nondilutive funding is advantageous for early-stage companies because it provides capital without requiring companies to give up equity, and thus aligns financial incentives for teams involved in innovation. Key components of the federal SBIR/STTR support include the Small Business Administration (SBA), which coordinates America’s Seed Fund across 12 participating federal agencies; support organizations, such as accelerators and technical assistance centers that support applicants; federal agencies that fund qualified proposals; and entrepreneurs who apply for awards and collaborate with agencies to develop their technologies (SBA, 2025). Funding phases for the SBIR/STTR programs include:

• Phase I: Initial funding to explore the technical merit or feasibility of an idea or technology
• Phase II: Continuation of research and development (R&D) efforts initiated in phase I, moving toward prototype development
• Phase III: Commercialization stage, where private-sector funding or non-SBIR/STTR federal funding supports the final development and market entry

The program is intended to bridge academia and industry and thereby promote technology transfer and address translational challenges that small companies face when commercializing new discoveries. In addition, SBIR/STTR grants help derisk early-stage technologies and help small businesses participate in drug development, which is often dominated by large, established pharmaceutical companies.

SBIR/STTR has programs at 12 federal agencies that are coordinated through America’s Seed Fund (SBA, 2025). For health-related programs, HHS has an SBIR/STTR program at both NIH and the Centers for Disease Control and Prevention (CDC), although the NIH program is much larger as CDC only offers SBIR. NIH awards around 1,300 SBIR/STTR awards per year, with a fiscal year (FY) 2023 budget of more than $1.4 billion (NIH SEED, n.d.; America’s Seed Fund, n.d.), compared with around 20 SBIR awards (America’s Seed Fund, n.d.) and a FY 2023 budget of $15 million at CDC (Sorkin, 2023).

There are several advantages to the unique funding mechanism. In addition to providing nondilutive funding, SBIR/STTR grants can attract additional interest and investment (Lee et al., 2021; NASEM, 2023a), as well as provide access to resources to guide commercialization. For example,

Connecting Awardees with Regulatory Experts (CARE) is an interagency collaboration that connects the National Cancer Institute’s (NCI’s) SBIR awardees with regulatory experts at FDA who provide feedback on regulatory questions early in the development process. In comparison with other NIH research project grants (e.g., R01, R21), SBIR/STTR programs support commercialization planning, market assessment, and organizational development in addition to scientific research.

NIH has several SBIR/STTR grant programs located in ICs across the agency, and 24 of the 27 ICs provide funding to small businesses (SEED, n.d.). These programs are correlated with positive economic outcomes. A 2018 economic impact analysis of NCI SBIR/STTR phase II grant awards from 1998 to 2010 found that funded programs had yielded $26.1 billion in economic output nationwide and added over 100,000 new jobs in the United States (HHS, 2018). In survey responses, 89 percent of respondents agreed with the statement “The NCI SBIR/STTR program provided funding at a pivotal or critical moment for the small business” (HHS, 2018). However, this analysis did not attempt to identify the causal effect of the SBIR/STTR awards, such as whether those projects would have found other sources of funding and resulted in similar economic success without the SBIR/STTR program.

More rigorous evaluation of these programs is important, though difficult to develop. For example, a National Academies consensus study report on the NIH’s SBIR and STTR programs noted that the committee requested NIH research grant scoring data to conduct an analysis similar to one published in 2017 on the Department of Energy’s SBIR program, which found that “an early-stage award approximately doubles the probability that a firm receives subsequent venture capital and has large, positive impacts on patenting and revenue,” (Howell, 2017, p. 1,136), but NIH declined to provide the requested data (NASEM, 2022a). Using a coarser measure to identify investments, the National Academies committee found “no statistically significant difference in outcomes between those firms that received an SBIR/STTR award on their first application and those that applied to the programs but were rejected during that application cycle” when controlling for growth potential (NASEM, 2022a, p.162). The authors noted that this result is largely consistent with the program’s high selectivity and that the finding suggests that other applicants similarly positioned were able to attract other sources of funding (NASEM, 2022a).

Of note, much of the evidence consists of interviews, surveys, and case studies, and while compelling, this qualitative evidence limits the ability to determine causal effects of the programs. In addition, reporting is often inconsistent. For example, available data underestimate patents generated by SBIR/STTR awardees who are less likely to report these results back to NIH (NASEM, 2022a). Despite some data limitations, the committee found:

SBIR/STTR programs have many success stories, but there is room for improvement. Specifically, NIH’s SBIR/STTR programs have been criticized for having evaluation criteria that are too similar to those of R01 research grants and prioritize scientific merit over commercialization potential (Dutta et al., 2023; NASEM, 2022a). The programs could be more effective by focusing on high-risk areas that are not covered by academic grants or private investment. In addition, multiple National Academies reports have emphasized that the programs could do more to provide training, resources, and outreach to potential applicants from underrepresented or underserved groups (NASEM, 2015, 2022a). Finally, improvements are needed in reporting and monitoring to enable more effective evaluation in future.

Finding 5-1: SBIR/STTR programs have shown promise in providing nondilutive funding to advance the commercialization of promising medical products and technologies, although more evaluation is needed. The programs could have more impact by focusing on high-risk areas that are not covered by academic grants or private investment.

Advanced Research Projects Agency for Health

One agency that is explicitly tasked with conducting high-risk, high-reward research is ARPA-H. Established within NIH, ARPA-H was created in 2022 with the mission of “supporting the development of high-impact solutions to society’s most challenging health problems” (ARPA-H, 2024). ARPA-H’s mission is to accelerate better outcomes through the support of effective solutions that address major challenges.

Modeled after other ARPAs, such as the Defense Advanced Research Projects Agency (DARPA) and the Advanced Research Projects Agency-Energy (ARPA-E), ARPA-H funds program managers in CEO-like roles for an initial 3-year term to design and launch research contracts devoted to addressing specific research challenges (Congressional Research Service, 2022). Program managers are given a high-degree of autonomy to innovate, rather than relying on the peer-review process, which as discussed earlier in this chapter, may hinder high-reward innovation.

ARPA-H currently supports several initiatives related to drug development in areas of unmet need. For example, ARPA-H has a program focused on low-cost cell therapies, called Engineering of Immune Cells Inside the Body (EMBODY). As discussed in Chapter 4, while the technology for cell

and gene therapies has advanced, the cost of paying for these therapies remains a barrier to innovation and addressing unmet need. Programs like EMBODY, if successful, could help address some of these challenges.

Although ARPA-H is meant to address large health challenges, it currently does not have programs that focus specifically on areas where there is a mismatch in innovation and disease burden and unmet need. Expanding ARPA-H programs in some of these disease areas outlined in Chapter 3, such as cardiovascular disease and chronic obstructive pulmonary disease (COPD), would help advance innovation in these areas. Furthermore, continuing to expand ARPA-H’s programs on diagnostics and biomarkers could also provide support in important areas.

TARGETED PROGRAMS TO ADDRESS UNMET MEDICAL NEEDS

Since 1938, drug sponsors have been required to demonstrate that their products are safe before marketing. However, it was not until 1962 that Congress added a requirement that drugs also be shown to be effective for their intended use. That year, in response to the thalidomide tragedy in Europe, Congress passed the Kefauver-Harris Drug Amendments to the Federal Food, Drug, and Cosmetic Act, which revolutionized drug regulatory standards in the United States (Greene and Podolsky, 2012; Meadows, 2006). Since adoption of these amendments, manufacturers have been required both to demonstrate that new drugs are safe for use and to provide “substantial evidence” of effectiveness through “adequate and well-controlled clinical investigations” before FDA may legally grant approval.¹ These preapproval safety and effectiveness requirements are critical to FDA’s role in information production and innovation (Eisenberg, 2007; Kapczynski, 2018). By standing as a gatekeeper to the market—and to associated profits—FDA ensures that sponsors produce the essential information that patients and their clinicians need to guide decisions about treatment, including what drugs might be worth trying and which are not.

To develop drugs that are both safe and effective, it is essential to understand underlying disease mechanisms.² For many diseases, however, this fundamental information is lacking, contributing to unmet need. For example, despite billions of dollars spent by NIH to support research on Alzheimer’s disease and related dementias (AD/ADRD), the underlying causes of AD/ADRD remain poorly understood (NASEM, 2024b). Until recently, pursuit of the amyloid hypothesis had limited success in drug

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¹ New drugs, 21 U.S.C. 355 (2022).

² T. Zaks and M. Mackay. 2024. Strategies to better align investments in innovations for therapeutic development with disease burden and unmet needs. Presentation at committee meeting 2. June 18.

development, with ongoing debate about its scientific validity (Piller, 2022). FDA has granted accelerated approval to three monoclonal antibodies for AD since 2021 based on their effectiveness in reducing amyloid (an as yet unvalidated surrogate endpoint) and has granted regular approval to two of these drugs, lecanemab and donanemab.

In trials, both drugs resulted in a statistically significant slowing of cognitive decline, but at a rate below the minimal clinically important difference—the slowing may be too small to be noticed by patients, families, or clinicians. In addition, these drugs come with risks of serious side effects, raising questions about “their scope of application, long-term consequences, and the effect of their use in people living with mixed dementia” (NASEM, 2024b, p. 13).

Furthermore, many diseases lack adequate diagnostic tools. Most diseases have better outcomes if treatment can be started earlier in disease progression, but many diseases are associated with long diagnostic processes that delay early interventions. Accurate diagnostics can also improve clinical trial outcomes through the recruitment of appropriate patient populations including those most likely to benefit and excluding those unlikely to respond to the therapy. With such tools for clinical research and development, therapeutics with greater clinical benefit for patients may be more likely to appear on the market. Complicating the management of AD/ADRD patients, a diagnosis of Alzheimer’s disease is predominantly based on cognitive, behavioral, or personality changes, which can be difficult to measure accurately, and the presentations of disease can often be atypical (NASEM, 2024b). Although there has been some development of better biomarkers for AD/ADRDS, more research is needed to more accurately and quickly diagnose AD/ADRDS, which could lead to better selection of appropriate patient candidates for current therapeutics and provide insights into new therapeutic targets and candidate therapeutics.

As discussed later in this chapter, FDA exercises a great deal of regulatory flexibility to approve promising drugs that address unmet needs. Furthermore, without a strong understanding of the pathophysiology of disease, it is difficult to know what mechanisms to target, so drug development lags or clinical trials fail. Therefore, for most diseases with unmet needs, the problem facing patients is not that FDA is standing in the way of approving promising drugs, but rather that there is difficulty in identifying strong drug candidates. Therefore, more basic and translational research is necessary to better support drug development. This research would improve the quality of products brought to FDA for approval and of the treatment options ultimately available to patients.

Finding 5-2: Many of the current drivers contributing to the misalignment of innovation and investment with disease burden and unmet need are not within FDA’s immediate control.

Finding 5-3: Addressing unmet clinical need sometimes requires novel diagnostic tests to characterize diseases and disease states. For example, novel drugs often depend on accurate diagnostics to identify who should receive the treatment.

Conclusion 5-1: Diagnostics to characterize and detect disease states are critical for developing innovative therapies, targeting therapeutics to those who will benefit, and ensuring that patients have access to therapeutics early enough in their disease progression for therapeutics to be effective, and they are an important component of addressing unmet clinical need. Further incentives for development of innovative and accurate diagnostic tests that are necessary for drugs that address unmet medical needs could help resolve the mismatch among therapeutic investment, disease burden, and unmet need.

Although FDA approval is far downstream from scientific discovery, the agency has taken many steps to address unmet therapeutic needs. These approaches broadly fall into three categories (Figure 5-2): (1) programs that FDA administers to encourage investment to address unmet need; (2) efforts to mitigate broad scientific challenges inhibiting progress in drug development to address unmet need; and (3) programs to facilitate and expedite development and review of drugs to address unmet needs. Notably, some of these efforts have been devised and implemented by FDA, and some reflect authorities specifically granted to FDA from Congress. Each of these categories and their respective programs are outlined in detail in the section below.

Efforts to Encourage Investment to Address Unmet Need

In the past 3 decades, Congress has introduced programs intended to shape commercial drug development investments in accord with congressional and agency priorities. The following sections briefly summarize three existing incentives aimed at increasing drug development that exemplify programs intended to address the mismatch between investment and need.

As background to several of these incentives, it helps to first understand regulatory exclusivity, which is distinct from patent protection. To encourage innovation, FDA grants various exclusivities when approving new drug indications (FDA, n.d.). Data exclusivity prevents generic competition from relying on the original drug’s clinical trial data in its own application for market approval. Market exclusivity completely blocks FDA approval of generic drugs even if the subsequent manufacturer conducts its own clinical trials. Owing to the cost of conducting clinical trials, in practice, data exclusivity has the same effect as market exclusivity in excluding most competitors (Congressional Research Service, 2017).

During the window of exclusivity, competitors are not able to bring generic drugs to market, allowing the brand-name drug an exclusive period in which to recoup its investment and secure profits, thereby encouraging investment in innovation. In most cases, for a new small-molecule drug with a new active moiety, companies are granted a new chemical entity (NCE) exclusivity of 5 years. Given the greater challenges of biologics development and manufacturing, new biologic medicines receive 12 years of exclusivity before biosimilar medicines may be marketed. In addition, there are distinct exclusivity periods specific to drugs to treat certain diseases or in certain populations. These exclusivity periods used for orphan drugs, antibiotic drugs, and pediatric populations have had varying success in promoting drug development in these areas.

Once exclusivity periods have expired (assuming patents have also expired), competitors are able to seek approval for generic or biosimilar versions of therapeutics, which generally reduce costs for patients. There are various incentives intended to promote generic and biosimilar competition (FDA, 2017). However, there are some therapeutics that never see lower costs for most patients, either because generics or biosimilars are never developed, or because lower-cost competitors fail to gain market share due to, for instance, efforts by brand-name manufacturers to maintain favorable formulary placement. Although outside of the scope of this committee, a recent Medicare Payment Advisory Commission report makes recommendations to ensure that once patents have expired, patients have access to cheaper therapeutics (MedPAC, 2023).

The Orphan Drug Act

The Orphan Drug Act (ODA) of 1983 was designed to address unmet medical needs by providing additional incentives for innovations for treating diseases with small markets. Under the original statute a rare disease was defined only as one designated by HHS as having “no reasonable expectation” that the development costs could be recovered from U.S. sales.³ Because of administrative challenges obtaining this designation, the statute was amended in 1984 to provide the alternate definition of a disease that “affects less than 200,000 persons in the United States.”⁴ Drugs for diseases that meet either criteria are eligible for a tax credit for clinical trial expenses.⁵ These tax credits were originally 50 percent but were reduced to 25 percent in 2017.⁶ These drugs are also eligible for a 7-year period of FDA-administered market exclusivity (FDA, 2024c), which runs concurrently with new drug or biologic exclusivity, rather than being additive (Pharmaceutical Law Group, 2021). The ODA also provided HHS authority to make federal grants to cover certain costs of orphan drug development, including for clinical testing expenses incurred by private firms.⁷ Generally, the market exclusivity is regarded as the most significant and important incentive offered in the ODA (IOM, 2010).

Consistent with other evidence that private firms respond to financial incentives, Yin (2008) estimates that this combination of incentives caused a 69 percent increase in the number of clinical trials for rare diseases. As he notes, however, some of these clinical trials for rare diseases may reflect rent-seeking, such as strategic relabeling of drug indications to fit rare disease categories. Yin’s data also stop in 1994 and do not reflect more recent changes in orphan drug markets. Even without the ODA, orphan drugs have become attractive to develop because the path to regulatory approval for rare disease drugs has gotten shorter, cheaper, and generally more predictable than drugs for more common conditions. This is a result of the flexibility FDA shows to rare disease drugs both with regard to study design and approval standards and also regarding their eligibility for various expedited development pathways (discussed below).

There are also further reasons to believe that rare disease drug development would have improved even without the incentives offered in the ODA.

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³ Orphan Drug Act, 97-414. 97 (January 4, 1983).

⁴ Designation of drugs for rare diseases or conditions, 21 U.S.C. 360bb (1985).

⁵ Clinical testing expenses for certain drugs for rare diseases or conditions, 26 U.S.C. 45C (1983).

⁶ An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, Public Law 115-97, 115th Congress (December 22, 2017).

⁷ Grants and contracts for development of drugs for rare diseases and conditions, 21 U.S.C. 360ee (1983).

Science—especially improvements in understanding human genetics—has enabled better understanding and development of treatment options for rare conditions. In addition, the prices of orphan designated drugs have soared, thereby increasing their profitability and making their return on investment strong despite small patient populations. Between 2008 and 2021, launch prices for orphan designated drugs were approximately seven times higher than for nonorphan drugs (Rome et al., 2022), and U.S. payers have typically been willing to cover effective therapies with higher prices for small patient populations (at least until the recent round of multimillion dollar therapies entering the market challenged even that model). Therefore, the two categories were both lucrative for manufacturers.

It is possible that orphan drugs have been, in some instances, as profitable for manufacturers as nonorphan drugs because of the incentives offered in the ODA. Furthermore, in some instances where the drug was not initially intended for orphan indications, ODA incentives can yield clinical trials resulting in labeling changes rather than providers prescribing these agents off-label. However, evidence shows that orphan exclusivity has had less of an effect over time. Between 1985 and 2014, orphan exclusivity rights outlasted the drug’s last expiring patent in fewer and fewer cases: 50 percent for drugs approved in 1985–1994; 35 percent for drugs approved in 1995–2004; and 18 percent for drugs approved in 2005–2014 (Sarpatwari et al., 2018). Furthermore, the ODA has been subject to gaming in numerous ways. For example, in some cases, the ODA incentives have been applied to drugs beyond the goals of the legislation, including “for drugs that were not new, that were used broadly off-label beyond the FDA-approved rare disease indication, or that reached blockbuster sales despite the intent of the legislation to provide extra incentives for drugs for rare diseases that might not have been otherwise brought to market.”⁸

Because the ODA’s incentives have been so generous and may not currently be the driving force behind development of therapeutics in the rare disease space, and because they may be driving resources away from other important projects that are less financially attractive, there may be reason to narrow the ODA’s incentives. For example, commentators have suggested that ODA incentives should be limited to areas in which there are no companies already in a disease space, rather than emphasizing a numeric patient threshold (Thomas and Caplan, 2019). Others have suggested terminating ODA incentives (or requiring clawback) when firms reach a revenue threshold (Bagley et al., 2019; Sinha et al., 2024), increasing regulatory scrutiny (Daniel et al., 2016), or allowing Medicare to negotiate prices for orphan drugs (Vogel et al., 2024a).

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⁸ Personal communication, A. S. Kesselheim, PORTAL (Program on Regulation, Therapeutics, and Law), January 3, 2025.

Finding 5-4: Whether or not the ODA is narrowed or otherwise adjusted, there is no convincing evidence to suggest that the recent growth in rare disease innovation is a result of ODA incentives.

Patent Term Extensions

Patent term extensions (PTEs) have been widely used since they were created by the Drug Price Competition and Patent Term Restoration Act of 1984 (also known as the Hatch-Waxman Act).⁹ In general, a patent’s term expires 20 years from when the patent application is filed (or 17 years from issuance for patents filed before June 8, 1995). Because pharmaceutical patents are typically filed early in the development process, before beginning clinical trials, many years of patent term often occur during the time spent completing clinical trials and obtaining FDA approval. Under the PTE statute, 35 U.S.C. § 156, drug developers may partially restore this lost term.¹⁰ A developer may select one patent per approved drug to receive a PTE that restores term lost to FDA review and one-half of term lost to clinical testing. The statute also limits PTE to a maximum of 5 years of extension or 14 years total effective term after FDA approval. The developer applies for PTE with the U.S. Patent and Trademark Office, which then relies on FDA to determine the applicable extension period (Department of Commerce, 2021).

Lietzan and Lybecker (2020) examined PTE grants from 1984 through 2018 and found an average term restoration of about 3 years, resulting in an average effective patent exclusivity period of approximately 13 years (Lietzan and Lybecker, 2020). Because term restoration is only partial, they also found that effective patent life including PTE was still shorter for drugs with longer development times. The current PTE statute thus only partially addresses the problem of underinvestment in drugs that require long clinical trials, such as early-stage cancer treatments and preventatives (Budish et al., 2015).

Some scholars have proposed more substantial adjustments to the patent term to address distortions in innovation incentives, including adjustments based on information about a drug’s value that is obtained after the initial patent application (Buccafusco and Masur, 2021; Sukhatme and Bloche, 2019). While these policy proposals could in theory better align R&D investments with disease burden and unmet needs, the committee focused on other policy instruments for reforming the expected reward for bringing a new drug to market.

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⁹ The Hatch-Waxman Act: A Primer (2025), https://www.congress.gov/crs-product/R44643.

¹⁰ The Hatch-Waxman Act. Extension of patent term. https://www.law.cornell.edu/uscode/text/35/156.

Priority Review Vouchers

The priority review voucher (PRV) program was originally created by Congress in 2007 to encourage the development of treatments for neglected tropical diseases and was replicated for rare pediatric diseases in 2012 (Ridley, 2017). To qualify for a PRV, which shortens the timeline for review of a qualifying marketing application from the usual 10 months to 6 months, a sponsor’s application must be for a drug or biological product that addresses a neglected tropical disease or rare pediatric disease (Ridley and Régnier, 2016). In addition, FDA awards a voucher for priority review to the applicant company upon approval, which can then be used for another product that would otherwise not have qualified for priority review or, alternatively, sold to another company to use for one of their applications. The price for a PRV has hovered around $100 million to $150 million per voucher (Armstrong, 2025a). The idea is that the value of these vouchers will encourage investment in neglected tropical diseases and rare pediatric diseases, without any outlay of government funds, though as will be discussed in Chapter 6, decreasing the timeline to review an application will inevitably require additional resources and staffing to avoid delaying review times elsewhere in the agency.

In the pediatric rare disease PRV program, 36 drugs were issued a PRV upon approval between 2017 and 2023. The median annual price for drugs that were issued a voucher was $788,705, and they generated revenues similar to those of other brand drugs (Liu and Kesselheim, 2024). In a separate study comparing the development of adult rare disease drugs (for which no PRV program exists) to pediatric rare diseases, no difference was found in the period 2012–2018 in the rate at which drugs eligible for PRVs were introduced into clinical testing, although a greater number of PRV-qualified drugs reached phase II development (Hwang et al., 2019a). In the decade after the launch of the tropical disease PRV program in 2007, the number of drugs with neglected tropical disease indications entering phase I trials did not substantially change from the prior decade, before the PRV program’s initiation (Jain et al., 2017).

Despite the lack of increases in therapeutics, it is likely that the value of the PRV helped companies raise capital to fund some therapeutic development, as most investors report taking PRVs into account in their net present value calculations. However, when PRVs expanded from neglected tropical diseases to pediatric rare diseases, it became clear that the value of the PRV is tied to the number of vouchers available in the market. While originally estimated to be valued at $325 million per drug, vouchers are now being sold for $100 million, on average (Barrie, 2024; Kesselheim, 2020).

This tension between empirical evidence and investor experience was also evident in a recent Government Accountability Office (GAO) report

evaluating FDA’s PRV programs, released in 2020 (GAO, 2020). GAO found limited studies evaluating PRV programs, but the available evidence indicated that “the programs had little or no effect on drug development” (GAO, 2020). Yet, when GAO spoke with seven drug sponsors for the report, all of them stated that “PRVs were a factor in drug development decisions.” Another consideration is that in an earlier GAO report evaluating PRVs for pediatric rare diseases, FDA officials raised concerns about their ability to set public health priorities because the PRV program requires FDA officials to give priority reviews to new drug applications that would not otherwise qualify (Armstrong, 2025b). As of the writing of this report, the rare pediatric disease PRV program has not been renewed by Congress and began to sunset on December 20, 2024 (FDA, 2024i). The effect of not reauthorizing the rare pediatric PRV program will eliminate any new designations, and those companies with existing designations will only have until September 30, 2026, to gain marketing approval in order to earn the voucher.

Finding 5-5: Without taking a position on whether priority review voucher programs should be renewed, the committee finds no convincing evidence to suggest that they should be expanded as a tool to better match investment and unmet need.

Best Pharmaceuticals for Children Act

As discussed in Chapter 4, diseases for pediatric populations and their remedies have long been understudied, leaving pediatricians to make decisions about drugs without the necessary information on proper dosage, efficacy, and safety. To incentivize research in pediatric populations, Congress passed the Best Pharmaceuticals for Children Act (BPCA) in 2002.¹¹ BPCA functions by providing an incentive for sponsors to conduct pediatric studies for products that have FDA approval but for which there are no data on the drug’s use in children.

For drugs that are still on patent, sponsors get an additional 6 months of marketing exclusivity if they voluntarily conduct clinical studies in pediatric populations. Sponsors can either apply to the FDA for this extension, or FDA can make written requests to sponsors to complete the studies.

For drugs that are off patent, the responsible agency for implementing this program shifts from FDA to NIH. The Eunice Kennedy Shriver National Institute for Child Health and Human Development (NICHD) creates a list of priority medications to study in pediatric populations. NICHD then puts out a request for proposals for investigators to conduct

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¹¹ Best Pharmaceuticals for Children Act, Public Law 107-109, 107th Congress (Jan. 4, 2000).

pediatric studies in the medications listed and provides funding for investigators to complete the studies.

BPCA (especially in coordination with the Pediatric Research Equity Act, discussed below) has been effective in getting studies to be conducted in pediatric populations, studies that resulted in over 60 labeling changes between 1998 and 2018 (Bourgeois and Kesselheim, 2019). The incentives offered through the BPCA have been particularly effective in getting research networks set up and getting clinical trials started in pediatric populations (NASEM, 2024a). However, there are some challenges to the BPCA. First, the studies are slow, taking on average 7 years from the time of FDA approval to complete studies in pediatrics (Carmack et al., 2020). This is partially because, as discussed in Chapter 4, pediatric trials can be expensive and difficult to recruit, especially once a product is on the market. Second, BPCA offers a blanket 6-month extension of exclusivity, which means that products that are popular in adult populations benefit from the incentive more than products that may benefit children more. And, third, research shows that sponsors tend to delay their request to FDA to conduct studies in pediatric populations until the end of their patent exclusivity, which delays the time it takes to complete the studies and have a labeling change (Olson and Yin, 2018).

Despite these challenges, BPCA works as a model for conducting research in populations that are understudied and for which there is little financial incentive to conduct research. A recent National Academies report called to expand the BPCA model (with some updates) to pregnant and lactating populations (NASEM, 2024a). However, BPCA works better as a model for incentivizing research with specific populations than incentivizing research on specific disease areas of high burden and large unmet need.

Conclusion 5-2: The committee did not find sufficient evidence to recommend expansion of priority review vouchers, orphan drug exclusivity, or patent term extensions in their current form to support drug development to better meet unmet needs.

Efforts to Address Broad Scientific Challenges

In addition to efforts to encourage investment, FDA has undertaken a variety of initiatives to mitigate scientific barriers to drug development in areas of unmet need—barriers ranging from insufficient incentives to pursue data in certain populations, to a lack of appropriate endpoints that could speed trials, to the need for close collaboration with regulators to ensure that scientific standards can be satisfied in challenging areas. Several of these initiatives, each of which demonstrates FDA’s commitment to creatively addressing unmet need, are described below.

Pediatric Study Requirements

Following the passage of the BPCA in 2002, FDA issued an advance notice of proposed rulemaking to update the existing “pediatric rule” to require pediatric labeling changes for new drugs and devices.¹² However, a U.S. district court ruled several months later that the proposed rule exceeded FDA’s statutory authority and enjoined FDA from enforcing the rule.¹³ In response, Congress passed the Pediatric Research Equity Act (PREA) in 2003, which granted FDA the authority to require that sponsors conduct pediatric studies for new drugs and devices in pediatric populations before receiving FDA approval in the adult population.¹⁴ Sponsors can request a waiver for conducting the required pediatric studies. If the product receives FDA approval before the waiver is denied, FDA requires that the studies be conducted as postmarketing studies (FDA, 2005).

PREA has been successful in getting dosage, safety, and efficacy data to be generated for pediatric populations. From the time it was enacted in 2003 until 2018, PREA resulted in 532 labeling changes, more than the BPCA (Bourgeois and Kesselheim, 2019). However, it does have some limitations. For one, PREA only requires that pediatric studies be conducted for the same indication under review for the adult population. Even if evidence indicates that a drug could be effective in treating a pediatric condition that differs from the adult indication, FDA does not have the authority to require that these studies be carried out (an exemption has been made for pediatric cancer treatment candidates) (Bourgeois and Kesselheim, 2019). Another limitation is that because pediatric studies take time to complete, FDA often grants sponsors deferrals to complete pediatric studies to expedite access for the adult population (Bourgeois and Hwang, 2017). This means that many new products are on the market for years (a median of 7 years) before pediatric labeling is updated (Hwang et al., 2019b).

Although PREA could be updated to address some of these limitations, it has been successful in generating pediatric labeling changes, especially when considered in combination with the BPCA.

Accelerating Rare Disease Cures Program (ARC)

In May 2022, FDA’s Center for Drug Evaluation and Research (CDER) launched the Accelerating Rare disease Cures (ARC) program to

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¹² Obtaining timely pediatric studies of and adequate pediatric labeling for human drugs and biologics, 67 FR 20070 (April 24, 2002).

¹³ Association of Amer. Phys. v. U.S. Food and Drug. 226 F.Supp.2d 204. (U.S. District Court—District of Columbia, 2002).

¹⁴ Pediatric Research Equity Act of 2003, S.650, 108th Congress (2003), https://www.congress.gov/bill/108th-congress/senate-bill/650.

advance research on drug development to address unmet needs of patients with rare diseases (FDA, 2024a). ARC is led by CDER’s Office of New Drugs and is supported by CDER’s dedicated rare diseases team. ARC brings together various FDA offices and programs, including the Center for Biologic Evaluation and Research (CBER), the Center for Devices and Radiological Health, the Oncology Center of Excellence, and the Office of the Commissioner.

ARC’s scientific and regulatory initiatives focus on “strengthening platforms that facilitate natural history studies for rare diseases; developing, testing, and validating methodologies to construct novel endpoints; expanding the utilization of drug/disease modeling; establishing efficient approaches to dose selection for drugs for small population diseases; and expanding efforts in translational medicine approaches for individual rare disease programs” (FDA, 2024a, p. 10).

Rare Disease Innovation Hub

In 2024, FDA created the FDA Rare Disease Innovation Hub as a single point of contact, supporting intercenter collaboration, in an effort to “advance regulatory science with dedicated workstreams for consideration of novel endpoints, biomarker development and assays, innovative trial design, real-world evidence, and statistical methods” (FDA, 2024f; see also FDA, 2025c). To meet this goal, the hub plans to implement multipartner education and engagement opportunities that involve drug developers, FDA, patient organizations, other federal agencies (including NIH and ARPA-H), and researchers in support of education about novel approaches for the development of therapies for rare diseases (FDA, 2025e). There are up to three planned workshops in 2025, one of which is focused on designing clinical trials with a small and diminishing population of eligible trial participants. Furthermore, the hub seeks to encourage patient organizations and drug developers to engage in conversations throughout the drug development process. The hub is led by the directors of CDER and CBER and includes a steering committee of leadership from other centers and offices within FDA; its goal is to strengthen coordination and alignment among medical product centers through knowledge sharing. This is especially important given that one concern raised by rare disease drug developers has been a lack of consistency across agency centers and offices, with some exerting greater flexibility than others. Finally, the Rare Disease Innovation Hub is also intended to create a centralized point of contact for external partners.

START and RDEA Pilot Programs

In recent years, FDA has also created multiple pilot programs that seek to support the development of therapeutics to address unmet need for rare diseases.

One example is the pilot Support for clinical Trials Advancing Rare disease Therapeutics (START) initiative (FDA, 2024k). Launched in September 2023, START is a joint CDER and CBER effort open to sponsors of products that are in clinical trials under an active investigational new drug (IND) application. Eligible products for CDER are drugs intended to treat rare neurodegenerative conditions. Eligible products for CBER are gene or cell therapies intended to address an unmet medical need as a treatment for a serious rare disease or condition that is likely to lead to significant disability or death within the first decade of life (FDA, 2024k).

START has informally been described as “Operation Warp Speed” for rare diseases, in reference to the COVID era program that put industry and regulatory stakeholders in close collaboration to move drug development as quickly as possible by, in some instances, resolving barriers that limit efficiency and progress (Floersh, 2024). Sponsors selected to participate in START receive frequent advice and enhanced communication from FDA staff to address multiple potential drug development issues, including clinical study design, choice of control group and patient population, using nonclinical information, and product characterization (FDA, 2024k). Each of these issues can raise challenges for rare disease drug developers, especially given the small population sizes available for trial enrollment, associated statistical challenges, and open questions about the natural history of these diseases, which can make it difficult to select appropriate endpoints. Compounding these issues is that many rare disease drug developers are small companies without substantial prior experience or understanding of FDA requirements and expectations (Fernandez Lynch, 2023).

START’s goal of active FDA engagement and timely responses is likely to help sponsors, particularly those who have less regulatory experience; speed drug development; and avoid issues that may later preclude regulatory approval. FDA already offers formal meetings to sponsors at several designated time points; however this process can take weeks or months, and decisions could be delayed or FDA-requested modifications could be difficult to accomplish within appropriate time frames. In contrast, through START’s “more rapid, ad-hoc communications” with the agency (emails and videoconference responses), the program will provide a mechanism “to address development issues that would otherwise delay or prevent a promising novel drug from progressing” (Liang, 2024, p. 8) to the pivotal trial stage or to the stage at which sponsors meet with FDA immediately before

submitting a marketing application (Eglovitch, 2024). While the START initiative will require substantial resources—and is currently limited to up to three participants for each center—it demonstrates FDA’s goal of supporting the development of therapies for rare diseases that have unmet needs.

Similarly, the Rare Disease Endpoint Advancement (RDEA) pilot program, announced in October 2022, is designed to support novel efficacy endpoint development for drugs that treat rare diseases (FDA, 2022b). Also a joint CDER/CBER program, RDEA accepts sponsors with an active preIND or IND for a rare disease and sponsors without an active development program but planned natural history studies. The agency has also stated that it may consider accepting a proposal for a development program for a common disease that includes innovative or novel endpoint elements, including the specific endpoint or the methodology being developed, if there is sufficient justification that the proposal could be applicable to a rare disease. Furthermore, the proposed endpoint must be a novel efficacy endpoint intended to establish substantial evidence of effectiveness for a rare disease treatment. Given that RDEA is a pilot with limited resources, FDA states that one planned prioritization criterion is that the endpoint has potential to affect drug development more broadly, such as through a novel approach to develop an efficacy endpoint or an endpoint that could potentially be relevant to other diseases.

As both START and RDEA are pilot FDA programs, they will need additional resources to scale up and expand if they are to be successful.

LEADER 3D

The Learning and Education to Advance and Empower Rare Disease Drug Developers (LEADER 3D) initiative was also established to understand the challenges with bringing rare disease products to market (FDA, 2024g). LEADER 3D focuses on the development of educational content based on the needs of rare disease drug development stakeholders (FDA, 2025d). FDA’s public report of an external stakeholder analysis as part of LEADER 3D includes multiple third-party recommendations to support rare disease drug development, including the following:

• address nonclinical challenges (e.g., resources about the use of nonanimal models),
• dose-finding (e.g., use of adaptive trial designs to determine dose selection),
• natural history studies and registries (e.g., development of educational materials highlighting when and how an external control group can be appropriately used in clinical trial design),

• novel endpoint and biomarker development (e.g., clarification about different types of endpoints and types of data expected to support regulatory approval),
• clinical trial design and analysis (e.g., materials to help sponsors identify when external data can replace or enhance control arms), and
• rare disease drug development regulatory considerations (providing more detailed information about using expedited programs for rare diseases) (FDA, 2024g).

Rare Neurodegenerative Diseases Task Force

The 2021 Accelerating Access to Critical Therapies for ALS Act was signed into law with the intention of advancing the understanding of neurodegenerative diseases and fostering development of treatments for amyotrophic lateral sclerosis (ALS) and other rare neurodegenerative diseases (FDA, 2021). This legislation provides (1) grants for research use of data from expanded access to ALS drugs, which have begun to be awarded; (2) a new public–private partnership to advance understanding of neurodegenerative diseases and foster development of treatments, which was announced in 2022 as the Critical Path for Rare Neurodegenerative Diseases; (3) a required 5-year FDA action plan to foster drug development and facilitate access to investigational drugs for ALS and other neurodegenerative diseases, which has already been published; (4) an FDA rare neurodegenerative disease grant program to be administered by the Office of Orphan Products Development focused on characterizing these diseases and their natural history, identifying molecular targets, and improving clinical development through use of innovative trial designs and trial networks; and (5) a GAO report to Congress analyzing both of the law’s grant programs (FDA, 2022a; Fernandez Lynch, 2023).¹⁵

FDA’s action plan for this legislation also includes an ALS science strategy to address challenges to ALS drug development, focused on improving characterization of ALS disease pathogenesis and natural history, facilitating access to investigational new drugs (such as through use of decentralized trial designs), enhancing clinical trial structure and agility, encouraging the incorporation of expanded access into clinical development programs, facilitating data sharing, and exploring innovative trial designs including novel statistical approaches for small populations (FDA, 2022a).

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¹⁵ Accelerating Access to Critical Therapies for ALS Act, HR 117-207, 117th Congress (2025). https://www.congress.gov/congressional-report/117th-congress/house-report/207/1.

Finding 5-6: Because FDA programs to address broad scientific challenges, with the exception of pediatric study requirements, have only been in place for a few years, it will be important to carefully evaluate their effect and resource burdens, both individually and collectively, and to devote additional resources to successful programs.

Programs to Facilitate and Expedite Development and Review to Address Unmet Needs

Expediting drug development and review may result in more drugs being brought to market more quickly. FDA has already established several expedited programs for drugs intended to address unmet need, which use a variety of tactics, including increased opportunities to meet with FDA throughout drug development, acceptance of alternative endpoints to speed clinical trials, and efforts to speed FDA’s review of submitted applications (or portions thereof). Given the potential of these programs to signal a drug’s promise, associated designations may encourage investment, particularly for precommercial companies (Hoffmann et al., 2019), in some ways acting also as an incentive.

Notably, FDA’s expedited programs are being used with increasing frequency. For example, in 2024, 22 of CDER’s 50 drug approvals (44 percent) used one or more of these expedited programs (FDA, 2025b).

Fast Track

FDA’s fast track designation is available to drugs that are intended to treat a serious or life-threatening condition and that demonstrate the potential to address an unmet medical need (FDA, 2024d). The designation offers two important benefits. First, sponsors of fast track designated drugs are eligible for more frequent meetings, as well as written communication, with the FDA with the goal of discussing the drug’s development plan to ensure that appropriate data are collected to support approval, as well as about the design of proposed clinical trials and the use of biomarkers (FDA, 2024d). Second, fast track designated drugs may receive rolling review, under which completed sections of a Biologic License Application (BLA) or New Drug Application (NDA) can be submitted for review as they become available, allowing concerns to be identified early and expediting the review process (FDA, 2024d).

Breakthrough Therapy Designation

The breakthrough therapy designation is available to drugs that are intended to treat a serious condition and for which preliminary clinical

evidence indicates that the drug “may demonstrate substantial improvement over available therapy on a clinically significant endpoint(s)” (FDA, 2018a). Clinically significant endpoints are those that indicate an effect on irreversible morbidity or mortality or on symptoms that represent serious consequences of a given disease; these can include established surrogate endpoints, a surrogate or intermediate clinical endpoint considered reasonably likely to predict a clinical benefit; a pharmacodynamic biomarker that does not meet criteria as an acceptable surrogate but strongly suggests the potential for a clinically meaningful effect, and an improved safety profile compared to available therapy, with evidence of similar efficacy.

Receiving the breakthrough therapy designation means that the drug is eligible for all fast track designation features (i.e., more frequent interactions with FDA and rolling review), as well as intensive guidance on an efficient drug development program as early as phase I and organizational commitment involving senior FDA managers (FDA, 2024b). From 2013 to 2023, of 157 original indications approved by FDA with breakthrough therapy designation, 52 (33 percent) were granted accelerated approval and 105 (67 percent) traditional approval (Mooghali et al., 2024b). Among the traditional approvals, 61 (58 percent) were based on surrogate markers as primary endpoints.

One peer-reviewed study found that use of the breakthrough therapy designation reduced late-stage clinical development time by approximately 30 percent for new molecular entities (NMEs) (Miller et al., 2024). Of note, the effects on reducing clinical development time were stronger among privately held drug developers; the authors wrote that this highlighted the benefits of the breakthrough therapy designation on “smaller (or less resourced) drug developers on bringing these drugs to market” (Miller et al., 2024, p. 1,008). Furthermore, the authors estimated that the 30 percent reduction would lower the threshold needed for the NMEs to achieve profitability by 9–18 percent (Miller et al., 2024).

Important concerns regarding the breakthrough therapy designation have also been raised, however. As Darrow outlined in an initial evaluation of the program published in 2018, new drugs may be able to “meet technical requirements for the designation, and then be approved, despite having only modest efficacy” raising concerns that the designation may mislead patients who would reasonably expect breakthrough-designated drugs to be true clinical breakthroughs (Darrow et al., 2018).

Shortened Review Programs

Priority review

Drugs may also receive a priority review designation from FDA if they are expected, if approved, to offer “significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of

serious conditions when compared to standard applications” (FDA, 2018b). Priority review designation means that FDA intends to take action on an application within 6 months, as compared to 10 months during a standard review (FDA, 2024e). Therefore, priority review can speed drugs to market by approximately 4 months, which is important for patient access and for sponsor profits. However, it should be noted that in practice, this did not lead to a significant difference in median clinical development time for fast track designation (6.6 years [4.2–9.3] years; p= .10) compared with clinical development for drugs that did not use an expedited program (7.2 [(5.3–9.5] years) (Wong et al., 2023).

Separately, as discussed above, some drug sponsors have been able to obtain priority review vouchers (after receiving approval for a drug for neglected tropical diseases and pediatric rare diseases), which can be sold to sponsors of drugs that would not otherwise be eligible for priority review, although with the lack of reauthorization by Congress at the end of 2024, its effect will be limited to those sponsors who have already secured a designation. Similarly, the PRV program for medical countermeasures has also sunset as of October 2023 and not been reauthorized by Congress (FDA, 2025f).

It is important that rushing to meet regulatory deadlines does not lead to patient harm, especially as Downing et al. (2017) found that postmarket safety events are more common for drugs that were approved near their regulatory deadline. Given the shorter window for priority review, this is something to be wary of.

Split Real-Time Application Review pilot

Similar to the rolling review mentioned above in the context of fast track designation, the Split Real-Time Application Review (STAR) pilot program “aims to shorten the time from the date of complete submission to the action date, in order to allow earlier patient access to therapies that address an unmet medical need” (FDA, 2023). For efficacy supplements across all therapeutic areas and review disciplines that meet specific criteria, accepted STAR applications are submitted in “a ‘split’ fashion” (two parts with components submitted no longer than 3 months apart). The STAR pilot applies to supplemental drug and biologics applications proposing new uses of approved therapies to address unmet medical need when clinical evidence indicates the drug may demonstrate substantial improvement on a clinically relevant endpoint over available therapies. FDA will begin to review data once it receives a part 1 submission including, among other things, all components of the efficacy supplement except for final clinical study reports. The sponsor must then submit clinical study reports and integrated summaries of safety and effectiveness as a part 2 submission within 3 months. Because FDA will begin reviewing the data sooner, decisions will ideally move more quickly.

Real-Time Oncology Review

Launched in February 2018, the Real-Time Oncology Review (RTOR) does the following:

RTOR applies only to oncology drugs that are likely to demonstrate substantial improvements over available therapy or that meet criteria for expedited programs, that have straightforward study designs, and that have endpoints that can be easily interpreted (e.g., overall survival, response rates). RTOR does not affect the likelihood of approval, but FDA guidance states that “the intent of RTOR is to provide FDA reviewers earlier access to data, to identify data quality and potential review issues, and to potentially enable early feedback to the applicant, which can allow for a more streamlined and efficient review process” (HHS, 2023).

Research has found that one-fifth of new FDA oncology indication approvals from the 2018 inception of RTOR through December 31, 2023, came through RTOR (Mooghali et al., 2024a).

Regulatory flexibility

FDA has both formal and informal mechanisms for using regulatory flexibility to expand patient access to therapeutics, particularly for patients with unmet needs. This section reviews the formal process for flexibility, known as accelerated approval, as well as informal FDA flexibility that applies to both accelerated approval products and products receiving regular approval. The section ends with some of the challenges and limitations with these flexible approval standards.

Accelerated approval

In response to the HIV/AIDs epidemic, FDA developed the accelerated approval program in 1992 to expedite approval for therapeutics that showed promise for treating serious conditions with unmet needs (Vereshchagina, 2022). In 2012, Congress codified this program into law in Section 901 of the Food and Drug Administration and Safety Innovation Act.¹⁶ In contrast with FDA’s other expedited programs,

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¹⁶ Food and Drug Administration Safety and Innovation Act, Public Law 112-144, 112th Congress (July 9, 2012).

accelerated approval is the only one that alters the type of evidence accepted for approval. Rather than clinical endpoints, which evaluate how patients feel, function, or survive, accelerated approval drugs meet the “substantial evidence” of effectiveness standard based on unvalidated surrogate endpoints or intermediate clinical endpoints other than irreversible morbidity or mortality that are deemed reasonably likely to predict clinical benefit. These surrogate endpoints, such as reduction in tumor size, often can be measured earlier than direct clinical benefits, such as survival. To confirm the predicted benefit, sponsors of accelerated approval drugs are required to complete postmarket trials on a mutually agreed upon timeline. If benefit is not confirmed, FDA may then use an expedited process to withdraw approval or change the label indication.

Use of the accelerated approval pathway is increasing, and between 1992 and 2021 there were 278 drugs granted accelerated approval (Beakes-Read et al., 2022). Most of these were for novel oncology drugs, but other nononcology drugs have also used this pathway (NASEM, 2023b). Furthermore, as noted in a recent National Academies report on rare diseases:

Accelerated approval has recently been used for drugs to treat Alzheimer’s disease, ALS, and Duchenne muscular dystrophy; FDA leadership has indicated that this pathway will become the norm for gene therapies (Brennan, 2024).

This increased use is because the accelerated approval pathway shortens clinical development times. Research examining 367 therapeutics approved by FDA between 2015 and 2022 found that clinical development times for drugs that used no expedited program were a median of 7.2 years (inter-quartile range 5.3–9.5) (Wong et al., 2023). However, approvals using accelerated approval had significantly shorter clinical development times: a median of 4.9 years, (4.0–7.4), with p< .001).

While accelerated approval has often been successful in getting innovative and effective drugs to patients more quickly than would otherwise have been possible, there are important concerns about the program. These have to do with the acceptance of controversial surrogate endpoints to support accelerated approval (Gyawali et al., 2019), using accelerated approval to “rescue” drugs that failed to meet clinical endpoints in pivotal trials (HHS, 2025), poor rigor and delay in confirmatory studies (HHS,

2025), challenges withdrawing drugs that fail to confirm benefit (Beakes-Read et al., 2022), conversion to regular approval despite not meeting endpoints in confirmatory studies (Joseph, 2024), and high prices (and coverage costs) without demonstrating benefit (Fashoyin-Aje et al., 2022; Liu et al., 2024). Because of these challenges, FDA and Congress have taken a number of steps toward addressing concerns about postmarket evidence generation and regulatory actions. In 2022, the Food and Drug Omnibus Reform Act was passed, which confirmed FDA’s authority to require confirmatory studies to be underway prior to granting accelerated approval, required confirmatory study terms to be set by the date of accelerated approval, increased the frequency of progress reports on confirmatory studies, and adjusted the process for involuntary withdrawal.¹⁷ For its part, FDA is increasingly requiring confirmatory studies to be underway before accelerated approval is granted (FDA, 2025a), which has been demonstrated to speed both conversion to regular approval and withdrawal depending on study outcome (Fashoyin-Aje et al., 2022). FDA has also taken more frequent action toward withdrawing approval following confirmatory studies that fail to demonstrate benefit. However, the balance between premarket and postmarket evidence generation remains challenging.

FDA flexibility

Although not a formal expedited program, it is important to acknowledge that the FDA has increasingly employed substantial regulatory flexibility for most drug approvals, beyond the programs described above. For the purposes of this report, regulatory flexibility means the acceptance of weaker or less evidence in support of drug approval or less certainty about the effectiveness or clinical benefits of an approved drug indication. For example, a study of 273 new drugs and biologics approved by the agency for 339 indications over three periods (1995–1997, 2005–2007, 2015–2017) found that more recent approvals were based on fewer pivotal trials and that these trials were less rigorous (despite having longer durations) (Zhang et al., 2020). Another study found that 65 percent of drug approvals in 2022 were based on a single pivotal efficacy study (Kaplan et al., 2023). Johnston et al. (2023) also found that between 2018 and 2021, 10 percent of drugs approved by the FDA were based on pivotal studies with null findings for one or more primary efficacy endpoints. In practice, these statistics are exemplified by FDA’s approval of Relyvrio, a drug for ALS that received FDA approval based on a single positive phase II trial (and was withdrawn when a phase III trial required by the European Medicines Agency failed to show benefit), and Elevidys, the first gene

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¹⁷ Food and Drug Amendments of 2022, H.R.7667, https://www.congress.gov/bill/117th-congress/house-bill/7667.

therapy for Duchenne muscular dystrophy, which received both accelerated and regular approval despite failure to meet primary endpoints (Feuerstein and Garde, 2024; Abrams et al., 2025).

Although regulatory flexibility can be appropriate, especially for rare diseases, it is important that the associated uncertainty be rapidly resolved. However, unlike the accelerated approval pathway, when FDA exercises regulatory flexibility outside that context, it does not require confirmatory studies, potentially leaving important gaps in understanding. It is imperative that this shortcoming in regulatory flexibility be resolved, although there has been neither regulatory nor congressional action to achieve this outcome (Fernandez Lynch et al., 2023).

Finding 5-7: FDA currently exercises a great deal of regulatory flexibility both within and beyond existing programs and sometimes extends this flexibility too far by approving drugs that are unlikely to—or fail to—confirm benefit.

Finding 5-8: Given the remaining unmet need, FDA is under pressure to increase regulatory flexibility beyond current approaches.

Challenges with flexible approval standards

One of the challenges with approaches that rely on postmarket evidence generation to confirm a drug’s benefit after approval is that it can be difficult to encourage patients to enroll in rigorous studies once drugs become commercially available. Although adjusting payer coverage when drugs have not yet confirmed meaningful clinical benefit could help encourage participation, that approach has been politically unpopular to date (Fernandez Lynch and Bateman-House, 2020; Greenberg et al., 2025). As a result, confirmatory studies, when required, are often single-arm, conducted in patients outside the approved indication, or conducted outside the United States; they are also often delayed, as noted above (Dyachkova et al., 2024; Fernandez Lynch and Bateman-House, 2020; IQVIA, 2019). To the extent that FDA continues to rely on regulatory flexibility to approve drugs intended to meet unmet need, it is essential to explore additional steps to ensure that postmarket studies can be conducted quickly and well (Fernandez Lynch and Bateman-House, 2020).

Another challenge is that keeping pace with postmarketing requirements and enforcing these requirements requires the agency to have appropriate resources and staff. Beyond postmarketing requirements, to maintain and potentially expand the pathways and initiatives to address unmet needs outlined in this section requires resources and staff with the necessary expertise. Chapter 6 provides more details, but a well-resourced regulatory environment is needed for FDA to continue these programs.

Finding 5-9: Through a wide range of programs, FDA has demonstrated creativity and commitment to supporting the science necessary for successful drug development and to providing regulatory support for sponsors seeking to address unmet need, especially in the context of rare disease.

Finding 5-10: FDA has several programs designed to drive innovation in therapeutic areas of unmet need, including the breakthrough therapy and fast track designations, priority review, and accelerated approval, as well as less formal approaches to regulatory flexibility.

Conclusion 5-3: Additional resources are needed for FDA programs that successfully support endpoint development and validation, innovative trial design, and the resolution of other broad scientific challenges that impede drug development for unmet needs, as well as programs designed to support communication between sponsors and FDA to quickly resolve challenges arising in specific development programs.

Conclusion 5-4: Given important concerns about the accelerated approval pathway, recent adjustments need to be carefully monitored and further adjustments may be needed to promote rigor and confidence that accelerated approval drugs will, as quickly as is possible, confirm meaningful clinical benefit for patients or be withdrawn.

Conclusion 5-5: Current legislation and polices for FDA are sufficient to foster the approval of innovative drugs for unmet needs.

Conclusion 5-6: When traditional approval standards cannot be satisfied for scientific reasons, regulatory flexibility can be appropriate as long as the initial approval is based on a reasonable likelihood of clinical benefit and clinical benefit is rigorously and rapidly confirmed following approval.

Conclusion 5-7: Although patients facing serious unmet needs may reasonably be willing to accept greater uncertainty and risk, weak approval standards harm patients seeking clear information to guide treatment decisions, may impede the development of strong treatment options, and fail to incentivize investment in true innovation.

Conclusion 5-8: Support for innovation in the pre- and postmarket settings requires a well-resourced regulatory environment, including attracting and retaining FDA staff with the necessary experience and expertise.

PUBLIC–PRIVATE PARTNERSHIPS

Public–private partnerships (PPPs) could provide a mechanism for aligning public- and private-sector financial investments. PPPs have become instrumental in advancing drug development by combining the strengths of governmental bodies, academic institutions, and private industry. These collaborations are designed to accelerate the translation of scientific research into effective medical treatments, addressing complex health challenges more efficiently than traditional models.

PPPs can take both simple and complex formats. In their simplest form, partnerships between the public and private sectors can be bilateral agreements between two organizations. In the case of the federal government and the private sector, these take many forms depending on the type of partnership sought. Two examples of these bilateral agreements are targeted drug development grant programs, such as the Network for Excellence in Neuroscience Clinical Trials (NeuroNEXT) and the National Cancer Institute’s (NCI) Experimental Therapeutics (NExT) programs, and cooperative research and development agreements (CRADAs). PPPs can also be complex, multistakeholder agreements that involve projects between government, industry, academia, and nonprofit organizations, such as the Accelerating Medicines Partnerships (AMP) and Operation Warp Speed (OWS).

Bilateral Agreements

Targeted Drug Development Grant Programs

Federal agencies often sponsor targeted drug development programs to provide directed resources to aid organizations in areas of the drug development process where smaller companies or nonprofits generally find it challenging to secure funding (HHS, 2018; SEED, n.d.). For example, NeuroNEXT is an initiative funded by the National Institute of Neurological Disorders and Stroke to facilitate phase II clinical trials for neurological diseases (NeuroNEXT, n.d.; NINDS, 2025). NeuroNEXT fosters collaborations among academia, private foundations, and industry partners, providing a centralized institutional review board (IRB) and standardized agreements to facilitate efficient trial initiation and management. An independent evaluation of NeuroNEXT in 2020 found that the program “successfully enrolled participants at or ahead of schedule, collected high-quality data, published primary results in high-impact journals, and provided mentorship, expert statistical and trial management support to several new investigators” (Cudkowicz et al., 2020, p. 3).

Another example is the NExT program, funded by NCI to advance the discovery and development of novel cancer therapies, particularly those not

typically pursued by private industry. NExT accepts applications from various entities, including academic institutions, private companies, and government organizations. Proposals are evaluated based on scientific merit, feasibility, alignment with NCI’s mission, novelty, and clinical need. Instead of providing direct funding, NExT offers access to NCI’s extensive contract-based resources to support the development of accepted projects, depending on where the project is in development (NCI, n.d.-b). For example, a project in the early discovery phase can receive resources from the Frederick National Labs for Cancer Research or the Chemical Biology Consortium, which can assist with in vitro and in vivo target validation, high-throughput screening, biophysical characterization, and more (NCI, n.d.-a). Although the committee is unaware of any independent evaluations of the program, a 2021 presentation from the Deputy Director for Clinical and Translational Research at NCI shared that the program had led to over 50 publications, over 10 patents filed, and 10 U.S. and international patents awarded. Furthermore, at the time of the presentation (June 2021), five therapeutic agents had begun to be investigated in clinic trials and two therapeutics anticipated filing INDs that year.¹⁸

The Bridging Interventional Development Gaps (BrIDGs) program, run through NCATS, functions similarly to the NExT program (NCATS, 2024). The BrIDGs program provides contracting services to generate preclinical and clinical-grade material to use in IND applications to the FDA. Unlike NExT, which focuses on cancer projects, BrIDGs is not disease specific and can be used to advance high-risk therapies for both common and rare diseases.

Cooperative Research and Development Agreements

Established under the Federal Technology Transfer Act of 1986, CRADAs have become a vital mechanism for fostering public–private partnerships, driving innovation, and ensuring that federally developed technologies benefit society (NIH Office of Technology Transfer, n.d.). CRADAs are one of the most common bilateral agreements used by the United States federal government. A CRADA is a formal arrangement between a federal laboratory or research entity and a nonfederal entity, such as a private company, university, or nonprofit organization, to collaboratively conduct R&D in areas aligning with the federal agency’s mission (Naval Postgraduate School, 2022). Some

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¹⁸ As of May 2025, it appears that one of the therapeutic agents anticipating an IND filing has moved into phase I and II trials; see https://clinicaltrials.gov/study/NCT04629443 (accessed May 23, 2025). A number of the agents already in clinical trials as of 2021 are still undergoing testing; see https://clinicaltrials.gov/study/NCT01273168 and https://clinicaltrials.gov/study/NCT04512235 (accessed May 23, 2025).

of the key features of partnerships under CRADAs include resource sharing, prenegotiated intellectual property (IP) rights, mutual confidentiality terms, and the ability for accelerated technology transfer and commercialization (Homeland Security Science and Technology, 2020; Naval Postgraduate School, 2022). For resource sharing, both parties can contribute in-kind resources; however, while the private-sector partner can provide the federal partner funding, the federal partner cannot provide the private-sector partner funding under the agreement (Naval Postgraduate School, 2022).

For IP rights, while every federal CRADA does have variations on the time point at which IP can be claimed, the nonfederal partner typically retains rights to inventions it develops under the CRADA and may be granted an option to negotiate exclusive or nonexclusive licenses for inventions developed jointly or by the federal laboratory, subject to government-use rights (EPA, 2024). These IP terms often also allow for disclosure of public release of information about the data and inventions generated (STIP, n.d.). While there any many examples of drug approvals that have resulted from CRADAs, there are some real successes for HER2+ breast cancer treatment developed using CRADAs between industry and NCI: Herceptin (trastuzumab) for adjuvant HER2+ early breast cancer and Perjeta (petuzumab) for neoadjuvant HER2+ early breast cancer (Romond et al., 2005).

Multistakeholder PPPs

While these two-party PPPs help to facilitate many aspects of drug development, especially for smaller organizations, tackling the challenges involved in creating therapeutics for areas of mismatch between unmet need/disease burden and innovation investment will often require larger, more complex PPPs. To create these partnerships, federal scientific agencies often call upon their congressionally mandated, affiliated nonprofit organization. Several U.S. government scientific agencies are supported by congressionally established nonprofit foundations, each created to advance its particular missions through PPPs. Box 5-2 provides an overview of some of these foundations, including the legislation that established them and their core missions.

More complex PPP formats facilitated by the organizations described above often involve multiple stakeholders across both the public and private sectors, including representatives from government, industry, academia, nonprofits, and organizations representing persons with lived experience, which requires more complex structures for funding and contracting. A few notable examples are the Foundation for the National Institutes of Health (FNIH) Biomarkers Consortium and the AMP, which are overseen by Operation Warp Speed (Box 5-3). The Biomarkers Consortium unites

diverse stakeholders from all organization types noted above, including over 70 industry and nonprofit members, plus numerous academics for each project to identify and validate biomarkers and drug development tools for enhancing therapeutic development and regulatory decision making. Since it was formed in 2006, the consortium has made significant achievements in developing, validating, and qualifying biomarkers, including for metabolic disorders, cancer, and more. Such a model has evolved and can continue to evolve strategically to meet emerging scientific needs, especially in the areas of unmet need (Menetski et al., 2019).

The AMP programs are mostly PPPs created to develop large datasets of multiparametric data for drug target identification and validation, engaging government, industry, academics, nonprofits, and persons with lived experience. Across the 10 AMP partnerships, there are 34 industry partners, 16 NIH institutes and centers, and 37 nonprofit organizations. Although there are not yet any drug candidates that originate from the AMP programs, they have potential benefits for drug development that are true of other PPPs, including:

1. Resource sharing: pooling of financial resources, expertise, and infrastructure from both public and private sectors, facilitating large-scale projects that might be unmanageable for individual entities;
2. Accelerated research: expediting the drug discovery process by combining scientific research capabilities with practical development and distribution expertise;
3. Risk mitigation: sharing the risks associated with drug development encourages investment in innovative research areas that may be too risky for individual private companies to undertake alone;
4. Standardization and data sharing: promoting the development of standardized protocols and open data sharing, enhancing reproducibility and validation across the scientific community; and
5. Finally, critical for drug development, enhanced target validation: validating biological targets for therapy jointly across a field increases the likelihood of successful drug development and reduces late-stage failures (Dolgin, 2019).

Given the goals of AMP, it is important to recognize that not all successful PPPs aim to advance a therapeutic to market. Some, such as AMP, aim to facilitate better selection of targets for treatment, which, as noted, can reduce late-stage failures and advance drug development in ways that are more difficult to evaluate than just drug approvals. For example, the Type 2 Diabetes Knowledge Portal, supported by AMP, enables investigators to prioritize 18 targets, and importantly, deprioritize a further 30 (FNIH, 2024).

While most of AMP’s work as described above is valuable for drug development, one of the AMP programs is also worth highlighting for how it is working in a different way to promote therapies in the area of unmet need of rare diseases. The AMP Bespoke Gene Therapy Consortium (BGTC), which launched on October 27, 2021, instead of seeking to identify and validate targets, is focused on accelerating the development of gene therapies for rare genetic diseases that typically lack commercial interest (NCATS, 2021). The consortium aims to create a comprehensive “playbook” for developing gene therapies, encompassing streamlined templates, master regulatory files, and uniform manufacturing processes. This playbook will be validated through up to eight clinical trial test cases, providing insights that can be used to streamline the regulatory process for future gene therapy development. By focusing on a single gene therapy platform—the adeno-associated virus vectors, known for their safety in gene delivery—BGTC seeks to make this technology more accessible for treating a broader range of diseases (FNIH, 2025a). Critical to this PPP is that not only researchers but regulators helped design the program and will also be part of its execution and management. In fact, work from this program helped to shape FDA’s draft guidance on platform therapies (FDA, 2024h). This program demonstrates that PPPs can also assist with the shaping of regulatory policies for drug development, and not just discovery and clinical research.

Large complex PPPs have been used to improve the drug development pipeline in countries other than the United States. In Europe, the Innovative Health Initiative (IHI), formerly the Innovative Medicines Initiative, is a large-scale PPP designed to foster drug discovery and development. By pooling resources and expertise from public and private sectors, IHI addresses bottlenecks in pharmaceutical innovation, particularly in such areas as translational immunology and neuropsychiatric disorders. The initiative has made substantial progress, exemplified by several translational datacentric projects targeting Alzheimer’s disease and other conditions (Goldman, 2012; Goldman et al., 2013).

PPPs are also playing a promising role in tackling global health issues, such as neglected diseases prevalent in low-income regions. Collaborations between public entities and private companies have revitalized research and development efforts in areas that were previously underfunded, leading to new treatments and improved health outcomes. The Global Health Innovative Technology (GHIT) Fund, established in Japan, is an international public–private partnership dedicated to advancing global health R&D. Its primary mission is to mobilize Japanese industry, academia, and research institutions to collaborate with global partners in creating new drugs, vaccines, and diagnostics targeting malaria, tuberculosis, and neglected tropical diseases. By investing in the development of health technologies,

the GHIT Fund aims to deliver innovative solutions for diseases that disproportionately affect underserved populations. As one of the world’s first public–private partnership fund for global health R&D, the GHIT Fund exemplifies a pioneering approach to funding and facilitating the development of essential health technologies (GHIT Fund, 2025).

Finding 5-11: PPPs can effectively enable the private sector to share both costs and risks.

Finding 5-12: Every scientific health research agency has a congressionally mandated nonprofit organization that could be useful in building PPPs.

Challenges with PPPs

Despite the successes of PPPs and the potential to expand them to enhance innovation in needed therapeutic areas, several barriers exist within the U.S. context to developing more PPPs. First, PPPs often spring from federal agencies wanting to expand therapeutic development in a specific area and approaching industry about entering a PPP to contribute financial support or in-kind resources and assets. In areas of high unmet need with low economic incentives for the private sector, these are often shelved assets or research concepts that companies have developed but chosen not to pursue. However, the federal agencies do not always have insight into what shelved assets or research exists and therefore are unable to approach companies about developing these assets. This limits the usefulness of PPPs, particularly for addressing topics of high unmet need.

Some companies exist with the sole purpose of seeking out abandoned assets from other companies and developing them. However, even for these companies, it is a time- and labor-intensive process to seek out these abandoned assets that show promise. While these companies fill a need in the market and have been successful developing drugs for pediatric oncology, autoimmune diseases, pulmonary diseases, and more, there are still gaps in the market for therapeutics that are either too high risk to be able to raise capital or that market dynamics still do not favor. For these drugs that remain shelved, despite therapeutic promise, PPPs could be useful in advancing these to market. FNIH is working with NCI and FDA Oncology Center of Excellence to create such a PPP that would create a resource network and process to develop drugs for ultrarare cancers with well-defined biological targets, but for which there is no economic incentive for industry, even small start-ups, to create therapies to treat. The partnership aims to either take shelved assets from companies that address known biological targets within these ultrarare cancers or develop novel agents directed at these well-defined biological targets. This PPP is just beginning its design

phase and engaging all the necessary partners to create such a network, but it intends to launch pilot projects in 2026 (FNIH, 2025c).

Another potential barrier to advancing PPPs is the lack of an existing clinical trial infrastructure that is “warm” and ready to use at any time. As described in Box 5-3, this was one of the lessons of the COVID-19 pandemic, and having a network that is ready to use for the next public health emergency is critical for quickly developing innovative therapeutics. With the exception of the National Cancer Institute, many institutes within NIH will create infrastructure for a single clinical trial, run the clinical trial, and then, without sustainable funding to keep the networks active, will have to disband the work (Eisenberg et al., 2012). This process is both inefficient and expensive, and improving the process could benefit both the public and the private sectors. On the public side, having stable clinical trial networks to run trials as needed would save time and resources. On the private side, industry could use public networks to efficiently set up trials where there currently is not a strong market incentive to do so. For example, a network for rare disease trials could help incentivize industry to conduct trials in these populations. The need for better clinical trial infrastructure was a consistent theme in the National Academies’ workshop on Envisioning a Transformed Clinical Trials Enterprise for 2030 (NASEM, 2022b). Advancing these networks are critical for advancing clinical trials in the current landscape.

Regardless of the type of PPP or the designated coordinating entity, it is critical to remember that the success of PPPs depends on clear governance structures, equitable sharing of risks and rewards, the expertise of staff to navigate the drug development ecosystem, and alignment of objectives among partners. Effective partnerships require transparent communication, mutual trust, and a shared commitment to public health goals. When managed well, PPPs can significantly enhance the efficiency and effectiveness of drug development pipelines, ultimately bringing innovative therapies to patients more rapidly. To manage these partnerships well takes resources, which can be a barrier for some smaller organizations to participate and enter into these PPPs. Some larger PPPs have managed this by offering a sliding scale of participation, tiered by the size of the organization and R&D budget. However, some organizations may find it difficult to contribute the required amount to benefit and share with others engaged in PPPs.

One thing that both the biomarkers consortium and the AMP PPPs demonstrate is that these more complex partnerships function best in the precompetitive space where no IP is claimed or else if all IP is jointly owned by the partnership. Large PPPs have a more challenging time operating if a single or even just a few partners are seeking to claim the work of the partnership and exclusively develop it for their own monetary gain. Because of this, it can be challenging to evaluate the success of PPPs, particularly

when the goal of the PPP is in the precompetitive space. Often, some of the earlier work is conducted using the PPPs, with companies doing some of the later-stage trials, so it is difficult to track what has come to market solely because of PPPs. Further, some PPPS, like AMP, aim to advance more precise therapeutic targets by ruling out some potential targets to prevent investments in therapeutics that will ultimately fail in later stage trials.

Conclusion 5-9: Strengthening and expanding public–private partnerships, such as the Network for Excellence in Neuroscience Clinical Trials, the National Cancer Institute Experimental Therapeutics program, and Bridging Interventional Development Gaps, could help address innovation challenges for therapeutic areas with unmet needs.

PRICING AND ACCESS

As reviewed in Chapter 4, financial considerations are critical to the discussion of R&D development in the pharmaceutical industry, including estimation of financial returns, which are related to expected market size and price per user (Lakdawalla and Sood, 2012). For example, evidence from Blume-Kohout and Sood (2013) and Dranove et al. (2020) highlight increased R&D activity for drug products with a high share of Medicare-eligible population following the enactment of Medicare’s outpatient prescription drug benefit (Part D). Notably, Dranove et al. also found that the strongest and most immediate R&D response to Part D’s passage was for clinical trials that represented less scientific novelty, with a more modest and delayed response for potential scientific breakthroughs.

Other empirical work on pharmaceutical markets similarly shows that firms respond to financial incentives by increasing R&D on products that are expected to receive larger returns (Vernon, 2005). For example, studies have demonstrated that increases in expected market size based on changing disease burden result in increased number of drugs targeting that disease (Acemoglu and Linn, 2004; Dubois et al., 2015), that increases in drug prices are associated with increased R&D intensity (Giaccotto et al., 2005), and that changes in policies of certain vaccines caused increases in the profitability of those vaccines (Finkelstein, 2004). Together, these results suggest that increasing the expected financial returns on certain products, through application of value-based prices and reimbursement policy that explicitly addresses unmet need, is likely to increase the R&D effort directed toward those products (Grabowski and Vernon, 2000). The following sections review different payers in the U.S. health care system, describe how pricing is currently determined in the United States, and review ways this could be adjusted to better incentivize innovation in areas of unmet need.

Finding 5-13: An expectation of increased financial return for a certain class of pharmaceutical product has been shown to increase R&D effort on those products.

Primary U.S. Payers

According to a 2023 survey, about 92 percent of people in the United States had health insurance for either some or all of the year (Keisler-Starkey and Bunch, 2024). About 65.4 percent of people with health insurance were covered by private health insurance, and 36.3 percent were covered by public coverage, mostly by either Medicaid or Medicare (Keisler-Starkey and Bunch, 2024).¹⁹ Spending on medications varies across payers based on the demographic makeup of the populations they cover and the prevalence of conditions that the medications are used to treat. In addition, medication spending can ranges from outpatient pharmacy (retail sales) to clinician-administered drugs. There are limited comprehensive reports of the combined drug spending by payer, thus the focus here is on retail drug spending.

Medicare provides coverage to individuals 65 years of age or older, younger populations who qualify through Social Security disability insurance as meeting criteria for long-term disability, and those with either end-stage renal disease or amyotrophic lateral sclerosis. Medicare is the primary payer for drugs in the United States, accounting for a third of retail drug spending. Medicare is administered by the Centers for Medicare & Medicaid Services (CMS), which is therefore a critical body in the reimbursement of drug products in the United States (Cubanski et al., 2019).

Medicaid provides insurance coverage to low-income individuals, children, and pregnant/postpartum populations, and is jointly administered by the states and CMS. While outpatient prescription drug coverage is not one of the benefits required by the federal government for Medicaid, all states currently provide prescription drug benefits. Medicaid represents around 10 percent of U.S. drug spending.

Finally, private insurers represent around 40 percent of U.S. retail drug spending, though the private insurance market is segmented into individual market plans (sold directly to individual consumers), self-funded employer-sponsored plans, and fully insured employer-sponsored plans.

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¹⁹ These types of coverage are not mutually exclusive because people can be covered by multiple types of insurance over the course of a year; thus, the sum of private and public coverage can exceed 100 percent (Keisler-Starkey and Bunch, 2024).

U.S. Coverage and Reimbursement of Drug Products

In the United States there is no formal regulation of drug list prices, which are set freely by drug manufacturers. Though not the only factor, this results in prices that are higher than those in other similarly resourced countries with price regulation mechanisms, even after accounting for manufacturer discounts (Wouters et al., 2025). For every dollar that consumers in other countries pay for brand name drugs, the U.S. consumer pays $2.78 (Mulcahy et al., 2024). High prices and market size cement the United States as the largest contributor to the pharmaceutical market, accounting for about 50 percent of global sale revenues, but only 13 percent of volume (Parasrampuria and Murphy, 2024). The U.S. share of the market has only grown over time, with the total share of U.S. sales for prescription drugs increasing 23 percent from 2017 to 2022 (Parasrampuria and Murphy, 2024). One of the reasons the United States pays so much more for prescription drugs than other countries is likely its fragmented health insurance system, where coverage and reimbursement of drug products are variable across payers. This means that negotiations for drug prices are split across many different entities, which reduces the power of any one unit to negotiate drug prices. Moreover, because Medicaid and Medicare Part D tie reimbursements to private-sector prices, they create incentives for firms to raise prices for privately insured patients (Duggan and Scott Morton, 2006). Furthermore, prior to the Inflation Reduction Act (IRA), CMS, the federal agency that provides coverage through Medicare, Medicaid, and the Children’s Health Insurance Program, was unable to negotiate drug prices for Medicare beneficiaries directly. Instead, this role was assigned to pharmacy benefits managers and insurers tasked with operating the Medicare Part D benefit. Following the passage of the IRA in 2022, CMS is now able to negotiate prices for a small but increasing number of drugs at least 7 years after FDA approval (see Box 5-4).

ALIGNING INNOVATION WITH VALUE

One strategy that is used in other countries to manage drug expenditures is to employ formal value assessments to determine coverage decisions (Mulcahy et al., 2024; Wouters et al., 2025). For instance, in the United Kingdom (UK), the National Institute for Health and Care Excellence (NICE) performs economic evaluations of new drug products, deriving an estimate of cost-effectiveness (Lemley et al., 2020). To determine if the drug is a good value, NICE examines the ratio of cost per quality-adjusted life-year (QALY) gained. If the ratio is under £30,000, NICE is likely to recommend that the National Health Service (NHS) provides coverage for the drug, though considerations for whether the product addresses an unmet

need can be factored into coverage decisions (NICE, 2022). This process ensures that the coverage of a drug product is related to its value, as measured by the additional cost versus the additional health gains. However, NHS has so much negotiating leverage because it is willing to deny access to some drugs for patients if it determines that the value does not justify the price. This can mean that patients do not always have access to drugs they would like, as exemplified a few years ago when a cystic fibrosis drug was not determined to be cost-effective, leaving patients without access (Silverman, 2024). Patients and families fought back, and eventually the manufacturer and NHS reached an agreement (which likely reflects further discounts by the manufacturer, potential increases in the willingness to pay threshold set by NICE, or both). Similarly, economics research has demonstrated that countries with lower expected therapeutic costs tend to have longer delays in access to new therapeutics (Danzon et al., 2005).

Germany, which, like the United States, has a health insurance system with both public and multiple private payers, has its own value assessment program. When a drug comes to market in Germany, manufacturers are guaranteed market access for 1 year at their chosen price (Lemley et al., 2020). During that year, a clinical evaluation of the product is conducted by the German Institute for Quality and Efficiency in Health Care to determine

benefit. If the institute determines that there is no added benefit given the availability of other products, the drug’s price is based on the lowest price charged within the same drug class. However, if it is determined that the drug does add benefit, negotiations between the regulator and the manufacturer begin, with a completed comparative effectiveness assessment as one factor in these negotiations. Although there are multiple payers in the German system, the negotiations are done at the national level to reduce fragmentation. If negotiations are unsuccessful, then the negotiations enter arbitration and a price is set by a panel. If the manufacturer does not agree with the price, it can opt out of the insurance market or can charge the price of its choosing, with the knowledge that payers will only reimburse patients for the price determined by the panel and that patients will pay the remaining balance if they choose.

Unlike the UK or Germany, the United States has not routinely performed governmental assessments of the value of pharmaceutical products, though this is now a component of the Drug Price Negotiation Program under the IRA. The nonprofit organization Institute for Clinical and Economic Review (ICER) often performs assessments of new drug entrants in the United States, but the resulting estimates are only informative for payers rather than binding (ICER, 2020). Despite the lack of the routine use of such methods, the economic evidence from other resource-high countries suggests that if the United States revised its reimbursement policies by linking pricing to evidence-based value assessments, this could help address areas of misalignment in investments with disease burden and unmet needs by incentivizing industry to invest in the therapeutic areas of highest social value.

Finding 5-14: Many countries negotiate drug prices and set reimbursement terms based on the product’s cost-effectiveness, including considerations of unmet need.

CMS already has some limited existing authority to use comparative effectiveness and unmet needs when conducting Medicare price negotiations. As reviewed in Box 5-4, CMS was granted authority through the IRA to include unmet needs and value assessments in price negotiations for the limited number of drugs to be negotiated. However, it is unclear how and if these factors were taken into account in the first round of drugs negotiation.

CMS also has existing authority to take comparative effectiveness into account through the New Technology Add-on Payment (NTAP) program.²⁰

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²⁰ CMS also has similar criteria, including requiring an improvement in clinical outcomes relative to other devices, for pass-through payments for medical devices. However, this criteria does not apply to pass-through payments for drugs, which is the focus of this report, and therefore is not discussed.

NTAP allows for a medical service or technology to receive additional payment beyond the standard Medicare Severity Diagnosis-Related Group (MS-DRG) payment if the new technologies meet three criteria: (1) the medical service or technology must be new; (2) the medical service or technology must be costly such that the MS-DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the medical service or technology must demonstrate a substantial clinical improvement over existing services or technologies. Therefore, to receive an NTAP designation, CMS is generally, but not always, required to take clinical effectiveness into account, with alternate pathways for NTAP eligibility being developed (CMS, 2024).

These authorities provide some limited negotiating power to CMS to better align pricing with value. However, to more directly tie public insurance prices to unmet need or evidence-supported measures of value, congressional action will be needed to expand the negotiating power that CMS currently has. In taking this action, Congress not only could ensure that pricing matches value, but it could also set terms that maximize patient access, addressing some of the barriers that were discussed in Chapter 4.

Finding 5-15: CMS has statutory authority to use comparative effectiveness and unmet medical needs for a limited number of older drugs under the Medicare price negotiation and New Technology Add-on Payment (NTAP) programs, but it otherwise lacks authority to control Medicare or Medicaid reimbursement amounts for most new drugs.

Conclusion 5-10: If public and private payer reimbursement policies were more aligned with evidence of product value and the extent to which a drug addresses unmet medical need, greater innovation would occur in therapeutic areas with high unmet need.

Conclusion 5-11: Congressional action is needed to more directly tie prices and public insurance reimbursement for novel drugs that address unmet need to evidence-supported measures of value or impact.

REFERENCES