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Biotech Firms See Clinton Plan as Bitter Medicine : Health care: Cutting-edge companies fear advent of government price controls will strangle industry. Proponents of plan say they are crying wolf.

September 18, 1993|DAVID R. OLMOS | TIMES STAFF WRITER

When Genentech Chief Executive Kirk Raab listens to President Clinton unveil his landmark health care reform proposal Wednesday evening, he hopes the President will have changed his mind about one thing: government price controls.

Raab, as head of the South San Francisco-based biotechnology standout and chairman of the industry's trade association, is leading the charge against what he calls the "wrong and unfortunate" price-control provisions included in a draft proposal of the Clinton plan.

Biotechnology industry executives argue that the Clinton plan--especially a provision that would allow the secretary of health and human services to exclude new prescription drugs from the Medicare program should the price be deemed unreasonable--would significantly deter investment in the capital-hungry industry. They also oppose establishment of a government review board that would determine the "reasonableness" of new drug prices.

"Already, we're seeing companies postpone or cut back clinical trials, lay off scientists, freeze employment levels and forgo opportunities to build new manufacturing," said Carl Feldbaum, president of the Washington-based Biotechnology Industry Organization, the trade group Raab chairs. "Some patients out there with intractable diseases will wait in vain for treatments to come down the line."

Those effects, said Feldbaum, are being felt the hardest in recession-weary California and Massachusetts. California accounts for 40% of the industry's 95,000 jobs.

But critics say the biotechnology industry--and the closely allied pharmaceutical industry, which also strongly opposes price controls--are crying wolf.

"What the drug industry wants is universal coverage with no cost controls of any type. . . " said John Coster, a member of the Task Force on Health Care Reform and an aide to Sen. David Pryor (D-Ark.), a drug industry critic. "All we're saying with this plan is, gee guys, give us some assurance that your prices are reasonable."

Critics charge that the pharmaceutical industry has a track record of excessive price increases. On Thursday, the Arkansas senator challenged drug companies to sign a three-year commitment to limit price increases on brand-name pharmaceuticals to no more than the annual growth in the consumer price index. Some drug makers previously have pledged to voluntarily limit price increases to no more than the rate of inflation.

To counter industry criticism of the Clinton plan, the Senate's Special Committee on Aging, which Pryor chairs, sent out a list of more than 90 popular prescription drugs with price increases exceeding the rate of inflation for the first six months of 1993.

Pryor said the list demonstrates that despite "the fanfare surrounding these so-called voluntary manufacturing restraint agreements, prices for many popular drug products are still increasing faster than inflation."

Geraldine Dalek, executive director of the Medicare Advocacy Project in Los Angeles, said drug price increases have prompted Medicare recipients to join health maintenance organizations "in droves." Unlike Medicare, which currently does not reimburse for prescription drugs, HMO plans for seniors offer such coverage. The Clinton health proposal would require inclusion of prescription drugs for Medicare recipients as a standard benefit of all insurance plans.

Drug makers contend that prices are already being well-controlled by the marketplace, citing forced discounting to large HMOs.

Meanwhile, biotechnology executives feel caught in the middle of a political tussle over drug prices. Unlike their bigger brethren in the pharmaceutical business, many small biotech firms have no products and no revenue, while their genetically engineered products require enormous capital for research and development.

Bringing a biotechnology product to market, industry officials say, can cost more than $200 million and take 10 years. Biotechnology firms say they need to set prices high enough to recoup their investment and provide a high rate of return to investors.

Gordon Binder, chief executive of Thousand Oaks-based Amgen Corp., said small biotech firms are already facing a severe shortage of investment capital. Price controls will further deter outside investment in the industry, he said.

But some biotechnology officials acknowledge that there is good news in the Clinton health plan.

Expansion of Medicare coverage to include prescription drugs, new coverage for 37 million uninsured Americans and signs of increased federal funding for research are all favorable for the industry.

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