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Jan 21, 2009

Barack to Business in 2009

At least for the biotech sector, change is certainly here.

  • As with any morning after a big party, the election of Barack Obama to the presidency of the United States in one of the most difficult economic, social, and political times in our history has brought a mixture of optimism and concern among many different sectors of the economy.

    There are no areas, however, with the potential for more explosive political change than healthcare, biotechnology, and information technology. From the vantage point of a dean and CEO of an academic medical center that has thrived on an entrepreneurial academic model and on partnerships with industry and the private sector, the landscape the new president will face on the day after the inauguration appears to pose several challenges.

    More than any other candidate, President Obama has bought into the Institute of Medicine’s statement that “the American healthcare delivery system is in need of fundamental change. The current care systems cannot do the job. Trying harder will not work. Changing systems of care will.” The desire to fundamentally change how we do business in healthcare has implications for everyone touched by healthcare, namely all of us. Most importantly it will impact healthcare information technology, the NIH and federal funding of research, FDA and pharmaceuticals, as well as investment and ease of operation for biotechnology start-ups.

    Impact on Big Pharma

    There has been much written about President Obama’s tripartite policy on pharmaceuticals—increased use of generics, importation of drugs from other developed countries, and the repeal of the Medicare Drug Improvement and Modernization Act, so that Medicare can negotiate prices with pharma similarly to the VA system. In fact, almost half the expected investment in evidence-based medicine and healthcare information technology will likely come from these savings.

    The question remains how the totality of the Obama plan will impact pharma and device companies. While drugs account for only 5% of healthcare costs in this nation, they represent half of Medicare out-of-pocket costs. In fact, in this depressed economic time, I see patients on a regular basis who have self-adjusted their medication dosages so as to extend the time before they need a refill. 

    On the one hand, if there is truly an expansion of healthcare coverage, then the increase in the number of units sold may outweigh any Medicare-negotiated price decreases.  While most of the chatter has been about the effect on big pharma, of concern to us in academia is our reliance, especially with decreased NIH funding, on investment from biotech start-ups as well as their reliance on partnerships with big pharma.

    Embryonic Stem Cells

    The expected immediate repeal of the embryonic stem cell ban will stimulate research as long as there is a concomitant increase in stem cell funding. If there is only an opening of the disapproved lines without additional funding, it may actually cause a reduction in investment for the very areas of adult stem cell research that American researchers have had to develop given the current restrictions imposed by the Bush administration.

    The federal restrictions have also spurred significant state funding of stem cell research, most notably in California. Given the current economic crises, it may be easy for the states to assume that all is well and now the federal government will carry that burden. So, despite all the optimism, the jury is still out as to whether or not there will be increased global stem cell funding.

    Funding Basic to Translation Research

    From an academic medicine perspective, nothing has been more depressing than the decrease in NIH funding, especially since much of our faculty and research hiring in the ‘90s was consistent with the then expansion of translational research funding. There are many of us who expect this administration and Congress to approve a 3% or 4% increase in available funding from the NIH with the potential for a $1 billion or more stimulus package.

    More important than the numbers, however, is this administration’s commitment to funding in specific areas. Senator Obama in 2006 sponsored the Genomics and Personalized Medicine Act, which increased funding for research in how a person’s genetic makeup affects their propensity for disease and response to treatment.

    This Act also expanded the genomics workforce, provided a tax credit for development of diagnostic tests that can improve the safety and effectiveness of drugs, and invested in protecting genetic privacy. Those of us who are on the academic or entrepreneurial side of this industry should see significantly increased opportunities.

    Finally, we look at the fate of the SBIR and STTR initiatives, which are important factors in the growth of biotechnology academic entrepreneurialism. Some of the greatest technology in development will be lost and unavailable to commercialization if the government does not look for ways to help the NIH increase its funding for true translational research.

    James Greenwood, president of BIO, made this clear immediately after the election. “You can’t simply go after big pharma on pricing and not expect it to have an impact on the most innovative young companies.” Future healthcare issues that decrease the ability of any company, big or small, to recoup and make a reasonable profit on the sale of drugs or devices will have a profound impact on future R&D of new products, relationships with academic scientists, and the very cycle of innovation that President Obama will need to drive the future of healthcare.

    Healthcare IT

    Any explosive change cited in this article, however, pales in comparison to the goal of achieving universal implementation of interoperable electronic health records within this term. In fact, President Obama has been very specific about spending $50 billion dollars over five years to achieve that goal. To put that in perspective, President Bush stated in 2005 that all records should be electronic by 2014, and he invested $100 million per year to achieve that goal.

    Despite the huge increase in funding, it may not be enough. There are many analysts who believe that it will take about $28 billion per year in infrastructure and incentives. While prognosticating in print is a dangerous exercise for journalists or deans, I suspect that when you wake up in 2015, much will have changed. For one thing, the day of the scribbled prescription will be over. It is a $6 billion dollar problem in this country, and there is no other part of our life where we would take an unreadable piece of paper, stuff it in our pocket, hand it to a clerk, who hands it to another professional, and hope that it works out alright. Nonetheless, we trust our healthcare with that process.

    Change Is Inevitable

    So it’s the morning after the inauguration, the heady hope of change has been in the air since early November, and the reality of the challenges ahead for healthcare and the biotechnology industry are as real as the coffee on our breakfast table. The one thing that everyone agrees with is that healthcare is a $1 trillion plus industry in transition, and there will be opportunities available that have not occurred since the formation of Medicare some 40 years ago.

    Whatever side of the healthcare equation you are on—patient, provider, industry—change is in the air. There will be winners and losers, and not all is certain, except that technology will expand as will patient demands and expectations. If you are in a healthcare-related business, strap yourself in—the next six years will test us to an unprecedented degree. Most of us believe that when the Obama library is being constructed, very little about healthcare and biotechnology will look as it did in 2008.

     





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