How the FDA Stifles New Cures, Part III: A Proposal for Reform

How the FDA Stifles New Cures, Part III: A Proposal for Reform

April 30th, 2012 // 2:46 pm @

On Tuesday, the Manhattan Institute released a study I authored, entitled “Stifling New Cures: The True Cost of Lengthy Clinical Drug Trials.” The paper discusses how outdated FDA policies are making drug development too expensive and too risky. In this excerpt, I describe the most promising avenue for FDA reform: a “conditional approval” process that would allow limited marketing of drugs after mid-stage clinical trials.

The French economist Frédéric Bastiat wrote in 1850 of “that which is seen, and that which is not seen.” Truer words could not be penned of the pharmaceuticals industry, whose great tragedy stems from that which is not seen: promising drugs that are not being prescribed because of the expense and risk of developing them.

When promising treatments are kept off the market, the patients who fail to benefit go unseen. This is especially true with common conditions such as obesity, where effective drugs would be used by millions of Americans. What is “seen,” by contrast, are concerns about drugs that were approved by the agency and later turned out to pose problems. When this happens, FDA officials are often hauled before Congress and asked to defend their decisions. At the agency, expeditious approval of innovative drugs is risky; excessive caution is not.

Hence, while it is important to encourage the FDA to streamline its regulatory process, it is even more important to consider ways that Congress can create the legal incentives for the FDA to approve more pharmaceuticals and permit more companies to enter the market.

Specifically, three aspects of the agency’s current approach are out of date and create significant costs and delays in the development of useful drugs.

First, the system is oriented toward acute diseases, like contagious infections, in which symptoms appear rapidly and the effect of medication is also relatively quick. Such diseases were the most prevalent menace to public health when the federal government began regulating drugs in 1906. Today, however, the greatest dangers to long-term public health are chronic non-communicable diseases such as heart ailments, diabetes, stroke, and cancer. These conditions can persist for decades. That makes it more difficult to measure the true effects of a medication in the time scale of even the most wide-ranging of clinical trials.

Second, the current approval system for a drug is “all or nothing”: if a medication is approved, it is judged effective for all patients at all times, and it may be marketed by all legal means. If, on the other hand, the drug is judged not effective enough to justify approval, it is withheld altogether from the public. Yet most victims of chronic illnesses have more than one medical problem, and their symptoms vary individually over time. Medication to treat heart disease, then, may be useful in some instances, for some people, in a way that is hard to capture by an either/or evaluation method.

Third, as we have documented in this paper, the current system is extremely costly to implement. This is due not only to its very high standard of proof for effectiveness but also to the FDA’s broad powers to determine what constitutes a satisfactory trial. Even after Phase I, II, and III trials are complete, the agency can, for example, demand answers to new questions or impose new criteria for success. As a result, a great deal of uncertainty hangs over even the most promising trial results.

More Balanced, More Effective: Expanding the Role of Conditional Drug Approvals

There is one step that government and industry can take to reduce dramatically the risks and cost of drug development: abandon the current black-or-white approval process in favor of an incremental, conditional one. In such a process, drugs could be provisionally approved after promising early-stage data, with the FDA retaining the option to revoke that approval later on, should unexpected data come to light.

A “conditional approval’’ approach would grant limited marketing authorization to new drugs after successful Phase II trials. Under conditional approval, patients most in need can benefit from a new drug, and companies can generate a modest amount of revenue that can help fund Phase III trials for full approval. A conditional approval for betrixaban, for example, would allow Portola to generate incremental revenues that could fund its Phase III program, dramatically reducing the risk that the company would lose everything if betrixaban failed to show a benefit in larger trials.

As we’ve mentioned, a conditional approval model already exists, in the FDA’s accelerated approval process. The accelerated approval process was instituted in 1992, after a decade of advocacy by HIV/AIDS patients. Because it often takes years for drugs to demonstrate definitive clinical benefit in traditional Phase III trials, the FDA created the process to approve a drug after Phase II studies if those studies show that it is “reasonably likely to predict a real clinical benefit.” For example, a cancer drug that causes tumors to shrink is “reasonably likely” to extend life. However, drugs can cause tumor shrinkage in a matter of months, whereas it may take years for a drug to definitively prove that it extends life relative to the old standard of care.

Unfortunately, the FDA severely restricts the accelerated approval process to serious, life-threatening diseases. Doctors and biopharmaceutical developers have long sought a broad expansion of the accelerated approval process. For example, Susan Desmond-Hellman, chancellor of the University of California at San Francisco, recently proposed a system in which companies could gain conditional approval in exchange for agreeing to a more restrictive marketing authorization. She specifically cited the experience of Arena’s Lorqess in her remarks:

You could have an approval process that started out with a low-level approval. You don’t get a sales force, you can’t promote that drug and you can’t put TV ads on it. But you could sell it. Then you increase your confidence. “We haven’t seen any heart attacks after five years—looking good. The ten pounds [of weight loss] is really holding up and in fact, some of the patients as they stay on the drug longer, lost 15 pounds. OK, maybe you can have a sales force. Still no ads on TV.” Then you gain more confidence; it gets to be eight years.

Is there a system where we could, as we increase our confidence in safety and advocacy, allow for broader distribution and more promotion? Not a yes or a no answer? I think that could really change two things. One is, the odds in the business model would be more stacked in favor of investing in difficult things like obesity, type 2 diabetes, [and] high blood pressure, which were at risk for no innovations.

An alternative approach would be to give companies the regular amount of leeway in the way they market conditionally approved drugs but require that any promotion include information that the drug had been only conditionally approved. The drug’s sponsors would face strict, contractual requirements requiring them to conduct well-controlled Phase III trials even as they marketed their pharmaceutical. The FDA could revoke a drug’s approval status if those trials were not satisfactory or, if in use, the drugs ended up proving to have an unfavorable risk-benefit profile.

How Reform Would Change Development Incentives for the Better

It’s worth considering how a conditional approval process could transform the economics of pharmaceutical innovation. Today, GLP-1 analogues achieve nearly $2 billion in annual sales per drug, and analysts project similar sales for approved antiobesity drugs. Using those figures, we modeled the impact of an FDA policy that offered conditional approval to such pharmaceuticals, restricting their use to the 10 percent of obese or diabetic patients whose conditions were most serious and most resistant to existing therapies. Selling to only 10 percent of a drug’s $2 billion market would yield a $200 million opportunity—not too far from the average cost of Phase III trials for antiobesity ($254 million) and GLP-1 ($187 million) drugs. In other words, a conditional approval approach would let companies largely recoup the costs of later Phase III trials.

Allowing these companies to gain revenues for their medicines in these severely obese or diabetic patients would allow them to fund Phase III trials with dramatically lower financial risk, while still demonstrating that their drugs were sufficiently safe and effective. (As we’ve mentioned, the costs of Phase I and II trials are far lower: we estimate that obesity companies spent an average of $24 million per drug on Phase I and II trials, and developers of GLP-1 analogues have spent an average of $15 million.) Companies could engage in research for new medicines. They would still be risking tens of millions of dollars in R&D spending. But they would not be risking hundreds of millions and their corporate lives.

Worth the Effort: The Impact of Reform on Public Health and Economic Growth

Reforms to address the cost of Phase III trials have no obvious constituency in industry or government. The FDA is averse to all risk, even when there are countervailing benefits. And large pharmaceutical companies benefit when smaller players are forced to partner with the giants in order to survive the Phase III process. The general public, though, has a strong interest in repairing a system that stifles medical innovation.

The social and economic benefits of pharmaceutical innovation are plain in health statistics. For example, between 1999 and 2005, the introduction of new heart drugs correlated with a 45 percent drop in coronary-artery disease patients dying of heart attacks in hospitals. Similarly, between 1995 and 1997, as new anti-HIV drugs became available, the annual death rate from HIV declined by 63 percent. The United States continues to lead the world in this important area, directly employing 655,000 Americans in the drug-development sector and supporting the employment of millions more.

Yet the industry faces significant danger. As described above, the costs and risks of new drug development are skyrocketing, making it more difficult to attract capital to start new biotech companies and raising questions about the ability of even large companies to sustain high levels of investment in drug research and development.

The biopharmaceuticals industry is a significant contributor to American R&D spending. From 2000 to 2007, drug companies spent $105,428 in R&D per employee, far more than any other American manufacturing industry. (Far behind, in second place, was the communications equipment industry, at $62,995 per employee.) For its contributions to the nation’s economic health, to say nothing of its literal health, this industry should be encouraged to continue innovating. Unfortunately, current regulatory practices have the opposite effect.


Our research has established that Phase III trials are, by far, the biggest expense, and the biggest risk, of new drug development. In fact, we have found that Phase III trials are even more expensive than is commonly thought. That expense distorts the drug-development system so that it does not efficiently and rationally allocate time and money to find new medications. Regulators block useful drugs from reaching patients. Researchers are discouraged from attempting to serve the most numerous populations of patients. And investors face the prospect of spending vast sums for nothing.

Hence, it is of paramount importance to mitigate the binary, yes-or-no nature of drug development. This black-or-white regulatory process discourages investment in new medicines. In contrast, if the United States adopted a flexible, conditional approval approach that allowed sponsors to recoup some of their R&D costs before, or during, large-scale clinical trials, we could dramatically lower the risk and cost of drug development. We believe that the consequence would be an explosion of private investment in medical research and development, providing a substantial boost to one of the largest sectors of our economy.

Congress, therefore, should create clear standards for conditional approvals and also give the FDA more flexibility to develop new regulatory tools that are better adapted to the rapid advances in basic science and that have the potential to accelerate patient access to safer and more effective therapies.

Along these lines, Senator Kay Hagan (D-N.C.) has introduced a bill titled “Transforming the Regulatory Environment to Accelerate Access to Treatments,” or TREAT. A draft version of this bill, encouragingly, sought to facilitate the “progressive and exceptional approval” of new drugs “to accelerate patient access to new medical treatments.” These include treatments that address a previously untreated disease; those aimed at patients who are failing existing therapies; and those that show unusual clinical promise.

Unfortunately, the FDA and other stakeholders opposed this measure, and it was taken out of the bill before its introduction. Instead, the current version of the proposed TREAT Act includes a modest expansion of the existing accelerated approval process—far short of what is needed to address the problem described in this paper.

The true policy solution is already clear, thanks to two decades of experience with the existing accelerated approval process. Today, the FDA’s incentives impel it to avoid the “seen” error of approving new medicines that later pose concern. By contrast, it has little incentive to avoid the “unseen” error of blocking new medicines that could ease the suffering of millions of people. Only Congress can correct this distorted incentive system, by granting the FDA the authority it needs to change.

Further Reading

(In case you missed it, Part I of this series described how the costs of drug development are rising overall. Part II discussed why Phase III trials comprise 90 percent of clinical trial costs.)

Follow Avik on Twitter at @aviksaroy.

UPDATE: Ron Bailey of Reason and Paul Howard of Medical Progress Today have additional useful thoughts on the “conditional approval” idea. Here’s Ron:

Roy is not alone in his advocacy for conditional approval. In a February 14 Wall Street Journal op-ed, former FDA Commissioner Andrew von Eschenbach argued that “after proof of concept and safety testing, the [new therapeutic] product could be approved for marketing with every eligible patient entered in a registry so the company and the FDA can establish efficacy through post-market studies.” Just such a system could be incubating in the FDA’s new Sentinel computer tracking system that looks for side effects in drugs once they’ve gone onto the market. Last year, some researchers asserted that the smoking cessation drug Chantix increased the risk of heart attacks. Based on its Sentinel analysis of the relevant databases, the FDA concluded this year that Chantix does not boost the risk of heart attacks.

Given the rapid evolution of bioinformatics, it might one day be possible to roll out most new pharmaceuticals after the equivalent of Phase II trials. Since medical and prescribing records will be online, drug researchers could compare people who choose take conditionally approved new drugs with a population that does not, matched for various confounders such as age, other medical conditions, behaviors, etc. Essentially, the health care system itself might become a gigantic Phase III trial for new treatments.

Delaying access to new drugs kills people. As Competitive Enterprise Institute general counsel Sam Kazman has observed [PDF], “Whenever FDA announces its approval of a major new drug or device, the question that needs to be asked is: If this drug will start saving lives tomorrow, then how many people died yesterday waiting for the agency to act?” Roy’s proposal is a good first step toward moving the drug approval process into the 21st century.

Paul makes some interesting points about the decline in products being advanced into Phase III:

By Phase III, companies should have a pretty good idea of what they’re looking at, in terms of the safety and efficacy profile of their candidates. But the number of projects failing in that late stage more than doubled over the last decade, according to CMR, from 26 to 55.

CMR also reported a decline in the number of new products entering Phase III trials, a 55% decline from 2007-2010. (Phase I and Phase II starts were down as well.) Oncology appears to be one of the few areas of where companies are increasing their investments.

Meanwhile,’s Adam Feuerstein thinks I’m being too tough on the FDA:

Not everyone is in total agreement with Roy’s assessment, however. The Street’s Adam Feuerstein poked at Roy’s analysis in a Twitter posting, asking, “How much blame should be parsed to incompetent drug companies?”

Feuerstein further commented that “spiraling costs, delays and unproductive R&D” are unlikely factors to be pinned on FDA.


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