Now that September and October have seen the first twoincarnations of the Clinton administration's health-care reformplan -- as well as a flurry of financings -- five highly placedbiotechnology industry CEOs have predicted that price controlswill quickly cool the expansion of the industry.

These sentiments echo the opinions of a majority of 100 seniorexecutives in the biotech industry polled last August by KPMGPeat Marwick's Health Care and Life Sciences Practice.

According to the poll results, released last week, more thanthree-quarters of the executives said they would curtailexpansion plans under price controls, and 67 percent said thatunder price controls, financing would dry up.

The financial viability of their companies would be threatened,42 percent told the pollsters, although only 9 percent describedthe threat as "severe." Thirty-eight percent said they wouldcurtail development of new products, and 21 percent said theywould initiate layoffs.

Nearly half of the executives said price controls would doomthe U.S. industry's international dominance.

Last Wednesday's release of the Health Security Act barelybudged biotechnology stocks. But that could be becauseanticipation of price controls had already done the damage.

Health-care reform is indeed the biggest bogeyman to threatenthe industry, David Hale, CEO of Gensia Pharmaceuticals Inc.(NASDAQ:GNSA), told BioWorld.

Nor did the fall financings impress the CEOs contacted byBioWorld. Their own companies, flush by industry standards,could weather the cold for another year, until enactment ofhealth care reform is expected to decide the issue one way oranother. Then, under continuing uncertainty or enactment ofprice controls, these companies would have to retrench, JimVincent, chairman and CEO of Biogen Inc. (NASDAQ:BGEN), toldBioWorld.

As for the rest of the industry, successful stock offeringsoccurred only among the 10 percent of public companies whosestocks had already risen this year, George Rathmann, CEO ofIcos Corp. (NASDAQ:ICOS), told BioWorld. To say that companieswhose stocks are dropping shouldn't be able to raise money "isthe death knell because once that starts, how are they going toget out of those doldrums? I And we are in them."

"Desperation is starting to set in" among 220 public companiesthat average only 12-18 months' cash on hand and are burning$2 billion annually, said Vincent.

Strategic alliances would be a matter of survival, said Hale. Butconsolidation resulting from a lack of investment precipitatedby the specter of price controls would be artificial, not thenormal shaking out that occurs as any industry matures.

At best, companies will be selling off their proprietarytechnology to stay afloat, Henry Termeer, CEO of Genzyme Corp.(NASDAQ:GENZ), told BioWorld.

But the inevitable consolidations would feature foreignbuyouts, said Vincent. "I've been told by Wall Street types theyare already seeing a pickup of Japanese activity (along with) apullback of U.S. activity." And they will pay close-out prices, hepredicted.

Although the price review board has been reduced tojawboning in the Federal Register (see BioWorld, Oct. 28), "it isthe camel's nose in the tent," said Gordon Binder, CEO of AmgenInc. (NASDAQ:AMGN). History has established thatbureaucracies will lobby -- successfully -- for increases in theirpower, he said.

Under such circumstances, companies obviously would curtailnew product development. Hardest hit would be orphan drugs,said Hale, because why would companies risk the possibilitythat the cost reviewers might prohibit the high price necessaryto earn a profit when the patient population is small?

However, neither Binder nor Termeer expects to see pricecontrols or price review boards enacted. "A lot of congressmenrealize that price controls have never worked in this country,"said Binder. "Even China has just discontinued price controls onpharmaceuticals."

And Termeer expects to see a great warming in the climate ofopinion toward biotechnology, such that even those who arestrongly promoting these controls will hang a U-turn on theissue. "I am confident everybody will agree that ... this industrydeserves to have special attention and a special position(within) this health-care reform situation," he said. "I thinkthat will lead to a much improved situation for biotechnologyfinancing ... in the second half of next year."

If not, said Vincent, "Wall Street will not continue to supply(funds) based on a political process of establishing prices at theend of a terribly risky process in which three drugs out of fivefail along the way."

-- David C. Holzman Washington Editor

(c) 1997 American Health Consultants. All rights reserved.