Thursday, May 20, 2010

Shining Sunlight Into The FDA's Black Box

Cross-posted from The Science Business on

Investors and companies frequently refer to the FDA’s review process as a “black box.” But some of that may be changing. Yesterday, as part of the President’s Open Government Initiative, the U.S. Food and Drug Administration unveiled 21 draft proposals designed to improve the agency’s disclosure policies. Many details still need to be fleshed out, but overall, the effort could be a substantial step forward in improving the openness of the FDA review process.

The FDA’s current approach is to disclose almost nothing about its interactions with pharmaceutical and drug companies. This stems from the honorable intention of not wanting to disclose companies’ proprietary trade secrets. But the FDA has gone too far in the other direction, harming the public, investors, and the companies themselves.

The new proposals would change all that. If enacted, they would require the agency to disclose, among other things: the “identified safety concern” associated with a rejected new drug or device application; “the reasons for issuing” a refuse-to-file or complete response letter rejecting an application; “relevant summary safety and effectiveness information from…an application” at times “when FDA believes it is necessary to correct misleading information” about the drug or device application. Put simply, the FDA would not only disclose that they had rejected an application, but why.

The why really matters, because it is the only way for investors, and for other companies, to understand the rationale for the FDA’s often puzzling decisions. Describing why the FDA decided to reject what seemed to be a qualified application will help everyone. It will help other companies avoid the applicants’ missteps, limiting unnecessary failures; it will reduce the likeliness of arbitrary decisions by the FDA; and it will eliminate the temptation for some companies to misrepresent their standing with the agency.

That last bit is important. Today, when things go wrong for a company at the FDA, the public is reliant on the company to explain why things went wrong. Most companies are honest (if vague) in describing their interactions with the FDA, because they know that misrepresenting them would incur the agency’s wrath. But there are exceptions, especially when companies are desperate to prop up their shares (and raise money from investors at the inflated price).

Take a small biotech company—let’s call it Forbigene—that has just received a “refusal-to-file” letter from the FDA. Unbenkownst to investors, the letter reminds the company that the agency has been telling them all along that there are serious problems with its phase III clinical trials, and that the company has to start new ones from scratch. Forbigene’s stock goes down 30%. Instead of coming clean, the CEO tells investors that it simply needs to clean up a few details from its existing trials in order to keep everything moving along. Some investors buy Forbigene shares, thinking the market has overreacted to the bad news. Eventually, the real problems are leaked to an industry newsletter, the shares take another 80% tumble, and the company eventually goes broke.

When these things happen, bad CEOs aren’t the only ones hurt. Honest companies also suffer from this lack of transparency, as investors have no way to independently verify their claims that their relationship with the agency is on solid ground. Investors always try to avoid risk, but they especially try to avoid risks that they can’t independently assess. And when investors can’t assess that risk—such as with Genzyme’s manufacturing problems—everyone suffers.

More disclosure of the FDA’s decision-making process would also help the public (and companies) gain insight into controversial decisions, like the agency’s recent rejection of Intermune’s Esbriet. While the FDA does frequently give guidance as to what it seeks from clinical trial packages, this guidance can be further fleshed out by learning of its rationale for approving or rejecting certain drugs. Companies and investors can direct their resources into programs that fit with the FDA’s approach. Patient advocates can challenge that approach when they find it overly restrictive.

Transparency is not a panacea. But the FDA’s lack of it has long been a source of frustration for patients, companies, and investors. Progress may be close at hand.

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