competitiveness and regulation-the fda and the future of america's bio medical industry

8/3/2019 Competitiveness and Regulation-The FDA and the Future of America's Bio Medical Industry

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COMPETITIVENESS AND REGULATION:

THE FDA AND THE FUTURE OF AMERICASBIOMEDICAL INDUS TRY

TABLE OF CONTENTS

Introductory Letter.................................................................................................................

Executive Summary...............................................................................................................

Introduction...........................................................................................................................

Drug and Device Review at the FDA: Origins of User Fees.................................................Prescription Drug User Fee Act.................................................................................Medical Device User Fee and Modernization Act.....................................................Current FDA Performance........................................................................................Signicant Changes Critical in User Fee Renewals...................................................

Environmental Factors Aecting the Biomedical Industry.....................................................Impact of the Financial Crisis.....................................................................................Biomedical Product Approval in the European Union.............................................

Implications..........................................................................................................................Regulation and American Competitiveness..............................................................Biomedical Innovation..............................................................................................

Call to Action.......................................................................................................................Begin Critical Discussions........................................................................................Fine-tune Previous Legislation.................................................................................

AppendicesAppendix A History and Mission of the FDA in Regard to Medical Products....

Appendix B FDA Structure and Approval Processes............................................Appendix C Notes on Methodology.....................................................................

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Tis is a report aout the relationship etween

FDA regulation and the competitiveness of the

U.S. iopharmaceutical and medical technology

industry. Since the invention of iotechnology

in California in the 1970s, America has emerged

as the gloal leader in iomedical innovation.

What fueled this growth was an extraordinary

pulic-private partnership, eginning with the

National Institutes of Health (NIH), whose fund-

ing for asic research laid the scientic foundations

for countless reakthroughs in drugs and medical

devices. Basic research y itself, of course, was notenough. Developing and manufacturing products for

patients required massive amounts of private invest-

ment, acked y investors willing to assume the risk

that accompanies leading-edge science. Overall this

partnership has produced great enets, oth for the

American economy and for patients everywhere.

Beyond the relationship etween the NIH and the

private sector in discovery, though, there has een

another critically important partnership etween

industry and government centered at the FDA.

For when it comes to new drugs and devices, the

Agency is the gatekeeper, deciding which products

may enter the market, and under what conditions.

Tis is an enormously powerful, often underappreci-

ated, role, with great implications for the economy

and for pulic health.

Te data presented here gathered and analyzedy Simon Goodall and his team at the Boston

Consulting Group clearly indicate that todays

FDA is not keeping pace with U.S. iomedical

innovation. Te Agency-industry partnership is

strained y unexplained regulatory delays, y a

lack of clear standards for what clinical data are

necessary for product approval, and y a ureaucracy

whose communications are neither consistent nor

predictale.

Te result of uneven performance at the Agency

has een to increase the risk associated with regula-

tion, dampening investment in companies whose

products face FDA regulation. Meanwhile, as gloal

competition in high-tech industries has intensied,

other nations have adapted their regulatory systems

to out-compete the FDA. Te ight of medical

technology product launches to EU countries should

e a serious cause for concern for policymakers and

patient advocates alike.

If the industry-FDA partnership is trouled,

however, now is the time to repair it. With Congress

and the Oama Administration focused on competi-

tiveness and jo creation, along with reducing theurdens of regulation, and with industry user fees

up for reauthorization, it is the perfect time to

reengineer the FDA for the 21st century.

David Gollaher, PhD

President and CEO

California Healthcare Institute

David Gollaher, PhD

INTRODUCTORY LETTER


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1 Oama, Barack. Editorial: oward a 21st-CenturyRegulatory System. Wall Street Journal, Jan. 18, 2011.

2 Shuren J. Cover letter to proposed reforms: A Letter fromthe Center Director. FDA CDER. Jan. 19, 2011. (Dr. Shurenreferred to the 510(k) approval process for medical devices,ut his comment applies equally well to iopharmaceuticals.)

EXECUTIVE SUMMARY

,

American scientists and entrepreneurshave produced a steady stream of

iomedical reakthroughs that have saved

and improved illions of lives around the world.

Along the way, they uilt a gloal drug and device

industry that ecame a powerful engine of prosperity,

generating hundreds of thousands of high-wage jos

and enhancing the health of the U.S. economy.

In recent years, however, as evidence in this report

makes clear, the environment for medical innova-

tion has deteriorated. Tis is partly the result of the

nancial crisis and ensuing Great Recession, which

sharply reduced investment capital. But the most

critical factor has een the Food and Drug Adminis-

tration (FDA or Agency). For the Agencys policies

and activities exemplify President Oamas critique

of a regulatory system whose rules have gotten out

of alance, placing unreasonale urdens on usiness

urdens that have stied innovation and have hada chilling eect on growth and jos.1

Striking the right alance etween protecting

patients, on the one hand, and ensuring that ene-

cial and life-saving innovations get to market as

soon as possile, on the other, is at the heart of the

FDAs mission. And 2011-2012 is a pivotal time

for Congress and the Administration to assess the

Agencys performance. Over the next 18 months,

Congress will consider reauthorization of the user

fee programs for iopharmaceuticals and medical

devices. Te Prescription Drug User Fee Act

(PDUFA) and susequent Medical Device User Fee

and Modernization Act (MDUFMA), originally

enacted in 1992 and 2003, were designed to provide

O

more resources for the Agency. In turn, the

legislation also spelled out improved performance

standards and timelines for FDA reviews.

After periods of improvement, though, eginning in

2007 FDA performance has slipped. From the

average of the previous PDUFA and MDUFMA

rounds of 2003-2007 to today, drug and iologics

review times have increased 28 percent, device

510(k) clearances have slowed y 43 percent and

PMA device reviews are taking 75 percent longer.

Contriuting factors include new demands and

responsiilities Congress assigned to the Agency as

part of PDUFA IV and the FDA Amendments Act

of 2007. At the same time, several high-prole safety

prolems with drugs and devices rought intense

pressure on the FDA from Congress, the press and

consumer advocates. Te Agencys reaction was to

focus less on the enets of new products than on

potential risks and to try to mitigate risk y demand-

ing larger, more extensive (and more costly) clinical

studies. From industrys perspective, in the words

of a top FDA ocial, the regulatory process hasecome increasingly unpredictale, inconsistent

and opaque. 2

Meanwhile, outside the United States, other nations

have engaged in what might e called regulatory

competition. Te mid-2000s saw concerted eorts

to increase the eciency and elevate the stature

of foreign regulatory agencies. Most prominently,

European Union (EU) drug and device regulators


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understood that streamlining their approval

processes could e a strategy to attract usiness.

In consequence, the past decade has seen a dramatic

shift in clinical trials and product launches y

U.S. rms to Europe. As gloal competition has

risen, ineciency at the FDA has resulted inAmerican inventions eing made availale to

patients and physicians in other countries rst.

Tis also has pushed jos and revenues oshore,

helping other nations gain experience in uilding

infrastructure and scaling up new iopharmaceutical

and medical technology products. Such capailities

and expertise are critical components in perpetuating

the cycle of innovation, as well.

wenty years ago, Congress recognized a drug lag

etween the United States and Europe and worked

with industry to reinvigorate the FDA. Tis was the

genesis of industry user fees. odays competitive

landscape is more complex, and the implications of

FDA ineciency are far greater. So it is imperative

that legislators, the Agency, industry leaders and

patient advocates agree on a practical plan to enale

the FDA to function as smoothly and eciently

as possile.

With PDUFA and MDUFMA due for renewal in

2012, Congress must focus on the FDAs mission,

on the optimum alance etween enets and

risks, and on the direct and indirect costs regulation

imposes on pulic health, iomedical innovation,

the economy, jo creation and American competi-tiveness. Te reauthorization process also opens an

opportunity to evaluate and correct any provisions

in past user fee legislation that detract from the

FDAs performance.

Industry is committed to strengthening its partner-

ship with Congress and the Agency. Positive policy

and operational improvements at the FDA, along

with constructive legislation, will encourage iophar-maceutical and device innovation. Indeed a strong,

science-ased Agency and an ecient, predictale

and transparent regulatory process are essential

elements of the iomedical innovation ecosystem.

And working together, Congress, the Agency,

industry and other stakeholders can maintain the

high standards of safety and eectiveness that

doctors, patients and their families expect while also

strengthening the iomedical sectors aility to at-

tract the investment essential to secure U.S. gloalleadership in life sciences.

Virtuous cycle

of innovation

Implications for investment, jobs and ultimately innovation

FDA's role

critical to

industry cycle

Investment

Jobs

New

technology

New technology

development

New technology

brought topatients

Uptake and

revenues fromnew technology

Consequences of Slow Regulatory Process on Innovation Cycle.


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INTRODUCTION

Te U.S. Food and Drug Administration (FDA or

the Agency) directly regulates products and activities

that account for one-fth of the U.S. economy.

Te FDAs scope is vast. It encompasses everything

from chickens to eggs; from cosmetics to toacco;

from the simplest medical devices, like tongue

depressors and andages, to the most advanced

technologies, such as articial hearts or cancer-

treating monoclonal antiodies. Its mission is to

protect and improve pulic health, and Agency

ocials underscore that this charge also includes

advancing iomedical innovation.3 (See Appendix

A for ackground on the FDA.)

Because FDA approval is required efore iophar-

maceutical, medical device and diagnostic products

can go to market, the Agencys policies and actions

shape the environment for research and develop-

ment. Companies and investors rely on an ecient,well-articulated and predictale regulatory process

in order to make informed decisions. o raise capi-

tal and to hire workers, usinesses need condence

in their aility to navigate the marketplace and the

regulatory system.

Te U.S. economy has eneted from predictale

regulation. From 1980 through 2008 (the most

recent full year for which comparative data is avail-

ale), the life science industrys jo creation was

spectacular, contriuting to economic growth across

the country. In 2008, approximately 655,000 Ameri-

cans were directly employed y the iopharmaceuti-

cal industry, and 423,000 others worked for medical

technology companies. Salaries averaged $96,500 for

iopharmaceutical workers and more than $58,000for those in medical technology rms.4,5

As for the FDA, the Agencys policies and organiza-

tional structure have served as models for regulators

in most industrialized and developing nations.

Te technical strength of the FDA and the clarity

of its regulatory process helped the United States

ecome the gloal leader in iopharmaceutical,

medical device and diagnostic innovations.6

In the 21st century, however, the regulatory environ-

ment at the FDA has ecome trouled to a point

of near crisis. Using extensive analyses of FDA data,

company surveys and executive interviews, this study

examines the decline of the Agencys performance

and how its regulatory practices have ecome amig-

uous, unpredictale and unnecessarily urdensome.

Because the FDA does not operate in a vacuum,

this report also explores the inuence of externalfactors, such as the Great Recession, on industrys

attitude toward regulation and how nancial strains

in todays market magnify regulatory risk.

3 Hamurg M. Speech: FDA and the American Pulic:Te Safety of Foods and Medical Products in the Gloal Age.Delivered to Center for Strategic and International Studies,

Washington, DC, Fe. 4, 2010.4 PhRMA. Fact sheet: Te Biopharmaceutical Sectors

Impact on the Economy of the United States. Pulished 2010.

Accessed 01/19/11 at http://www.phrma.org/sites/phrma.org/les/PhRMA_U_S__Fact_Sheet_2008_vFINAL_2.pdf5 AdvaMed. Report: State Economic Impact of the Medi-

cal echnology Industry. June 7, 2010. Accessed 01/19/11 athttp://www.advamed.org/NR/rdonlyres/F9FF4E5B-BD99-4245-A9F4-A6CA85A8896B/0/StateEconomicImpac-toftheMedicalechnologyIndustry61510.pdf

6 Carpenter, Daniel. Reputation and Power: OrganizationalImage and Pharmaceutical Regulation at the FDA. Princeton,NJ: Princeton University, 2010.

COMPETITIVENESS AND REGULATION:THE FDA AND THE FUTURE OF AMERICAS BIOMEDICAL INDUSTRY


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FIGURE 1. Three PDUFA Cycles 1993-2007.

Mean number of months to approval

5

30

25

20

15

10

0

FY

2007

est.

FY

2006

FY

2005

FY

2004

FY

2003

FY

2002

FY

2001

FY

2000

FY

1999

FY

1998

FY

1997

FY

1996

FY

1995

FY

1994

FY

1993

FY

1992

FY

1991

FY

1990US submission

year

Pre-PDUFA P DUFA I: Reduc ing Appl icati on

Review Time

PDUFA II: Facilitating the Drug

Approval Process

PDUFA III: Refining t he Process

Mean

Source: BCG anal ysis of all NME and NBE submissions, modeling of time to app roval for submissions in process. For methodology see details i n the appendix. Database may not be complete for FY2005-2007. When fac toring in two missing submissions per year FY 2005-2007 and ass uming that all are approved in FY 2011, mean time to appr oval would be: 2005 = 16 mon ths, 2006 = 15, 2007 = 17

332926252827342835404242333222212122n =

Simply put, the FDA is the decisive gating factor

in the iomedical investment and innovation

ecosystem. Reversing present regulatory trends is

essential to sustaining the U.S. iomedical industry

as a virant source of technology jos and encour-

aging future advances to improve pulic health.

DRUG AND DEVI CE REV IEW AT THEFDA: ORIGINS OF USER FEES

In the 1980s, the FDA required two and a half years

and sometimes up to eight years to review new

drug applications (NDAs). Tese delays generally

reected a lack of adequate resources to process

the volume of sumissions in a timely way.

Policymakers and others recognized a growing

drug lag in approval of new medicines in the

United States versus elsewhere. In fact, y the early

1990s, fully 70 percent of new medicines were rst

approved overseas, with 60 percent availale else-

where for more than a year efore eing approved

y the FDA.7 7 U.S. Food and Drug Administration. Tird Annual Perfor-mance Report: Prescription Drug User Fee Act of 1992, Fiscal

Year 1995 Report to Congress. Dec. 1, 1995.

Prescription Drug User Fee Act

Te tipping point was pulic anxiety in the late

1980s around the AIDS epidemic. Tis put the FDA

in the spotlight, with patient advocates and the press

pointing out the human costs of a protracted regula-tory process. Lawmakers worked with industry and

activists to secure more resources for the Agency and

to streamline clinical trials. ogether, Congress and

industry developed legislation the Prescription

Drug User Fee Act (PDUFA) that would enale

companies to augment the Agencys funding y

paying fees along with applications. Enacted

in 1992, this statute required that the new fees

(approximately $200,000 per application) e des-ignated for hiring more reviewers. In addition, for

the rst time, the FDA committed to specic drug

review performance standards. For example, for scal

year 1994, Congress required the Agency to review

and act upon 55 percent of NDAs within 12 months.


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FIGURE 2. 510(k) Clearances Leading Up To and Through MDUFMA I.

Tere have een four consecutive PDUFA programs

over the past 17 years; the current legislative author-

ity for PDUFA IV, reauthorized in 2007 y the

FDA Amendments Act, will expire in Septemer

2012. As user fee legislation was reauthorized in

1997, 2002 and 2007, the Agency committed toreview 90 percent of priority NDAs within six

months, and 90 percent of standard NDAs within

10 months. As shown in Figure 1, each successive

PDUFA reauthorization, from the 1990s through

2007, strongly correlates with improved review

times and performance gains. (See Appendix B

for more information on key provisions of each

successive drug user fee act and Appendix C for

notes on the methodology used to calculate thedata presented here.)

Medical Device User Fee and Modernization Act

Despite occasional criticism, PDUFA has een

widely considered a success. And after years of

deate, the medical device industry and Congress

created a similar program the Medical Device User

Fee and Modernization Act of 2002 (MDUFMA).

Te main prolem in formulating MDUFMA lay

in the structure of the medical device industry and

the fact that innovation in devices and drugs is quitedierent. Drugs work at the molecular level, altering

complex iological systems that are only partially

understood. Medical devices, such as implants, are

technologies to enale or improve physical functions

and, therefore, are easier to characterize and more

predictale. Te next generation of a medical device

typically features improved materials or components,

whereas an improved drug may e a new molecule

that targets a dierent receptor or is comined witha second agent for greater eect. Te gold standard

for testing drugs is the randomized, controlled trial

(RC), in which matched cohorts of patients receive

either an active medicine or a placeo. Such trials

are dicult to do for medical devices and are seldom

necessary to answer asic questions aout whether a

technology is safe and eective. (See Appendix B for

0

2

4

6

8

Mean number of months to clearance

FY

2007

FY

2006

FY

2005

FY

2004

FY

2003

FY

2002

FY

2001

FY

2000

FY

1999

FY

1998

FY

1997

FY

1996

FY

1995

FY

1994

FY

1993

FY

1992

FY

1991

Note: Data cut by year of decisionSource: FDA d evice approval database; BCG analysis

US decision

year

Pre-MDUFMA

n =

Mean

MDUFMA I

4,277 3,782 4,037 5,528 5,585 4,483 4,401 3,815 3,644 3,561 3,422 3,645 3,508 3,461 3,222 3,198 3,024


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FIGURE 3. PMA Approvals Leading Up To and Through MDUFMA I.

more information on medical device classication,

approval processes and key successive medical device

user fee act provisions.)

Similar to the drug user fee program, MDUFMA

instituted industry user fees for the review ofpre-market applications, reports, supplements and

pre-market notication sumissions. Te idea was

to provide additional resources to make FDA

reviews more timely, predictale and transparent.

MDUFMA fees helped FDA expand availale

expertise, modernized its information management

systems, oered new review options and provided

more guidance to prospective applicants. As with

drugs, the goal was to clear safe and eective medi-cal devices more rapidly, eneting applicants, the

healthcare community and patients.

Te lag times with 510(k) and PMA clearances

improved ahead of the enactment of MDUFMA

(Figures 2 and 3), and the review times for these

devices held generally steady from scal year 1999

into scal year 2007. In that year, Congress reautho-

rized the program with the Medical Device User

Fee Amendments of 2007, which was itself part of

a larger ill, the Food and Drug Administration

Amendments Act of 2007 (FDAAA).

Current FDA Performance

If user fees led to demonstrale improvements in

Agency performance, critics of user fees argued that

they have made the FDA a captive of the industry

it regulates. In fact, the Agency frequently has een

under assault from the press, consumer groups and

memers of Congress for eing too close to indus-

try and for inadequately protecting the pulic from

faulty drugs and devices. Te Agencys product

reviews, as a result, increasingly have focused less onthe enets of new drugs and devices and more on

their possile risks.

Complicating matters further, Congress has greatly

enlarged FDAs scope into new elds (e.g., toacco)

and added to its responsiilities and authority.

Yet federal appropriations have failed to keep up

with new mandates, forcing greater Agency reliance

on industry-funded user fees.

0

10

20

30

40

FY

1990US decisionyear


FY

2007

FY

2006

FY

2005

FY

2004

FY

2003

FY

2002

FY

2001

FY

2000

FY

1999

FY

1998

FY

1997

FY

1996

FY

1995

FY

1994

FY

1993

FY

1992

FY

1991

Note: Data cut by year o f deci sion; PMAap provals only includes original approvals, no s upplementsSource: FDA d evice approval database; BCG analysis

Pre-MDUFMA

Mean

MDUFMA I

n = 16 18 5 13 14 17 32 31 24 30 36 48 37 30 39 38 37 32


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Tese increased responsiilities would e hard to

manage even if science stood still. But, of course, it

has not. Te past decade has witnessed an explosion

of knowledge, exemplied y the Human Genome

Project, that has transformed drug and device

innovation. Scientists today routinely employhigh-throughput genetic sequencing to indentify

targets for small-molecule drugs. And medical

device makers are working on ways to integrate

nanotechnology and wireless communications in

leading-edge technologies. Te accelerating rate of

scientic and technological advances severely strains

the FDAs aility to keep pace and poses signi-

cant limits on the Agencys future responsiveness

and performance.

Pharmaceutical and Biologics Sectors

Trough its every-ve-years review and reauthoriza-

tion of PDUFA, Congress has signicantly increased

the FDAs responsiilities and allocated the increased

costs to industry user fees. For instance, PDUFA III

gave the FDA authority to use user fee resources on

risk management and post market surveillance.

Also added under PDUFA III came the codifying ofest practices into Good Review Practices (GRPs).

Tis action was intended to improve the review

process y applying successful techniques across

the Agency. Yet, as the FDA we site notes, Since

GRPs can change and evolve frequently as a result

of new science, statutes, regulations, guidances and

accumulated experience, the policies will e updated

regularly. Further, Review sta are expected to

follow GRPs and may depart from them onlywith appropriate justication and supervisory

concurrence.8 Te Agency has yet fully to imple-

ment GRPs, leaving the regulatory process in a

state of transition.

8 U.S. Food and Drug Administration. We page: GoodReview Practices (GRPs). Accessed 01/03/11 at http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/ucm118777.htm.

9 Moscovitch B. Brands, Generics, Biosimilars User Feesop 2011 FDA Drug Agenda. Posted 01/12/11 at Health-PolicyNewsStand.com.

For drug reviews, the Agency regularly draws on

advisory committees composed of outside experts.

Additional responsiilities implemented under

FDAAA and PDUFA IV in 2007 gave advisory

committees stronger authority to provide expert

opinion on issues pertaining to trial design, safetyand ecacy. Te troule is, though, PDUFA IV also

imposed more stringent conict-of-interest rules,

potentially precluding some of the most knowledge-

ale and qualied medical specialists from serving on

advisory committees.

Further, the Risk Evaluation and Mitigation Strate-

gies (REMS) provisions, included under FDAAA,

have codied many accepted risk management prac-tices. REMS were intended to enale manufacturers

to evaluate and mitigate serious risks associated

with the use of an otherwise enecial drug and to

demonstrate that the drugs enets outweigh its

risks. Drugs are, after all, approved on the asis of

clinical studies involving limited numers of patients.

When these drugs are used y thousands or millions

of patients in the general population over longer

periods, new prolems may surface. Based on further

post-launch analysis, the Agency reasoned that itcould approve products that it might otherwise deem

too risky. Te implementation of REMS, however,

has had almost the opposite eect. Negotiating with

the Agency on REMS requirements has stretched

review times and lengthened FDAs review processes.

In response, industry has proposed standardizing

the REMS process y developing a single platform

for certain REMS programs instead of designing a

unique program for each drug.9


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FIGURE 5. Drug Review Timelines Lengthened In 2008.

FIGURE 4. FDAs Growing Dependence on User Fees to Fund Drug Review.

PDUFA III: Refining the Process PDUFA IV

28 25 26 29 33 41 33n =

Mean

Source: BCG anal ysis of all NME and NBE submissions, modeling of time to app roval for submissions in process. For methodologysee details in the ap pendix.


25

20

15

10

5

0

FY 2009 est.FY 2008 est.FY 2007 est.FY 2006FY 2005FY 2004FY 2003 US submission

year

With Congress reluctant to increase its aseline

appropriations, over the course of each PDUFA

reauthorization the FDA has ecome increasingly

dependent on user fees to fund drug review. As

Figure 4 demonstrates, today user fees account for

60 percent of the costs associated with FDA drug

review 8.5 times more than when user fees were

rst instituted while until just recently, congres-

sionally appropriated funding of the Agency was

generally at.

1. Total FT Es in Human Dr ug Review Program. So urce: 1993-1999 from FDA White Paper: Prescription Drug User Fee Act (PDUFA): Adding Resources and Improving Performance in FDA Reviewof New Drug App lications; 2000-2009 from FDA Annual Budget All Purpose Table Human Drug Program Total FTEs. 2. Total Cos t of Human Drug ReviewSource: FDA PDUFA Annual Fi nancial Reports, Total Cost of the Process for the Review of Human Drug Applications; BCG analysis

3,630

2,9152,9472,9182,949

2,696

2,5172,5352,5092,456

2,1002,0001,920

1,700

1,4901,300

0

100

200

300

400

500

600

700

800

900

1,000

1,100

0

1,000

2,000

3,000

4,000

Cost of Human Drug Review ($M)2

Year

FY2009

855

60%

FY2008

714

63%

FY

2007

575

56%

FY

2006

525

58%

FY

2005

481

56%

FY

2004

437

53%

FY

2003

409

49%

FY

2002

332

51%

FY

2001

324

50%

FY

2000

315

47%

FY

1999

283

43%

FY

1998

254

40%

FY

1997

232

36%

FY

1996

237

36%

FY

1995

Number of FTEs1

214

35%

FY

1994

169

24%

FY

1993

1367%

2,996

FTEs PDUFA User FeesGovernment Approp riations

User fee

contribution

8.5x more

now than in

FY 1993

Recent increases in resourcing used to

fund the FTEs performing drug review


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FIGURE 6. Status of NMEs/NBEs of 2008 Seeking FDA Approval.

In the past, industry has accepted increased user

fees and expanded Agency requirements when the

fees have corresponded with improved review times.

Beginning with PDUFA IV, however, added

requirements and responsiilities have correlated

with longer FDA drug review timelines and growingfrustration within industry. As Figure 5 illustrates,

the PDUFA IV class of 2008 saw an average ap-

proval time of 18.9 months for a 28 percent increase

over the average PDUFA III time of 14.7 months.

In 2009, the average approval time of 14.5 months

did represent a 1.3 percent decrease from the average

PDUFA III timelines. However, under PDUFA, the

Agencys goal is to communicate regulatory actiondecisions within six months for priority applications

and 10 months for standard applications, perfor-

mance levels the FDA currently is not meeting.10

A closer look (Figure 6) at the new molecular enti-

ties (NMEs) and new iologic entities (NBEs)

sumitted to the FDA for approval in 2008 further

illustrates the slowdown in approval times. Fully 45

percent of the years class were in process for more

than a year efore regulatory action was taken.

Medical Technology Sectors

Te FDA did not systematically regulate medical

devices until 1976, and historically the Agency has

een viewed as evaluating devices less rigorously

than drugs. But devices work in dierent ways and,

as Congress realized when it adopted the Device

Amendments of 1976, devices required a dierent

approach. Devices are typically products designed

and engineered for a given use, not chemical com-

pounds or iologics manufactured from living cells.Changing the molecular structure of a drug or

iologic often changes the way it works in the ody,

so even minor modications require new clinical

trials. Devices, in contrast, may e altered in minor

Number of NME/NBE submissions5 2015100

Months to regulatory action

>24 11 0

19-24 65

13-18 119 2

7-12 1710 7

0-6 64 2

Approval Complete Response Letter

Note: Data from Drugs@FDA, EvaluatePharma. "FY 2008 Cohort" defined as any NME/NBE submissions received by FDA from October 1, 2007 through September 30, 2008. "Still in process"defined as any ap plication that has n ot been approved and has not been withdrawn as of October 1, 2010. "Respo nse" defined asr eceipt of Complete Response Letter or Approval Letter.

45% of submissions take >12 months to regulatory action,

but 65% take >12 months to approval given CRLs

10 U.S. Food and Drug Administration. Guidance forReview Sta and Industry: Good Review ManagementPrinciples and Practices for PDUFA Products. April 2005.


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FIGURE 7. 510(k) Review Times Have Increased Under MDUFMA II.

ways switching to a new metal alloy, installing a

longer-lasting attery, using a etter polymer so

that the eects on the products safety and ecacy

prole are predictale. reating every modied

version as though it were an entirely new device

would discourage incremental improvements ymaking them prohiitively time-consuming and

costly with scant enet to the pulic health.

While the overall safety record of the U.S. medical

technology industry is exemplary, etween 2007 and

2010, as the device user fee act was eing reautho-

rized, several product recalls and lawsuits raised

concerns that the FDA had gotten too close to

industry and had failed to keep unsafe devices othe market. Criticism of the Center for Devices and

Radiological Health (CDRH), the FDA ranch

responsile for approving medical devices, oils

down to two contentions. Te rst is that the 510(k)

exemption process is too lieral, and the second is

that the PMA review process should e stricter.

Criticisms of the FDAs review of devices from

consumer groups, Congress and from within the

Agency itself have led to turmoil in the medical

technology approval process. Indeed, survey research

among industry executives suggests that the pres-

ent performance of CDRH is at an historic low.11As shown in Figures 7 and 8, the past few years

have seen signicant slowdowns in clearance times,

even as sumissions are down from the early part of

the decade. Complex PMA sumittals saw review

periods increase 75 percent over the MDUFMA I

(2003-2007) average to 27 months in 2010.

For 510(k) sumissions, the approval time has

increased 43 percent to an average of 4.5 months

in scal year 2010 over the average of aout threemonths under the MDUFMA I years of 2003-2007.

Further, interviews with industry executives suggest

11 Meer A and Makower J. Survey: FDA Impact on USMedical echnology Innovation. Stanford University, PaloAlto. Novemer 2010.

1. 2010 number is pro -rated to obtain end o f year numbersNote: Data cut by year o f deci sion; 510(k) approvals only includes original approvals, no s upplementsSource: FDA device approval database; BCG analysis

MDUFMA IIMDUFMA I

3

4

5

6

2

Months to approval for 510(k)s

1

0

US decisionyear

FY 2010

4.5

FY 2009

3.9

FY 2008

3.8

FY 2007

3.3

FY 2006

3.0

FY 2005

2.9

FY 2004

3.3

FY 2003

3.1

n = 3,508 3,461 3,222 3,198 3,024 3,040 3,058 3,1101

43% increasesince the mean of

2003-2007


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FIGURE 8. PMA Review Times Also Have Lengthened in Past Three Years.

that in an increasing numer of cases, the Agency

is requiring more and more clinical data for 510(k)

sumissions. Costs of conducting clinical trials and

uncertainty aout how much data the FDA will

need to approve a product have ecome key concerns

for device manufacturers.

Signicant Changes Critical in User Fee Renewals

Delays in the FDA regulatory process (Figure 9)

have alarmed the entire U.S. iomedical industry.

For new drugs and iologics, average review times

increased y more than four months (approximately

28 percent) in 2008 from 2003-2007. Te 43 percent

increase in 510(k) review times adds more than onemonth to the process. And for PMAs, the 75 percent

increase translates to nearly a year longer.

As the FDA, industry, Congress and other stake-

holders prepare for the next PDUFA and MDUF-

MA reauthorizations in 2012, these lengthening

approval times are an important signal that the

U.S. regulatory environment raises serious arriers

to innovation. Before pursuing signicant increases

in user fees or expansive new authorities and re-

quirements, Congress, the Agency and industry

must rst determine the source of the prolemand develop practical solutions that will make the

process more ecient. Resources are important,

ut simply increasing user fees will not address the

underlying faults.

ENVIRON MENTAL FACTORS AFFECTINGTHE BIOMEDICAL INDUSTRY

Impact of the Financial Crisis

Te iopharmaceutical and medical technology

industries operate in a gloal usiness system in

which regulation is a asic factor. Coinciding with

the slowdown at the FDA was the worst economic

downturn since the Great Depression. And the

Months to approval for PMAs

40

30

20

10

0

US decision

year

FY 2010

27

FY 2009

21

FY 2008

21

FY 2007

20

FY 2006

14

FY 2005

14

FY 2004

17

FY 2003

12

MDUFMA I

Note: Data cut by year of d ecis ion; PMAapprovals only includes original approvals, no supplements, all AP* codes co nsidered as aprovalsSource: FDA d evice approval database; BCG analysis

MDUFMA II

n = 30 39 38 37 32 23 21 17

75% increase in

2010 since the

mean of 2003-2007


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10 -

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FIGURE 9. Review Times Have Increased Across All New Drug and Device Applications.

NMEs / NBEs1 510(k)s2 PMAs3

1. NMEsand NBEso nly, by fiscal year of submission date. given long cycle times for d rug approval 2008 includes estimated figures for applications in process.Sourc e: Drugs@FDA; EvaluatePharma.2. By fisc al year of c learance date. g iven shorter cycle times 510(k)s clearances only includes original clearances. Source: FDA devices database3. By fiscal year of approval d ate, given relatively shorter cycles and l ack of d ata on submissions in p rocess. PMAappr ovals only includes original approvals. Source: FDA devices database

Ave. no. mon ths to clearance

6

4

2

0

Clearance fiscal year

+43%

2010

4.5

2003-2007

3.1

Ave. no. months to approval

40

30

20

10

0

Approval fiscal year

+75%

2010

27.1

2003-2007

15.5

Ave. no. months to approval

30

20

10

0

Submission fiscal year

+28%

2008

18.9

2003-2007

14.7

nancial crisis of 2007-2008 had a dramatic and

immediate eect on the nancial condition and

strategic initiatives of companies and industries

around the world.

Te iomedical industry is especially sensitive to

the roader trends and ows of capital in the gloal

nancial markets. Te Great Recession sharply

changed the investment environment, especially

the way investments ow to new ventures and early

stage companies. Outlining these changes helps ex-

plain why, far more than in the past, the risks posed

y drug and device regulation have ecome

so important.

Much of the life sciences industry, including gloaliotech leaders like Amgen and Genentech, egan

as small startups funded y venture capital. And

today, the vast majority of life sciences rms are

small enterprises, many of whom rely on fresh

rounds of venture investment to sustain operations.

Tey typically have no product yet on the market or

12 Ernst & Young. Beyond Borders: Gloal BiotechnologyReport 2010. Accessed 01/19/11 at http://www.ey.com/Pulication/vwLUAssets/Beyond_orders_2010/$File/Beyond_orders_2010.pdf.

have one or two products commercialized that are

yet unprotale. In fact, the iotech sector as a whole

reached protaility for the rst time in 2009.12

Te gloal nancial meltdown of 2008 devastated

investment portfolios, including the pension funds

and institutional endowments that historically have

een the main source of venture capital. After the

crash there was a cascade eect. A university

endowment, for example, that historically allocated

10 percent of its portfolio for venture investments

suddenly lost one-third of its value. So, even if it

maintained the normal percentage, its allocation

to venture would have dropped y one-third. But

reaction to the nancial crisis was to squeeze risk

out of portfolios, and many institutional investorscut their venture allocations severely. As a result,

many venture capitalists found themselves unale

to raise new funds.


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FIGURE 10. Investors Reducing Early Investments in Drug and Device Companies.

Meanwhile, venture rms themselves also sought

to reduce risk. With capital scarce, their strategy is

to reserve cash for their strongest portfolio compa-

nies ones with proven products and clear paths

to market. In 2010, venture capitalist investmentsin U.S. iotech and medical technology totaled

$6 illion.13 Yet the trend away from early-stage

investments ones that comine the greatest

innovation with the greatest risk continues

(Figure 10). o make matters worse, the initial

puic oering (IPO) market for iotechnology and

medical device companies all ut vanished. After the

collapse of iconic rms, Wall Street had little interest

in oerings from young companies with no operat-ing revenues that would need continuing infusions

of capital over many years. Since 2008, pulic invest-

ments in iomedical companies have mainly gone to

larger, estalished, pulicly traded companies.

13 PricewaterhouseCoopers,MoneyTree Report, January 2011.

With capital hard to raise and little hope of going

pulic, companies have adapted y redesigning their

iomedical usiness model. For iotechnology, this

has meant turning to large pharmaceutical rms. o

raise capital for research and development, iotech-nology companies are providing contract research,

out-licensing their discoveries or selling late-stage

development candidates as well as project teams or

the whole company. For medical device rms, the

new model generally entails grooming themselves to

e acquisition candidates for gloal medical tech-

nology companies, which rely on acquisitions for

growth. Tese symiotic relationships etween large

and small companies are ecoming the new normal.

1420

1821

1416

11

2123

19

2426

1819

18

0

2,000

4,000

6,000

0

10

20

30

40

% of investment 1st sequenceUS biotechnology investments ($M)

200920082007200620052004200320022001200019991998199719961995

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report, Data: Tho mson Reuters

Percent of

VC money in

biopharma

and medtech

13

18202021

162019

22

27

3228

131315

0

1,000

2,000

3,000

4,000

0

10

20

30

40

% of investment 1st sequenceUS medical techn ology and equipment investments ($M)

200920082007200620052004200320022001200019991998199719961995

% First sequenceSubsequent investmentsFirst sequence

18% 16% 17% 13% 7% 6% 13% 24% 27% 27% 26% 28% 30% 28% 34%

$6.2B of VCinvestments inUS biotech and

medtechcompanies:

Funding alreadyshifting away

from first-sequence

investments:additional risk

that this trend willcontinue or

money will shiftoverseas


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12 -

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FIGURE 11. Delayed FDA Timelines Decrease Returns on Investment.

14 Meer A and Makower J. Survey: FDA Impact on USMedical echnology Innovation. Stanford University, Palo

Alto. Novemer 2010.

Regulatory Risk: Spotlight on the FDA

From investors perspective, regulation has always

een a risk factor. Products fail even in the est of

circumstances. In a capital-constrained world, how-

ever, regulatory risk increases exponentially. odaythe prolem is that, for drugs and devices alike,

clinical trial protocols change and data require-

ments expand without warning. Dierent reviewers

in the same division apply diverse standards, and

FDA personnel changes may add months or years

to the review process. Among industry executives,

unpredictaility is viewed as a more serious pro-

lem than long review times. For a slow ut predict-

ale process would at least allow companies to planand udget resources and communicate develop-

ment timelines to doctors, patients and investors.

Unpredictaility also gures into the strategy of

companies that intend to e acquired. What e-

comes paramount to them is to pass an accept-

ale regulatory hurdle, launch in a major market,

and demonstrate product adoption y physicians,

patients and payers. Having passed these regulatory

and market tests, a rm can present itself to poten-

tial acquirers as a lower-risk investment. Moreover,

the acquiring company can value the startup enter-

prise ased on its own usiness model, its regula-

tory expertise in other countries, its sales force and

channels to doctors, hospitals and patients. From aninvestors perspective, winning approval sooner in

any market ecomes far more valuale than gaining

FDA and U.S. approval later.

Meanwhile, ineciencies at the FDA cause com-

panies to create mirror ineciencies of their own.

Costs for regulatory aairs stas and consultants,

for example, are growing to the point where they

are nearing and, in some cases, exceeding spendingfor R&D in smaller iomedical companies.14

Nor are companies with products in the later stages

of the product development process immune to

the eects of lengthened reviews. Even estalished

rms are less ale to predict cash ow and therefore

Source: "Wh at's Time Got To Do With It?" http://content.healthaffairs.org/cgi/content/full/25/4/1188 (2006)

"Longer development times increaseR&D costs and shorten the period during

which drug companies can earn thereturns they need to make investments

financially viable. Other things beingequal, longer development times reduce

innovation incentives" Joseph A. DiMasi, Ph.D.

Tufts Center for the Study of DrugDevelopment

Cash flow from investment $

Investmentlifetime

Ideal state FDA

clearance

Current state

FDA clearance


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- 13

b

FIGURE 12. Earlier PMA Device Approval in the EU Is a Standing Pattern.

are less condent in maintaining stang levels or

ramping up for product launches or new devel-

opment programs. In addition, delays in product

approval may require the companies to set higher

margins on their products to compensate. Given

the limited patent protection periods on life scienc-es products, delays in approval decrease the period

in which an innovator can generate returns on its

investments (Figure 11).

Tus the recent capital crisis sharply increased

regulatory risk or uncertainty. And levels of regula-

tory uncertainty delays, missed timelines, douts

aout eventual approval that had een uncom-

fortale in good economic times ecame intoleraleafter the crash. Especially ecause, as investors and

corporate executives came to realize, there are prac-

tical, alternative routes to ring products to market.

Biomedical Product Approval in the European Union

Before the formation of the European Union in

1993, clinical trials and drug applications had to

e customized from country to country across the

continent. European policymakers recognized thattheir separate sovereignties posed a serious arrier

to growing the EU iopharmaceutical industry.

Implementation of the EU opened the way for a

single, unied regulatory regime that consolidated

drug registration across Europe. At the same time,

the EUs 27 memer states, taken together,

represent the largest market for drugs and devices

in the world.

It is ironic that the EU drug regulatory system

the European Medicines Agency (EMA)

egan y emulating the FDAs NDA policies and

procedures, ut recognized earlier and more clearly

than the FDA just how fundamentally regulation

Note: Represents original PMAsSource: Data compiled from all PMAs approved in the US for 12 d ifferent medical device companies, where total sample size n =46; BCG analys is

n = 5 5 14 5 8 6 3

Mean US PMA devices approval delay

(by US decision year)

FY 2005

-19.5

-34.0

FY 2006

-48.2-50

FY 2010

50

0

-53.7

FY 2007 FY 2008

-36.9

-100

US approval year

FY 2004

US lag (months)EU approval date US approval date

-46.8

-14.2

100

FY 2009

Mean lag (months)

Approval in

US first

Approval in

EU first


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14 -

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FIGURE 13. Signicant Change in Drug Approvals in U.S. and EU Since 2007.

US lag (months)

EU approval date US approval date10

-5

5

0

Submission year

FY 2010

-1.9

FY 2009

0.6

FY 2008

-2.5

FY 2007

-1.9

4.8

FY 2006

9.1

FY 2005

5.8

FY 2004

Mean US new drug approval delay

(by US submission year, all drugs submitted in both jurisdictions)

Note: Sample co mprises only drugs being reviewed in bo th the US and EU, data are categor ized by US submission year. Where drug has not been approved in one jurisdiction delay is counted asdi fference between first approval and 1/23/2011, Difference between 2004-2006 and 2007-2009 foun d to be statis tically significant at the 5% sig nificance level. See metho dology for more informationSource: FDA drug database; EMAdrug database; BCG analysis

Approval in

US first

Approval in

EU first

Mean lag (months)

162218211717n = 10

shapes investment and industrial growth. More

specically, the EMA saw how much Europe stood

to gain y improving on the process that existed in

the United States.

At the heart of the pan-European system of regula-tion, originated in 1995, were two core principles:

consistency and timeliness. A consistent and trans-

parent path to approval enales the EUs regulatory

agencies to deliver on their 210-day time limit for

new drug application reviews and the 90-day limit

for Class III medical devices.

Pharmaceutical, iologics, medical device and

diagnostics companies the world over have capital-ized on the EUs philosophy. For complex medical

devices evaluated via PMA in the United States

(Figure 12), the EU system has consistently oered

a faster route to market. However, recent years

have witnessed a worsening of the lag, with such

products eing approved in Europe nearly four

years ahead of the United States, up from just over

a year earlier this decade.

Since 2007, there has een a signicant rise in

the numer of drugs approved in the EU rst(Figure 13). Further, where new medicines were

approved rst in the United States y an average of

nearly seven months etween 2004 and 2006, the

trend changed rather dramatically in 2007. Tat

year, drugs were approved two months faster in the

EU. Recent years show some evidence of a new

drug lag with products approved on average two

and a half months earlier in the EU than in

the United States.

For most 510(k) devices, which seldom require

clinical trials to gain approval, comparisons seem,

at rst glance, less clear (Figure 14). But the

picture changes when one factors in products level


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FIGURE 15. More Complex Devices May Be More Likely to Be Approved in EU First.

FIGURE 14. U.S. Approval Times for 510(k) Devices.

5

0

-5

-10

US approval year

US lag (months)

EU approval date US clearance date

FY 2010

0

FY 2009

+3

FY 2008

-2

FY 2007

-9

FY 2006

-5

FY 2005

-1

FY 2004

-4

Note: Represents original 510(k) application without clinical trials. Difference between 2004-2006 and 2007-2009 found to be statistically significant at the 5% significance level for probability ofapproval in US first, but no t significantly for the mean lags. See methodology for more in formationSource: Data co mpiled from 12 di fferent medical device companies, where total sample size n = 205; BCG analysis

Mean US 510(k) devices approval delay (by US decision year)

Approval in

US first

Approval in

EU first

n = 27 45 41 31 19 25 17

Note: Rep resents original 510(k) appl ications without clinical data. Devices classified using EU standard I-IIa-IIB-III where classification I is least ri sky while Class III is mos t risky iSource: Data coll ected from 10 different medical device companies, where total sample size n = 205 d ata based on 105 devices for which EU classification was available

Mean US devices approval delay: 510(k) clearances 2004-2010

Approval in

US first

Approval in

EU first

% of 510(k) clearances

-50

-100

50

100

0

48%

50%

47%

53%

68%

33%

75%

25%

US FirstEU First

Increasing complexity

n = 4 46 32 23


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15 Hall R. Using Recall Data to Assess the 510(k) Process.Accessed 01/13/11 at http://www.iom.edu/~/media/Files/Activity%20Files/PulicHealth/510kProcess/2010-JUL-28/06%20Hall.pdf.

16 Maisel W. Premarket Notication: Analysis of FDARecall Data. Accessed 01/13/11 at http://

www.iom.edu/~/media/Files/Activity%20Files/PulicHealth/510kProcess/2010-JUL-28/05%20Maisel.pdf.

17 Battelle. 510(k) Premarket Notication Evaluation.Accessed 01/13/11 at http://www.advamed.org/NR/

rdonlyres/255F9405-677D-45B1-BAC8-0D4FD5017054/0/510kPremarketNoticationEvaluation.pdf.18 David S, Gilertson E and Goodall S.EU Medical Device

Safety Assessment: A Comparative Analysis of Medical DeviceRecalls 2005-2009. Boston Consulting Group, January 2011.

19 European Medicines Agency. Te European MedicinesAgency Road Map to 2010: Preparing the Ground for theFuture. London, March 4, 2005. Accessed on 01/13/11 athttp://www.ema.europa.eu/docs/en_GB/document_lirary/Report/2009/10/WC500004903.pdf.

of complexity (Figure 15). From this perspective,

there is a clear trend that the more complex, and

often cutting edge, a product is, the more likely

it is to e approved rst in Europe versus the

United States.

IMPLICATIONS

Because EU and U.S. regulators generally review

identical drugs and devices and, for drugs, often

the same clinical trials data it is fairly easy to

compare and contrast their decisions and decision

making processes. In that comparison for 510(k)

devices, for example, recent research indicates

that safety as measured y the percentage ofapproved products recalled has een a relatively

minor issue.15,16,17 More recently, a study y the

Boston Consulting Group examined the rate of

safety recalls for medical devices in Europe from

2005-2009 and compared them with the level of

similar recalls in the U.S. Te study focused on

those products recalled ecause of signicant health

risks and found an average recall rate in Europe of

21 per year, compared to the tens of thousands of

devices on the market. Tis is almost identical tothe rate of equivalent recalls in the U.S.18 As for

timelines, especially since 2007, the FDA clearly

has had a more cumersome and unpredictale ap-

proval process. And companies are electing to work

rst with the regulatory ody whose process

is most transparent and likely to get their products

to physicians and patients soonest.

Te EMA has een forthcoming aout its ami-

tions to encourage and facilitate innovation and

research in the EU. In a numer of high level meet-

ings and documents, European drug regulators and

other leaders have cited the pharmaceutical and

healthcare iotechnology sectors as pillars of the

EUs knowledge economy. Forward-looking goals

outlined in e European Medicines Agency Road

Map to 2010: Preparing the Ground for the Future, for

example, were designed, among other ojectives, to

encourage and facilitate innovation and research in

the EU. In fact, the EMA has stated that its role in

enaling the pharmaceutical industry to achieve the

ojective of industrial competitiveness is crucial.19

Te gloalization of science, people and capital is

accelerating. As organizations ecome adept and

then expert at conducting research and develop-

ment, clinical trials and usiness gloally, their

comfort with regulators around the world grows.

Regulation and American Competitiveness

Until the late 1990s, among the industrialized

democracies, the FDA held something like a

monopoly position. Te Agency enjoyed more

resources and tended to have deeper scientic

expertise than regulators elsewhere. Oviously,

companies make decisions aout where to locate

R&D, where to conduct clinical trials, where to

launch new products and where to scale up manu-

facturing ased on several factors. But it is evident


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FIGURE 16. Consequences of Slow Regulatory Process on Innovation Cycle.

Virtuous cycleof innovation

Implications for investment, jobs and ultimately innovation

FDA's role

critical to

industry cycle

Investment

Jobs

New

technology

New technology

development

New technology

brought topatients

Uptake and

revenues fromnew technology

that these decisions are increasingly inuenced y

international dierences in drug and device regu-

lation. And in this age of gloalization, rms can

pursue research, development, clinical trials, early-

stage commercialization, scaling and manufacturing

anywhere in the world often for less money thanin the United States.

When U.S. companies locate development activities

oshore, foreign physicians and health professionals

gain early clinical experience with new products.

In the case of medical devices, which tend to e

incrementally improved ased on what happens

in the clinic, there is a classic feedack loop.

As technologies go from prototype to mass produc-tion, design details are modied as physicians

and manufacturers gure out what works est

for patients and learn how to produce products

eciently. Tere is no sustitute for tinkering with

an invention in the real world. Over time, this

process uilds the chain of experience essential to

technological innovation. Tus an American

companys decision to launch a novel device in

Germany ecause the regulatory pathway there is

faster and more predictale results in German

surgeons and technicians learning the ne points

of applying the technology rst. And, of course,

it also means that German patients enet fromU.S. innovation efore Americans do.

As operations move overseas, they also take

U.S. experts with them in advisory and managerial

roles. Capitalizing on the technical and intellectual

expertise newly deployed within their orders, other

nations are uilding the infrastructure necessary to

sustain their own life sciences industries and to

woo innovators to operate there instead.

Tis practice of using regulation as a competitive

tool is hardly foreign. Within the United States,

states, counties and municipalities have long

competed for jos on the asis of government-

regulated factors: tax incentives, environmental

waivers, infrastructure susidies and so on. Still, the


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18 -

b

strategy of adapting regulation of iopharmaceu-

ticals and medical technology with an eye toward

usiness development is relatively new.

Biomedical Innovation

Te idea that regulation strongly inuences the

entire investment-product cycle has not historically

een a factor guiding the FDA or, for that matter,

Congressional policy. Nevertheless, a well-managed

regulatory ody can help states or nations gain

competitive advantage in technology-ased sectors

of the economy. It also is a critical factor in ensuring

that the cycle of innovation perpetuates (Figure 16).

Te 20th century is strewn with examples of Ameri-

can inventions from the transistor (invented at

Bell Las) to the lithium ion attery that ulti-

mately ecame the asis not for America ut for

industries oshore. Te past decade has demonstrat-

ed just how uid the iomedical industry is in the

early 21st century. Memers of the U.S. iomedical

community elieve that it is imperative for Congress,

the FDA and industry to act quickly to maintain the

countrys dominance in iomedical advancementsand know-how.

CALL TO ACTION

Te FDA and its regulatory policies profoundly

inuence the current state and future strength of

the U.S. iomedical industry. It is, indeed, part and

partner in the dynamic ecosystem of iomedical

research and innovation. Trough changes in

external factors including the tightened economicclimate, heightened pulic distrust of regulators and

a focus on risk over enets the Agency has

come under close and often harsh scrutiny. At

the same time, it has een urdened with added

responsiilities, often without clear standards for

success. Te FDAs performance has een compro-

mised in its eorts to asor and accommodate

these changes. Its regulatory processes have ecome

unpredictale and slow, which has had enormous

and far-reaching eects on the American iomedical

industry.

wenty years ago, Congress recognized a crisis at

the Agency and developed legislation to solve it.As the 112th Congress convenes and preparations

egin for PDUFA and MDUFMA reauthoriza-

tion, it is imperative that legislators, the Agency,

industry leaders and patient advocates again come

together with the will and ideas to restore FDA

performance to restore, support and sustain a

strong, science-ased Agency and ecient, trans-

parent and predictale review processes to ensure

safe and innovative treatments, technologies and

therapies for patients in need.

Begin Critical Discussions

Te place to egin is a discussion aout reinstat-

ing regulatory eciency through estalishing

more transparency, consistency and predictaility

throughout the application and review processes.

Tis task must include interactions and procedures

at the reviewer, manager and Agency leadership

levels. Te FDA should e encouraged and empow-

ered to provide more upfront guidance and com-

munication with sponsors regarding approvaility.

And new policies and procedures should include

standards and timelines for approval.

Trough the early years of the user fees era, the

FDAs development requirements were relatively

straightforward and understood. Recently, however,

the process has ecome much less clear. In particu-lar, there has een notale lack of consensus aout

the appropriate alance etween enets and risk.

All medical interventions run some risk of harm,

yet a common industry criticism holds that the

FDA is overly risk averse. Many industry oserv-

ers characterize the Agency as having a zero-risk

mentality to the point of discouraging enecial

products and iomedical innovation.


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Perhaps a etter way of framing the issue would e

to distinguish etween direct versus indirect risks. In

this respect, the Agency overwhelmingly focuses on

direct risks of drugs and devices: side eects, adverse

events and technical product failures. Tese are com-

paratively discrete and easy to oserve.

Indirect risks distortions in the regulatory

process, for example in contrast, have a much

longer time horizon and may e dicult to measure.

How should one calculate the pulic health loss if

investors and companies avoid an important disease

ecause the FDAs demands for clinical data are so

extensive and its standards for approving new drugs

so uncertain?

Everyone would gain if the FDA and industry

developed a shared understanding of enet/risk

alance. Tis principle works reasonaly well in the

roader consumer marketplace in ways that enale

manufacturers of automoiles and household appli-

ances to thrive. It is time to dene the oundaries

of societys expectations of acceptale risks and the

Agencys responsiility in approving the most

enecial therapies.

Another key topic of discussion must include the

costs of regulation, direct and indirect. Te direct

costs of regulation fall into three categories: (a) the

portion of federal taxes on corporations and individu-

als that go toward funding FDA appropriations;

() drug and device user fees; and (c) the costs

imposed on drug and device rms that hire regulato-

ry aairs professionals, support sta and consultants

who manage and navigate the FDA approval process.

As for the latter, ineciencies at the Agency inevita-

ly create mirror ineciencies within companies.

Harder to estimate are the indirect costs of regula-

tion, which run from increased costs of capital for

FDA-regulated startups to the costs incurred y

patients when enecial products are unnecessarily

delayed. As Congress seeks paths to create new jos

and a more usiness friendly environment, the costs

of the regulatory system should e carefully weighed.

As the gloal economy grows ever more connected,

American leadership in the iopharmaceutical and

medical device industries faces intense competition:for capital, for markets, for talent and for jos.

As these competitive forces gather momentum,

investors, managers and policymakers ignore them

at their peril. If FDA regulation is just one factor

among several, it nonetheless can e pivotal.

Fine-tune Previous Legislation

Te user fee systems estalished y PDUFA andMDUFMA have een largely successful. In

preparation for their 2012 renewals, the time is

right to evaluate and, where appropriate, correct any

measures within those acts that have detracted from

the FDAs performance. (As discussed earlier, these

measures include provisions of FDAAA such as

REMS and stricter advisory committee conict of

interest rules.) Te new user fee legislation should,

instead of creating expansive new authorities and

responsiilities requiring even higher user fee levels,help re-center the FDA to its primary mission and

core competencies, addressing the serious inecien-

cies and performance reakdowns of recent times.

Industry is committed to continuing and strength-

ening its partnership with Congress and the

Agency. Near-term legislation that encompasses

all three entities concerns and goals will have

enormous impacts on the iopharmaceutical and

device community. Working together, Congress, theAgency and industry can assure the sectors imme-

diate aility to retain and create jos, secure nanc-

ing and generate revenue and its long-term success

in continuing U.S. leadership in innovation and

international competitiveness while maintaining

the high standards of safety and eectiveness that

doctors, patients and their families also expect.


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APPENDIX A: HISTORY AND MISS ION OF THE FDA INREGARD TO MEDICAL PRODUCTS

Te FDAs history dates ack to 1906, when Con-

gress passed the original Food and Drugs Act that

estalished the rst national regulatory system under

the Bureau of Chemistry in the USDA. Under the

Constitutions commerce clause, Congress claimed

authority to regulate food and drugs involved in

interstate commerce and to prohiit distriution of

mislaeled and adulterated products. In 1930, the

Bureau was expanded and reorganized as the Food

and Drug Administration. Te pivotal change for

the Agency, however, came in 1937-38 as the result

of a pulic health disaster caused y an untested

proprietary medicine called Dr. Massengills ElixirSulfanilimide that caused 73 deaths. Congressional

response to this tragedy was to replace the 1906 Act

with the federal Food, Drug, and Cosmetic Act of

1938, which empowered the FDA to evaluate the

safety of new drugs beforethey went on the market.

Following the thalidomide irth defect tragedy,

Congress enacted the Drug Amendments of 1962 to

strengthen the 1938 provisions y requiring proof of

eectiveness as well as safety and to prohiit market-

ing any new drug until FDA approved a new drug

application for the product.

As for medical devices, the 1938 Act for the rst

time extended FDAs authority to regulate them,

although it did not provide for pre-market review

or approval. Congress reconsidered devices in

1962 and came close to legislating requirements

for pre-market approval. But the process was side-

tracked y the thalidomide irth-defect tragedy that

focused attention on drug safety. In 1969, the U.S.

Supreme Court issued a landmark decision in the

United States v. Bacto-Unidisk, ruling that the FDA

could regulate an antiiotic sensitivity disc as a drug.

o determine the est approach to device regulation,

President Richard Nixon convened a group ofexperts, the Cooper Committee, which reported that

devices diered sustantially from drugs and there-

fore needed a separate system of regulation.

Te Committee recommended the three-tiered risk

classication scheme that Congress incorporated

into the Medical Device Amendments of 1976.

While this law has een amended several times, the

statutes asic structure remains intact. Since 1976,

drugs and devices have een considered categorically

distinct, with separate regulatory pathways for each.

The Center for Drug Evaluation and Research (CDER) is responsible for monitoringthree types of drug products: new, generic, and over-the-counter

The Center for Biologics Evaluation and Research (CBER) is responsible for monitoringbiologics products including vaccines, blood, tissue, and gene therapy

The Center for Devices and Radiological Health (CDRH) is responsible for thepremarket approval of all medical devices, as well as overseeing the manufacturing,performance and safety of these devices

1. Adulterated refers to th ose in which the "standard of strength, quality, or purity" of the active ingredient was not either stated clearly on the label or listed in the United States Pharmacopoeiaor the National Formulary

Bureau of Chemistry created from the 1906 Food and Drug Act, enforcing prohibition ofinterstate transport of adulterated1 / misbranded food and drugs

Agency reorganized to the current day Food and Drug Administration in 1927 The agency's powers were reinforced in 1938 with the Food, Drug, and Cosmetic Act, in

which the FDA was mandated with pre-market safety review of all new drugs this lawremains central to the agency's current regulatory authority

Creation and

authority

Current responsibilities include regulating and supervising food safety, prescription andover-the-counter pharmaceutical drugs, biologics, vaccines, medical devices, dietarysupplements, tobacco products, blood transfusions, electromagnetic radiation-emittingdevices, veterinary products, and cosmetics

The FDA is currently led by Dr. Margaret Hamburg, Commissioner of Food and Drugs

Mission

Review of drugs

and medical

devices


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APPENDIX B: FDA STRUCTURE AND APPROVAL PROCESS

e Present FDA Organizational Structure:

Te Center for Drug Evaluation and Research

(CDER) monitors three types of drug products:new, generic and over-the-counter.

Te Center for Biologics Evaluation and

Research (CBER) regulates iologic products

including vaccines, lood, tissue, cellular and

gene therapies.

Te Center for Devices and Radiological

Health (CDRH) is responsile for the regulationof all medical devices; it also oversees the manu-

facture, performance and safety of devices and

some diagnostics.

Working through these Centers, drug and device

developers take one of four distinct approval

pathways to otain approval for their products

to enter the U.S. market.

NDA

Small molecule

drugs, includingNMEs

CDER

Scientific reviewClinical studies

Orphan Drug

Fast TrackPriority Review

Standard Review

BLA

Biologic drugs,

including NBEs

CBER/CDER

Scientific reviewClinical studies

Orphan Drug

Fast TrackPriority Review

Standard Review

PMA

Class I and Class II

devices withpredicate design

CDRH

ManufacturingstandardsClinical studies

(optional)

Original

ModificationHumanitarian Use

510(k)

Class III (riskier)

devices

CDRH

Scientific reviewClinical studiesManufacturing

standards

Original

ModificationHumanitarian Use

Drugs Devices

Note: NDA = New Drug Appl ication; NME = new molec ular entity; BLA = Biol ogical License Appl ication; NCE = new ch emical entity; CDER = Center fo r Drug Evaluation and Resear ch; CBER =Center for Biologics Evaluation and Research; CDRH = Center for Devices and Radiological Health

Type

Review

authority

Approval

criteria

Application

types

Drug Approvals

Tere are two approval pathways for drugs to enterthe U.S. market:

New Drug Applications (NDAs) for traditional

small-molecule drugs and Biologic License

Applications (BLAs) for iotechnology products

and cell therapies. Te development process is

essentially the same for oth.

Device Approvals

For regulatory purposes, the FDA divides medical

devices into three classes. Some class I (low risk)

and most class II (moderate risk) devices require

a premarket notication to otain what is called

a 510(k) clearance. Clinical data to show safety

and ecacy are increasingly required for 510(k)


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Drug Discovery Pre-Clinical Phase I Phase II Phase III FDA Approval

Test dose response

and efficacy on ~500

patients

Test ef ficacy and

side eff ect risks on

1,000-3,000 pat ients.

Pre-NDA meetings

with FDA

File New Drug

Application (NDA)

Track patients

response and

monitor for

risky side eff ects

Post Launch

Evaluation

Assess tolerated

dosage on healthy

patients

File fo r

Investigational New

Drug (IND)

1. Particul arly fo r applications where drug is first member in cl ass, if cli nical studies involve novel clinical or surrogate endpoints, or if appli cation raises significant safety, efficacy or publicheal th issues. 2. This step does not necessarily temporally fol low meeting of the Advisory CommitteeSource: "Guidance for Review Staff and Industry: Good review management Principles and Practices for PDUFA products"

NDA review process

1 2 3 4 5 6

FDA communicates filing

review issues to sponsor

in 74-Day Letter

FDA may convene

Advisory Committee 1 to

solicit expert opinion

FDA may choose to

send Discipline Review

letter to spo nsor to

communicate problems

with the application2

FDA communicates

regulatory action to

sponsor

Applications that were

not approved and

received a Complete

Response Letter may be

re-submitted to the FDA

FDA acknowledges

receipt of application

within 14 days

Sponsor submits

application to the FDA

PDUFA goal is to communicate regulatory action

decision within PDUFA goals of:

6 months for priority appl ications and

10 months for standard applications

APPENDIX B. Overview of FDAs Drug Approval Process.

clearances, and interviews with industry executives

suggest that in a numer of cases, the Agency is

requiring increasingly complex information.

Otaining such information is expensive and

time consuming, making the process more costly

and lengthy.

Class I and II devices can e evaluated ased on

design and test data and a comparison to currently

availale technology. Tey can e cleared if they

are found to e sustantially equivalent to

[a device] legally in commercial distriution in

the United States.20

High-risk, Class III devices are not eligile forthis route to market and must undergo a full

premarket-approval (PMA) evaluation. Similar to

the process for new drug applications, PMAs call

for clinical studies and sustantial data to demon-

strate the products safety and eectiveness.

More specically, the FDA has estalished clas-

sications for approximately 1,700 dierent generic

types of devices and grouped them into 16 medical

specialties. Each of these generic types of devices

is assigned to one of three regulatory classes ased

on the level of control necessary to assure its safety

and eectiveness. Te three classes and the require-

ments that apply to them are:

Class I medical devices require the least amount of

regulatory control. Tey present minimal potential

for harm to users and are typically simpler in design

and manufacturing than Class II or Class III devic-

es and have a history of safe use. Tese devices are

suject only to general controls. General controlscover such issues as manufacturer registration with

the FDA, good manufacturing techniques, proper

20 U.S. Food and Drug Administration. Overview of DeviceRegulation. Accessed 1/13/11 at http://www.fda.gov/Medi-calDevices/DeviceRegulationandGuidance/Overview/default.htm.


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randing and laeling, notication of the FDA

efore marketing the device and general reporting

procedures. Most Class I devices are exempt from

the FDA 510(k) regulations. Tese general controls

are deemed sucient to provide reasonale assur-

ance of the safety and eectiveness of the device; orthe device is not life-supporting or life-sustaining

and does not present a reasonale source of injury

through normal usage. Examples of Class I devices

include tongue depressors, arm slings and hand-held

surgical instruments.

Class II medical devices are those for which general

controls alone are insucient to assure safety and

eectiveness and additional existing methods areavailale to provide such assurances. Special controls

may include special laeling requirements, manda-

tory performance standards and post market surveil-

lance. Devices in Class II are held to a higher level

of assurance than Class I devices and are designed to

perform as indicated without causing injury or harm

to patient or user. Devices in this class are typically

non-invasive and include: X-ray machines, powered

wheelchairs, infusion pumps, surgical drapes, surgical

needles and suture material and acupuncture needles.

A Class III medical deviceis one for which insu-

cient information exists to assure safety and eec-

tiveness solely through the general or special

controls sucient for Class I or Class II devices.

Such a device needs premarket approval, a scientic

review to ensure the devices safety and eectiveness,

in addition to the general controls of Class I. Exam-

ples of Class III devices which require a premarketapproval include replacement heart valves, silicone

gel-lled reast implants, implanted cereral stimu-

lators and implantale pacemaker pulse generators.

Device

class

Class ILow risk

Class II

Medium risk

Class IIIHigh risk

510(k)

510(k)

PMA

Clearance

Clearance

Approval

3-6 months

3-6 months

12-24 months

Source: FDA Devices Program; BCG analysis

Bandages Tongue

depressor

Scalpels

Surgical

needles

X-ray

systems

Pumps

Heart

valves

Cerebral

stimulators

Pacemakers

Appli-

cation Clinical requirements

Approval

type

Mean time to

approval Examples

Pilot Trial

Proof of g ood manufacturing standards,

correct branding and labeling

In additio n to Class I requirements,

special labeling requirements, mandatory

performance standards, and post market

surveillance

PMA submitted to CDRH fo r scientific

and clinical review. CDRH determines

endpoint of clinical testing and makes

recommendation to FDA f or f inal

approval decision

PivotalTrialPreclinical

Preclinical

Preclinical

APPENDIX B. Overview of FDAs Device Approval Pro

competitiveness and regulation-the fda and the future of america's bio medical industry

Documents