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Risky Drug Business
Richard A. Epstein, Wall Street Journal, 4-24-07

Epstein, a law professor at the University of Chicago, analyzes new Congressional legislation that reauthorizes the Prescription Drug User Fee Act.

Sen. Edward Kennedy fired the latest shot in the battle over pharmaceutical regulation last week with the introduction of his FDA Revitalization Act. And, surprisingly, those who want to speed up the drug approval process will cheer the centerpiece of his bill: A "Sense of the Senate" that declares the Prescription Drug User Free Act (PDUFA) a success.

PDUFA, which was first adopted in 1992, uses funds from a tax on drug companies to speed up FDA internal procedures. Set to expire in September, Sen. Kennedy's support for it now is an indication that the Senate will not get hung up on the criticism that has emerged in the past—that it turns the agency into a tool of the drug industry. PDUFA does not guarantee drug approval, which continues to be judged under regular agency rules. But on average it has shortened the unfortunate (and deadly) delays in reviewing new drug applications by six months. And it has done so without reducing the quality of the approvals.

One indication of Sen. Kennedy's support for PDUFA is that his new legislation proposes raising fees on drug companies by over $100 million, for a total of $393 million a year. It would be better if Congress instead increased its direct appropriation to an FDA that it saddles with ever more obligations. Any additional outlay would likely be made up by additional tax revenues brought in by new drugs making it to the market. But, alas, Congress is better at tightening bottlenecks then forcing new products through them. So better PDUFA than nothing.

Sen. Kennedy's Revitalization Act also delves into the vexed relationship between FDA approval and patent life. Right now, patent law gives drug companies 20 years of exclusive use on patented pharmaceuticals. But large chunks of those two decades are chewed up in clinical trials and the approval process. Congress tried to address this problem in 1984 with the Hatch–Waxman Act, which restored some lost time by extending patent life one day for each two days lost in the approval process, up to a maximum of 30 months. The Best Pharmaceuticals for Children Act (BPCA) also allows drug companies to add an extra six months of exclusivity for testing for drugs used by children. Six months may not sound like much, but for a blockbuster drug with over $1 billion in annual sales, it generates substantial revenues for relatively little additional work. Sen. Kennedy's new statute proposes to renew BPCA, but would limit it to only a three–month pediatric exclusivity period for blockbuster drugs.

Mixed emotions are in order. The critics rightly chide extra periods of exclusivity as "windfalls" to pharmaceutical companies, even if they shrink at funding additional studies at government expense. Their pointed criticism, however, ignores the reduced value of the 30–month Hatch–Waxman extension. The cycle of clinical tests is growing ever longer, so the protected patent period for marketing most new drugs is now under 10 years. The proper response therefore both trims the six month period BPCA and expands recoverable time under Hatch–Waxman for all drugs, to revitalize the flow of new drugs.

Project FDA.
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