After Kennedy, Who Will Lead the Senate HELP Committee?

We mourn the passing of Senator Kennedy. He had something others admire, but can rarely duplicate. He was--often simultaneously—a formidable ideologue and the first to create a bipartisan bridge over troubled Senate waters. The health reform debate has suffered greatly from the absence of his commanding personality and his sense of how to make a deal (and make it stick).

Sadly, we are already involved in the game of guessing who will be the new chairman of the Senate Health, Education, Labor and Pension (HELP) Committee. I have also started to think about the possible impact on the FDA.

No one knows who will be the new chairman, despite a lot of instant analysis. Seniority on the committee is fixed, but every potential successor would have to give up something important.

Senator Chris Dodd has "right of first refusal" and has enjoyed his role leading the HELP committee on health care reform. He would certainly want to be chairman, except he would have to give up his chairmanship of the Senate Banking Committee, of obvious importance to his home state of Connecticut. Facing a very rough re-election campaign, commentators have been divided over whether he benefits from leaving the Banking committee and distancing himself from the near-collapse of the financial industries...or whether he should stay chairman and be the leader on re-regulating them.

Senator Tom Harkin is next in seniority. To take over HELP, he would have to give up the chairmanship of the Senate Agriculture Committee, of obvious importance to his home state of Iowa. He already heads the Appropriations subcommittee responsible for much of the labor and health care programs within the HELP jurisdiction. To have both positions would be incredibly powerful. Some commentators have said that Harkin isn't interested, but the better view is that he will need to assess the political consequences of changing chairmanships.

If Dodd and Harkin say "no," Senator Barbara Mikulski (MD) is next in line. She is also the most senior member of the Democratic Caucus who is not a full committee chair. It is widely assumed that she would happily take over the HELP committee. I think this is right, but at least one commentator has suggested that this might make it more difficult for her to eventually chair the appropriations committee, where she is fifth in seniority.

If this goes past Senator Mikulski, the next most senior member would be Senator Jeff Bingaman (NM), who would have to give up his chairmanship of the Energy and Natural Resources Committee. There are other Senators on the list after that, but the Majority Leader, Senator Harry Reid (NV), might step in first to assure leadership positions for more senior members within the Senate.

Not being discussed at all by commentators is a brokered deal for interim leadership. The chairmanship would then be decided in the next Congress (January 2011).

None of these potential chairs present any problems for FDA. They would all be expected to support the agency. That said, priorities for FDA will eventually change with new leadership of the HELP committee. Before that occurs, the new chair will have to evolve out of Senator Kennedy's enormous shadow and into their own agenda and style. That will happen, but slowly.

Steven

Re-evaluating the Medical Device Approval Process

Earlier this year, a GAO report concluded that many high risk medical devices have not been adequately reviewed. In June, the House Health Subcommittee held the first of what may be a series of hearings on medical devices. The media appears increasingly interested in medical devices and is raising more questions.

All these events are a prelude to FDA and Congress undertaking a major re-evaluation of the product approval process for medical devices. It would be a relief if FDA could diagnose and treat its own medical device problems, leaving the Congress and the media to watch.

Whether FDA acts or Congress makes changes in law, I believe that the overall device approval process will change. Yet, it will still be recognizable to those who have worked with the 1976 Medical Devices Amendments, as further amended in 1990. During the re-evaluation process, every aspect of medical device regulation is going to be scrutinized as never before.

The stakeholders are likely to divide into two camps:

• those who think the system is fine with a few tweaks, and
  

• those who think a substantial set of changes are needed.
  

The final result is likely to be somewhere in between: more than a few tweaks, less than an overhaul.

There are multiple issues to address, such as device classification, post-market studies and surveillance, safety of devices, inspections, etc.

Setting the appropriate level of premarket review for a medical device is likely to be the most contentious issue. Under the Federal Food, Drug and Cosmetics Act (FDC Act), as amended, a device can be considered a class III device if it presents a high risk to patients and society or if it is based on a new technology. Class III devices are required to submit data on safety and efficacy to FDA. The sponsor can only market the product if FDA grants a Premarket Approval (PMA).

The vast majority of devices—including some class III devices--do not have a PMA. Some devices placed in class III under the FDC Act are based on a new technology and may not represent a high risk. In these cases, FDA may down-classify the device to class II, which are devices that represent a moderate risk.

Class II devices generally require a 510(k) Premarket Notification. Under the 510(k) process, a sponsor must show that a device is "substantially equivalent" to a device already marketed. The 510(k) is significantly less rigorous than a PMA and "substantial equivalence" has been broadly interpreted.

In April, the FDA responded to the GAO report by announcing that 25 types of class III medical devices will undergo safety and effectiveness review. After receiving information from sponsors, the agency will evaluate the risk level for each device type. Some of these devices are likely to become class II. Those devices found by the FDA to be of high risk to consumers will be required to submit PMA applications.

This makes me wonder: does FDA currently have the statutory authority to resolve most of the issues that surround the medical device approval process?

If so, FDA should evaluate issues, then act to solve any problems themselves. This would provide better assurances about the safety and effectiveness of medical devices, while avoiding the delays and drama that are inherent in the Congressional process.

This column is dedicated to the memory of Senator Ted Kennedy,

who was a champion of an effective FDA over many decades.

Steven

A Busy Year for FDA Legislation

With Congress on August recess, it is time to review and comment upon this year's FDA-related legislation, which seems more far-reaching than usual. Matched with an activist agenda from FDA's new leadership team, this could be a watershed year for the FDA.

A new law gives FDA jurisdiction over tobacco products, a massive new responsibility. It will be funded wholly by user fees. FDA is prohibited from using appropriated dollars for any tobacco activity. An announcement of a new center director is expected very soon. I discussed the tobacco center at: http://www.fdamatters.com/?p=303.

Before departing for recess, the Senate passed its version of the FY 10 Agriculture/FDA appropriations bill. Since it is similar to the House version and the President's request, it seems certain that FDA will be getting $295M in additional appropriated funds. For a change, FDA funding should be in place before the new fiscal year starts.

The legislation presages two issues that will need to be addressed during the next two budget cycles:

• ever harder questions about how new monies are contributing to improvements in the public health. FDA is conscious that more scrutiny is coming and expects to be ready.
  
• tension between funding new FDA responsibilities and continuing to strengthen the long-underfunded agency core. My recent column exploring the consequences of "unfunded mandates" imposed on the agency is at: http://www.fdamatters.com/?p=375.
  

Food safety reform is the most likely to pass of the remaining FDA legislation. The House approved its version just before recess. The Senate is likely to respond and final legislation should reach the President within 6 months.

The Congressional Budget Office (CBO) developed an analysis of the House-passed food safety bill. Because the bulk of new mandates are not effective immediately, FDA costs will not increase in FY 10 and FY 11. However, even after subtracting income from new user fees, the cost reaches $368M in FY 12, $749M in FY 13, and about $1B in FY 14.  In short, FDA needs to grow by $1 billion in the next 5 years…just to cover new food responsibilities. Because it illustrates the unfunded mandates problem, I recommend the CBO report to those interested in FDA's future: http://www.cbo.gov/ftpdocs/104xx/doc10478/hr2749.pdf.

Legislation creating a regulatory pathway for follow-on biologics (FOB) is the next most likely to pass, probably as part of health reform. While it produces 10-year net savings for governmental and private insurers, the benefit will not go to FDA. I have heard (but can't verify) that it will cost $300M to set up the new program and about $150M per year for ongoing staffing and other costs. As with food, this is not a reason to oppose (or support) legislation, it is just an ongoing concern. My most recent analysis of FOB politics is at: http://www.fdamatters.com/?p=412.

Congress is again looking at drug reimportation. Although included in the Senate version of the Homeland Security Appropriations bill in July, it is likely to be stripped out in conference with the House. The issue will come up again because there are more than 50 Senators from both parties who favor reimportation. Were it to become law, it would have significant impact on FDA operations and funding.

In addition to FOB, health reform bills include other provision that will impact FDA directly. I will devote a later column to these miscellaneous FDA provisions, as well as some thoughts on how health reform itself might impact FDA.

A watershed year for FDA? It could be.

Steven

The Best Little Chess Game in Town

One of the reigning champions of political chess, Representative Henry Waxman, has found himself in an endgame on follow-on biologics (FOB). His three decades of success have been built on extraordinary mastery of Congressional procedure, artful compromise and strategic alliances. His defeat seems unavoidable, but no one should assume that he can't yet win or draw this game.

His opponents—Representatives Eshoo and Barton, backed by former Representative Greenwood, who is head of the biotechnology trade group, BIO—have also played a masterly game. Their strategy of overwhelming numbers has made them an irresistible force, sufficient to overcome Waxman's mid-game strategy of becoming an immovable object.

The chess game is being fought over the creation of a pathway for regulatory approval of FOBs, biological "copies" that are similar to an innovator drug. While there are dozens of issues, the critical difference between the Waxman and Eshoo bills is how soon FOBs can rely on the clinical data from the innovator, rather than do expensive trials themselves. In Waxman's eyes, the innovator's data exclusivity should be 5 years, while Eshoo and Barton favor at least 12 years.

Interestingly, Waxman's position has grown weaker despite a Democratic president and larger Democratic majorities in Congress. This was not what he expected when he adjourned the game last Fall, expecting to have a stronger position in January.

Instead, Eshoo garnered a remarkable 142 bi-partisan co-sponsors this year, gained a working majority for her bill in the House Energy and Commerce Committee. In the face of this, Waxman's strategy has been to play for time---avoiding a committee vote this year, and then working for a "split the difference" compromise in conference with the Senate on health care reform.

The showdown occurred this past Friday (July 31). An Eshoo amendment was successful, 47 to 11, and FOB is now part of the health reform package in the House. With changes Representative Eshoo made in her language, the House and Senate versions are not much different, and both opt for 12 years of data exclusivity.

Chairman Waxman still has options. It is possible that FOB's will not emerge from the melding of the three different House committee versions. It is possible that the House leadership will help him keep FOBs out of the final legislation when it is considered by the House. Perhaps he and Senator Kennedy (who has wavered in his support for the 12-year exclusivity in the Senate compromise bill) will be able to appoint enough conferees who would support compromising two similar bills into one with fewer years of data exclusivity.

Given the overwhelming support in the House for Eshoo's bill, it would seem that Representative Waxman cannot prevail. However, it is not in the nature of committee chairmen to accept defeat. Henry Waxman is no exception. My advice to the biopharma industry: save any victory celebrations until the chairman has run out of options and concedes the game. It may take longer to get there than you expect.

Steven

PS. I have written twice before on follow-on biologics:

• June 23 on the nature of the FOB marketplace and the failure of the FTC's analysis to capture the market dynamics that will exist 10 years after enactment. It is at: http://www.fdamatters.com/?p=338.
  
• July 5 about the politics of FOBs and predicted a fascinating summer as legislation moved forward. It is at: http://www.fdamatters.com/?p=358.
  

GAO Hits a Home Run

On July 20, the GAO released its study, "FDA Faces Challenges Meeting Its Growing Medical Product Responsibilities and Should Develop Complete Estimates of its Resource Needs."

FDA's world has changed considerably since the report was requested. Some aspects of the report describe problems that are known and already being addressed. In other important regards, the report is extremely valuable. It will be widely cited and may be instrumental in creating positive changes at FDA.

The GAO started its research using the FY 2008 funding levels as the latest available figures. Subsequently, FDA received a $150M supplemental appropriation in FY 08 and a $325M increase in FY 09. It looks like the agency will get another $295M increase for FY 10. Over this period, the FDA will also have benefitted from a significant increase in user fees.

Therefore, using FY 08 funding levels gives a distorted picture of the FDA situation today.

Further, the new Administration has joined Congress in acknowledging the critical importance of FDA. They have committed to addressing the agency's many management and programmatic needs. When Congress requested the report, it was looking for GAO to build the case for better management, stronger fiscal controls and higher productivity in the medical product area. In 2009, neither FDA nor Congress need to be persuaded.

If increased funding has changed FDA's financial and programmatic situation....and the new Administration is already undertaking management initiatives, why is the GAO report so important?

The report's primary value is that the GAO has:

• developed the issues list,
  
• compiled the data,
  
• done the analysis,
  
• drawn the conclusions and
  
• made the recommendations.
  

They have been thorough in their work. Their views represent neither an ideological Congress nor a self-serving agency. Never mind that Congress has not been ideological in its concerns about FDA management. And that FDA has not done a good job at being self-serving. To the question "who says," there is a better, highly credible answer: "GAO does."

In the process, GAO has boosted some important FDA program needs and inched forward on some more difficult items. For example, FDA needs a major infusion of monies—well beyond what it's getting—to upgrade and disseminate information technology. The agency may not have enough people to review adverse events reports, but merely hiring more people cannot solve this problem. Only an IT solution can make this labor-intensive work more productive and valuable. Also, the report documents the growing demands on the agency from new legislative mandates and the difficulties in retaining staff.

At the same time, GAO "damns" user fees with faint praise about how it has given the agency flexibility and prevented it from falling further behind. In effect, GAO re-raises the difficult issue of public funding versus user fees. Nothing more is needed to start a debate…if someone wants to have one.

In sum, FDA and Congress are already working on many of the issues and recommendations contained in the new report. GAO's credibility and thorough analysis will make these efforts more productive and contribute to a stronger and better FDA.

Steven

The GAO report can be found at: http://www.gao.gov/new.items/d09581.pdf.

Unfunded Mandates Threaten FDA

FDA is finally moving toward a funding level that will strengthen the agency's core functions. In FY 08 and 09, the agency received more than $600M in new funds. FY10 is on track for another $295M. The FDA can use all this, and more. It is a vast improvement over a string of years where annual increases were closer to $50M, far less than the amount needed to break even with inflation.

With all this good news, there are still a few storm clouds that could rain on FDA's parade. The darkest of those clouds is the threat of unfunded mandates that could result from current Congressional initiatives.

Congress has already passed new tobacco legislation, which will be funded by user fees. Also under consideration are food safety reform (likely), follow-on biologics (probable), and drug reimportation (possible). Each of these three will require funds from FDA's budget.

I don't know how much it will cost to implement food safety legislation or to bring an entire new approval process into existence (follow-on biologics). Both will be expensive. Reimportation is less likely to become law, but will be very costly if we are to preserve a safe drug supply. Commenting on the overall situation, Chairman Waxman has said: FDA should not be set up to fail by being given new responsibilities without new monies for implementation.

The simple but hard question is: will Congress back new FDA responsibilities by giving the agency substantial additional funding? If not, FDA's improved budget situation will evaporate in the face of these unfunded mandates.

If new responsibilities add $250M to FDA's costs and the Agency gets a $300M increase, then that leaves only $50M for strengthening FDA's core programs and responsibilities.  The agency would be back where it was 3 years ago, when it was consistently receiving appropriations that were less than the 6% annual increase in agency costs.

The threat of unfunded mandates is real, but the time for Congress to act has not arrived. The appropriations bills are not supposed to fund legislation before it becomes law.

If any of the proposed legislation passes quickly, then there may be time for House-Senate conferees to add monies into the FY 10 agriculture appropriations bill. More likely, the vehicle would be supplemental appropriations bills for FY10. The first of these is likely to be late this year or the beginning of next year, making the absence of action at this point understandable.

Still, it would be nice to know that authorizers and appropriators appreciate the problem of unfunded mandates and are talking with each other about it. The key chairs--Representatives Waxman and DeLauro and Senators Kennedy and Kohl—need to see the emerging situation as critical to FDA's future.

Otherwise, unfunded mandates threaten and may destroy the successful effort to rebuild and strengthen FDA.

Steven

PS: Two important footnotes:

• I have taken no position on the merits of any of the legislation being considered by Congress. My sole purpose in this column is to make sure that funding keeps up with responsibilities.
  
• The opinions expressed in FDA Matters are my own. However, readers should know about the Alliance for a Stronger FDA, which has been the leading advocate for increased FDA funding. It is a 180-member, multi-stakeholder group that includes patient groups, consumer advocates, health professions organizations, trade associations and companies. It is also backed by three former HHS secretaries and six former FDA commissioners. I am one of the founders and serve as the deputy executive director. For more information about the Alliance, contact me at sgrossman@strengthenfda.org
  

Follow-on Biologics and the Dance of Legislation

Political scientists love to watch the dance of legislation. FDA watchers are eager to see how thorny agency issues will be decided by Congress. Both will be fascinated by the latest moves and turns in Congressional consideration of legislation on follow-on biologics (FOB).

I can't recollect an instance in which a House chairman faced such massive bipartisan opposition. But never count House Energy and Commerce (E&C) Committee Chairman Henry Waxman out. He has made a career of not having enough votes… and winning, anyway.

Mr. Waxman is proposing generics-friendly legislation (HR 1427). As the committee chair, he is well-positioned. Plus, he has 12 co-sponsors, including the chairman (Pallone) and ranking minority member (Deal) of the health subcommittee. Usually, this is enough to win outright or with only modest compromises.

But Waxman is in a stand-off with committee member and fellow Democrat, Representative Anna Eshoo. Her bill (HR 1548) is considered friendly to the biotechnology industry. She is joined by the ranking minority member of the full committee (Barton). Together they have amassed an extraordinary 108 bi-partisan cosponsors. This is one-fourth of the House's total membership!

Representative Eshoo has the momentum, having added 50 co-sponsors since April 15, compared to 2 for Representative Waxman. Further, Waxman is under pressure to include follow-on biologics in the health reform bill mark-up, duplicating the legislative situation in the Senate.

Chairman Waxman is reportedly resisting any effort to move legislation on follow-on biologics. He lacks the votes to prevail and must stall for enough time and leverage to work his political magic.

On the Senate side, Chairman Kennedy is sticking with a two-year old bipartisan compromise, which is much closer to the Eshoo position than to Waxman. He has put the FOB bill into the health reform legislation being considered by the Senate HELP Committee this month.

Enter the generic drug industry, Senator Schumer, and the AARP...and the Senate plot thickens.

The generic drug industry chose not to make a deal in 2008—in the reasonable belief they would do better with a Democratic Congress and President. They are hoping to retrieve the situation with Senator Schumer, who has introduced the Waxman bill in the Senate (S 726). His bill (and seven bi-partisan co-sponsors) assures that the Kennedy bill will not move forward without visible dissent. Meantime, the AARP reportedly told Senator Kennedy's staff that they will not support the HELP committee's health reform bill unless the FOB portion is modified to be more like the Waxman-Schumer bill.

The most contentious issue in both Houses is the length of time during which innovator companies can prevent a FOB from being approved based on the innovator's research. This so-called "data exclusivity" should not be confused with the far-more-desirable "market exclusivity," which is not part of any bill.

In round numbers, Waxman is proposing 5 years of data exclusivity, Eshoo 14 years and Kennedy 12 years. There is no objectively correct number—just differing beliefs in how much time is needed to make sure that the growth of an FOB market doesn't reduce incentives for innovation. An average of the three numbers suggests a compromise of about 10 years.

Enter the Federal Trade Commission and the White House…and the whole plot thickens further.

The FTC analysis—featured at a House hearing and widely covered in the media—contends that no data exclusivity is needed to preserve incentives for innovation. Now there are four numbers and the average is 7.5 years. Last week, the White House jumped in to officially advocate for 7 years.

The endgame on data exclusivity is becoming clear. It will be between those who will accept seven years and those who will insist on at least 10 years. Even knowing this, it is hard to tell whether and when the logjams will be broken in the House and Senate.

The unfolding politics of FOBs are going to make for a fun summer and may creep into football season! Someone is likely to score a touchdown (or learn to dance the tango)!

Steven

The Follow-on Biologics Market

Since the debate began several years ago, the policy and politics of follow-on biologics (FOB) have been driven by assumptions and projections of the anticipated market. In my opinion, there has been a lot of fuzzy thinking about what type of companies will be players and how they will position themselves. The Federal Trade Commission report, released last week, is just the latest illustration.

My own analysis suggests there will be multiple market entrants vying for market share and creating price competition. It will take some patience until we get there, but it will happen. In this environment, it will be important to stimulate investment in new, innovative biological products. Without reasonable time to recoup costs, new product development will slow.

I started to think about the nature of the FOB market last year when predictions about FOB's started to jar my sensibilities. The FTC's report is just a larger platform for advancing questionable analysis. There are two economic principles that are central to understanding the issues.

First concept: shadow pricing. The first generic drug is usually priced about 20% to 30% below the innovator product. The innovator doesn't compete on price because they know that the generic will be continuously re-priced to stay the same increment below the innovator's price. This is called "shadow pricing." As each new entrant joins this market, competition erodes this structure until prices fall significantly. FTC believes that there will only be one or two competitors in each segment and shadow pricing will limit price competition.

Second concept: barriers to entry. Generally speaking, the more it costs to be a part of a market, the fewer players will enter it. At this moment, generic drugs have a low barrier for entry. In contrast, the FTC believes that there will be significant barriers to entry in the generic biologics market. Only the largest biologic products will draw any competition. And only a handful of companies will develop FOB's because of the expense of putting together a safe and effective product, combined with the $250M to $1B estimate for a new facility to make these products.

There are two significant errors in the FTC analysis. First, FTC fails to recognize the generic drug market evolved into what it is today because of the way it was structured in 1984. The key Hatch-Waxman trade-off--additional patent protection for market access for generics—has worked extraordinarily well. If FTC had made the same comments in 1984, there would be neither an innovative pharmaceutical industry nor a booming generic drug industry today.

Second, FTC fails to account for the likely impact of innovation in the FOB marketplace. For example, more refined methodologies will evolve for characterizing biologics. Ways will be found to build facilities less expensively and to streamline production.

FTC states that lack of interchangeability and direct substitution will limit market penetration for FOB's. The problem with this viewpoint is that the market is already saying otherwise. Teva and Sandoz (Novartis' generic subsidiary) will be in the FOB market from the beginning. Merck, J&J, Pfizer, Amgen and others are positioning themselves to join within a few years. All are well-financed and have experience competing in crowded markets. Why would they commit billions to a market that can't be penetrated?

Over time, innovation will bring costs down. Competition will bring prices down. It seems unlikely that shadow pricing and high barriers to entry will characterize the FOB market in ten years.

My vision of a multi-player FOB market with price competition does not answer the question: how much intellectual property protection is needed for innovators? It does say the FTC is wrong to argue for none.

Steven

FTC's testimony to the House Energy and Commerce Committee is at:

http://energycommerce.house.gov/Press_111/20090611/testimony_harbour.pdf.