WASHINGTON -- The value of biotechnology companiesprobably will not be boosted in the near future by reform ofthe Food and Drug Administration's drug approval process. Butreforms could significantly increase the value of selectedbiotechnology stocks in the longer term, according to industryand government analysts.

The reforms, announced Nov. 13, are intended to reduceapproval times by 45 percent by 1994 for therapies againstlife-threatening diseases and by 25 percent for other diseases.

The proposals include use of contractors to conduct clinicalreviews; use of institutional review boards (IRBs) to approveinvestigational new drug applications (INDs); administrativeimprovements, including ambitious computerization goals; anddevelopment with other nations of common drug approvalstandards.

The centerpiece of the reforms is a two-track approval processthat would expedite approval of drugs for life-threatening andseverely debilitating conditions, as well as conditions for whichno therapy currently exists.

The White House Council on Competitiveness, which drafted theplan with the FDA, predicted that the reforms will cut $60million from the development cost of an accelerated drug and$28.5 million for non-fast track therapies.

Impact on Earnings Forecasts

Alex. Brown & Sons analyst David Webber told BioWorld he hasnot changed his stock ratings in anticipation of the reforms. ButWebber said he now regards the timetables projected bycompanies for product approvals "with a higher level ofconfidence."

Investors should make their decisions based on thefundamental outlook for companies, and the projectedlikelihood and timing of FDA approval of their products,Webber said. "They should regard the potential that things willmove more quickly as the upside potential," he said.

"I think the new regulations will have a very small impact onbiotechnology products, because they have already been goingthrough the approvals process very quickly -- all of themwithin a year to 15 months," said Merrill Lynch analyst StuartWeisbrod.

"Biotechnology products treated as drugs tend to get throughthe system pretty rapidly because they are interesting andthey excite people," agreed Dr. Bruce Burlington, deputydirector for medical affairs at FDA's Center for Drug Evaluationand Research. "Frankly, most of these reforms are directed atthe traditional pharmaceutical sector."

The impact on the overall biotechnology industry may be"modest," said John Wilkerson, chairman of the WilkersonGroup in New York. But it could cause the value of companieswith good quality management and science, and a fast-trackcandidate product to increase by as much as 100 percent.

"Company formation will evolve around plans for a potentialfast-track drug," said Wilkerson.

More-established companies "that still need frequent infusionsof money will certainly consider shifting some of their actiontoward fast-track drugs," he said. However, companies thataccelerate spending to be the first to market with a productmay experience greater losses, so "the impact on financials willnot necessarily be positive in the short term," he added.

"But on the basis of time value of money, it is anextraordinarily attractive situation, and it will cause investorsto invest more money in biotechnology companies," hepredicted.

Speed of Implementation Uncertain

Many analysts are hedging predictions until they can see howfar and how fast the FDA moves to implement the reforms. Theagency is drafting new regulations, but has not yet taken anyaction to implement them because it is "too early," Burlingtonsaid.

Stumbling blocks that may limit implementation includeobtaining sufficient funds to computerize the entire FDAapprovals process, the threat of congressional action to blocksome of the changes, reluctance of IRBs to participate, andpitfalls in the process required to harmonize international drugapprovals.

Computerization is a key element of rationalizing the entireprocess, but an expensive one that will require additionalappropriations, Burlington said. Although supplementalappropriations for fiscal 1993 are possible, he said, this willhave to wait for the fiscal 1994 budget, which takes effect inOctober 1993.

Some reforms, such as expanded use of FDA advisorycommittees, can be implemented immediately. New regulationsmust be drafted for others, such as the accelerated approvalsprocess. These are submitted to the Department of Health andHuman Services, reviewed by other agencies, then published inthe Federal Register for public comment before they can befinalized.

The FDA has started the process, submitting draft acceleratedapproval regulations to HHS, said agency spokesman BradStone. And Burlington noted that the FDA already has takensome steps to accelerate approvals by using "a more forgivingapproach" to the use of some surrogate markers in clinicaltrials.

A task force is being assembled to draft regulations allowingIRBs to review preclinical studies and assume responsibility forgranting INDs, Burlington said. However, IRBs have not shownmuch enthusiasm for this reform, and Burlington said he doesnot expect implementation to occur in 1992. "Our presumptionis that the IRBs don't like the liability implications," he said.

Work has also started on regulations that allow outsidecontractors to conduct clinical reviews, and the FDA has"drafted a couple of policy and procedure documents,"Burlington said. Before this reform can be implemented, theFDA must draft memos of needs, and scope of work andRequest For Proposal documents, which is "a fairly significanttask. It is hard to predict how much difficulty that willinvolve."

Congressional Involvement Looms

Some of the reforms will require new laws. "Changing theregulations is feasible, but if it's going to require a change inthe law, that will be more difficult," said John Hazard, consumersafety officer in the office of the director of the Center for DrugEvaluation and Research.

Harmonizing drug approvals with foreign countries andappropriating more money for the FDA will require legislation,and will not be finished in 1992, Burlington said.

Members of Congress have served notice that they aremonitoring progress of the reforms and are consideringintervening. In a letter to FDA Commissioner David Kessler, Sen.Edward Kennedy, D-Mass., and Reps. John Dingell, D-Mich., andHenry Waxman, D-Calif., expressed concern that the reformsrepresent "thinly veiled efforts to weaken the agency" and"could permit commercial interests to override the objectivitythat is essential in evaluating drugs."

The letter singled out use of private contractors to reviewdrugs, harmonizing drug approvals with foreign countries, andthe use of IRBs to review INDs as "particularly troubling." Thelawmakers asked the FDA not to implement these reformswhile the three members of Congress evaluate them.

The administration has not responded to the letter, Burlingtonsaid, "so we don't know what is going to happen."

"I think probably the most critical issue here is politics," saidJack Reich, Gensia Pharmaceutical Inc.'s vice president ofregulatory affairs. "Can the Bush administration push thisforward, or can the strong Democrats in Congress, whotraditionally control FDA regulations, successfully slow thisdown, or even do away with it, because it takes the impetusaway from the Democrats?"

Improvements Without Reforms

In the meantime, deciding whether to earmark more resourcesfor drug evaluation and whether to fill the position of directorof the Center for Biologics Evaluation and Research, which hasbeen vacant for two years, "are likely to have a moresignificant impact on the biotechnology industry than any oneof the reforms," Burlington said.

The center evaluates and licenses biological products, andconducts limited amounts of basic research to supplement itsability to review new technologies.

Appointing a director and a deputy director for the Center forBiologics, as well as a director for the center's importantDivision of Blood and Blood Products, would "give morecohesiveness and stability to the center," said FDAspokeswoman Faye Peterson.

-- Kris Herbst BioWorld Washington Bureau

(c) 1997 American Health Consultants. All rights reserved.