Scott Gottlieb seems like the pharmaceutical industry's idea of a dream FDACommissioner, with pharma ties and an ideological bent towardderegulation.

But he has also been the only member of the Trump administrationto follow through on the president's fiery rhetoric about rising drug prices. Pharma claims to like thefree market. But in the year ahead, Gottlieb is set to prove howthe free market can cut both ways for drugmakers.

Gottlieb is a physician who became the FDA's DeputyCommissioner for Medical and Scientific Affairs in 2005. Afterleaving the agency in 2007, he served on pharma boards, worked inventure capital and was a resident fellow at the AmericanEnterprise Institute, a conservative think tank.

Since rejoining the FDA in May as its leader, Gottlieb has beenextremely productive. With an eye to bringing down prices, he haspresided over record generic-drug approvals and a multi-yearhigh in novel drug approvals, while also working to speed moremedical devices to market. His agency has suggested it might bemore flexible in approving drugs and will try to get cancer drugsto market more quickly, using data from smaller and faster clinicaltrials. He has also directed agency policy toward tackling theopioid crisis and curbing tobacco use.

This is not exactly what Gottlieb's critics expected -- and it'sprobably not fulfilling all of biopharma's fondest hopes for histenure, either. The industry isn't monolithic; differentsectors have different priorities, and Gottlieb's impact will varyaccordingly.

Specialty pharma firms -- those that tend to acquire drugsrather than develop new ones and focus on complicated oldermedicines -- may come off the worst. Gottlieb's moves have seemeddesigned to rapidly create trouble for such drugs, includingpublishing a list of price-hike-prone medicines. Specialty-pharmaproducts featured heavily.

Wipeout

The already battered specialtypharmaceutical business model won't get any help from ScottGottlieb.

Traditional generic drugmakers are feeling the heat, too.Generic approvals set a new record in the FDA's 2017 fiscal year.New generic-drug applications surged, as well, suggesting next yearmay break the approval record.

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Rewrite the record book

Last year was already a record year for generic drug approvalsat the FDA. 2017 saw even more medicines approved.

One would assume the uptick in generic approvalsis good news for the industry -- more products on themarket mean more revenue. But generics are not made equal. Whenthere is a single generic version of a medicine, it is generallypriced at a meager discount to the original and is extra-profitable.

But once there are multiple generics on the market, pricewar follows. And Gottlieb's FDA loves conflict. In thepast, first generics for branded medicines were the agency's mainpriority. Now, the FDA also wants to prioritize applications formedicines when there are fewer than three competing genericoptions. As a result, the most profitable generic drugs willhave a shorter lifespan and see margins rapidly eroded.

Big pharma may have the most complicated relationship withGottlieb.

More flexibility in the drug-review process may havebenefits -- Eli Lilly & Co., for example, is grateful theFDA recently reversed course on its demand for a new trialfor a potential blockbuster arthritis-drug candidate-- but negative consequences are possible, as well. More and morerapid approvals will crowd disease areas, which could lead toprice competition and give leverage to pharmacy benefit managers. Aworld where every treatment area looks like the heavily discounted diabetes market is not especiallyappealing.

Big pharma also generates plenty of revenue from older drugs.Gottlieb plans to target the various mechanisms companies use tounnaturally extend drug monopolies. And increased genericproductivity means revenue from expired or expiring drugs is likelyto evaporate more rapidly than it did in the past.

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Aging

Big pharma companies still depend on older medicines for amajority of their sales.

Smaller biotech companies don't rely on older drugs. Andthey are especially likely to benefit from Gottlieb's regulatoryshifts, given their slim budgets and emphasis on drug development.The ability to get faster approval with smaller trials should be atailwind. Some are already benefiting. Amicus Therapeutics Inc. sawits share price soar in July after the FDA changed its mindabout accepting one of its rare-disease drugs for review.

Others have discovered flexibility can be adouble-edged sword. Tesaro Inc., for example, had a seeminglycommanding lead in a promising group of new cancer drugs after abroad approval in ovarian cancer patients in March. But then theFDA gave AstraZeneca PLC's competing drug a similarly broad labelin August -- even though that company ran a narrower clinicaltrial -- seemingly endorsing the notion that these medicines maybe substitutable. It was a novel move for the FDA, andAstraZeneca competition will shrink the sales potential of Tesaro'smedicine and the company's chance of being acquired.

Gottlieb seems to believe in the price-lowering power ofcompetition. It sounds like a talking point. But it's alreadyworking in the generic-drug market. And a series of rapid hepatitisC drug approvals have lowered prices so significantly that itslowed the entire country's drug-spending growth. And he'salso shown a willingness to use the FDA's regulatory muscle tocombat what he sees as abusive behavior.

This isn't a worst-case scenario for pharma -- nothing Gottliebis doing will be as impactful as the price curbs other countriesemploy.

But the industry is definitely not getting a free pass in2018.

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