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TRENDSPOTTER: Genomics Goes to Washington

GENOMICS may be the platform of the next medical revolution, but its future and fate may well rest in what the Bush Administration and Congress do on public policy issues seemingly far removed from the effort to commercialize databases of genomic information.

Genomics companies are of course, not immune from what Washington does and says about medical research: Everyone in the genomics world remembers too well that when President Clinton and Prime Minister Blair of Britain said that the sequence of the human genome should be made freely available to all researchers it reduced the market value of genomics companies by as much as 20 percent.

Genomics firms should not expect any such direct hits in the coming Congress or administration, but they should be ready for some indirect assaults on their ability to raise capital and drive up share prices, stemming primarily from two issues.  

The first issue is the continuing effort on the part of many members of Congress to impose price controls on prescription drugs, particularly as part of legislation to provide senior citizens a drug benefit under Medicare. Some proposals would give the government the power to cut current drug prices to 40 percent below current retail prices for all seniors, about 60 percent of the pharmaceutical market.  

Why does this matter for genomics companies?   Price control legislation will not only cut the share price of big drug companies and biotech firms, it will cut earnings as well. Firms will focus resources on bringing products that are close to FDA approval to market, invest in their own in-house gene-based drug discovery projects where possible, and cut back on outside collaborations.  

A look at the wide range of agreements between biopharmaceutical firms and genomics companies suggests that genomics firms would feel the pinch of price control legislation almost immediately. For instance, GeneLogic extended its collaboration with Proctor & Gamble to identify differentially expressed genes associated with heart failure. Deltagen inked a deal with Pfizer giving that company access to its mammalian gene function database worth about $25 million. Incyte acquired Proteome with an eye towards partnering with larger biotech and pharmaceutical firms in using genetic information to determine protein function. There are dozens of such smaller alliances in formation in addition to the larger ventures formed between such companies as Celera, Human Genome Sciences, Millennium and partners such as Eli Lilly, Merck, Pfizer, and the recently merged GlaxoSmithKline.

Word has it that genomics companies were seeking to charge a higher price for their wares in the coming year to hedge against any shortfall in venture capital or private financing. But both the threat or reality of price controls will reduce biotech and pharmaceutical support and have the effect of scaring off investors in biotech, just as the potential for price controls did in 1994 when the Clinton administration and Congress proposed similar measures as part of its effort to nationalize health care.

So what are the odds that capital-draining price controls will be imposed and impact the genomics business anytime soon? As a candidate, President-elect Bush resisted calls for price controls on biotech and pharmaceutical products. Mitch Daniels, his director of the Office of Management and Budget, which not only sets the federal budget for the president but also is the ultimate judge and jury for any rule or regulation any executive agency wants to issue, was senior corporate and business strategist at Eli Lilly, responsible both for public policy issues and for business strategy, including Lilly’s move into gene-based alliances. Bush’s appointment of Carl Feldbaum, president of the Biotechnology Industry Organization, to the Health and Human Services Transition Advisory Committee, which will advise HHS appointees on personnel and policy issues affecting the biotech industry, also bodes well in this regard.  

Still, this won’t stop Congress, particularly congressional Democrats, from raising the issue of price controls again. And Bush’s pick to run the HHS, Wisconsin Governor Tommy Thompson, had proposed allowing seniors to buy drugs at Medicaid prices, a proposal that if applied nationally would lead to de facto price controls on all new drugs. Expect fierce battles on drug prices, if for no other reason than to set the stage for congressional elections that will take place in 2002.

Genomics could take indirect hits in another unexpected area central to its future: patent life on new drugs. Genomics companies are of course most interested in any legislation that would affect guidelines for gene-based patents being considered by the Patent and Trademark Office. (We’ll discuss this in an upcoming column.) Insurance companies, self-styled consumer advocates and some members of congress want to limit the effective patent life of brand drugs that exists under current law in order to let generic companies introduce cheaper knock-offs more quickly. Again, the principal targets are big drug companies with hefty profits. But as companies such as Incyte and Celera seek to turn their genomic information into products, their ability to raise cash and share prices will depend on whether efforts to cut back pharmaceutical patent life in favor of generics succeed.

Will genomics weather the political storm over prescription drug prices in Washington?   Only two things are certain. Companies cannot afford to remain silent in the face of any assault on incentives for their research and gene-based alliances. And they should expect to face political and policy challenges along the way as they try to achieve the prosperity they need to succeed. I hope this column contributes to the awareness of what these challenges are.

Robert Goldberg is a senior fellow at the National Center for Policy Analysis and a senior research fellow at the Ethics and Public Policy Center. You can e-mail him at [email protected] .

Trendspotter is a weekly column that will focus on how trends in politics, patent law, and the US and European markets will affect the genomics industry. The column will appear every Friday. Next week Gunnar Weikert, founder and CEO of Inventage, a venture capital fund based in Dusseldorf, Germany, talks about the European Venture Capital Market.


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