After a recent blog post where I noted Peter Pitts' op-ed on Group Purchasing Organizations (GPOs) in the Washington Examiner, financial journalist Phil Zweig wrote to me to gently correct one of Peter's assertions:

In his article, Peter Pitts rightly attributes the drug shortages to the anticompetitive, exclusionary contracting practices and other abuses of hospital group purchasing organizations (GPOs). Those of us who have been trying to draw congressional and public attention to the GPOs' pernicious role in this crisis certainly welcome his support. Unfortunately, however, he is mistaken in stating that GPOs "keep costs low." In fact, overwhelming anecdotal and empirical evidence demonstrates that they grossly inflate healthcare costs. The reason is that GPOs are paid by vendors, including generic drug makers, in the form of "administrative" and other fees, which are calculated as a percentage of sales volume. So the higher the price of a product, the more money a GPO makes.

This perverse incentive was created by a misguided 1987 statute called the Medicare anti-kickback "safe harbor" provision, which exempted GPOs from criminal penalties for accepting vendor kickbacks. Overnight, GPOs became the marketing agents for suppliers, not the servants of hospitals. Under the original business model, which had worked well for nearly 80 years, GPOs operated like co-ops, covering their expenses out of the savings they achieved for members hospitals through volume discounts. The new kickback-based business model gave rise to a pay-to-play scheme in which GPOs awarded exclusive contracts to vendors in return for huge fees. But higher costs for providers, insurers and taxpayers are just part of the problem. Worse still, these abuses have denied patients and healthcare workers access to the best, safest, and most cost effective supplies, devices, and drugs.

This has been documented in four Senate Antitrust Subcommittee hearings held from 2002 to 2006, federal and state investigations, independent studies, media exposes, and numerous antitrust lawsuits against GPOs and/or their dominant supplier partners. A 2002 Government Accountability Office pilot study found that hospitals often got lower prices on their own. As Sen. Herb Kohl (D-WI) and former Sen. Mike DeWine (R-OH), then ranking member and chairman, respectively, of the Senate panel, pointed out in a joint 2003 letter to then Secretary of Defense Donald Rumsfeld (DOD was then considering using GPOs to procure health supplies), "the savings figures that GPOs frequently use as benchmarks to demonstrate savings are based on a manufacturer's list price that hospitals rarely, if ever, pay."

A September 2010 study initiated by Sen. Charles Grassley (R-IA), then ranking member of the Senate Finance Committee, concluded that empirical data was "lacking to support claims of savings with group purchasing organizations." More recently, a study in the current issue of the Journal of Contemporary Health Law and Policy found that in 2010 hospitals were able to save an average of 15% compared with GPO contract prices in competitive "aftermarket" bidding for capital equipment. In contrast, the GPOs have presented no independent data to support their specious claims of cost savings---only "surveys" of hospital materials managers conducted by academics hired by the powerful GPO lobby. As history has shown time and again, cartels drive up prices, competition lowers them.

Accordingly, to end the drug shortage, Congress must restore integrity and free market competition to the healthcare supplies industry. And that can only be achieved by repealing the Medicare antikickback "safe harbor" exemption.

A recent GAO report notes a general dearth of enforcement actions by relevant federal agencies who have jurisdiction over GPOs, at least since 2004, but also notes that in an earlier 2010 report GAO was unable to "identify any published peer-reviewed studies that included an empirical analysis of pricing data that indicated whether or not GPO customers obtain lower prices from vendors."

Senator Bernie Sanders (I-Vt.) floated a creative proposal to make AIDS drugs cheaper in the United States. He would eliminate patents for some AIDS drugs but give a prize to the companies that discover and develop them. These drugs would then enter the generic market, where their prices would be closer to their manufacturing costs, meaning they would be much cheaper than they are today. In other words, taxpayers would largely pay the drug companies, not patients, insurers, or AIDS Drug Assistance Programs. Sanders' plan would largely shift AIDS drugs from being "private goods" to being "public goods."

It is in our interest to give drug companies a sufficient incentive to invest in new AIDS drugs. To do so under the current patent system, drug companies must be able to price their AIDS drugs well above production costs to a large segment of customers to cover the expense of research and development. Pharmaceutical companies charge American patients a high price for AIDS drugs while charging African patients a low price. Why? Price discrimination. Americans are generally rich and Africans are generally poor; most Africans couldn't afford a high price.

I'm not aware of Senator Sanders using this language, but he is essentially saying that AIDS drugs are, or should be, public goods. Public goods are things like parks and national defense that are generally provided by government (i.e., taxpayers) and made freely available to everyone, regardless of their ability to pay. These new generic AIDS drugs wouldn't be completely free, but they would be close to it.

Every few years, when the FDA's user fee agreements come up for reauthorization (and this year is no exception), the usual suspects line up in Congress to try and pass legislation that would allow for the importation of drugs from price controlled countries like Canada.

This is bad economics, bad public health policy, and bad for medical innovation.

Allowing the importation of price-controlled medicines into the U.S. market undercuts protections for intellectual property rights and dampens incentive for medical innovation. It also opens the U.S. prescription drug market to penetration by counterfeit drug manufacturers run by criminal (or potentially even terrorist) enterprises, since it is impossible to completely certify the provenance of drugs imported from even close trading partners in Europe or Canada.

But the foolishness of the approach is also underscored by an article in the New York Times on a related topic - the expiration of patent protection for the blockbuster drug Plavix.

Notes the Times:

For more than a decade, cardiologists treating patients who have had a heart attack have routinely scribbled one drug onto their prescription pads: clopidogrel bisulfate, better known as Plavix. But now, in a farewell that has been years in the making, the story of Plavix is coming to an end. The drug is set to lose its patent protection on Thursday. ...

Bristol-Myers is hardly the only company to face the loss of a best-selling drug: at least 19 are set to lose patent protection this year, which is expected to cost the pharmaceutical industry about $38.5 billion in lost sales, according to an analysis by Barclay's. About 80 percent of the prescriptions written in the United States are now filled with generic drugs.

Pause and consider that for a moment: 8 out of 10 prescriptions written in the U.S. are for cheap, highly effective generic medicines. The industry has been losing patent protection for many blockbusters in recent years, and will continue to lose billions of dollars in sales from patent expirations over the next several years.

(Cue the cheers from public and private insurers.)

But wait! Each of these drugs was once an expensive branded medicine, and the profits of those drugs paid for the next generation of marketed drugs. So without the branded medicines that preceded Plavix, there would be no cheap generic Plavix now.

There is no other health care good or service like prescription medicines in this respect: MRI machines don't suddenly plummet in price after 10 years. Newer, better machines come along, to be sure, but they are also more expensive. Doctors who graduated from medical school ten years ago aren't any cheaper than their colleagues who graduated last year.

Prescription drugs are unique in that after patents expire and prices fall to pennies on the dollar they will continue to be widely used for decades and continue to generate enormous health benefits for consumers.

But you cannot get the benefits of cheap generics without paying a premium price for branded medicines. The U.S. - which generally lacks price controls for prescription drugs - pays somewhat higher prices for new medicines, but also has much lower prices than almost every other developed nation for generics, because of fierce competition among generic manufacturers after a drug loses patent protection.

This is a win-win for American consumers, who benefit both from rapid innovation and a widening array of cheap generics.

But it also means that the U.S. underwrites the lion's share of global medical innovation, allowing our wealthy trading partners to "free ride" on our investment (just as Europe underinvests in defense spending because the U.S. provides Europe with a security guarantee).

No one has better illustrated the economics than my colleague Peter Huber, who wrote in Forbes several years ago that:

Almost all the cost of a drug is in the development and the complex hardware required to concoct the chemicals that become the medicine. These costs are fixed, and they are sunk. Like the jet's fuselage, you pay for them once, up front, regardless. Once a drug is in production, churning out one more little pill costs next to nothing. You can almost give it away to the desperately poor in sub-Saharan Africa. Provided, of course, that somewhere else [someone] pay billions.

When rich people form buying cartels to put a price squeeze on properly patented drugs, the few win in the short term and everyone loses down the line.

The U.S. already subsidizes prescription drug coverage for the elderly and poor, through Medicare and Medicaid. Wal-Mart and other large buyers offer dozens of generics drugs for $4 for a 30 day supply to everyone, including the uninsured. Pharmaceutical companies offer their own prescription drug assistance programs offering free or low cost medicines for those without insurance or who cannot afford their insurance co-pays.

All this is by way of saying that the near term policy justification for any legalized importation scheme is thin to non-existent, while the long term repercussions are dire. Expanding de facto generic pricing - whether through direct importation, government drug price "negotiations" for Medicare Part D, or through expanding Medicaid's mandatory discounts - is another powerful signal to drug companies and their investors that they're investing in the wrong business.

We may cheer when many of the drugs we use are cheap generics. We'll rue the day when they all are.

(For another great article by Peter Huber on drug pricing and innovation, see this.)

Sometimes it's good to recognize your limitations.

For example, I could describe how DNA works, or how to make crystal meth, poison your neighbor or blow stuff up. I won't, but I could. And I'd know what I was talking about.

Perhaps I could also write something about teapots from the Ming Dynasty if I read about it on Wikipedia, but in reality I wouldn't know one if it fell off the Chrysler Building onto my head.

Nicholas Kristof is a columnist for The New York Times. As such, he has written about a wide range of topics such as politics, human rights, poverty, foreign affairs, and economics. He does this extremely well, as demonstrated by his multiple awards, including two Pulitzer Prizes. He also appears to be nothing short of brilliant, and an all-around good guy as well.

But sometime prior to May 2nd, when his last column, "How Chemicals Affect Us" was published, he may have been walking a little too close to the Chrysler Building.

Kristof's formal training is in law and foreign languages. Notably absent are: chemistry, toxicology, pharmacology and reproductive biology. Which is a shame, because that is what his entire piece was about.

And it showed. Kristof rattled off a bunch of mostly unrelated claims, that, to a non-scientist would appear very scary. These involved the usual suspects, such as increasing cancer rates, low sperm counts and a host of others. But once you scratch beneath the surface, a very different story arises.

The column makes generous use of the nonsensical term "endocrine disruptor," something that is supposed to interfere with our endocrine system--the incredibly complex series of glands that produce hormones. "Disruptor" is a nice scary sounding word, but scientifically meaningless. What exactly do endocrine disrupters disrupt? And how?

In your body, hormones, whether synthetic or natural, interact with receptors on particular cells and elicit a response. Two common natural hormones are estrogen and testosterone, both critical to sexual development. Drugs frequently interact with hormone receptors and either amplify or diminish a physiological process. The breast cancer drug Tamoxifen blocks the estrogen receptors in breast tissue, suppressing the growth of cancer cells that are dependent on estrogen to replicate.

Once in a while something will go very wrong.

A particularly awful example of this was diethylstilbesterol (DES), a drug that until 1971 was sometimes given to pregnant women since it was thought to prevent miscarriages and premature deliveries. But its use was discontinued after it was discovered that it caused a rare cancer and reproductive abnormalities in the daughters of mothers that took the drug. Sons had different and less serious conditions, but by any measure, this was a drug disaster.

Thalidomide, used for morning sickness more than 50 years ago was found to be a potent teratogen-- a chemical that can cause severe developmental problems. Children of mothers that took this drug often were born with undeveloped arms or legs, or sometimes none at all.

Even today, teratogenic drugs exist, but they are treated quite differently. Accutane, used for severe acne, is a powerful teratogen. However Roche, its maker, is so careful that it doesn't get near a pregnant woman that a pregnancy test is required every month before it can be purchased and the women needs to sign a form swearing she's using at least two methods of birth control.

It is very rare, but still possible for these unforeseen side effects to occur; however, modern preclinical assays make this much less likely for drugs.

But can you take a serious teratogen like DES or thalidomide, which were given in therapeutic quantities to pregnant women, and claim any relevance to trace chemicals found in everyday life?

At this point it becomes clear that Kristof is entering the Ming Dynasty. He equates DES with a chemical called bisphenol-A (BPA), a component of many plastics that has been in use for more than 50 years. Very small amounts of BPA leach out from the plastic, which has caused it to be tested a bazillion times, with no evidence of human harm. Sometimes, if you shovel enough into a rat, bad things can happen, but you better have a big shovel. Even the FDA has said, on several occasion and despite withering activist pressure, that it is safe as used, a decision called "cowardly" by environmental groups that wanted it banned.

But what does giving mega-doses of BPA (or anything else, really) to a mouse or rat have to do with the real world where we take in (and rapidly excrete) tiny quantities of it?

Since BPA plastics are used to seal food cans, among other things, virtually all of us have some measurable amount of it in our bodies, albeit in miniscule amounts. Just like we have thousands of other chemicals, both synthetic and natural, floating around in there.

This fact has led groups and individuals to try to pull the wool over the eyes of those lacking a science background--that is, they imply or just assert that the presence of a chemical is necessarily related to any health consequences from it. This contradicts one of the tenets of toxicology--the dose makes the poison. It may sound trite, but it's just as true as ever.

If this were not the case, one would expect to be seeing massive health consequences for the estimated 80 thousand chemicals used in modern life today. So where are they?

I have no idea. In fact, the incidence of almost all cancers in the U.S. has been slowly drifting downward over the last thirty-five years according to the American Cancer Society. And the myth of declining sperm counts was thoroughly debunked in a Columbia University paper in 2008 and several other large epidemiological studies. The research alleging declining sperm counts used to reach this "conclusion" was flawed.

All of this brings up some practical matters. How is testing 80 thousand chemicals going to work? Should we ban all 80 thousand until they are first tested? What will it cost? Who is going to do it, and how will they measure whatever property they are looking for? At what dose? In what animal? And please believe that even if this monumental task were ever completed, there would be no shortage of borderline or ambiguous data with no clear answer. And it will still be animal data, which may or may not have any relevance to human health. Then what? How can anything useful ever come out of this?

Kristof "takes a cue from [his] experts," but I have to wonder about his choices. One of them, Dr. John Peterson Meyers, the chief scientist at Environmental Health Sciences is so afraid of BPA that he and his family stopped buying any canned food and refuses to touch receipts (many of which have traces of BPA) from gas stations or ATMs. Kinda makes me wonder if you could screw with his head by giving him a whole bunch of really bad birthday gifts and include the gift receipts, knowing he couldn't return any of them.

In the end, this is all silly. People are not dropping dead from ATM receipts or canned soup. Cancer is still cancer, but rather than the "cancer epidemic" we hear so much about, there is actually less of it than there used to be, despite the aging of our population. And if you should be in the mood to count your sperm, they will be fine too.

Health doesn't come from eliminating everything that might conceivably be unsafe from the environment. It comes from not smoking, getting vaccines, wearing seatbelts, staying in shape -- and a whole lot of luck.

Tea time.

An FDA advisory committee voted that Gilead's Truvada is a safe and effective way to prevent HIV infections in high-risk individuals. The FDA will weigh the advisory committee's vote and is expected to make a final decision by June 15. If approved, Truvada will be the first drug to protect healthy people from acquiring HIV infections through sexual activity in what is called pre-exposure prophylaxis (PrEP). For instance, if one sexual partner has HIV but the other doesn't, the healthy partner can take Truvada every day to avoid becoming infected with the AIDS virus.

What is interesting is how many people argued against using Truvada for PrEP. For the most part, the logic of the critics was flawed. Consider the following analogy:

Many people eat hamburgers for lunch. Health advocates say these people should really be eating steamed vegetables. A new, healthier hamburger comes along (perhaps one that is made of lower fat beef or maybe half beef and half grains). Will these health advocates embrace this healthier hamburger? Probably not; they still want people to eat steamed vegetables for lunch.

What logical mistake are they committing? As David Henderson and I point out in our book, Making Great Decisions in Business and Life, they shouldn't compare reality with fantasy because fantasy is impossible. The only choice we have is between imperfect but feasible alternatives.

I think it's arguable that the FDA doesn't need explicit authority from Congress to develop more flexible regulations for the most promising therapies early in drug development. The FDA has at least some regulatory flexibility already, under the 1997 Food and Drug Modernization Act.

But let's get to that thought in a moment.

MSNBC reports that the FDA is explicitly endorsing a provision in both the House and Senate versions of pending legislation that reauthorizes FDA user fee programs for drugs, devices, generic drugs, and biosimilars. (And kudos to Senators Bennet, Burr, and Hatch, who introduced the legislation back in late March.)

Experimental drugs that show a big effect early in development for treating serious or life-threatening diseases would get a faster and cheaper path to U.S. approval, under a proposal likely to become law this year.

Dr. Janet Woodcock, head of the FDA's drugs center, has said the FDA needs more flexibility to bypass "business as usual" when it sees unexpected effects, or when a new medicine can greatly help patients.

"What happens when you have a breakthrough drug that shows an effect that's never been seen before?" she told reporters in March, discussing the proposal.

"If we'd done business as usual during the AIDS epidemic, we would have never controlled that epidemic," Woodcock said.

This is all to the good, as I noted in another blog post.

On the other hand, it also reinforces an underappreciated reality: the FDA looks over its shoulder at Congress when it reviews and approves new medicines, and develops new drug approval mechanisms.

This is only natural. The FDA is in the news only when there is drug safety problem, at which point it will get savaged by Congressional committees for not predicting and preventing every potential safety problem in advance.

Sadly, the FDA isn't going to be called up to the Hill to be congratulated on new drug approvals, or for streamlining the drug development process in general. So the pressure on the FDA tends to go only in one direction - towards requiring more data, more clinical trials, and more tests. This, in turn, drives up the costs of drug development and leads to delays in patient access to new medicines.

(To be fair, FDA aside, public and private payers in the U.S. and Europe are also demanding more data from companies to justify premium pricing in markets that are increasingly crowded with cheap, relatively safe, and effective generic drugs. The public is also increasingly wary about side effects from medicines for chronic illnesses that patients may take for years or decades. So the agency is only one factor in the development equation, albeit one of the most decisive ones.)

In short, the environment on the Hill often isn't very hospitable to regulatory innovation.

Still, the FDA is empowered to set standards for "adequate and well controlled trials", and Congress has explicitly given the agency the authority (under the 1997 FDA Modernization Act) to approve drugs based on single arm trials, but it still almost always requires two placebo controlled trials for drug approval.

In other words, the FDA has plenty of discretion. What it needs from Congress - and from the public - is permission to exercise that discretion and to do so with confidence that policymakers will not excoriate them when something goes awry. (And something will always go awry eventually, because neither medical science nor human beings are perfect.)

On that front, there's a lot to like in the current FDA user fee reauthorization. On both the House and Senate side, Congress has broadened the accelerated approval pathway and directs the FDA to embrace new technologies like biomarkers.

To be sure, FDA leadership hasn't embraced every proposal for updating its drug development toolkit - it expressly opposed the first version of Senator Hagan's TREAT bill - but its recent support for the breakthrough therapies designation is a very welcome sign that agency leadership knows that it needs Congress' permission to stop doing "business as usual" and help drive a more flexible mindset among its own reviewer staff.

AIDS was a very visible crisis. The challenges we face today are more subtle and longer term - unsustainable health care costs, an aging population that will become increasingly vulnerable to chronic diseases like Alzheimer's and cancer, and a drug development pipeline that is floundering. But they also demand a rethinking of the entire drug development and approval process - starting with the FDA and it's stakeholders.

Since FDA is a regulatory body, Congress must take the lead role in defining the policies that frame and provide effective oversight for the FDA's regulatory functions. The House and Senate should be applauded for for crafting user-fee legislation that can facilitate and acclerate access to more innovative treatments for millions of American patients.

Now, it is up to the FDA to show that it can embrace and create real change.

The Food and Drug Administration's approval last week of Elelyso (taliglucerase alfa), a new treatment for Type 1 (non-neuropathic) Gaucher disease, is remarkable for a number of reasons. Not the least of these is the fact that it provides a competitor and alternative to Cerezyme (imiglucerase), one of the primary alternative treatments for Type 1 Gaucher, and which unfortunately has recently been one of the raft of important drugs in short supply due to a contamination problem in the production facility.

Arguably more noteworthy is the fact that, because the incidence of Gaucher is quite small even for an orphan disease (only about 6,000 patients in the US suffer from Type 1 Gaucher), FDA was willing to approve the product on the basis of two Phase III clinical trials that enrolled a total of 56 patients. That's truly remarkable, given that a single, typical Phase III trial will often examine 1,000 to 3,000 patients. And many Phase III trials enroll thousands more.

One of the trials was a "parallel-dose" study, seldom permitted in Phase III, in which 31 patients were double-blinded and randomized into one of two arms. In one arm, patients received 30 units of the drug per kilogram of body weight, and in the other they received 60 units. No placebo or active alternative control. In the other study, 25 patients already taking Cerezyme were switched to Elelyso and monitored for nine months.

The director of FDA's Office of Drug Evaluation III, Julie Beitz, says that the agency's flexibility on trial enrollment and methodology "demonstrates FDA's commitment to developing treatments for rare diseases." And though I am often quite critical of the FDA's rigidness and risk aversion, I have to applaud the agency for its decision in this case.

But, what I personally find most remarkable about Elelyso is that this is the first ever FDA-approved human drug produced in genetically engineered plants -- in this case, carrots, developed by the Israeli biotechnology company Protalix Biotherapeutics -- a phenomenon that lets me indulge my interest in medical AND agricultural applications of biotechnology at the same time.

Scientists first figured out how to genetically engineer plants in 1983, and we've been growing them commercially since 1994. Yet, even though scores of medical drugs and countless industrial chemicals have been produced in non-genetically engineered plants for over 100 years, there has been a bit of a taboo against growing medically or industrially useful proteins in genetically engineered plants.

Elelyso is not the first commercial medical product to be produced in genetically engineered plants. In 2006, the US Department of Agriculture approved a poultry vaccine against Newcastle disease produced in genetically engineered tobacco plant cell cultures grown in a laboratory environment. Since the late 1990s, Ventria Biosciences has been growing a protein called avidin, which is used in a number of approved diagnostic tests, in whole, genetically engineered corn plants. And there are a number of other not yet approved plant-grown therapeutic proteins in the development pipeline. All of which is really, really cool.

Aside from being scientifically fascinating (in fan-boy geek sort of way), producing medically useful proteins in genetically engineered plants has a number of advantages over the more conventional way of producing biotech drugs in engineered bacteria, yeasts, or mammalian tissue cultures. Those other methods are very good in many ways. But bacteria and yeasts are too genetically and biologically simple to produce some of the more complex proteins, which require post-translational modifications that single-celled organisms cannot manage. And while animal tissue cultures often work best at producing these complex proteins, they are very expensive to maintain.

Plants, on the other hand, are biologically advanced enough to produce many large, complex proteins. And their maintenance is far simpler -- and therefore cheaper -- than animal cell cultures. It's also much easier to scale up production rapidly from proof of concept to commercial manufacturing with plants than with cell cultures. And the costs associated with doubling, tripling, or quadrupling output are tiny compared to doing so with animal cells.

That cost advantage is already important, but it will become increasingly obvious as we move into a future in which more personalized medicine means that treatment options are targeted to smaller and smaller patient populations. Unfortunately, while FDA may be willing to become more flexible with its own approval requirements for drugs that treat rare diseases, the regulatory requirements for genetically engineered plants imposed by the USDA are growing, not becoming more streamlined. So, this may mean that a big chunk of the plant-based "bio-pharming" cost advantage gets eroded by unnecessarily strict regulatory hurdles.

Still, as investment analyst Ritu Baral told the journal Nature, the Elelyso approval is "a huge proof of concept for the entire platform." It shows that human therapeutic proteins can be produced in genetically engineered plants and that those products can be approved for commercialization. That adds one more weapon to the medical treatment arsenal - and an potentially very useful one at that.

At RealClearMarkets, AEI scholar and physician Scott Gottlieb makes an interesting point about the effect of the Affordable Care Act on middle class families who make too much to qualify for federal subsidies on health insurance exchanges beginning in 2014:

A family of four with an aggregate income of more than $88,000 annually or an individual earning around $44,000 could find themselves badly strained by healthcare costs under the Obama plan.

Under the Obama plan, many of these families could instead find themselves buying their health insurance on the new state-based exchanges that get started in January 2014. For a family of four, premiums on even one of the lower priced "silver" options could still cost more than $15,000 annually on the exchanges.

How would this work? The penalties for employers dropping coverage are modest to begin ($2,000) and many employers could wind up saving significant amounts of money by ending employer-based coverage and sending employees to the exchanges.

Gottlieb points out that the coverage on the exchanges is "broad, but not deep" requiring significant co-pays and deductibles that can add up fast:

A family of four earning $90,000 annually takes home about $60,000 after local, state, and federal taxes. If they lose workplace coverage, and move onto the exchanges, they could find themselves spending as much as 25 percent of the family's take home pay for an average policy ($15,000 for the "silver" plan).

There's now an emerging consensus that many large employers will choose to drop workplace coverage, and instead pay the $2,000 per-employee penalty that the Obama plan levies on them. It will simply be a lot cheaper for large employers to put their workers into the health exchanges and pay the penalty.

The exact labor market dynamics are apt to be relatively complex; some employers may decide that keeping coverage for middle and high-income earners is a competititve advantage. Others will undoubtedly "do the math" and send people to the exchanges.

But even if just a fraction of employers send people to the exchanges - say 15% or 20% - millions of middle class families could lose employer-based insurance and find that they can't find afforable insurance coverage on the exchanges. (Especially since the Obama HHS isn't proving to be very friendly to lower cost plans like Health Savings Accounts.)

Since it is also widely acknowledged that the cost controls in Obamacare are relatively weak, costs for these middle class families (and for tax-payer funded coverage on the exchanges) will rise quickly.

Obamacare will expand the "safety net" for some of the uninsured (about 50% of whom will be covered through Medicaid, which raises more problems) - but it will also pull the rug out from under the middle class.

Vertex's drug for cystic fibrosis, Kalydeco, was hailed for its groundbreaking science when it received FDA approval last year. And it is a tremendous achievement: the first medicine to actually affect the underlying mechanism that causes cystic fibrosis, a fatal genetic lung disorder that often kills patients by middle age.

Still, the drug is only effective in a small sliver of CF patients (about 4%) who have a rare genetic mutation. Now, however, Vertex is testing a new drug that may make Kalydeco effective in the "vast majority" of CF patients (about 30,000 in the U.S.), according to Luke Timmerman in Xconomy:

The Cambridge, MA-based company (NASDAQ: VRTX) is announcing today that a combination of its ivacaftor (Kalydeco) therapy and an experimental drug called VX-809 was able to provide a significant improvement in lung function for adult patients with the most common genetic mutation in CF, known as F508del. ...

The data is based on an early peek at an ongoing study, and only includes 48 patients out of 108 expected to enroll, so it's far from the final answer researchers are looking for. But it's enough of an encouraging sign that Vertex plans to advance the combo regimen into the third and final phase of clinical trials normally required for FDA approval, after it analyzes the final data this summer.

Depending on how the clinical testing progresses, and how the drug combination affects patients with one or two copies of the most common defective gene, nearly 90 percent of CF patients could benefit from the treatment.

It's a development that - literally - will help CF patients breathe a little easier.

According to a recent report in the Pharma Times:

The US government is the world's leading funder of global health research and development, investing more than US$12.7 billion over the past 10 years in new vaccines, drugs, diagnostics and other products for neglected diseases of the developing world, a new report has found.

The health and economic benefits of this support, both domestically and internationally, provide "clear reasons" for the US to maintain - and, where possible, increase - this support, says the Washington-based Global Health Technologies Coalition (GHTC), which released the report along with independent research group Policy Cures.

The article also notes that:

The US government was involved in developing more than half (24/53%) of the 45 global health products introduced between 2000 and 2010, while US federal agencies are working with other stakeholders on 200 (55%) of the 365 global health products currently in the R&D pipeline, including what is likely to be the first ever vaccine against malaria, three HIV vaccine candidates and a new generation of improved TB drugs, the report points out.

That's a more than a public health record to be proud of. Improving health in developing countries can pay dividends down the line by producing wealthier, more stable countries that represent future trading partners for American companies, future producers for American consumers, and - hopefully - produces more stable, democratic regimes.

The report also calls for the U.S. to do more to accelerate translational research, noting that government funding has been concentrated on early stage research, as opposed to clinical research, which is much more expensive, uncertain, and difficult.

Improving translational research - especially in ways that make drug development more predictable and less expensive - would pay dividends across many different therapeutic areas, including neglected diseases.

We should also note that U.S. funded research (primarily by private industry) on chronic diseases (like diabetes and heart disease) also benefits populations in developing countries - who, as they become wealthier, develop many of the same illnesses prevalent in affluent Western nations.

A vote on pharmaceutical and medical device user fees (PDUFA and MDUFA) is fast approaching. Recently, the House released a proposed version of the laws that aims to build upon previous user fee acts. If the user fee acts are approved, the FDA would receive more money - potentially to build a significantly more efficient process that enables safe and effective products to come to market more quickly than they do today. As Paul Howard noted in a recent post, this legislation is generally viewed as a good thing for all parties involved, and has even seen bipartisan agreement... something that seems like a miracle these days.

By reauthorizing the user fee programs for pharmaceuticals and medical devices (and extending a program to biosimilars), Congress wants to ensure that the FDA can continue to add resources and reduce the time it takes to approve a product. These are appropriate goals that should promote innovation and enable the FDA to focus on its core mandate of "protecting the public health by assuring safety, efficacy and security" in drugs, devices and biologics.

The problem is that the House tacked on a clause to their version of the user fee acts that - according to some insiders - would add to the FDA's mandate by also making the FDA somehow responsible for "promoting economic growth, innovation, competitiveness, and job creation among the [pharmaceutical and medical device] industries."

At least on the surface, FDA leaders would be rightfully up-in-arms over this apparent legislative add-on, if, in fact, their new mandate was explicitly to create jobs and ensure innovation. Clearly, Congress would be remiss in giving the FDA an inappropriate role and placing unnecessary burdens on the Agency that would interfere with its primary directive - getting safe products into the market at an accelerated pace. But while there is reason for some concern - the clause does create some ambiguity as to the FDA's direct responsibility in job creation - this appears to be an issue of semantics.

Direct responsibility for job creation doesn't appear to be what the House actually intended. The choice of words may be unfortunate - imagine they used "thus promoting" instead of "while promoting", and the clause takes on an entirely new meaning. The nuance of what they wrote, however, acknowledges that the FDA has an impact on jobs. And that acknowledgment is long overdue. Ultimately, the FDA must understand that it does play a significant role in job creation and innovation... and it has been doing so for years.

As gatekeeper, the FDA holds the keys to the success of the pharmaceutical and medical device industries. And given recent history, the evidence suggests that the Agency is not doing its part to ensure that these industries continue to flourish in the U.S. While PDUFA and MDUFA have provided the FDA with additional resources to speed up the review process, it's no secret that difficulties still remain in getting the review process done in a timely way. This inefficiency has motivated companies to take product launches outside the U.S., negatively impacting innovation in this country... and shifting jobs overseas.

The FDA's role in job loss in this country is increasingly being recognized, so the intent of the legislation is to acknowledge the critical role that Agency efficiency or inefficiency plays in our economy, and in the overall health care of our population. The flaws in the FDA review process have undermined innovation in industries that have been the crown jewels of our economy. It is understandable that Congress wants to make sure that we reclaim our place at the forefront of medical and technological advances... and ultimately keep jobs in the U.S.

But job creation only happens if innovation is possible. To ensure innovation, there needs to be a renewed focus on improving the FDA's approval and post-market review process... and making products safer and available at a faster pace. Job creation will follow if the FDA performs its core mandate properly, and this is the true subtext of the "job creation" clause in the House's version of the user fee acts.

So the real subject of discussion is how well the FDA is set up to perform its core mandate (thus promoting job growth), and the level at which it is held accountable to do this.

As Paul Howard described in the post mentioned above, the user fee acts have given the Agency a ton of additional resources to focus on their job as-is, but the FDA has not clearly demonstrated that this money has gone to good use. The solution isn't to throw more money at the problem. It's about redefining the process and measuring outcomes. With the PATIENTS Act, Congress is essentially stepping in as the "Board of Directors" to make sure that the FDA is providing adequate return on investment (user fees) to its shareholders (industry and taxpayers).

Dr. Howard is correct in his assertion that the FDA needs more accountability and guidance in its performance of current responsibilities before being given new ones. The FDA certainly has a lot on its plate, and adding additional language to their mandate - especially ambiguous language - will only impede innovation, and negatively impact jobs... the very thing the House hopes to promote! The FDA mandate needs to be realized, and it's certainly worth recognizing that job creation (or loss) is an outcome of the FDA's ability (or inability) to get safe products to market in a timely manner. By holding the FDA accountable for its core responsibilities (via the PATIENTS Act), Congress can ensure that user fees foster exactly what the House intended in their proposed bill... innovation, competition and economic growth.

A few years ago, the idea that the immune system could be ramped up to help the body fight off metastatic cancer didn't seem to be panning out. That changed last year, with the FDA approval of the first treatment to extend survival in patients with metastatic melanoma, Yervoy.

Yervoy appears to work by blocking a molecule that modulates immune system response. Once the molecule is blocked, the immune system kicks into overdrive, attacking the cancer.

A new initiative, at the Moffit Cancer Center, goes once step further and tries to rebuild a patients' immune system using genetically modified cells chosen for their propensity to fight cancer. From Fierce Vaccines:

Designer lymph nodes are built with specialized gene-modified cells that are injected into patients and produce a pre-planned immunologic response for cancer patients locally and then throughout their bodies. The researchers are examining a cancer vaccine "boosting" effect of the manufactured lymph nodes in patients with advanced melanoma. ...

"We used Moffitt's Total Cancer Care™ tissue biorepository, genomic database and longitudinal clinical database to identify the novel genes for creating designer lymph nodes," said James Mulé, Ph.D., executive vice president and associate center director for Translational Research at Moffitt. "The gene signature is also associated with better patient prognosis and survival, and will also be used to pre-select patients for immunotherapy interventions."

The work, funded by a five-year, $2 million National Cancer Institute grant (RO1CA148995) as well as by the Adelson Medical Research and V Foundations, is in collaboration with researchers at Scripps Florida in Jupiter, Fla. Researchers at Scripps are using high-throughput screening technologies to rapidly identify biologic functions of the candidate genes.

These are the kinds of technologies that have the potential to completely transform cancer care - and we need to ensure that we are developing,validating, and approving these products as quickly as possible.

For patients living and dying with diseases like metastatic melanoma today, progress can't come fast enough. But can it be faster? I think industry, academia, and the FDA would all admit that we can do better.

Greg Conko recently explained how some elements of the PATIENT'S FDA bill, sponsored by Senators Burr and Coburn, could be a game changer in this respect.

I've been meaning to write about a recent letter - really a full blown article - published in Nature Biotechnology that examines the quality of the evidence - or rather dearth of it - in articles published in major medical journals that detail the supposed ills of industry engagement with physicians and academic medical centers and call for more stringent conflict of interest regulation at public and private institutions.

In their letter, Lesko, Scott, and Stossel point out that while extensive interaction between academic medical centers, physicians, and pharmaceutical and medical device companies has undoubtedly accelerated innovation and provided enormous benefits to patients, this has not prevented growing concerns about and criticism of such interactions. The ostensible concern is that:

...such relationships may degrade the performance and reporting of biomedical research and also induce physicians to behave in a manner inconsistent with cost-effective or ethical patient care--which are loosely defined under the operational term 'financial conflicts of interest' (COIs).

This is a legitimate concern, at least on its face. But it should be a testable hypothesis. So where is the evidence that such interactions result in actual harm - as opposed to theoretical harm?

The authors survey four major medical journals to assess "whether the positive and negative aspects of industry academic relationships were equally represented in top-tier medical journals but also to assess the weight of evidence in the COI literature that patient outcomes or public attitudes are indeed negatively affected by corporate interactions with academics and physicians."

This is certainly a fair question for medical journals that tout their professionalism and adherence to objective science. Still, Lesko et al found that out of 108 articles selected for analysis, nearly 90% "unambiguously emphasized" the risks of industry relationships (often in their titles: "Just how tainted has medicine become?") while presenting little quantitative evidence of such risks and downplaying potential benefits while calling for increased regulation of industry.

Here's the nut graph:

...it is clear that the preponderance of articles published in the four highest-impact medical journals that publish primary research focused on problems concerning COI relationships. These articles differed qualitatively from benefit-emphasizing academic-industry relationship papers. Most risk-emphasizing articles presented no evidence and many of the ones that did present evidence extrapolated that it had a bearing on patient outcomes or public attitudes.

The problem is that only presenting one side of an argument, often with little supporting evidence and without giving equal weight to opposing viewpoints, leads to a "conformity cascade" that shapes public policies that restrict industry interaction with the medical community to the point that innovation - and therefore patient health - may be affected.

In other words, it's like presenting a drug label that has 98 words about risk in bold print, and two words about benefits in small print. In that case, the patient is likely to avoid any treatment at all.

Ironically, the caricaturing of industry is likely to lead to the very jaundiced view of medical professionals and medicine that COI proponents say they want to prevent - since everyone has some conflict of interest (whether for tenure, publication, or in competition for grants or hawking their latest industry-bashing book), then no one can be trusted at all.

For a longer discussion of the growing thicket of COI regulations, and some practical solutions for managing conflicts that doesn't throw out the baby with the bathwater, see this Project FDA Report How Conflict-of-Interest Rules Endanger Medical Progress and Cures by Richard Epstein.

Reuters reported yesterday on what appears to be an alarming problem: "the studies doctor groups rely on when it comes to setting guidelines about the best evidence for preventing and treating a given disease" are "small and of inconsistent quality." Nearly two-thirds of those studies included 100 or fewer patients, and many failed to randomize patients into double-blinded test and control arms.

So much for evidence-based medicine, eh? Well ... not so fast.

It turns out that the study on which these conclusions were based, and published yesterday in the Journal of the American Medical Association, didn't actually investigate whether medical practice guidelines rely on the "small and inconsistent" clinical trials the authors examined. So, if the authors set out to prove what they're now claiming, they looked at the wrong data.

The JAMA study, "Characteristics of Clinical Trials Registered in ClinicalTrials.gov, 2007-2010," looked at 96,346 clinical trials registered in the ClinicalTrials.gov database but focused on the roughly 40,000 that tested treatment interventions in three medical specialties: cardiology, oncology, and mental health. They then examined various characteristics of those trials and drew several conclusions.

For example:
• 62 percent of the trials registered between 2007 and 2010 enrolled 100 or fewer participants.
• 66 percent were conducted at a single research site.
• 47 percent were funded by organizations other than industry or the National Institutes of Health.
• Randomization and blinding were less commonly used in earlier-phase [i.e. not phase III] trials, oncology trials, and device trials.

What the study did not examine, however, was which of these trials were actually used by medical professional societies and other expert bodies to develop practice guidelines, and what weight any particular study may have been given. But that didn't stop the authors from drawing sweeping conclusions about the quality of practice guidelines.

Lead author, Dr. Robert Califf of the Duke Translational Medicine Institute, told Reuters that "Those are the studies doctor groups rely on when it comes to setting guidelines about the best evidence for preventing and treating a given disease." To which Reuters reporter Genevra Pittman added, "But if the evidence comes from small groups of patients in trials with less-than-reliable methods, doctors are left without a lot to work with when developing recommendations and making decisions in everyday care.

"What's at stake for the public is, you would want your doctor to know what he or she is doing as opposed to just guessing or having an opinion," Califf said.

Many of us would indeed like to know whether a doctor's treatment recommendation is based on the results of a large or small, double blinded trial, on a large or small pool of observational data, or on intuitive guesswork. But what we don't know from this study is how common any of those things are in the day to day practice of medicine. All we can conclude is that the trials registered in one particular government database don't all meet the same level of methodological rigor.

Of course, we could have guessed that even without this new study. After all, it is very well known among physicians, medical researchers, and those of us who study the medical products industry that phase I trials test an experimental treatment option in a small population, generally in the range of 20 to 80 healthy people, essentially none of whom are randomized into a control arm. Phase II trials include a somewhat larger group of patients -- somewhere in the range of 100 to 300 -- and that these too often do not include a control arm. We also know that many more early phase than phase III trials are conducted, because half or more products never make it to phase III. Consequently, any large database of clinical trials that includes phase I and II studies will inevitably include a large number of trials with a small number of unrandomized patients.

Studies testing medical devices also often do not include a randomized control arm because in most cases, there's no such thing as a placebo device, and it is often difficult to enroll patients in trials with a "no intervention" control arm. It's also effectively impossible to double blind such a study, since the treating physicians would be able to tell whether or not they're using the experimental device. The FDA generally recommends using another active intervention (i.e. a different device or an alternative non-device treatment) or "sham/placebo" devices for controls where possible. But the agency's guidance for conducting device trials explicitly addresses how the placebo effect should be addressed when analyzing device trial results because medical researchers understand that controls are difficult.

We do know, of course, that lots of medical interventions commonly used in day to day practice are either unsupported or only weakly supported by large and rigorous clinical trials. Indeed, we even know that many well-designed trials (and other types of scientific experiments, for that matter) can not be reproduced. So, I certainly do not want to disregard the importance of good research into the evidence behind evidence-based medicine. Indeed, other researchers have conducted studies that investigate this question well, and have done a world of good for medical science. But this new JAMA study doesn't fit the bill.

Last week, the FDA held a public hearing on "Modernizing the Regulation of Clinical Trials and Approaches to Good Clinical Practice." That's important because FDA's clinical trial regulations have not been substantially updated in over two decades. And though additional hurdles have been added to the clinical trial process over the past few years -- in order to more fully explore things like cardiovascular risk and hepatotoxicity issues, for example -- not much has changed in the way of basic clinical trial design.

Increasingly, though, new computational tools and other technological advances are enabling the use of innovative methods that could improve clinical trial quality. Better use of adaptive trial design and biomarkers, for example, should help trial sponsors collect better, more robust data from fewer patients and in a shorter amount of time. But FDA is only now beginning to test the waters with these new methods.

On the other hand, over the past two decades, FDA has increasingly been demanding more of the same -- more data from more individual tests within trials with more patients. The average number of patients supporting each NDA rose by 19 percent from 1995 to 2001. This trend, on average, appears to have leveled off in recent years, according to PAREXEL's Bio/Pharma R&D Statistical Sourcebook 2010/2011. But the number of patients in trials for many conditions continues to rise. And difficulty in recruiting a sufficient number of participants now often leads to termination of clinical trials before usable data can be generated. The escalating cost of recruiting, retaining, and testing so many participants caused the editors of the journal Nature Biotechnology to recommended that the FDA "put[] an upper limit on the number of people who could be included in a trial."

In addition, the length and complexity of trials continues to increase, according to the Tufts Center for the Study of Drug Development. The length of trials grew by 70 percent from 1999 to 2005, and the median number of tests conducted per patient (such as routine exams, blood tests, and x-rays) rose by 49 percent from 2000 to 2007. These new hurdles have also made it more difficult to enroll patients in trials and to keep them in the trials until completion. And the problem is most acute for drugs that treat chronic conditions such as diabetes and cardiovascular disease, where many thousands of patients must be enrolled in especially lengthy trials to satisfy FDA's innate risk aversion.

All of this has had a predictable effect on drug research and development. As Avik Roy concluded in his recent Manhattan Institute paper, "The enormous cost and risk of Phase III trials create incentives for researchers and investors to avoid work on medications for the chronic conditions and illnesses that pose the greatest threat to Americans, in terms of health spending and in terms of the number of people affected."

It appears at least that FDA has begun to take this seriously. But as one might expect, the agency is moving only very cautiously to embrace the innovative clinical trial approaches that might help to alleviate the problem. The agency has, for example, been receptive to adaptive trial design proposals, but it insists that adaptive trials be designed more carefully than conventional ones in order to prevent biases from being introduced into the statistical analysis. If the rules for adaptive trials are too rigid, it could prevent firms from reaping the full benefits of the innovative methodologies. Many firms have therefore been reluctant to experiment with these innovations until more is known about how the agency will evaluate them after the fact.

The agency has to do more and faster because, as science journalist Malorye Allison explained in a January Nature Biotechnology article, "The expanding timelines, size, failure rate and cost of trials have finally reached a point where, like the towering US debt, nobody can pretend it is viable." As I wrote a few months ago, "there is no doubt that [a] radical reinvention of the standard, 20th Century clinical trial design will be necessary if the research-intensive pharmaceutical industry is going to remain sustainable in the 21st Century."

At last week's hearing, representatives from the Association of Clinical Research Organizations (ACRO) argued that FDA "should not be yoked to any political agenda, like 'saving' the current U.S. research enterprises," according to the Pharma Times. Instead, "its goal should be to facilitate a new model that can generate more medical products in less time at less cost." I couldn't agree more. But since we're talking about an extraordinarily conservative regulatory agency that abhors risk -- not just patient risk, but political risk to itself -- implementing the kind of radical re-thinking that will be necessary is easier said than done.

Last week, Sens. Tom Coburn (R, Okla.) and Richard Burr (R, N.C.) introduced their proposed Promoting Accountability, Transparency, Innovation, Efficiency, and Timeliness at FDA Act (or PATIENTS' FDA Act). On these pages, Paul Howard described the basic theme underlying the bill as "What gets measured gets done." To a great extent, I'd say Paul hits the nail on the head with that description.

The legislation provides for a lot of measurement of FDA's activities, with regular reporting to the public and to congressional oversight committees. It would require FDA to lay out a plan to improve its performance and to identify outcomes-based metrics for Congress to assess the agency's progress in meeting them. In short, the idea is to promote improved FDA performance by "ensuring greater transparency and accountability," according to Sens. Coburn and Burr.

Paul's discussion captures that spirit nicely. Still, I think there are two especially important features of the legislation that Paul did not address -- ones that would not only improve transparency, but also subtly change at a more fundamental level the way FDA goes about its work.

Section 105 of the bill, for example, would require FDA to report the "scientific and regulatory rationale for any significant decision," such as the rejection of New Drug Application, Biological License Application, or a medical device Pre-Market Approval application or 510(k) notice. According to Coburn and Burr, drug and device manufacturers "have noted that some FDA reviewers request reams of additional information about a drug or device that is beyond the scope of data needed to meet the FDA's approval standard." In such cases, sponsors would have the right to request a scientific justification for such decisions, forcing the agency to provide a rational, scientifically-grounded explanation for its request. The hope is that, just by requiring the agency to explain its scientific rationale for its decisions, the provision will actually work to streamline and rationalize decision-making.

The provision does not, in any way, change the FDA's standards for judging safety or efficacy. It merely would provide an opportunity for sponsors, patient groups, and congressional overseers to judge whether or not the FDA is meeting those standards. "Such documentation will provide important transparency into the FDA's regulatory decision-making. Documentation will also help to address concerns about evolving goalposts, and increase regulatory predictability, consistency, and accountability," say the Senators.

While Section 105's "scientific rationale" provision would not change existing standards in any way, Sections 201 and 202, on the other hand, are intended to "recalibrate" the FDA approval process "to better ensure patients have the opportunity themselves to weigh possible risks against the probable benefit of a particular drug or device."

Coburn and Burr note that "many patients accept the risks of a product because of the potential benefit it may afford them. However, too often well-intended decisions at the FDA may result in review decisions that prevent innovative products from being available to certain patients willing to accept greater risks than others." That seems like radical stuff -- an express recognition that patients differ in their tolerance for risk and a belief that patients should have the right to choose for themselves. Unfortunately, the actual statutory language offered up in Sections 201 and 202 is not nearly as revolutionary as the Senators' description. Still, these provisions, while quite modest in scope, represent a far bigger breakthrough in FDA transparency than perhaps any other proposal being offered this year.

For all intents and purposes, the FDA currently has sole authority to decide whether the potential benefits of a new drug or device outweigh its potential risks, and thus be offered on the market to patients and physicians. Patients and physicians who believe that the risks remain too great can choose not to use or prescribe particular products. But those who believe that FDA has been too risk averse have no corresponding choice. If the FDA says "no," the product cannot be used.

Providing greater room for individual patient choice would therefore be laudable. All Section 202 would do, though, is require FDA to "implement a structured benefit-risk assessment framework in the new drug approval process to facilitate the balanced consideration of benefits and risks, a consistent and systematic approach to the discussion and regulatory decisionmaking," something the agency has already agreed to do.

But, while this provision is not particularly revolutionary, the move toward a more formal assessment of benefits and risks in FDA decision-making should nevertheless be good for patients. Like the "scientific rationale" provision mentioned above, benefit/risk analysis is a valuable transparency and accountability tool because it forces the agency to reveal the values they place on each variable and "to state their assumptions clearly, exposing possible biases to criticism and correction." In addition, when combined with the increased use of patient-reported outcome data (to which FDA has also already agreed), the exercise would force FDA to think more systematically about its decisions and raise the saliency of patients' values in the approval process.

So, Section 202, while important, is far from radical. Section 201 on the other hand, which addresses medical device approvals, represents a somewhat more fundamental change. It would require FDA to "assess the safety and effectiveness of a device ... from the perspective of a reasonable patient in the intended use population who would assign the most value to the effect the device purports to have or is represented to have ... and who would be willing to accept the probable risks that may be associated with the use of the device as prescribed ..." Here too, FDA retains sole approval authority. But under the terms of Section 201, the agency is required to approve a medical device whenever a "reasonable patient" would judge the device's "purport[ed]" benefits to outweigh its "probable risks."

In statutory construction, the term "reasonable person" has a well established meaning, so this provision would not lower FDA's approval standard by matching approval decisions to the preferences of especially risk-tolerant patients. The provision would merely operationalize the standard most people think FDA is already using -- i.e. decisions that match the preferences of, for lack of a better term, the "median" patient. Nor should we expect FDA to faithfully operationalize the intended effect of the "purported benefits" clause. As long as FDA gets to judge, you can be sure it will demand some pretty strong empirical evidence of any claimed benefit. Still, this provision would codify the view that patient values matter, not only the paternalistic judgments of experts who don't have to suffer with the diseases or disabilities treated by the particular products in question. That, to me, is a major plus.

As Paul noted last week, the PATIENTS' FDA Act is "an attempt to remedy the not-so-benign neglect that Congress has inflicted on the agency and to begin to generate the data necessary to improve its performance in a thoughtful way." All that's left is to enact the legislation and then ensure that Congress begins to take its oversight authority seriously. Neither of those two things will be easy to accomplish.

When it comes to drug innovation, it doesn't look pretty out there - although appearances can be deceiving.

Still, the raw data can be downright discouraging. Consider this 2011 estimate from the Centre for Medicines Research (a subsidiary of Thomson Reuters) on attrition in the pivotal, Phase III trials required for FDA approval of new medicines from 2000 to 2010.

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:

Despite the overall decrease in the number of new compounds entering
each stage of development, Anti-Cancer is one of only two therapeutic areas
to see positive growth in the number of projects being developed for launch
compared to 2008 pipeline volumes. Anti-cancer development continues
to attract the highest proportion of investment across the industry, with in
excess of 25% of total R&D expenditure...and also contributed to
over one third of all NME launches in 2010.

The irony is that the technologies (like whole genome sequencing) generating leads in drug development have never been more sophisticated, or inexpensive (compared to a decade ago), while it has gotten progressively harder to translate those basic science discoveries into new drugs reaching patients.

The reasons for the breakdown are complex, but one issue appears to be increasing regulatory complexity and rigidity - which not only adds to the cost of drug development, but to the enormous uncertainty affecting the whole venture. And since the risk of failure is still enormous in even the last and most expensive phase of drug development, regulatory risk is a tremendous deterrent to investment in the field (although, again, oncology appears to be one of the few exceptions.)

My colleauge Avik Roy ventures an explanation for the woes afflicting drug development, and a potential solution that would help to de-risk late stage development projects in his new report, Stifling New Cures: The True Cost of Lengthy Drug Trials. Roy writes that:

Matthew Herper of Forbes recently totaled R&D spending from the 12 leading pharmaceutical companies from 1997 to 2011, and found that they had spent $802 billion to gain approval for just 139 drugs: a staggering $5.8 billion per drug.

Overall, Phase III trials now represent about 40 percent of pharmaceutical companies' R&D expenditures. But this often-cited statistic actually understates the gravity of the burden. This is because overall R&D expenditures include all pharmaceutical candidates that a company tests--including hundreds that never reach the Phase III trial stage. When we confined our analysis to those drugs that actually get approved, we found that Phase III clinical trials typically represent 90 percent or more of the cost of developing an individual drug all the way from laboratory to pharmacy.

Roy notes that the exception to the rule of exhausting and expensive Phase III trials can be found in the FDA's accelerated approval pathway, which was created in 1992 for HIV medicines and later cancer drugs. Accelerated approval offers developers an opportunity to bring promising new medicines to market after mid-stage testing (typically late Phase II trials), provided companies agree to conduct confirmatory trials later. The FDA can pull medicines approved under AA if they don't prove to be effetive, or unanticipated safety problems crop up.

Roy believes that this pathway should be extended to create a "conditional approval" pathway for new medicines beyond cancer and HIV, including obesity, heart disease, and diabetes, indications that account for hundreds of thousands of deaths annually, but where the FDA still requires enormous Phase III trials to rule out rare safety risks.

Susan Desmond-Hellman, the Chancellor at UCSF, is one of the people (among many) who have endorsed this type of approach:

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.

Roy believes that "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."

By focusing on targeted patient populations that are at the highest risk the FDA and companies could offer physicians and patients new therapeutic options where they are needed most, and where the "risk to benefit" profile would be much more likely to be positive.

The science, the industry, and the FDA are all moving in this direction, as has been amply demonstrated with new targeted drugs for cancer, cystic fibrosis, and other orphan indications. What the FDA appears not to be ready for is to endorse the approach for broader indications.

Still, one provision in the new FDA user fee reauthorization under discussion in Congress (and developed with input from the Agency) would create a new designation for "breakthrough therapies" that demonstrate significant efficacy in early stage testing, and mandate that the FDA work with companies to accelerate testing and review of such products in as few patients as possible, as quickly as possible, without changing the FDA's standards for safety and effectiveness. (Former FDA Commissioner Mark McClellan explains the approach here.)

This type of approach is an important incremental improvement, and a step closer to the conditional approval paradigm that Roy advocates. If the provision stays in the legislation, and the FDA (and industry) gains confidence in the process, it could be quickly broadened out beyond traditional accelerated approval indications.

And this is what we really should be asking FDA to do: not just review applications faster, but find ways to bring important new therapies to patients much faster and less expensively than we are currently doing.

For another overview of the problems that Roy discusses, see Ronald Bailey's excellent article Building a 21st Century FDA at Reason.

Bipartisan bills in both the House, and now Senate, contain provisions that would make permanent current statutes that encourage (Best Pharmaceuticals for Children) or require (Pediatric Research Equity Act) companies to conduct FDA-requested and approved trials in children (a fuzzy category that includes everything from newborns to adolescents).

The Senate bill (which is similar to the House version), sponsored by Senators Jack Reed (D, RI), Lamar Alexander (R, TN), Patty Murray (D, WA) and Pat Roberts (R, KS) would give the FDA some new enforcement tools, increase transparency by posting more data on FDA-requested trials on the agency's web site, and require companies to submit pediatric study plans by the end of Phase II, as opposed to current law, which allows them to submit such studies to the agency when they submit New Drug Applications (after Phase III trials).

The bill has been endorsed by several patients' groups, including the American Academy of Pediatrics and the Elizabeth Glaser Pediatric AIDS Foundation.

The central advantage of making both BPCA and PREA permanent would be to give both the FDA and companies certainty that they can advance the science of pediatric drug research without worrying whether or not Congress would rewrite the "rules of the road" or even scrap the programs while such studies were underway. (Pediatrics studies are typically complex, expensive, and can take several years to complete, longer than the current 5 year "sunset clause" for BPCA and PREA.)

The House version of the legislation can be found here. We'll write more on BPCA and PREA in a future post.

Over at the Drug Channels blog, Adam Fein discusses new legislation offered by Senator Hatch (R, UT) that attempts to address the underlying causes of the generic drug shortages that are currently plaguing America's health care system:

When drug shortages were in the news last fall, I (among others) cited the perverse economic incentives from Average Sales Price (ASP) as a key factor behind our very fragile generic injectable supply chain. ...

To my surprise, politicians have heard the message. Senator Orrin Hatch (R-UT) is now drafting the "Patient Access to Drugs in Shortage Act," which will change reimbursement for generic injectables from ASP + 6% to Wholesale Acquisition Cost (WAC) for injectable generics with 4 or less manufacturers. ...

These fixes start to address the fact that the reduced return on investment from generic injectable manufacturing has created the enabling conditions for drug shortages.

Adam also links to my own take on the drug shortage problem, as well as a podcast where he and I discuss the underlying economics affecting the market for generic drugs, particularly sterile injectables.

Drug Channels is also a terrific blog. Check it out, if you haven't already.

Peter Pitts writes in the Washington Examiner that just six Group Purchasing Organizations (GPOs) dominate 90 percent of the GPO market, representing hundreds of billions of dollars in annual purchases of "drugs, devices, and health care supplies annually" for thousands of private, acute care hospitals.

GPOs keep prices down for their members, but their enormous purchasing power can also distort the market, particularly for low-margin commodities. Pitts writes that

As a result, drugmakers have little incentive to update old manufacturing facilities or build new ones. When a facility suddenly goes offline because of quality concerns (the major cause of supply line disruption) or is retooled for a different (and more profitable) use, shortages can occur.

The GPOs use a variety of practices that enhance their profits but exacerbate the problem of drug shortages. For example:

• Exclusionary, sole-source, long-term contracts;

• Tying and bundling product lines to give the advantage to large incumbent suppliers and discourage competition from smaller, entrepreneurial companies with fewer products;

• A byzantine system of manufacturers' rebates to large, favored distributors that ensures that only those distributors can sell to GPO-member hospitals.

These practices have created a concentrated market that excludes other existing and would-be suppliers and distributors. With no other suppliers able or available to fill the gap, increases in demand for generic drugs have resulted in shortages and surging prices.

As they say, read the whole thing.