Biotech, Stimulus, and Socializing the Gains

In the first half of the 1990s, I was the physician for a Democratic Congressman. As he was preparing to leave rehab after suffering a stroke, he held a dinner at a local eatery for the head of the hospital and me. In town and invited to join was Charles Rangel, Democrat of New York and a good friend of my patient. Mr. Rangel arrived a bit late for the dinner. Knowing full well the occupations of the other guests, he said hello and while still standing said something like:

"There's going to be socialized medicine- it's just a question of when we can find the $300 b illion or so needed to pay for it."

How quaint that pronouncement seems now that hundreds of billions of expenditures just sort of occur without funding, and trillions of dollars of Fed credit and Federal guarantees just sort of appear! Those were the days when a new president actually raised taxes in 1993 to pay for his prospective 1994 health care legislation.

The above said, from a medical perspective, IMO the current stimulus plan misses an important boat: it should focus more on biotech and related advanced therapeutic technologies.

Medical practice and development of truly important medicines provide the following:

• Benefits for all of us
• Global leadership in high-margined products
• "Green" technology
• Non-cyclical field

In addition, the National Institutes of Health, FDA, and CDC have global respect that remains unsullied by the mess created by the Citis and Lehmans of the world. In particular, NIH is well-suited to drug development that the public can finance and benefit from.

Unfortunately, the history of the Government and medical research provide a number of examples where the gains are privatized unfairly. Skipping over such history as allowing Bristol-Myers Squibb to reap many billions of dollars of profits from the old molecule metformin, profits that should have accrued largely to the Federal Government, let us consider the current debate over biotech drugs.

A little background: A biotech drug is generally a protein, which is how the term will be used for the rest of this discussion. What we think of as high-tech, modern biotech drugs are the protein-based products of sophisticated cell culture techniques. A seemingly minor variation in manufacturing techniques may produce a seemingly identical protein but have major differences. This was shown several years ago when a J&J version of Amgen's Epogen (erythropoietin) for anemia was marketed in Europe as Eprex and led to a number of cases of aplastic anemia.

Thus, there is no such thing as an exact, reliable "generic" copy of a biotech drug. Now if you or I get cancer, we do not want an approximation of the drug that treats the cancer. However, that approximation has been given a term, "biosimilar", and the following appears to be happening.

The generic companies, which now include Pfizer, want to horn in on the biotech industry. They can't stand it that patent expiration isn't enough to let them in on the riches. In the normal course of events, I believe thatwe are likely to end up with most people being placed on biosimilar biotech drugs to treat critically important medical problems, under the guise of saving money. (One suspects that Congress will grant itself a healthcare plan that provides substantially full coverage for the real deal rather than the biosimilar.)

As a further background, the pharmaceutical business is somewhat special. Successful brands in foods and sneakers, such as Coke and Nike, are typically developed not based on patent protection but on perceived quality, and then can go on and on and keep market share. To do this, they need to be fair on their margins. Brand name drugs have a different model. They typically have gross margins that literally can approach 100%. Even if they lose 95% of their market share when they go generic, they still may generate greater profit than all the generics put together (because the brand company ceases all marketing expense). The biotech industry has much greater cost of goods, greater infrastructure needs, and riskier product development than the traditional drug industry. Of course, biotech companies do know how to charge very, very high prices for their products.

A better policy would be for the biotech industry to be protected from biosimilar competition, for pricing of the brand to be regulated. One can make an estimate of cost savings that biosimilars will generate and work it out so that at no greater net cost to society, we can all enjoy the real product, not the similar one, and at no net increase in cost, or perhaps even at a net saving.

Incidentally, it can also be mandated that all manufacturing and almost all R&D related to the biotech industry occur in the U.S. and its territories. This is technically challenging work, and quality must be maintained 24x7.

Bill Clinton clamped down hard on the over-payments to HMOs that the Republicans favored. Under President Obama, the health of the public can be optimally protected by devising a fair solution to the issues of high biotech costs and biosimilars. Let's socialize the gains for a change.

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