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Peter Thiel and the FDA

23/03/2015

Peter Thiel sees change in the way the USA’s Food and Drug Administration (FDA) operates as the one reform he would most like to see happen.

The FDA is the organisation charged with setting regulatory approval standards and testing medical drugs before they are allowed to be sold in the USA. Despite being the regulatory approval body solely for the USA market, their decisions appear to have a ripple effect impacting on the decisions of other bodies (such as New Zealand’s Pharmac).

I learnt this after watching a very informative interview at the Economist’s Buttonwood conference with journalist Matthew Bishop. The conversation, which included a Q+A session with audience members, ranged far and wide covering subjects such as: the prospect of Bitcoin replacing fiat currency, net neutrality, the efficacy of state innovation and technological impact on middle class jobs (Thiel believes technology is a convenient scapegoat and is yet to pose a serious threat in this space).

However, the matter Thiel kept returning to was the FDA’s regulatory approval process and how it limits the potential social gains from greater innovation in the health space. While there are amazing new video games being developed there are not the same number of amazing new drugs being produced.

The problems with the FDA (and indeed other similar regulatory approval bodies worldwide) have of course been well documented. The most obvious problem being officials facing incentives to reject the approval of any given drug. The reason for this is simple, officials are risk averse because they know they risk sanction should they approve a drug which subsequently causes negative health effects to patients. Here we see visibility bias at work, when officials reject a drug for approval nobody sees the many patients whose lives could have been saved by the new drug but conversely when a drug is approved and negative side effects result this is visible and the official is likely to be in trouble following the expected political and media furore.

One of the stronger arguments proposed for change of this regime is to inform patients of risks associated with a new drug and allow them to assume this risk individually. For terminal patients facing a high prospect of a shortened life it is certainly understandable they may wish to assume a greater level of risk in choosing a particular drug and/or course of treatment.

Interestingly, however, this is not the argument and proposed change Thiel suggests. Conversely he argues for less emphasis on the efficacy of the drug but not a reduction in the safety standard expected. He argues this could result in a product 90% as good (as those currently produced out the end of the cumbersome regulatory process) but at one tenth the price.

The whole discussion is of course well worth watching and informative. Here is the video.

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