Healthcare Reform a ‘Mixed Bag’ for Biotech Industry

In the weeks since President Obama signed healthcare reform into law, venture capitalists, CEOs and journalists have spent countless hours analyzing the legislation to determine its impact on various industries. Their conclusions have taken many different forms, with some morphing into well-publicized lists of “winners” and “losers.”

Topping the list of “winners” is the pharmaceutical industry, which stands to profit from an influx of previously uninsured patients. Drugmakers also warded off deeper price cuts in Medicare, and convinced lawmakers to reject Obama’s plan to end lucrative “pay-for-delay” settlements with brand-name pharmaceutical firms, a win for both generic and brand-name companies.

Among the designated “losers” of healthcare reform is the medical device industry, which was slapped with a 2.3 percent excise tax on the sales of its products beginning in 2013. The tax, according to Congress, is designed to help fund the cost of insuring an additional 32 million Americans.

So where does that leave the biotech industry? Apparently, somewhere in between. Jim Greenwood, president and CEO of the Washington, D.C.-based Biotechnology Industry Organization, called the new healthcare reform law a “mixed bag” for his sector.

“The things we cared about most—the biosimilars legislation, people call it generic biologics—turned out well. It’s a mixed bag, though. In the big picture, 32 million more Americans are going to have access to healthcare,” Greenwood recently told CNBC’s morning news and talk program, Squawkbox. “There will be some downward pressures on pricing for the industry. The Medicaid rebate will go up so we’ve got to pay fees to sell product to the government. If you have kids who are under 26, the fact you now can keep them on your policy is good.”

Greenwood called the fight over biosimilars a “pitched battle,” setting up a showdown between the generic industry, the American Association of Retired Persons and large pharmaceutical companies; and politicians, including Obama and some members of Congress. The final bill that passed on March 21 contained a section for providing an approval pathway for biosimilar biological products. The legislation provides companies that develop innovative products 12 years of marketing and data exclusivity, meaning similar products cannot be approved for 12 years after the original hits the market. Pediatric products have a six-month exclusivity period.

“If you want to attract investment in biologics, which is the future of healthcare in many ways, you have to be able to get a decent return on that investment,” Greenwood explained. “We were convinced it would take 12 to 14 years after FDA approval for a company to recover its investment. The president thought that should be seven [years], some people thought it should be zero, and Congress ended up putting it at 12 [years]. That’s great for patients because now companies will start investing in biologics.”

And while Greenwood expects the biosimilars provision of the bill to foster the development of new drugs, he told CNBC that the potential exists for the new law to stifle medical innovation.

“From our point of view, had the biosimilars gone wrong, it would have killed innovation in biosimilars,” he said. “We always have to reemphasize that you cannot extract unlimited amounts of funds from discover business and expect us to still discover drugs. It’s easy to continuously bash the drug producers, but we’re only 10 percent of the cost of healthcare. The biggest cost is hospitalization.”

And that cost may continue to skyrocket, despite the new law. Greenwood said the bill does not address the fee-for-service approach that inflates prices. “Until you do that, you’re going to continuously reward more procedures, more days in the hospital, and more tests.”