The FDA Should be Dismantled to Encourage Economic Growth

Well it has been a while since I've had a chance to post. Most of the delay was caused by a class I am taking called Securities Analysis. It has been a good experience, and I have learned a lot about valuing companies and using current events to estimate a company's present value, and hence share price.

I did two projects and presented the results to the class. The first project was about Pfizer. They are a large drug company that manufacture a number of well-known drugs including Viagra. The second project was to summarize and report on the Biotech industry and then value Genentech, a biotech company in San Francisco.

One of the interesting things I came across as I put together these reports was the amount of reliance these companies, in both the Pharmaceutical industry and Biotech industry, have on the Federal Government for their fortunes. If a drug is approved by the FDA, it has the potential to bring in revenues of more than $1 billion dollars a year!

While most people would say that the FDA is necessary to prevent harm to be caused by bad medicine, I would propose a revision to this line of thinking. I think the the FDA should be dismantled and drug companies themselves should be responsible for the quality and effectiveness of their drugs. This would cut out, on average, 2 years of testing time in the development life cycle of an average drug. Just think how many people suffer because of this archaic bureaucracy.

I know what you're thinking: "James, are you mad? If the FDA doesn't put its stamp of approval on the drug, then we would be at tremendous risk for harmful side effects, not to mention the potential for drug companies to sell us snake oil at high prices!"

Let me address issue. Drug companies like making money. That is why they produce drugs (or phramaceuticals if you prefer). Every time a drug is found to be defficient or having unknown side effects, they lose a tremendous amount of money by recalling that drug and they are liable for the inevitable litigation. It does not make sense, economically or financially, for a drug company to release a medicine that it knows to cause harm. Their reputation would be damaged, and so would their profits. One bad drug could basically eliminate a company. Just look at the recent news about Biogen Idec.

I like the idea of an "underwriter" putting their seal of approval on the medicine. Right now, another industry, consumer electronics willfully submit their products to underwriters to test and garauntee. Without that seal, people tend to be wary of the product. Moreover, if a product fails, say a TV explodes under normal usage, the underwriter covers a portion of the liability.

This would speed up the process of bringing the drug to market and thus save lives or at least increase the quality of life for millions of people. In turn, this would encourage futher research and potentially encourage economic growth.

A great article by investigative reporter John Stossel goes into some detail on the subject. For the most part I agree with him. Read the article (he also wrote a follow up here) and let me know your opinion.