Proposal of the Small Biotechnology Business Coalition

In response to Docket No. FDA-2010-N-0274

August 2010

A proposed regulatory exemption for

Small Business Developed Innovative Tests
Background

On July 19, 2010, the Food and Drug Administration (FDA) held a public meeting
titled ―Oversight of Laboratory Developed Tests‖ for the purpose of getting public
feedback on reconsideration of the FDA’s longstanding policy of exercising
enforcement discretion over laboratory developed tests (LDTs). According to the
official notice of the meeting FDA’s new policy ―should encourage innovation,
improve patient outcomes, strengthen patient confidence in the reliability of these
products, and help reduce health care costs.‖2 (emphasis added) Following the
meeting the FDA invited the public to submit written comments on ways in which the
FDA might regulate LDT. This proposal is being submitted by the Small
Biotechnology Business Coalition (SBBC)3 pursuant to that request for comment.

A widespread concern among small diagnostics companies is that the high costs of
compliance with anticipated regulations in the face of unpredictable commercial
returns could prevent them from attracting the capital needed to bring their products to
market.

Proposed is a new regulatory mechanism for simultaneously encouraging innovation

while at the same time protecting patients and delivering tests that can substantially
improve disease outcomes.

Proposed exemption

The proposed exemption would apply to innovative tests developed by small

businesses4 that would otherwise be deemed to be Class III diagnostics (most
complex, high risk and novel intended uses) requiring premarket approval (PMA).
These diagnostics—to be known as ―Small Business Developed Innovative Tests‖ or
―SBDIT‖s—could instead be subject to a new ―provisional PMA‖ that would permit
marketing and administration of the test to up to 4,000 U.S. patients per year. 5

2
Federal Register, June 17, 2010 (Vol.75, No. 116)
3
www.SmallBiotechCoalition.org The SBBC was founded in February 2010 to promote government
policies that aid the estimated 2000+ independently owned, privately held small biotech companies.
The vast majority of these companies are financed through the SBIR program and individual (―Angel‖)
investors rather than VCs.
4
Applicable Small Business Administration (SBA) rules would define ―small business‖ for purpose of
this exemption.
5
The number 4000 patients per year is based on the same number in Humanitarian Device
Exemptions.

1
An application for an SBDIT provisional PMA would be similar in both form and
content to a regular PMA application, but without the same amount of clinical trial data
typically required for PMAs. The applicant would, however, need to demonstrate to
the FDA that their test does not pose an unreasonable or significant risk to patients,
and that the probable benefit to health outweighs the risks, taking into account the
probable risks and benefits of currently available devices or alternative testing
paradigms. Additionally, the applicant must demonstrate that no comparable tests are
on the market, and that they could not otherwise bear the cost of a traditional PMA. In
this regard the standard would be very similar to that of a Humanitarian Device
Exemption (HDE).

A provisional approval would authorize the marketing and administration of the SBDIT
to up to 4,000 U.S. patients per year. If the applicant intends to use data generated
by the marketed test for a subsequent regular PMA approval all applicable institutional
review board (IRB) and informed consent regulations must be complied with. The
labeling for an SBDIT must state that the test has been provisionally approved by the
FDA although the effectiveness of the test for the specific indication has not yet been
completely proven.

How would this exemption encourage the development of innovative tests?

This exemption would help break the ―Catch-22‖ facing most innovative small
diagnostics companies who face the challenge of accessing capital to fund expensive
clinical studies without conclusive evidence that their test will gain regulatory approval
and marketplace acceptance.

A June 2010 article titled ―Hurdles Remain in VC Funding Environment for MDx
Firms‖ 6 accurately described the bleak funding environment facing emerging
diagnostics companies:

A rapidly changing regulatory environment, slow adoption by clinicians, and

the soft economy continue to be barriers to venture capital investments into
the molecular diagnostics space, according to some VC investors and officials
at MDx firms, with one venture capitalist calling the current environment one
of the worst he’s seen.

According to the article investor concerns stem from uncertainties in four main
areas: (i) how the FDA will regulate LDTs, (ii) the need for validation on adequate
numbers of high quality patient samples to demonstrate accuracy, (iii) whether the
tests will be adopted by physicians, and (iv) reimbursement by third party payers.
This proposed SBDIT exemption helps resolve all four of these uncertainties.

Revenue derived from sales of the test to early adopters would help fund
operations and reduce the demand for outside investment.
6
Genome Web Daily News June 22, 2010

2
 Data derived from the first few years of marketing could be collected and
analyzed becoming the equivalent of a large scale, prospective clinical study
that would otherwise be prohibitively expensive for small companies.
During this provisional period companies could ascertain market demand for
their test and in some cases obtain reimbursement from CMS and/or private
payers. This would significantly decrease uncertainty for investors permitting
the company to more readily obtain funding for more research and
development and product improvements.

What patient protections would be established?

Several requirements would accompany a provisional PMA to protect patients.

Before granting the provisional PMA the applicant would need to demonstrate
that the probable benefits of the test outweigh the probable risks
notwithstanding the fact that these risks and benefits have not yet been
definitively proven.
In marketing the test these potential risks and likely benefits –and the data in
support thereof--must be clearly and accurately articulated in a manner that is
accessible and understandable to both physicians and patients.
The marketing materials should make clear that the test has been only
provisionally approved by the FDA and that the benefits of the test have not yet
been definitively proven.

How does this proposed exemption compare with the Humanitarian Use
Exemption and Investigational Device Exemption?

The humanitarian device exemption (HDE) was established based on the

recognition that companies` research and development costs typically exceed their
market returns for devices and diagnostics addressing small patient populations
(under 4,000 U.S. patients per year). HDEs provide an incentive for the development
of products for these diseases by eliminating the requirement of proving efficacy.7

The economic rationale for HDEs also supports similar incentives for SBDITs
notwithstanding the fact that the later ultimately may address substantially larger
markets.

Investigational Device Exemptions (IDEs) is designed for devices and diagnostics for
which effectiveness data is being gathered prior to marketing. The SBDIT exception
also permits the gathering of this data but in the context of a limited initial marketing
campaign to early adopters.

7
21 CFR 814 Subpart H

3
Why single out small businesses?

Small businesses are responsible for a disproportionate share of innovations in the

U.S. economy but typically lack the financial resources for exhaustive clinical trials.

A 2008 report titled ―Where Do Innovations Come From?‖ concluded that the nature
of the U.S. innovation system has changed dramatically over the course of the last
40 years.8 The report analyzed the innovations recognized by R&D Magazine as
being among the top 100 innovations of the year over the last four decades.9 The
study found that since the 1970s there has been a dramatic shift in R&D 100
winners from large corporations acting independently to small companies operating
in collaboration with, and with support from, government agencies. In particular the
study determined that nearly one-quarter of inventions that receive the prestigious
R&D 100 awards are now developed by small businesses funded through the Small
Business Innovative Research (SBIR) program.10

Approximately 2000 U.S. based small businesses participate in the NIH SBIR
program. More than 20% of NIH SBIR grants are directed to diagnostics.11 Only a
small fraction of these 400+ companies have or will likely obtain substantial
investments required for a traditional PMA. Without the protections of the proposed
SBDIT exemption it will be difficult, if not impossible, for most of these companies to
succeed in a regulatory environment requiring all innovative LDTs to obtain PMA
approval.

For further information please

contact:

Small Biotechnology Business

Coalition
9710 Traville Gateway Drive, #325
Rockville, MD 20850
301-917-6538
policy@SmallBiotechCoalition.org

8
Fred Block and Matthew Keller, The Information Technology & Innovation Foundation (July 2008) ,
www.itif.org
9
Each year since 1963, R&D Magazine has selected the 100 best inventions that are incorporated
into commercial products. Past winners of the prestigious R&D 100 Awards include the flashcube
(1965), the automated teller machine (1973), the liquid crystal display (1980), the Nicoderm
antismoking patch (1992), the anticancer drug Taxol (1993), lab on a chip (1996), and HDTV (1998).
10
See, Where Do Innovations Come From? The Information Technology & Innovation Foundation,
July 2008
11
Slide presentation of NCI SBIR Office