WASHINGTON — In late September, Health and Human Services Secretary Michael Leavitt told members of Congress in a classified closed-door meeting that bird flu could conceivably kill hundreds of thousands of Americans.
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Within 24 hours, a band of Senate Democrats jumped on the issue, cobbling together a $3.9 billion legislative proposal to buy and stockpile huge new quantities of vaccines and antiviral medications. Only a few hours later, their proposal passed the Senate on a voice vote, with almost no debate or discussion.
The hasty vote is just one sign that legislators in Washington are scrambling to address a major gap in health care: Marketplace forces aren't providing some of the drugs the public needs most. The price tag of an avian-flu plan has now jumped as high as $8 billion under the latest Senate proposal, with President Bush also proposing a multibillion-dollar spending plan.
Pandemic viruses aren't the only threat. Drug-resistant bacteria and terrorist attacks spreading anthrax, smallpox or other deadly substances are also big worries in Washington. The emerging consensus: Private drug makers have to be encouraged to produce more medicines protecting public health — even as critics of the pharmaceutical industry are wary of handing it too many incentives.
Separately from the avian-flu proposals, a bill introduced by Sen. Richard Burr, Republican of North Carolina, includes broad liability protections for drug companies that produce "countermeasures" to public-health threats. These companies would also get tax rebates and exclusive market access for their drugs. The bill would create a new agency within the Department of Health and Human Services, with a $1 billion-a-year budget, that would fund companies with promising vaccines and other biodefense drugs.
Here's a closer look at some of the ideas being discussed in Washington to fill the medicine gap.
Lawsuit Protection
Drug companies have long been reluctant to produce vaccines out of fear of lawsuits. While any drug may be the target of a product-liability suit, vaccines and bioterror drugs are particularly vulnerable because they may be rolled out in an emergency and given to millions of people quickly. Also drugs to treat diseases such as anthrax can't be fully tested in humans because it would be unethical to poison people with anthrax to test a drug's efficacy.
In late 2003, the U.S. government and BioPort Corp. of Lansing, Mich., started negotiating a deal under which BioPort would supply the U.S. with five million doses of its Biothrax anthrax vaccine for $122 million. The talks dragged on for more than a year. Among the issues: BioPort demanded that Uncle Sam indemnify it against liability suits from civilians who took the vaccine, says John McClerici, a partner at the Washington law firm of McKenna, Long & Aldridge LLP who represents BioPort. U.S. health officials finally agreed to the stipulation in May.
"We're saying, you aren't going to have companies risk their entire corporate existence without sufficient liability protection," says James Greenwood, president of the Biotechnology Industry Organization, the industry's major trade group. He is a former Republican congressman from Pennsylvania.
Vaccine makers point to the heavy costs of litigating suits alleging a link between vaccines and autism. Despite scholarly studies that have found no link, some 350 lawsuits have been filed, costing $200 million, industry executives say. None has yet gone to trial.
Some Democrats and trial lawyers argue that if the liability protection is too sweeping, victims of a botched vaccine would have no redress. At a committee meeting last month, Sen. Edward Kennedy called for the legislation to include a "strong" compensation fund for victims. The Association of Trial Lawyers of America has also objected to Sen. Burr's bill, which would only provide injury compensation for emergency personnel and other limited groups.
"Congress cannot just eliminate your jury-trial right, just to protect drug companies," says Linda Lipsen, senior vice president of the trial lawyers' association. "That's unconstitutional and unfair."
Senate staffers say the liability issue is the biggest stumbling block to getting the Burr legislation to a vote on the Senate floor. A companion bill hasn't been introduced yet in the House. Republican leaders have said they want to have a law passed by both houses and on President Bush's desk by Thanksgiving, but that may be optimistic.
A Biodefense Czar
For missile defense, the Pentagon has a single agency that spans the armed services, with a powerful chief who runs a nearly $8 billion-a-year budget. In contrast, the effort to protect the U.S. against biological weapons is a patchwork of shared responsibility between the departments of homeland security, health and human services, defense, and other parts of the government.
Even within health and human services, there's a split of responsibilities between the National Institutes of Health, which funds early-stage research, and a separate emergency-planning division that administers contracts under the $5.6 billion BioShield program. BioShield was approved by Congress last year in response to 9/11 and the anthrax attacks, but most of the funds have yet to be distributed.
Just because the NIH considers a particular research area important doesn't mean a company that makes progress will wind up with a contract to sell something to the government. The Department of Homeland Security must issue "material threat" assessments before HHS can award a BioShield contract. To date, Homeland Security has only issued a handful of threat assessments, including anthrax and weaponized smallpox.
Sen. Burr is proposing a new agency within HHS, headed by an industry-savvy official reporting to the secretary. The official would have about $1 billion a year to be used for midstage funding of projects, helping keep early research alive before it reaches the final stage of a BioShield contract.
A new agency with a big budget could bring criticism that R&D by government fiat is unworkable, and the private sector ought to do most of the work — even if it hasn't so far. Furthermore, a powerful new unit inside HHS working on bioterror drugs could create a turf war with the emergency-planning office that administers BioShield contracts. In fact, under Sen. Burr's bill the $1 billion budget for the new agency's first year would be carved out of BioShield's $5.6 billion, although future funds would have to come from elsewhere.
Creating a Market
A popular idea among some foundations and economists in recent years is to create a guaranteed bounty for new drugs that market forces wouldn't normally supply. About $750 million from the Bill and Melinda Gates Foundation jump-started an international vaccine fund in 1999. A number of countries and nonprofits have also contributed to the fund, which pays for vaccines for hepatitis B, yellow fever, influenza and other diseases.
The Gates Foundation, among others, has also studied the idea of promising companies a huge payment if they invent, say, a malaria vaccine that can be used in poor countries. The attraction of the idea is that it limits the potentially stifling involvement of government or charities in the nitty-gritty of drug discovery.
The idea is similar to the "guaranteed" contracts promised under the BioShield law. However, in hearings on Capitol Hill, executives of biotech companies bidding for contracts have painted the BioShield process as anything but the red-tape-free haven envisioned in proposals for a drug bounty. The executives say government officials kept changing the requirements and delaying contracts.
In testimony earlier this year before Congress, top HHS officials said they have made major strides building reserves against anthrax, plague and smallpox outbreaks. But William Raub, deputy assistant secretary at HHS, acknowledged at the time, "We wish we were further along."
Sen. Burr wants to make BioShield purchasing more transparent, so that companies have a better sense of what the government will buy, in what quantity and when. He suggests a system of "milestone" payments to companies as they reach development goals, rather than making them wait for a single uncertain payoff at the end.
Separately, moves by the U.S. government to stockpile Tamiflu could set a precedent that will encourage drug companies. Tamiflu was developed as a normal commercial drug by Roche Holding AG, which licensed it from Gilead Sciences Inc., but now Roche is making big profits by selling the drug to governments. Sen. Bill Frist, a physician and Senate majority leader, has urged the Bush administration to buy enough Tamiflu to treat 50% of the U.S. population, or nearly 150 million doses. Currently the U.S. has 4.3 million doses and is negotiating to buy more.
If other companies conclude that innovative flu drugs are likely to draw big business from government buyers, it could create an incentive that the industry has found lacking in recent years.
Both President Bush and Congress have put a high priority on spending to prepare for a possible flu pandemic. While both Democrats and Republicans have some quibbles with President Bush's $7.1 billion plan, the momentum is great on all sides and it's likely that multibillion-dollar legislation will pass and be signed into law.
Market Exclusivity
By far the most contentious solution to emerge in the last year was devised largely by Sen. Joseph Lieberman, Democrat of Connecticut, and Utah Republican Sen. Orrin Hatch. It would have given drug companies a two-year extension on the patent of their choice in return for working on anti-infectives.
The proposal was dropped amid vigorous opposition from the generic drug industry and employer groups who fear higher drug costs. But Sen. Burr's bill still contains a number of enticements for drug companies to step up research and production of biodefense drugs — a category that is likely to include at least some vaccines and antibiotics for natural pathogens.
One enticement is 10 years of market exclusivity for these drugs. That means they would be assured that the government would shut out "me-too" drugs for the same disease for a decade. So-called orphan drugs for rare diseases already enjoy seven years of protection. The bill also calls for tax rebates and grants to beef up drug-making capacity.
Antibiotics R&D could get a big boost from these provisions, supporters say. Martin Blaser, president of the Infectious Diseases Society of America, said in a letter to Sen. Kennedy that the legislation would be "a bargain when measured against the toll of life-threatening pathogens and antimicrobial resistance: the loss of thousands of lives and the avoidable costs of billions of health-care dollars."
Senate staffers say the bill is being revised after protests that the version introduced in mid-October is too broad. The Generic Pharmaceutical Association says the extra incentives wouldn't lead to more new drugs because big pharmaceutical companies already have plenty of incentive to develop new products.
Unless the exclusivity rights are limited, says a statement by the association, "we would be condemning American consumers to pay higher prices for prescription medicines without improving the nation's overall preparedness."
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A shortage of flu shots forces millions to go without them. Hospitals report they're running out of antibiotics for tough bugs. The U.S. is called vulnerable to avian flu and terrorists spreading anthrax.
How is it that the U.S., known for its prowess in producing lifesaving drugs and boasting an industry with a stock-market value in the hundreds of billions of dollars, doesn't have the medicine necessary to protect itself from these public-health threats?
The same market forces that reward the production of Lipitor, Viagra and other drugs for chronic conditions have proved a poor way to provide some of the antibiotics and vaccines that the public needs most. By itself, Lipitor, an anticholesterol drug, brings in more revenue — about $12 billion this year — than the entire vaccine market.
Publicly traded drug companies are encouraged by their shareholders to make drugs that either are priced in the thousands of dollars per prescription or can be prescribed for years. What turns off drug companies is a product with low profit margins, infrequent use and a high likelihood of liability lawsuits.
Many vaccines and anti-infectives have all these characteristics. Once, these products were bread and butter for drug makers. Today, the number of U.S. vaccine manufacturers is down to a handful from 25 three decades ago. Last year the U.S. was dependent on a single French-owned plant in Pennsylvania for its flu-vaccine supply. Antibiotics comprised just five of 506 new drugs in the pharmaceutical pipeline, according to a 2004 report by the Infectious Diseases Society of America, a nonprofit group pushing for more antibiotics.
In vaccines and antibiotics, the value of a drug is often spread across the entire public. Each person vaccinated against a disease helps everyone by keeping bad bugs out of circulation. Everyone benefits if doctors have plenty of antibiotics in reserve for drug-resistant bacteria, even if only a few people need those drugs now. Economists generally agree that in markets like these government should step in — just as governments deliver services such as police, roads and national defense because they benefit the public collectively.
The government has recognized the problem, but several past efforts have proved ham-handed. Today, both the Bush administration and Congress are pushing new initiatives. President Bush has laid out a $7 billion strategy to combat pandemic flu. Republicans in the Senate are working on a broad bill to promote vaccines, antibiotics and bioterror drugs.
The prospect of ramped-up federal spending on public-health programs is attracting renewed interest in infectious diseases. Novartis AG announced on Oct. 31 that it will pay $5.1 billion to buy the 58% of vaccine maker Chiron Corp. that it doesn't already own.
Until recently, however, companies mostly turned tail on unappealing, but crucial, medicines to treat infectious diseases. "The margins were so low that four of the last five years we were on the market, we lost money," says Peter Paradiso, a Wyeth research executive, referring to his company's decision in 2002 to stop making flu vaccine. Wyeth closed a Pennsylvania plant completed just a few years earlier.
Wyeth, Madison, N.J., started making smallpox vaccine in 1885 and was a principal supplier of childhood vaccines in the U.S. for most of the 20th century. But beginning in the 1980s it became the target of lawsuits linking vaccines to a wide range of illnesses without obvious causes such as epilepsy and attention deficit disorder. Wyeth estimates the industry has spent more than $200 million defending itself against hundreds of lawsuits alleging that a preservative in some vaccines called thimerosal causes autism and other diseases. Scholarly studies have failed to find a thimerosal-autism link. The lawsuits haven't gone to trial.
In 2000, Wyeth discontinued its vaccine against diphtheria-tetanus-pertussis and soon after began to reassess flu vaccines. Vaccines against flu take months to produce and have to be reformulated each year depending on which flu strains are deemed most dangerous. When Wyeth failed to get its vaccine on the market first, it often was forced to discard millions of doses of unsold product.
All this would have been a manageable burden if Wyeth could have charged a high price for its flu vaccine. But government intervention in the market made that impossible. The federal government has long played a big role in mandating use of vaccines and paying for them. Left to their own devices, many people, especially those who have lower incomes and lack health insurance, might well avoid getting vaccinations for themselves or their children. That could create pockets of unvaccinated populations where diseases would spread rapidly — a public-health disaster for everyone.
In 1993 a federal program was created to provide vaccines to families who couldn't afford them. The federal government now buys 60% of all pediatric vaccines in the U.S., and it has often used its buying power to drive down prices. It pays just $16.67 a dose to Merck for a triple vaccine that protects against measles, mumps and rubella, according to the Centers for Disease Control and Prevention. The price for private buyers is $40.37.
Wyeth could charge only $6 a dose for its flu vaccine, says Dr. Paradiso, who is vice president for scientific affairs and research strategy. It pulled out of the market, which left the U.S. vulnerable when contamination at Chiron's flu-vaccine plant in England forced it to shut down last year. The only company still producing for the U.S. market was Sanofi-Aventis SA, and widespread shortages resulted. This year, Chiron has resumed partial production in England but shortages persist.
Michael Kremer, an economist at Harvard University, says under the current incentive system, drugs that treat disease are more lucrative than vaccines to prevent it partly because people are more inclined to pay for a medicine that treats a condition they already have. In one economic model, Dr. Kremer and a colleague concluded that revenue from drugs to treat AIDS would be twice as high as from vaccines to prevent it. Also, Dr. Kremer notes, a successful vaccine may devour its own market by eradicating the disease it protects against.
Wyeth and several other large drug companies, including Bristol-Myers Squibb Co. and Eli Lilly & Co., have also pulled out of antibiotic discovery, even as fear rises about drug-resistant "superbugs." Some bacteria have become resistant to older antibiotics, a problem that is exacerbated by overuse of the drugs.
The market for new antibiotics is often small, because specialists often want new drugs just as a backup for exceptional cases. When they find a potent bacteria-killer, doctors nowadays use it sparingly to prevent drug resistance from developing. In 2003, Steven Projan, formerly head of Wyeth's antibacterial research, calculated that the net present value of a drug to treat a chronic condition of the muscles or bones such as osteoporosis was $1.15 billion compared with just $100 million for an injectable antibiotic.
"Making a new antibiotic that doesn't return its investment isn't good for us or for making other drugs. Other diseases need us, too," says Robert Ruffolo, Wyeth's head of research.
'Case of Desperation'
Doctors at Johns Hopkins University, struggling for weapons against superbugs, have dusted off an antibiotic called colistin, first developed in the 1960s but infrequently used because it can damage kidneys and nerves. Relying on improved patient monitoring, Johns Hopkins uses colistin several times a month in drug-resistant cases, according to John Bartlett, chief of the infectious-diseases division at the university's medical school. "It's a case of desperation," Dr. Bartlett says.
Not all vaccines and antibiotics are bad business for drug makers. Wyeth's Prevnar vaccine against meningitis last year became the first vaccine to reach $1 billion in sales — mainly because it sells at more than $220 per four-shot regimen. The federal government recommends Prevnar and pays a good price for it — as do private purchasers — because it's the first vaccine of its type and targets a life-threatening illness.
Merck & Co. and GlaxoSmithKline PLC are also expecting billion-dollar-plus annual sales for their vaccines against the virus that causes cervical cancer. Those vaccines may come on the market by 2006 or 2007, and are also expected to fetch a high price per dose.
These vaccines show that drug companies are willing to look hard for new vaccines and antibiotics if they can obtain a high price and have guaranteed buyers. That's where the U.S. government comes in — but even when it has money to spend, it doesn't always get the incentives right.
Prodded by 9/11, President Bush signed Project BioShield into law in 2004. It provides for $5.6 billion of taxpayer funds to stockpile biodefense drugs. Although some of the money was used to buy five million doses of an older-generation anthrax vaccine, more than 95% of the BioShield money has yet to be spent.
Companies criticize the Department of Health and Human Services, which administers BioShield, for making it hard to develop a consistent business plan. At one point the department said it wanted as many as 80 million doses of a next-generation smallpox vaccine; later it committed to only 20 million. It has yet to award the manufacturing contract to either of the two leading bidders.
In 2002, a predecessor company of France's Sanofi-Aventis filed a formal protest against HHS, saying the department's timetable to produce an anthrax vaccine was impossible to meet. The French company was then disqualified from the bidding. VaxGen Inc., Brisbane, Calif., later won an $878 million contract for the anthrax vaccine but has yet to collect a penny on it. As Sanofi-Aventis predicted, development took longer than expected and VaxGen couldn't deliver a vaccine on time.
Last week, VaxGen announced that it had pushed back its anthrax vaccine delivery date to the fourth quarter of next year from the first quarter because of "process and product refinements."
Under Debate
Sen. Judd Gregg, a Republican of New Hampshire and chairman of the budget committee, admits the BioShield legislation that he promoted hasn't made the nation safer yet. "There's a tremendous problem and it hasn't been abated by anything we have done so far," says Sen. Gregg.
Legislation now under debate in Congress would also give companies new incentives to develop drugs deemed to be in critical need such as vaccines, avian-flu treatments and antibiotics for drug-resistant bugs. The incentives are likely to include extended market exclusivity and a new $1 billion agency within the Department of Health and Human Services to fund midstage research.
With more money floating around, some companies are starting to find infectious diseases alluring again. The vaccine market "offers us an attractive new growth platform," said Novartis Chief Executive Daniel Vasella as he announced the deal to buy vaccine maker Chiron. GlaxoSmithKline said in September that it will pay $1.4 billion to buy Canadian flu-vaccine maker ID Biomedical Corp.
But executives are still concerned about being at the government's mercy on pricing. After the anthrax attacks of 2001, Tommy Thompson, then the health and human services secretary, strong-armed Bayer AG into selling its antibiotic Cipro to the U.S. government at one-fourth the market price. Mr. Thompson, citing the urgent need for the powerful drug, threatened to strip Bayer of its patent protection on Cipro if it didn't comply.
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