Rep. Eshoo Decries Congressional Earmarks, Yet Promotes Corporate Welfare

What would you say to a Congresswoman who behaves like a hypocrite? Well, California's 14th District (an area I'm very familiar with, having lived in the district for nearly a decade during the 1990's) House Representative Anna Eshoo deserves just such a rebuke today. Ms. Eshoo, who was on the San Mateo County Board of Supervisors when I resided in Foster City, represents the district where many biotechnology firms and venture capitalists are based, encompassing much of Silicon Valley and stretches up the San Francisco Peninsula.

Just what has she done? Well, she has sponsored legislation aimed at "cleaning up the House" which she claims is to restore the confidence of the American people in their government. Sounds convincing so far. One of the key elements in her proposed legislation aims to reform the use of Congressional "earmarks". Again, that sounds nice. But while Congressional earmarks are bad, evidently, corporate welfare for businesses which just so happen to be headquartered in Ms. Eshoo's district is perfectly acceptable, at least according to Eshoo.

Late last week, as many people were headed out to begin their weekends, news was released that Eshoo had co-sponsored the "Pathway for Biosimilars Act", legislation she claims will create a regulatory pathway for FDA approval of "biosimilars" or "follow-on" biologics.

"This legislation will establish a regulatory pathway for biosimilars that will promote competition and lower prices, and protect patient safety, drug efficacy and sound science," said Rep. Eshoo.

Her bill would amend the Public Health Service Act by adding a section that would allow biologic licenses to be submitted and include information demonstrating that the medicine is "biosimilar" based on analytical studies, animal studies, and a clinical study or studies (such as an immunogenicity assessment and pharmacokinetics or pharmacodynamics). Under certain circumstances, the studies may be waived by the Department of Health and Human Services.

Not surprisingly, the Biotech Industry Organization (BIO) was ecstatic with her bill, which the group said "includes essential elements to ensure that any such pathway follows two critical principles: namely, protecting patient safety and ensuring continued innovation."

But the Generic Pharmaceutical Association (GPhA) was pissed, to put it mildly. Under the provisions of the Eshoo bill, "it will be decades before patients have access to affordable biogeneric medicines," the group said in a statement. "For the countless patients who are choosing between paying for their medicines and putting food on their tables, waiting decades is simply not an option."

The latter GPhA comment may be just a tad dramatic, but they still have every right to be mad. Not only were their members shortchanged, but so was the American taxpayer, at least if Ms. Eshoo's bill is passed. Even if it passes, it would need to be reconciled with the Senate's version, which is further along in the legislative process than the House bill.

Although Ms. Eshoo's bill would create such a path, it differs quite radically from the Southern California Representative Henry Waxman's bill the "Access to Life-Saving Medicine Act of 2007", which the House never bothered to vote on last year. A Senate version of the bill, which also grants a 12-year period of exclusivity, cleared a major hurdle last year and is therefore further along.

The key difference between Rep. Eshoo's bill and Rep. Waxman's bill is quite important: Eshoo's bill offers brand-name companies 12 years of exclusivity, plus another 2 years for a "medically significant" innovation. All told, that would be up to 14 years of patent exclusivity, which is twice as long as the 7 years that other drugs receive.

No one should kid themselves into believing the Biotechnology Industry Organization's and the Pharmaceutical Research and Manufacturers of America (PhRMA) claims that any legislation which enables biosimilars must grant innovator companies a longer period of patent exclusivity because their research costs are higher. Their research costs may be higher, but biotech companies are more than compensated for their investments with the significantly higher prices their medicines sell for.

Biologics are the fastest-growing sector if the drugs market, in part because they have very high prices, and also because they treat diseases with high unmet needs (oncology, for example). As a result, spending on biologics by the U.S. government and private insurance companies is significant. In fact, U.S. sales of biologics increased by 20% to $40.3 billion in 2006 according to IMS Health.

"The average cost of a biotech drug can be 10, 15 or 20 times higher than the average cost of a traditional drug," Dr. Steve Miller, pharmacy benefits manager Express Scripts' chief medical officer says.

In effect, doubling the patent period for biologics is one of the biggest examples of corporate welfare seen since the Medicare Drug Bill took effect, and U.S. taxpayers are paying for it. The irony, of course, is that Ms. Eshoo's district is unlikely to see much in the way of jobs created by this Government largesse. The reason is because although researchers and executives at these companies will benefit, most biotech companies do not manufacture their products in the Bay Area because its simply too costly. Some outsource manufacturing to companies like Hospira, Inc. (see here for my previous post on that company), or if they manufacture the products themselves, they set up shop in less costly locations like Arizona, Colorado or Texas. This means the beneficiaries are institutional investors and of course, the upper echelon of corporate management (the CEO, CFO, etc.,) who may reward Eshoo with support for her next re-election for filling their wallets.

So what does any of this have to do with diabetes? Well, a number of things. First of all, a number of diabetes medications are biopharmaceuticals, the most important of which is insulin (although there are presently no legal impediments to generic insulin because it is governed by the Federal Food, Drug & Cosmetic Act not the Public Health Service Act which governs most other biotech drugs, and regulatory confusion has stopped progress towards the goal of seeing generic insulin emerge -- see my original article here for full details). The estimated cost of not having generic insulin available in the U.S. is $797 million, or just over $16 billion over 10 years according to a study undertaken by pharmacy benefits manager Express Scripts, Inc., so the cost to society is enormous.

Then there is the issue of equity. Why are regular drugs being awarded only 7 years exclusivity vs. up to 14 for biotechnology medicines? You might wish to express this thought to your Congressman or woman, as competition in the insulin market is being delayed by Congress' continued inaction on this matter.

For additional reference, see The Wall Street Journal Health Blog or Pharmalot for more information.