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Executive Roundtable

Drug manufacturing could leave state due to medical hurdles, experts say

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The FDA seemingly takes forever to approve medical device trials as well as drug trials, California's approval steps are incredibly redundant, and device and drug makers are fleeing to other states or Europe or Asia.

These were some of the conclusions at a recent roundtable discussion at The Daily Transcript offices.

"The length of time to get clinical trials approved is a nightmare," said Todd Fletcher, SenDx Medical Inc. president and general manager.

Carlo Nunez, ACI Medical director of operations agrees.

"California is duplicating everything. We are looking at the exact same paperwork as at the federal level," Nunez said.

Nunez says that means that if not the science, than at least the manufacturing of devices and drugs will be moved to places like Texas, where there is much less regulation, or even overseas.

Andrew Rothenberg, Stemedica Inc. chief financial officer, said while he has been approached by Texas officials who would like to see his adult stem cell laboratories expanded into that state, there was never a discussion of relocating the company. Still, he acknowledged that a biotech firm would have a much easier time in Texas.

It is not only easier to process a device or a drug through the regulatory maze in Texas, but it is often an even simpler process in Europe.

"It's 30 months here and eight months in Europe ..." said Jimmy Jackson, Biocom, vice president of public policy. "And it's not as if the safety standards are any different."

"It would be nice if there were some harmonization on this," agreed Jill Broadfoot, a Vical Inc. (Nasdaq: VICL) senior vice president and CFO.

Aron Stern, Vital Therapies chief financial officer, said "biotech is very prone to regulatory risk ... The world environment is much more positive."

Access to capital is another issue and Alex Kunczynski, D&K Engineering president, said he has frequently found better luck with banks in Singapore than in the United States.

"The whole place is run like a business," Kunczynski said.

Fletcher argued that the other problem is "there is no incentive for the FDA to approve a product," since the agency wants to avoid approving a device or drug too early.

Rothenberg, whose adult stem cell therapy company has laboratory and manufacturing facilities in Seoul and has operated in Moscow as well, also agreed that it is often necessary, but very frustrating, to go halfway around the world to get a drug or a device approved.

Other issues were broached. For one, physicians have long complained about being greatly shortchanged by the Medicare reimbursement system. Nunez said the same thing has happened with medical devices -- only worse.

"Medicare stopped reimbursing. That's a huge hurdle," Nunez said. "We have devices that patients aren't using -- even when they could prevent an amputation."

Jackson added that if treatment could be looked at holistically, it would actually save a great deal of money in the end "because we wouldn't have all these patients in crisis.'

Stern agreed that there is a lot of false economy going on. He said while there has been a great deal of press about the cost of a given cancer drug, for example, the cost of placing a patient in an intensive care unit who didn't have to be there is considerably more.

While medical device and pharmaceutical manufacturers figure out how to get their products approved and how to get their devices and drugs to their patients, they can take solace in the fact that they can reduce their rents if they are up for re-negotiation.

"I've had 36 brokers calling me in the past five months," said Rothenberg. "We've got more offices and 10 percent more space for 25 percent less rent."

So what is the future of the medical device company in particular? Fletcher said instead of large cumbersome machines to measure blood chemistry, he expects the devices "will become smaller and smaller and more user-friendly."

New technologies will eventually render the old devices and many of the old drugs obsolete, but regardless of what happens in that regard, the devices and drugs will still be at the mercy of the clinical trial.

Broadfoot, whose firm produces vaccines for infectious diseases among other applications, said her company raised $32 million for clinical trials on a blood vessel treatment only to have it fail during its third phase trial.

Given that having a successful clinical trial is an uncertain result, funding these ventures can be a hit and miss game -- particularly in a major downturn or recession.

"Three years ago, you could go out and find partners," said Biocom's Jackson. "Now it's full time job of a CEO to raise money."

Rothenberg added that between the length of time for clinical trials, the occasional failures of those trials and a whole lot of uncertainty, "it has been tough on individual investors as well."

"And we aren't going to change the FDA," Fletcher added.

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