The FDA will soon stipulate that researchers who accept more than $50,000 in corporate grants, contracts and consulting fees cannot sit on FDA advisory committees. This will rule out many current advisors.
First, I wonder how this fits into the old Sam Peltzmann story that the FDA is too conservative in approving new drugs.
Second, what if we reformed in the opposite direction? Why not do away with all the mandatory drug trials and the like, and simply let drug companies purchase approval for new drugs? Think of the companies as posting bonds, and of course they still can be sued ex post if the drug harms somebody. The companies still will have reason to conduct their own tests. Set the price high if you wish.
To be sure, how much a company will pay for approval will depend on expected profits, not social welfare. But even with market power there is usually some connection between those two magnitudes. Or maybe the fear of lawsuits won’t deter poorly capitalized companies, but at the very least we could let the corporate giants take this path.
Some companies might be too overconfident about their drugs. If you believe that, I hope you are buying puts on them. Other companies might have excessively short time horizons. If you believe that, I hope you are loading up on drug companies with heavy R&D and raking in your excess returns.
So does this idea have any takers? If not, why not?
Addendum: Matt Yglesias argues regulation is a substitute for litigation.