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Feature Articles : Apr 15, 2010 ( )
Healthcare Reform on the Way
Approval Pathway for Biosimilars Provision Will Likely Have Most Profound Impact on Biotech!--h2>
A detailed pathway for FDA approval of biosimilars was signed into law on March 23 as part of H.R. 3590, The Patient Protection and Affordable Care Act. That single provision ended years of debate and is considered a major achievement for the industry.
This new law also contains some tax credits for therapeutic discovery projects and encouragements to certain types of research—both beneficial for the industry. The negatives, however, include a new tax on medical devices and drug sales.
Ultimately, the success or failure of this extensive and highly detailed law, for biotech, will rest upon unforeseen consequences. Specifically, given the nation’s deep debt, will the funds identified for biotech programs be available? If the law results in rationed care, will payers support biotech’s novel, often initially expensive, therapeutics and diagnostics? To what extent will research funds be diverted toward research targets specified in this law? If government picks the winners and losers, will its choices be the right ones? [See sidebar on page 3 for think-tank and industry reaction to H.R. 3590.]
“This bill includes an historic provision that creates a pathway to enable the U.S. Food and Drug Administration to approve biosimilars,” wrote BIO president and CEO James Greenwood, in a prepared statement. Like the version passed by the Senate on Christmas Eve, this bill provides a 12-year period of exclusivity for clinical data.
That period is seven years longer than that granted to traditional pharmaceuticals under the Drug Price Competition and Patent Term Restoration Act (the Hatch-Waxman Act of 1984) because of biologics’ greater complexity, according to John Wetherell, J.D., partner and co-leader, national life sciences and nanotechnology industry groups, Pillsbury Winthrop Shaw Pittman.
Gaining Congressional authority to develop an approval pathway has long been a hurdle in creating biosimiliars in the U.S. Section 7002 of this new law includes detailed information regarding the approval process for biosimilars. It demands analytical, animal, and clinical studies that include pharmacokinetics and pharmacodynamics and immunogenicity studies. Biologics made under this pathway will be considered interchangeable if they are biosimilar to the reference product, if they produce the same outcome, and if the risks of switching between the reference product and the biological product are not greater that using the reference product.
Patent disputes regarding biosimilars also are addressed in section 7002. In the case of disputes, the company sponsoring the biosimilar and the company holding the patents to the reference drug have 15 days to agree on which patents, if any, constitute infringement. The law also details the subsequent steps and time frame for each of those steps if no agreement is reached. These actions could speed infringement cases through the courts, providing a speedy trial.
Part of the interest in developing a regulatory pathway for biosimilars is based upon the consumer cost savings that occurred after the Hatch-Waxman Act was enacted. Generics, on average, cost 80% less than their branded counterparts. Estimates of consumer cost savings possible through biosimilars, in contrast, range from about 10 to 30%. “The savings to the Federal Government generated as a result of the enactment of this subtitle shall be used for deficit reduction,” the subsection concludes.
As signed into law, this version of the bill backs off the use of pharmacogenomics to determine comparative effectiveness. Section 6302 terminated the Federal Coordinating Council for Comparative Effectiveness Research on the date the new healthcare law was enacted. That council was established under the American Recovery and Reinvestment Act of 2009.
Instead, a nonprofit corporation, the Patient-Centered Outcomes Research Institute, was formed under section 6301 to provide comparative clinical effectiveness research. Its aim is to provide research and other information to guide patient management that “considers variations in patient subpopulations, and the dissemination of research findings with respect to the relative health outcomes, clinical effectiveness, and appropriateness of the medical treatments, services.” It also shall establish national priorities for research.
Section 7101 of the Senate’s version of the healthcare bill expands the list of those eligible to receive discounted prices for both inpatient and outpatient drugs to include rural referral centers, critical access hospitals, and children’s hospitals that were ineligible under Medicare’s prospective payment system.
Section 9008 of the Senate’s versions of H.R. 3590 and amended in H.R. 4872, the Health Care and Education Affordability Reconciliation Act of 2010, imposes an annual fee on branded drugs. This fee is calculated by determining the ratio of a company’s branded drug sales to that of all branded drug sales to “covered entities” the previous calendar year, and then applying that ratio to $2.3 trillion in 2011, according to the bill signed into law.
The reconciliation bill, which President Obama called “improvements to the bill” during the March 23 signing ceremony, uses a comparison figure of $1.5 trillion in 2011, gradually increasing that figure to $4.1 trillion by 2018, before dropping to $2.8 trillion in 2019. This appears to be linked to the agreement negotiated by the Pharmaceutical Manufacturers’ Association in an attempt to gain protection from more onerous provisions that were discussed quietly last January, according to Ed Haislmaier, senior research fellow at the Heritage Foundation’s Center for Health Policy Studies.
A 2.3% percent tax on medical devices will be imposed beginning January 1, 2013. This will not apply to devices purchased at retail outlets. The reconciliation bill also may alter that figure. “Device companies run on a thin profit already—typically 5 to 9 percent,” according to John Collar, president and CEO of Colorado Biosciences Association.
The new law also calls for support for emergency medicine research including pediatric emergencies.
In addition, an Office of Women’s Health and Gender-Based Research will be established to develop research goals for issues that affect women’s health and to develop “evidence reports and clinical practice protocols and conduct research into patient outcomes, delivery of healthcare services, quality of care, and access to healthcare.”
Pain research and pain management research are also expected to expand under the Pain Consortium of the NIH. A pain research coordinating committee will be developed.
The law, in section 4204, gives the Secretary of HHS the authority to negotiate directly with drug manufacturers for the purchase of childhood, adolescent, and adult vaccines. States will be given the ability to obtain additional vaccines at that negotiated price. Under that scenario, it seems that the government will soon become the primary—if not the sole—customer for vaccines. Consequences may include driving the price down, which may have ramifications for further vaccine development both in terms of funds available and the nature of the vaccines developed.
The Secretary of HHS will also determine the advisability of a standardized format for presenting the risks and benefits of individual prescription drugs on their labeling and advertising.
The healthcare reform bill also creates a $1 billion therapeutic discovery project tax credit focused on companies with fewer than 250 employees. According to Collar, “80 percent of biotech companies are in this category.” Jeff Joseph, BIO spokesman, further explained that this tax credit will help offset expenses on therapeutic development such as hiring scientists and conducting clinical studies. “The economic crisis hit small biotechs hard, shutting down some projects,” Joseph added.
That being said, if those funds were spread evenly among the approximately 1,400 U.S. biotech companies, they would amount to about $700,000 each—not much when it takes about $600 million to bring a drug to market. It may be enough, however, to help some companies weather the economic storms.
According to Joe Panetta, president and CEO of Biocom, “insurance rates will go through the roof,” as a result of enactment of H.R. 3590. In response, some of Biocom’s members are exploring the idea of creating company clinics or becoming self-insured. There is concern among many businesses that paying higher health insurance fees will divert funds that otherwise would be used for investments.
Panetta called government involvement in healthcare and healthcare insurance a “slippery slope” that attracts ever more government involvement. It is likely, as lawmakers on both sides of the aisle have promised that, “this won’t be the end of it.”
GEN Roundup on Healthcare Reform Law
The biotech industry doesn’t know whether the new healthcare bill, signed into law on March 23, will be a boon or a bust. Rather than dividing into supporters and detractors, they are waiting quietly, keeping their own counsel while their industry associations do an analysis.
This bill, unlike all before it, constitutes nearly 3,000 pages of major provisions, minor changes to related laws, and deal-cutting that continued to the last possible moment. Reading this bill and understanding all of its ramifications requires simultaneous access to many other U.S. laws. Yet, only three days were allowed for it to be read before the vote. It’s no wonder that no one really grasps its implications.
Analysts haven’t read it. Industry associations haven’t read it all the way through. Biotech executives and scientists seem not to have read it. That was the most common comment, aside from no comment at all, from scores of contacts. Some large firms deferred to the views of BIO and PhRMA, while others retreated to platitudes supporting healthcare reform.
There also may be another factor at play. One university source, speaking on behalf of several researchers and administrators, said they were concerned about upsetting the government, which controls much of their funding.
Robert Shorr, Ph.D., CEO of Cornerstone Pharmaceuticals, did go on the record.
“I think this is a net positive to biotech. However, the nature of the funding will shift from venture capital and professional investors to the government and angels.”
He said that angel investors may see government investment in a firm as a vetting mechanism, thinking, “If it’s good enough for government investment, it’s good enough for me.”
If a single boon to the industry comes from this law, it will be the biosimilars provision. BIO and PhRMA worked closely with Congress to craft it. They deem it good, although generic manufacturers may have hoped for more favorable treatment. Other provisions, however, seemed to surprise a wide swath of experts.
The most detailed opinion was registered by the National Venture Capital Association (NVCA) in a written statement. Like other organizations, it applauds healthcare reform but has some concerns. They include the Medicare Capital Gains Tax, which calls for a 3.8% tax on unearned income and could reduce funds available for investment; the Medicare Commission, which “could short sightedly stifle the introduction of medical innovations”; and the Medical device company excise tax of 2.3%, which could particularly harm small companies.
To this law’s credit, it also provides a pathway and 12-year exclusivity for biosimilars, establishes the Cures Acceleration Network, and provides the Therapeutic Discovery Project tax credit, NVCA wrote.
Scott Henry, a pharmaceutical analyst at Roth Capital Partners, noted that the law may increase the volume of patients, “but you have to look at the product and ask if the volume would have been there anyway,” he said. “Prices have to come down, so you need to generate volume to offset that.” Allowing Health and Human Services to negotiate for vaccines directly, and allowing the states to then buy additional vaccines at those prices he called “a game of all or nothing,” that will lower vaccine revenues.
PhRMA, in its official statement, said, “Our commitment to help pay for healthcare reform will require all of our companies to make some difficult choices. Even as we support healthcare reform legislation, we continue to have concerns about a number of issues, including the overly broad powers of a nonelected Independent Payment Advisory Board, which could enact sweeping Medicare changes without action by Congress, and would not be subject to judicial or administrative review.”
Even with passage of the health reform bill, the wrangling is unlikely to dissipate anytime soon. Years of discussion must ensue to address the minutiae before implementation is possible.
Speaking in January, Henry Aaron, senior fellow, economic studies at The Brookings Institution, pointed out that, “if this bill passes, the administration is going to be absorbed in implementing it.”
The conservative Heritage Foundation agrees. The morning after passage, Heritage Foundation president Edwin J. Feulner, Ph.D., wrote, “The initial battle over Obamacare will occur when Congress considers whether to fund the tens of thousands of new federal bureaucrats necessary to implement the new law.” (The law does not provide funding for implementation.)
“Consequently,” Aaron said, “health reform will be a central issue in the next two elections.” Aaron’s counterpart, Ed Haislmaier, senior research fellow at the Heritage Foundation’s Center for Health Policy Studies, suggested that, given the political mood of the country, it is possible that the bill—or key provisions—could be repealed after the elections in either 2010 or 2012, if conservatives retake the House and Senate.
A few hours after the President signed this bill into law, at least 10 states had filed lawsuits challenging its constitutionality. The basis of the lawsuit is the Tenth Amendment, which specifies that the powers not granted to the United States are retained by the states. This amendment also contains the commerce clause. Although Tenth Amendment challenges have rarely succeeded, if these challenges do succeed, it is likely that key provisions of this new law would be enacted individually, according to Haislmaier.
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