Turbulent and uncertain markets often elicit a flight to quality stocks and to sectors less likely to be affected. Pharmaceuticals are a traditional favorite, partly because the demand for them is thought to be relatively inelastic. During difficult financial times a person might defer the purchase of a Jaguar or a $200 bottle of Dom Perignon, but he is unlikely to forego his diabetes or blood pressure medicine.

But these are unusual times for drug development and its regulation by the Food and Drug Administration (FDA). These changes threaten the health of the industry and its investors, as well as the individuals who could benefit from new medicines.

Although new medicines are stringently regulated--they must be shown to be safe and effective before they can be sold--once a drug has been approved it can generally be prescribed and advertised freely. During the past several years, however, the increasingly risk-averse Congress and FDA have been gradually moving toward "conditional," or limited, approvals of new drugs. These place various restrictions on the prescription, distribution, sale and advertising of these products.

At the same time, they have imposed additional requirements for a drug's demonstration of safety and efficacy in order for companies to obtain even those limited approvals. It's a devastating double-whammy that's dangerous for patients and damaging to one of the nation's most innovative and critical industries.

As a result, at a time when drug development should have been spurred by huge increases in research and development expenditures--which tripled to more than $45 billion between 1995 and 2007--and by the exploitation of new technologies, drug approvals have actually dropped. The 19 new medicine approvals in 2007 were the lowest in 24 years, and 2008 approval figures are running behind last year's.

Bringing a new drug to market now requires, on average, 12 to 15 years and more than $1.2 billion. Three recent developments at the FDA will further increase the time and cost of drug development.

The first is a formal understanding between two groups within the FDA's Center for Drug Evaluation and Research. Under the agreement, the drug review and drug safety offices now have equal responsibility for "significant safety issues" for medicines under review or already approved for marketing.

Why is this bad news? The officials in the FDA's Office of Surveillance and Epidemiology (OSE) are focused so narrowly on "safety" that they overlook the fact that, because all drugs have side effects, a drug's efficacy cannot be evaluated in a vacuum but rather must be part of a complex cost-benefit judgment. Up to now, the OSE has had an advisory, largely subordinate role, but the new arrangement superimposes the ultra-risk-averse biases of the drug safety zealots on the already risk-averse oversight of the FDA's regular reviewing division.

Second, but related to the first, is that the 2007 FDA Amendments Act gave the agency new authority to impose additional restrictions on drugs under review or already on the market, including the ability to require "risk evaluation" and "mitigation plans." A required component of these are "elements to assure safe use," which may include draconian restriction of the drug to specified patient populations, distribution only by certain specialty pharmacies, required laboratory findings and/or monitoring, advertising permitted only to certain physician specialists and patient enrollment in a central registry. Those limitations and requirements create new--and potentially very costly--obstacles to patients' getting needed medicines.

Third, the FDA recently informed drug companies that their new lipid-lowering medications would, in clinical trials, need to not only exert a favorable effect on "surrogate endpoints" such as laboratory values--lowering LDL, or "bad" cholesterol, for example--but would also have to show a positive effect on "genuine" clinical outcomes, such as fewer heart attacks and strokes, or even lengthened survival.

How significant are these changes? Kenneth Kaitin, the director of the Tufts Center for the Study of Drug Development, believes there has been a paradigm shift. The FDA, he says, is now "viewed as an agency that is supposed to keep unsafe drugs off the market, not to speed access to life-saving drugs."

And for the first time within memory, drug company executives are publicly complaining about uncertain and arbitrary regulation. Fred Hassan, CEO of drug giant Schering-Plough Corporation (nyse: SGP - news - people ), asks: "What will it take to get new drugs approved? The point is, we don't know."

These developments make it even less likely that drug companies will be able to realize a profit on a drug before its patent runs out. As it is, only 20% of approved drugs garner sufficient revenues to recoup the manufacturer's research and development costs.

The bottom line is that these new conditional approvals will worsen the prognosis for both patients and drug companies. At a time when the U.S. population is aging and needs innovative new medicines for a wide spectrum of degenerative and infectious diseases, they are not what the doctor ordered.

ABOUT THE AUTHOR

Dr. Henry I. Miller is an academic researcher, author and commentator. He graduated from the Massachusetts Institute of Technology with a Bachelor of Science degree in Life Sciences and attended the University of California, San Diego, receiving the M.S. (Molecular Biology) and M.D. degrees. After completing his clinical training in internal medicine as a Clinical Fellow in Medicine at Harvard Medical School, Dr. Miller was a Research Associate in the laboratory of Philip Leder at the National Institutes of Health. Dr. Miller joined the FDA in 1979 and served in a number of posts involved with the new biotechnology, among them Special Assistant to the FDA Commissioner and founding director of the FDA's Office of Biotechnology. During his government service, Dr. Miller wrote and lectured frequently on the regulatory requirements for biotechnology products, and participated frequently on various expert and policy panels as a representative of the FDA or the US government. As the FDA's contact person for the Securities and Exchange Commission, he reviewed the accuracy of claims made by companies in their prospectuses about the likelihood and timing of drug approvals. Dr. Miller is currently at Stanford University, where he is a fellow at the Hoover Institution. His research focuses on the relationship between science and regulation, the costs and benefits of government regulation, models for regulatory reform, and federal and international oversight of biotechnology. Other research areas include various aspects of bioterrorism and the need for better oversight of nutritional supplements. Dr. Miller is the author of more four hundred articles in scholarly and popular publications. He writes frequently for such publications as the Financial Times (London), Wall Street Journal, Los Angeles Times, Chicago Tribune, Washington Times, Biotechnology Law Report, Trends in Biotechnology, and Nature Biotechnology. He is the author of Policy Controversy in Biotechnology: An Insider ' s View (R.G. Landes Co. and Academic Press, 1997) and ' To America ' s Health: A Proposal to Reform the Food & Drug Administration ' (Hoover Institution Press, 2000). Dr. Miller is a director of Consumer Alert, a national consumer advocacy organization; a director of the American Council on Science and Health; an Adjunct Scholar at the Competitive Enterprise Institute; and a scientific advisor to the George C. Marshall Institute.