Betting on Safety: The IoM Report's Impact on Wall Street

The Institute of Medicine is recommending big changes in how FDA deals with drug safety issues. Is it possible that will be good news on Wall Street? Drug safety expert and managing director of investment company Symphony Capital, Alastair Wood, weighs in.

The Institute of Medicine is recommending big changes in how FDA deals with drug safety issues. Is it possible that will be good news for Wall Street?

By Kate Rawson

"It’s a fundamental fallacy to believe that there’s a conflict between safe drugs and commercial success."

Symphony Capital Managing Director Alastair Wood, MD

The recommendations in the Institute of Medicine’s assessment of the drug safety system in the US have generated a lot of headlines about a potential overhaul of the Food & Drug Administration.

The report—which is likely to be a centerpiece of Congressional efforts to reform FDA during next year’s user fee reauthorization cycle—recommends some big changes for FDA’s drug safety operations.

Recommendations include the ability for FDA to mandate post-marketing commitments, the delegation of labeling authority directly to the agency (without having to negotiate with the sponsors), and a re-review of all data on new products five years after launch. (See "November Surprise: FDA Could Get Labeling Authority," in this issue (Also see "California Court’s Inaction On TiO2 Prop 65 First Amendment Case Breeds New Lawsuits" - HBW Insight, 24 Apr, 2024.).)

But will the IoM report have an immediate impact on drug stocks?

Will the promise of a stronger FDA chill Wall Street’s view of the biopharma sector?

Or is the financial community ready to make a contrarian bet and interpret reforms for FDA as a harbinger of future success for the biopharmaceutical industry?

To find out, The RPM Report asked Alastair J.J. Wood, MD, a drug safety expert with a keen interest in pharma investing, to share his thoughts on what the IoM report means for the drug industry.

Wood offers a unique perspective: a former candidate for FDA commissioner, he has been in academia for 30 years at the Vanderbilt University School of Medicine, and served on a number of FDA advisory committees, including the Cardiovascular and Renal Drugs Advisory Committee and a special committee on cox-2 inhibitors.

Wood recently took that experience to the investment world. He now serves as a managing director at Symphony Capital LLC , a private equity firm that manages $315 million in capital dedicated to investments in the clinical development of novel biopharmaceutical products.

In the past two years, Symphony Capital has made major investments in four public companies: Isis Pharmaceuticals Inc. , Guilford Pharmaceuticals Inc. , Exelixis Inc. and Dynavax Technologies Corp.

The RPM Report: What does the IoM drug safety report mean for the pharmaceutical and biotech industries? Will a stronger FDA drug safety program hurt or help drug stocks?

Alastair Wood: It will be good for drug stocks. The overarching message from the IoM report is that we need better-quality data, and better-quality data is always good when it trumps opinions and seat-of-the-pants kind of views.

Encouraging the FDA to get better-quality data... will help them make more thoughtful and factually driven decisions. And that’s in the interest of everybody.

RPM: Marketing safer drugs is certainly a positive from an investment point of view—so long as changes to the system don’t slow down the drug development and approval process.

Wood: I’m not seeing anything in this report that suggests the changes will slow down the process.

It’s a fundamental fallacy to believe that there’s a conflict between safe drugs and commercial success. The idea that that is true is counter to any common sense. It’s in everybody’s interest to be able to—as they say in soccer—move the ball down the pitch towards safer, more effective drugs. It’s in nobody’s interest to paralyze the system.

RPM: As you look through the list of 25 recommendations, are there specific measures that are positive or negative for the drug industry from an investment perspective?

Wood: I don’t think so. You have to look at the report in its totality, rather than try to nuance the different pieces of it. The underlying message of the report is that they want to strengthen the ability of the agency to respond to drug safety issues.

That’s a good thing. They’re not suggesting that we should have a fundamentally different system for approval of drugs, for example. They emphasized, rightly, that the evaluation of the therapeutic benefit of a drug comes both from a consideration of its efficacy and its safety.

Putting that in so many words is an important part of that process—there’s a benefit from medications and like all human endeavors, some of that carries with it some risks. Understanding these risks and being able to quantify these risks comes from having good data. That’s the fundamental message from this.

RPM: Perhaps the best news for Wall Street is what the report didn’t include, proposals like provisional approvals. Instead, the committee recommended a five-year review of the safety data.

Wood: I’m not sure how much good the five-year review will do, frankly. I think it’s an interesting exercise. My only concern is that it may generate more work than benefit.

The European experience with that has not been terrific, in my view. It hasn’t seemed to make much difference. There has almost never been any action taken on these reviews. The fact that they didn’t come out in favor of any sort of provisional approval is also important. These are all positives.

It’s strongly in industry’s interest to have the public and legislators have confidences in FDA’s decision-making process. That does not imply that every decision will turn out to be one that you want to stick with five or more years later. The question is, was it a reasonable decision based on the data available at the time?

RPM: The timing of the release of the IoM report sets up negotiations for the reauthorization of the Prescription Drug User Fee Act in 2007. How should investors view those discussions in light of the IoM recommendations?

Wood: We need to be encouraging a major paradigm shift in drug development, and the creation of really major drugs. That’s something we’ve lacked up until now, in that we give the same exclusivity for every new drug whether it’s a major improvement or not.

We need to be moving in a direction that rewards scientific risk-taking, and rewards major innovative advances, rather than just rewarding and encouraging minor changes at the expense of real scientific risk-taking that will result in major health improvements.

But the issues in PDUFA that are currently on the table are fairly incremental in nature. I’m not hearing much discussion of fundamental, innovative change. There should be—there’s an opportunity for that.

RPM: But that’s not something that industry or FDA wants—both sides have a stake in seeing PDUFA reauthorization pass through Congress without provisions that advocate fundamental change.

Wood: I’m not suggesting a fundamental change in the way the agency does business. I think the agency does a pretty good job in reviewing drugs and assessing efficacy.

The question is, are there ways that we could improve the discovery of adverse effects that were not recognized in the pre-approval application? That’s really the focus of the IoM report, and I’m not sure I hear many people arguing with those conclusions.