On August 2, 2012, Representative Ron Paul of Texas stood up in front of Congress and introduced the Compassionate Freedom of Choice Act. The bill, if passed, would legalize experimental drug use by terminally ill patients if they so chose, without interference from the FDA. At the link above, you will find Dr. Paul's speech, where he recounts story after story of terminally ill cancer patients who were denied access to potentially life-saving drugs because, alas, they were not yet FDA approved. Those patients died.
The bill has virtually no chance of passing. The reason is simple. If the FDA is not allowed complete control over the pharmaceutical industry, then any cracks in its authority may wake people up to the possibility that they actually cause harm. Imagine if these experimental drugs actually helped some patients and saved their lives without FDA approval or in the legal avenue of an FDA approved clinical trial. People would start questioning the FDA. The FDA would have to go on the defensive. Some people up on top may lose their jobs, and that is unacceptable. This is why no government agency, once enacted, ever dies.
The FDA's effects on the health care industry and its investment community are also injurious. In a recent Seeking Alpha article comparing new cancer drugs from Dendrion (DNDN) and Northwest Biotherapeutics (NWBO.OB), one author writes the following, recommending a buy for NWBO:
Some hedge funds have made enormous returns by looking for asymmetric investment opportunities. These stem from finding upcoming events that are not well understood and which have the potential to cause dramatic stock movements in the case of a positive outcome. The chances for such a positive outcome may be modest, but if it does occur the potential reward dramatically offsets the risk of being wrong. This is asymmetric investing and biotechnology lends itself very much to this approach.
He's right of course, but the fact that asymmetric investment opportunities exist in biotech specifically is not good for the industry, much like booms and busts in any industry are bad for said industry (think housing and dot coms), or a large income gap and no middle class is bad for a country. The main reason these asymmetric opportunities exist is not that people don't know about NWBO or DNDN or what have you, but that these companies have to invest all their capital into a government mandated process of clinical trials that costs huge amounts of money, are regulated more than a guy on a strict 100% Fiber One cereal diet, are decided by men appointed by bureaucrats, and present needless do-or-die scenarios to the companies in question, especially development stage ones. If do - you're rich. If die - you lose everything.
Northwest Biotherapeutics is currently proceeding with Phase III clinical trials internationally for their brain cancer drug DCVax. The drug is ingeniously tailored for each individual patient by prepping their dendritic immune cells in vitro to their cancer so their bodies can recognize it and attack. The company's international approach is a novel and necessary one that aims to shave years off of regulatory red tape that would otherwise drain the resources of this tiny, innovative, 8-employee company. One paragraph in this report is especially revealing:
NW Bio's submission of the Phase III trial application to the U.K.'s MHRA, as well as the MHRA's acceptance of the trial's designation as a Phase III trial and rapid approval of the trial, mark the culmination of two years of preparatory work and foundation-building in the U.K.
Two years of buttering up bureaucrats so dying patients can have the right to try an experimental medication that could possibly save their lives? The thought of arresting a dying cancer patient for trying an experimental drug without MHRA or FDA approval is…well, I'll leave the word up to you. And how much money did this cost NW Bio? It's amazing that NW Bio has made it this far considering its size, but what if these regulations had killed them? What would have happened to their research? And yes, if they break through the Phase III barrier, this could be one of those "asymmetric investment opportunities".
But the FDA has other fans. It is NW Bio's large cap competitors that benefit most from bureaucratic barriers to entry. Novartis (NVS), for example, is teaming up with University of Pennsylvania in a $20 million deal to develop a very promising drug that reprograms T-Cells in the immune system to fight leukemia.
In 2011, Carl June of UPenn used genetic engineering to develop the immunotherapy, which succeeded in destroying the disease in three leukemia patients. But to get through the bureaucratic barriers, she needed to team up with Novartis who has experience in this sort of thing. So the pharma giant will own the drug in exchange for greasing the wheels of government.
Imagine if the Compassionate Freedom of Choice Act was law and just for the exception of terminally ill patients, the FDA stopped bothering drug makers. How much would it cost Dr. June to try out her therapy on dying leukemia patients? Would she need $20 million from Novartis? Would the FDA be able to stop the public clamor to get it to market immediately, clinical trials be damned, if and when, patient after patient, their disease was eradicated? Would she have any trouble getting venture capitalists to invest rather than giving it to Novartis in exchange for help getting through government obstacles?
Novartis wouldn't be too happy I suppose, because then they wouldn't be able to profit from the drug's success. Neither would the FDA, who would inexorably lose their grasp on the whole industry to private drug safety inspection companies who would quickly fill the void and compete with one another. Perhaps I'm dreaming.
For now, I suppose, we can only place our bets on companies that have the best shot at pleasing the bureaucrats, and leave terminally ill patients high and dry. NW Bio and Novartis look promising. Hopefully they will both save thousands of lives in the near future. If only the FDA will let them.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.