Sally C. Pipes

President Obama has been on an "innovation" binge these days. Since the start of the year -- when he mentioned "innovation" nine times in the State of the Union -- the President has celebrated "Innovation Week" and released a 76-page " Strategy For American Innovation."

Why, then, are his policies doing so much to undermine his rhetoric?

A case in point is medical innovation, an area where the United States is unrivaled. Whether it’s the newest flu vaccine, the most effective arthritis pain reliever, or the medications that helped turn the HIV/AIDS epidemic of the 1980s into the contained, survivable disease it is today, the American pharmaceutical industry has led the way. Across the board, Americans survive most illnesses longer and recover faster and more safely than anyone, anywhere. The reason for this is simple: here, people have access to the best, most advanced medical treatments in the world.

It can cost over a billion dollars and take more than 10 years for a new drug to reach the marketplace. For every promising treatment that pans out, hundreds fail along the way. Innovation in pharmaceuticals is not automatic, though; rather, it’s the product of an incentive structure that rewards the high-risk undertaking.

It’s the incentive structure the Obama administration is threatening to undermine, both directly and indirectly.

Innovator pharmaceutical companies invest billions in research knowing that if they win FDA approval for a treatment, they will have a period of time in which they alone will be able market the product. This protection for innovators basically takes two forms. First is a patent on the treatment. Second is a period of “data exclusivity,” in which would-be copycatters, in their own requests for FDA approval, may not make use of the clinical trial data of the innovator. The latter protection is especially important when development takes a long time, as it often does with biologics, the revolutionary treatments stemming from recombinant DNA technology.

In his 2012 budget, Obama proposes to shorten the data exclusivity term for biologics from the current 12 years to seven years. This means that the innovator drug companies will have five fewer years to recoup their investment costs before an army of lower-priced copycats arrives on the scene. That’s bad for innovation. If the administration gets its way, there is no doubt drugmakers will begin to funnel resources toward safer, less expensive endeavors and away from the type of pathbreaking research that, though risky, often results in the greatest reward.

The FDA’s own actions are also jeopardizing innovation. In fact, they are endangering American lives as well. We have already seen a significant drop in the number of drug approvals granted: phase 1 clinical trial approval rates currently run 1 in 10, compared with 1 in 5 before 2004). Even worse, though, is what looks unmistakably like the Obama FDA's foray into health care rationing.

Avastin, a cutting edge biologic that cuts off blood supply to tumors, has been at the center of a high-profile battle with the FDA since the agency granted the drug approval for treating breast cancer in 2007.

Based on its performance in several clinical trials, Avastin was shown to promote months and in some cases years of "progression free survival" in late-stage breast cancer patients. In spite of this and the fact that it is prescribed annually to 17,500 women for breast cancer, last December the FDA reversed its decision and revoked Avastin's approval.

One reason for the reversal was likely Avastin's high price tag, as it costs about $8,000 per month. Without FDA approval as a breast cancer treatment, insurance companies are unlikely to pay for it, leaving the women who depend on it on their own. The FDA's final decision on Avastin will come this summer, after the drug's manufacturer exhausts its appeals.

To mask its intentions, the FDA changed its metric for approval mid-deliberation. In 2007, prolonging life was the standard; in 2010, prolonging life for a "clinically meaningful" period of time replaced it. What that duration of time is, specifically, the FDA failed to mention in its decision.

This unilateral and subjective switcheroo has drugmakers concerned. Should they be sinking billions into future Avastins only to find FDA approval revocable on rationing grounds?

Moreover, under the FDA’s fast-track approval process, preliminary research can green-light a drug contingent on its developer submitting follow-up research confirming the original findings. What’s now to stop the FDA from changing metrics in the middle of fast-track approvals as well?

If the president is as committed to innovation as he claims, he could start by looking at the ways his own proposals and his own bureaucrats are undermining it.


Sally C. Pipes

Sally C. Pipes serves as a health care advisor to The Rudy Giuliani Presidential Committee. She is President and CEO of the Pacific Research Institute. She is author of Miracle Cure: How to Solve America’s Crisis and Why Canada Isn’t the Answer.

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