FDA's new status quo
Investment manager Warren Isabelle welcomed a local biotech executive to his office in downtown Boston last Friday and soon the conversation shifted to a business concern they shared.
Both were worried about news reports floating the name of Mark McClellan as the possible new head of President Bush's Medicare program. In his 16 months as commissioner of the Food and Drug Administration, McClellan had become a critically important figure to biotech companies and people like Isabelle, whose Ironwood Capital Management actively invests in life science stocks.
Sure enough, they read the next day's newspapers to discover McClellan would be officially nominated as chief of the Centers for Medicare and Medicaid Services. Lester Crawford, the deputy FDA commissioner, would become acting FDA chief, a position he held before McClellan's appointment to head the agency in 2002.
This may not be the end of the world for biotech firms; it may not be bad news at all. But the FDA was part of the problem in the biotech world before McClellan arrived. Today, it is part of the solution. The obvious question: What now?
"He was a guy who really quickly brought all the loose ends together," said Isabelle. "He got the whole machinery of the FDA back on track."
Prior to McClellan's arrival at the FDA, the White House had fought with Democrats, especially Senator Edward Kennedy of Massachusetts, over who would be appropriate to lead the regulatory agency. Though opponents blocked several candidates as potentially too friendly toward industry, it's hard to imagine anyone would have been more helpful to companies trying to win FDA approval for their new drugs than McClellan.
Floodgates didn't open at the FDA. The agency approved 25 drugs in 2003, McClellan's first full year as commissioner, compared with 20 the previous year. But speedier drug reviews and a willingness to rethink old procedures had a big impact on biotech companies and the capital markets that serve them.
The leading biotech stock index climbed by over 52 percent from October 2002, when McClellan took the job, through last week. The Nasdaq Composite index, booming after 2 1/2 dismal years, gained 49 percent during the same period.
"The two things that catalyzed a bull market for the biotech stocks were a more benevolent FDA and Genentech's cancer drug," said analyst William Tanner of Leerink Swann & Co. in Boston. "If suddenly it looks like some of these drugs are going to get dinged or take longer to be approved, there should be a devaluation of the sector." But Tanner, like others, isn't jumping to that conclusion yet. He hopes the current FDA environment has become the new status quo and won't worry about problems at the agency until he sees some evidence they really exist.
Linda Miller, manager of the John Hancock Life Sciences fund, is in the same camp. "It's a big issue, but I'm not ready to think it's dire," she said. "I don't know that there are another 50 products awaiting someone's signature today."
The same biotech stock index that soared 52 percent during McClellan's tenure has slipped about 1 percent since it reached a two-year high last week.
The pace of transition at the FDA will be important to biotech investors. The longer it takes, the more uncertainty creeps into the investment picture. White House opponents won't have the same opportunities to derail commissioner candidates this time, but election-year politics is an unpredictable wild card.
The FDA, the way it operates today, is a better agency for almost everyone. That includes biotech firms and the patients who use their products. With any luck, it will stay that way.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
