Health Care Business
Intelligence from
Windhover Information
- Log In |
- Subscribe |
- My Account |
- Shopping Cart |
- RSS
Thursday, July 02 2009
The Fourth of July holiday is almost always a quiet time around Capitol Hill, but for those interested in the health care reform debate, the silence was positively deafening.
Congress recessed June 26 after perhaps the most intense week of legislative activity ever involving health care.
In five days, there were no fewer than six hearings in on health reform – plus a couple on related issues like the business practices of insurers and pharmacy benefit managers.
The House leadership released an 852-page “discussion draft” of its reform legislation, while the Senate Health Committee continued formal work marking up its draft, which weighs in at a comparatively svelte 615 pages, but that doesn’t count the 400-plus amendments committee members want to offer during the mark-up.
And the most important developments happened behind closed doors, where the Finance Committee says it has worked out a legislative proposal that comes in below a cost of $1 trillion over 10 years – and can be fully paid for.
That announcement came a week after the committee brokered the “dollars for donuts” deal with the Pharmaceutical Research and Manufacturers of America and the White House, simultaneously securing a commitment for $80 billion in scoreable savings for reform and injecting some much needed momentum in the overall drive towards legislation. (Subscribers to The RPM Report can read all about that deal here.)
Indeed, it seemed like the headlines were all health care all the time, exemplified by an unusual ABC News prime time broadcast of a town-hall style forum on health care from the East Room of the White House.
After all that activity, the suddenly clear calendars on Capitol Hill mark quite a contrast.
But this quiet week will go a long way towards shaping the critical phase of the reform debate.
For advocates and opponents of reform alike, it is a precious chance to try out themes in home districts with the voters before settling on a strategy for how best to shape (or derail) the coming push to complete a bill by August.
The July 4 recess may be their only chance to gauge how the politics of health reform will work for or against them among their constituents before committing to proposals on the House or Senate floor. So what they heard at home will go a long way towards determining what we will hear once they come back to Washington.
For our part, we took advantage of the calm before the storm to lay out the key elements to monitor as the reform debate enters the critical phase. To understand how the endgame might play out, read this; click here for a point-by-point analysis of what key provisions are likely to be in the bill for biopharma companies.
And then get ready: this year, the fireworks start after the Fourth of July.
Comments? Email the author at windhover-dc@windhover.com
Thursday, July 02 2009
We refuse to treat the declaration of victory for Democrat Al Franken in the Minnesota Senate race as the foregone conclusion everyone thought it was. He was on Saturday Night Live, for crying out loud, and now he’s in the Senate!
And the victory itself is a statistical marvel. The Minnesota Supreme Court ruled June 30 that Franken indeed won the November election, with a majority of just over 300 votes out of 2.4 million cast. Franken assumes the seat previously held by Republican Norm Coleman.
That razor thin margin is a big development for health care reform advocates—but maybe not for the reasons everyone says.
Its true that Democrats have been counting on his “yes” vote to secure that most utopian of dreams: the 60-vote, filibuster proof majority that can cut off debate on any issue and ram through legislation with zero Republican support. (Unless you count Arlen Specter, the Pennsylvania Senator who began the year as a Republican but is now a Democrat.)
But its also true that, just because Franken will be the 60th member of the Democratic caucus and a sure “yes” vote on health care reform, there are no guarantees that there will be 60 votes in favor of any bill that hits the floor this summer.
“It’s not at all clear how many Democratic votes we would get right now, so it’s not as simple as Al Franken,” says an individual familiar with the negotiations taking place on Capitol Hill.
That said, there is no doubt that the arrival of Franken will make it easier for reform advocates to push towards their ambitious goal of bringing legislation to the Senate floor before the August recess. It’s just that the magic number may not be 60 votes, but rather 51: the amount it would take to force a measure through under the abbreviated process known as budget reconciliation.
Thanks to some careful legislative preparation, the Democratic majority in the Senate has left open the possibility of using the expedited reconciliation pathway for reform. (See “The Threat of Reconciliation: Remembering the Part D Vote,” The RPM Report, December 2008.)
No one characterizes reconciliation as the first option, and there are plenty of drawbacks to using it for reform, including disrupting any further hopes of bipartisan cooperation in the Senate. But, as we explain here, the threat is out there as an encouragement to Republicans and fence-sitting Democrats to join the reform effort.
So rather than thinking of Franken as the 60th vote for health care reform, think of him as given the Democratic leadership an even bigger cushion if they take the controversial reconciliation path.
And, doggone it, that might just be good enough to get a bipartisan bill through after all.
Comments? Email the author at windhover-dc@windhover.com
Sunday, June 28 2009
Roche is leaving the Pharmaceutical Research & Manufacturers of America trade association effective June 30.
Roche describes the action as a "business decision" by "the newly combined Genentech-Roche U.S. commercial organization." That casts the move as an element of the merger between the two companies that closed earlier this year ('The Pink Sheet' DAILY, April 15, 2009). Genentech left PhRMA in 2001 ('The Pink Sheet,' Dec. 3, 2001, p. 9).
Still, the departure from PhRMA is a surprising development, given that Roche has been a member of the trade group for 36 years and often played a prominent role in U.S. policy despite its Swiss heritage.
PhRMA CEO Billy Tauzin says Roche informed him of the decision a couple of months ago, and describes it as entirely a function of the consolidation process with Genentech. As part of the merger, Roche decided to "leave the decision to Genentech," he says, and--not surprisingly--Genentech opted to stay with its current membership in the Biotechnology Industry Organization but not PhRMA.
PhRMA has made the case to Roche CEO Severin Schwan that it should reconsider, Tauzin says. He points not just to PhRMA's advocacy work in the US, but also to the importance of its voluntary self-regulatory efforts (like the DTC marketing code) and to its active international presence.
Roche has agreed to consider the issue afresh for 2010 and "I think they will change their decision," Tauzin says.
Still, the move underscores just how different Roche's corporate profile has become. The company is at once diversified (with businesses units in pharma and diagnostics), yet highly specialized within pharma. That unique business profile suggests a similarly unique set of policy priorities.
And Roche has tended towards more of a lone wolf approach in Washington in recent years.
The company, for example, is not a member of the National Pharmaceutical Council. Roche also declined to join the Personalized Medicine Coalition and allowed Ventana's membership to lapse after acquiring the diagnostics firm in 2008. (Bear in mind that Roche’s business model essentially is personalized medicine, and that the company is at a center of the debate over the regulation of diagnostic tests, prompted by a petition submitted by Genentech.)
Any departures from PhRMA in the rough and tumble of the health care reform debate will be closely scrutinized for signs of a potential splintering in industry over the level of engagement--and sacrifice--necessary to support the reform effort.
The departure carries one symbolic but potentially important resonance in that context: PhRMA CEO Billy Tauzin credits Genentech's Avastin with saving his life after his diagnosis with stomach cancer five years ago--and argues that he would have died if the U.S. had a U.K.-style cost-effectiveness system in place at the time. (See "The Avastin Dilemma ," The RPM Report, April 2009.)
Roche's departure from PhRMA doesn't change the substance of the argument, but it does mean that PhRMA cannot claim to represent the scientists who developed that particular breakthrough.
As a practical matter, the departure will add to the strain on PhRMA for resources as it works on all fronts to build alliances and promote its reform agenda. The pending mergers of Pfizer/Wyeth and Merck/Schering-Plough will further reduce the core member base.
Tauzin notes that PhRMA reviews its mission and resource needs on an annual basis and will do so this year. Its members currently represent 72% of the US market, a percentage that has remained steady over the years.
PhRMA added four new members in 2008, he notes, and expects to add more.
There are some interesting historical echoes in the Roche move. During the heat of the contentious Hatch/Waxman generic drug debate in 1984, Roche led a group of companies concerned about the trade association's decision to cut a deal with Henry Waxman to allow an abbreviated generic drug system. The deal held, but the association's head--Lew Engman--was forced out by the dissenting companies.
There are also parallels to Genentech's more recent decision to leave PhRMA in 2001.
At that time, the association's focus was on the creation of a Medicare prescription drug benefit--and Genentech concluded that the resource demands of membership didn't make business sense since its products were already covered by Medicare Part B. Of much higher priority to the company was fighting the potential creation of a generic biologics pathway, where the Biotechnology Industry Organization was taking the lead.
A similar dynamic may be in play today. The combined Roche/Genentech product line remains concentrated in oncology and other classes where insurance coverage is generally more readily available than in most product areas. And of course follow-on biologics remains a critical issue for the company.
Tauzin, however, sees the issue more in terms of personalities. Genentech's former CEO Art Levinson "wasn't comfortable with the other CEOs" in PhRMA, Tauzin says. "That's all changed."
For the time being, at least, that hasn't changed Genetech's affiliation among trade associations.
"As part of the world's largest biotechnology company, Genentech and Roche believe that BIO's purpose is closely aligned with the direction of the new company and, therefore, can represent the company's interests in Washington, among policymakers, legislators and the general public," Roche said. Roche Pharma Chief Marketing Officer Ian Clark currently represents Roche on the BIO board.
Roche is maintaining its membership in the HealthCare Institute of New Jersey, but under the Genentech name. The company's membership in the device/diagnostic trade association AdvaMed is also unaffected.
Comments? Email the author at windhover-dc@windhover.com
Sunday, June 28 2009
Okay, we admit it: we’re obsessed with Xenazine, a drug for Hungington’s chorea that was approved by FDA last year. But we have our reasons. We see Xenazine as exactly the type of narrow-market product that the new regulatory and reimbursement climate favors. And, as the flurry of deal-making triggered by its approval indicates, it demonstrates that these types of products can be very lucrative, albeit not at the level of the primary care blockbusters Big Pharma is built on. (You can read much more “The Billion Dollar REMS,” from The RPM Report.)
Biovail certainly agrees with us: the company paid $200 million to buy-out Xenazine developer Prestwick Pharmaceuticals. That deal was complex, since Ovation (now Lundbeck Inc.) simultaneously acquired US marketing rights for the drug for $50 million, so Biovail really acquired Canadian marketing rights and a US royalty stream. Now Biovail is upping its piece of the Xenazine pie by acquiring global commercial rights from Cambridge Labs. Biovail paid $200 million when the deal closed June 22—an indication of the value the company sees in the product. The company will pay an additional $30 million over the next two years. (Full coverage of the terms are in “The Pink Sheet” DAILY.)
In one sense, Biovail is simply buying out a large royalty obligation: Cambridge collected 50% of US revenues. With almost 2,000 patients already on therapy at an average annual cost of $30,000 to $50,000 each, that is already a significant amount. Biovail won't save all that money; the company will continue to pay a royalty to an undisclosed third-party who manufacturers the product for global markets.
Still, Biovail says the transaction will be immediately accretive to revenues and margins, and will add $23 million to $26 million to Biovail’s cash flow in 2010. (Those figures include the contribution from international sales from European marketers of the drug as well as the impact from canceling out the royalty obligation.) It is also a pipeline play, giving Biovail full rights to a controlled-release formulation of the drug and a single isomer version of the active ingredient. Those line extensions may be key to expanding the market beyond Huntington’s; the extended release form is in development for Tourette Syndrome.
But the deal has one more wrinkle, in keeping with the unique profile of Xenazine: It takes out a layer between Biovail and international marketers of the drug, and this is a case where cutting out a middleman can pay off for reasons that aren't strictly economic. Xenazine is basically a generic drug around the world, raising a high potential for diversion into the US to capitalize on the premium price. Biovail told its investors during its second quarter call in May that Cambridge was keeping appropriate track of the supply in Europe, and the company says preventing diversion is not a factor in this deal. But we’re still betting that this transaction buys Biovail some peace of mind
Comments? Email the author at windhover-dc@windhover.com
Sunday, June 28 2009
By Cole Werble
The first public version of the House Democratic health reform legislation contained a provision tying the loss of tax deductibility for pharma promotional expenses to transparency/disclosure provisions. Pharma companies would be penalized by losing the deductibility of drug promotional expenses if they were caught failing to report gifts to physicians or falsely reporting the size or amount of the gifts.
That was a drafting mistake, according to House Ways & Means Committee staff. “It was an oversight,” Matthew Beck, communications director for the House Ways & Means majority staff, wrote to The RPM Report. The staff took the tax deductibility penalty provision out of a revised version of the proposed legislation posted late on June 19.
That change does not bode well for pharma. It means that an across-the-board removal of the tax deductibility of promotional expenses remains in play for the House Democrats. Ways & Means Chairman Charles Rangel (D-NY) has already expressed public interest in removing the full deductibility of pharma marketing costs, a move that he estimated could generate $37 billion in new revenues to the government over ten years.
Those added tax revenues are not part of the $80 billion that pharma has offered to the Obama Administration. That means that the tax deductibility remains a hammer over pharma as one of the pending additions to the payments expected from the industry to fund health care reform.
The size of the estimated tax revenues indicates that the Democrats are considering removing the tax deductibility of more than just direct-to-consumer promotion expenses. The Ways & Means Committee is not ready to give up the tax deductibility issue as a way to keep pharma honest on other agreements.
Comments? Email the author at windhover-dc@windhover.com