BIO Statement on Medicare Reform

BIO's board of directors has approved a Medicare Modernization Position, which gives BIO a clear standard with which to evaluate all Medicare modernization efforts: changes must increase access to drugs for senior citizens, but not at the expense of innovation.

This statement represents BIO's position in the Medicare debate, our "line in the sand," if you will. How to modernize Medicare is likely to be a major issue in the 106th Congress and during the 2000 presidential campaign. Our goal is to focus candidates and policy- makers on the long-term effects changes in Medicare will have on the biotech industry.

We emphasize five points with this paper:

• Biotech companies are closer to therapies and cures for many age- related diseases than at any other time in human history. Imposing price controls will slow scientific innovation. Suchpolicy decisions are short-sighted and will hurt the people Medicare is designed to benefit.

• In the last four years, the U.S. Food and Drug Administration granted more biotech approvals than in the previous 13 years combined. In 1998, the agency approved a record 21 drugs, vaccines and new indications for existing medicines. Biotech companies could not have achieved these breakthroughs under a system of drug price controls.

• Seniors must have access to biotech medicines now and in the future. BIO will judge each Medicare reform proposal on whether it gives seniors that access while encouraging the biotech industry's innovative research.

• Many biotech companies, still in the research stage, rely on venture capital to fund their innovative drug development. The threat of price controls, as we saw during the 1993-94 debate on healthcare reform, can drive down this investment.

• BIO will aggressively oppose legislation that undermines biotech innovation through overt or covert government-imposed drug price controls, which artificially lower reimbursement rates and keep biotech companies from bringing new drugs to market.

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Biotechnology Industry OrganizationMedicare Modernization Position

BIO supports Medicare modernization which preserves incentives to create the biotech products of the future.

The issue of Medicare modernization is of vital interest to the members of the Biotechnology Industry Organization (BIO) and the patients they serve, because biotechnology companies are in the forefront of discovering, developing, and bringing to market the next generation of life-saving medicines. BIO represents over 850 companies, universities, research institutions, state biotechnology associations, and affiliates, in 46 states all of which have a mission to develop and harness the potential of biotechnology to improve peoples' lives. The biotechnology industry invested $9.9 billion in 1998 in research and development to improve and expand treatment options for patients. This investment was largely in the form of risk capital, since very few of these companies are yet profitable.

Our nation's free market system has contributed to the development of the most technologically advanced drugs and biologics in the world. Biotechnology is playing an increasingly important role in this advancement. Many of the diseases and illnesses our companies target strike seniors disproportionately. BIO's member companies are working on a wide range of preventative and early detection technologies like vaccines and genetic screening tests. Some companies are developing potential cures for debilitating diseases which most commonly strike seniors like arthritis, Alzheimer's and Parkinson's disease. Other companies are working on improved treatments for the chief causes of death and hospitalization for seniors: cancer, heart and circulatory diseases. To date, over 80 biotech products and vaccines are on the market, 21 of which were approved in 1998. The pace of innovation continues to accelerate with over 300 biotech products in the pipeline in second and third stage human clinical trials.

The biotechnology industry has a significant stake in ensuring seniors have access to the fruits of this ongoing effort to bring new therapeutics to the market. The Medicare program, which according to Health Care Financing Administration pays for over 70 percent of the health care cost of seniors, is estimated to be bankrupt by 2008. As the babyboom generation ages, the number of retired people in the Medicare system will increase dramatically, and the funding, which comes primarily from taxes paid by the existing workforce, may be insufficient to support the program. BIO supports the modernization of the Medicare program so it can remain solvent.

BIO also believes that the modernization of Medicare can better serve the medical needs of seniors today and in the future. Many seniors, Members of Congress and policy makers, believe that Medicare modernization should include improved access to drugs and biologics. BIO recognizes that drugs and biologics are an integral part of health care and we believe that Medicare beneficiaries should have access to these medicines, including those in subpopulations who can least afford out-of-pocket expenses or those with less common diseases.

For BIO, however, the term "access" applies to both the short-term and long-term. In the short-term, it means helping seniors obtain drugs currently on the market. BIO supports steps to expand seniors' access to prescription drugs through private sector choices, free of government-mandated price controls, since such controls will artificially lower reimbursements and stifle innovation.

In the long-term, access means making sure seniors can be treated with less invasive, safer, more effective future medicines which may prevent or cure the most intractable diseases of our generation. It is BIO's role as a representative of medical innovators to ensure that patients in the future, including seniors, will have the best treatment options that science can offer.

BIO believes the long-term access issue is critical in the context of the current debate, particularly with respect to the detrimental effect that potential price controls would have on drug development. Since research and development of drugs and biologics is both labor and capital intensive and by definition risky, finding capital to fund innovative R&D is a challenge. This is true even today in a market without the negative impact of government mandated price controls or other artificial impediments to a free market.

According to Ernst & Young's 1998 biotech industry annual report, 25 percent of the 327 publicly traded biotech companies have less than one year of cash reserves. According to data developed by the FDA's Center for Biologics Evaluation and Research, it typically takes 5 to 7 years of R& D investment not including the years of work necessary to develop basic research tools from the start of clinical research to potential product to approval. With these statistics in mind, the biotech industry raised and invested $9.9 billion for future products in 1998 alone. Since only 3.5 percent of the 1,274 biotech companies in the U.S. have products on the market, the billions of dollars of R&D investment were funded largely with venture capital and other sources of private and public capital. These investors understand that discovery of new biotechnology products is riskier than investing in many other industries so there must be a commensurate reward. The prospect that reimbursement of drugs for seniors would move away from marketplace forces towards more government controls will send a powerful signal discouraging private sector investment in just the kinds of innovative products needed by seniors of today and tomorrow. Under this unfortunate scenario, risk capital would be diverted particularly from promising, early-stage companies and invested in technologies with less risk and government-control.

BIO's role in the debate on Medicare modernization will be to ensure that any solution supports biologic and pharmaceutical innovation so that seniors today, and in the decades ahead, have access to cutting-edge treatments.