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The Potential Impact of FDA Leadership Changes on Drug Partnership

With the election of President Trump and a Republican congress last November, many (including Locust Walk) have speculated on the future of pricing, reimbursement, drug approval and other potential policy changes and their potential impact on the biopharma industry. As expected, many controversial changes seem to be close on the horizon, including the repeal and replacement of the Affordable Health Care Act and the President’s hinted pricing regulations. A recent and somewhat less controversial piece of news that could have a significant and potentially stimulating impact on the industry is the appointment of Scott Gottlieb as FDA commissioner. This appointment and the reforms that result could influence the risk-management strategy employed by companies and investors, potentially leading to a more active environment for strategic partnership.

Not surprisingly, the regulatory risk (real and perceived) faced by a drug development program is a major source of uncertainty for drug developers as well as their investors and potential strategic partners. In fact, one of the main concerns typically encountered during a partnership or financing process is that a drug is too early in development and is therefore too risky and/or costly. This caution is often justified, since published benchmark data suggests that an average drug in phase 1 of development has just a 16% chance of ultimately being approved¹. The resulting risk aversion, while understandable, can create a situation where a drug developer is unable to fund further clinical development, resulting in potentially promising therapies that are never put into the hands of prescribers and patients.

Both before and after his election, President Trump has commented on the need for reform of the drug approval process, and in picking Gottlieb to head the FDA, Trump appears to have taken a step toward fulfilling that goal. Gottlieb is a friend to the biopharma industry; he has served on the board of directors at many pharmaceutical companies and is currently a Venture Partner at New Enterprise Associates (NEA). He has publicly commented on a number of policy issues important to the biopharma industry. While all of these issues are potentially impactful, the adjustment of the FDA’s new drug review and approval process could have a particularly large impact on biopharma partnership discussions. Gottlieb is expected to be an advocate for a faster review process, ultimately resulting in less regulatory risk and a greater chance of approval for many drugs. If this change materializes, in addition to making more drugs available to patients via more frequent approvals, it would likely have a stimulating effect on the biopharma deal environment, with potential partners and investors seeing more assets as representing an acceptable level of risk.

Naturally, there will be disagreement over whether Gottlieb’s potential adjustment of FDA’s review and approval process will ultimately be the best thing for the industry, patients and the country. Gottlieb has previously suggested that reducing the cost and risk of obtaining regulatory approval is a mechanism to ultimately lower drug costs passed on to patients and payers, but the impact on drug pricing remains to be seen. Similarly, it has been argued that adjusting the ease with which drugs get approved could put an undue burden on prescribers to more closely evaluate safety and efficacy data before prescribing, though Gottlieb and others have argued that this shift in decision making power is appropriate.

While no one can be sure how the FDA’s approach to drug approval will evolve under its new leadership, based on previous public statements it seems likely that Gottlieb will make changes that shift the balance toward easier and more frequent drug approval. If so, while there may be debates about the positive and negative impacts on other aspects of healthcare, it is likely that the change will stimulate partnership and investing and ultimately make more drugs available to treat patients.

Locust Walk has developed a strong track record of successfully closing deals despite the regulatory challenges and risks highlighted above. For more information on how Locust Walk might help you with your strategic pursuits, please contact a team member.

Written by Nick Delong

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