“We were worried that, in the wake of Vioxx, there would be draconian safety provisions, but we avoided that.”
It’s an uncertain time for the pharmaceutical and biotechnology industries. Last year, the U.S. Food and Drug Administration approved just 14 new molecular entities and two biologics, making 2007 one of the worst years for drug innovation in more than a decade. Meanwhile, drug-safety concerns continue to grab headlines, and several leading presidential candidates have put forth plans to curb healthcare costs. Little wonder that onlookers are eager to know what Congress has in store for the life sciences industry this year, and how new legislation might affect medical innovation.
In 2007, House Democrats pledged to boost support for stem cell research and increase government R&D funding. They also vowed to give Medicare the power to negotiate drug prices directly with pharmaceutical companies, a measure strongly opposed by industry groups. But most of these changes have yet to arrive, as the Democrats’ legislative agenda has been stymied by White House vetoes and Senate infighting.
The expectation for 2008 is that Congress will again be relatively quiet—but not completely. Patent reform legislation and bills creating a pathway for follow-on biologics will likely come up for votes in the months ahead. Congressional drug-safety hearings could affect the way the FDA does business, while scores of smaller bills—from genetic non-discrimination rules to small-business grants—could have significant effects on medical innovation. True, most lobbyists and trade groups are looking ahead to 2009, when a new, and presumably Democratic, president could push for sweeping healthcare reform. But there’s still plenty to focus on in this session.
The hand of Congress will be felt most powerfully in 2008 through the FDA Amendments Act (FDAAA), passed last fall but taking effect this year. Many consider this to be the most significant revision to drug-safety rules since 1962, when the agency received the authority to require clinical trials before approving new drugs. In addition to reauthorizing user fees for drugs and medical devices, the law allocates new resources for monitoring post-marketing safety—to check for problems not caught in pre-approval trials—and gives the FDA the authority to order speedy changes in labeling whenever new information comes to light. Surprisingly, the agency has never had this authority; after new data on the increased risk of heart attacks and strokes associated with Vioxx surfaced, it took 14 months to negotiate changes in labeling. (The painkiller was eventually recalled.)
How will the new law affect medical innovation and drug development? James C. Greenwood, president and CEO of the Biotechnology Industry Organization (BIO), is optimistic: “We were worried that, in the wake of Vioxx, there would be draconian safety provisions, but we avoided that.” Greenwood notes that FDAAA also included a patent extension for pediatric drugs, which could bolster innovation in medicine for children. David Nexon, senior executive vice president of the Advanced Medical Technology Association (AdvaMed), expects the user-fee legislation to have several positive impacts: “The older user-fee structure was unstable, and [fees] shot up more than people expected in some years. Now there’s a stable fee structure. We also negotiated a lowering of application fees, which sometimes placed a significant burden on some innovative products.”
But other observers say that the new law’s impact on research and development will be minimal. “The changes in the law really don’t go to the crux of how you help innovation,” argues Jeffrey N. Gibbs, a lawyer at Hyman, Phelps & McNamara who has represented healthcare companies before the FDA for 20 years. “There are some modifications that should be helpful—like on medical-device reporting—but there’s still the question of how you develop a culture and process [within the FDA] where it’s clearer what needs to be done, with consistent standards.” In 2006, the Government Accountability Office (GAO) looked at the dramatic slowdown in new drug development over the last decade (despite ever-increasing R&D spending), and suggested that the FDA’s sometimes-murky rules on safety and effectiveness may occasionally lead companies to abandon drugs in the early stages.
Could that change in 2008? “There’s probably not much appetite for further FDA legislation this year,” Gibbs says. But, he adds, congressional oversight affects FDA behavior and internal rulemaking, too—and sometimes more quickly than legislation does. “The agency reacts to the pressure it feels,” says John E. Calfee, a drug industry expert at the American Enterprise Institute. For example, in the wake of the congressional outcry over Vioxx, the FDA became somewhat more restrictive, and, in December, delayed the approval of a new HPV vaccine from GlaxoSmithKline that differed slightly from one Merck had already marketed.
Indeed, most onlookers expect a rash of hearings in the year ahead. “If it’s the case that Congress can’t legislate, they’ll investigate,” says Nicholas Allard, a healthcare lobbyist at Patton Boggs. Those hearings are likely to focus primarily on safety rather than the pace at which drugs get approved. “If there’s an institutional bias in government, it tends to be toward safety and effectiveness,” says Allard. “It’s understandable. Fewer people notice when a drug isn’t approved or when innovation isn’t developed than when a drug is marketed and there’s an adverse reaction.” On the other hand, Allard adds, it’s possible that hearings on the “drug lag” could come up, although Congress hasn’t held such hearings since 1995. “There is pressure increasingly to overcome that institutional inertia,” he says. “If there’s a medical condition for which there are approved treatments in other countries with respected regulatory regimes, you could see Congress start to ask what’s going on.”
But not everyone is convinced that hearings would address the problem. The reason for the relative paucity of new drugs, argues Merrill Goozner, author of The $800 Million Pill and an outspoken industry critic, has more to do with the difficulties inherent in medical science than anything the FDA is doing. “The problems [drug companies are] going after now—degenerative diseases, Alzheimer’s, Parkinson’s—are much, much more difficult,” says Goozner. “The idea that minor fiddling with regulatory standards at the FDA will affect larger scientific issues is hogwash.” The GAO has suggested that major reforms may be needed to spur new drug development (such as a multi-tiered patent system offering stronger protection for truly innovative drugs and less protection for “me-too” drugs). For now, Congress is almost certain to stay away from such dramatic overhauls.
Even so, one of the major bills being tracked by the pharmaceutical industry is the Patent Reform Act, which passed the House but not the Senate last year. This reform effort began after the National Academy of Sciences made recommendations for streamlining the U.S. Patent and Trademark Office, and a coalition of large technology and media companies, including Apple, Cisco Systems, Microsoft, and Time Warner, persuaded Congress to include additional provisions that would make it easier to attack patents, harder for patentees to get into court, and reduce the compensation a patent owner can receive in damages for infringement. A rival group, the Coalition for 21st Century Patent Reform, which includes BIO and Pharmaceutical Research and Manufacturers of America (PhRMA), has sprung up to oppose certain provisions in the legislation, warning that the changes could weaken patent protections and stifle medical innovation.
Gregory Mandel, a law professor at Temple University, explains the dispute this way: “For large companies out in Silicon Valley engaged in hardware, software, semiconductors, the patent system isn’t always used to protect technology—it’s often used defensively; they’ll patent a lot to protect themselves from infringement suits or leverage patents in negotiating licenses from other firms. So it’s more strategic in that regard, as opposed to preventing someone from copying, which is what biotech and pharma are worried about.” The Silicon Valley companies, Mandel says, would actually benefit from slightly weakened protections. “They’re always worried about some random inventor showing up with a patent and saying that one part of a computer with 10,000 different components is infringing. You’re less likely to have small inventors or patent trolls with biotech and pharma; there, generally, one patent will cover an invention.”
In recent weeks, BIO has run ads in The Hill and Politico asking, “What’s at stake if Congress passes the wrong patent reform bill? The next great biomedical breakthrough.” Philip Johnson, Chief Patent Counsel for Johnson & Johnson, puts it this way: “The biggest concern is that by making it harder to get, maintain, and enforce patents, and lowering damages to be recovered in the event a patent is infringed, you reduce the incentives to invest in R&D.” The tech firms have, in turn, dismissed such statements as “sky-is-falling” rhetoric. It’s difficult to assess either claim as very little academic work in the area has been done, according to Arti Rai, a law professor at Duke who studies the pharmaceutical industry. But, in any case, the final bill may be less sweeping than the heated debate suggests. “The current version of the Reform Act has been watered down from previous versions in 2005 and 2006, and keeps getting watered down,” says Mandel. “It’s moving toward tweaking.”
Another major legislative fight that could resurface in 2008 is over a bill creating a regulatory pathway for follow-on biologics (FOBS), or biosimilars. Already, biologics are the fastest-growing and most promising drug sector in the United States, a $50-billion-per-year industry that’s expected to double in the next several years. Currently, there’s no expedited approval process for FOBS, and the stakes look high: Patents on biologics worth more than tens of billions of dollars a year have already expired, with another $15 billion worth of drugs set to go off-patent soon.
Contrary to popular belief, however, BIO is not opposed to legislation that would enable the FDA to approve biosimilars, and is lending support to several bills put forward by Senate Democrats. Within the biotech industry, the general sense is that such legislation is inevitable—the European Union has already set up a biosimilars approval process—and Greenwood observes that PhRMA “lost some reputational capital” after digging in its heels on generics legislation for pharmaceuticals in the 1980s.
Nevertheless, there are still sticking points—mainly concerning “data exclusivity,” or the amount of time after approval of a new drug before a competitor can use data from the original approval process for its own FDA filing. BIO wants 14 years, while the Senate bill provides 12. Representative Henry Waxman, a California Democrat who is crafting his own bill in the House, has not yet put forward a precise number, but is expected to put up a fight on this front. “I’m not 100 percent sure it’s going to get done this year,” says Dean Rosen, a healthcare lobbyist in Washington, D.C. “Waxman has his own approach and may want something less favorable to the industry.” (Several lobbyists speculated that Waxman, who tends to side with generics manufacturers, may prefer to run down the clock and wait for a Democratic president in 2009).
At stake is not just revenue, but also potentially the ability to innovate. “If [Congress] ends up saying that, for example, only two years of exclusivity is fine, well, that’s only two years of effective market return on a product that takes 12 years and hundreds of millions of dollars to develop,” says Paul T. Kim, a life sciences lobbyist with Foley Hoag LLP. “You can’t possibly achieve an adequate return in two years and still attract venture finance or fund such a high-risk enterprise.” Meanwhile, according to one lobbyist, there are rumors that PhRMA may enter the fray and ask for extended data exclusivity rights for traditional pharmaceutical drugs, which now last about five years. (PhRMA declined to comment on hypothetical legislation).
Opinions vary on the impact FOBS legislation would have in practice. One recent study suggested that total potential cost savings from generic biologics could be more than $70 billion over 10 years. In a recent report from the American Enterprise Institute, however, Calfee suggested that some of these projections are overly optimistic, as the FDA would almost certainly be extremely cautious in approving follow-on biologics—both House and Senate bills allow the agency to require more data if it’s not clear that the follow-on product would work in the same way as the original. Because a blanket “no-clinical trials standard” is infeasible for follow-on biologics, Calfee argues that “the FDA will bring to this task its innate aversion to risk in approving new drugs,” and doctors will be even more reluctant to prescribe generics.
Still, the generics industry could very quickly win approval for some of the more basic biologics, such as Epogen, a drug with $2.5 billion in sales last year that went off-patent in 2005. “The reason this is a big battle,” says Mandel of Temple University, “is that the biologics that are going off patent now are the earliest and simplest, the ones where generics could capture the greatest market share.” In the longer term, though, provided reasonable allowances are made for data exclusivity, the impact on innovator firms may not be all that great.Beyond the big-ticket items, there are lesser bills and issues on Congress’ radar screen that may come up for a vote this year:
Genetic non-discrimination rules. Legislation to forbid insurance companies from using genetic information to discriminate against individuals is very close to passage. At the moment, however, Senator Tom Colburn (R-OK) has put a hold on the bill, arguing that it could lead to frivolous lawsuits. “His excuses don’t make sense,” Representative Louise Slaughter (D-NY), the bill’s sponsor in the House, told reporters. “But if the bill got to a floor vote in the Senate, I think it’d pass almost unanimously.” Companies offering genetic tests have declared that their business won’t gain traction unless Congress puts in place non-discrimination rules that will ease customer concerns.
Mental health parity rules. Proponents say that mental health parity rules, which forbid insurers from treating mental disorders differently from other diseases, can help combat the stigma of mental illness and enable coverage. That, in turn, could expand the market for innovative treatments. In December, Congress passed a one-year extension of a rule preventing group health plans from setting lower dollar limits on coverage for mental disorders than for other conditions. Both the Senate and House are now looking at more permanent, far-reaching reforms: one House bill, for instance, would require any mental condition listed in the psychiatric industry’s compendium to be covered by group plans. “That could happen in the next six months,” says one lobbyist following the issue.
Electronic medical records. Currently, there is no national standard for electronic medical records, only a patchwork system. As Kim of Foley Hoag explains, fixing this could bolster life sciences innovation: “If [pharmaceutical companies] could find ways of mining data using electronic health records, exploring longitudinal datasets and patterns of utilization as part of acute care, well, that’s the grand vision. [They] would have so much more information to ask and answer different questions about safety and efficacy.” The Senate attempted to pass the Wired for Health Care Quality Act in November, which would set national standards for electronic recordkeeping, but failed after doctor and patient groups voiced concerns about privacy protections. The bill will come up again this year.
Comparative effectiveness oversight. There is a small chance that Congress could reconsider legislation to create a comparative effectiveness oversight board that would weigh different drugs and devices against each other. “If it happens this year,” says lobbyist Rosen, “it will have to be part of a broader Medicare bill, and that will cost money to do.” Under Congress’ current pay-as-you-go spending rules, that may be unlikely.
Small business grants. BIO’s Greenwood notes that his organization will be closely watching the fate of small-business grants from the government, which have historically helped biotech startups. In 2001, however, the Small Business Administration ruled that companies majority-owned by venture capitalists could not qualify for SBIR (Small Business Innovation Research) grants. BIO is trying to get the ruling reversed by Congress, and Greenwood expects to see action on that this year.
Medical device legislation. AdvaMed is keeping a close eye on pending legislation in the Senate that would require Medicare to reimburse doctors for remote monitoring of patients with chronic diseases—a technique that can improve care and reduce hospitalization. “The key driver of cost in our healthcare system is chronic disease,” says AdvaMed’s Nexon. “But doctors don’t get paid if they’re using remote monitoring. We’re optimistic that that could change.”
FDA tobacco regulations. Congress has been debating a bill giving the FDA the authority to regulate tobacco products and marketing. One lobbyist pegs the chances of passage this year at “50-50—and possibly higher.” Although most onlookers in the life sciences industry aren’t paying close attention, lobbyist Allard says the new law could have a major impact. “Even if the bill provides the FDA new funding, it’s a fair question whether undertaking that massive operation could divert resources away from overseeing drugs,” he points out. “People don’t always connect the dots.”
Immigration reform. Attracting a greater number of high-skill immigrants to the United States could have a dramatic impact on the future of medical innovation. “Any serious innovator is going to have a multinational research team,” says Allard. “So addressing how companies can attract the brainpower they need is a big issue.” In an election year, however, Congress is almost certain to shy away from immigration.
Looking ahead, the biggest issue facing the life sciences industry may be the prospect of legislation to control rising healthcare spending in the United States. “The biggest challenge we face is the tendency of policymakers to try to reduce healthcare costs,” says Greenwood. “Those intentions, good intentions, can, if we’re not careful, lead to a constriction in the availability of resources for innovation.” Nexon agrees: “I do think healthcare reform is coming, not [in 2008], but there will likely be a big health reform effort in 2009, and it’s important for the industry to get out front both on coverage and cost containment—to make sure that, in an effort to control costs, people don’t hinder innovation.”
Bradford Plumer is an assistant editor at The New Republic.
