CHAPTER II

LITERATURE REVIEW

Introduction

 Democratic governments develop safeguards to minimize the political and big business exploitation of the public administrative process. The very core of public administration is based on the axiom that public administrators and civil servants are insulated and protected from unethical "fiduciary alliances" and associated conflicts of interest. In 1992, with the passage of the PDUFA, Congress allowed the FDA to collect substantial budgetary funds from the pharmaceutical industry. PDUFA created a fiduciary alliance between big business, public administrators, and civil servants.

The addition of FDA user fees represents a complex and multifaceted issue. There is a historical significance and multiple players to consider. Additionally, there are massive amounts of literature on the subject, and, on a daily basis, new information becomes available. A more complete literature review would be endless. Thus, this literature review represents a snapshot in time on a wide variety of issues.

To begin, this chapter looks at the modern day FDA. How the agency got to where it is today from a historical and regulatory basis is then examined. The different types of user fees, their differences, pro user fees and con user fees are discussed. The different steps to drug testing are included: everything from preclinical testing to final new drug approval (NDA). The FDA system for monitoring drug safety after the NDA process is completed is listed.

The brand-name pharmaceutical industry is a key player. This chapter looks at the history of the pharmaceutical manufacturers, drug costs, and drug industry profits. Due to user fees, the FDA has allowed direct-to-consumer advertising. Thus, this chapter reviews drug industry advertising and how advertising compares to research and development (R&D). R&D is included along with information on industry tax breaks, tax credits, patent issues, and political lobbying.

Drug safety issues are assessed. Information on conflicts of interest is included. An agency comparison between the FDA and the Federal Aviation Administration (FAA) helps to complete the picture through comparison and contrast. Finally, ethics issues are examined to help determine if the public interest is better served by financially linking the regulatory agency and the regulated industry, or is the public interest at greater risk?

 Food and Drug Administration (FDA)

 FDA's Origins

 The origins of the FDA can be traced back to 1862, when President Lincoln appointed chemist Charles M. Wetherell to head the Chemical Division in the new U.S. Department of Agriculture. In the following decade, Wetherell's successor, chief chemist of the USDA, Peter Collier, began working on the problem of food adulteration. Harvey W. Wiley replaced Collier in 1883, leading the division as it grew into the Bureau of Chemistry in 1901. The bureau was originally created to enforce the first comprehensive federal statute of its kind, the Federal Food and Drugs Act passed in 1906 (Hickman, 2003). In 1927, Congress authorized the formation of the Food, Drug, and Insecticide Administration. The name of the agency was shortened to the Food and Drug Administration (FDA) in 1930. In 1953, the FDA joined the Department of Health, Education and Welfare (HEW). In 1968, the agency became part of the Public Health Service within HEW. In 1980, HEW became the Department of Health and Human Services. Today, the FDA is a division of the Department of Health and Human Services.

FDA Responsibilities

The FDA's responsibilities derive from statutes that date back to the early 20th century. Harvey Wiley, the first FDA Director, fought long and hard to deal with serious problems in the food and drug supply. Through Wiley's crusading and with the impact of Upton Sinclair's book, The Jungle, a 1906 novel depicting the filth of the meat packing industry, Congress approved the Food and Drugs Act. Among other provisions, this law charged the Bureau of Chemistry with controlling adulterated and misbranded drugs and food in interstate commerce. After the Elixir Sulfanilamide crisis, where hundreds of people, mostly children, died from an untested elixir, Congress passed the 1938 Food, Drug and Cosmetic Act, which remains the basic law today. The 1938 law mandated that all new drugs be proven safe before marketing (Hickman, 2003).

Over the following decades, numerous amendments and other acts broadened the FDA's responsibilities. The new responsibilities included a mandate for agency testing of insulin and antibiotics, regulation of chemical pesticides and food and color additives, distinction between prescription and nonprescription medications, regulation of drug efficacy, ensuring of good manufacturing practices, control of prescription drug advertising, regulation of enforcing agents of biological origin, and oversight of nutritional labeling.

Modern FDA

The FDA ensures that the food people eat is safe and wholesome, that the cosmetics they use won't harm them, and that medicines, medical devices, and radiation-emitting consumer products, such as microwave ovens are safe and effective. The FDA also oversees feed and drugs for pets and farm animals. Authorized by Congress to enforce the Food, Drug and Cosmetic Act and several other public health laws, the agency monitors the manufacture, import, transport, storage, and sale of $1 trillion worth of goods annually, at a cost to taxpayers of about $3 a person (FDA, 2003a).

Today, the FDA is a vast organization of 15 offices, including the Office of Regulatory Affairs, the National Center for Toxicological Research, the Center for Biologics Evaluation and Research, the Center for Devices and Radiological Health, the Center for Food Safety and Applied Nutrition, and the Center for Veterinary Medicine (FDA, 2003a).

The FDA has over 9,000 employees, located in 167 U.S. cities. Among its staff, the FDA has chemists, microbiologists, and other scientists, as well as investigators and inspectors who visit 16,000 facilities a year as part of their oversight of the businesses that the FDA regulates (FDA, 2003a).

History of Federal Drug Regulation: 1902-Present

Major legislation with regard to drugs in the United States includes the following:

·       The Biologics Act of 1902

·       Pure Food and Drugs Act of 1906

·       Harrison Narcotics Act of 1914

·       Food, Drug, and Cosmetic Act of 1938

·       Durham-Humphrey Amendment, 1951

·       Kefauver-Harris Amendments of 1962

·       The Orphan Drug Act of 1983

·       The Waxman-Hatch Act of 1984

·       The Federal Technology Transfer Act 1986

·       Prescription Drug User Fee Act (PDFUA) of 1992

·       Uruguay Round Agreements Act of 1994

·       FDA Modernization Act of 1997 (PDUFA II)

·       PDUFA III

Biologics Act of 1902

A common and repeated pattern in the history of federal drug control has been the shocking event that unleashes new governmental powers. In 1901, contaminated smallpox vaccines and diphtheria antitoxins led to tetanus outbreaks and the death of several children. Vaccines, blood and blood products, extracts of living cells, and other drugs belong to a category called biological drugs. The Biologics Act of 1902 required that federal government grant premarket approval for every biological drug and for the process and facility producing such drugs. Never before had such premarket control existed in the United States. The same premarket authority was enacted for animal biological drugs in the Virus, Serum, and Toxin Act of 1913 (Miller, 2000).

 Pure Food and Drugs Act of 1906 

In 1906, Upton Sinclair's book, The Jungle, described the filthy conditions of a meatpacking plant. In the most shocking incident in the book, a worker collapses into a lard canister and is indiscriminately ground and shipped for sale. At about the same time, Chemistry Bureau Chief Harvey Wiley recruited a group of young men into "the Poison Squad." The squad volunteers ingested formaldehyde, boric acid, and other food colorings and preservatives in concentrated form. Eventually their digestive systems showed ill effects. Wiley's dramatic stunts earned him the folk name "the Crusader" and inspired popular songs about his patriotic self-poisoning disciples. The combination of the Poison Squad and The Jungle prompted Congress to pass the Pure Food and Drugs Act in 1906 (Klein & Tabarrok, 2003).

The 1906 law recognized the privately produced U.S. Pharmacopoeia and National Formulary as official standards for the strength, quality, and purity of drugs and for the tests to make such determinations. The law included provisions against "misbranding." A drug was considered misbranded if it contained alcohol, morphine, opium, cocaine, or any of several other potentially dangerous or addictive drugs, and if its label failed to indicate the quantity or proportion of such drugs. The law pertained only to labeling, not to advertising (Klein & Tabarrok, 2003).

Harrison Narcotics Act of 1914 

The Harrison Narcotics Act of 1914 placed a tax on the production, sale, and use of opium and required prescriptions for products exceeding the allowable limit of narcotics. This act also mandated increased record keeping for physicians and pharmacists who dispense narcotics. Initially passed to ensure the orderly marketing of narcotics, the act was later interpreted to prohibit the supply of narcotics, even to addicts on a physician's prescription. Under the Harrison Act, thousands of physicians were imprisoned for prescribing narcotics (Klein & Tabarrok, 2003). 

Food, Drug, and Cosmetic Act of 1938 

The Franklin D. Roosevelt administration began pressing for more FDA regulatory powers, but not much happened until the next shocking episode. A well-established pharmaceutical company, Massengill, released a new sulfa drug (an antibacterial) under the name Elixir Sulfanilamide. The drug itself had undergone a variety of quality and safety checks, but in producing a liquid form, the company failed to test the solvent. Possessing a pleasant green shade, this solvent, diethylene glycol—better known today as antifreeze—had deadly effects on the kidneys. As a result, 107 people, mostly children, died before the product was quickly recalled (Klein & Tabarrok, 2003).

At that time, the FDA could only prosecute Massengill for misbranding the product because Elixir Sulfanilamide did not contain alcohol and therefore did not fit the definition of an elixir. At the time of the elixir episode, the law did provide remedies for harm from misbranded or adulterated drugs, and Massengill was successfully sued in tort for its gross negligence (Krauss, 1996). The chemist responsible for creating Elixir Sulfanilamide committed suicide.

Within months of the tragedy, Congress passed the Food, Drugs, and Cosmetic Act of 1938. The most salient change was the requirement that manufacturers file a New Drug Application (NDA) with the FDA. The application would indicate the drug's composition, report test results on safety, and describe how the drug was to be manufactured and quality controlled. If a company submitted an NDA, it would be automatically approved in 60 days if the FDA took no action. Thus, the default position was approval; the burden of proof for departure from the default position fell on the FDA.

To some extent, the 1938 act continued the information provision requirements of the 1906 act. The classification "misbranded" was expanded, and now included any drug whose label failed to identify and quantify the precise ingredients, to list effects and possible side effects, and to give directions and cautionary information that even the least-educated person could understand.

The 1938 act also expanded the FDA's powers over medical devices. Although the FDA could not prevent a medical device from coming onto the market, as it could for drugs, it did have the authority to ask the courts to stop the production or sale of devices already entered into interstate commerce (Higgs, 1995). 

Durham-Humphrey Amendment, 1951 

The Durham-Humphrey Amendment drew a clearer legal distinction between prescription-only and OTC drugs, and authorized the FDA to classify drugs accordingly. Many important drugs could be sold only by prescription from a licensed practitioner (Klein & Tabarrok, 2003). 

Kefauver-Harris Amendments of 1962 

In the post-World War II era, the field of pharmacology entered a new age. People with bacterial illnesses could now be treated with a host of new antibiotics, and diabetics were likewise given the lifesaving invention of insulin.

Senator Estes Kefauver, who sat on the Senate Antitrust and Monopoly Subcommittee, decided that in dealing with medications, the government must do more than control its labels, contents, and safety and its marketing and distribution processes. He concluded that government must also control prices and enforce "competition." In 1960, Kefauver initiated hearings in an attempt to expose unfair marketing practices. Although Kefauver's main concern was pricing, another provision called for NDAs to show proof of both safety and efficacy.

Although President Kennedy spoke fondly of the "safety and efficacy" clause, the Kefauver bill lacked political popularity and went nowhere. Thus, as it was with all previous major FDA legislation (i.e., 1902, 1906, and 1938), another tragedy paved the way for passing the Kefauver bill.

In 1957, a West German pharmaceutical manufacturer introduced a new sedative, thalidomide, which alleviated the symptoms of morning sickness in women during the first trimester of pregnancy. By 1962, when the drug was selling in 46 countries, it became clear that thalidomide damaged the fetus, causing stillbirth or, most prevalently, phocomelia (Greek for "seal limb"). Thousands of newborn babies had truncated limbs that resembled flippers. Through photojournalism, the horror and sadness of these deformed children were shared throughout the world.

In the United States, an NDA for thalidomide had been submitted to the FDA in 1960, but approval had been delayed as the FDA investigated adverse neurological reactions. In 1962, President Kennedy bestowed the Distinguished Federal Civil Service Award on the FDA physician who held up approval, Frances Kelsey, even though her withholding of approval was more a matter of bureaucratic delay than of investigation (Harris, 1992).

"Thalidomide babies" became an impetus for stronger government action. The Kefauver bill was revised so that the pricing and patent-sharing provisions were deleted, and the Kefauver-Harris Amendments were soon law. The amendments authorized the FDA to require drug companies to conduct and submit tests determining safety and efficacy. In addition, the FDA now had to preclear all human trials, drug advertising, and labeling. The FDA also increased its regulatory power over manufacturing (Klein & Tabarrok, 2003).

Orphan Drug Act of 1983 

By 1983, the research, testing, and development of a new drug could take up to 20 years, 7 of which expired in waiting for final FDA approval of the NDA. Heightened awareness of patients direly waiting for pending treatment gave rise to reform. Because the costs of obtaining FDA approval were the same whether the projected market was 2 million patients or 20,000 patients, companies naturally pursued, all else being equal, the development of large-market therapies and abandoned (or "orphaned") small-market therapies. Thus, FDA regulation had especially negative consequences for people suffering from rare diseases.

The Orphan Drug Act was created in an effort to reduce drug loss for "rare" diseases, which were defined as having fewer than 200,000 cases in the United States. The Orphan Drug Act gave tax breaks, subsidies, and special exclusivity privileges to sponsors of drugs for rare diseases.

Rather than reducing the FDA barriers to producing orphan drugs, the Orphan Drug Act was meant to stimulate the development of such drugs by granting sponsors new monopoly privileges. The exclusivity granted under the act differs from a patent. A patent protects against competition from a drug with the same chemical structure. Market exclusivity as implemented by the Orphan Drug Act grants protection for 7 years against competition from any drug with a similar effect. The FDA thereby bars firms from marketing drugs that treat diseases also treated (and perhaps less effectively) by a drug granted exclusivity (Klein & Tabarrok, 2003).

Officials claim that this act has been a success, noting that almost a thousand drugs have been granted orphan status. The number of such drugs is misleading, however, because many would have been produced even without the act. Furthermore, the administering of the act involves several artifices. Cancer patients number in the millions, but a drug may be granted orphan status to treat ovarian cancer or bladder cancer. Thus, a drug used to treat ovarian and bladder cancer could be an orphan in each category even though the total population served by the drug would be well more than 200,000. Even more absurdly, the market for a drug may be divided into a prevention category and a treatment category, and if the number afflicted in either category is less than 200,000, orphan status is granted. Moreover, the same drug can be an orphan for more than one disease, multiplying its monopoly privileges (Arno, Bonuck, & Davis 1995).

A sponsor seeking orphan status for a drug need not be the creator of the drug, and the drug need not be new. The drug Oxandrolone had been used to treat wasting in hepatitis patients and had been available by prescription for 30 years. When body builders began to use it illegally to bulk up, the drug received bad publicity and was discontinued. Another company then gained the rights to the drug and presented it to the FDA as a new treatment for HIV-related wasting. Orphan status was granted. AIDS patients now paid a price 1,200% higher than when the manufacturer did not have monopoly rights (LeBlanc & Sabados, 1996). 

Waxman-Hatch Act of 1984 

Commissions established by Presidents Carter and Reagan recommended that patent terms be adjusted to make up for time lost in regulatory review. The generic drug producers, however, opposed the idea. It proved impossible to pass patent term reform over their opposition. Thus a bilateral bill was created: the 1984 Drug Price Competition and Patent Term Restoration Act, known as the Waxman-Hatch Act. This act served the generic drug producers by removing some constraints on generic drug manufacturers.

Prior to the act, it was not sufficient for a generic drug manufacturer to prove that its drug was bioequivalent to an approved drug. Instead, the manufacturer had to submit independent information on safety and efficacy. Thus, the generic drug manufacturer had to repeat many of the clinical trials performed by the original manufacturer, despite the fact that the drugs could be shown to be bioequivalent. As a result of the costs of performing clinical trials, many drugs did not face generic competition even after the relevant patents had expired. The act required the FDA to accept bioequivalence as sufficient for approval. Prior to the act, effective patent terms were approximately 7 to 10 years. Waxman-Hatch has extended patents by 2 to 3 years on average for an effective patent life of approximately 9 to 12 years (Grabowski & Vernon, 1986).  

The Federal Technology Transfer Act of 1986 

The Federal Technology Transfer Act authorizes federal agencies doing research to enter into formal cooperative agreements with private industry to help develop, market, and manufacture government inventions. The agreements are CRADAs, cooperative research, and development agreements. The pharmaceutical industry uses CRADAs to secure exclusive rights to federal technology.

From 1993 to 1999, the National Institutes of Health (NIH) executed a total of 619 CRADAs. Unfortunately, CRADAs do not protect public investment in research and may enable companies to reap high profits from advanced technology developed partly at public expense (Hunt, 2000). 

Prescription Drug User Fee Act (PDUFA) of 1992 

Pre-1992 figures indicated that on average it took the FDA 2½ years to review an NDA and sometimes up to 8 years (Hunt, 2000). Often, the cause of delay was not the difficulty of the application but merely backlog. Applications would sit unexamined for months or even years. The FDA concluded that the process of approval would be faster if it had better equipment and more workers to review applications. Congress was unwilling to increase FDA appropriations. Thus the PDUFA of 1992 was initiated, establishing for a 5-year period a mandatory fee of roughly $200,000 to be submitted by a pharmaceutical company along with its application.

With this new funding source, the FDA hired hundreds of new employees, and the average processing time fell by half, to 18 months (Hunt, 2000). Because of this evident success, the Modernization Act of 1997 renewed the practice for another 5-year period and increased the user fees. The necessity of renewing the PDUFA every 5 years has put pressure on the FDA to streamline its processes so that drug manufacturers will support renewal.  

The Uruguay Round Agreements Act (URAA) 1994 

The 1994 Uruguay Round Agreements Act (URAA) brought U.S. patent law into conformance with rules adopted under the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization. The act stipulated that any patents filed after June 8, 1995 would have a term of 20 years from the date of application, rather than 17 years from the date of grant. The URAA also contained transitional rules for patents either in force or filed prior to that date, enabling the inventor to choose the 17- or 20-year term. Branded drugs which had received their patents in less than 3 years following application stood to gain extensions under these rules. As a result, pharmaceutical companies elected the 20-year term for many of their products (Hunt, 2000).

FDA Modernization Act of 1997 (FDAMA) (aka PDUFA II) 

Much of the Modernization Act codified what was already FDA practice (Miller, 2000). For example, it authorizes the FDA to appoint panels of scientific experts to assist the agency in evaluating new drugs, a practice the FDA has followed for decades. Similarly, it codified the rule that only one adequate and well-controlled clinical study and only confirmatory evidence could be the basis of approval. The FDA had always had this flexibility but rarely exercised it.

Over the years just before the passage of FDAMA in 1997, the FDA issued dozens of warning letters to pharmaceutical companies for promoting "off-label" uses of their medications. So endemic is the practice of drug firms hyping unsupported product claims that, in 1994, FDA Commissioner Mary K. Pendergast said, "Promotion of unapproved uses by company sales representatives is a major problem" (Critser, 1997, p. 12). Subsequently, Washington Legal Foundation v. Friedman found such restrictions unconstitutional and expanded firms' ability to disseminate off-label information (Miller, 2000).

The most important provisions of FDAMA were the reauthorization of user fees for another 5 years and new inducements to drug manufacturers to conduct pediatric studies. Under the Modernization Act, a sponsor that develops pediatric information is granted 6 months of exclusive marketing privileges in addition to any patent or other nonpatent rights for which the drug may already be eligible.

FDAMA liberalized the FDA's approval criteria, further accelerated the review process, and vastly enhanced the pharmaceutical industry's marketing powers: (a) it abolished a long-standing prohibition against manufacturers' disseminating information about unapproved uses of drugs and medical devices, even when safety and efficacy are uncertain; (b) by easing restrictions on advertising, the act fostered an explosion of prime-time television ads. Studies showed that the act has dramatically boosted drug sales and increased chances that doctors will prescribe the latest brand-name drugs that patient's request as opposed to older drugs that may be cheaper, safer, and equally effective (Washburn, 2001).

Linda Golodner (1998), President of the National Consumers League, said,

The FDA Modernization Act of 1997 has serious implications and consequences for consumer protection and safety. We cannot allow Congress, the drug industry or any other groups to erode the consumer protections that we have fought so hard to obtain. (p. 1) 

PDUFA III—2002 

The PDUFA provides authority for the FDA to collect additional resources (fees from industry) that enable the FDA to accelerate its drug evaluation process without compromising review quality. The Prescription Drug User Fee Amendments of 2002 extended PDUFA through September 30, 2007 (PDUFA III). Under PDUFA III, the FDA is committed to meeting demanding performance goals documented in a June 4, 2002 letter from the Secretary of Health and Human Services to the Chairmen and Ranking Minority Members of the House Committee on Energy and Commerce and the Senate Committee on Health, Education, Labor and Pensions (FDA, 2003b).

In July 1998, the FDA completed the first PDUFA II Five-Year Plan. It was the FDA's blueprint for investing the resources expected under PDUFA II. That plan was revised and updated periodically. Following that tradition, this initial PDUFA III Five-Year Plan similarly sets out the FDA's plans for investing the resources expected under PDUFA III, by organization component and major performance goals (FDA, 2003b).

The planned fee collections and spending over the 5-year period from FY 2003 through FY 2007 total a little over $1.25 billion. This plan provides background information on PDUFA, documents the assumptions upon which the plan is based, and describes the efforts and anticipated costs to meet the performance goals associated with PDUFA III. Spending at this level will not only sustain the 1,088 staff years paid from fees by the end of FY 2002, but will also enable the agency to add an additional 376 staff years for the drug review process by FY 2007 (FDA, 2003b).  

User Fees 

User Fees—General Information

Charging users for a government service can lead to the cost-consciousness which is generally typical of firms in competitive markets. Conversely, failure of a government organization to recognize all of the costs of an activity may lead to overinvestment in it (Gillette & Hopkins, 1987). Fee collections have the potential of reducing the size of the federal budget deficit (U.S. Congressional Budget Office [CBO], 1983).

Since the formation of the U.S., the federal government has charged fees for various goods and services. Initially fees were paid for postal services. By the early 20th century, fees were charged for grazing on public lands, and calibration and related services provided by the National Bureau of Standards (U.S. General Accounting Office, 1980).

User fees increased with the federal government fiscal deficit in the 1980s. In an effort to decrease the deficit, Congress enacted the Balanced Budget Act of 1985, the Budget Enforcement Act of 1990, and the Omnibus Reconciliation Act of 1993. In a lower revenue growth budget environment, user fees have enabled public agencies to reduce recorded agency taxpayer funded expenditures and to make it possible for programs to expand without increasing taxpayer contributions (U.S. Congressional Budget Office [CBO], 1998). See Table 1 for types of user fees. 

Table 1
Types of User Fees

Note. Several types of federal fees are currently collected by the federal government (U.S. CBO, 1998; Hopkins, 1988).

User Fees—Difference Between Regulatory and Non-regulatory

Public Agencies 

With few exceptions like the Federal Energy Regulatory Agency and the Patent and Trademark Office, which cover their entire revenue requirement from user fees, most federal agencies are financed through a combination of general government revenues and other sources (Geri, 1996).

The significant differences between regulatory and nonregulatory user fee programs have implications on the accountability frameworks required in each case. A key concern regarding fees paid in exchange for regulatory activity is the potential impact of fees on either the status or the regulatory agency itself or on the propriety of its relationship with regulated entities. Government agencies dependent on user fee revenues face the risk that decreases in revenues could harm their ability to perform their regulatory function. Conversely, revenue increases have the potential to create uncontrolled expansion and unplanned agency changes. More critical is the possibility that public agencies dependent on user fee revenues may become captives of the very organizations they are supposed to regulate (Geri, 1996).

Allowing public agencies to retain the regulatory-based user fees creates potential difficulties with management control over the funds and association accountability. Some observers of this practice have suggested that all fees should go directly to the U.S. Treasury general fund, especially when a regulatory agency is assessing the fees because added revenue from outside sources could arguably have an impact on agency decisions (Gillette & Hopkins, 1987).

Exposing a public agency to market-type forces by making it dependent on outside user fees may increase its efficiency but it makes its overall status more ambiguous. The FDA must be cautious about the risks of this new financing approach. If in its eagerness to improve the timeliness of its drug approvals the agency begins to treat the drug manufacturers too much like customers, it will risk the failure of its primary mission of promoting and ensuring public health and safety with food, medicines, and cosmetics (Geri, 1996). 

Pro User Fees—FDA 

Before user fees, patients' rights groups (i.e., AIDS and cancer) and pharmaceutical companies criticized the FDA for being too slow to review new drug applications. The FDA has shortened review times for NDAs. However, review time is the smallest piece of the drug approval process, and by itself is a poor indicator of the FDA's performance. From a patient's perspective, the most important indicator is overall approval time: the time between a new drug's discovery and FDA approval, not just FDA review time. Over the last 30 years, the FDA has caused the average approval time to double. In the 1960s, patients waited 8.1 years for FDA approval of a new drug. By the early 1990s, patients were forced to wait 15 years (Cannon, 1997).

The 1992 PDUFA streamlined the review process and allowed the FDA to speed up its evaluation and approval of new drugs. In the first 5 years, the FDA added 696 employees to the biologics and drugs programs while taking $329 million in user fees from the pharmaceutical industry (Golodner, 1998).

According to a 2002 article, PDUFA enabled the FDA to hire 1,004 additional drug reviewers and reduced the average review time from 30 months to about 12 months. According to PhRMA spokesman, Jeff Trewitt, the proposal recommended to Congress for 2002 increased user fees by $500 million over the next 5 years, to a total of about $1.2 billion. The FDA will hire hundreds more drug reviewers and commit itself to cut the final average review time for standard drugs from 12 months to 10 months (Hollon, 2002).

Having drug makers fund the FDA is viewed as a success by many lawmakers and industry representatives. Other health product suppliers are eager to follow. The FDA user fee program is more than a decade old, and the agency leaders say that funds from drug makers have allowed the agency to review applications more promptly and efficiently, and with the same intense scrutiny as before. The result, they say, is that new drugs get to patients more quickly and more than half of the world's new drugs are launched in the U.S. first (Kaufman, 2002).

Once the 2002 user fee extension is passed as proposed, the user fees would add almost 500 employees to the FDA by 2007 bringing the FDA workforce funded by industry to at least 1,530. This would constitute more than 55% of the FDA staff involved in reviewing drug applications (Kaufman, 2002). 

Con User Fees—FDA 

PDUFA-FDAMA have performance goals that are in fact legislated deadlines that leave the FDA with little flexibility. Drug reviews are too important to the health and safety of the public to be constrained by timelines dictated by industry and enforced by the possibility that these funds will be cut off. Performance goals place enormous pressure on FDA reviewers whose decisions may affect the safety of millions.

A government report shows that since the PDUFA began, a higher percentage of newly approved drugs have been withdrawn because the drugs were found to be unsafe. The General Accounting Office (GAO) conclusions confirm the major public health consequences of PDUFA, which introduced private money, and therefore influence, into the drug approval process, creating a massive conflict of interest. The GAO report also documents that staff turnover is higher among FDA scientists than among scientists in other government agencies (Lurie, 2002).

Declaring that the Food and Drug Administration "should be ashamed" of the terms it negotiated for renewing the PDUFA, a coalition of patient and consumer groups urged Congress to scrap the 2002 renewal. According to the coalition, if Congress goes along with the 2002 renewal of user fees, it will once again shortchange consumer safety. In the opinion of the coalition, review timetables are already overly ambitious, rushing drug reviewers into bad decisions (Hollon, 2002).

Large businesses can afford the substantial fees for filing applications with the FDA, but to smaller firms, these fees are a sizeable burden. An unintended consequence of user fees may be the weakening of innovative start-up companies.  

Drug Testing  

Drug approval in the United States requires a carefully planned series of steps, sometimes taking as long as 12 years to complete, and it involves billions of dollars and numerous industries and professionals (Strand, 2003). The following list represents the step-by-step testing and NDA process. The FDA's multiphased approval process first begins with preclinical research done on animals, followed by a new drug application to the FDA. The third step involves three phases of testing on humans. Next, an FDA expert committee reviews the completed drug application and makes a decision on whether it should approve the drug or not. 

Step I—Preclinical Testing 

A drug company first synthesizes and develops a new drug compound. Research scientists will then begin testing the drug in the laboratory, most likely with cell cultures and animals, to identify the drug's toxic effects and pharmaceutical action. Animal testing is the next step. The FDA requires that any drug needing its approval must first be tested in at least two different species. The purpose of the preclinical trials is to develop adequate information about the drug and so determine the safety of proceeding to human trials with the drug. 

Step II—New Drug Application (NDA)—Phase I Clinical Trials 

When a pharmaceutical company has identified a promising drug during the preclinical trials, it will then apply for an NDA through the FDA. The NDA usually occurs once the company is comfortable with the safety and effectiveness of its drug noted during the animal trials. Clinical trials with humans represent the ultimate premarket testing ground for unapproved drugs.

At this stage, the investigators' main goal is to clarify what happens to a particular drug within the human body. The number of subjects involved with these studies varies, but is usually small, generally in the range of 20 to 80 people. At this point the FDA may put a hold on it for further testing or if the drug still appears promising, the FDA will approve it for further investigation in Phase II.

Phase II Clinical Trials 

At this phase, the investigator's main goals are to demonstrate the effectiveness of a drug and to help determine possible side effects and the overall safety of the drug. The phase usually involves several hundred patients who may or may not have the actual disease for which the drug is being developed. The major drawback of these studies is the small number of patients who are being tested. 

Phase III Clinical Trials 

Phase III has become the golden standard for the FDA over the years. In this final stage, the investigator's main goal is to further prove an experimental drug's effectiveness and safety. This phase involves several hundred to several thousand patients. 

NDA Review 

Finally, the FDA takes the manufacturer's NDA through its review process, assigning it to a review panel made of experts from the FDA and medical community. Pharmacists, physicians, statisticians, chemists, FDA experts and outside experts from the medical community make up the panel. The entire review process can take from a few months to more than 7 years to complete. The average length of time for approval from the NDA to actual approval before 1992 was approximately 23 months. Prior to PDUFA, the FDA had been the most difficult board in the world through which to get a drug approved. Prior to 1992, it had long been the position of the FDA to achieve "substantial evidence" of a drug's effectiveness, there must be two "well controlled" Phase III Clinical Trials.

Monitoring Drug Safety After FDA Approval 

There are four categories of drugs: (a) those for serious or life-threatening conditions for which there is no adequate treatment; (b) drugs for rare disorders; (c) new drugs that are approved which are redundant chemical modifications of drugs already marketed; and (d) drugs that are granted priority review because they work in a new way. Three recently recalled examples from category (c) above include the heart drug Posicor, Duract, an anti-inflammatory painkiller, and the antibiotic Raxar. These drugs were approved between June and November 1997. All had known safety problems prior to approval. All were redundant and there were multiple options available to patients and physicians for the indications for which these drugs were approved. All received standard review, and all killed and injured before they were withdrawn from the market between June 1998 and October 1999 (Strand, 2003). Pharm.D. Larry Sasich, a member of Public Citizen's Health Research Group, said, "I don't believe these drugs would have been approved in the pre-user fee era" (Sasich, 2002, p. 1).

Examples of drugs in category four (d) that were recently recalled include type-II diabetes agent, Rezulin, the flu drug Relenza, and Lotronex, approved for the treatment of irritable bowel syndrome. Rezulin has been banned and the other two drugs have required significant changes to their safety labeling. The experiences with these drugs suggest that priority reviews are being abused and that drugs with new mechanisms of action raise the possibility of new mechanisms of toxicity (Strand, 2003).

The processing of monitoring drug safety after approval begins with a voluntary reporting system channeled through a special department in the FDA called the Office of Post-Marketing Drug Risk Assessment (now known as the Office of Drug Safety). After a drug appears on the market, physicians can make voluntary reports of its potential adverse side effects to the pharmaceutical company and the FDA. It is estimated that less than 1% of all the adverse drug reactions (ADRs) are actually being reported to the FDA (Strand, 2003).

The postmarketing staff is assigned to data entry and verification or review of data. Once this department identifies a serious problem with a drug, it has little authority or power other than reporting its findings back to the advisory committee that originally approved the drug (Strand, 2003). The advisory committee may take some sort of action, question the findings, or ask for additional information. But once a new ADR is identified beyond doubt, the most common action for an advisory committee is to change the product label or insert (Cohen, 2001). 

Brand-Name Pharmaceutical Industry 

The pharmaceutical industry is both the source of medicines and the source of information about medicines. Brand-name pharmaceutical companies exert their influence in nearly every home, every doctor's office and hospital, in academia, and nowhere is the drug industry more powerful than in Washington, DC (Greider, 2003). The brand-name drug industry was a major player and extremely influential in the creation of user fees. This section takes a look at the brand-name pharmaceutical industry from several relevant perspectives. 

History 

In 1900, Americans could expect to live an average of 47 years. Pneumonia and influenza were the leading causes of death in the United States, followed by tuberculosis and diarrhea. Heart disease—which tops the chart today—was only fifth; possibly because infectious diseases carried many people off before they grew old enough to develop heart disease (HCINJ, 2003).

In the second half of the 19th century, scientists such as Louis Pasteur and Robert Koch laid the groundwork for a revolutionary theory: specific microorganisms (i.e., germs) cause disease. On Christmas day 1891, Emil von Behrig successfully treated a sick child with diphtheria antitoxin, signaling the eventual end of this disease. In 1894, a young chemist named Felix Hoffman working at Bayer developed aspirin. In 1910, a German bacteriologist, Paul Ehrlich, formulated an effective compound against syphilis (HCINJ, 2003).

As discoveries were made, pharmaceutical companies rose to the task of developing these compounds, ensuring safety and efficacy and mass-producing and marketing the new medicines. Vaccines began to be commercially produced in World War I. Penicillin, the great breakthrough against infection of the 20th century was discovered in 1928. By 1944, sufficient penicillin was available to treat all severe battle wounds suffered by U.S. troops in the D-Day battles. In the 1950s, known as the decade of antibiotics, new breakthroughs to treat tuberculosis and other infections followed swiftly (HCINJ, 2003).

In the past 100 years, pharmaceutical research has helped transform healthcare from a largely palliative practice to a science-based endeavor. Due in part to this transformation and in part to improvements in sanitation, average life expectancy in the U.S. has increased from 47 years in 1900 to more than 76.5 years today. In addition to longer lives, pharmaceutical progress has brought better lives to millions of people. It has reduced or eliminated many infectious diseases and transformed mental illness from a misunderstood cause of shame and fear into a highly treatable condition. It has made impressive inroads against cancer, heart disease, stroke, and many other diseases (HCINJ, 2003). 

Drug Costs 

Estimates of national drug expenditures are based on statistical spending. Different studies use different sampling methods. An often-cited study showed that total prescription drug expenditures at retail outlets almost doubled in 5 years from $78.9 billion in 1997 to $154.5 billion in 2001. Thirty-four drugs out of 9,492 on the market accounted for 50.7% of the overall increase in national drug spending in 2000 (NIHCM, 2002).

Drug spending increased an average of 14.9% per year during 1997-2000. Drug expenditures are projected to increase an average of 12.6% a year during 2000-2010. In comparison, physician and hospital expenditures are projected to increase an average of 6.6% per year during the same period (HCFA, 2001).

The FDA's new partnership with the drug companies has helped to maintain the industry's high prices and profits. Rising drug prices hurt everyone who pays for healthcare—especially the estimated 65 million Americans who lack insurance coverage for prescription drugs and must pay the increased prices on their own (Mahan, 2002).

Price increases are a particular hardship for the elderly. As a group, elderly Americans use more drugs than any other segment of the population. Those individuals, many of whom are on fixed incomes, must pay for increasingly more expensive drugs themselves. Research and drug development means little if drugs are priced out of the reach of those who need them.

It is unlikely that the drug industry will moderate prices on its own. Price moderation could be accomplished through greater competition with generics. Generic drugs are about half the price of brand-name drugs in the first year after a generic enters the market. Access to generics could be increased by removing legal loopholes that allow brand-name manufacturers to extend their monopolies through manipulation of the patent system (Mahan, 2002). Prices can also be reduced if personal use importation of medications from nations outside the United States was made legal. See Table 2 for a comparison of products and prices. 

Drug Industry Profits 

The drug industry was the most profitable industry over the last 10 years and was consistently among the top two most profitable industries for the 20 years before that. Drug companies became more profitable over time. During the 1970s, drug companies averaged 8.9% profit as a percentage of revenue compared to 4.4% for all Fortune 500 industries. In the 1980s, drug companies increased their margin by earning 11.1% compared to 4.4% for all Fortune 500 companies. During the 1990s, the gap grew to 15.1% compared to 4.1% (Schondelmeyer, 2002). 

 Table 2 
Comparative Prices of Drugs Purchased in the U.S., Europe, and Canada

Note. From "The FDA vs. The American Consumer," by William Faloon, 2002, Life Extension Magazine, October, p. 1; retrieved November 11, 2004, from http://www.lef.org/magazine/ mag2002/oct2002_awsi_01.html

 Since user fees were implemented, compared to all Fortune 500 industries there has been a significant increase in net profits of the largest U.S. pharmaceutical manufacturers listed in the Fortune 500.  See table 3 for a comparison of profit among Fortune 500 companies.

 Table 3

 Profit Comparison Fortune 500 Industries
 

 Note. Median profit as a percentage of revenue. From the Public Citizen update of Stephen Schondelmeyer calculation. From "Competition and Pricing Issues in the Pharmaceutical Market," PRIME Institute, University of Minnesota, based on data found in Fortune magazine, 1958 to 1999; Fortune Magazine, April 17, 2003. Retrieved February 1, 2004, from http://www.affordablerx.org/media/Media15.htm

Every year, Fortune Magazine examines U.S. industries to determine how they compare to each other in profitability. On April 1, 2002, Fortune released its industry rankings for 2001. In a year that the Fortune 500 saw the worst financial performance in the magazine's 48-year history, the drug industry did consistently well. In fact, the industry ranked number one on all three of Fortune's profitability scales. Fortune's ranking comes on the heels of a report released on March 29, 2002 by the National Institute of Health Care Management detailing another year of near 20% increases in drug costs (Families USA, 2002a). A significant part of the increase in drug prices is the markup that the pharmaceuticals impose on the products sold to people in the United States. See Table 4 for an alphabetical list of product percentage markups on popular medications..

Table 4

Partial List of the Pharmaceutical Manufacturers Price Markup for Popular Medicines Sold in the U.S. After the Costs of Paying for the Active Ingredients

Note. From "The FDA vs. The American Consumer," by William Faloon 2002, Life Extension Magazine, October, p. 1; retrieved November 11, 2004, from http://www.lef.org/magazine/ mag2002/oct2002_awsi_01.html

In the top nine U.S. drug companies, annual compensation, exclusive of unexercised stock options, averaged $21 million. The median income was over $11 million. The executive with the largest value of unexercised stock options in each of the nine companies had stock options worth, on average $48 million in 2001, with a median value of almost $42 million (Mahan, 2002).