The Globalization of Pharmaceutical Regulation

DAVID VOGEL*

Drugs have long been among the most extensively regulated of all consumerproducts. Not only do all governments closely supervise virtually everyaspect of their development, testing, production and marketing, but manyalso regulate their pricing and distribution. The pharmaceutical industry ishighly globalized, with over half the sales of the fifty largest drug companiesmade outside their home country (Tarabusi and Vivkery 1993). However,until recently, drug regulation was virtually synonymous with nationalsovereignty. Firms were required to conduct separate tests, submit separateapplications, and meet distinctive criteria to enter each national market.

Because drugs are so extensively regulated and have such significanthealth and safety impacts, drug policy coordination has proven extremelydifficult. Nonetheless over the last decade, national regulatory agencieshave begun to cooperate more closely with one another. The EuropeanUnion has established a centralized drug approval system, the UnitedStates Food and Drug Administration has become more willing to cooperatewith its foreign counterparts, and the United States, the EU and Japan havemade substantial progress in harmonizing drug approval requirementsunder the auspices of a new international body, the International Confer-ence on Harmonization of Technical Requirements for the Registration ofPharmaceutical Products (ICH). This article describes and assesses theimplications of the increase in international coordination of national drugapproval policies. It argues that the undermining of national regulatorysovereignty has improved both the effectiveness and efficiency of govern-ment regulation.

THE EUROPEAN UNION

The Scope of the Problem

Separate national drug approval policies and requirements have long pre-sented a critical obstacle to European integration (Kingham, Bogart andEddy 1994, 301). According to the 1988 Cecchini report on the single mar-ket published by the European Commission the European pharmaceuticalindustry was significantly constrained by the “lengthy and differing drugregistration procedures” of the member states (Cecchini 1988, 67). More-over, “all pharmaceutical companies . . . treat the member states as

*University of California, Berkeley

Governance: An International Journal of Policy and Administration, Vol. 11, No. 1, January 1998(pp. 1–22). © 1998 Blackwell Publishers, 350 Main St., Malden MA02148, USA, and 108 CowleyRoad, Oxford, OX4 IJF, UK. ISSN 0952-1895

separate markets” (Oraz, Kaitin and Lasagna 1992, 849). Some multina-tional firms did not even bother to apply for product approval in eachmember state, and most smaller firms limited their product marketing totheir own country. The Financial Times observed in 1990 that:

If you suffer from stomach problems and live in France or Germany, do not askyour doctor to prescribe Zantac, the world’s best-selling medicine. The product,made by Britain’s Glaxo, is called Azantac in France; in Germany it is Zantic. Thelinguistic distinctions are a symptom of the difficulties faced by western Euro-pe’s 30 billion-pounds-a-year pharmaceuticals industry in moving to a singlemarket . . . Such fragmentation has the effect of imposing trade barriers of thekind that 1992 is supposed to eliminate (Marsh 1990, A13).

Distinctive national registration requirements also imposed substantialcosts on governments, since each was required to maintain its own regula-tory 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 approxi-mately $300 million, a cost borne directly by pharmaceutical manufactur-ers, since they pay for clinical trials as well as registration and licensingfees (Melloan 1994, A13). Since regulatory approval costs are linked toclinical testing rather than to market potential, many firms avoidedsmaller markets altogether (Howells 1992, 36). Drug approval policiesvaried significantly throughout Europe, due to cultural factors, the degreeof acceptance of folk remedies, religious beliefs and the differences in theassessments of risks and benefits by regulatory authorities. Member Statesalso differed in the speed with which they approved new drugs, furthercomplicating marketing in what was potentially the world’s largest phar-maceutical market. For example, approval in England and France couldbe gained in less than one year while Germany regularly required up tofive (Green 1995a, 2).

Notwithstanding these costs, however, member states were reluctant tosurrender their historical control over drug approval. This was due not onlyto their distinctive regulatory styles and traditions, but also to the close tiesbetween drug approval policies and national health care policies —and thusto national budgets. Approximately half of the industry’s revenues inEurope comes from national governments. In addition to controlling newproduct registration, member states controlled drug prices and subsidizeddevelopment costs, making this industry among Europe’s most extensivelyand closely regulated (van de Gevel 1992, 5). When the European Commu-nity was established, health care, like all other aspects of welfare policy, wasleft 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 hinderedby the fact that the national competent authorities render different value judg-ments on the merits of therapeutic approaches and on issues of relative benefitsand risks of drugs. On top of these drug-specific differences come health-policy-specific differences in the control of the social-security system, and industry-

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specific differences in the control of the drug industry’s prices and profits, anddifferences in the extent to which national governments assist their nationaldrug industry (Kaufer 1989, 20).

Initial Efforts

The efforts to reduce national disparities in drug regulation began in1963, when the European Commission convened a conference of indus-try representatives, doctors, and consumers to discuss standardizingpharmaceutical laws (Oraz et al. 1992, 853). However, there was dis-agreement over whether a drug should have proven “therapeuticpotency” before it could be authorized. While doctors, pharmacists, con-sumers, and trade union representatives argued that this requirementwas indispensable, industry representatives refused to accept it (ECC1963). The result was stalemate.

In 1965, the EU issued its first pharmaceutical directive. It establishedbaseline “criteria for safety, quality and efficacy as preconditions for mar-keting authorization for new. The directive also defined medicinal prod-ucts and required member states to ensure that submissions of medicinalproducts to national authorities were prepared and signed by experts with“the necessary technical or professional qualifications” (Oraz et al. 1992,853–54). These qualifications, however, remained undefined. Moreover,the efficacy test itself was restricted: “Therapeutic efficacy would only beconsidered lacking in a medicine which failed to produce pharmacody-namic results” (Hancher 1990, 109). “Pharmacodynamic” was defined as“any response by a living organism to the introduction of a pharmaceuti-cal” (Webster’s Ninth Collegiate Dictionary, 1978, emphasis added). Yet eventhis minimal qualification was enacted by only seven of the twelve mem-ber states (Oraz et al. 1992, 854).

In 1974 the European Commission drafted a directive that permittedonly “qualified persons” to supervise drug production. But the Commis-sion ultimately adopted such a wide definition of qualified person (amedical professional, a veterinarian, a chemist, a pharmaceutical tech-nologist, or a biologist) that the directive became meaningless (Oraz et al.1992, 854). Thus, through the mid-1970s, virtually no progress had beenmade in creating a single market for pharmaceutical products.

A New Approach

In 1975, the EC established the Committee for Proprietary Medicinal Prod-ucts (CPMP), with members drawn from the regulatory authorities of themember states (Oraz et al. 1992, 855). The CPMP was given the authorityto review all drug applications by EU member states. Applications wouldbe examined for conformity to European Union safety, quality, and effi-cacy standards, and the Committee would then issue an opinion on mar-keting approval (Buono 1995, 145). However the CPMP’s role was onlyadvisory. Member states maintained the right to deny approval of a

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 3

pharmaceutical product even if the Committee recommended that it beapproved (Oraz et al. 1992, 855).

That same year, the EC also established a multi-state or “decentralized”procedure for drug approval, which it subsequently revised in 1983(Kanusky 1994, 677). Under this process, a manufacturer would first sub-mit its product to any national pharmaceutical regulatory agency. If thatbody granted approval, the company could then submit “concurrentapplications” to at least five other member states. The latter, in turn, wererequired to take the initial authorization into account in their own review,thus presumably expediting their approval process. If a member staterefused authorization, it was required to submit a “reasoned objection” tothe CPMP within three months. The CPMP would then have two monthsto issue an opinion on the objection.

But the establishment of multi-state procedure had little impact onnational drug approval policies. An important reason was that finalapproval still resided with the regulatory bodies of each member state.German firms boycotted it “as a matter of principle” (van de Gevel 1992,5). Although member states were only supposed to reject CPMP recom-mendations in “exceptional cases,” and after raising “reasoned objection,”such objections in fact became the norm. Only half of the licenses origi-nally granted by a member state were accepted by the other memberstates to which they were submitted (van de Gevel 1992, 6).

The multi-state procedure was intended not only to generate confi-dence among member states about each other’s scientific competence,but also to speed the approval of safe and effective drugs. Results weremixed for this goal as well. Since the multi-state procedure had stricttime limits (a state had four months to evaluate a dossier that anotherstate had already approved) member states did give priority to multi-state applications. However, because member states still carefully inves-tigated 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 Germanyand the United Kingdom it took an average of two years to processapplications, while in Italy, Spain, the Netherlands, or Belgium it tookthree years or more (Howells 1992, 34).

Although all member states agreed to accept test evidence obtainedelsewhere in the Community, there was no real progress towards mutualrecognition of drug approval. As the Committee’s chair noted in 1988,“Each concerned state seemed to conduct its own assessment and raisedits own objections . . . In practice there have been objections with regard toeach and every case dealt with under the Multi-State procedure.” He con-cluded that “on the whole, the member states do not yet accept eachother’s assessments” (Oraz et al. 1992, 856). The resulting financial costswere substantial. The Cecchini Report on “The Benefits of the Single Mar-ket” estimated that the lost revenues of companies forced to wait over theagreed 120 day limit ranged between 100–175 million Ecus, while multiple

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registration requirements required firms to employ extra staff at a cost ofbetween 40 and 55 million Ecus (Cecchini 1988, 67).

Toward Harmonization

In 1987, frustrated by the ineffectiveness of the multi-state procedure andcommitted to the Community’s newly established goal of creating a singleEuropean market by 1992, the European Council chose a radical newapproach. It approved a directive establishing a CPMP-administered “Cen-tralized Procedure.” This procedure was designed especially for biotech andhigh technology products, since Brussels reasoned that it would be easier toharmonize standards that had not yet been created than to force states tochange their existing ones. The CPMP pooled scientific expertise in this newarea of medical research in order to create a Europe-wide consensus as towhat constituted good manufacturing practices, appropriate laboratoryprocedures and appropriate evaluation criteria (Sauer 1991, 455, 460).

Once a manufacturer submitted its application, the CPMP wouldhave seven months to complete its initial evaluation; firms wererequired to respond to both CPMP and member states’ concerns withinthree months. The member states then had up to one month to maketheir final recommendations, following which the CPMP would send itsreport to all additional parties (Kanusky 1994, 681). While the CPMP’sreport was nonbinding, this new procedure was intended as the firstmove towards genuine supra-national evaluation: “While fundamen-tally national, it [was] seen by the Commission as a significant step inthe direction of a single evaluation procedure applicable throughout theCommunity” (Oraz et al. 1992, 856).

Following approval of the Maastricht Treaty on European Union (1992),which gave the EU binding authority on some health care issues, the Euro-pean Commission undertook another major new initiative to harmonizenational drug approval policies (“How Should European Health . . .”1994). It established a new regulatory institution, the European MedicinesEvaluation Agency (EMEA) and two new regulatory procedures (King-ham et al. 1994, 303). The EMEA consists of the CPMP, the correspondingbody for veterinary medicine, “a secretariat, an executive director, and amanagement board composed of representatives of the member states, theCommission, and the European Parliament.” The EU’s goal was to trans-form the relationship between national regulatory authorities and those ofthe Union, thus finally creating a common market for pharmaceuticalproducts.

An important objective of the creation of a single European drugapproval procedure was to promote more European-wide drug researchand development, thus helping the industry to “confidently continue tohold its place on the world stage in the forseeable future (“Pharmaceuti-cals . . .” 1995). A 1995 communication from European CommissionerMartin Bangermann noted that over the last two decades the share of all

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 5

new medicines developed in the EU had declined from half to one-third,while in the critical biotechnology sector, 65% of all patents were Ameri-can while only 15% were European. future (“Pharmaceuticals . . .” 1995).Improving the efficiency of European drug approval was regarded as away of strengthening the effectiveness of this critical industry.

The centralized application procedure placed final regulatoryapproval at the Union level for the first time. It permits manufacturersto submit applications directly to the European Agency, which thenrefers them to the CPMP for evaluation. The latter is required to issue itsopinion within 210 days. If approval is denied, the drug’s sponsor mayfile an appeal, which in turn must be reviewed within sixty days. Finalapproval rests with the European Commission, which has ninety daysto draft its own opinion. If the Commission grants marketing authoriza-tion, it automatically becomes valid throughout the EU for renewableperiods of five years. The EMEA centralized approval process wasdesigned to be relatively rapid, with application to final approval totake a maximum of ten months (Kingham et al. 1994, 307). This is morethan twice as fast as that of many member state drug regulatory agen-cies. To help the EMEA meet its own deadlines, applications can beaccepted on CD-ROM, and the agency’s recommendations are to be dis-tributed 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 foreconomic growth and, because since it is such a new field, individualstates have not yet created their own testing infrastructures (Buono 1995,134). As one European official explained, “Global participation means wedon’t have to keep on reinventing the wheel. A new technique such asstereoisomerism, for instance, offers the chance to put together a unifiedinternational approach before separate guidelines are issued . . . The mostobvious candidate here is biotechnology” (“Global harmonization . . .”1991). The centralized procedure was intended particularly to benefitsmall firms with limited resources, which were more likely to be found inthe biotechnology sector. However, manufacturers of other pharmaceuti-cal products may also elect to use the centralized procedure (Kanusky1994, 699).

The Union also established a decentralized procedure open to all phar-maceutical products, except those produced through biotechnology(Kingham et al. 1994, 309–312). This procedure, based on the principle ofmutual recognition, was approved in 1993 and went into effect on January1, 1995. If a product has been approved for use in any member state, itsmanufacturer may submit an identical scientific and technical dossier toany or all other member states. It also must notify both the CPMP and themember state to which its application was first submitted; the latter thenis required to furnish its assessment report to each country where recogni-tion is sought. Each member state then has ninety days to decide whether

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to recognize the first nation’s approval. It must do so unless “there aregrounds for supposing that the authorization of the medicinal productconcerned may present a risk to public health” (Kingham et al. 1994, 311).In cases of disagreement, member states are encouraged to solicit theopinion of the CPMP.

While firms may still apply to individual member states for marketingapproval, beginning on January 1, 1998, any Member State which receivesan application for a product which has been approved by another memberof the Union, must either recognize that approval, or refer the applicationto the CPMP for binding arbitration. Thus pharmaceutical products will,for the first time, be subject to mutual recognition, under the auspices ofthe EMEA.

Unlike the FDA, the EMEA’s role is a coordinating one; the actual proc-essing of applications is delegated to national regulatory agencies. This inturn means that the agency must rely on member state authorities not onlyto process applications in a timely fashion, but also to apply similar stan-dards. The harmonization of national requirements is even more criticalfor the viability of the EU’s decentralized procedure, since under this pro-cedure a single national authority will be able to approve a product for theentire EU. The inspection of manufacturing facilities and the certificationof the reviewers of applications will also depend on national authorities.However, according to Fernand Sauer, the agency’s executive director,“after fifteen years of harmonization we now have everything in place sothat EMEA and all of the national authorities practice exactly the samerequirements” (Koberstein 1996, 46).

Both new procedures promise to provide important benefits to manu-facturers. Streamlined approval allows cash flow to start sooner. “Suc-cessful new drugs earn $1 million per day in global sales revenues. TheEuropean Union accounts for about 40% of global sales” (Green 1995b,13). Also, more rapid drug approval will increase the effective life ofdrug patents, enhancing the expected value of future research (Green1995a, 2). Since companies can submit one application rather than fif-teen, large firms may save up to $5 million annually in national clinicalstaff and testing equipment (Green 1995a, 2). While the application feefor submitting a drug to the EMEA is high—a typical filing costsapproximately 200,000 ECUs—this is about half of what it would cost topay all fifteen national fees. Centralized approval also enables firms touse identical package inserts and make similar promotional claimsthroughout the EU.

The EMEA in Operation

Although delayed for a few months by a last-minute debate over its feestructure, the European Agency opened its doors to great fanfare onCanary Wharf in London on January 26, 1995 (Internal Market Council1994; Perry 1994). London was chosen both because of the preeminence of

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the British pharmaceutical industry and the British government’s historicexpertise in pharmaceutical regulation. The EMEA will operate on anexperimental, yet fully authoritative basis until 1998. Its 1995 budget was9.5 million ECUs, but through registration and annual fees, the Agency isexpected to be self-supporting by 1998 and anticipates a budget of 50 mil-lion ECUs by 2000 (Hirschler 1994). Its staff will remain relatively smallbecause the EMEA will coordinate with teams of experts from EU MemberState drug approval boards, whose combined staff of over 1,600 will actu-ally conduct the drug evaluations (Hirschler 1994). Nonetheless, this rep-resents a 50% reduction in the national regulatory staffs from pre- topost-EMEA levels (“EMEA Doors Now Open . . .” 1995).

European industry has been generally supportive of the EMEA. Euro-pean Federation of Pharmaceutical Industries Association President KurtBriner stated:

Our task is to produce high-quality medicines for patients. The agency’s task isto bring into operation a high-quality, high-performance, efficient registrationmechanism that gives patients speedy access to those products . . . The credi-bility of Europe, its pharmaceutical evaluation bodies and of its pharmaceuticalindustry are at stake, and we must all do our utmost together” (“EMEA DoorsNow Open . . .” 1995).

Many companies have set up liaison offices on Canary Wharf and severalothers are expected to do so shortly (Green 1995b, 13). One major firm, theGerman company Bayer, has relocated its European regulatory headquar-ters to Canary Wharf.

In October, 1995, the first pan-European drug was approved. The fertil-ity treatment drug Gonal-F, developed by an American firm, was given asingle 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 have been granted and eleven others wereawaiting final approval by the Commission (Green 1997). Equally impor-tantly, two-thirds of the applications received by the EMEA were not forbiotechnology products, indicating “industry confidence in the central-ized system.” Moreover, there were fifty completed mutual recognitionsof national authorizations for human medicinal products, with only threearbitrations (EMEA Status Report 1996).

Compared to most other consumer products, including those withimportant health and safety dimensions such as food and automobiles,the EU has found it relatively difficult to create a single market for medicalproducts (Vogel 1995, ch. 2–3). Nonetheless it has now finally created alegal and institutional framework for accomplishing this goal. The EU’sconsiderable progress in coordinating drug approval policies among itsfifteen member states has been paralleled by progress in coordinatingdrug regulation policies among other developed nations, a topic to whichwe now turn.

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INTERNATIONAL HARMONIZATION

Preliminary Efforts

While the EU represents the world’s most ambitious effort to coordinateregional pharmaceutical regulations, a number of important initiativeshave been undertaken at the global level as well. Informally, pharmaco-poeias (official drug manuals), especially the Nordic, European and Inter-national Pharmacopoeias, have historically played a role in creatinguniform norms. These manuals allowed scientists around the world tocompare notes on drug descriptions, compounds, and expectations ofefficacy. Often, though, they simply gave administrators from differentcountries the opportunity to dig in their heels by officially publishing theirpreferred interpretations (Kanusky 1994, 689).

The first formal international harmonization took place in 1973, whenthe Benelux countries initiated a supranational registration system.According to the survey The Effects of Drug Regulation, “It was perhaps thisventure, more than anything else, which caused the pharmaceuticalindustry to argue for ‘mutual recognition’ of regulatory decisions, particu-larly in the European Community” (Kanusky 1994, 688). The five mem-bers of the Nordic Council, only one of which then a member of the EC,also adopted a common drug registration procedure. Although its resultswere non-binding, a drug approved in one state could be licensed byanother without a separate testing procedure. At the international level, a1979 conference in Rome led to a multilateral agreement to work towardcreating testing and evaluation guidelines that could be shared by Councilfor Mutual Economic Assistance, European Free Trade Area, and NordicCouncil of Medicines (Kanusky 1994, 687–688). No concrete results devel-oped, however, until this working group’s efforts began to overlap withthose 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 DrugAdministration with its counterparts in other nations was extremely lim-ited. The FDA had entered into an agreement defining good manufacturingpractices with Switzerland, Sweden, Canada, and Japan and had signed anagreement establishing good laboratory practices with Canada and sevenEuropean countries (Kanusky 1994, 689). However the US required thatclinical testing for all drugs, whether domestic or imported, be performed inthe United States. This forced importers to duplicate costly tests and restruc-ture trials to conform to American laboratory standards. “This policy seemsto have had a significant effect in delaying the introduction of foreign-discovered drugs into the United States—even those foreign drugs that rep-resented significant advances “(Jordan 1992, 490).

As a result of the 1962 Kefauver amendments to the Food, Drug andCosmetic Act, the time it took the FDA to approve a new drug application

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 9

increased fourfold to an average of ten years. During the 1970s, the FDAcame under heated criticism for the emergence of a “drug lag” - the lengthof time before a drug approved in a European country became available inthe United States. According to one of the agency’s Congressional critics,“the Food and Drug Administration is contributing to needless sufferingand death or thousands because it is denying them life-saving and life-enhancing drugs that are available abroad far sooner than they are here.”(Scheurer 1980, 35). A study by the Government Accounting Officereported that out of 14 significant new drugs, 13 were available in Europeyears before they were approved for use in the United States. (Proposals toReform . . . 1979).

During the mid 1980s, these criticisms of the FDA’s slow rate of drugapproval became politically significant as AIDS activists blamed theagency for the unavailability of any drugs that might be effective againstthe deadly virus (Vogel 1990, 458–461; Proposals to Reform). In 1989, theFDA took a highly unconventional step to accommodate AIDS patients,granting a “personal use exemption” for individuals to bring a drug intothe United States for their own use if it has been approved for use inanother. This led to widespread growth of “buyers clubs,” which importand distribute drugs, at lower prices, primarily but not limited to peoplewith AIDS (Lindermann 1994, 134, 140–142). Although they provide a cru-cial service, these clubs have taken advantage of arbitrage opportunitiesby importing drugs approved by the FDA but available at a lower priceabroad. For example, the pneumonia drug Nebupent was marketed in theUS up to $175 per vial. Buyers clubs “imported” a similar drug, Penta-mide, from England and resold it in the US for $40 per vial. A Germancompany subsequently cut the price to $30 per vial (Relihan 1995, 232).

Under increasing domestic political pressure to expedite the drugapproval process not only for AIDS drugs but for other medicines as well,US regulators became more willing to cooperate with foreign regulatoryagencies. In 1990, the US and the European Commission completed aMemorandum of Understanding which standardized good manufactur-ing practices and good laboratory practices between FDA and EC memberstates. The following year the United States, the EC, and Canada spon-sored a conference to harmonize the names of health care products. OnNovember 14, 1991, as part of a more comprehensive reform package,HHS Secretary Sullivan announced the FDA’s intent to harmonize Ameri-can testing standards with those of other industrialized nations. Sullivanpredicted that harmonization would lead to the “development of com-mon testing procedures [which] would reduce . . . duplication [of tests]and speed the development of drugs worldwide” (Jordan 1992, 492).

Four days later, the President’s Council on Competitiveness sounded avariation on this theme, calling for “reciprocity agreements,” or mutualrecognition of drug approval which would be “negotiated on a country-by-country basis” (Relihan 1995, 256; Jordan 1992, 496). The FDA subse-quently issued a report which stated that harmonization offered a number

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of major public health benefits, including decreasing the spread of diseasewithin countries and across borders; increasing patient access to safe andeffective products; improving the quality, safety and efficacy of importeddrugs; and increasing information transfers between countries on publichealth issues (Contrera 1995, 930). Between 1992 and 1995 the FDA pub-lished four rules in the Federal Registrar which progressively eliminatedits barriers to sharing information with its foreign counterparts. (Horton1997, 105). During this same period, the FDA established both an Office ofInternational Policy and an Office of International Affairs to facilitateinternational regulatory coordination.

The International Conference on Harmonization

The most important effort to promote the global standardization of drugapproval policies and procedures has taken place through the Interna-tional Conference on Harmonization of Technical Requirements for theRegistration of Pharmaceuticals for Human Use (ICH). ICH participantsinclude officials from the US FDA, the EU’s Committee for the ProprietaryMedicinal Products (CPMP) and the Japanese Ministry of Health and Wel-fare (MHW) as well as representatives from multinational pharmaceuticalcompanies.

The ICH grew out of meetings among regulatory officials from Europe,the United States and Japan—these three markets account for seventy-fivepercent of the world’s production of medicines and 90% of global pharma-ceutical research and development (Jordan 1992, 492)—and the Interna-tional Federation of Pharmaceutical Manufacturers Association. Its firstsession took place shortly after the EC Council began the process of draft-ing the Maastricht Treaty, since the commitment of the EC/EU to establishregional regulatory standards made it possible to seek agreement onglobal ones.

Over 1,000 participants attended the first ICH conference, which washeld in Brussels in 1991. In addition to establishing a process of negotiatedrulemaking to harmonize regulatory guidelines, the conference approveda “minimum data blueprint” guideline, subsequently incorporated intoUS, EU and Japanese law (Jordan 1992, 493). The blueprint defines datacollection conditions acceptable in the three countries, allowing a firm tofile the same data package in each. While the data submitted are stillevaluated by national officials—who may still demand data beyond thescope of the minimum data blueprint—this guideline eliminates the needfor costly and repetitive tests. For example, before the ICH, the EU, Japanand the United States had no common control conditions for conductinglaboratory tests. Now control conditions, such as the definition of “roomtemperature,” are precisely defined.

The guideline also standardized long-term toxicity tests, limitingrepeated dose toxicity studies to six months. The previous standard,“Lethal Dose 50,” increased doses administered to laboratory animals

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until 50% of the animals died. Ironically, this testing phase lasted long-est for drugs that had the safest toxicity levels. This should “cut indus-try’s costs by a total of $100 million annually—and save the lives of35,000 laboratory animals, itself an increasingly important considera-tion” (“A Faster Track . . .” 1991, 20). According to one estimate, theelimination of duplicate testing will save up to 100,000 Ecus for everynew medicinal product, while reducing long-term toxicity tests fromone year to six months will save as much as 500,000 Ecus per new sub-stance (“EC, USA and Japan . . .” 1991). Following the Brussels meeting,the FDA announced that it would accept more of the animal and clinicalstudies conducted by foreign regulatory agencies. (“Radical Change”1991, 84, Relihan 1995, 251). Since then the FDA has approved five newdrug applications based on foreign data alone as well as nine based onboth 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 onthe conference as a scientific meeting would be to distort its impact, repre-senting as it did the first time regulators and industry have met on such alarge and public stage” (quoted in Jordan 1992, 494). Its primary accom-plishment was to commit publicly all three regulatory agencies to theprinciple of harmonization. This in turn reflected the regulators’ acknowl-edgment that “they were all wasting a lot of money by requiring duplicatetesting without contributing anything to improving health protection”(Jordan 1992, 495). The FDA’s participation was especially significantsince, as recently as the mid-1980s, it had publicly regarded foreign clini-cal 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 Com-missioner David Kessler stated that, “Science driven harmonization cancurtail duplication, and thereby significantly reduce the cost of new drugdevelopment—not just in dollars spent by the industry but in the risktaken by patients, in the experimentation with laboratory animals, and inthe regulatory efforts of our governments.” He added, “It has the potentialfor a major breakthrough in the drug approval process by making a com-mon registration package a realistic possibility” (Contrera 1995, 929). Par-ticipants of the Orlando conference agreed on common procedures foranimal-based experiments to detect toxicity in reproductive systems andestablished common definitions and standards for clinical safety datamanagement (Kidd 1997, 5).

A third session, attended by 2,400 delegates from pharmaceutical firmsand forty governments, took place in Japan in November, 1995. Its pri-mary accomplishments were agreements on uniform guidelines for theclinical testing of new drugs and good clinical practice. These agreementsare intended to facilitate the mutual acceptance of data on clinical trials,thus significantly reducing the costs of drug development. ICH3 also

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agreed on a working program to complete the development of 50 commonguidelines on the steps necessary to demonstrate the safety, quality andefficacy of new medicines. One ICH working group is working on harmo-nizing both the medical technology used by regulatory agencies as well aselectronic data transmission standards. Agreement on the latter couldeventually make it possible for a company to submit electronically thesame dossier or application to the FDA the EMEA and the MHW.

To date, nineteen guidelines have been formally approved by conferenceparticipants, four of which have been enacted into law in Europe, the UnitedStates and Japan (Bermann 1996, 964). They cover reproductive toxicity inanimals, clinical studies among the elderly, stability testing of new activesubstances, and dose/response information to support drug registration.An additional thirty-eight guidelines are currently under development.What is especially significant is that a large number of firms in the UnitedStates, Japan and Europe have already adopted the first eleven guidelinesagreed to by the ICH (“Impact of First ICH Guidelines” 1995). According toa survey conducted by Japan’s MHW, more than 90% of the quality guide-lines developed through the ICH process are being used by companies(“FDA Challenged . . .” 1996). The world’s twenty-five largest firms haveadopted nearly all of them (“Euro Commission . . .” 1996).

The ICH meetings have also helped improve communication and trustamong regulators in different regions and fostered the establishment ofmore 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 theInternet (“Better Medicine . . .” 1996). They have also developed a com-mon glossary of medical terminology.

While ICH was originally envisioned as a six-year process, a fourthconference has been planned for 1997 in Belgium. Its objective will be toadopt guidelines for creating a core dossier acceptable to regulatory bod-ies in the United States, Europe and Japan. At the closing plenary sessionof the Japan conference, Roger Williams, associate director of the Scienceand Medical Affairs Center for Drug Evaluation and Research of the FDAstated: “We’ve just stepped up close to the realization of a dream. We cansay it’s a global dossier, [the FDA has since relabeled this a common tech-nical data set] which is available through any country in the world, or isacceptable to any regulatory authority in the world” (“ICH . . .” 1995).

Originally comprised of only government and business delegationsfrom Japan, the EU and the US, each successive meeting of the ICH hasbeen attended by delegates from additional countries. The main partici-pants are not attempting to develop a global regulatory standard, only toreach a consensus among themselves as to appropriate regulatory require-ments. However in light of the fact that virtually all nations have pharma-ceutical industries dominated by American, European or Japanese firms,ICH guidelines are likely to become de facto international standards. Infact, the World Health Organization has begun to encourage developing

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 13

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

National Responses

Not surprisingly, the region which has found it the easiest to adjust to theICH’s guidelines and standards has been the EU. Most guidelines “largelyoverlap with current EC legislation, so the ICH guidelines do not implyany major changes in the EEC acceptance policy for pharmaceutical prod-ucts” (“EEC/US/Japan . . .” 1991, III-1). This is particularly true of theGood Clinical Practice guidelines. As in the case of a number of otherglobal standards, most notably ISO 9000, the experience the Europeansgained in harmonizing regulations among the EU’s member states hasboth enabled and encouraged it to play a leadership role in promotinginternational regulatory cooperation. At the same time, the work of theICH in defining “state of the art” standards has itself contributed to theharmonization of drug approval standards and procedures within theUnion: the first three meetings of the ICH paralleled the EU’s progress increating a single market for drugs in Europe.

Japan has experienced the most difficulty adjusting to the ICH. Of par-ticular concern to the Japanese are racial differences that can lead to differ-ent 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 fordrug evaluation. This began to change in 1986 following bilateral negotia-tions with the United States. But while Japan is “increasingly willing toaccept toxicity tests and preclinical data from other countries . . . it stillinsists on Japanese clinical data” (“Prescription for Success . . .” 1990, 7). Inaddition, Japan’s distinctive evaluation standards and criteria require con-siderable additional testing (Currie 1989, 100ff; Kanusky 1994, 683–686).Nobuto Nakamura, general manager of the Pharmaceutical DevelopmentDivision of Takeda Chemical Industries, has expressed concern that“when it becomes possible to use Western Clinical Data in Japan based onthe results of the International Conference of Harmonization, there is arisk that clinical trials [in Japan] will be reduced to a mere formality sincesponsors will minimize the number of studies performed locally andtransfer them overseas” (“Japan Urgently . . .” 1995).

However, in preparation for ICH2, the Japanese Ministry of Health andWelfare created “Pharma Dream 21,” a $10 million scheme “for the pro-motion of harmonization of drug regulation . . . particularly in the area ofracial differences from the point of view of clinical science (“Funding . . .”1992). Japan has also responded to the need for harmonizing good clinicalpractices by increasing its number of inspectors, as Japanese monitoringof drug testing has been a continuing source of complaints by US andEuropean regulators (“Japan: Mr. Fujii . . .” 1992, 1). At the closing sessionof ICH3, a senior Japanese MHW stated that he was pleased that so “manyguidelines in which international standards are provided for were agreed

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upon in order to avoid duplicating tests and wasting time and costs,” andpledged to make sure that these guidelines are put into practice” (“ICH. . .” 1995). The ICH will thus make it easier for drugs developed in Europeand the US to be approved for use in Japan.

One of the ICH’s major impacts will be to improve the quality of Japa-nese testing procedures, bringing them more closely into line with those ofEurope and the United States. This will enable Japanese firms to use theresults of tests conducted in Japan on their foreign applications. Equallyimportantly, it will also improve the welfare of Japanese patients byrequiring the adoption of western standards of patient notification. As oneobserver put it:

Inherent in a standard protocol is an enforceable requirement for informed con-sent. Suddenly patients are empowered to request information before signing onthe dotted line. Once information is shared, the previous sole holders of informa-tion [senior Japanese investigators known as “Big Bosses”] are forced off theirpedestals into the real world. The psychological implications in Japan are dra-matic (Mauer 1996).

For the FDA, its participation in the ICH has both complimented andassisted its efforts to speed up the approval process. Since the passage of leg-islation in 1992 giving the agency more resources by permitting it to chargethe drug companies “user fees,” the approval times for new drug appli-cations has declined significantly. In 1995, the average approval time for anew 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 weredeemed “major therapeutic advances” was only six months in 1995 (Mintz1996, 21). Indeed, as a result of these changes, the “drug lag” has virtuallydisappeared. According to an FDAstudy which compared the approval andavailability of new drugs in the United States to other drug-producingnations between 1990 and 1994, the US was slightly ahead of the UnitedKingdom and substantially ahead of both Germany and Japan. An analysisof those drugs approved in more than one country found that the US laggedslightly behind the U.K. but was substantially ahead of both Germany andJapan (Wechsler 1996, 16). 40% of the world’s new drugs are now approvedfirst in the US (Green 1995). According to FDA Commissioner Kessler,“Americans have access to essentially all clinically important drugs that areavailable anywhere else in the world.” He added that although “the UnitedStates does not stock every product that has been approved worldwide, nei-ther does anyone else” (Wechsler 1996, 16).

Still, the FDA remains under continued domestic political pressure toapprove drugs more rapidly—pressures which have been exacerbatedby the EMEA’s success in expediting the drug approval process in theEU. While mutual recognition of drug approval between the FDA andthe EMEA is unlikely in the foreseeable future, a number of the EMEA’scriteria for both efficacy and effectiveness, as well as its requirements ofclinical review and scientific vigor, are sufficiently similar to those of theFDA so as to permit both agencies to rely more on data prepared for

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 15

their counterparts (Katz 1993, 585–586). Indeed, in the not too distantfuture, there is likely to be a common drug approval application for boththe US and the EU. The FDA has formed internal working groups thatmirror those established by the ICH’s steering committee and their rec-ommendations have already reduced the number of overlappingrequirements imposed on firms seeking marketing approval for theirproducts in the United States (“FDA Challenged . . .” 1996). To the extentthat there is international agreement about the preclinical and clinicaltests and data needed to support a new drug approval application, thesubstantive differences between European and American drug approv-als are likely to continue to diminish, thus making the FDA less vulner-able to allegations that Americans are being denied access to effectivedrugs approved elsewhere. FDA participation in the ICH has alsoencouraged the agency to streamline its own procedures and to improveits internal communication.

CONCLUSION

The developments described in this article represent part of a muchbroader effort on the part of governments to improve international regula-tory cooperation (Sykes 1995; Regulatory Co-operation . . . 1994). Theseefforts have primarily involved agreements to facilitate regional and inter-national trade by reducing technical or nontariff barriers. Reducing therole of national regulations as trade barriers was a critical component ofthe EU’s “1992” program to create a single European market. It was also amajor component of the Uruguay Round GATT agreement, whichrequired all WTO signatories to accept both a Technical Barriers to Tradecode which applies to product standards as well as an Agreement on Sani-tary and Phylosanitary Standards (SPS), which limits the ability of gov-ernments to use food and agricultural standards as trade barriers. Bothagreements reflect the extent to which “the domestic structures of politicaleconomy have become major stakes in international trade negotiations”(Berger 1996, 16).

Underlying these efforts is the assumption that many national regula-tory standards are really disguised barriers to trade: their primary pur-pose or effect is to protect domestic producers from internationalcompetition. As in the case of other trade policies, the interests of busi-ness have typically been divided. Proposals to subject health and safetyregulations to increased international scrutiny—for example by requir-ing nations to justify them on scientific grounds—have frequently beenopposed by domestic producers for whom they have provided impor-tant economic benefits and supported by internationally oriented pro-ducers who want increased access to markets which are now protected.This pattern, for example, has characterized the politics of negotiationsaimed at reducing the ability of nations to maintain food and agricul-tural standards that restrict trade (Vogel 1995, 5). These disputes over

16 DAVID VOGEL

international market shares have been primarily conducted under theauspices of either bilateral or multilateral trade negotiations.

However, the international coordination of national drug approvalstandards has generally taken place outside the framework of trade nego-tiations, largely because distinctive national regulatory requirements havenot functioned as trade barriers. The relative structures of American regu-latory requirements have not conferred a competitive advantage on drugsdeveloped by American firms any more than fifteen separate EU drugapproval procedures protected the market share of European firms. Onlyone developed country, Japan, has been accused of using its drugapproval requirements to discriminate against foreign firms. No one hasclaimed that the onerous post-1962 American drug approval requirementsare non-tariff trade barriers; they have made it just as time-consuming andexpensive for American firms to secure marketing approval in the UnitedStates as for foreign ones. Nor was the American “drug lag” of the 1970sand 80s considered a form of protectionism: the drugs whose approvalwas delayed by American authorities were as likely to be developed byAmerican firms as by foreign ones.

Thus in contrast to typical trade negotiations, which have generally pit-ted the interests of internationally-oriented producers against domesticones, the firms involved in both the ICH and the negotiations in the EUhave similar interests. Neither the large multinational firms nor thesmaller biotechnology start-ups want regulatory requirements to be usedas non-tariff barriers. All firms in this sector have a common interest inreducing the costs associated with marketing their products in as manycountries as rapidly as possible. Indeed in recent years, they have becomeeven more supportive of regulatory harmonization due to both theincreasing costs of research and development and the decline in the effec-tive patent life of drugs. “Research-based firms realized that, for innova-tion to be profitable, new drugs must reach markets all over the world inas short as time as possible” (Tarabusi and Vickery 1993).

Accordingly, firms in this sector stand to derive considerable benefitfrom international agreement not only on outcome standards for thesafety and efficacy of drugs, but also on standards that specify what firmsmust do to get their drug approved by national health authorities. “Thecosts of duplicative inefficiencies of [distinctive national] specificationstandards . . . are enormous (Braithwaite 1994, 210). In 1990, it cost firmsan average of $231 million to develop and test a new drug. “A one andone-half year reduction in drug approval time can reduce the time neces-sary to recoup research and development expenditures by five years”(Dillman 1991, 936).

It is governments, not businesses, which have been the main obstacle tointernational regulatory cooperation. Historically, national regulatoryagencies have been reluctant to surrender their ability to define and super-vise every stage of the drug approval process, in large measure due totheir concern that this would lead to the approval of unsafe drugs for

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 17

which they would be held responsible. In the case of both European andthe Japanese governments, a second factor has been at work as well: thelinkages between drug approval decisions and government expenditureson medical care.

Accordingly, the substantial progress toward regulatory coordinationdescribed in this article has required a change in the preferences of gov-ernment officials. Their changed preferences have been driven by threefactors: the institutional development of the EU, political pressures formore rapid drug approval in both Europe and the United States, and theexperience of international cooperation itself. It is not coincidental that theexpediting of drug approval within the US, the harmonization of drugapproval within the EU, and the work of the ICH all took place at approxi-mately the same time. Each built upon and reinforced one another.

The EU created the political, institutional and legal framework whichhas pressured national governments to surrender their regulatory auton-omy. Within Europe, the coordination of national drug approval policieshas taken place within the context of the EU’s ongoing commitment to cre-ate a single European market. This effort has had two primary goals. First,an important purpose of the single market has been to improve the com-petitiveness of European firms by reducing national rules and regulationsthat impeded the ability of firms to market similar goods throughoutEurope. Secondly, the creation of the single market was intended toimprove the welfare of European consumers by eliminating duplicativeand unnecessarily restrictive national rules and regulations. Centralizingdrug approval policies falls into both categories: like the creation of a sin-gle market for other products, it represents an effort on the part of the EUto improve the welfare of both European producers and European con-sumers. It also promises a third benefit, namely lowering the costs ofnational regulatory administration occasioned by the need to maintain fif-teen regulatory bureaucracies.

In the case of the US, the FDA has found itself under substantial politi-cal pressure not only from AIDS activists, but after 1994 from the Republi-can controlled Congress as well, to facilitate the introduction of new drugsinto the United States. Notwithstanding the progress it has made towardexpediting the drug approval progress, it continues to be criticized for theexcessive length of drug development times (Hudgins 1997, 12). Interna-tional regulatory cooperation represents a way for the FDA to reduce itsown administrative costs, lower the barriers to drug approval in the USand, at the same time, maintain its ability to protect American consumers.Moreover, the creation of the EMEA considerably facilitated internationalregulatory cooperation since it enabled the FDA, for the first time, to workwith a regulatory agency whose jurisdiction was comparable in scope andimportance to its own.

Finally, although initiated by external political and institutional pres-sures, once international cooperation got underway, it created its ownmomentum. In the course of working together through the ICH, both

18 DAVID VOGEL

European and American regulatory officials not only gradually learned totrust each other more, but came to appreciate the extent to which duplica-tive specification standards, rather than enabling them to better protectthe health and safety of their citizens, were in fact, undermining their abil-ity to do so. They began to recognize how coordinating their standardscould both reduce their administrative costs and strengthen their ability tomake informed decisions about the safety and effectiveness of proposednew drugs in a timely manner. As an essay prepared for the OECD noted:

[Requiring] firms . . . [to] do essentially the same tests with somewhat differentspecification in different countries to satisfy the requirements of differentnational health authorities . . . costs . . . lives as duplicative tests are awaited andas patients are unnecessarily exposed to placebos rather active treatment for thesake of duplicative trials, or as new drugs remain undeveloped because ofapproval costs. (Braithwaite 1994, 211)

This view was echoed in a January 1995 FDA statement:

Increased international commerce and diminished resources for regulation haveresulted in efforts by public health regulatory agencies around the globe toenhance the effectiveness and efficiency of their operations. Public health regula-tory agencies are protecting the public by harmonizing regulatory requirements;minimizing duplicative regulations; and cooperating in scientific, regulatoryand enforcement activities. (quoted in Horton 1997, 106).

The surrender of some of their sovereignty over drug regulation byvarious national governments can be understood as part of a broaderrange of welfare enhancing regulatory coordination by governments.Other important examples include the agreements on test guidelines fornew chemicals developed under the auspices of the Organization for Eco-nomic Co-operation and Development (Regulatory Co-operation . . . 1994,39–42) and the Basle Accord on capital adequacy requirements for banks(Kapstein 1992). As in the case of pharmaceutical regulation, these initia-tives have been supported by internationally oriented firms which prefersimilar rather than competing national regulatory requirements.

Global environmental treaties also fall into this category. These treatiesstrengthen the effectiveness of national environmental regulations sinceinternational regulatory cooperation is critical to address environmentalproblems which transcend national boundaries. At first glance, the coordi-nation of drug or chemical approval standards regulation appears to havelittle in common with an international environmental agreement toaddress a problem such as ozone depletion as the former only affects thehealth and safety of the citizens in one country while the latter affects theglobal commons. Yet on further reflection, there is an important similarity.For in all three cases, the increase in international regulatory cooperationand the corresponding reduction of national regulatory sovereignty hasstrengthened the ability of national regulatory officials to achieve theirpolicy objectives.

The globalization of regulation, particularly when it has taken placeunder the auspices of trade negotiations and agreements, has been

THE GLOBALIZATION OF PHARMACEUTICAL REGULATION 19

criticized on the grounds that it is likely to lead to a “race to the bottom”(Swire 1996). Others have argued that regulatory coordination can facili-tate a “race to the top,” a dynamic which has been described as the “Cali-fornia effect” (Vogel 1995). Yet the case of pharmaceutical regulatorycooperation does not fall into either category. The result of increased coor-dination has been neither a strengthening nor a weakening of nationalstandards; rather it has helped make national government regulationmore efficient and effective.

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