Trump's Regulators Aim to Boost Growth by Lowering Hurdles to Innovation

By Greg IpFeaturesDow Jones Newswires

You'd think from the debate raging in Washington that taxes are the key to economic growth. They aren't. In the long run, innovation matters way more, and that depends on inspiration, experimentation and luck, not tax-law changes.

Yet presidents matter for promoting innovation even if it's less glamorous than taxes. Their support often takes the form of directing money toward basic research or favored industries such as defense or renewable energy.

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Under President Donald Trump the place to look is the regulators. Two of his appointees in particular, Food and Drug Administration Commissioner Scott Gottlieb and Federal Communications Commission Chairman Ajit Pai have prioritized reducing regulatory hurdles to private investment as a way of boosting innovation. It's too early to gauge their success, but the efforts merit more attention at a time when the growth debate is focused on steep, deficit-financed tax cuts.

Consider pharmaceutical companies. Though vocal advocates of slashing the corporate tax rate, their bigger problem is the staggering cost of development: $2.6 billion on average to bring a new drug to market, once the cost of capital and failed drugs is included, according to Tufts University's Center for the Study of Drug Development. Between 1989 and 2011 the cost per patient of a clinical trial more than doubled, after inflation, according to one study.

This in great part is because the most treatable diseases already have therapies, leaving only the toughest ones. But regulation may also play a role.

"Through regulation we have imposed additional steps: There are things you need to do as part of product development that 15 years ago you didn't need," Mr. Gottlieb said in an interview.

The FDA chief, who has degrees in economics and medicine and worked in venture capital, cited a Tufts study that found that between 1999 and 2005, the number of procedures performed on a patient in a clinical trial rose 65%.

That, he says, is appropriate if it means drugs are more likely to be safe and effective. But he believes those costs can be cut without sacrificing safety. "Everyone thinks if the clinical trial takes two years instead of three, the product is less safe. And that's just not true."

He wants the FDA to help drug developers narrow the information they must submit for preclinical trials, reducing the capital needed at the riskiest stage of development.

Mr. Gottlieb said developers can answer some questions, such as the most effective dose, more cheaply and accurately using artificial intelligence and computer modeling rather than through multiple clinical tests. They can test a single compound against multiple types of cancer in one "seamless" trial rather than multiple, separate trials, he added.

Aaron Kesselheim, a doctor specializing in drug research at Harvard Medical School, noted the FDA had been improving the efficiency of drug reviews before Mr. Gottlieb arrived. Still, Michael Yee, an analyst with Jefferies LLC., says Mr. Gottlieb's verbal commitment to more flexible approval requirements and patient input signaled important shifts.

And while overall drug approvals last fiscal year were in line with recent trends, Mr. Yee noted that under Mr. Gottlieb's watch, two new cancer cell therapies -- Gilead Sciences Inc.'s Yescarta and Novartis AG's Kymriah -- were both approved without the usual large-scale phase 3 trial. Another company, Amicus Therapeutics, was invited to apply for approval without a trial the FDA previously demanded.

Some experts worry that speeding up the approval process may result in costly new drugs that may not be as safe or effective. Last year, before Mr. Gottlieb's arrival, controversy erupted when the FDA approved an expensive treatment for a rare form of muscular dystrophy against its own experts' recommendations, in part because of pressure from patients' parents aided by a consultant to the drugmaker.

And even if the new drugs are effective, their prices, which reflect what patients and insurers will pay, won't necessarily drop.

On the other hand, there are signs of real progress on generics. Approvals began to speed up thanks to legislative and regulatory changes before Mr. Gottlieb's arrival, and he's redoubled those efforts; a record 763 generics were approved in the last fiscal year, which may be one reason prescription drug prices are rising more slowly this year.

At the FCC, Mr. Pai has targeted the "digital divide," the gap in broadband access between some communities, especially in rural areas, and others. The share of U.S. households with a fixed broadband connection has stalled at roughly a third in recent years. Mr. Pai thinks the solution is "setting rules that maximize private investment in high-speed networks."

Controversially, that includes a proposed rollback of his predecessor's imposition of utility-like regulation so that internet service providers (ISPs) adhere to "net neutrality" -- charging all content providers the same to access their networks. Without those limitations, he reckons ISPs will have more incentive to expand capacity and thus access; critics worry this will favor rich, established content providers over innovative newcomers.

Mr. Pai's philosophy also animates lower-profile initiatives. He has proposed pre-empting state and local restrictions on broadband deployment, such as prohibitions on retiring old fashioned copper-wire connections. In June, the FCC gave OneWeb Ltd. permission to use 720 cheap, low-orbit satellites to provide internet access to rural areas that are costly to serve with fixed connections. Earlier this month it granted Google parent Alphabet Inc. an experimental license to provide storm-battered Puerto Rico with cellphone service via balloons.

Whether such efforts are enough to bolster overall economic growth and productivity remains to be seen. They come as Mr. Trump sought to slash federal spending on health research (Congress rejected the cuts). Private companies in monopolistic positions may pad their profits rather than undertake risky new investments.

Still, Mr. Gottlieb's and Mr. Pai's theory is that if you lower the hurdles to innovation in specific sectors, you'll get more of it. It offers a potentially more tangible payoff than fiddling with the tax code.

Write to Greg Ip at

(END) Dow Jones Newswires

October 25, 2017 13:14 ET (17:14 GMT)