Controversy Bred By Under-Regulation: Are Genes Too Casual?

Implications: Recent reports by a federal study panel, addressed in stories in the NY Times and other sources, highlight one more gap between expectations and reality in the resource-starved federal safety net for consumers. Much less is being done to oversee Gene Test kits than consumers may expect; eventually there will be a public outcry when some real harm is documented. This Administration has prided itself on responsiveness to industry's preferences, yet choices to not regulate leave open the federal agencies as well as the industry to a backlash when future harms occur.

Analysis:  The federal study panel on gene test supervision correctly found a weak mish-mash of possible but not actual regulatory controls. Industry is blessed and cursed by that omission of active rules. Trial lawyers often fill the gapx when regulators are absent, so the smaller company desire for no rules leaves the more responsible and more cautious biotech companies at greater risk; the test makers are under uncertain "rules of engagement" with future regulatory crises. Gene companies walk in a minefield that is potentially open for over-reacting regulators,when and if the crisis occurs and/or funds are provided.

Investors must ask tough questions re these companies' quality measures, ability to withstand regulatory inspections, and contingency plans. Nature abhors a vacuum and bad health decisions made on test-based erroneous information will fill these companies' current vacuum with congressional demands for companies to explain their errors (and for regulators to explain their reluctance to act). Smarter diagnostic firms like Abbott and Meridian and others are doing well but the gap that the report identified will sometime be closing on the smaller and less prepared entrepreneurs.