The Nexus between Biotechnology and Economic Recovery

By Kevin E. Noonan --

In anticipation of President Obama's State of the Union address tomorrow, Jim Greenwood, President and CEO of the Biotechnology Industry Organization made a recommendation today in The Arena portion of the Politico website:

The president's State of the Union should, rightly, focus on jobs, particularly the need to create and fill new jobs to compete in an increasing competitive global marketplace.  There's no industry that better exemplifies the promise of job creation than biotechnology.  Today, the U.S. biotechnology sector employs more than 1.3 million workers in high-skill, high-wage jobs.  Since 2001, our industry has added nearly 200,000 jobs.  This is quite an accomplishment in the midst of a deep recession, and a sign that this industry can be a driver of economic growth.  Quite literally we are just what the doctor -- and president -- has ordered.  

Strong patent protection, balanced reimbursement policies, science-based regulations and other pro-innovation public policies will help our industry fulfill our promise.  Through targeted policies such as the Therapeutic Discovery Project, which awarded tax credits to small cutting-edge biotech companies to support research and development efforts, the president can help spur continued medical innovation, grow American jobs and position our nation for continued leadership in the global marketplace.

The jobs emphasis should resonate with the President, who has seen his popularity wane with worsening job numbers, and whose popularity (not to mention re-election prospects) will be affected if not determined by the strength of any economic recovery.  (The days are past when improvements on Wall Street but not Main Street provide much political benefit.)

Mr. Greenwood's emphasis on the biotechnology sector as source of high-paying jobs providing America with a competitive advantage on the world economy is consistent with venture capital guru Steve Burrill's recent report on the industry (see "Steve Burrill Makes Predictions for the Biotech Industry in 25th Annual Report").  In his report (available here), Mr. Burrill predicts that 2011 will be a "good year" for the biotechnology industry, and that the biotech sector will outperform the general markets in 2011 (using his Burrill Biotech Select Index in comparison with the Dow Jones Industrial Average).  The sector is not without its challenges, however, including contraction by about 25% during the economic downturn and a stable but stagnant market cap ($360 million) and overall investment ($15 billion).  So economic policies that promote investment in biotechnology companies will be important in a continued recovery, in accord with Mr. Greenwood's sentiments.

The Obama administration seems to understand the importance of biotechnology in not only promoting growth but in promoting American competitiveness.  This is evidenced by an initiative, announced recently in a January 14th letter from Department of Health and Human Services to Congress (see "Federal Research Center Will Help Develop Medicines"), to establish a new drug development program to compensate for the diminished capacity of the pharmaceutical industry to provide new drugs.  (It is unclear whether the administration understands the plethora of reasons for this diminution, including the complexities of the diseases to be treated (like diabetes and cancer) and the effects of other government policies, like the unintended consequences of the Hatch-Waxman Act to produce almost as many ANDA lawsuits as generic drugs.)  The new center, which will be called the National Center for Advancing Translational Sciences and is slated to open in October 2011, will be funded parsimoniously at first (a hoped-for $1 billion in contrast to the approximately $46 billion invested each year by the pharmaceutical industry), consistent with expected opposition from budget hawks.  The Center will be part of the National Institutes of Health, and is intended to provide sufficient early-stage research and results to interest conventional pharmaceutical companies to invest in the development of new drugs.  Unannounced is whether the government's involvement will come with significant "strings" attached with regard to cost and exclusivity for the pharmaceutical company, issues which could easily derail the initiative.  Dr. Francis Collins, NIH Director, says that "[n]one of this is intended to be competitive with the private sector."  However, he says that he is "frustrated" to see the results of his last endeavor, as head of the Human Genome Project, "wait[] for the pharmaceutical industry to follow through with them."  While acknowledging that the idea is controversial and that many question whether the government should be involved in such an effort, Dr. Collins (and hence the administration) argues that it "would be irresponsible not to take advantage of scientific opportunity" represented by the Center.

A generation ago, the biotechnology industry (and American support of it) led to a change in the distribution of the source of new drugs from Europe to the U.S. and to reverse in the 1980's and 1990's the economic downturn caused by events that occurred in the 1970's (see "The Continuing Value of Biotech Patenting").  In the effort to stimulate an economic recovery today, these efforts, and the efforts of private sector biotechnology companies, are likely to once again be critical.  Which makes policies that support this industry (including sound patent policies) even more important.

Comments

[Rodney Sparks]

Kevin,

The litigation issue you brought up is a bit of a side issue for the post, but thanks for pointing out the unintended consequences of Hatch-Waxman (the large number of ANDA suits) for those who may not have thought about it. Sometimes it appears that Hatch-Waxman benefits patent litigators more than the public, and the associated costs are definitely counter-productive to the intent of the act. I don't think I have a good proposal to address the issue, but more people need to be aware of it.

[Matthew Avery]

Rodney,
Regarding the large number of Hatch-Waxman suits, I think a good solution might be to simply lengthen the data exclusivity period. It's currently only 4-5 years (depending on the type of ANDA filed).
Also, here are some interesting numbers to consider:
Number of New Drugs Approved in 2009 = 24 (17 new molecular entities and 7 BLAs approved).
Number of Generic Drugs Approved in 2009: 533 (489 ANDAs and 35 505(b)(2) applications approved).