Anthrax Cases Reshape Drug Price Debate

The debate over the price of the anti-anthrax drug Cipro has refocused attention on the cost of prescription medication in the United States and around the world.

Advocates for the elderly in the U.S. want cheaper medications for seniors who lack prescription drug insurance. AIDS activists want drug makers to allow cheaper knockoffs in underdeveloped countries where patients cannot afford patented, brand-name medications.

Patent protections that give pharmaceutical companies monopolies on life-saving medications will come under scrutiny this weekend at a meeting of the World Trade Organization in Doha, Qatar. Delegates from Brazil, India and a number of African nations want broad rights to override patents so they can obtain low-cost generic drugs to treat public health threats, particularly AIDS, which is rampant in sub-Saharan Africa. Negotiators were emboldened when U.S. Health and Human Services Secretary Tommy G. Thompson last month threatened to break Bayer’s patent on Cipro to ensure a plentiful source of cheap drugs. Bayer granted the U.S. government a discount on large quantities of Cipro, the first antibiotic approved specifically for treatment of anthrax.

Thompson’s action fueled “cynicism on the part of AIDS activists and developing countries ... when U.S. government itself is willing to break patents,” said Arti K. Rai, an assistant law professor at the University of Pennsylvania, where she lectures on health care and patent law.

U.S. consumer groups took aim at Bayer, joining a lawsuit alleging that the company conspired to fix the price of Cipro and keep generic versions off the market. The original suit, filed by Louisiana Wholesale Drug Co., claimed that Bayer paid Barr Pharmaceuticals $30 million annually not to market a generic version. The drug makers deny wrongdoing, but are under investigation by the Federal Trade Commission.

In Congress, the Senate Judiciary Committee has approved a bill that would force drug makers such as Bayer to disclose agreements with generic competitors that keep low-price knockoffs from the market. It would also allow the FTC to review such deals.

Congress is considering separate legislation proposed before Sept. 11 that would close the loopholes in a 1984 law known as Hatch-Waxman that has allowed companies to extend their patents and prevent generic competition. Action on the bill proposed by Sen. John McCain (R-Ariz.) and Sen. Charles E. Schumer (D-N.Y.) isn’t expected before next year.

For investors, the pricing pressures create an element of uncertainty about a recession-resistant industry that has served as a safe harbor in shaky times.

Despite such rumblings, drug makers say they aren’t worried. Negotiations over Cipro took place during a “national emergency, unusual circumstances and those circumstances are not going to be with us forever,” said Jeff Trewhitt, spokesman for Pharmaceutical Research and Manufacturing Assn., the industry’s main trade organization. “We see no precedent for patent law or policy long term.”

And the deal is profitable to Bayer, said Bill Haddad, chief executive of generic drug maker U.S. Research & Development Corp. At a price of 95 cents a pill, Bayer is making 75 cents profit, he said. Bayer previously charged the government $1.75 a pill. Beyond that, Haddad said, the benefit to Bayer in brand recognition for Cipro has been immeasurable.

The crisis has given the industry an opportunity to advance its cause in Congress and make strides on the public relations front. Lobbyists for the pharmaceutical association have floated language that would remove any liability for vaccines. Sen. Edward M. Kennedy (D-Mass.) and Rep. Henry A. Waxman (D-Los Angeles) are drafting legislation that would have the government assume liability, except in cases of fraud or negligence, for bioterrorism vaccines, such as for small pox.

Lobbyists for individual drug makers are pushing for a streamlined drug approval process to obtain faster OKs on anti-bioterrorism drugs.

Through the industry’s newly-formed bioterrorism task force, individual companies have offered the government scientific expertise and free or reduced-price antibiotics for its bioterrorism stockpile. But the drug deals from Johnson & Johnson, Bristol-Myers Squibb and Pharmacia come with a catch: the Food and Drug Administration must first approve their antibiotics for anthrax, an action that could boost consumer recognition of the medications.

Under pressure from activists and governments last spring, five makers of anti-retrovirals reduced prices in sub-Saharan Africa to rock-bottom levels. Merck, Bristol-Myers Squibb, GlaxoSmithKline and others said they would not profit from AIDS medications, removing an incentive for governments to authorize generics in countries where per capita income is $2,500 or less.

Now bioterrorism has given new meaning to what might be considered a health emergency, Rai said, noting that far fewer people have died of anthrax in the U.S. than of AIDS in sub-Saharan Africa, where the disease is epidemic.

And “what about the one-third of seniors with no health insurance? If [anthrax] is a crisis, then a lot of things can be called a crisis,” Rai said.

Since the terrorist attacks, two pharmaceutical companies have announced programs to reduce drug prices by 25% or more for poor, elderly Americans who lack prescription drug insurance.

But critics say the programs from Novartis and GlaxoSmithKline won’t benefit many seniors because the drugs will still cost too much.

The programs could also help the companies boost market share. Novartis, for example, has a cholesterol-lowering drug, Lesocl, that lags category leader, Pfizer’s Lipitor. “It is much more of a public relations effort than a real help to seniors,” said Ron Pollack, executive director of the advocacy group, Families USA.

But Paulo Costa, chief executive of Novartis’ U.S. unit, said the program probably will cut into profit, though not significantly.

Goldman Sachs analyst Joan Woodward expects competing drug companies to adopt similar programs, which provide at least a partial solution for seniors. “I think company managements are becoming more proactive in solving some of the political problems,” she said.

But some public health experts see a danger in the drive for lower prices. Dr. Stuart Schweitzer, a UCLA pharmaceutical economist, said drug makers will have little incentive to innovate if they are pressured to slash prices on medications when demand for them rises, such as in the case of Cipro. The government may need to subsidize drug research to persuade companies to develop low-cost treatments for infectious diseases. The vaccine legislation may be a first step. “If companies are forced to devote a lot of their production to low-profit product, they will shift their resources away from public health,” Schweitzer said. “I don’t think we want to create the wrong kind of incentives.”