Biotech firms fear pricing pressure from Obama

Biotechnology industry advocates didn't wait for election day to rehearse arguments against the broad policy changes they expect the Barack Obama administration to propose.
Obamanomics

* Pender: Obama wants to limit foreclosures - but how? 11.09.08
* Health care improvements have to wait awhile 11.09.08
* Tighter oversight of financial services needed 11.09.08
* President-elect likely to boost alternative energy 11.09.08
* Biotech firms fear pricing pressure from Obama 11.09.08
* Cybersecurity, more workers deemed crucial 11.09.08

More Business
* Macy's swings to $44 million loss in 3rd quarter 11.12.08
* Pelosi supports new help for ailing US automakers 11.12.08
* EU levies hefty fine on car glass makers 11.12.08
* Microsoft's lobbying tab dwarfs Google's tally 11.12.08

Obama's victory, and the Democratic party's commanding control of Congress, are expected to put tough pressure on drug prices as the new president tries to realize his campaign vision of expanded health care coverage for Americans at substantially lower cost. The new regime could also bring policy reversals at the Food and Drug Administration, an agency that became a political battleground during the Bush administration.

But James Greenwood, president of the Biotechnology Industry Organization, said Obama's management of the continuing financial crisis will be the most important influence on the fate of biotech companies coping with tight credit markets and risk-averse investors.

"We're at a very, very difficult time right now, particularly our smaller companies," Greenwood said. "The most important thing this administration has to do is get the economy rolling again."

Greenwood hopes to convince the new leadership that this is no time to cut drug prices. Such moves would further undermine incentives for investors to risk their money on the uncertain chance that new biotech treatments will deliver attractive returns, he maintains.

Fledgling biotechnology companies, often unable to finance the pricey drug development process through to FDA approval, also depend on cash-rich pharmaceutical giants to license their new products or buy the smaller firm outright.

"You can't simply go after big pharma on pricing and not expect it to have an impact on the most innovative young companies," Greenwood said.

Obama's health care plan challenges drug prices on three main fronts. It would increase the use of cheaper generic drugs, allow the importation of low-cost drugs from developed countries, and authorize Medicare to negotiate with drugmakers for lower U.S. prices. The latter policy change could save as much as $30 billion, Obama's plan estimates.

Venture capital executive James Thomas said the drug industry may gain from health care reform even if price pressure increases.

Because drug prices include very high gross margins, he said, growth is driven more by the number of units sold than by price. An expansion of health coverage will boost sales. "That's good for units, and good for us," said Thomas, a co-founder of Thomas, McNerney & Partners.

Greenwood isn't so sure. Cuts in drug prices might come quickly because they would be relatively easy to implement, he said. But any upside in increased sales might be substantially delayed during complex negotiations over health care reform, Greenwood said.

Latham & Watkins attorney John Manthei, who represents drug companies in negotiations over new federal laws, said the Democratic Congress will try to beef up an FDA it sees as underfunded and ineffective.

Congressional committees that had sharply scrutinized the FDA under the Bush administration will now turn their focus to the industry itself, he predicted. Manthei expects Congress to demand answers to questions like: "Were they forthright with their data? Are they adequately policing themselves?"

Ken Johnson, senior vice president at the Pharmaceutical Research and Manufacturers of America, said the trade association will urge Obama to appoint "a strong independent FDA commissioner." The group also supports more funding for the agency.

"There's no question, the FDA is under-resourced," he said.

Names being floated for the FDA commissioner's job include Janet Woodcock, a veteran agency official who is the favored choice of drug manufacturers, Bloomberg News reports.

On the other side of the spectrum are FDA whistle-blowers and prominent drug safety advocates such as Cleveland Clinic cardiologist Steven Nissen, who has raised alarms over heart-related side effects of medicines including the diabetes drug Avandia and the painkiller Vioxx.

Greenwood said Obama's term will probably begin with some welcome initiatives, such as the expansion of health care benefits for children, which could establish common ground between the new administration and drug developers. He also expects Obama to overturn the Bush administration's ban on federal funding for embryonic stem cell research, which was a thorn in the side of the biotech industry.

Drugmakers, however, may lose ground they had gained during Bush's presidency. For example, the Bush administration has asked the Supreme Court, in a pending case called Wyeth vs. Levine, to insulate drug companies from lawsuits by injured patients.

If the high court does so, Manthei said, the Democratic majority may easily change the law because the reduced Republican contingent no longer has as much power to resist.

"The margins are such that they could do things very quickly," the industry lawyer said. "It's a different day."

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/08/BU9H13UVDA.DTL&type=politics