Lower-cost drugs predicted under Obama administration

Cheaper drugs could be on the way to U.S. consumers under the Barack Obama administration.

"We are likely to see some movements with prescription drugs and pricing," said David Dranove, professor of health industry management for Northwestern University's Kellogg School of Management.

The reason: President George W. Bush blocked, or allowed Republican leaders to stall, several bills that would have resulted in lower drug prices. In doing so, he sided with the pharmaceutical industry, which cited safety concerns about cheaper imported drugs and worried about threats to drug company research budgets if the federal government interfered with pricing.

Now, initiatives that could lead to lower prices, which Obama supported as a Democratic senator from Illinois, are expected to gain traction with him in the Oval Office, especially since he will be backed by stronger Democratic majorities in Congress. They include proposals that would allow for cheaper copies of expensive drugs derived from biotechnology, unleashing the government's Medicare program to negotiate drug prices directly with drug companies and making it legal for pharmaceuticals to be imported into the U.S.

The larger Obama push aimed at providing health benefits to more than 45 million uninsured Americans is seen as too costly, complicated and difficult to achieve in the first year of his administration, particularly given the country's financial crisis and massive deficits run up in part by wars in Iraq and Afghanistan. Congressional proposals have been emerging, but it is unclear how far they will go.

"There are many other demands on the federal purse strings, and [health-care reform] requires a lot of new bureaucracy that will be tough to accomplish," Dranove said. "But there is low-hanging fruit, and they have been hanging there [in Congress] for some time and will be easy sells and easy to get through."

Lowering drug prices could hurt profits and stocks of companies such as North Chicago-based Abbott Laboratories and Deerfield-based Takeda Pharmaceuticals North America, analysts say.

In particular, both companies could be weakened if import restrictions are lifted on some commonly used drugs that they manufacture outside the U.S. Examples include Abbott's Tricor cholesterol pills and Takeda's Prevacid for severe heartburn. Some experts believe that imported brand-name drugs could be priced more like generics, which are generally 50 percent to 80 percent cheaper.

Supporters of importation say it makes no sense for U.S. consumers to pay more for the same pills made in countries where U.S. companies have foreign-based manufacturing plants that meet Food and Drug Administration standards. The difference in pricing can reflect lower wages paid in countries such as Ireland and India.

But the drug industry's trade group, the Pharmaceutical Research and Manufacturers of America, contends that imports could undermine drugmakers' ability to fund expensive research and development.

So far, the FDA under Bush has blocked importation, and Congress has not changed the law to allow drugs to be legally moved across U.S. borders, with the effort largely bogged down in the Senate, where Democrats had held a one-vote majority.

Since the Democrats gained more congressional seats in the election, the pharmaceutical industry is preparing for battle.

"Clearly, we are getting prepared for anything and everything next year," said Ken Johnson, senior vice president of the industry trade group, which has opposed allowing Medicare to negotiate directly with drug firms.

"The government does not negotiate prices, it dictates prices, and that impairs our companies' ability to be innovative with the ability to develop life-saving medicines. In the end, the real losers are patients."

One area where Congress and the Bush administration had been making progress was legislation to allow competition from lower-price versions of biotech drugs.

Such a move would open the door to innovations for cancer and anemia and other treatments that are derived from human or animal cells and can cost tens of thousands of dollars a year. In the absence of legislation, biotech companies would enjoy longer patent protection because there is no regulatory pathway within the FDA to bring generic versions of biotech drugs, known as biogenerics or biosimilars, to market.

Biotech drugs were not part of the landmark 1984 Hatch-Waxman law that allowed for cheaper generics. That law largely covers products derived from chemicals, such as the cholesterol drugs Zocor and the popular antidepressant Zoloft. Many biotechnology drugs, first created in the 1980s when technology cleared the way for genetic engineering on DNA, are only now beginning to face patent expirations.

Take Epogen, which was launched in 1989 as one of the "first biologically derived human therapeutics," according to its maker, California-based Amgen Inc. Its U.S. patents are expected to expire within the next four years. Lake Forest-based Hospira Inc., a maker of generic injectable drugs and hospital products, has begun selling a biosimilar equivalent in Europe, where the regulatory process allows for generic versions of biotech drugs.

"We know that biogenerics will improve lives while saving the federal government and American consumers billions of dollars," said Hospira Chief Executive Christopher Begley.

Makers of brand-name biotech drugs, however, say they support the European regulations and want U.S. regulators to ensure safeguards and quality standards before biosimilar drugs are approved here.

"Substantial clinical trials need to be done that are based on science," said Audrey Phillips, executive director of biopharmaceutical public policy at New Brunswick, N.J.-based Johnson & Johnson.

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