The Clinton Administration's discussion of drug price controls isthe primary factor in the collapse of the capital market forbiotechnology companies, according to a report released by theBiotechnology Industry Organization (BIO) on Friday.
The report consists of several graphs and charts showing thecollapse of the market as of January. BIO says that there are"several explanations that can be given for the collapse,including poor trial results for therapeutic drugs that wereconsidered industry leaders, and profits below analysts'predictions for companies considered to be industrypacesetters." However, BIO contends that the administration'sdiscussion of price controls is a major factor "and it is the onefactor which the president and the Congress can influence."
In the first six months of 1993, biotech firms raised totalcapital of $759 million, BIO reports. This is the lowest amountsince 1988-1989. The amount of capital raised dropped to $233million in 1988, the year the stock market collapsed; and rosesteadily to its all-time high of $4.2 billion in 1991.
To offset the decline in public financings, companies have beenseeking private investors. As of the end of August, biotechfirms had raised $494 million in private financings. This figureis also less than the $675 in private financings raised in 1991,the "golden year" for biotechnology.
Sam Ronel, president and chief executive officer of InterferonSciences Inc., commented that the "fear of the unknown" inClinton's health-care reform package has hurt industry morethan anything else. He said that with the specter of pricecontrols, the number of initial public offerings (IPOs) hasdeclined and secondary offerings have practically dropped tozero. While companies have gotten funding from privateplacements, Ronel said they involve stock purchases that are"quite seriously discounted. Underwriters are asking for an armand a leg."
Ronel discounted other factors that might be affecting thecapital market. The approval of Chiron Corp.'s Betaseron"showed that biotechnology could produce a successful productwith adequate returns to investors," he added.
Cynthia Robbins-Roth, editor-in-chief of Bioventure View,suggested that the very nature of the biotech market is abigger cause of the decline in capital. "Stock gets taken for aroller coaster ride on a regular basis and it has nothing to dowith the companies themselves," she said. New investors "getcaught up in the sexy science" and rush in to fund IPOs, andthen suddenly realize it will be five years before products geton the market," she added.
In the end, Robbins-Roth said, the responsibility lies with thedrug management teams. "Centoxin and E5 are examples ofwhere management was not paying attention to what washappening in clinical trials. Centocor didn't get batteredbecause of drug pricing, but because the drug didn't do well" inclinical testing, she said. She asserted that the biotech industryis not in a crisis; it has raised over $1 billion this year.
Congress has also taken up the issue of drug price controls. OnThursday, Sen. David Pryor (D-Ark.) announced on the Senatefloor that he was calling on every pharmaceutical company tosign a price restraint agreement with the Secretary of theDepartment of Health and Human Services (HHS).
Under the proposal, manufacturers would limit the annualincrease in their weighted average price to the rate of inflation(the Consumer Price Index). They would also have to limit priceincreases to inflation on individual pharmaceutical packagesizes distributed to retailers. Pryor estimates that his proposalwould limit drug manufacturer price increases to three to fourpercent each year.
The commitment would cover 1994 through 1996 to berenewed for one-year increments and would apply only tobrand name products. Manufacturers that increase their pricesfaster than inflation would pay a penalty to the Secretary"equal to 200 percent of the revenue for that calendar yearattributable to cumulative price increases that exceeded theallowable inflation increase minus the revenue that themanufacturer did not realize as a result of cumulative priceincreases that did not exceed the allowable inflation increase."
Pryor argued that voluntary price controls will not work. Hecompiled a list of over 90 popular prescription drugs that haveincreased in price much faster than the inflation rate for thefirst six months of 1993.
The White House issued a statement on Thursday expressingsupport for Pryor's proposal. "Sen. Pryor's approach appears toprovide a realistic way to deal with medication costs during theperiod of transition to the new system," it said.
The Clinton administration's health-care reform package is dueto be released Sept. 22.
-- Brenda Sandburg News Editor
(c) 1997 American Health Consultants. All rights reserved.