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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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November 14, 2012

Budgets and Revenues

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Posted by Derek

Note: politics ahead. This will not be a regular feature around here, but when events warrant, it'll rear its scaly head.

BioCentury has an interesting piece this week on the growing budget impasse and its implications for both academic and industrial biomedical research. It's already widely known that the so-called "Fiscal Cliff", the budget sequestration process that will trigger if no better deal is reached, will perforce come after funding for both the NIH and the FDA. It's always tricky to figure out the impact of such spending cuts, due to the well-known "Washington Monument" tactic. (That refers to the way that if you try to cut the budget for, say, the Park Service, the first thing they'll do is close the Washington Monument. After all, you are having to save money, right? And if you can do it in a way that causes the most outrage and inconvenience, thus increasing the chance that your budget will be restored, well, why wouldn't you?)

So that means that I don't necessarily believe all the predictions for what sequestration would do to any given agency's budget. But there's no doubt that it would have a powerful effect. At the very least, current plans for increased services or expanded programs would immediately go into the freezer, and there would be layoffs and program cancellations on top of that. New NIH grants would surely be hit, and the approval process at the FDA would slow down. Budget sequestration would not mean The End of Science in America, but we'd feel it, all right.

The flip side of budget-cutting is raising revenue. And for that, we can (among many other places) turn back to the deals made with PhRMA when the Affordable Care Act (aka "Obamacare") was passed. Says BioCentury:

Many of the deficit reduction playbooks Congress and the White House will consult include recommendations to suck money out of the pharmaceutical industry. These include a number of proposals that were taken off the table in the PhRMA deal to support the Affordable Care Act.

Near the top of the list: Imposing rebates on drugs purchased under Medicare Part D by so-called “dual-eligibles,” individuals who are eligible for both Medicare and Medicaid.

The Obama administration’s proposed fiscal 2013 budget projected $135 billion in revenues over a decade from dual-eligibles rebates. The idea, which is anathema to PhRMA, was also endorsed by the National Commission on Fiscal Responsibility and Reform chaired by Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, President Clinton’s chief of staff.

The White House is also likely to continue to press for reducing the exclusivity period for biologics to seven years from the 12 years established when Congress created a biosimilars pathway in the Affordable Care Act.

Some readers may recall that I predicted something like this. There's a quote from the head of a health-care consulting firm, who says that "Everything that was taken off the table is back", and I can't say that I'm surprised. The twelve-year exclusivity idea had already been on the block to be chopped; I assume that one way or another, it's a goner.

Here's another provision of the Affordable Care Act that could affect the pharma industry. Starting in 2014, health insurance plans will have a defined "minimum level of coverage", which will be determined state-by-state. Late last year, the Department of Health and Human Services said that it plans to require that "essential" will mean one drug in each therapeutic class, with that one drug to be determined by some process I can only imagine. That idea hasn't been popular, with either drug companies or patients, and one might expect to see it altered. But not without a huge amount of wrangling, that's for sure.

Comments (12) + TrackBacks (0) | Category: Business and Markets | Current Events | Regulatory Affairs


1. anon on November 14, 2012 9:12 AM writes...

fyi, this post begins in mid-sentence and ends with an open italics tag.

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2. WTF on November 14, 2012 9:18 AM writes...

Man, if I wanted a political blog, I'd read one. If this is the "exciting new direction" for In The Pipeline, it'll save me some time in the morning...

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3. Chemjobber on November 14, 2012 9:19 AM writes...

WTF -- the political posts come about once a year. Relax, dude.

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4. Chemjabber on November 14, 2012 9:48 AM writes...

...and that's why you'll always be Chemjabber to me.

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5. Chemjobber on November 14, 2012 10:02 AM writes...

Well played!

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6. Hap on November 14, 2012 10:14 AM writes...

It's not like ACA/Obamacare isn't relevant to Pharma exactly. It's a reasonable topic for discussion. Generally, there's one election post and a couple of other political posts a year. If they aren't worth swallowing to get the rest of the information, you don't have to read.

I'm glad ACA's present, but disappointed in the philandering with PhRMA (that the gov't is being dishonest, not in the agreement). I would prefer more forthright sources of revenue to fix the budget gap, but if we were willing to accept them, well, we wouldn't be in this position.

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7. Wile E. Coyote on November 14, 2012 10:49 AM writes...

It is just as much a spending problem as it is a revenue problem. A trillion plus per year deficit is not sustainable. Pick your poison as to what you want to blame for excess spending. Everyone gets the blame on that account.

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8. Bill H on November 14, 2012 11:54 AM writes...

This might be a little off-topic for this blog, but the potential impact on federal research funding if sequestration isn't averted is pretty depressing. The AAAS has a report that breaks down the impact:

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9. Hap on November 14, 2012 1:00 PM writes...

It's revenue and spending - it depends on how much you think the federal government should be doing as to how much of each you need. I tend to blame revenue because while taxes were cut lots, spending was never cut to match the revenue loss - cutting spending was either unpopular enough not to have been done initially or subsequently, or it was never intended. (At some point, the idea that there would be no revenue loss should have met the numbers and slunk away.) In either case, the presumptions are either that people wanted the federal government to be doing lots of what it was doing (thermodynamic stability), or that deciding what could be cut without serious arm-twisting of the populace was not possible (kinetic stability).

The possibility of making gov't run more cheaply could also be implemented, but here the only plan for substantial savings that could probably get anywhere would be a federal version of Kasich's "*bleep* the unions" plan for making education cheaper in OH, and that didn't go so well.

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10. Neuroskeptic on November 15, 2012 4:17 AM writes...

It's cool. All Pharma need to do is invent a drug that inhibits spending and spike the drinks at the negotiations.

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11. Matt on November 15, 2012 9:13 PM writes...

@10: And if it happens to have a malignant tox profile, such that a lot of lawyers and politicians are put out of might be a blockbuster. From what I hear, if you are a good politician or lawyer, your body has a way of rejecting the bad effects.

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12. Hap on November 16, 2012 10:17 AM writes...

Pharma's success lately does not encourage, both in the speed needed and in the ability to generate the requisite drug. Also, reverse psychology doesn't work on Murphy's Law.

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