One of the best articles that I’ve read recently
The title is mine, but may very well fit the message. The letter given below was written by an investor/physician to US Senators. Please feel free to write to your representatives and senators. I had to scan pdf image to text using online ocr tool, and apologize for spelling/grammar errors. I’ve fixed a few obvious ones.
The reason for this letter is to advise you about the sad state of the FDA approval process. its potential for corruption, and a request that the Appropriations Committee consider reform of this agency before it stuffs more money into its coffers. It has become risk adverse in the extreme, stifling the development of new drugs, devices, and in the process, inhibiting the growth, and development of young companies.
My interest is twofold. I am a physician who has spent 40 years in medicine. Secondly I am an investor who has avidly invested in biotech. I have always invested for the long term because l believe in individual products. I will hope to demonstrate the odd and potentially corrupt nature of the FDA, by discussing the experience of two Companies, of which I have been a long time shareholder.
Forbes magazine recently published an article essentially asking "Where are the biotech billionaires?" Quits simply they don't exist. About the only way to wind up a billionaire in biotech is to start out with two billion, which is essentially the experience of the founder of one of my companies, Al Mann. Mann is an acknowledged scientific end engineering genius. He has developed numerous products for both the defense end medical industries. We all know a diabetic that has en implantable insulin pump. Mann invented this. In so doing he has become very rich. In the last twelve years he has founded MannKind Co. and lost a billion dollars trying to get a stunning new diabetic product through the FDA. No one questions its effectiveness, nor its safety. So why aren't diabetics using it? The answer to that question is at the heart of this letter, and unless Congress does something, an entire high tech industry will be killed off. We will lose research, manufacturing, and their associated high tech jobs to other countries. Companies like Amgen will no longer sprout from these shores.
The trouble is, It costs a fortune to get a new drug through the process. The estimate is 1.3 billion dollars for final FDA approval. This gives a company the right to sell it, in a manner prescribed by the FDA. Yet, only for a limited time without competition. So once approved a company has to make hay while the sun shines. Hence the astronomical costs of non-generic drugs. Also, FDA approval for these drugs and devices does nothing to ward off the excess of our legal system,
Most new drugs fail. But the potential upside has, in the past, mitigated these risks so investors would take the bet, and invest: often with considerable reward. Times have now changed. It has become apparent to those that are playing the game that the odds are stacked against us. Biotech investing is becoming a rigged game played by suckers.
The reason is simple. It takes too much time and money. A little company with a good idea and technology can no longer take a drug all the way to the finish line any more. Large pharma knows this. It stands by, and lets the development company raise money and take the early risk once the concept is proven, big pharma can swoop in and buy things up for, at times, pennies on the dollar. It works OK for these big companies. But the little ones can never get started and grow. They will never threaten these handfuls of big companies. And they can never develop a whole new industry creating tens of thousands of new jobs in the process—say. like the software industry.
The question is why can't the development company just raise more money? The answer is • because of an unholy alliance. It is an alliance that delays, confuses , manipulates, and always takes the short side-- because that is where the odds come out best. Mannkind lost two rounds of FDA applications, for, many would say, less than substantial reasons. It has been the subject of multiple negative rumors about the product. its founder, and its management mostly to the benefit of large hedge funds that sell the company short—winning when the cost of the companies shares goes down. These funds, working either by themselves or in concert hope to sew doubt and create chaos all for their own gain A little bit of this can keep irrational exuberance at bay, but in our current environment , the process has turned pathological. Turning it even more rancid is the cottage industry of "experts" who render opinion, often at the behest of the hedge funds.
Raising new money becomes increasingly problematic the longer the process. And the FDA along with the unholy alliance can definitely prolong the process. Al Mann initially sold shares of the Company at over $20 in 2000. Now, almost 12 years later nearing the finish line with a potential blockbuster, and Mann injecting over a billion dollars into the Company, new shares were just sold for $2.70 . The Company needed the money. Quickly, Must have been a tough 12 years ? YOU bet--a long painful march, burning money along the way to stay warm. It involved two rejections by the FDA—including a definite misdirection from the FDA. Corruption and malfeasance among the employees of the FDA, including a prison sentence. There was an attempt, at the last minute, by a major hedge fund to influence individuals at the very top of the FDA to reject Mankind’s application. And the most amazing thing? It looks like the attempt was successful. See my point? Let me take you through the details.
Mannkind is a Company begun in 2000 with a great product ---inhalable insulin. Every Company was involved in this back then. Pfizer came out first (approved by the FDA) with a horrible product. It needed something akin to a tennis ball can to inhale the stuff. And the insulin it delivered offered no real advantages. No one used it, and Pfizer took it off the market, although it remains approved. Every other Company got scared and dropped the idea except Mannkind. Their product was better. Quicker. No weight gain by the patient( which almost always happens once a patient takes insulin ) and no hypoglycemia ( a very dangerous side effect). No hint of cancer or anything else after extensive studies. And better yet, it was administered using something about the size of a deck of cards The concept of inhalable insulin was already approved. Should be a slam dunk right? Let the market decide. Well not so fast. The first FDA submission was three years ago. FDA rejects. The reason: not clear how the product would be used in the context of other Rx. Seriously, that was the major concern In the glory days of medicine. ..my early days.. all that was required ( and frankly all that should be required) was to prove a medicine was safe and it worked. OK, so on to application number two. Of course this little decision/setback cost a couple of years, and required Al Mann to cough up another 350 million dollars. Stock of course tanks. On the way to getting the data to satisfy the FDA the Company develops a great new device for inhaling the insulin. Now the device is totally disposable, and is about the size of a whistle The FDA says great. Do a bio-equivalency study of the two devices to make sure they shoot out the same amount of drug. Mannkind does this, and with another truckload of studies addressing the original concerns, sends along the application in 2010 along with a fat check. You see, you just can't send off an application to the FDA. They have to accept the application to make sure everything was done correctly, and submit a check for about $250,000. ( All of which begs the question if they didn't like the study design , which eventually they will say they didn't, why approve the application and cash the check. Hence the misdirection.) So.. off we go with round two. Rumors abound. All the experts say the thing is dead.
Hard to say if those rendering an opinion actually believe it , or are manipulating, but the stock tanks. FDA sets a decision date (called the PDUFA date) of Dec 29, 2010. Toward end of Nov beginning of Dec. Stock starts to take off, in anticipation of the fact that the product just may get approved. And a ton of money could be made on the long side of things. Enter one Martin Shkreli, a hedge fund manager specializing on shorting biotech stocks. He runs MSMD Capital Management. On Christmas Day 2010, 4 days before the PDUFA date, Martin panics. He is mucho short and if this thing gets approved he is in deep doo doo While the rest of us were singing carols, drinking hot toddy's, stuffing our faces, playing with the new toys , old Martin sits down and writes a thirty page letter to the FDA trashing Mannkind and its product, claiming it should not be approved . He sends this "work product" out via e mail that day, as well as hand delivering it to 12 FDA commissioners including Director Margaret Hamburg. Among his various contentions is that there should be an in-vivo test of the new inhaler device, not just an in-vivo comparison , of which the FDA had supposedly already signed off on. Nevertheless, this must have got someone at the FDA to pucker up because things began to change. The FDA announces on Dec 28 that the decision on Mannkind would be delayed into Jan 2011 A chemist working at the FDA Cheng Yi Liang has seen nothing but blue sky coming across his FDA email about Mannkind, so on Jan 4 he buys 18,000 shares. But then something pops up, and he sees a wrench has been thrown into the process On Jan 19 he sells all 18,000 shares knowing approval will not be had for Mannkind's drug. Official announcement is a couple of weeks later.
Cheng Yi Liang is now in prison. But nevertheless Martin Shkreli had a wonderful, and profitable Christmas. Mannkind stock sinks like a rock, and he makes a fortune. In a perfect world Martin would be sharing ill-tasting food, under the ambiance of fluorescent lighting in a state controlled facility with Cheng Yi. But Martin is now , no doubt, awaiting the arrival of his new Ferrari with the specialty-ordered , personally chosen one of a king paint hue Christmas Red Meanwhile over at the FDA Director Hamburg is getting her gang of twelve together (those lucky souls on the receiving end of Martins missive) and having them repeat the phrase " To the best of my recollection I do not remember..., over and over again. Such is life in 21st century America. Oh and by the way. Mannkind is asked to do an in-vivo study of its new inhaler for the next submission. That's pretty much the FDA's only concern. It will take two years and hundreds of millions of dollars to accomplish. Hundreds of people laid off.
The watchdog organization CREW has addressed this issue in a petition to the SEC for an investigation into hedge fund manipulation of biotech stocks. Mr Shkreli • and his involvement with Mannkind are specifically mentioned. I ask that you • and your office, facilitate this investigation, as best you can. Now compare this approach to one of another Company whose stock I own Mela. Mannkind's approach to dealing with the FDA has here-to-fore been akin to that of a pledge getting paddled by a fraternity brother ie 'Thank you. may I have another". Not Mela. This Company treated the FDA in a fashion to which they had not been accustomed: they treated the FDA as they would a bully. They fought back and won Mela is a small company that came up with a machine to help diagnose skin cancer Specifically malignant melanoma , the deadliest kind This has particular interest to me, who is of Irish decent , and in retirement . has begun lying on the Sea Island beaches all day. The machine would be waved over the suspicious lesion , do all sorts of funny calculations, compare the result to a huge data base developed by the company, then come up with a diagnosis. As someone who took his share of dermatology in medical school, this seemed a godsend. The standard of care , up to this point, has been simply eyeballing it, then guessing. Granted some guesses were better that others, but it was still guessing- with a biopsy as a chaser. No doubt the thing was desperately needed, and the early data looked great--particularly cutting down the need for a biopsy. Mela's management enters into a binding protocol agreement with the FDA This is an unusual set up, but virtually guarantees approval if the mutually agreed upon study criteria are met. Great. Everybody signs off, everything looks good.
Trouble was, all this was all done with the OLD FDA • the one under the Bush regime " We don't need no old stinking binding agreement---was the new motto, under the NEW FDA management (A slight exaggeration. but you get the point). There is such a thing as an advisory panel that the FDA uses at its discretion. It is filled with outside experts that review the data, and advise the FDA whether they think something should be approved or not Many times they do not feel the need for a panel The message here is that we will use experts only if we think we need them, and most of the time we don't think we need them. A tad arrogant but that's probably just me. Even if the panel says yes, the FDA can, and often does, say no. A company can request a panel, but is loathe to because in so doing it suggests that the FDA may not entirely know what it is doing. And as we shall see, our beloved agency can be a wee bit vindictive. Nevertheless , Mela requests a panel. To this , the FDA says essentially 'we don't need no stinking panel" and proceeds to reject the device. Stock of course tanks They request further studies, requiring years, millions of dollars, all of which would probably bankrupt the Company. Here Mela does four things to punch back at the bully, and eventually win.
First they insist on a panel after being rejected this is almost never done. The FDA doesn't like this one bit, and in a bitter pre-panel prejudicial summary. lets Mela have it with both barrels. So much for an even handed agency that only has the best interests...blah, blah blah. You know the drill. Nevertheless, in a narrow vote Mela wins. I listened to the panel discussion, and I think all the clinicians voted to approve, not seeing eye to eye with the FDA statisticians who were pretty much convinced that "eyeballing it" was as good as you could get. Mela played another card: a political one. It inserted itself into a Congressional investigation by the Energy and Commerce Committee on the subject of the FDAs stifling new device development. The FDA admitted in sworn testimony that , well it should not have rejected Mela before it convened and listened to a panel. Yea, shouldn't have., in fact it went against its own regulations . Surprise, the FDA looks, well, vindictive.
A definitive decision should be made by the FDA within 90 days after a panel has voted. These are again, its own regulations. But since we've already been down this road . and that silly Congressional Committee has disbanded, why lust not only look vindictive but BE vindictive. The FDA lets the deadline go bye without saying a word. Six months go bye, and Meta has had it. Essentially sues the FDA via a Citizen Petition for a decision. At the same time they apply to the European version of the FDA, and get a relatively quick approval. Finally, late last year, the FDA approves the device. and the Company is set to send out its potentially life saving technology to dermatologists shortly.
My point in all this is that something has to change. More biotechs will take the aggressive, self defensive approach exhibited by Mela, and less will sit passive. It is hard to blame them. I would like to invest in young biotech companies again. I know something about their products. and can do quite well if given (in the words of our President) a fair chance. The current process and the FDA make this impossible. Little people like myself will not commit funds . Even large investors will give it up. They, least of all, will not be played for suckers. Development companies will move off shore, welcomed by a venue where they can get a fair shake, and submit their products for review to a foreign agency that will render a quick, informed decision.
My recommendations are simple. Condense the time frame for approval Make an independent clinical panel mandatory, and give it teeth. The panel should be constructed primarily of practicing clinicians, who are used to making decisions, almost on a daily basis, which balance risk /reward Such a panel can bring fresh air , and a sense of clinical urgency to a claustrophobic agency. The agency must give specific. and detailed responses to any overruling of the panel. Now, no one ever knows. When disagreement occurs, a mechanism of appeal should be put in place to see if reconciliation can be achieved, to save time and money. Next, make things as transparent as possible.
We simply cannot have a new medical drug or device be approved in the manner of having white or black smoke come out of the FDA's chimney on a specific day. Everything should be done in the sunlight. Major Pharma may not like this, because they actually benefit under the current process. Which, sadly, is why it continues. There must be more up front work done by the FDA at the time of submission, when they accept the application and cash the check. Acceptance should confer agreement with the studies design The remainder of the deliberation should be an analysis of the data regarding the previously accepted studies. At the moment the whole affair is a bit like a Rorschach print—the FDA says give us what you got, and we will make a decision on the basis of our interpretation of the regs, and on our interpretation of the Ideal Can't work like that You can not tell Mannkind for example, at the end of deliberation, " oh I think you heard us wrong, we said in-vivo, not in-vitro." Or muse that "this study should have been done on baboons, not rhesus monkeys". The companies, let alone the Country, and its Citizen patients, cannot afford this silliness.
Finally a more radical approach should be considered. A Federalist one. There was a time when a centralized agency like the FDA was absolutely necessary. There were only so many experts available. Now every State has its own research oriented medical School, pharmacy, statisticians, and the like. Let an individual state take the FDAs data, review its recommendations, then make its own decision as to letting a company sell a product in its state. If we don't let something like this happen, companies will be forced to go off shore, and the FDA will lose its standing as the world’s definitive medical product body anyway
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If FDA regulated computer industry, the following would have happened;
1) You wouldn’t have read this blog as PC revolution was another 30 years away
2) Steve Jobs would have sold apples, the fruit variety, along with notepads.
3) Bill Gates would be practicing law with his dad
4) Steve Ballmer would still be selling Moist ‘n’ Easy Snack Cake.
5) Abacus was still the tool to do addition.
6) 10 million government workers were needed to perform census and write social security, Medicare, Medicaid checks
7) The space exploration has just started;
8) The Dow Jones index just crossed 1300
9) In Year 2006, Alfred Mann founded the Spectrolab
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