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zZ- I* As Congress mulls plans for taking over the American health care system, it might first take a fresh look at what politics has already done to the drug industry. Food and drugs and politics By Peter Brimelow and Leslie Spencer Administration. a drug that's not approved by the Food & Drug liver cancer in Asia. But they are afraid to go within a hundred miles of any decision involving greater experience with the treatment of primary to Japan.' American doctors know about the A few doctors did say, 'If it were my mom, Pdgo and if you're lucky,vou'll live another few months. the available treatments will make you reallysick, My motherhad liver cancer. All the specialists said We found a chemotherapy clinic in Kumamoto, run by a doctor with a Ph.D. and M.D., a masters in biochemistrv from the Universitv of California at Davis and several years with advanced liver cancer. I found cancer patients there journals showing a history of 40% three year survival rates on staff at Harvard Medical School. He had supervised a ten year clinical trial published in refereed U.S. cancer stillgoing after six years. No testing of the drug he used had ever even been done in the U.S. Tests cost so much and take such a long time. But it's brutal of the Food & Drug Administration to tell cancer patients who aregoing to die anyvay that they don't have the option to try existing remedies. We had to abandon the U.S. legal and medical systems and put her in a Japanese hospital, away firom her home, her family and friends, her dog, her belongings. . . . When her treatment was finished, thevgave us a sim- ple intravenous medicine to bring home. No one would administer it here because it wasn't approved for use in the U.S. We had to drive her seven hours round trip across the border to Tijuana for a couple of days evesy week. -Tom Hazlett, economist, University of California at Davis IROh'iC.u.LY, Hazlett had of- ten cited the Food & Drug An Eli Lilly drug application in 1985 Administration in class. He Since then, it's doubled. saw it as a classic example of ~ Forbes  November 22, 1993 the "invisible" cost problem that pervades re torv bureaucracies. With his mother's illness Haz- lett had a direct demonstration of both the financial and the emotional costs. Economists can readily measure some of these "invisible" costs paid by the American public because of the FDA. For example, a 1967- 76 delay in approving the beta-blocker com- pounds that treat hypertension and other car- diovascular disease was responsible for an esti- mated 10,000-plus deaths annually. But the victims are usually voiceless. So they don't count. Neither politicians nor the FDA need pay them heed. Unforeseen deaths from use of new drugs, however, mean headlines. The FDA makes its presence felt more widely than most Americans realize. The federal agency's oversight author- ity ranges over food, food additives, drugs and medical devices, -r-vs and microwave ovens. And pet products-yes, Fido and Mittens are in its care, too. An estimated 25 cents of every dollar spent by consumers falls within the FDA empire. It is often called the largest consumer protection agency in the world. As a consumer protection agency, the FDA's press is typically uncritical-except sometimes to say it isn't doing enough. A particularly credulous article in Business Week recently concluded with the view that "[Commis- sioner David] Kessler has brought the FDA into the 20th century." The maga- zine's editors missed the unconscious humor in the claim: 1993 is rather late for joining the 20th century. Indeed, the modern FDA isa characteristic mid-20th- century institution. It is deeply rooted in unlimited enthusiasm for government regulatory intervention, naive confidence in legalis- tic processes and an un- thinking insensitivity as to means. And, of course, it 115

FDA provides a very handy platform for publicity-hungry congressmen. Characteristic statist symptoms exhibited h~, rh_ ,__ e FDA:  Out-o -con r •TheFDA hasexpandedremark- ab y since the 1960s. Total staff: now 9,000, up from 7,800 in 1990 and 1,678 in 1960. It is constantly looking for new items to regulate as an excuse to get more money from Congress. FDA imperial ambitions in the pharmaceu- tical area go even beyond U.S. borders: Despite industry protest, it is working diplomatically to impose U.S.-type drug approval standards (invariably more stringent) on other countries.  Brombeating thosr src &ct to its iurisdiction: The FDA empire's drug company subjects whimper about its rule. A sample complaint: Any drug application is handled by several different people. Chronic lack of communication results in confusing and contradictory instructions. LEFT: U.C. Davis' Tom Hazlett Mother FDA victim? RIGHT: Dr. David Kessler Fears "snake oil salesmen." Few, however, whimper very loudly. The gadfly Hern- don, Va.-based biweekly Food C- Drug Insider Report, published by lawyer Kim Pearson, found that 84% of companies polled in 1991 reported declining to file a complaint against the FDA for fear of retaliation. You can scarcely blame the companies for being afraid to complain. Three vears ago David Kessler was appointed FDA chief in the wake of the 1989 generic drug scandal that saw four FDA employees convicted of taking "illegal gratuities." He was supposed to cleanse the place. But now Barr Laboratories, whose chief executive was a whistle-blower in the case, has sued the FDA, claiming that the company has been punished for its whistle-blowing by subsequent inordinate delays and inspections. (The case is pending; an FDA countersuit failed to shut down Barr's operations for compliance violations. ) The FDA does not take kindly to being crossed in court. 116 Forbes s November 22, 1993

f • Food & Drug Insider Report quoted one ruffled FDA enforcement staffer huffing about recent legal challenges: "We have depended on the ability to selectively target companies ... and to issue findings without fear of being second-guessed by some tinhorn judge."  Lengthening "drug 1qgf": Because of increased FDA supdrvtston, the =. has become notably slow in the development and marketing of new drugs. The lag from synthesis of a promising new chemical compound to its approval for sale as a medicine climbed from 8 years in the 1960s to 14 years today. In 1973, only 11 years after legislation establishing the FDA's current mandate, University of Chicago Graduate School of Business economist Sam Peltzman examined new drug innovation rates and found that there had been a 50% drop in the number of drugs that reached the market each year. He found no corresponding increase in safety or effectiveness. A recent study by Tufts University's Center for the Study of Drug Development showed that 80% of drugs approved by the FDA between 1987 and 1989 were available earlier in other countries-by an average of about six years. With this delay, the FDA was in effect killing Americans.  Increasn drug costs: It cost an average of $231 million to develop each drug approved during the 1980s, more than double the inflation-adjusted cost in the previous decade, according to a 1991 survey by the Tufts Center. Congressional FDA allies ordered an Office of Technology Assessment report, hoping to refute Tufts. But oTA Forbes  November 22, 1993 2 concurred. _ "Most of that cost increase has been regulation driven," says Leigh Thompson, chief scientific officer at Eli Lilly. He notes that in 1985, before drug approval,applications were computerized, one Lilly submission iveighed 4,000 pounds and filled an entire room. Since then, FDA data requirements have almost doubled. •  Stunting new *!Z"development: esearch into treat- ments or c rDnic ailments like Alzheimer's disease and multiple sclerosis is discouraged by the FDA system. These ailments are not cured but ameliorated. Sometimes the improvement is subtle and occurs over a long period. The questions of judgment involved, and the length of time necessary for clinical trials, can make it impractical to prove effectiveness to FDA standards. Similarly, all but the most minor changes in medical device design and manufacturing now require FDA approv- al. This works to discourage improvement and encourage use of old, inferior technology.  Distortingdrugindustrystructure: Startup biotech firms ofren have no revenues. o p rotracted FDA delay can cause financial "flameout" and bankruptcy. "The FDA just doesn't want to know how much they discourage these kinds of investments," says Peter Barton Hutt, former FDA chief counsel and a leading Washington food and drug lawyer who serves on several biotech boards. "Venture capital goes a lot further abroad." Larger drug companies have been able to pass FDA driven costs on to consumers. But now these companies are under fire for the high cost of their products. If the Clinton health plan imposes price controls on them, the pharmaceutical companies may have no choice but to rein in research and development of new drugs. This is almost certainly the message of Merck's announced $6 billion purchase of Medco Containment Corp., a discount drug distribution company, combined with staff cutbacks in their current operations. Big business notoriously seeks to benefit from FDA•sn Ic regulation. Big drug companies have been oddly ambiva lent about the mounting FDA paper burden. Chicago economist Sam Peltzman's suspicion: Once a drug is finally approved, FDA rules delay the emergencc of competitors. And the large companies quickly lined up in support of the FDA's new "user fee" tollgate tax, its latest solution to its chronic approval backlog. This requires companies to cough up $100,000 with every new drug application, and possibly as much as $230,000 by 1997- proportionatcl~much more punishing for small biotech and medical device firms. Exceptions prove the rule. The same agency that holds up potentially useful drugs tends to become lax whcn politically fashionable products come before it. Thus the agency has responded to feminist pressure to approve the very failure-prone "female condom" and to encourage U.S. testing of the high-risk French RU-486 abortion pill. And it allowed early distribution of AZT and DDC AIDS treatments. But why should AIDS sufferers and feminists get better treatment than people who suffer from cancer, heart disease or arthritis? No medical reason-but AIDS sufferers 117 4

FDA and feminists make more political noise than do cancer victims. This politically sensitive agency traces to Progressive Era legislation, notably the 1906 Food & Drugs Act, inspired by Upton Sinclair's muckrak- ing novel The Jungle and its portrait of horrible conditions in the Chicago stockyards. But the burden generally rested with the FDA to prove adultera- tion or misbranding before banning food or drugs. Then in 1962 there was panic over thalidomide, a sedative that caused birth defects. Actually, thalidomide had never been approved in this coun- try, because of FDA oversight under existing law. But Congress seized the opportunity to pass amendments to the Food & Drugs Act. These empowered the FDA to require that a new drug not only be safe-but also effective. For some decades before 1962 new drugs could automatically be sold un- less the FDA objected within 60 days of an application. After 1962, without an affirmative finding of safety-as well as effectiveness-no drug could reach the market. Question: Why should the federal government be in the business of FDA oversight chairman, John Dingell take risks. To a much greater extent Violates separation of powers4 deciding which medicines are effec- tive anyway? Previously, drugs that didn't work tended to fail in the mar- ketplace, like any other product. And safery was policed by the common law of liability and contract, besides FDA oversight. But in its haste to be seen to be doing something in the wake of the thalidomide disaster, Congress abridged the freedom of Americans and their doctors to experiment and than in other industrialized countries, ~ Big Brother was declared better able to judge what is good for us than we ourselves are. As is always the case with any Big Brother, he fears errors of commission, for which he can easily be blamed. But errors of omission, such as "drug lag," are hidden. "They don't have to prove anything. They can just say 'I'm not sure, go do five more tests,' " says food and drug lawyer Peter Barton Hutt. "The people who do premarket approval at FDA are like little kings and queens in their kingdom. They can have more power over the economy and technological development than the chairman of the board of the largest pharmaceutical company." Another 20th-century development is complicating the FDA's life. A creation of Congress, the FDA has increasingly become the creature of Congress. Although in theory an executive-branch entity, the FDA has come under the almost 118 total sway of Congress, notably two chairmen of House Energy & Commerce subcommittees: Oversight & Investi- gations' John Dingell ( D-Mich. ) and Health & Environ- ment's Henry Waxman (D-Cali£). Dingell is famous for grabbing ink and time on the tube by staging widely publicized hearings, for example, about alleged blunders in the drug approval process. Dingell's frequent demands for FDA documents are known through- out Washington as "Dingell grams." They often require dozens of FDA staff to stop their assigned jobs for weeks at a time as they feed the photocopiers-fearing public retri- bution if a document leaked previously by a disgruntled FDA mole is found to be missing. Congress has figured out a way to control detailed FDA policies via legislation. It builds restrictions on FDA action Forbes • November 22, 1993

I ~ a Food and Drug Insider Report's Kim Pearson Gadfly stalks D.C. chameleon. ics Paul Rubin suggests that pharmaceuticals could be handled through contract law. Drug companies would contract with the consumer through warranties, possibly arranged by health maintenance organizations and insur- ance companies. Price would vary, for example, reflecting different levels of compensation for the risk of unforeseen side effects. Don't count on any such sensible reforms soon. If the Clinton health plan passes in any form, we will have more, not less, power for government. "Price controls mean that pharmacology becomes more politicized than ever," says Kazman of the Competitive Enterprise Institute. "When the country becomes one big HMO, price will be a factor in drug approval decisions-which drugs should be allowed in the national financial interest?" Tom Hazlett's mother died last year, her last months made unnecessarily difficult by the lengths her family had to go to ensure they had done everything to save her. "Faced with my mother's choices, what was the benefit of not allowing a doctor to treat her here?" Hazlett asks. "My father and I thought then, and I still think, we made a reasonable decision. The FDA just assumes it knows what's best for everyone. But this was a technology it didn't even know about. "The FDA imposes huge costs. It tortures people. It tears families apart." Such is the current faith in the powers of government, however, that such "invisible" costs are rarely reported. = into the legislation itself. Thus the 1990 Nutrition Label- ling and Education Act contained a deadline, after which, if the agency failed to produce final implementing rules, a harsher version would become law. This political rat's nest offers great opportunities for self-appointed custodians of the public weal, most notori- ously Sidney Wolfe of Ralph Nader's Public Citizen. And it inevitably breeds supremely political animals-none more so than Commissioner Kessler (see previous story). Would the public be protectionless without the power- grasping of Messrs. Dingell, Waxman and Wolfe? Of course not. There are simpler and more efficient ways to do the job. Some experts, such as Sam Kazman at Washington D.C.-based Competitive Enterprise Institute, propose modified regulation plus the common law of negligence. The FDA would be a certif~ling agency without veto power. And drugs could also be approved by authorities like other countries' health agencies, private research centers and universities. In effect, the FDA would have to compete for trustwor- thiness. Everyone else would have more freedom-and responsibility. -. A consumer could choose to use a doctor-prescribed drug knowing that it had not passed the FDA but had been approved in, say, Britain. If something went wrong, the consumer might have to bear the consequences. More radically, Emory Universitv professor of econom- 119 Forbes • November 22, 1993