Healthy Skepticism Library item: 1386

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Shepard S
Re-importing could slow biotech efforts
Memphis Business Journal 2003 Aug 08
http://www.bizjournals.com/memphis/stories/2003/08/11/story1.html

Full text:

Helping grandma get cheaper prescriptions could be a long-term disaster for biotech research in Memphis and the rest of the nation.

One part of the Medicare Drug Bill now in Congress will allow consumers and retailers to re-import drugs from other countries at lower costs compared to domestic prices. That competition would drive down prices in the U.S., lowering retail prices, but it would also wipe out much of the profit margins of pharmaceutical companies.

As a group, drug companies are consistently popular among investors and pension plans because of healthy returns. A lot of that profit rolls over into research on new drugs.

A separate concern about re-importing is the safety of medications that may look just like the original, but actually be a worthless counterfeit.

“Every coin has two sides,” says health care economist Cyril Chang. “If I take the perspective of anyone with a pension, it’s bad news because my mutual fund has lots of drug company stocks. If they don’t make money, my future retirement funds are diminished.

“If we take that perspective of the consumer, the re-importation of drugs from Canada will put pressure on the prices charged in the United States, reducing drug company profit margins,” he says.

Chang is a professor in the Fogelman College of Business and Economics at the University of Memphis. There’s a certain irony, he says, that lower drug costs in the future will help retirees who’ve seen their 401(k) plans hurt by lower drug prices.

Drugs are cheaper in Canada and Europe primarily because of socialized medicine; the government runs health care and then puts in price controls to limit what government health plans have to pay. Over the past 20 years, such price controls have driven the lion’s share of research into the United States.

Today, that concentration of research is poised to bring on the era of biotechnology, but could be derailed.

“This is just importing price controls from Canada; there can’t be anything positive that can come from an R&D perspective on re-importation,” says Walt Chambliss, associate director of the National Center for Natural Products Research at the University of Mississippi. He’s also a professor of pharmaceutics.

Ole Miss has already licensed 12 products to drug companies, including three in the past fiscal year. The facilities are full and the center has a planning grant as part of an expansion.

Federal laws that encourage technology transfer are remaking the face of research taking place at American universities like Ole Miss and the University of Tennessee Health Science Center. Federal grants fund promising research, with the best eventually licensed and commercialized by private companies.

That’s what was envisioned in the Bayh-Dole Act: harnessing academic creative research with capitalist firms. Licensing money provides new revenue to universities, while their discoveries improve the lives of everyone. Because of the long lead times in drug development, the benefits of that law are just now being felt.

Before going to Ole Miss, Chambliss worked for Schering-Plough Healthcare Corp., evaluating licensing opportunities. Already, he says, the threat to profit margins is showing up in the behavior of drug companies.

They used to license promising ideas, and bring them in-house for refinement. That gave fledgling start-ups a modest revenue stream to pursue new ideas. Today, the focus is on products further along in development. Companies will pay much more for something with an obvious market, but small entrepreneurial firms and universities don’t have the cash.

“They’re looking for drugs that already have clinical trials started,” Chambliss says. “It would cost us $20 million to get one compound to that stage, and I don’t have that kind of money. It makes it much harder for a small biotech company to even get started, and re-importing will only make it worse.”

Drug companies set targets, say five new product launches each year. As the river of money is threatened, it’s leading to two unhealthy trends: finding a new use for an existing drug, and only chasing the drugs that promise high volume returns.

The baldness drug Propecia, for example, is chemically identical to Proscar, used to treat prostate disease. Already blessed by FDA for prostate uses, it was far less risky for Merck & Co. to pursue a lifestyle use for the drug than it was to go after new drugs to treat real diseases.

“It’s $900 million to get a new drug to market from scratch, so they’re going to use that money on things less risky,” Chambliss says. “Americans are doing the bulk of R&D work for the world; total research spending by pharmaceutical companies is $32 billion this year, and that’s driven by the profits on prescription drugs.

“You start cutting into those profits, and you cut into research,” he says. “The price difference only means that we’re subsidizing the drugs’ costs in Canada and Germany.”

New drugs to treat rare conditions will continue to be developed in academic settings, Chambliss says, but at a much slower pace as licensing revenue gathers round the high-volume sure things.

That may be too gloomy, Chang says. European countries have price controls, yet research continues in Germany, France and elsewhere, though not with the intensity of American R&D.

“They have made tremendous contributions into the invention and introduction of new drugs,” he says. “This seems to suggest the higher R&D in the U.S. has not really deprived Europeans from having new drugs from their own countries. The question is whether the higher extra spending by American companies has an edge over European countries.”

Lower prices will benefit consumers, taxpayers and private employers by lowering their insurance costs.