HHS 2.0: FDA In Focus

Overview:

• The Department of Health and Human Services (HHS) is a key federal regulatory body in the U.S. government for the health care sector, within which the Food and Drug Administration (FDA) is a central agency for the biopharmaceuticals industry.
• Swift changes by the Trump Administration at HHS and FDA have created uncertainty.
• Our proprietary survey of 50 biopharma regulators goes beyond the headlines to assess the reality on the ground.
• We find modest disruption in communications with the Agency and an expectation that it may get a bit worse before it gets better.
• We see concern of increased risk aversion for certain conditions and modalities.

The TD Cowen Insight

Senior leadership changes, staff turnover and concerns of politicization of HHS (specifically the FDA) under the new administration are causing significant investor uncertainty. Our proprietary survey finds that while it may get a bit worse at FDA before it improves, there is reason for optimism across many disease areas and modalities. However, uncertainty remains for vaccines and other select areas.

Our Thesis

Biopharma investors are uncertain about the healthcare regulatory environment under the new administration, concerned about unpredictability and raising questions about FDA functionality. We help address that uncertainty as we look at what's really going on at FDA and provide a roadmap to key indicators of future functionality of the Agency.

The Department of Health and Human Services (HHS) is the key federal regulator of U.S. health care with the Food and Drug Administration (FDA) being the most centrally important agency for drugs and medical devices. As in other areas of the government, the Trump administration has made waves within HHS. A massive restructuring,staff and budget cuts and the controversial appointment of Robert F. Kennedy Jr. as HHS Secretary have cast a pall over investment in the sector. Many changes at the National Institutes of Health (NIH), Centers for Disease Control and Prevention (CDC) and FDA are grabbing headlines, creating disruption for sponsors and uncertainty for investors. Interference from the upper reaches of HHS and the White House (largely unprecedented) further cloud the picture. And while some changes and their outcomes – such as the proposed budget cuts to NIH and leadership uncertainty at CDC – may still take time to bear out, we sought to look beyond the headlines to understand the implications of FDA changes on biopharma companies.

Our proprietary research finds that leadership changes, staffing disruptions and politicization of some early decisions have resulted in reduced quality, quantity and frequency of communications between drug sponsors and FDA. As senior leadership is almost universally new to the Agency, there will continue to be a learning curve as leaders at key centers gain experience with the Agency's inner workings and build rapport with the drug review teams, specifically at the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation and Research (CBER).

CDER oversees the regulation and approval of more traditional drug products, such as small molecules, antibodies and peptide-based drugs; CBER oversees the regulation of blood products, cell and gene therapies and vaccines.

To this end, while the headlines may subside, we could start to see a near-term increase in FDA dysfunction, measured via an uptick in complete response letters (CRLs) issued in lieu of an approval and missed PDUFA dates (the date the FDA is required to perform a regulatory action, e.g., an approval decision).

Several key metrics of FDA functioning thus far continue to be largely in line with historical norms. Given the FDA's standard timelines and Congress's requirements via user fee legislation, this finding was not entirely surprising. However, based on our research and analysis, we suspect several of our tracked indicators of FDA performance could start to trend negative in the near term. The current FDA administration is reaching the end of applications under review that were aligned and accepted by the previous FDA administration. Thus, the next few months, continuing into next year, should be informative for determining how FDA regulatory policy is shifting under the new leadership. We do note that our FDA consultants have suggested that the new FDA leadership (and really the Agency as a whole) faces several unique challenges that did not occur with prior changing of the guard. This includes a diminished and less experienced workforce and leadership, especially in key leadership positions, in addition to having to deal with a more challenging political climate.

In the long term, our survey work and regulatory consultants suggest that FDA could lean more risk-averse under the new administration, but that this will likely be concentrated on certain select areas and products such as vaccines. We note that the Agency is simultaneously unveiling programs to speed up rare disease development, so this will continue to be an area of debate regarding promise vs. execution. Our survey work also suggests that beyond vaccines, ribonucleic acid-based drugs, gene therapies and cell therapies could also face increased regulatory uncertainty. However, our consultants were more measured and believe that risk aversion at CBER will be more limited to certain rare disease conditions, vaccines and possibly some gene therapies.

We do not expect major disruptions or additional departures at the Oncology Center of Excellence, where Richard Pazdur continues to lead the division. We also do not expect major changes to the user free programs (i.e., the Prescription Drug User Fee Act [PDUFA]), which will be renegotiated under this new administration. We do anticipate continued embrace of new tools to modernize the FDA such as new use cases for AI and the eventual elimination of animal testing for antibody-based drugs. Our regulatory and industry consultants also suggest that the leadership at FDA may move to enact other initiatives via guidance, pilot programs or regulatory innovation rather than via changes to user fee programs.

What Is Proprietary?

Our findings in this multi-analyst report are supported by a proprietary survey of 50 biopharma senior leaders who are responsible for regulatory filings and agency interactions at their respective companies. We also sought input from four industry leaders and/or regulatory consultants to gain a more nuanced view of specific divisions at FDA as well as the Agency's stance on certain therapeutic areas and modalities. The research is also underpinned by our proprietary FDA metric trackers, analysis and interactions with biopharma investors and companies, which provided insight and perspective into the current health of the Agency relative to its past performance and analysis of upcoming key regulatory milestones across the industry.

Financial And Industry Model Implications

The appointment of RFK Jr. as HHS Secretary had a material impact on the market. The indices have recovered due in large part to factors unrelated to the Agency.

As a result, we would expect that the upward trend should continue as long as the new leadership can bring stability to the FDA within the next six to 12 months with:

• limited increases in CRLs and/or missed PDUFAs (less than 15% quarter over quarter increase),
• no further substantial FDA staff turnover,
• maintaining day-to-day predictability and functionality,
• providing feedback via meetings and written responses to sponsors and
• drafting and issuing guidance.

What to Watch

On the legislative and broader regulatory front, key milestones that we are watching include the latest moves on the budget (e.g. resolution of the shutdown) and their impact on NIH. We anticipate little impact to FDA from the shutdown. Beyond budget discussions, the focus is on the user fee program negotiations (i.e., PDUFA, Biosimilar User Fee Amendments (BsUFA)) which have kicked off and will go through spring 2026. Public meetings between FDA and stakeholders will be critical to understanding the degree of changes at the agency over the coming years.