reform of the new drug approval process

REFORM OF THE NEW DRUG APPROVAL PROCESSAuthor(s): Michael P. VanHuysenSource: Administrative Law Review, Vol. 49, No. 2 (Spring 1997), pp. 477-499Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/40709860 .

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REFORM OF THE NEW DRUG APPROVAL PROCESS

Table of Contents

Introduction 477 I. Historical Background 480

A. The Food, Drug, and Cosmetic Act of 1938 Marks the Advent of Modern Drug Regulation 481

B. The Kefauver-Harris Amendments of 1962 Make Marketing Approval More Difficult 482

C. The FDA's Approach to Marketing Approval Determinations 483

II. The FDA's Current Approval Process for the Marketing of New Drugs 484 A. FDA's Response to an IND Application 484 B. New Drug Applications and TTieir Role in the Approval Process 485 C. Implications of the Approval Process 485

III. The Impact of the Regulatory Process on Patients 487 A. The Pursuit of Products with the Highest Potential for

Profit 487 1 . Impact on Patients with Rare Diseases and Product Pricing 488 2. Lowering Costs and Market Efficiency 490

IV. Reform Measures That a Final Reform Bill Should Contain 493 A. The Need for Cooperation Between Manufacturers and

FDA in the Design of Protocols.. 493 B. Use of Outside Contractors Could Speed the Approval

Process 494 C . Reducing the "Substantial Evidence" Requirement 496 D. Expedited Approval for a Delayed Product 497

V. Analysis of the Proposed Reform Bills' Likely Impact on the Market 497

Recommendations and Conclusions 498

INTRODUCTION

The Food and Drug Administration (FDA) has enacted a series of reform measures within the last decade either to expedite the approval process for, or to provide early access to,1 new drugs2 that treat life-threatening illnesses

1 . See Ellen Cooper, Changes in Normal Drug Approval Process in Response to the AIDS Crisis, 45 Food Drug Cosm. LJ. 329, 331 (1990) (stating that FDA enacted initia-

477



478 ADMINISTRATIVE LAW REVIEW [49:2

for which no alternative treatments exist. The framework of the drug approval process for Pharmaceuticals treating life-threatening illnesses has re- mained largely unchanged3 since the Kefauver-Harris Amendments in 19624 to the Food, Drug, and Cosmetic Act of 1938 (FDCA).5 The burdensome process imposed by these amendments raised manufacturers' annual drug development costs.6 As a result of these burdens, the current cost estimate

tives to reduce development and approval times for drugs that treat seriously ill patients who lack access to approved therapies that treat their condition satisfactorily).

2. The Food, Drug, and Cosmetic Act of 1938 (FDCA), 21 U.S.C. §§ 301-392 (1994), defines a "new drug" as

(1) [a]ny drug ... the composition of which is such that such drug is not generally recognized among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended or suggested in the labeling thereof, except that such a drug not so recognized shall not be deemed a "new drug" if at any time prior to June 25, 1938, it was subject to the Food and Drugs Act of June 30, 1906, as amended, and if at such time its labeling contained the same representations concerning the conditions of its use; or (2) [a]ny drug ... the composition of which is such that such drug, as a result of investigations to determine its safety and effectiveness for use under such conditions, has become so recognized, but which has not, otherwise than in such investigations, been used to a material extent or a material time under such conditions.

Id. § 321(p). 3. See, e.g., Prescnption Drug User Fee Act (PDUFA), Pub. L. No. 102-571, 106

Stat. 4491 (1992) (codified at 21 U.S.C. §§ 379g-379h (1994)); Orphan Drug Act (ODA), Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified as amended at 21 U.S.C. §§ 360aa- 360ee (1994)) (providing examples of legislation that affects drug approvals, without alter- ing framework of approval process). The PDUFA imposed a fee for the filing of New Drug Applications (NDAs) to the FDA. Pub. L. No. 102-571, 106 Stat. 4491 (codified at 21 U.S.C. §§ 379g-379h). The ODA sought to induce manufacturers to pursue research and development of Pharmaceuticals that treat rare diseases through a series of financial incentives. Pub. L. No. 97-414, 96 Stat. 2049 (codified at 21 U.S.C. §§ 360aa-360ee).

4. Kefauver-Harris Amendments oí 1962, Pub. L. No. 87-781, 76 Stat. 780 (codiiied at 21 U.S.C. §§301-394).

:>. l' u.s.u. §§ 3U1-3V2. òee u. rreaencK JtfecKner, w, me tu/i s war on urugs, 82 Geo. L.J. 529, 562 (1993) (concluding that influence of consumer interest groups pre- vented pro-efficiency changes, thus leaving in place burdensome process imposed by Ke- fauver-Harris amendments).

6. Compare Beckner, supra note 5, at 529 (citing study by Michael R. Ward stating that FDA regulations increase drug development costs by six percent annually), with Leon- ard G. Schifrin, Lessons from the Drug Lag: A Retrospective Analysis of the 1962 Drug Regulations, 5 Harv. J.L. & Pub. Pol'y, 91, 107-08 (1982) (citing study by Jerome Schnee indicating that expenditures needed to maintain constant level of product development have risen since 1962, but concluding that Kefauver-Harris amendments were only factor causing increase). The lengthening of the approval process, almost by definition, increased the costs associated with bringing a product to market. See Schifrin, supra, at 103 (citing study by Harold Clymer which estimates that time required to gain marketing



1997] REFORM OF THE DRUG APPROVAL PROCESS 479

required for a single product to undergo the approval process is between $300 million and $500 million.7 Commentators note that the number of new chemical entities (NCEs)8 entering clinical research and the number of new drugs receiving marketing approval have not increased.9 This has occurred despite increases in manufacturers' research expenditures, the emergence of biotechnology research,10 and innovations in other fields of research.11 In the 104th Congress, separate legislation proposed by Senator Nancy Kassebaum (R-Kan.),12 Representative Ron Wyden (D-Or.),13 and Representative Rich-

approval increased by factor of three or four since 1950s). 7. See Joseph DiMasi, Trends in Drug Development Costs, Times, and Risks, 29

Drug Info. J. 375, 382 (1995) (providing $500 million estimate for bringing product to market). But see Neil Cornish, Drug Manufacturers Must Focus on Market, Toughen Standard of Success, Gannett News Serv., Jan. 29, 1996, available in 1996 WL 4372976 (estimating $300 million as cost of completing approval process, including cost of failed approvals); Mary T. Griffin, AIDS Drugs & the Pharmaceutical Industry: A Need for Re- form, 17 Am. J.L. & Med. 363, 383 (1991) (citing unpublished study by Tufts University Center for Study of Drug Development, performed in 1990, placing cost estimate at $231 million).

8. A new chemical entity is defined as "a drug that contains no active moiety that has been approved by FDA in any other application submitted under section 505(b) of [the Food, Drug, and Cosmetic Act of 1938]." 21 C.F.R. § 314.108 (1996). This section also defines an active moiety as the certain particles of a molecule or ion "responsible for the physiological or pharmacological action of the drug substance." Id.

9. See generally Thomas M. Lenard et al., The Future of Medical Innovation: A New Approach for Bringing Medical Products to Market, 6 Food & Drug Rep. 825 (1995) (citing studies by DiMasi, Seibring, and Lasagna (1994) and DiMasi (1995)); see also Rosemary P. Wall, International Trends in New Drug Approval Regulation: The Impact on Pharmaceutical Innovation, 10 Rutgers Computer & Tech. L.J. 317, 318-320 (1984) (indicating existence of gap between increase in medical knowledge and development of new drugs); Veronica Henry, Problems with Pharmaceutical Regulation in the United States, 14 J. Legal Med. 617 (1993) (noting that generic drug companies lessen amount of return realized on research and development investment as another explanation for lack of research and development); Schifrin, supra note 6, at 92 (concluding that causal relation- ship exists between regulatory system imposed by 1 962 amendments and lower development rates); but see Henry G. Grabowski & John M. Vernon, American Enterprise Institute for Public Policy Research, The Regulation of Pharmaceuticals: Bal- ancing the Benefits and Risks 35 (1983) (presenting theory that decline in introduction of new chemical entities can be explained by depletion of research opportunities).

10. See Cornish, supra note 7, at 1996 WL 4372976 (indicating that biotechnology has improved researchers' abilities to identify treatments and understand role of genes and proteins in diseases).

11. Id. (noting that "combinatorial chemistry" and technological advances expedite research).

12. S. 1477, 104th Cong. (1995). 13. H.R. 1742, 104th Cong. (1995).




ard Burr (R-N.C.)14 sought to increase NCE introduction and new drug approval rates.

Part I of this Comment outlines the historical background of the new drug approval process. Part II explains the steps in the current approval process and describes the problems it creates. Part III discusses the impact of the new approval process on manufacturers, describes strategies used by manufacturers to cope with the enormous costs imposed by the process, and notes the effects that these strategies have on patients in need of new therapies. Part IV highlights some of the proposed reform measures that should be in- cluded in any bill ultimately considered by Congress. Part V analyzes the impact that these highlighted reform measures will likely have on the market. Finally, this Comment concludes that these reforms will spur product research by increasing profits for manufacturers; however, this effort will have a minimal impact on new drug approval rates.

I. Historical Background

The government did not regulate the pharmaceutical market prior to 1906.15 The absence of regulation left consumers free to assess the costs and benefits of using a particular product. This consumer freedom created a market failure16 described as "asymmetric information."17 The Sulfanila- mide tragedy18 and the Thalidomide tragedy19 made federal legislators respond to this market failure by creating a regulatory system that made these cost-benefit assessments for consumers.20

14. H.R. 3199, 104th Cong. (1996). 1 5. See Grabowski & Vernon, supra note 9, at 2. 16. A "market failure" is a failure of the unregulated market system to achieve opti-

mal allocative efficiency because of externalities, market impediments, or market imper- fections. Richard G. Lipseyetal., Microeconomics 547 (9th ed. 1990).

17. "Asymmetric information" is a market failure that exists in the market for product safety information, preventing consumers, in the absence of regulation, from making informed decisions about safety. Beckner, supra note 5, at 529 (citing Henry Beales et al., The Efficient Regulation of Consumer Information, 24 J.L. & Econ. 491, 492 (1981)). The private sector lacks sufficient incentives to make information available because information spreads quickly once acquired by another person or company. Lipsey et al., supra note 16, at 445. Manufacturers can take advantage of this asymmetry. Grabowski & Vernon, supra note 9, at 7. Consumers, however, do not have access to enough information, nor do they have the capacity to process the available information well enough to make informed purchase decisions. Beckner, supra note 5, at 529.

1 8. See infra notes 26-28 and accompanying text. 1 9. See infra notes 32-36 and accompanying text. 20. See Peter Temin, Taking Your Medicine: Drug Regulation in the United

States 1-7 (1980) (describing reasons that Congress removed consumers' control over purchasing decisions, such as inaccurate cost-benefit assessments leading to disaster




The Pure Food and Drug Act of 1906 (PFDA)21 marked the federal government's entry into the regulation of Pharmaceuticals.22 It prohibited the sale of misbranded or adulterated drugs in interstate commerce.23 The PFDA, enacted during the Progressive Era, ensured that consumers received value for their money;24 however, it did not ensure that consumers received a safe and effective product.25

A. The Food, Drug, and Cosmetic Act of 1938 Marks the Advent of Modern Drug Regulation

The Sulfanilamide tragedy in 1937 demonstrated consumer vulnerability to unsafe products. The tragedy occurred when a manufacturer attempted to create a product that would treat sore throats by combining sulfa powder with diethylene glycol, a deadly poison.26 This drug reached the market without any clinical testing and killed 107 people.27 Congress responded to the tragedy by passing the Food, Drug, and Cosmetic Act.28 The FDCA marked the advent of modern drug regulation by requiring a drug manufacturer to submit a New Drug Application (NDA) to the FDA before permitting a product to travel in interstate commerce.29 This legislation also required confirmation that a drug would be non-toxic when used in the manner specified on the label30 and shifted control over purchasing decisions for pre-

caused by unsafe products). 21. Pub. L. No. 59-384, 34 Stat. 768 (repealed 1938). Congress attempted to use this

law to quell the public fear created by Upton Sinclair's 1906 novel, The Jungle, which graphically detailed the unsanitary working conditions in the Chicago meat packing industry at the turn of the century. Lois K. Perrin, The Catch-22 for Persons with AIDS: To Have or Not To Have Easy Access to Experimental Therapies and Early Approval for New Drugs, 69 S. Cal. L. Rev. 105, 109 (1995). This law also sought to curb growing public reliance on miracle cures as a substitute for medical treatment. James Robert Nielsen, Handbook of Federal Drug Law 3-4 (2d ed. 1 992).

22. See Nielsen, supra note 21, at 3-4 (stating that during 19th century virtually no regulation of drug market existed and listing PFDA as first piece of legislation in evolution toward modern regulatory system).

23. Pub. L. No. 59-384, 34 Stat. 768 (repealed 1938). 24. See Temin, supra note 20, at 4. 25. See Nielsen, supra note 21, at 4 (listing inadequacies of Pure Food and Drug

Act). 26. See id. at 5-6 (describing manufacturer's decision to market liquid form of sulfa

"miracle drug" in powder form for treatment of infections). 27. See id. at 6 (speculating that manufacturer's premarket testing of product con-

sisted of approving liquid's taste). Z5. reaerai r ooa, JJrug, ana cosmetic Act oi ivjö, ruo. l. jno. />/! /, oz Mat. 1U4U

(codified as amended at 21 U.S.C. §§ 301-392 (1994)). 29. See id. 30. See id.




scription drugs from consumers to doctors.31

B. The Kefauver-Harris Amendments of 1962 Make Marketing Approval More Difficult

The Thalidomide tragedy in Great Britain aided the passage32 of the Ke- fauver-Harris Amendments to the FDCA in 1962.33 British doctors prescribed Thalidomide to pregnant women as a treatment for morning sick- ness, but it caused children to be born with severe birth defects.34 The drug was not available on the market in the United States,35 but limited availability of the drug for clinical testing and purchases by American consumers in Europe caused a "small outbreak" of children born in the United States with similar birth defects.36 Congress responded to this tragedy by passing the Kefauver-Harris Amendments, which required manufacturers to prove the efficacy and safety of a drug by "substantial evidence."37 These amendments also imposed a requirement that manufacturers receive certification from the FDA before clinically testing the product on human beings.38

31. See Temin, supra note 20, at 5 (stating that FDCA gave doctors right to control patients' access to drugs on market because FDA apparently concluded that people were no longer competent to administer some medicines to themselves).

5i. tress coverage oi ine inaiiaomiae xrageay capiianzea on ine puoiic s growing concern over drug dependency. See Nielsen, supra note 21, at 8. Subsequent lawsuits demonstrated that prescribers relied too heavily on product information provided by manufacturers. Id. In some cases, the manufacturers provided false information or information based on inadequate testing. Id. Congress responded by passing the Kefauver-Harris Amendments. Id. The Senate report to accompany this bill does not mention the Tha- lidomide tragedy explicitly. See S. Rep. No. 87-1744 (1962). However, the report states that "the purpose of this bill, as amended, is to strengthen the laws designed to keep unfit drugs off the market in the first instance and speed their removal should they reach the market," id. at 1 , which suggests a relation between the tragedy and the legislation.

33. Kefauver-Harris Amendments of 1962, Pub. L. No. 87-781, 76 Stat. 780 (codified at 21 U.S.C. §§ 301-394 (1994)).

34. See Beckner, supra note 5, at 551-52. 35. See id. at 562. 36. See Temin, supra note 20, at 123-25 (indicating that Thalidomide was in NDA

stage at time of disaster, thus limiting availability, but Americans purchased it in Europe). 37. 21 U.S.C. § 355(d) defines "substantial evidence" as [ejvidence consisting of adequate and well-controlled investigations, including clinical investigations, by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.

Id. 38. Id. § 355i. This certification states that the manufacturer or the investigation




C. The FDA 's Approach to Marketing Approval Determinations

The FDA's control over the marketing of pharmaceuticals involves risk assessments for each NCE.39 These assessments seek to weigh the therapeutic value a drug might offer against the potential harms the product might create.40 These risk assessments are inexact estimates.41 FDA reviewers attempt to combat this uncertainty by slowing the approval process, until a negligible degree of uncertainty exists regarding a product's safety,42 or by erring on the side of caution by disapproving a potentially safe and effective product if any uncertainty exists.43 This approach prevents pharmaceutical manufacturers from meeting the demand of patients willing to accept the risk of using new products. This market failure produces a loss of $1 .5 billion to $3 billion annually,44 a portion of which falls directly on consumers.45 The FDA's risk minimization strategies and attempts to protect consumers from harmful products, therefore, may actually hurt more consumers by denying

sponsor will require experts, using the drug for investigational purposes, to inform and obtain the consent of the human being or their representative to use the drug for investigational purposes. Id.

39. See Beckner, supra note 5, at 533 (explaining that FDA weighs such factors as therapeutic effects versus side effects when assessing risks of new drugs).

40. See Grabowski & Vernon, supra note 9, at 9-10 (explaining agency's use of submitted applications to make risk assessments).

41. Hearings on H.R. 3199 Before the Subcomm. on Health and the Environment of the House Commerce Comm., 104th Cong. 256 (1996) [hereinafter Hearings on 3199] (testimony of Ellen Cooper, M.D., Vice President and Director, American Foundation for AIDS Research) (stating that marketing approval determinations are complex judgments which do not lend themselves to "right" and "wrong" answers).

42. See Temin, supra note 20, at 3. The FDA prefers to err on the side of safety in order to avoid public outcries. See David L. Weimer, Safe-and-Available Drugs, in Instead of Regulation 239, 241 (Robert W. Poole, Jr. ed., 1982). Victims of adverse re- actions tend to voice their complaints to Congress, which often leads to congressional hearings in which the FDA must defend its approval decision. Id. This fear of oversight hearings may cause the FDA to disapprove a percentage of safe and effective products. See Grabowski & Vernon, supra note 9, at 10 (stating that FDA's mandate to avoid type 2 errors, approval of unsafe and ineffective drugs, exists, but no similar mandate exists to avoid type 1 errors, disapproval of safe and effective drugs).

43. See Grabowski & Vernon, supra note 9, at 9-11. The authors use the term "government failure" to refer to the FDA's disapproval of safe and effective drugs and its lack of accountability for making these errors. Id.

44. Robert W. Hahn & John A. Hird, The Costs and Benefits of Regulation: Review and Synthesis, 8 Yale J. on Reg. 233, 276-77 (1991).

45. Regulations torce manufacturers to charge higher prices. See Lipsey et al., supra note 16, at 502 (using graph to demonstrate this phenomenon). A price increase lowers the demand for a certain product, thus creating a disparity between the amount of a product consumers are willing to buy and the amount the new price allows them to buy. Id. This disparity represents the loss that falls on consumers. Id.




them access to potentially beneficial drugs.46

II. The FDA's Current Approval Process for the Marketing of New Drugs

Typically, pharmaceutical manufacturers will test a new drug on labora- tory animals for approximately three and one-half years to determine whether it treats the targeted medical condition successfully.47 To determine appropriate dosage levels, manufacturers use multiple species to identify side effects associated with the chemical's usage.48 When manufacturers feel confident with the studies' results, they file an Investigational New Drug (IND) application with the FDA.49 The application notifies the FDA of the manufacturer's intent to perform clinical studies on human beings and pres- ents the studies' protocols for FDA approval.50 This notification permits a drug manufacturer to ship the drug to the investigator who will perform the studies on human beings.51

A. FDA 's Response to an IND Application

The FDA must decide whether a drug manufacturer can initiate the proposed clinical study within thirty days of receiving an IND application.52 Although the agency typically processes IND applications within the required time-frame,53 the lack of a timely response constitutes implicit authorization of the protocols.54 Once a manufacturer receives FDA approval it can begin its three-phase clinical investigation.55

46. See Weimer, supra note 42, at 240. 47. See Henry, supra note 9, at 61 8. 48. See id. 49. 21 C.F.R. §312.20(1996). 50. Id. The criteria for approval of an IND are listed in 21 C.F.R. §§ 312.40, 312.50,

312.56. 51. Id. § 312.40(c). 52. Id. § 312.35(a). 53. See Cooper, supra note 1, at 330. 54. 21 C.F.R. § 312.40(b)(l) states, "An IND goes into effect: Thirty days after FDA

receives the IND, unless FDA notifies the sponsor that the investigations described in the HMD are subject to a clinical hold . . . ." Id.

55. Id. § 312.21. Phase I studies seek to determine the human metabolic reaction to the drug, to discover the side effects related to increased dosages, to obtain preliminary information concerning the drug's efficacy in treating the condition, and to obtain the pharmacokinetic and pharmacological effects necessary to proceed to a Phase II study. Id. § 312.21(a)(l). Phase II studies attempt to determine the new drug's effectiveness in treating the condition, the short-term side effects it produces, and the risks associated with its usage. Id. § 312.21(b). Finally, Phase IE studies seek to provide additional informa-




B. New Drug Applications and Their Role in the Approval Process

The IND manufacturer may file a New Drug Application56 with the FDA once it believes that the data compiled from the IND clinical investigation constitute "substantial evidence"57 of the product's safety and its effectiveness for its proposed usage.58 Once the FDA receives an application, reviewers have 180 days59 to approve the application,60 send the applicant an approvable letter,61 or refuse the application for failure to provide "substantial evidence" of safety and effectiveness.62 The agency rarely meets this deadline.63 Approval permits the manufacturer to market its drug,64 but disapproval does not necessarily mark the end of the process, as the applicant may contest a disapproval in a hearing.65

C. Implications of the Approval Process

The current regulatory process, from the pre-IND application studies to final marketing approval, lasts between eight and one-half and fourteen and one-half years on average66 and imposes a cost on manufacturers of $300 million to $500 million per product developed.67 Furthermore, only one out of 5,000 to 10,000 NCEs introduced receives final marketing approval.68

tion about the product's safety and effectiveness. Id. § 312.21(c). 56. These applications vary in length from 50,000 to 100,000 pages, with 4,000 to

5,000 pages of summaries. See Weimer, supra note 42, at 25. 57. See supra note 37 and accompanying text (defining substantial evidence). 58. 21 C.F.R. §314.50(1996). 59. Id §314.100. 60. Id §314.105. 61. Id. § 314.3. The section defines an approvable letter as a written communication

from FDA stating that the agency will approve the application ... if specific additional information or specific conditions are met." Id.

62. Id. §§314.120, 314.125. 63. See Hearings on 3199, supra note 41, at 24 (statement of David Kessler, Com-

missioner of FDA) (referring to General Accounting Office study indicating that average approval time for NDA has dropped from 33 to 19 months).

64. 21 C.F.R. §314.107(a). 65. Id. § 314.200. But see Beckner, supra note 5, at 551-52 (stating that circuitous

proceedings for manufacturer's appeal from denial of marketing approval limits ability of manufacturer to turn to judicial branch to avoid regulatory delays).

66. Compare Food and Drug Law Institute, 2 Foundations of Food and Drug Law 59 (providing eight and one-half year estimate), with Henry, supra note 9, at 622 (stating that process lasts twelve years), and Hearings on 3199, supra note 41, at 133 (statement of Fred W. Lyons, Pharmaceutical Research and Manufacturers Association) (estimating 14.8-year approval process).

67. See DiMasi, supra note 7, at 382. 68. See Gerald J. Mossinghoff, Profits Mean R&Dfor Lifesaving Drugs, Wall St. J.,

Oct. 30, 1991, at Al 7 (providing estimate that one in 5,000 compounds makes it to mar-




The current marketing approval system makes product research and development a very costly proposition with a limited likelihood of success.69 A manufacturer has a limited chance of receiving final marketing approval for a new drug, yet the rewards associated with exclusive marketing of a therapeutic innovation, rather than a "me-too" drug,70 force manufacturers to accept this risk.71 The long odds against market approval can be attributed, in part, to the FDA's approach to dealing with the uncertainty involved in product reviews.72 The disapproval of a percentage of safe and effective products involved in this approach hinders NCE introduction and new drug approval rates73 at the expense of patients in need of new therapies. The current process, therefore, needs reform.

ket); The Patent Term Restoration Act of 1981: Hearing on S. 255 Before the Senate Comm. on the Judiciary, 97th Cong. 25 (1981) (statement of Lewis A. Engman, President, Pharmaceutical Research and Manufacturers Association) (estimating application approval rate as one out of 10,000); M.G. Horowitz, The Most Profitable Drug Firms Hold Their Ground with a Strong Devotion to Research, HealthWeek, Aug. 24, 1987, at 34 (quoting Tamara J. Erickson, Vice President of national health care consulting firm, that one in 1 0,000 NCEs receives approval).

69. See Henry, supra note 9, at 624 (stating that 70% of new drugs fail Phase I testing and 33% fail Phase II testing).

70. Critics of the pharmaceutical industry complain that manufacturers reduced the risks associated with product research by pursuing projects that offered little therapeutic value, commonly referred to as "me-too" drugs. See Joseph Weber et al., Drugmakers Are Waking Up to a Nightmare, Bus. Wk., Aug. 2, 1993, at 21 (stating that proliferation of "me-too" drugs in certain product areas increased price competition); Research Analyst Interview Health Care Products, Wall St. Transcript, Mar. 21, 1994, at 113,707 [hereinafter Research Analyst Interview] (quoting Jim Fenger, Kemper Financial Services, to indicate that manufacturers can only gain pricing flexibility by pursuing therapies in areas where no current effective treatment options exist); Elyse Tanouye, Mergers Will Keep Shuffling Rankings of Drug Makers, Wall St. J., Mar. 15, 1995, at B4 (quoting Stephen Dalton, Vice President, CoreStates Investment Advisers, Inc., for proposition that manufacturers can no longer afford to introduce "me-too" drugs because of pricing competitive- ness).

71. See Jonathan Mezrich, The Patentability and Patent Term Extension of Life Sav- ing Drugs: A Deadly Mistake, 6 J.L. & Health 111 (1991-1992) (stating that manufacturers remain profitable because grant of exclusive marketing rights for specific product permits them to attempt to recover cost for entire research operation).

72. See supra notes 42-43 and accompanying text (explaining that FDA's overcau- tiousness stems from concern about congressional oversight hearings, yet no mechanism holds reviewers accountable for disapproving safe and effective products).

73. See Mossinghoff, supra note 68, at Al 7. The pharmaceutical industry, as a whole, currently invests 17% of sales in product research and development. Id. Any reduction in the cost associated with the approval process will cause higher NCE introductions, assuming the investment remains constant.




III. The Impact of the Regulatory Process on Patients

The fate of patients seeking new drug therapies74 is linked inextricably with that of the pharmaceutical manufacturers. Manufacturers will introduce more NCEs in the future if research and development projects become less costly. A patient's expectation that he will gain access to a therapeutic innovation, therefore, should increase as research and development becomes more profitable.

A. The Pursuit of Products with the Highest Potential for Profit A study revealed that while one-third of all NCEs covered total costs, it

generally took nineteen years to make a profit on an NCE.75 These statistics highlight the financial risk in research and development under market conditions.76 The welfare of the pharmaceutical industry hinges on manufacturers' ability to profit from research and development,77 either by researching

74. See Hearings on 3199, supra note 41 , at 1 32. (statement of Fred W. Lyons, Phar- maceutical Research and Manufacturers Association) (listing Alzheimer's disease, Parkin- son's disease, arthritis, cancer, osteoporosis, multiple sclerosis, human immunodeficiency virus, Crohn's disease, adult respiratory distress syndrome, and amyotrophic lateral sclerosis as conditions in need of new drug treatments or conditions without adequate therapeutic treatments). Id.

IS. See Grabowski & Vernon, supra note 9, at 54-55 (referring to profitability study of 37 products conducted during 1970s).

76. The significant changes within the pharmaceutical market have made profit making more difficult. See Paula Dwyer et al., A Drugmaker in Need of a Pick-Me-Up, Bus. Wk., Feb. 22, 1993, at 50, 51 (describing transformation of market to large buyers rather than individual customers). Further, managed care organizations (MCOs), rather than physicians, determine which products patients will use. Id.', Weber, supra note 70, at 20 (stating that control over market has shifted from manufacturers to buyers because of purchasing power of MCOs, and indicating that health care organizations serve estimated 60 million Americans); Horowitz, supra note 68, at 34 (stating that health maintenance organizations (HMOs) served 16% of health care market in 1987 and that these organizations reduce costs by dictating medicines their staff prescribes).

This shift to managed health care makes it more difficult for manufacturers to profit because MCOs can demand price concessions. But see Griffin, supra note 7, at 369 (stating that exclusive marketing rights and brand name recognition contribute to manufacturers' ability to control market and charge exorbitant prices). Once a brand name product loses its exclusive marketing rights, cost conscious MCOs are more likely to buy the generic equivalent of a brand name product because of its lower price. Compare Horowitz, supra note 68, at 34 (stating generic manufacturers accounted for 13% of pharmaceutical sales in 1980 and 30% in 1987), with Neil Cornish, Drug Giant Turns to Generics, Denver Post, Dec. 4, 1994, at H4 (stating that generic manufacturers accounted for 25% of pharmaceutical sales in 1988 and for 48% in 1994, and predicting figure to rise to 65% by 1997).

77. The health of the pharmaceutical industry depends on the introduction of new




new chemical entities with the highest potential rates of return,78 or by minimizing costs.79 Patients in need of new therapies may suffer regardless of the option selected.

1. Impact on Patients with Rare Diseases and Product Pricing If manufacturers choose only to pursue research and development proj-

ects with the highest potential rates of return, they will develop only those products that have the potential to treat the greatest number of patients.80 This approach leaves patients having rare diseases and conditions little hope of gaining access to treatment innovations. Consequently, Congress enacted the Orphan Drug Act (ODA) in 198381 to create financial incentives for manufacturers to develop products that treat rare diseases and conditions.82 Pharmaceutical manufacturers' ability to use the ODA' s financial incentives for their own benefit,83 instead of developing products that treat rare condi-

products, but some research intensive firms have attempted to supplement profits by buy- ing the generic firms or entering the generic market. Horowitz, supra note 68, at 38. Re- search intensive firms may also pursue the over-the-counter market as an option. See Rolf Stahel, Structuring the Organization to Fit the Future, Pharmaceutical Times, Feb. 1 996, at 20 (stating that manufacturers may pursue over-the-counter market as short term substitute for research and development).

78. See Horowitz, supra note 68, at 33 (stating that researchers carefully select potential NCEs based on talents of staff and projected marketability).

79. See Tanouye, supra note 70, at B4 (stating that leaner company can gain competitive advantage by reducing costs, which allows it to lower prices or devote more resources to research and development).

80. See Schifrin, supra note 6, at 123 (noting that it is too costly for manufacturers to divert resources from "large market" drugs to orphan drugs).

81. Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified as amended at 21 U.S.C. §§ 360aa-360ee (1994)). This law contains a series of marketing incentives, research grants, and tax breaks to manufacturers seeking to develop "orphan drugs" for the treatment of rare diseases. An amendment changed the definition of a rare disease to one that

affects less than 200,000 persons in the United States, or (B) affects more than 200,000 persons in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

Health Promotion and Disease Prevention Amendments of 1984, Pub. L. No. 98-551, 98 Stat. 2815 (codified at 21 U.S.C. § 360bb (a)(2)).

82. H.R. Rep. No. 97-840, pt. 1, at 6, 7 (1982), reprinted in 1982 U.S.C.C.A.N. 3577, 3578 (concluding that financial incentives and better coordination of federal agencies are necessary to encourage pharmaceutical companies to research and develop drugs to treat rare diseases).

83. Perrin, supra note 21, at 118 (listing measures used by pharmaceutical manufacturers to circumvent purpose of ODA as benefiting from incentives in legislation and sup- plying drug to "off label" market, using seven-year monopoly for same drug when indica-




tions, limited the ODA' s effectiveness in providing treatments for orphan diseases.84 Patients with rare diseases, therefore, continue to have little hope of receiving new therapies.

The prices that manufacturers charge because of the length and expense of the approval process also create a problem. Manufacturers that choose to pursue research and development projects that will cover the cost of bringing the product to market pass a portion of that cost on to consumers, via the price they charge for the product.85 This fact, combined with the fact that the current regulatory process may prevent a pharmaceutical manufacturer from realizing a full patent life,86 drives up the price of a prospective product. A manufacturer must exploit its exclusive marketing rights,87 after re-

tions vary slightly, and fragmenting patient populations to qualify for legislative incentives).

84. See Peter S. Arno et al., Rare Diseases, Drug Development, and AIDS: The Im- pact of the Orphan Drug Act, 73 Millbank Q. 231, 239 (1995) (stating that act failed to push industry on conducting research into diseases affecting small numbers of people).

85. See Schifrin, supra note 6, at 98 (recognizing that manufacturers pass portion of costs onto consumers, but questioning whether manufacturers can pass entire costs of en- during approval process onto consumers).

86. The passage of the Uruguay Rounds Agreement Act, Pub. L. No. 103-465, § 532, 108 Stat. 4983 (1994) (codified at 35 U.S.C. § 154(b) (1994)), increased the term of a patent from 17 to 20 years. During this 20-year term the patentee has "the right to exclude others from making, using or selling the invention throughout the United States." Id. § 154(a). Previously, while manufacturers' conducted tests to gain FDA approval, those same manufacturers lost a portion of their 17-year exclusive marketing for an innovative product. James J. Wheaton, Generic Competition and Pharmaceutical Innovation: The Drug Price Competition and Patent Term Restoration Act of 1984, 35 Cath. U. L. Rev. 433, 454 (1986). Estimates, based on the 17-year patent life, placed the effective patent life, the period in which the manufacturer has gained FDA approval and markets the product exclusively, between 7 and 9.5 years. Id. at 452.

Congress sought to stem the trend of diminishing effective patent lives by passing the Drug Price Competition Act and Patent Term Restoration Act of 1984, Pub. L. No. 98- 417, 98 Stat. 1585 (codified at 35 U.S.C. § 156 (1994)), which extended a manufacturer's patent by 5 years. This extension, combined with the 3-year term added by the Uruguay Rounds Agreement Act, will move the period of time in which manufacturers must attempt to recover their research and development investment closer to 17 years. Mezrich, supra note 71, at 112.

Manufacturers, however, would still probably complain about any difference between the statutory patent term and the effective patent, even after the increase to 20-year patent terms, because a generic manufacturer may market the identical product under a different name once the patent expires. Id. Reductions in effective patent life might put innovative manufacturers out of business, because generic manufacturers can undercut an innovative manufacturer's price once the patents expire.

87. Reductions in the effective patent life, as well as the impending competition from generics once the product loses its patent, limit the window of opportunity to benefit from exclusive marketing rights. See supra note 86.




ceiving approval, by demanding an artificially high price for its product88 to recover a major portion of its investment before generic competition drives the price of its product downward.89 The high prices that result when a manufacturer takes full advantage of its exclusive marketing rights prohibit certain patients that need new therapies from receiving the treatment options they desire.90

2. Lowering Costs and Market Efficiency

A manufacturer may increase its chances of profitability by lowering the costs associated with research and development.91 Two cost containment measures are product launches in foreign markets and corporate mergers. Product launches in foreign markets defray a portion of the manufacturer's cost of developing a product in the United States, before FDA approval oc- curs.92 Manufacturers also often use corporate mergers to cut costs.93 These measures affect both the treatment alternatives pursued by patients and the manufacturers' efficiency in satisfying the demands of the market.

The perception that other countries approve new drugs faster than the United States, commonly referred to as the "drug lag,"94 affects the manu-

A monopolist will maximize its profits by setting a price higher than some consumers are willing to pay and by producing less output than demanded. Lipsey et al., supra note 16, at 298. This allocative inefficiency creates a market failure whereby manufacturers do not satisfy the total demand of the market. Id.

88. See Meznch, supra note 71, at 119 (quoting former staff economist of Senate Small Business Committee for proposition that manufacturers charge highest price that market will bear).

89. See Wheaton, supra note 86, at 480 (noting that innovators may raise prices before patent expires to recover full gains available before expiration); Cornish, supra note 76, at H4, (stating that generic drug manufacturers can drive price of brand name product down by 90%, once its patent expires).

90. See Mezrich, supra note 71, at 124 (explaining that monopoly pricing practices prevent some consumers from obtaining necessary products).

91. See Stahel, supra note 77, at 20 (stating that manufacturers must develop research products at cost-effective levels to remain viable on multi-national level).

92. See Jesting lime Jor Drugs, Economist, Aug. 7, 1982, at 69-70 [hereinafter Testing Time] (stating that Eli Lilly Co. has not released any product first in United States in years, and that in 1981, of 63 NCEs launched worldwide, only two were first launched in America).

93. See Steve Sakson, Drugmakers' Prescription: Merge; Questions and Answers on What Deals Will Mean to Consumers, Wash. Post., Aug. 22, 1995, at D3 (referring to continued merger frenzy in pharmaceutical industry); Tanouye, supra note 70, at B4 (stating that recent wave of mega-mergers in pharmaceutical industry will continue un- abated).

94. David Kessler, Commissioner of the FDA, referred to the drug lag as a myth on December 12, 1995, at the Food and Drug Law Institute's 39th Annual Educational Con-




facturer's selection of a country to launch its product.95 In 1982, a twelve- month delay in bringing a product to market could amount to a $10 million loss for a manufacturer.96 This delay creates an incentive for manufacturers to focus their research and development operations in countries where faster approval processes exist.97 These advantages allow manufacturers, while awaiting FDA approval, to recover a portion of the cost of developing the product in the United States by marketing it sooner in another country.98 American patients in desperate need of a drug stalled in the FDA approval process will also look to foreign markets to fulfill their needs.99 This will- ingness to travel to a foreign country to gain access to a product demon- strates that some patients will accept the consequences of using therapies not approved by the FDA if they believe it will improve their health.

Corporate mergers also increase a company's profitability,100 but they may not place a company in a better position to pursue research and development.101 Various incentives explain the trend of pharmaceutical mergers and provide insight into their impact on research and development.102 The

ference. See Remarks of David A. Kessler, M.D., 6 Food and Drug Rep. 971, 972 (1995). See Wall, supra note 9, at 319 (enumerating theories that contradict drug lag). Many commentators, however, disagree with this point of view. See, e.g., William M. Sage, Drug Product Liability and Health Care Delivery Systems, 40 Stan. L. Rev. 989, 1028 (1988) (explaining that FDA's cautionary approach slows drug approval process); Weimer, supra note 42, at 239 (citing anecdotal evidence demonstrating existence of drug lag); Carolyn Lochhead, "Deadly Over-Caution: " FDA Assailed for Slow Testing of New Drugs, S.F. Chror, Oct. 26, 1992, at Al (placing death toll at 35,000 patients due to FDA's failure to approve Interleukin 2).

95. Testing Time, supra note 92, at 69 (stating that American manufacturers gravitate to countries with lax regulations to market their products).

96. See id. 97. See id. at 69-70 (describing experience of Eli-Lilly and SmithKline). But see

Wall, supra note 9, at 322 (noting that foreign countries' regulatory processes are becom- ing more like process in United States).

98. Marketing exclusivity rights in many foreign countries, however, does not grant a manufacturer the pricing flexibility provided by the United States market, because many foreign governments have instituted price controls. Griffin, supra note 7, at 406.

99. See How Bad Is the Drug Lag?, Newsweek, Oct. 9, 1 978, at 1 1 9 (providing anecdotal evidence of Americans going to foreign countries to gain access to products that they need).

100. See infra notes 102-03 (descnbing how mergers reduce costs). 101. See Sakson, supra note 93, at D3 (noting that mergers will lead to less innovative

research); Stahel, supra note 77, at 20 (stating mega-mergers do not address issues that are key to pharmaceutical industry's long-term success).

102. Manufacturers merge to strip duplicate costs.. In other words, the new company becomes lean by eliminating overlapping segments of the pre-existing companies. Id. For example, in the recent merger between Glaxo PLC and Wellcome, the newly combined company eliminated duplicative costs in sales, administrative functions, manufacturing




enormous fixed cost103 and time necessary to bring a new drug to market limit the pool of firms that can compete effectively.104 This creates an incentive for large manufacturers to merge with smaller manufacturers, which cannot maintain research and development expenses.105 These mergers di- lute competition within the industry by broadening the product lines of the largest manufacturers.106 The merged companies can meet the demand of today's market better than their smaller competitors, since they can lower prices. One commentator, however, views these mergers as stop-gap measures that increase a company's profitability in the short term, without ensuring the continuous development of new products that is vital to the industry's welfare.107

plants, and research projects. See Tanouye, supra note 70, at B4. To put the scope of duplicate cost elimination into perspective, the merger of Glaxo-Wellcome cost 2,250 em- ployees their jobs. See Kirsten D. Grimsley, The Ax That Cuts Both Ways; Downsizing 's Human Costs Outweigh Economic Gains, Many Experts Now Say, Wash. Post, Nov. 5, 1995, at H4.

103. A fixed cost does not vary based on the level of output. Manufacturers must en- dure fixed costs, such as regulatory process costs, regardless of whether they will produce one unit or a million units of their product. See Lipsey et al., supra note 16, at 195

104. See Schifrin, supra note 6, at 112, 125 (noting impact of decreasing profitability for small, medium, and large firms and dramatic rise in NCE introductions from largest one percent of pharmaceutical manufacturers after 1966); see also Grabowski & Vernon, supra note 9, at 33 (stating that number of firms introducing new chemical entities into U.S. market dronned from 51 between 1 954 to 1 958 to 36 between 1 976 and 1 980 Y

105. See Lawrence Hoff, Paper presented at the Symposium for the 75th Anniversary of the Food, Drug & Cosmetic Act, 37 Food Drug Cosm. L.J. 66, 70 (1982); see also Elyse Tanouye et al., Pooling of Interests: In Big Drug Merger, Sandoz and Ciba-Geigy Plan to Join Forces, Wall St. J., Mar. 7, 1 996, at Al 2 (quoting Glaxo' s chief executive, Sir Rich- ard Sykes, who believes mergers will continue throughout decade). Incentives must exist for a large manufacturer to merge with a smaller company. Research Analyst Interview, supra note 70, at 113,707 (stating that smaller companies with proprietary products or broad product lines are most likely to be targets of larger manufacturers seeking to merge).

106. See Tanouye, supra note 105, at Al 2 (stating that combining product lines gives the merged company more marketing muscle); Jeffrey H. Birnbaum & Michael Waldholz, Harsh Medicine: Attack on Drug Prices Opens Clinton 's Fight for ñealth-Care Reform, Wall St. J., Feb. 16, 1993, at Al, A12 (stating that largest companies with rich research pipelines can afford to hold back price increases, but smaller firms must capitalize on research and development success by charging higher prices to remain profitable).

107. Companies may benefit from mergers in the short term. See Stahel, supra note 77, at 20. Innovative companies, unlike generic manufacturers, must generate enough profits on an on-going basis to fuel their research and development operation to maintain the industry. Id. Manufacturers must adapt their research and development operations to make them more profitable in the long term by increasing the productivity of research and development, increasing the cost-effectiveness of research and development, and developing products faster. Id. at 21. These adaptations can occur through the transformation to virtual pharmaceutical companies. Id. These companies make research and development




IV. Reform Measures That a Final Reform Bill Should Contain

Senator Kassebaum' s Food and Drug Administration Performance Ac- countability Act of 1995,108 former Representative Wyden's FDA Moderni- zation Act of 1995,109 and Representative Burr's Drug and Biological Prod- ucts Reform Act of 1996,110 all attempted to encourage efficient product reviews and product safety by refining the approval process.111 These bills contained similar provisions that encouraged more cooperation between manufacturers and regulators and required the use of nongovernmental review boards in certain stages of the new drug approval process.112 Each bill also contained unique measures to expedite the approval process, such as changing the statutory definition of "substantial evidence"113 and providing prompt hearings to avoid unnecessary lags.114 Although these bills were not enacted, synthesizing many of the reform ideas into a single bill would be a significant step toward attaining each bill's goal of ensuring safety while improving the efficiency of reviews.

A. The Need for Cooperation Between Manufacturers and the FDA in the Design of Protocols

The bills attempted to follow a model of manufacturer-regulator cooperation, which would shorten the length of the approval process for products that treat life-threatening or severely debilitating conditions, by applying the

more profitable by relying heavily on outside contractors to perform research, while sig- nificantly trimming the company's in-house research operations. Id.

108. S. 1477, 104th Cong. (1995). 109. H.R. 1742, 104th Cong. (1995). 110. H.R. 3199, 104th Cong. (1996). 111. See S. Rep. No. 104-284, at 8 (1996) (report accompanying S. 1477) (recognizing

need to balance product safety and facilitating product development). H.R. 1742 contains three findings that echo this concern. These findings state,

1 ) The Food and Drug Administration has primary responsibility to ensure the safety and effectiveness of drugs and medical devices. 2) Within the scope of that mission, the Food and Drug Administration also has a public mandate to help speed the introduction of life-saving and life-enhancing new products to the marketplace .... 4) It is apparent to persons both within and outside of the agency that certain Food and Drug Administration practices, policies and systems may-

A) needlessly delay the introduction of new products, [and] B) withhold new health care benefits to American citizens ....

H.R. 1742, 104th Cong. §2. 112. See infra notes 122-26 and accompanying text (discussing proposed role of non-

governmental review boards). 113. See supra note 37 (defining substantial evidence). 1 14. S. 1477, 104th Cong. § 404 (1995).




model to all NCE introductions.115 Conflicts, however, arose between the FDA and the manufacturers over unexpected delays in product approval that occurred when the FDA refused to abide by "agreements" that manufacturers felt they had with the agency.116 The bills addressed this problem by permitting manufacturers to request a meeting with the FDA to review research protocols prior to submitting the IND application.117 The FDA must meet with the applicant within thirty days of the request and offer sugges- tions to improve the applicant's protocol.118 Any agreement that the FDA and applicant reach regarding the design of the protocol may only be modi- fied by either party in limited situations.119 The final version of a reform bill should contain a similar provision encouraging cooperation throughout the approval process and a provision binding the FDA to agreements reached at meetings with manufacturers, subject to certain exceptions.

B. Use of Outside Contractors Could Speed the Approval Process

The second common feature of these bills is that they encouraged exten- sive use of outside experts120 to perform reviews of any submitted applica-

115. The complaints of AIDS activists forced a rethinking of the drug approval process for new drugs that treat life-threatening illnesses where no alternative treatments exist. See Beckner, supra note 5, at 553-4. Regulators reacted to these complaints by enacting the subpart E reform, which reduced approval times to seven and one-half years. See Sheila R. Shulman & Jeffrey S. Brown, The Food and Drug Administration 's Early Access and Fast Track Approval Initiatives: How Have They Worked?, 50 Food & Drug L. J. 503, 507 (1995). This reform produced the intended results by encouraging cooperation between the manufacturers and the FDA throughout the approval process. Id. at 517.

116. Jack Olshansky, How the Investment Community Views the Food and Drug Ad- ministration 's Approval Process and Clinical Outcomes, 45 Food Drug Cosm. L. J. 505, 507 (1990) (discussing how, under current process, manufacturers commonly feel they have reached "agreement" with FDA regarding protocols early in approval process only to be informed by agency that protocols are unacceptable).

117. S. 1477, 104th Cong. § 304 (1995); H.R. 1742, 104th Cong. § 5 (1995); H.R. 3199, 104th Cong. § 4 (1996). H.R. 3199 further permitted meetings to occur regarding appropriate testing for anNDA. H.R. 3199, § 4.

118. S. 1477, § 304; H.R. 1742, § 5; H.R. 3199, § 4. 119. S. 1477, § 304. S. 1477 would permit modifications of agreements "by mutual

consent, by the sponsor . . . unilaterally if the change would not require FDA approval, and by the FDA unilaterally only by the director of the responsible office in writing, and speci- fying the scientific and clinical need." Id.

The Burr bill (H.R. 3199) states that any agreements reached at these meetings may not be changed by "field personnel or offices of compliance or office responsible for the review." H.R. 3199, § 4. Representative Wyden's bill (H.R. 1742) does not contain this provision.

120. S. 1477, § 403, states that the "Secretary may contract with outside organizations and individuals." Avoiding usage of the word "shall" gives the Secretary of Health and




tions, such as an IND or an NDA, to expedite the review process.121 The House bills, however, contain some minor differences in the framework used to achieve this result.122 The authority provided to these experts also varies between the two House bills.123 Critics claim that review by the private sector would breed conflicts of interest124 and potentially reduce the FDA's role to rubber stamping the outside experts' recommendations.125 This concern, however, is rendered irrelevant by a provision in H.R. 3199. This provision requires outside experts to disclose any potential conflicts of interest and abstain from voting in any manner that would allow financial gain.126

Human Services discretion implementing this change. Id. This discretion, however, would expire in July 1998 if the FDA failed to meet the statutory deadlines on 95% of the applications in the previous fiscal year. Id.

121. S. 1477, §§ 401-408; H.R. 1742, § 6; H.R. 3199, § 4. 122. H.R. 1742 adopts the usage of institutional review boards to review Phase I clini-

cal investigations and expert advisory panels to review NDAs. H.R. 1742, §§ 5, 8. The Secretary of Health and Human Services would have the authority to certify institutional review boards and advisory panels under this bill. Id. § 5. The review boards must complete their review within the 30-day period for IND review. Id. NDA applicants may request review by an expert advisory panel 90 days after submitting their applications. Id. § 8. The Secretary then has 60 days to refer the application to an advisory panel. Id. The advisory panel must complete its review of the NDA and provide a recommendation to the Secretary within 60 days of receiving the application materials. Id.

H.R. 3199 speeds IND approval by reducing the time period prior to the com- mencement of clinical research from 30 to 21 days. H.R. 3199, § 3. The FDA must make a decision regarding the recommendation of an advisory panel on INDs within 30 days. Id. § 6. Marketing approval recommendations made by accredited persons must be acted on within 60 days. Id. § 7.

123. In H.R. 1742, the review boards have the authority to approve the initiation and conduct of Phase I clinical studies. H.R. 1742, § 5. H.R. 3199, however, permits accredited institutions to approve Phase I and Phase II clinical investigations as long as advisors or accredited persons possess "experience in, the development, manufacture, or utilization of, such drugs or biological products." H.R. 3199, § 6. Accredited persons, however, are not responsible for the marketing determination. Id. § 7. In contrast, S. 1477 limits experts to advisory roles, with the FDA retaining the authority to make a final judgment regarding approval or disapproval. S. 1477, § 403.

124. See Hearings on 3199, supra note 41, at 27 (statement of David Kessler, Com- missioner of FDA) (commenting that reviewers would be paid by applicants directly); see also Edward M. Kennedy, Prescription for Disaster, Wash. Post, Apr. 22, 1996, at A21 (arguing that proposed system of regulation contains "built-in" conflicts of interest).

125. Hearings on 3199, supra note 41, at 258 (testimony of Ellen Cooper, M.D., Vice President and Director, American Foundation for AIDS Research) (complaining that limited time frame that FDA has to review recommendations would force them to accept recommendations of outside experts).

126. H.R. 3199, § 6(4). The section states, "Each member of a panel shall publicly [sic] disclose all conflicts of interest that member may have with the work to be under- taken by the panel. No member of a panel may vote on any matter where the member



496 ADMINISTRA TIVE LA W REVIEW [49:2

Furthermore, the complaint that the FDA's role in the approval process could be reduced to that of a rubber stamp misconstrues the agency's priori- ties. As a first priority, the agency wants to avoid congressional oversight hearings.127 Therefore, the FDA would more likely violate a statutory dead- line128 than act as a rubber stamp. The synthesized bill should encourage the use of outside contractors as long as it contains a provision requiring the disclosure of conflicts of interest.

C. Reducing the "Substantial Evidence " Requirement

S. 1477 and H.R. 3199 reduce the number of well controlled studies required to constitute "substantial evidence"129 in an NDA from two130 studies to "one, when appropriate" or "one or more."131 Commentators debate the wisdom of this change.132 The Senate bill would codify a current practice used by regulators that allows one well controlled study to satisfy the bur- den, when appropriate.133 The House bill, however, permits one or more clinical investigations to satisfy the requirements for NDA approval without the "when appropriate" qualification.134 The synthesized bill should contain either the "one or more" or "one study when appropriate" language to allow the FDA to exercise its discretion. This degree of discretion will ensure that product safety is not compromised, because the FDA will likely interpret either clause to maximize caution, rather than release a product into the market while uncertainty concerning its safety remains.

could gain financially from the advice given to the Secretary." Id. 127. See supra note 42 (explaining FDA's preference to err on side of caution). 128. 21 C.F.R. § 314.100 (1996) imposes a 180-day statutory deadline for the approval

of NDAs. Id. Any new or additional statutory deadline imposed for review of NDAs, however, will likely do little to speed the review process, as the FDA consistently violates current applicable deadlines. Cf. supra note 63 (quoting FDA Commissioner Kessler that approval times for NDAs had been reduced to nineteen months).

129. See supra note 37 (defining substantial evidence). 130. S. Rep. No. 104-284, at 38 (1996). 131. S. 1477 adds the following sentence to the current definition of "substantial evi-

dence": "Substantial evidence may consist of data from one well-controlled clinical investigation which may be waived by the Secretary and confirmatory evidence 'obtained either before or after such investigation'." S. 1477, 104th Cong. § 602 (1995). H.R. 3199 adds the phrase "one or more" before the phrase "clinical investigations." H.R. 3199, § 5.

132. Hearings on 3199, supra note 41, at 256-57 (testimony of Ellen Cooper, M.D., Vice President and Director, American Foundation for AIDS Research) (arguing that H.R. 3 199' s reduction of requirement to "one or more" clinical trials fails to follow basic tenet of "good science"); but see id. at 135 (prepared statement of Fred W. Lyons, Pharmaceuti- cal Research and Manufacturers Association) (stating that modern scientific methods lessen need for duplication of results).

133. See S. Rep. No. 104-284, at 38. 1 34. See H.R. 3199,1 04th Cong. § 5.




D. Expedited Approval for a Delayed Product

One final provision of the Senate bill is a default mechanism to expedite approval of a product that has been approved in another country.135 If the FDA fails to meet a deadline on an application for a product previously approved in the European Union or United Kingdom, a patient may file an application to expedite the product's approval.136 The FDA must respond to this request within thirty days.137 Furthermore, the applicant may obtain judicial review if the FDA denies the patient's request to expedite the product's approval.138 The ultimate reform bill should contain this measure to counteract the problem of slow product approval, which forces patients to rely on foreign markets for new therapies.

V. Analysis of the Proposed Reform Bills' Likely Impact on the Market

The synthesized reform bill should minimize the length of the approval process, and thus increase the profitability of research and development projects for manufacturers. A study conducted by the American Enterprise Institute indicates that a one-year decrease in the length of the approval process could reduce the time manufacturers need to turn a profit on a new drug by three to four years.139 The reform bills seek to reduce the process- ing time for an NDA from the current nineteen-month average to the statu- torily imposed six-month time period.140 This goal seems unrealistic,141 yet enacting the synthesized reform bill should produce results similar to the reforms for priority drugs.142 These time reductions should make research and development more profitable and thus attractive to manufacturers.143 This attractiveness to manufacturers should increase the introduction rates for new chemical entities, assuming that the level of research and development

135. S. 1477, §404. 136. Id. 137. Id. 138. Id. 1 39. See Grabowski & Vernon, supra note 9, at 60 (referring to 1 982 study). 140. 21 U.S.C. § 355(c)(l) (1994). 141. If any reform bill passed, it is unlikely that the FDA would immediately embrace

the reforms, especially if the agency had any discretion to avoid them. See supra note 120 (discussing FDA's discretion to contract with outside experts).

142. See supra note 115 (noting success of subpart E in reducing length of approval process).

143. Grabowski & Vernon, supra note 9, at 61 (stating that reductions in length of approval process will produce larger impact on manufacturers' profits than would patent extensions).




expenditures remains constant. Increases in NCE introduction rates, however, will not lead to an abun-

dance of new drugs entering the market. The FDA continues, under the proposed legislation, to make the final determination regarding a product's marketability.144 The agency, therefore, would probably continue its cau- tious approach for product reviews, thereby maintaining the current marketing approval rate of one in 5,000 to 10,000 NCEs.145 This reform package, while emphasizing new drug safety, fails to create an accountability mechanism that ensures efficient product reviews.146 This failure will prevent a major increase in new drug approval rates, because nothing prevents the FDA from rejecting a percentage of potentially safe and effective products in the interest of caution. A minor increase of new products into the market will not satisfy patients' demand for therapeutic innovations, especially their demand for orphan innovations.

The reform effort, however, might eliminate the need for American patients to look to foreign markets to satisfy their need for products. Reducing the length of the approval process will make the United States' regulatory process more competitive and therefore minimize the need for patients to rely on foreign markets to satisfy their demand.

Recommendations and Conclusions

Making research ventures more profitable does not guarantee that the demand for new products will be met. Any reform effort to increase new drug approval rates must address the FDA's incentive to deny approval to a percentage of safe and effective products. Safety will always be the FDA's primary concern in conducting product reviews. Offering incentives for companies to develop new products, however, responds to the fact that individuals need new therapies. Unfortunately, the disapproval of safe and effective products does not draw the public outcry that accompanies disasters caused by the approval of unsafe products. The impetus that motivates Congress to hold hearings when an unsafe product reaches the market does not exist for unnecessary disapprovals.147 Congressional oversight hearings,

144. See supra note 123 and accompanying text (recognizing that each bill continues to vest final determination power in FDA).

145. See supra note 68 and accompanying text (discussing contested rate). 146. See Hearings on 3199, supra note 41, at 259 (testimony of Ellen Cooper, MD.,

Vice President and Director, American Foundation for AIDS Research) (stating that when major regulatory controversies occur involving FDA, no independent body exists to hear complaints and devise solutions to them).

147. Beckner, supra note 5, at 549 (comparing ease in disseminating information about underregulation versus difficulty in disseminating information concerning consequences of




therefore, do not serve a realistic impetus against agency overcaution. The oversight mechanisms in H.R. 3199 and S. 1477148 fail to counter-

balance the incentive to make approval decisions cautiously with an incentive to make approval decisions efficiently.149 The creation of the latter incentive hinges on the independence of the oversight body and the FDA's accountability to that body. Independence and accountability must be em- bedded into any reform measure Congress enacts. Once this dual mandate is in place, pharmaceutical manufacturers' ability to meet the demand of patients in need of new therapies will increase.

MICHAEL P. VANHUYSEN*

overregulation). 148. H.R. 3199. 104th Cone S 2 f1996Y S. 1477 104th Cone 8 103 M99SÌ 149. Under H.R. 3199, the FDA must report its progress in achieving its mission to the

House Commerce Committee and the Senate Labor and Human Resources Committee. H.R. 3199, § 2. Enacting congressional oversight of the FDA, albeit by the designated committees, seems redundant. Congress can already call hearings for the FDA to explain its decision to release a product into the market, and Congress can shape agency policy through its control over appropriations. S. 1477's mechanism also may fail because it places the FDA in a position to evaluate its own performance. S. 1477, § 103.

* J.D. Candidate, May 1998, Washington College of Law, American University. I would like to thank my family and friends for their continued support.



reform of the new drug approval process

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