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The FDAA: Food Drug & Accounting Administration

FDA
CNBC.com
FDA

Amid the ongoing healthcare reform brouhaha, pharma stocks are getting buffeted.

On the one hand, an editorial in "The Wall Street Journal" today signals trouble could be ahead. On the other hand, Leerink Swann, which specializes in healthcare industry equities coverage, is out with a research note to clients today saying the sector could have a relief rally if/when Washington gets its act together. "Valuations & Clarity on Healthcare Reform Offer Attractive 2H09 (second half of this year) Trading Oppt'y (opportunity)," analyst Seamus Fernandez titles the piece. Bolstering that case, I just watched a healthcare fund manager on CNBC's "Squawk on the Street" argue that in the end a moderate plan will get passed and if/when it does the stocks should go up.

The WSJ editorial also talks about the industry's declining return on investment. But to try to relieve the cost burden on biopharma companies, especially little ones, the Food and Drug Administration announced a couple of new rules yesterday designed to make it easier for desperate, seriously ill patients to take promising, but unapproved drugs. Estimates vary, but it costs around a billion bucks and 10 to 15 years to bring a drug to market. So, the FDA is creating a pathway for cash-strapped companies to possibly get the agency's permission to charge patients who take an experimental drug. People who would get special access to use a treatment outside of a clinical trial might have to pick up drug and administrative costs. But the criteria would be much more stringent for companies that want to petition the agency to charge patients who are in a clinical trial. And if they got permission to do that, they'd only be able to recover the cost of producing the drug.

On a conference call with reporters an FDA official said, "This will be a judgment call for us. They (the companies) will have to convince us, give us financial information that the drug would not be developed without us allowing the charging to occur. They will have to supply documentation that they're not charging for more than the cost of the drug and the cost of administering the program." So, biopharma companies are presumably going to have to open their books for the FDA? Some biopharma companies have a hard enough time dotting all of their i's and crossing all of their t's in huge applications and data submissions for FDA approval of a drug. No, their 10-Qs will have to be part of the addendum? And the agency has had well-documented staffing and budget problems. The industry often complains about drugs not being approved in what it sees as a timely manner alleging the FDA is overwhelmed. So, now on top of trying to handle the all-important job of reviewing drug efficacy and safety data the FDA will need to bring financial accountants on board to comb through companies' balance sheets?

This is a work in progress, though. At the start of the call FDA Commissioner Dr. Peggy Hamburg said, "These rules, while important, are not the end of the efforts to address the important issue of patient access to investigational medications."

Questions? Comments? Pharma@cnbc.com and follow me on Twitter at mhuckman