Affordable Care Act and Biotech’s Adjusting to the New Landscape

After the passage of the Affordable Care Act (ACA) in March, the biotechnology-industry began to focus on a number of measures contained in the legislation, according to a recent article in the May 2010 edition of Nature Biotechnology.  

 

Jim Greenwood, president of the Biotechnology Industry Organization (BIO) in Washington, DC, commended the health care reform bill because it “includes key provisions that will lead to new and improved treatments, cures and cost-savings for patients, while driving job growth in the industry and maintaining our nation’s global leadership in biotech innovation.”

 

Others such as Gregory Conko of the Competitive Enterprise Institute (CEI) in Washington are not as optimistic, pointing to unresolved variables, and “ambiguities over how provisions will be implemented,” which make it difficult to determine whether the position of the biotech industry will be improved under the new health care law.”

 

In addition to these uncertainties and “despite the expanded market,” another consequence is that “the industry will be overtly penalized by the addition of a tax on pharmaceutical manufacturers.” In 2012, the tax starts at $2.8 billion, increasing to $4.1 billion in 2018 and then falling again to $2.8 billion annually. Industry will also lose business as a result of “several new cost-cutting programs in the Department of Health and Human Services, which could result in much lower sales prices.”

 

Companies will also have to wait to find out how programs like the new Independent Payment Advisory Board for Medicare will work, and how other programs will internalize comparative effectiveness research results from the new Patient-Centered Outcomes Research Institute, or what effect the ‘value-based purchasing’ program or the pilot programs for ‘bundling’ payments will have on drug and biologics prescribing,”

 

In my own interview with Nature Biotechnology, I acknowledged how another potential drag on innovation included in the healthcare reform is stringent reporting requirements for physicians and others who consult with industry. These are not “restrictions” as such, but the “paperwork will be burdensome.” While “it doesn’t stop people from consulting, regulators will want to know exactly what it looks like, and it may have some effect on biotechs when investment firms can see who all the consultants are.”

 

Companies must also address price reductions to close the ‘doughnut hole’ for seniors, although more people covered by insurance may make up in volume what will be lost in the short term to the new tax and reduced prices.”  Although there may be some hurdles to overcome, the biotechnology-industry applauded:

 

– A newly drafted pathway for biogenerics that provides generous exclusivity terms (12 years) to innovator companies for their products, and also prohibits manufacturers of follow-on products from using brand names of original products for innovative therapeutics within;

 

– A lucrative tax credit for eligible smaller companies developing therapeutics; and

 

– A substantial boost—30 million or more—in the number of potential clients for biotech therapeutics due to the expansion of health insurance to more Americans.

 

Peter Pitts, president of the Center for Medicine in the Public Interest (CMPI) in New York, recognized that the exclusivity periods and prohibition of follow on products are “good for the industry because it means that the innovator companies “can still make money,” even past those 12 years of exclusivity.” As a result, “he predicts that many physicians will continue prescribing original brand-name products, particularly if price differentials with biogenerics remain low.”

 

I noted how the positive aspects of the health care bill are leaving “a lot of companies salivating at the possibility of biosimilars.” As a result, “companies will need to prove that they can work the same, and they will be put into a sub-branded category.”

 

The new therapeutic discovery tax credit is also “critical” to biotech companies because “the $1 billion program is aimed at research-intensive, small biotech companies, providing them with tax credits equal to 50% of investments in qualified therapeutic discovery projects for 2009 and 2010.” This is a “big win” for firms with fewer than 250 employees, said Glen Giovannetti of Ernst & Young, especially since “it steers credit away from large, established corporations and toward emerging companies.” While details for criteria to qualify for this credit are still being developed, “companies are very interested and are learning how to queue up with applications.”

 

ACA also authorizes the Cures Acceleration Network (CAN) to work with National Institutes of Health (NIH)-funded researchers to bridge the gap between basic research and commercial development of treatments. According to Ellen Dadisman of BIO, “this provision will help expedite Food and Drug Administration (FDA) review of highly innovative safe and effective treatments for patients, and would significantly enhance the quality of health care for the American people by speeding up our ability to transition research originating from NIH.”

 

By creating new and improved treatments, cures and cost-savings for patients, driving job growth in the industry and maintaining global leadership in biotech innovation, ACA can establish an essential partnership with industry that will help millions of Americans. As a result, with some major details still unknown, the biotechnology industry must play a vocal role in maintaining the benefits contained in this bill without adding additional constraints that will make the costs and burdens outweigh the positive effects.