In just a matter of weeks, Medicare will begin spending a portion of the $500 million that the new reform bill sets aside for a trial program on cutting-edge biotech drugs to combat rheumatoid arthritis, multiple sclerosis, and cancer.
These are some of the first federal dollars to make it to the biotech industry, and BIO — shorthand for the trade organization Biotech Industry Organization — is adamant that there will be billions more as biotech companies churn pipeline dreams into effective new drugs.
“The bill stabilizes and protects federal reimbursement of biotechnology products and other drugs for 40 million Medicare beneficiaries,” asserts Carl Feldbaum, president of BIO, after Congress had finished wrangling over the bill. Essentially, he said, getting Medicare to commit to paying for biotech products broadens the market for biotech products.
That’s a big deal, right? After all, the elderly are the most vulnerable to disease and consume more pharmaceuticals than any other age group. According to the Center for Policy Alternatives, older Americans make up 12 percent of the domestic population but consume a third of all drugs.
Yet, when you take the pulse of the biotech industry, the new legislation results in everything from a racing heartbeat to barely detectable signs of life.
“Minimal,” sums up a spokesperson for the biotech giant Genentech — which is expected to gain approval for its oncology drug bevacizumab (Avastin) early this year — when asked to assess the new law’s impact on the company. Analysts’ responses range from a cautious nod to a yawn over a bitter political brouhaha that is likely to go on longer than most drug-discovery programs.
Anyone shrugging off the impact of the Medicare Modernization Act is missing a key point, according to BIO’s Carl Feldbaum.
CRITICISM AND BEYOND
Once the new law was set into motion at the end of last year, the government had committed itself to a $395 billion program that includes a drug subsidy for beneficiaries, millions of whom had been on their own when it came to buying outpatient pharmaceuticals. While the subsidy program doesn’t formally get under way until 2006, the government is already offering private health plans billions in subsidies and higher rates to sweeten its offerings to members and lure many back to a business they had abandoned as a sure-fire money loser.
Opponents — including a long lineup of presidential candidates — publicly blasted the law as a giveaway to the drug companies. No sooner had the legislation passed than Senate Democrats were filing new bills promising to make big changes. Critics were particularly incensed by a provision that prohibits Medicare from negotiating drug prices, leaving private health plans and pharmacy benefit managers with the right to leverage membership size against lower price tags.
None of that has blunted BIO’s enthusiasm.
As the biotech industry’s champion on Capitol Hill, BIO was not just cheering the arrival of a big new purchaser of biotech products and the initial trickle of federal funds into its members’ coffers; BIO’s victory lap included a congratulatory note that a key section in the bill kills any further use of the feds’ “functional equivalence” provision. No more, says BIO, can Medicare declare a new drug the functional equivalent of an existing pharmaceutical and automatically set a reimbursement rate at the same level as the older drug.
BIO had gone to the mat over the issue last summer after discovering a provision in the House bill that would have given the U.S. Food and Drug Administration authority in determining functional equivalence. By hewing closer to the Senate version of the bill, functional equivalence was deep-sixed, safeguarding biotech companies’ pricing interests.
Score another touchdown for biotech.
Anyone who is shrugging off the impact of the bill is also missing a key point, according to BIO’s Feldbaum. In an industry that relies heavily on patient, deep-pocketed investors, gaining the feds’ commitment as a big buyer of pharmaceuticals eliminates uncertainty — and investors hate uncertainty. The bill should embolden backers and keep the investment capital flowing.
As long as Medicare reform is still in play, the best strategy is to watch and wait
The world’s biggest biotech company, California-based Amgen, already has plenty of experience in struggling with Medicare prices. Just last fall, the company gained a 37 percent hike in the Medicare reimbursement rate for hospital out-patient settings for its long-lasting anemia drug darbepoetin (Aranesp). In the third quarter of last year, hospital outpatient settings accounted for 10 percent of the $284 million in Aranesp sold in those three months.
Amgen also stands to gain from the new Medicare program to pay for some self-injected drugs for rheumatoid arthritis. Etanercept (Enbrel), which it bought from Immunex, will be covered for a limited number of patients. That helps the company compete with Johnson & Johnson’s infliximab(Remicade), which is injected in a doctor’s office and thus already was covered by Medicare.
SORTING THE FINE PRINT
But while Amgen is quick to give Medicare reform a thumb’s up, the company is still undecided about the new legislation. For starters, that big new Medicare program on self-administered injectables hasn’t been defined. “We don’t know what the parameters of the project are, including when it starts or what patients are covered,” says Amgen spokesman Michael Beckerich. “Making sure patients have access to our drugs” is important, he adds, but right now the company does not have very much to go on by way of specifics.
It didn’t hurt to have friends in high places while negotiators were hammering out details. Under the new law, Organogenesis — the onetime bankrupt Boston-based biotech that manufactures artificial skin — saw its Medicare payment rate jacked from $680 per treatment to $1,199. According to the Boston Globe, Massachusetts Democratic Sen. Ted Kennedy — who has made headlines blasting the Medicare bill since its passage — helped to slip in that plum as legislators scrambled to engineer new rates for a medley of individual treatments.
According to industry watchers, most biotech companies have products so far down the pipeline that any adjustments in federal policy barely register on the industry’s priority list.
BIO is a great industry group, says John T. McCamant, editor of the venerable Medical Technology Stock Letter and a longtime biotech observer. He isn’t buying any talk about the impact the Medicare bill could have on biotech, though.
“We don’t have enough products,” he says. “Some would say we’re in our teen years.” The vast majority of biotech companies have no products and no sales, meaning no reimbursement from Medicare. And besides, he adds, the bigger biotech companies already are well fixed to make sure their individual interests are represented in Congress.
McCamant is less than enthusiastic about taking a long-term view. The bill, he says, is a hodgepodge of election-year political aspirations.
“It doesn’t make much sense to us,” he adds. “The donut hole? What horrible legislation. We’ll wait a year or two. I personally don’t believe this is going to hold.”
So, then, as long as Medicare reform is still in play — and most biotech companies are waiting on the sideline while developing new products anyway — then the best strategy for now may be to watch and wait to see how it all works out.
Another reason for caution in biotech circles: The Medicare bill weighs in at a shelf-groaning 648 pages. That’s more of a read than many analysts are willing to complete — and there’s a lot of uncertainty over all the little details that have yet to be divined.