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The F.D.A: Changes Are Coming & Right Soon

"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand." - Milton Friedman

Well it is looking again like we are going to need a couple of decent M&A deals or a pair of "Cave Trolls" to break through the 300 level decisively on the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB).

When that happens is anyone's guess. Given that, I thought we would discuss a flurry of activity around proposed changes to the F.D.A. and the National Institutes of Health {NIH} over the past 24 hours given their potential impact on the sector.

Proposed Change #1 - Scott Gottlieb picked to head F.D.A.

Definitely a positive for the pharma & biotech sectors is the nomination of Dr. Scott Gottlieb to head the F.D.A. He previously served as deputy commissioner in the first Bush's administration. He is on the record for supporting speedier approvals of complex generics as well as accelerated reviews of marketing applications based on smaller clinical trials rather waiting for the conclusions of larger-scale confirmatory studies. Both items that could lower the huge costs of drug discovery & commercialization.

His confirmation might be a tough slog given his previous work for drug companies. Expect this to be a focus area for the opposition party and a good portion of media during the confirmation process. However, I expect him to be confirmed to head the agency; even if it is largely on a party line vote.

Proposed Change #2 - F.D.A. To Double Fees

The FDA will slightly more than double the fees to review drug applications to some $2 billion in the proposed 2018 fiscal budget. This is actually a good thing. The agency will add additional resources to enable it to review marketing applications more quickly.

I know that for the small businessmen & women out there, adding staff when your business has too much demand from your customers to handle is as common sense as bringing your umbrella with you when there is a 80% chance of rain later in the afternoon. However, for the government this almost constitutes radical thinking. The industry will happily pay and benefit from the extra $1 billion that it will have to spend to quicken the drug approval process, even if it just marginally.

15 Days Left!

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Proposed Change #3 - NIH Funding To Be Cut 20%

In the president's proposed 2018 budget, proposed funding for the NIH is to be cut 20% or $5.8 billion. The proposed plan also includes a major reorganization of NIH's institutes and centers to "help focus resources on the highest priority research and training activities." This is non-sequitur on a couple of counts. First, compared to what the industry spends on R&D on a annual basis; this is a drop in the bucket.

More importantly, it is never going to happen along with deep proposed cuts at the E.P.A and other government agencies. First, it would require 60 votes in the Senate to avoid a filibuster. This is impossible as the Democrats will be united in opposition and quite a few Republicans will not back these sorts of cuts either.

This proposal is D.O.A. even before the press (which thinks a cut from 8% growth in a government program to 6% is "draconian") starts in on it full bore. There is a reason government funding programs are rarely if ever cut. This will not be the exception. Therefore, investors should ignore it.

Image result for milton friedman

"Nothing is so permanent as a 'temporary' government program" - Milton Friedman

Thank You and Happy Hunting

Bret Jensen

Founder, Biotech Forum & Insiders Forum