Cutting Regulatory Red Tape?

By Gail Dutton, Contributing Writer
Follow Me On Twitter @GailLdutton

There is a growing sense among life science executives that regulators, including the U.S. Congress, are schizoid, promoting innovation amidst policies that stifle R&D and investment. Even a cursory look at the U.S. regulatory situation reveals a Kafka-esque environment of conflicting, sometimes outdated, regulations that drain investment funds and make it unnecessarily difficult to conduct efficient business.

Corporations, consequently, are investing abroad. Speaking at January’s J.P. Morgan Healthcare Conference in San Francisco, Rob Friel, Perkin Elmer chairman and CEO, said, “We’re doing a lab relocation right now,” citing an overregulated U.S. environment as a compelling reason to move the lab to Asia. Attractive tax policies are another lure. As Doug Berthiaume, chairman, president, and CEO of Waters Corp., says, “Most of our cash is offshore. If low [U.S.] corporate taxes come to fruition, it would force us to think about how much of our operation was located abroad and in which countries.”

The federal government, finally, is beginning to recognize the consequences of over-regulation and is starting to listen to business leaders. President Obama signed an executive order January 18 instructing federal agencies to develop a plan to identify rules that place an undue burden on businesses and that stifle economic growth and job creating. As he wrote in an op-ed in the Wall Street Journal, “It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules.”

A few weeks earlier, Rep. Darrell Issa (R) of California, chairman of the House Oversight and Government Reform Committee, queried 150 business leaders, trade organizations, and think tanks to identify regulations that make it difficult for businesses to grow and that limit U.S. competitiveness.

Rethinking Going Public
“The problem with government is that it is reactionary,” notes Roger Flugel, CEO of TheraVida and principal at Sanderling Ventures. For example, the Sarbanes-Oxley (SOX) Act became law in 2002 in response to the Enron and Arthur Anderson accounting scandals, but it drowns small companies in paperwork. “Meeting all the requirements of SOX is very expensive, costing a small company, on average, $1.7 million per year,” Flugel estimates. That, coupled with other requirements, makes going public cost-prohibitive for many companies. “So,” he says, “investors rethink going public,” instead pursuing other arrangements that delay an initial public offering or that provide shareholder liquidity through merger or acquisition.

Beyond SOX, though, Flugel says he is frustrated by the regulations regarding Small Business Innovation Research (SBIR) grants. “Basically, there’s a requirement that no more than 50% of the company, in terms of ownership, can be held by venture capital or institutional investors.” Therefore, a one-to-one teaming of scientific innovators with venture capital investors is frequently considered not to be a small business under current SBIR guidelines. Consequently, such startup companies often are ineligible for a very important source of early-stage funding.

A Lack Of Regulatory Clarity
Executives generally dismissed financial regulations like SOX and federal grant challenges as “business as usual.” It took the FDA to raise their ire. The single greatest issue — mentioned repeatedly at the Biotech Showcase 2011 — was a lack of clarity in the regulatory pathway, in the regulations themselves, and transparency among FDA divisions and personnel.

“Executives want a regulatory pathway that is well-defined so we can demonstrate good safety that allows us to move programs into clinical development,” explains Gil Van Bokkelen, chairman and CEO of Athersys, speaking at Biotech Showcase 2011 in San Francisco in January. He also calls for “clearer standards to establishing safety and efficacy once we are in clinical development, so we have clear guidelines with respect to getting products approved at the end of the day.”

According to Glenn Stiegman, VP of regulatory affairs at Musculoskeletal Clinical & Regulatory Advisers, LLC, “The 510k process [for combination devices] is a big gray area.” Traditionally, these devices were primarily metal and plastic. Now, they also may include biologics. That combination puts them under the jurisdiction of the biologics and device divisions of the FDA and requires a level of understanding regarding mechanism of action that is not always as clearly understood as mechanical behaviors.

“The FDA is investing a lot of time and energy to understand the difference between the traditional framework of how to generate small molecules and what may be required to establish new biological therapies,” Van Bokkelen adds. “Thinking about those different approaches [to biological therapies] may require different mindsets. Establishing a common guideline is important.”

To achieve that commonality, Richard Insel, chief scientific officer of the Juvenile Diabetes Research Foundation (speaking at Biotech Showcase 2011), says we first need a constant dialog with the highest levels of the agency. Regarding regenerative medicine — his particular interest — he says, “We need a more elegant response plan for risk evaluation mitigation strategies. We need to recognize that the old models of therapy development that evolved for small molecules do not apply to cell therapy.”

Novel Therapies Challenge Regulators
Additionally, the FDA must come to grips with the new cellular therapies, explains Barry Wolitzky, executive director of strategic partnering at Immune Tolerance Network. These therapies are not yet standard, challenging regulators to think differently about the approval pathways for novel therapies and the types and quantities of studies that are needed. He calls for a “creative clinical design strategy for biomarkers” as one way to speed approval of cellular therapies.

Innovative diagnostics and therapeutics also are constrained by an antiquated reimbursement strategy. For example, Genomic Health’s molecular diagnostic, OncoDx would receive a reimbursement of $540 under the code-stacking system commonly used. In contrast, the manufacturer’s code sets reimbursement at $3,450, according to the November 2010 BIO report, “The Reimbursement Landscape for Novel Diagnostics.” Likewise, Vermillion’s OVA1 immunoassay would be reimbursed at a rate of $112 using code-stacking, but at a rate of $560 using the manufacturer’s code. The BIO report concludes that the reimbursement system lacks clear expectations regarding the level of evidence necessary and requires a high and inefficient use of R&D resources.

Insel agrees, calling for “the recognition that the extreme amount of animal models that the agency demands are a waste of time and money.” For example, he explains that lab animals with spinal cord injuries have high mortality rates and require a high level of human attention to remain healthy, yet that care is not directly related to the research. In silico research, or the use of surrogates, could reduce that cost without degrading outcomes, he suggests.

Inconsistent Interpretations
With clarity should come consistency. Although different therapeutic areas should reflect different concerns, the differences aren’t necessarily logical. “For example,” Flugel elaborates, “for new antibiotic drugs to be approved, efficacy once had to be better than a placebo. Now, approval requires the new antibiotic to be statistically better than the standard of care. Why is this so for antibiotics but not for other therapies?” he asks.

More troublesome, however, are inconsistent interpretations of guidelines among people within the same division. Those differences delay product development, increase costs, and contribute to a perception that the review process may be somewhat arbitrary. Flugel also recounted the story of Dynavax Technologies’ HEPLISAV hepatitis B vaccine, which in 2008 was being developed with Merck. One patient of the approximately 2,500 individuals dosed in the study developed a case of Webener’s granulomatosis, a rare autoimmune disorder. The FDA placed the study on hold and Merck terminated the partnership. One year later, the FDA allowed the study to resume. Dynavax, however, is in the position of having to develop HEPLISAV on its own. “You can’t easily pick up where you left off,” Flugel says.

Understanding The Nuances
The FDA does need flexibility, though. “The agency has to be able to move as things change,” acknowledges Nancy Bradish Myers, president of Catalyst Healthcare Consulting, Inc., speaking at the Biotech Showcase 2011. “There is a skill to actively hearing what the agency says. Listen to nuances at the macro and drug-class levels,” she recommends. “They’re signaling what they want, but you have to have people who can step back a bit to see it.”

Companies also should learn how relevant divisions within a particular agency operate. In the medical device realm, Stiegman says many of the reviewers are engineers without clinical experience. “Therefore, their view of what constitutes the least burdensome approach is different from that of a manufacturer or clinician.” Device manufacturers, therefore, may need to provide some real-world insights.

Sometimes the differences are simply cultural. Klara Dickinson, senior VP, regulatory affairs and compliance at Hyperion Therapeutics, recalls that when she worked at the FDA her cardio-renal division would meet with companies informally. In contrast, the division she works with now, at Hyperion, is very formal. “That division isn’t open to informal dialog, but will have Type C meetings or written correspondence.”

Such differences in accessibility may be caused by the division’s workload, its turnover, and the science, but also by the director. “The director really sets the tone,” Bradish Myers says. Therefore, “Know the personality of the division, and play to it.”

A “Temporary Truce”
Flugel says the FDA is an organization in flux, charged with expanding oversight, dramatically different products, and a limited budget. And, as many drugs come off patent, the agency is seeking to determine whether its role is to approve products that work or to approve only products that offer improvements over existing therapies.

There is no answer yet to that question, nor may there be to the pressing challenges of lack of clarity and regulatory inconsistencies. Even the Executive Order to develop a plan stops short of actually mandating a regulatory review. The Heritage Foundation dubbed this a “temporary truce” in the wake of 43 new regulations in 2010 that increased regulatory costs in the United States by $26.5 billion.

Some executives are equally skeptical that any regulations will actually be removed. Demetrios Kouzoukas, attorney at Covington & Burling, noted that a similar list of unnecessary regulations was developed a decade ago at the Department of Health and Human Services, but little came of it. Likewise Berthiaume admits, “I don’t see significant changes in the world’s regulatory drug development policy.”