Risky Drug Business

Sen. Edward Kennedy fired the latest shot in the battle over pharmaceutical regulation last week with the introduction of his FDA Revitalization Act. And, surprisingly, those who want to speed up the drug approval process will cheer the centerpiece of his bill: A "Sense of the Senate" that declares the Prescription Drug User Fee Act (PDUFA) a success.

PDUFA, which was first adopted in 1992, uses funds from a tax on drug companies to speed up FDA internal procedures. Set to expire in September, Sen. Kennedy's support for it now is an indication that the Senate will not get hung up on the criticism that has emerged in the past--that it turns the agency into a tool of the drug industry. PDUFA does not guarantee drug approval, which continues to be judged under regular agency rules. But on average it has shortened the unfortunate (and deadly) delays in reviewing new drug applications by six months. And it has done so without reducing the quality of the approvals.

One indication of Sen. Kennedy's support for PDUFA is that his new legislation proposes raising fees on drug companies by over $100 million, for a total of $393 million a year. It would be better if Congress instead increased its direct appropriation to an FDA that it saddles with ever more obligations. Any additional outlay would likely be made up by additional tax revenues brought in by new drugs making it to the market. But, alas, Congress is better at tightening bottlenecks then forcing new products through them. So better PDUFA than nothing.

Sen. Kennedy's Revitalization Act also delves into the vexed relationship between FDA approval and patent life. Right now, patent law gives drug companies 20 years of exclusive use on patented pharmaceuticals. But large chunks of those two decades are chewed up in clinical trials and the approval process. Congress tried to address this problem in 1984 with the Hatch-Waxman Act, which restored some lost time by extending patent life one day for each two days lost in the approval process, up to a maximum of 30 months. The Best Pharmaceuticals for Children Act (BPCA) also allows drug companies to add an extra six months of exclusivity for testing for drugs used by children. Six months may not sound like much, but for a blockbuster drug with over $1 billion in annual sales, it generates substantial revenues for relatively little additional work. Sen. Kennedy's new statute proposes to renew BPCA, but would limit it to only a three-month pediatric exclusivity period for blockbuster drugs.

Mixed emotions are in order. The critics rightly chide extra periods of exclusivity as "windfalls" to pharmaceutical companies, even if they shrink at funding additional studies at government expense. Their pointed criticism, however, ignores the reduced value of the 30-month Hatch-Waxman extension. The cycle of clinical tests is growing ever longer, so the protected patent period for marketing most new drugs is now under 10 years. The proper response therefore both trims the six month period BPCA and expands recoverable time under Hatch-Waxman for all drugs, to revitalize the flow of new drugs.

In addition, Sen. Kennedy's Act intensifies the FDA's post-marketing surveillance process. This task is critical, because small increases in drug risk are difficult to detect in clinical trials conducted on relatively small populations. The Act's new "public/private" partnership sensibly allows for the sharing of post-marketing data with private parties. More dubiously, however, it contains elaborate provisions ordering drug companies to develop "risk evaluation and mitigation strategies" for all new drugs, which is overkill, since relatively few new drugs present serious risks of adverse side effects.

Nonetheless, these new procedures might lead to other significant reforms. One would reward with cash, not burden with paperwork, the physicians, who report adverse incidents to the government, on the grounds that carrots get more information than sticks. Second, the FDA might let up a bit on its hostility toward allowing new drugs on the market, as evidenced by last week's resounding 20-1 decision by an FDA advisory committee to reject Merck's Arcoxia, a Cox-2 inhibitor in Vioxx's class of drugs. More than 60 other countries have already approved Arcoxia for sale. If only the FDA had stated that it would be more receptive to letting Arcoxia and other drugs onto the market once post-marketing review procedures are improved.

But neither Congress nor the FDA has mastered the fundamental lesson of risk analysis. Keeping drugs off the market deprives all informed patients the opportunity to correct FDA errors. Letting new drugs on the market leaves individual patients the option to decline their use. In the long term, Congress must wean the FDA from its misapplied "first, do no harm" principle, which causes far more harm than it prevents.

Richard A. Epstein is the author of Antitrust Consent Decrees in Theory and Practice: Why Less Is More (AEI Press, 2007).

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