The Dynamics of Regulatory Convergence

David VogelHaas School of Business

University of California, Berkeley CA94720E-mail: vogel@haas.berkeley.edu

Prepared for presentation at a conference on “Regulation in Europe,” sponsored byLondon Business School and the Max Planck Institute, Bonn in association with the Anglo

German Research Foundation, November 4 – 5, 1999

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INTRODUCTION

This paper explores the dynamics of regulatory convergence within the European Union and

internationally. It primarily consists of two related case-studies of regulatory convergence, one focusing

on pharmaceutical regulation within the European Union and the second focusing on pharmaceutical

regulation at the global level. Both these cases illustrate the substantial progress that has been made in

coordinating national regulatory policies. The conclusion of the paper briefly discusses some other

cases of regulatory convergence and divergence and then assesses the factors that affect these

outcomes.

Drugs have long been among the most extensively regulated of all consumer products. Not

only do all governments closely supervise virtually every aspect of their development, testing,

production and marketing, but many also regulate their pricing and distribution. The pharmaceutical

industry is highly globalized, with over half the sales of the fifty largest drug companies made outside

their home country – (Tarabusi and Vivkery 1993). However, until recently, drug regulation was

virtually synonymous with national sovereignty. Firms were required to conduct separate tests, submit

separate applications, and meet distinctive criteria to enter each national market.

Because drugs are so extensively regulated and have such significant health and safety impacts,

drug policy coordination has proven extremely difficult. Nonetheless over the last decade, national

regulatory agencies have began to more closely cooperate with one another. The European Union has

established a centralized drug approval system, the United States Food and Drug Administration has

become more willing to cooperate with its foreign counterparts, and the United States, the EU and

Japan have made substantial progress in harmonizing drug approval requirements under the auspices of

the International Conference on Harmonization of Technical Requirements for the Registration of

Pharmaceutical Products (ICH).

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THE EUROPEAN UNION

The Scope of the Problem

Separate national drug approval policies and requirements long presented a critical obstacle to

European integration (Kingham, Bogart and Eddy 1994, 301). According to the 1988 Cecchini report

on the single market published by the European Commission, the European pharmaceutical industry

was significantly constrained by the “lengthy and differing drug registration procedures” of the Member

States. (Cecchini 1988, 67). Moreover, “all pharmaceutical companies . . . treat the Member States as

separate markets” (Oraz, Kaitin and Lasagna 1992, 849). Some multinational firms did not even bother

to apply for product approval in each Member State, and most smaller firms limited their product

marketing to their own country. The Financial Times observed in 1990 that:

If you suffer from stomach problems and live in France or Germany, do not ask yourdoctor to prescribe Zantac, the world's best-selling medicine. The product, made byBritain's Glaxo, is called Azantac in France; in Germany it is Zantic. The linguisticdistinctions are a symptom of the difficulties faced by western Europe's 30 billion-pounds-a-year pharmaceuticals industry in moving to a single market . . . Suchfragmentation has the effect of imposing trade barriers of the kind that 1992 issupposed to eliminate (Marsh 1990, A13).

Distinctive national registration requirements also imposed substantial costs on governments,

since each was required to maintain its own regulatory bureaucracy. In 1993, the EC's twelve Member

States employed 2,000-2,500 full-time drug evaluation staff, plus about 1,000 expert consultants. The

annual cost of twelve separate national drug authorities was approximately $300 million, a cost borne

by pharmaceutical manufacturers, since they pay for clinical trials as well as registration and licensing

fees, and indirectly by consumers. (Melloan 1994, A13). Since regulatory approval costs are linked to

clinical testing requirements rather than to market potential, many firms avoided smaller markets

altogether (Howells 1992, 36).

Not surprisingly, drug approval policies varied significantly throughout Europe, due to cultural

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factors, the degree of acceptance of folk remedies, religious beliefs and the differences in the

assessments of risks and benefits by regulatory authorities. Member States also differed in the speed

with which they approved new drugs, further complicating marketing in what was potentially the

world's largest pharmaceutical market. For example, approval in England and France could be received

in less than one year while Germany regularly required up to five years. (Green 1995a, 2).

However Member States were reluctant to surrender their control over drug approval. This

was due not only to their distinctive regulatory styles and traditions, but also to the close ties between

drug approval policies and national health care policies -- and thus to national budgets. Approximately

half of the industry's revenues in Europe come from national governments. In addition to controlling

new product registration, Member States controlled drug prices and subsidized development costs,

making this industry among Europe's most extensively and closely regulated (van de Gevel 1992, 5).

When the European Community was established, health care, like all other aspects of welfare policy,

was left exclusively to the Member States (Richards 1991, 1322).

As one student of EU drug policy noted in 1989:

The free movement of drugs in the European Community is not only hindered by thefact that the national competent authorities render different value judgments on themerits of therapeutic approaches and on issues of relative benefits and risks of drugs. On top of these drug-specific differences come health-policy-specific differences in thecontrol of the social-security system, and industry-specific differences in the control ofthe drug industry's prices and profits, and differences in the extent to which nationalgovernments assist their national drug industry (Kaufer 1989, 20).

Initial Efforts

Efforts to reduce national disparities in drug regulation began in 1963, when the European

Commission convened a conference of industry representatives, doctors, and consumers to discuss

standardizing pharmaceutical laws (Oraz, et. al. 1992, 853). However little was accomplished. In 1965,

the EU issued its first pharmaceutical directive. It established baseline “criteria for safety, quality and

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efficacy as preconditions for marketing authorization for new drugs. The directive also defined

medicinal products and required Member States to ensure that submissions of medicinal products to

national authorities were prepared and signed by experts with “the necessary technical or professional

qualifications” (Quoted in Oraz, et. al. 1992, 853-54). These qualifications, however, remained

undefined the efficacy test itself was restricted: Yet even this minimal standard was enacted by only

seven of the twelve Member States (Oraz, et. al 1992, 854). Through the mid-1970s, virtually no

progress had been made in creating a single market for pharmaceutical products.

A New Approach

In 1975, the EC established the Committee for Proprietary Medicinal Products (CPMP), with

members drawn from the regulatory authorities of the Member States (Oraz, et. al 1992, 855). The

CPMP was given the authority to review all drug applications within the EC. Applications would be

examined for conformity to European Union safety, quality, and efficacy standards, and the Committee

would then issue an opinion on marketing approval (Buono 1995, 145). However the CPMP's role was

only advisory. Member States maintained the right to deny approval of a pharmaceutical product even

if the Committee recommended that it be approved (Oraz, et. al. 1992, 855).

That same year, the EC also established a multi-state or “decentralized” procedure for drug

approval, which is subsequently revised in 1983 (Kanusky 1994, 677). Under this procedure, a

manufacturer would first submit its product to any national pharmaceutical regulatory agency. If that

body granted approval, the company could then submit “concurrent applications” to at least five other

Member States. The latter, in turn, were required to take the initial authorization into account in their

own review, thus presumably expediting their approval process. If any refused authorization, they

were required to submit a “reasoned objection” to the CPMP within three months. The CPMP would

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then have two months to issue an opinion on the objection.

But the establishment of multi-state procedure had little impact on national drug approval

policies, primarily because final approval still resided with the regulatory bodies of each Member State.

German firms boycotted the procedure “as a matter of principle” (van de Gevel 1992, 5). Although

Member States were only supposed to reject CPMP recommendations in “exceptional cases,” and after

making “reasoned objection,” such objections in fact became the norm. Only half of the licenses

originally granted by a Member State were accepted by the other Member States to which they were

submitted (van de Gevel 1992, 6).

The multi-state procedure was intended not only to generate confidence among Member States

about each other's scientific competence, but also to speed the approval of safe and effective drugs.

Results were mixed for this goal as well. Since the multi-state procedure had strict time limits (a state

had four months to evaluate a dossier that another state had already approved) Member States did give

priority to multi-state applications. However, because they still carefully investigated each application

rather than relying on the initial state's opinion, the multi-state time limits were frequently violated (van

de Gevel 1992, 6). Only in France were the time limits ever approached. In Germany and the United

Kingdom it took an average of two years to process applications, while in Italy, Spain, the Netherlands,

or Belgium it took three years or more (Howells 1992, 34).

Although all Member States agreed to accept test evidence obtained elsewhere in the

Community, there was no real progress towards mutual recognition of drug approval. As the

Committee's chair noted in 1988, “Each concerned state seemed to conduct its own assessment and

raised its own objections . . . In practice there have been objections with regard to each and every case

dealt with under the Multi-State procedure.” He concluded that “on the whole, the Member States do

not yet accept each other's assessments” (quoted in Oraz, et. al. 1992, 856). The resulting financial

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costs were substantial. The Cecchini Report on “The Benefits of the Single Market” estimated that the

lost revenues of companies forced to wait over the agreed 120 day limit ranged between 100 - 175

million Ecus, while multiple registration requirements required firms to employ extra staff at a cost of

between 40 and 55 million Ecus (Cecchini 1988, 67).

Toward Harmonization

In 1987, frustrated by the ineffectiveness of the multi-state procedure and committed to the

Community's newly established goal of creating a single European market by 1992, the European

Council chose a radical new approach. It approved a directive establishing a CPMP-administered

“Centralized Procedure.” This procedure was designed especially for biotech and high technology

products, since Brussels reasoned that it would be easier to harmonize standards that had not yet been

created than to force states to change their existing ones. The CPMP pooled scientific expertise in this

new area of medical research in order to create a Europe-wide consensus as to what constituted good

manufacturing practices, appropriate laboratory procedures and appropriate evaluation criteria (Sauer

1991, 455, 460).

Once a manufacturer submitted its application, the CPMP would have seven months to

complete its initial evaluation; firms were required to respond to both CPMP and Member States'

concerns within three months. The Member States then had up to one month to make their final

recommendations, following which the CPMP would send its report to all additional parties (Kanusky

1994, 681). While the CPMP's report was nonbinding, this new procedure was intended as the first

move towards genuine supra-national evaluation: “While fundamentally national, it [was] seen by the

Commission as a significant step in the direction of a single evaluation procedure applicable throughout

the Community” (quoted in Oraz, et. al. 1992, 856).

Following approval of the Maastricht Treaty on European Union (1992), which gave the

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EU binding authority on some health care issues, the European Commission undertook another

initiative to harmonize national drug approval policies (“How Should European Health . . .”

1994). It established a new regulatory institution, the European Medicines Evaluation Agency

(EMEA) and two new regulatory procedures (Kingham, et. al 1994, 303). The EMEA consists of

the CPMP, the corresponding body for veterinary medicine, “a secretariat, an executive director,

and a management board composed of representatives of the Member States, the Commission,

and the European Parliament.” The EU's goal was to transform the relationship between national

regulatory authorities and those of the Union, thus finally creating a common market for

pharmaceutical products.

An important objective of the creation of a single European drug approval procedure was to

promote more European-wide drug research and development, thus helping this industry “confidently

continue to hold its place on the world stage in the foreseeable future (“Pharmaceuticals…” 1995). A

1995 communication from European Commissioner Martin Bangermann noted that over the last two

decades the share of all new medicines developed in the EU had declined from half to one-third, while

in the critical biotechnology sector, 65 percent of all patents were American while only 15 per cent

were European. (“Pharmaceuticals …” 1995). Improving the efficiency of European drug approval

was regarded as a way of strengthening the effectiveness of this critical industry.

The centralized application procedure placed final regulatory approval at the Union level for

the first time. It permits manufacturers to submit applications directly to the European Agency, which

then refers them to the CPMP for evaluation. The latter is required to issue its opinion within 210 days.

If approval is denied, the drug's sponsor may file an appeal, which in turn must be reviewed within sixty

days. Final approval rests with the European Commission, which has ninety days to draft its own

opinion. If the Commission grants marketing authorization, it automatically becomes valid throughout

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the EU for renewable periods of five years. The EMEA centralized approval process was designed to

be relatively rapid, with application to final approval to take a maximum of ten months (Kingham, et.

al. 1994, 307). This is more than twice as fast as that of many Member State drug regulatory agencies.

To help the EMEA meet its own deadlines, applications can be accepted on CD-ROM, and the

agency's recommendations were to be distributed by e-mail (Green 1995b, 13).

The centralized procedure specifically targeted biotechnology drugs, which must be approved

by EMEA, as there is no national alternative (Green 1995a, 2). Biotechnology was targeted because of

its potential for economic growth and, because since it is such a new field, individual states had not yet

created their own testing infrastructures (Buono 1995, 134). As one European official explained,

“Global participation means we don't have to keep on reinventing the wheel. A new technique . . .

offers the chance to put together a unified international approach before separate guidelines are issued .

. . The most obvious candidate here is biotechnology” (“Global harmonization …” 1991). The

centralized procedure was intended to particularly benefit small firms with limited resources, which

were more likely to be found in the biotechnology sector. However, manufacturers of other

pharmaceutical products may also elect to use the centralized procedure (Kanusky 1994, 699).

The EU also established a decentralized procedure open to all pharmaceutical products, except

those produced through biotechnology (Kingham, et. al. 1994, 309-312). This procedure, based on

the principle of mutual recognition, was approved in 1993 and went into effect on January 1, 1995.

According to its terms, if a product has been approved for use in any Member State, its manufacturer

may submit an identical scientific and technical dossier to any or all other Member States. It also must

notify both the CPMP and the Member State to which its application was first submitted; the latter then

is required to furnish its assessment report to each country where recognition is sought. Each Member

State then has ninety days to decide whether to recognize the first nation's approval. It must do so

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unless “there are grounds for supposing that the authorization of the medicinal product concerned may

present a risk to public health” (quoted in Kingham, et. al. 1994, 311). In cases of disagreement,

Member States are encouraged to solicit the opinion of the CPMP. This was subsequently

strengthened. Beginning on January 1, 1998, any Member State which receives an application for a

product which has been approved by another member of the Union, must either recognize that

approval, or refer the application to the CPMP for binding arbitration. In addition, a firm can now only

apply for marketing approval in one country if its product will only be marketed in that country.

Unlike the FDA, the EMEA's role is a coordinating one; the actual processing of applications is

delegated to national regulatory agencies. This in turn means that the agency must rely on Member

State authorities not only to process applications in a timely fashion, but also to apply similar standards.

The harmonization of national requirements is even more critical for the viability of the EU's

decentralized procedure, since under this procedure a single national authority will be able to approve a

product for the entire EU. The inspection of manufacturing facilities and the certification of the

reviewers of applications will also depend on national authorities. Nonetheless, according to Fernand

Sauer, the agency's executive director, “after fifteen years of harmonization we now have everything in

place so that EMEA and all of the national authorities practice exactly the same requirements”

(Koberstein 1996, 46).

Both new procedures promise to provide important benefits to manufacturers. Streamlined

approval allows cash flow to start sooner. “Successful new drugs earn $1 million per day in global

sales revenues. The European Union accounts for about 40 percent of global sales” (Green 1995b, 13).

Also, more rapid drug approval will increase the effective life of drug patents, enhancing the expected

value of future research (Green 1995a. 2). Since companies can submit one application rather than

fifteen, large firms may save up to $5 million annually in national clinical staff and testing equipment

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(Green 1995a, 2). While the application fee for submitting a drug to the EMEA is high - a typical filing

costs approximately 200,000 ECUs - this is about half of what it would cost to pay all fifteen national

fees. Centralized approval also enables firms to use identical package inserts and make similar

promotional claims throughout the EU.

The EMEA in Operation

Although delayed for a few months by a last-minute debate over its fee structure, the European

Agency opened its doors to great fanfare on Canary Wharf in London on January 26, 1995 (Internal

Market Council 1994; Perry 1994). London was chosen both because of the preeminence of the British

pharmaceutical industry and the British government’s historic expertise in pharmaceutical regulation.

Its 1995 budget was 9.5 million ECUs, but through registration and annual fees, the Agency is

expected to be self-supporting and anticipates a budget of 50 million ECUs by 2000 (Hirschler 1994).

Its staff will remain relatively small because the EMEA will coordinate with teams of experts from EU

Member State drug approval boards, whose combined staff of over 1,600 will actually conduct the

drug evaluations (Hirschler 1994). Nonetheless, this represents a 50% reduction in the national

regulatory staffs from pre- to post-EMEA levels (“EMEA Doors Now Open …” 1995).

European industry has been generally supportive of the EMEA. European Federation of

Pharmaceutical Industries Association President Kurt Briner stated:

Our task is to produce high-quality medicines for patients. The agency's task is tobring into operation a high-quality, high-performance, efficient registration mechanismthat gives patients speedy access to those products . . . The credibility of Europe, itspharmaceutical evaluation bodies and of its pharmaceutical industry are at stake, andwe must all do our utmost together” (“EMEA Doors Now Open…” 1995).

Many companies have set up liaison offices on Canary Wharf and several others are expected to do so

shortly (Green 1995b, 13). One major firm, the German company Bayer, has relocated its European

regulatory headquarters to Canary Wharf.

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In October, 1995, the first pan-European drug was approved. The fertility treatment drug

Gonal-F, developed by an American firm, was given a single commercial license, permitting its sale in

all fifteen Member States (Green 1995a, 2). Through April 1, 1997, a total of thirty-three European-

wide marketing authorizations had been granted and eleven others were awaiting final approval by the

Commission (Green 1997). Equally importantly, two-thirds of the applications received by the EMEA

were not for biotechnology products, indicating industry confidence in the centralized system.

Moreover, there were fifty completed mutual recognitions of national authorizations for human

medicinal products, with only three arbitrations. (EMEA Status Report 1996). By the end of 1998,

approximately one hundred European-wide marketing authorizations had been granted and more than

four hundred drugs had been approved through the mutual recognition process.

Compared to most other consumer products, including those with important health and safety

dimensions such as food and automobiles, the EU has found it relatively difficult to create a single

market for medical products (Vogel 1995, ch. 2-3). Nonetheless it has now finally created a legal and

institutional framework for accomplishing this goal. The EU's considerable progress in coordinating

drug approval policies among its fifteen Member States has been paralleled by progress in coordinating

drug regulation policies among other developed nations, a topic to which we now turn.

INTERNATIONAL HARMONIZATION

Preliminary Efforts

While the EU represents the world's most ambitious effort to coordinate regional

pharmaceutical regulations, a number of important initiatives have been undertaken at the global level

as well. Informally, pharmacopoeias (official drug manuals), especially the Nordic, European and

International Pharmacopoeias, have historically played a role in creating uniform norms. These

manuals allowed scientists around the world to compare notes on drug descriptions, compounds, and

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expectations of efficacy. Often, though, they simply gave administrators from different countries the

opportunity to dig in their heels by officially publishing their preferred interpretations (Kanusky 1994,

689).

The first formal international harmonization took place in 1973, when the Benelux countries

initiated a supranational registration system. According to the survey The Effects of Drug Regulation,

“It was perhaps this venture, more than anything else, which caused the pharmaceutical industry to

argue for 'mutual recognition' of regulatory decisions, particularly in the European Community”

(quoted in Kanusky 1994, 688). The five members of the Nordic Council, only one of which then a

member of the EC, also adopted a common drug registration procedure. Although its results were non-

binding, a drug approved in one state could be licensed by another without a separate testing

procedure. At the international level, a 1979 conference in Rome led to a multilateral agreement to

work toward creating testing and evaluation guidelines that could be shared by Council for Mutual

Economic Assistance, European Free Trade Area, and Nordic Council of Medicines (Kanusky 1994,

687-688). No concrete results developed, however, until this working group's efforts began to overlap

with those of the EC and the United States in the mid-1980s.

United States

Prior to the mid 1980s, the cooperation of the American Food and Drug Administration with

its counter-parts in other nations was extremely limited. The FDA had entered into an agreement

defining good manufacturing practices with Switzerland, Sweden, Canada, and Japan and had signed

an agreement establishing good laboratory practices with Canada and seven European countries

(Kanusky 1994, 689). However the U.S. required that clinical testing for all drugs, whether domestic

or imported, be performed in the United States. This forced importers to duplicate costly tests and

restructure trials to conform to American laboratory standards. “This policy seems to have had a

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significant effect in delaying the introduction of foreign-discovered drugs into the United States -- even

those foreign drugs that represented significant advances.” (Jordan 1992, 490).

As a result of the 1962 Kefauver amendments to the Food, Drug and Cosmetic Act, the time it

took the FDA to approve a new drug application increased fourfold to an average of ten years. During

the 1970s, the FDA came under heated criticism for the emergence of a “drug lag” - the length of time

before a drug approved in a European country became available in the United States. According to one

of the agency’s Congressional critics, “the Food and Drug Administration is contributing to needless

suffering and death or thousands because it is denying them life-saving and life-enhancing drugs that

are available abroad for sooner than they are here.” (Scheurer 1980, 35). A study by the Government

Accounting Office reported that out of 14 significant new drugs, 13 were available in Europe years

before they were approved for use in the United States. (Proposals to Reform… 1979).

During the mid 1980s, these criticisms of the FDA’s slow rate of drug approval became

politically significant as AIDS activists blamed the agency for the unavailability of any drugs that might

be effective against the deadly virus (Vogel 1990, 458-461; Proposals to Reform). In 1989, the FDA

took a highly unconventional step to accommodate AIDS patients, granting a “personal use

exemption” for individuals to bring a drug into the United States for their own use if it has been

approved for use in another. (Lindermann 1994, 134, 140-142). Under increasing domestic political

pressure to expedite the drug approval process not only for AIDS drugs but for other medicines as

well, U.S. regulators became more willing to cooperate with foreign regulatory agencies. In 1990, the

U.S. and the European Commission completed a Memorandum of Understanding which standardized

good manufacturing practices and good laboratory practices between FDA and EC Member States.

The following year the United States, the EC, and Canada sponsored a conference to harmonize the

names of health care products. On November 14, 1991, as part of a more comprehensive reform

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package, HHS Secretary Sullivan announced the FDA's support for harmonizing American testing

standards with those of other industrialized nations in order to reduce duplication and speed the

development of drugs worldwide. (Jordan 1992, 492).

Four days later, the President's Council on Competitiveness sounded a variation on this theme,

calling for “reciprocity agreements,” or mutual recognition of drug approval which would be

“negotiated on a country-by-country basis.” (Relihan 1995, 256; Jordan 1992, 496). The FDA

subsequently issued a report which argued that harmonization offered a number of major public health

benefits, including decreasing the spread of disease within countries and across borders; increasing

patient access to safe and effective products; improving the quality, safety and efficacy of imported

drugs; and increasing information transfers between countries on public health issues (Contrera 1995,

930). Between 1992 and 1995 the FDA published four rules in the Federal Registrar which

progressively eliminated its barriers to sharing information with its foreign counterparts. (Horton 1997,

105). During this same period, the FDA established both an Office of International Policy and an

Office of International Affairs to facilitate international regulatory coordination.

The International Conference on Harmonization

The most important effort to promote the global standardization of drug approval policies and

procedures has taken place through the International Conference on Harmonization of Technical

Requirements for the Registration of Pharmaceutical for Human Use (ICH). ICH participants include

officials from the U.S. FDA, the EU's Committee for the Proprietary Medicinal Products (CPMP) and

the Japanese Ministry of Health and Welfare (MHW) as well as representatives from multinational

pharmaceutical companies.

The ICH grew out of meetings among regulatory officials from Europe, the United States and

Japan -- these three markets account for seventy-five percent of the world's production of medicines

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and ninety percent of global pharmaceutical research and development (Jordan 1992, 492) -- and the

International Federation of Pharmaceutical Manufacturers Association. Its first session took place

shortly after the EC Council began the process of drafting the Mastricht Treaty, since the commitment

of the EC/EU to establish regional regulatory standards made it possible for it to seek agreement on

global ones.

Over 1,000 participants attended the first ICH conference, which was held in the EC’s capital,

Brussels, in 1991. In addition to establishing a process of negotiated rulemaking to harmonize

regulatory guidelines, the conference approved a “minimum data blueprint” guideline, subsequently

incorporated into U.S., EU and Japanese law (Jordan 1992, 493). The blueprint defines data collection

conditions acceptable in all three regions, thus allowing a firm to file the same data package in each.

While the data submitted are still evaluated by national officials--who may still demand data beyond the

scope of the minimum data blueprint--this guideline eliminates the need for costly and repetitive tests.

For example, before the ICH, the EU, Japan and the United States had no common control conditions

for conducting laboratory tests. Now control conditions, such as the definition of “room temperature,”

are precisely defined.

The guideline also standardized long-term toxicity tests, limiting repeated dose toxicity

studies to six months. The previous standard, “Lethal Dose 50,” increased doses administered to

laboratory animals until 50% of the animals died. Ironically, this testing phase had lasted longest

for drugs that had the safest toxicity levels. This should “cut industry's costs by a total of $100

million annually -- and save the lives of 35,000 laboratory animals, itself an increasingly important

consideration” (“A Faster Track…” 1991, 20). According to one estimate, the elimination of

duplicate testing will save up to 100,000 Ecus for every new medicinal product, while reducing

long-term toxicity tests from one year to six months will save as much as 500,000 Ecus per new

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substance (“EC, USA and Japan …” 1991). Following the Brussels meeting, the FDA announced

that it would accept more of the animal and clinical studies conducted by foreign regulatory

agencies. (“Radical Change” 1991, 84, Relihan 1995, 251). Since then the FDA has approved five

new drug applications based on foreign data alone as well as nine based on both domestic and

foreign data (Kanusky 1994, 675).

Still, the most important outcome of the 1991 Conference was political. The Pharmaceutical

Business News noted that “to put all the emphasis on the conference as a scientific meeting would be to

distort its impact, representing as it did the first time regulators and industry have met on such a large

and public stage” (quoted in Jordan 1992, 494). Its primary accomplishment was to publicly commit all

three regulatory agencies to the principle of harmonization. This in turn reflected the regulators'

acknowledgment that “they were all wasting a lot of money by requiring duplicate testing without

contributing anything to improving health protection” (Jordan 1992, 495). The FDA's participation was

especially significant since, as recently as the mid-1980s, it had publicly regarded foreign clinical data as

“too precarious” for making marketing approval decisions (Jordan 1992, 495).

A second ICH conference was held in October 1993 in Orlando, Florida. In his keynote

address to the conference's 1,600 participants, FDA Commissioner David Kessler stated that, “Science

driven harmonization can curtail duplication, and thereby significantly reduce the cost of new drug

development -- not just in dollars spent by the industry but in the risk taken by patients, in the

experimentation with laboratory animals, and in the regulatory efforts of our governments.” He added,

“It has the potential for a major breakthrough in the drug approval process by making a common

registration package a realistic possibility” (Contrera 1995, 929). Participants of the Orlando

conference agreed on common procedures for animal-based experiments to detect toxicity in

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reproductive systems and established common definitions and standards for clinical safety data

management (Kidd 1997, 5).

A third session, attended by 2400 delegates from pharmaceutical firms and forty governments,

took place in Japan in November, 1995. Its primary accomplishments were agreements on uniform

guidelines for the clinical testing of new drugs and good clinical practice. These agreements are

intended to facilitate the mutual acceptance of data on clinical trials, thus significantly reducing the

costs of drug development. ICH3 also agreed on a working program to complete the development of

50 common guidelines on the steps necessary to demonstrate the safety, quality and efficacy of new

medicines. One ICH working group is working on harmonizing both the medical technology used by

regulatory agencies as well as electronic data transmission standards. Agreement on the latter could

eventually make it possible for a company to electronically submit the same dossier or application to

the FDA the EMEA and the MHW. As the closing plenary session of the Japan conference, Roger

Williams, associate director of the Science and Medical Affairs Center for Drug Evaluation and

Research of the FDA stated: “We've just stepped up close to the realization of a dream. We can say it's

a global dossier, [the FDA has since relabeled this a common technical data set] which is available

though any country in the world, or is acceptable to any regulatory authority in the world” (“ICH…”

1995).

By 1996, nineteen guidelines had been formally approved by conference participants, four of

which had been enacted into law in Europe, the United States and Japan (Bermann 1996, 964). They

covered reproductive toxicity in animals, clinical studies among the elderly, stability testing of new

active substances, and dose/response information to support drug registration. An additional thirty-

eight guidelines are under development. A large number of firms in the United States, Japan and

Europe have already adopted the first eleven guidelines agreed to by the ICH (“Impact of First ICH

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Guidelines” 1995). According to a survey conducted by Japan's MHW, more than 90 percent of the

quality guidelines developed through the ICH process are being used by companies (“FDA

Challenged…” 1996). The world's twenty-five largest firms have adopted nearly all of them (“Euro

Commission…” 1996). A survey of companies conducted prior to ICH4 reported that 75% had used

ICH guidelines in their drug development. (ICH is Dead, 1997)

ICH meetings have also helped improve communication and trust among regulators in different

regions and fostered the establishment of more sophisticated and comprehensive mechanisms for data

exchange, including an experimental effort to exchange data regarding the side-effects of previously

approved drugs though floppy disks and across the Internet (“Better Medicine…” 1996). They have

also developed a common glossary of medical terminology.

While ICH was originally envisioned as a six-year process, the Steering Committee decided to

schedule a fourth meeting, which took place in Brussels in 1997. ICH made considerable progress in

adopting guidelines for internationally accepted principles and practices for conducting and evaluating

clinical trials – which constitute one third of the cost of developing a new chemical entity- as well as on

developing a core dossier acceptable to regulatory bodies in the United States, Europe and Japan.

Originally comprised of only government and business delegations from Japan, the EU and the

U.S., each successive meeting of the ICH has been attended by delegates from additional countries.

However in light of the fact that virtually all nations have pharmaceutical industries dominated by

American, European or Japanese firms, ICH guidelines are likely to become de facto international

standards. In fact, the World Health Organization has begun to encourage developing countries to

adopt them. In brief, “ICH has been far more successful than anyone anticipated” (Wechsler 1996, 16).

National Responses

Not surprisingly, the region which has found it the easiest to adjust to the ICH's guidelines and

20

standards has been Europe. Most guidelines “largely overlap with current EC legislation, so the ICH

guidelines do not imply any major changes in the EEC acceptance policy for pharmaceutical products”

(“EEC/US/Japan . . . ” 1991, III-1). This is particularly true of the Good Clinical Practice guidelines.

As in the case of a number of other global standards, most notably ISO 9000, the experience the

Europeans gained in harmonizing regulations among the EU's Member States has both enabled and

encouraged them to play a leadership role in promoting international regulatory cooperation. At the

same time, the work of the ICH in defining “state of the art” standards has itself contributed to the

harmonization of drug approval standards and procedures within the Union: the first three meetings of

the ICH paralleled the EU’s progress in creating a single market for drugs in Europe. It was the

impetus provided by the progress toward regulatory integration in Europe that inspired the ICH to

convene a fourth meeting – held significantly in Brussels – while the EU adopted a draft directive on

the legal protection of biotechnological inventions to coincide with the opening of ICH 4. (Talbert,

1997, Walser, 1998).

Japan has experienced the most difficulty adjusting to the ICH. Of particular concern to the

Japanese are racial differences that can lead to different reactions to the same dose of the same drug

across populations. Japan, like other states, has been reluctant to accept foreign data as the basis for

drug evaluation. This began to change in 1986 following bi-lateral negotiations with the United States.

But while Japan is “increasingly willing to accept toxicity tests and preclinical data from other countries

. . . it still insists on Japanese clinical data” (“Prescription for Success…” 1990, 7). In addition, Japan's

distinctive evaluation standards and criteria require considerable additional testing (Currie 1989, 100ff;

Kanusky 1994, 683-686). Nobuto Nakamura, general manager of the Pharmaceutical Development

Division of Takeda Chemical Industries, has expressed concern that “when it becomes possible to use

Western Clinical Data in Japan based on the results of the International Conference of Harmonization,

21

there is a risk that clinical trials [in Japan] will be reduced to a mere formality since sponsors will

minimize the number of studies performed locally and transfer them overseas” (“Japan Urgently . . .”

1995).

However, in preparation for ICH2, the Japanese Ministry of Health and Welfare created

“Pharma Dream 21,” a $10 million scheme “for the promotion of harmonization of drug regulation . . .

particularly in the area of racial differences from the point of view of clinical science (“Funding . . . ”

1992). Japan has also responded to the need for harmonizing good clinical practices by increasing its

number of inspectors, as Japanese monitoring of drug testing has been a continuing source of

complaints by US and European regulators (“Japan: Mr. Fujii..” 1992, 1). At the closing session of

ICH3, a senior Japanese MHW stated that he was pleased that so “many guidelines in which

international standards are provided for were agreed upon in order to avoid duplicating tests and

wasting time and costs,” and pledged to make sure that these guidelines are put into practice”

(“ICH…” 1995). The ICH will thus make it easier for drugs developed in Europe and the U.S. to be

marketed in Japan. Recently, Pfizer won approval for Viagra to be marketed in Japan using clinical

data collected entirely in the west (Pilling 1999)

For the FDA, its participation in the ICH has both complimented and assisted its efforts to

speed up the drug approval process. Since the passage of legislation in 1992 giving the agency more

resources by permitting it to charge the drug companies “user fees,” the approval times for new drug

applications has declined significantly. In 1995, the average approval time for a new drug was 19

months, as contrasted to 33 months in 1987 (Mintz 1996, 21). The approval time for the 15 drugs

given priority because they were deemed “major therapeutic advances” was only six months in 1995

(Mintz 1996, 21). Indeed, as a result of these changes, the “drug lag” has virtually disappeared.

According to an FDA study which compared the approval and availability of new drugs in the United

22

to other drug-producing nations between 1990 and 1994, the U.S. was slightly ahead of the United

Kingdom and substantially ahead of both Germany and Japan. An analysis of those drugs approved in

more than one country found that the U.S. lagged slightly behind the U.K. but was substantially ahead

of both Germany and Japan (Wechsler 1996, 16). Forty per cent of the world’s new drugs are now

approved first in the U.S. (Green 1995). According to FDA Commission Kessler, “Americans have

access to essentially all clinically important drugs that are available anywhere else in the world.” He

added, that although “the United States does not stock every product that has been approved

worldwide, neither does anyone else” (Wechsler 1996, 16).

Still, the FDA remains under continued domestic political pressure to approve drugs more

rapidly - pressures which have been exacerbated by the EMEA’s success in expediting the drug

approval process in the EU. While mutual recognition of drug approval between the FDA and the

EMEA is unlikely in the foreseeable future, a number of the EMEA's criteria for both efficacy and

effectiveness, as well as its requirements of clinical review and scientific vigor, are sufficiently similar to

those of the FDA so as to permit both agencies to rely more on data prepared for their counterparts

(Katz 1993, 585-586). Indeed, in the not too distant future, there is likely to be a common drug

approval application for both the US and the EU and there is even discussion of adopting a system of

the mutual recognition for drug approvals. The FDA has formed internal working groups that mirror

those established by the ICH's steering committee and their recommendations have reduced the number

of overlapping requirements imposed on firms seeking marketing approval for their products in the

United States (“FDA Challenged…” 1996). A number of FDA regulations have been rewritten to

adopt to ICH requirements and while ICH guidelines are not formally binding in the US, the FDA has

indicated that its reviewers will not normally ask for more information than required by ICH.

23

Implications

These developments represent part of a much broader effort on the part of governments to

improve international regulatory cooperation (Sykes 1995; Regulatory Co-operation . . . 1994). It is

therefore worth reflecting on the circumstances which affect the dynamics of such cooperation. In the

case of pharmaceutical regulation, the substantial progress in international regulatory cooperation was

made possible by three factors: uniform preferences on the part of industry, the lack of consumer

opposition, and the complimentary relationship between harmonization within the EU one hand and

between the EU and the US on the other.

In contrast to many trade negotiations which have pitted the interests of internationally-

oriented producers against domestic ones, the firms in this sector have similar interests. Neither the

large multinational firms nor the smaller biotechnology start-ups want distinctive national regulatory

requirements. All firms in this sector have a common interest in reducing the costs associated with

marketing their products in as many countries as rapidly as possible. Indeed in recent years, the large

multinational firms which dominate this industry have become even more supportive of regulatory

harmonization due to both the increasing costs of research and development and the decline in the

effective patent life of drugs. “Research-based firms realized that, for innovation to be profitable, new

drugs must reach markets all over the world in as short as time as possible” (Tarabusi and Vickery

1993). Moreover, “the costs of duplicative inefficiencies of [distinctive national] specification standards

. . . are enormous. (Braithwaite 1994, 210) In 1990, it cost firms an average of $231 million to

develop and test a new drug. “A one and one-half year reduction in drug approval time can reduce the

time necessary to recoup research and development expenditures by five years” (Dillman 1991, 936).

In this context it is important to note that distinctive national regulatory requirements for drug

approval have not functioned as trade barriers. (Vogel 1995) The relative structures of American

24

regulatory requirements have not conferred a competitive advantage on drugs developed by American

firms any more than fifteen separate EU drug approval procedures protected the market share of

European firms. Only one developed country, Japan, has been accused of using its drug approval

requirements to discriminate against foreign firms. No one has claimed that the onerous post-1962

American drug approval requirements are non-tariff trade barriers; they have made it just as time-

consuming and expensive for American firms to secure marketing approval in the United States as for

foreign ones.

Secondly, there was no public opposition to increased regulatory cooperation. This was in part

due to the fact that at the international level, the efforts of ICH have to date focused on the

development of common regulatory procedures rather than on the approval of specific products. The

same is true within the EU. More generally, there has been a notable lack of public interest or even

awareness of the work of ICH or the EMEA. Negotiations have primarily involved government

officials and industry representatives; NGOs have been noticeably absent. In part for both these

reasons, regional regulatory cooperation reinforced regulatory cooperation at the global level.

A similar dynamic has informed regulatory cooperation for the testing of new chemicals.

During the mid-1970s the European Community, responding to increased public concern about the

environmental impact of chemicals, attempted to strengthen its standards for chemical safety. However

agreement proved impossible because of differences between Europe’s two main chemical producers,

Great Britain and Germany. Neither was willing to surrender its national authority over the regulation

of this important and politically powerful industry.

This deadlock was broken in 1976 by the passage of the Toxic Substances Control Act

(TSCA) by the United States. This legislation, which established new requirements for the

manufacture of all new and existing chemicals in the United States, created considerable anxiety on the

25

part of European chemical producers: they feared it would undermine their ability to export their

products to the United States. European officials recognized that their bargaining power would be

significantly strengthened if they were able to reach agreement among themselves. In the spring of

1978 the European Commission asked the European Council for a formal mandate to negotiate with

the United States and to develop parallel legislation. A year later, with the United States about to

implement TSCA, the council approved the sixth amendment to the 1967 Framework Directive on

Dangerous Substances. This established a European standard for the premarket notification of new

chemicals based on a modified system of mutual recognition.

Following the approval of this amendment, the EU entered into negotiations with the United

States under the auspices of the OECD. Although the OECD had been involved in coordinating

chemical regulations since the early 1970s, the enactment of new, comprehensive, and divergent

approaches to the screening of new chemical substances on both sides of the Atlantic lent considerable

urgency to its efforts. European and American firms were responsible for the majority of international

trade in chemicals. “Agreement on the basic contours of premarket notification packages would go far

to ensure that the previously unfettered commerce in new industrial chemicals would not be impaired

by conflicting or discriminatory regulatory controls.” (Brickman, 1985, 282).

After extensive negotiations, in 1981 the OECD countries adopted the Decision of the Council

Concerning the Mutual Acceptance of Data in the Assessment of Chemicals. This agreement, which is

binding on all OECD member countries, requires that the data generated in the testing of chemicals in

any OECD member state be accepted in all other OECD countries for health, safety, and environmental

assessment. To implement the agreement, the OECD’s Environment Policy Committee has issued

Test Guidelines, a common set of test methods for chemicals. The guidelines were developed by a

network of national coordinators, one in each OECD country, who worked with teams of regulatory,

26

academic, and industrial experts. Since 1981, eighty-four test guidelines have been adopted: they

specify methodologies by which chemicals are to be tested for characteristics such as genetic toxicity,

biodegradability, toxicity to fish, and so forth.

The adoption of these test guidelines remains optional, but any OECD country requiring that

chemicals be tested for any of the characteristics addressed by the guidelines must accept the test

results from other OECD countries, provided that the data were produced using the Test Guidelines

methodologies. This means that any of the tests must only be conducted once. This agreement has not

only facilitated trade in chemicals but has increased the generation of scientifically valid and high-

quality test data and reduced the costs of chemical testing for both governments and the private sector.

Equally important, it has established a mechanism for the creation of new international guidelines and

the revision of existing ones. And, as in the case of drug approval procedures, regulatory cooperation

in this sector has attracted virtually no public attention.

Both these cases stand in marked contrast to the regulation of beef hormones and food-related

biotechnology products. Five kinds of beef hormones are permitted for use in the USA; none in

Europe. The use of BST to increase the milk production of cows has been permitted in the USA but

banned in the EU. Most importantly, while American regulatory officials have adopted a relatively

supportive policy toward both the release of genetically-modified organisms into the environment as

well as the marketing of food products which are produced from genetically-engineered seeds, the

European Union has been much more restrictive in both areas. While the USFDA has approved the use

of fifty genetically modified crops, the EU has approved only nine – and none since April, 1998.

(Vogel, 1997)

Thus in this area of regulatory policy, not only is there no move toward regulatory

convergence but American and European regulatory policies have become more divergent. While in

27

the case of chemicals and ethical drugs, the creation of a single European market has contributed to

trans-Atlantic regulatory cooperation, in the case of biotechnology, it has impeded it: in general, the

more active role the EU has played in shaping biotechnology regulation, the greater the divergences in

regulatory policies between the US and the EU. The difference is due to two factors: the role of

industry and public preferences. Agriculture remains a domestic industry in both Europe and the United

States. Not only are there no trans-national firms in this sector but European and American firms are

structured very different.

European agricultural production is dominated by small-scale relatively inefficient farmers who

produce primarily for domestic consumption. Equally importantly, the EU, which heavily subsidizes

these farmers, has an interest in minimizing their output since the more they produce the more

resources it has to allocate to purchasing their “surplus” production in order to maintain high prices.

Thus neither European farmers nor the EU stand to benefit from innovations in agricultural technology.

By contrast, American agriculture is both highly commercialized and much of its production is

exported. The thrust of American agriculture policy has generally been is to reduce the level of

government support by making American farmers as efficient and productive as possible – not as, in

Europe, by protecting them from international competition. Thus both American farmers and the

American government have been generally supportive of new technologies for food production. These

differences are both reflected and reinforced by the divergence in developments in the

commercialization of biotechnology in Europe and the United States; it is much more advanced in the

latter than the former. There is no European counter-part to Monsanto - an American-based chemical

firm which has invested considerable resources in developing and marketing agricultural biotechnology.

At the same time, public attitudes in America and Europe differ substantially. With the

exception of BST, there has been relatively little public opposition to food produced through

28

biotechnology in the U.S. In Europe however, there has been a major public outcry against so-called

“Frankenstein foods,” resulting in the refusal of a number of European supermarket chains to carry

such products and in considerable public pressure on the EU to either keep out “new foods” or require

that they be labeled.

In short, regulatory cooperation requires both that firms in different political jurisdictions

have interests in a common regulatory standards and that consumers are not opposed to such

standards. This is the case for pharmaceuticals and chemicals; it is not the case for food production.

Hence there is cooperation with respect to the former and not the latter.

29

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