How government kills private enterprise

This post (from NRO) is a fairly long, but worthwhile and suitably sarcastic tale of how government (sometimes with the help of their big business friends) can kill private enterprise. It specifically deals with the FDA but could easily apply to all government agencies.

Did you know that the FDA classifies the ubiquitous Q-Tip as a medical device? That’s right a medical device subject to FDA regulation and a 2.3% excise tax specified in the monstrous boot-to-the-face, obamacare. The FDA also classifies tongue depressors as medical devices too but this story is about the Q-Tip and how the FDA and Henry Waxman used it to crush a DNA testing business.

The story seems to have begun early in May. A firm named Pathway Genomics, based in San Diego, is one of many that have come up in the past few years offering to scan a person’s DNA and report on any significant disease-risk or drug-response markers. You swab your cheek with a sterile Q-Tip they provide, or spit into a sterile plastic tube, and you send the saliva sample off to them. They scan it and send you back the information. The cost of a test can be from $20 to $500, depending on how many markers are scanned for.

Earlier this year Pathway entered into a deal with Walgreens, a nationwide drugstore chain with 7,500 outlets. The deal would have allowed Pathway to operate counters at 6,000 of those outlets, selling their service. Instead of signing up with Pathway via their website and sending in your saliva sample through the mail, you could do the thing right there in your local drugstore.

Health reporter Rob Stein at the Washington Post did a story on the Pathway-Walgreens deal. The story appeared in the May 11 edition of the newspaper. By way of researching it, Stein called the FDA to ask them for a quote. This is everyday journalistic practice — any reporter would have done the same. The call, however, woke the FDA from their dogmatic slumbers.

In response to a query from The Washington Post, an FDA official said that the agency planned to investigate the test.

“We think this would be an illegally marketed device if they proceed,” said Alberto Gutierrez, director of the FDA’s office of in-vitro diagnostics. “They are making medical claims. We don’t know whether the test works and whether patients are taking actions that could put them in jeopardy based on the test.”

The regulocrats lumbered into action. A letter went out to Pathway warning them that their test was a “medical device” likely subject to FDA oversight and pre-marketing approval. Hearing of this, Walgreens canceled the deal with Pathway.

Close behind the FDA, like jackals following tigers, came Congress. Henry Waxman, head of the House Energy and Commerce Committee, demanded a comprehensive document dump from three of the firms — every letter, every lab report, every e-mail. Last week the FDA escalated the war, sending letters out to five more of the firms (23andMe, Navigenics, DeCode, Illumina, and Knome) couched in similar terms to the original Pathway letter.

Great. So a Q-Tip, something found in almost every home is a “medical device?” Subject to government regulation and Waxman-led congressional inquisitions? And an obamacare excise tax?

The logic of classifying these DNA scans as “medical devices” bears a closer look. What actually is a “medical device”? Answer: A medical device is anything the FDA declares to be a medical device. The humble tongue depressor, for example (known to English schoolchildren of my generation as an “aah stick,” from the doctor’s instruction to “Say ‘aah’”), is a Class I medical device. I suppose the FDA would argue that there is a tiny risk the consumer will swallow his tongue depressor and choke on it.

You might still think it’s a bit of a stretch to call these tests “medical devices.” They are, after all, merely informational. Consumers are not being dosed with anything, or having anything attached to or implanted in their bodies, nor even inserted into their mouths for purposes of tongue depression. “Medical device”? Huh?

So what will happen to these companies that are trying to carve out a spot in a niche market? After being hammered by the FDA and space aliens like Waxman, they don’t have many options.

A genomics start-up put out of business by Ernie and his pals will move to Singapore, whose government, far from harassing them, will give them a lab, a grant, and a tax break.

The U.S.A. is a real nice place to have a job in government, and still a pretty nice place to work for a big corporation — especially one designated “too big to fail.” For the start-up entrepreneur in an ideologically fraught field, however, the environment is increasingly hostile. Why do they even bother?



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