Policy Spotlight: Commission on the 21st Century Economy

The Commission on the 21^st Century Economy met on Tuesday, June 16 at the University of California, Los Angeles to review a handful of proposals for revamping California’s tax structure. The Commission, established by an executive order of Gov. Arnold Schwarzenegger last year, has several objectives tasked to it for reforming California's budgeting and revenue structure, including:

• Establishing a 21^st century tax structure that fits with the state's 21^st century economy;
• Stabilizing state revenues and reduce volatility;
• Promoting the long-term economic prosperity of the state and its citizens;
• Improving California's ability to successfully compete with other states and nations for jobs and investments;
• Reflecting principles of sound tax policy including simplicity, competitiveness, efficiency, predictability, stability, and ease of compliance and administration;
• Ensuring that tax structure is fair and equitable.

Comprised of business leaders, former legislators, and other public officials, the Commission is required to submit a proposal to the governor and the Legislature no later than July 31, 2009. I attended the hearing in Los Angeles and composed a detailed report for CHI’s membership, which you can view here. The Commission has one final meeting on July 16, in San Francisco, before their proposal is due.

At the meeting in Los Angeles, the discussion focused on replacing more volatile parts of California's revenue stream (progressive personal income taxes, capital gains taxes, and sales taxes) with a business receipts tax. Such a tax would envelope services provided in the state, which currently are not taxed, and would lead to a tax structure that while more stable would be inherently more regressive. States such as Ohio, Texas, Michigan, and New Hampshire have all implemented this type of system with varying levels of success. The regressive nature of the proposal, however, may prove to be the Commission's Achilles' Heel—budget proposals are unable to reach the 2/3 vote required for passage, and the Commission's proposal will face a Sisyphean task of surmounting the 2/3 requirement to establish a more regressive tax structure during the largest recession since the 1930's with a Democratic Legislature.

CHI will be attending the final meeting of the Commission next month at the University of California, San Francisco. If you have thoughts about the Commission or its proposals that you would like to share, please contact me at 916-233-3490 or engelhardt@chi.org.

CHI-Advancing California biomedical research and innovation

Executive Spotlight: Dr. Eric Topol, Scripps Translational Science Institute

I recently had the chance to speak with Dr. Eric Topol, director of the Scripps Translational Science Institute, a National Institutes of Health funded program of the Clinical and Translational Science Award (CTSA) Consortium, in advance of his speaking at CHI’s July program, An Evening with Thought Leaders, being held on Thursday, July 23, at the Lodge at Torrey Pines, at 6 p.m. Topol describes below how he envisions the future of healthcare with the dawn of personalized medicine, he describes some of the research being done at Scripps to improve the practice of medicine, as well as what he finds the most rewarding as a researcher, physician and husband and father.

Q: How will personalized medicine change the practice of medicine in the coming years?
A: It’ll be a complete reboot, control/alt delete, of how we practice medicine because today we practice for a population model rather than an individual model. The way we administer therapies is to give the same drug in the same dose to all people without knowledge of the individual’s actual biology or their genetics. So personalized medicine is really a completely different mind set and base for how medicine is practiced. It will be much more preventive than ever.

Q: What is the most important contribution personalized medicine will make to the practice of medicine?
A: The largest contribution will be promoting efficiency. Today, we have a lot of patients who are taking the wrong medicine at the wrong doses, being given the wrong devices, because of this mismatch of what we do for patients and what they may individually need or require. We’ll be able to avoid some side effects as a result of medicines that interact with each other that currently lead to unnecessary additional expenses. In any given condition we give multiple medications whereas in the future we may find out patients only need one or none at all so I think that these will be some of the early, important shifts in the way medicine is practiced.

Q: What research is being done at Scripps in this space and how will that translate to the cures of tomorrow?
A: The most far reaching research is to understand the genomics of the healthy aging. We’re sequencing those individuals in their 80s and 90s who have never been sick. These people would be expected from their genomic profile to have had some diseases like cancer, heart attacks, Alzheimer’s or some other disease of aging. But they don’t get these diseases, so that means they’re protected naturally through what we call “modifier genes.” If we can identify these genes, it would be a great foundation for developing much more impressive preventive strategies for the future–that’s nature’s way of keeping people disease free.

Q: What keeps you up at night?
A: Too many things! But we have a great opportunity to really make sweeping, vital changes in medicine and mainly it’s the excitement at all our projects here, each of which could make a worthy contribution.

Q: What do you do to relax?
A: Hiking, biking, reading, golfing, lots of other activities to relax and not always think about individualized medicine. The years I’ve spent here in San Diego have been the most fun I’ve had in my life!

Q: When you were young, what did you aspire to be as an adult?
A: I didn’t really know I’d be a physician, I thought I’d be an engineer, actually. But when I was in college working in a hospital on a night shift job as a respiratory therapist, working on ventilators in ICUs I’d see these patients who were really sick and after so many shifts, I’d see them turn around. It just really inspired me to pursue a career in medicine--it was just serendipity really.

Q: Any regrets?
A: No! It’s the most extraordinary thing in the world to be entrusted with peoples’ health. There’s no privilege that’s greater than that. I would never give that up. I also enjoy the intellectual stimulation of trying to take medicine to the next level through research while caring for patients. My clinical group of patients has grown so quickly it’s hard to keep up, but really just so rewarding.

Q: What are you reading?
A: Right now I’m reading The Scarecrow, but on the non-fiction side I’m partway into The Innovator’s Prescription. I just got this Kindle so I loaded it up and when I need to escape into a novel, I go to one but when I feel like the other, I can go to that. With the Kindle, it’s a whole new way to read, remarkably effective.

Q: How do you want people to remember you?
A: In 25 years of practicing medicine, I think what I’d want to be remembered most for is doing things that are innovative that will improve overall medicine. Beyond being a good physician, and good husband and father to our two children, I’d want my contribution professionally to be having a positive effect on the future of medicine.

CHI-Advancing California biomedical research and innovation

Policy Spotlight: Follow-On Biologics

Policy makers in Washington, D.C. are currently working on developing a pathway for follow-on biologics (also known as “FOB’s” or “biosimilars”) in the United States. Biologic drugs are more complex than small molecule pharmaceutical products; as such, the regulatory process for approving a follow-on product (what is referred to as a “generic” for small molecule drugs) is necessarily more stringent as a follow-on producer would not have access to the pioneer product company’s molecular cell bank, nor their fermentation and purification processes. Thus, unlike generic versions of traditional drugs, the follow-on product will be “similar,” but never an exact replica of the pioneer product.

This has serious policy implications for implementing a pathway for biosimilars. Regulation of FOB’s needs to be mindful that the variations from the pioneer product can have serious health implications in patients; therefore follow-on products need to be subject to scientific scrutiny before entering the marketplace to ensure patient safety. Additionally, while patent protections are sufficient to protect the intellectual property of pioneer product manufacturers for small molecule drugs under a generics regime, pioneer biologics products would enjoy less patent protections under a follow-on regime where such products are similar to, but not the same as, the innovator product.

Let’s look at the rules for small molecule drugs. Generic small molecule products can enter the marketplace after the patent on the pioneer product has expired. This was established in the 1984 Hatch Waxman Act, which, through a combination of patent extensions and data exclusivity granted pioneer manufacturers at least five and up to 14 years of protections on their innovator products. Generic manufacturers, after the five years of data exclusivity expires, can use patented drug information to prepare their own Food and Drug Administration (FDA) applications prior to the expiration of the pioneer product’s patent rights.

In the current debate over a regulatory pathway for biosimilars, the issue of data exclusivity has taken center stage. As mentioned above, follow-on biologics would likely not be subject to the patent protections afforded a pioneer product due to the fact that they are by definition similar products, but not exact replicas. For pioneer product manufacturers to protect their investment in research and development, it is important that sufficient data exclusivity is provided to ensure that they will enjoy the same effective protection on their therapies as exist in the small molecule market.

The European Union has had a pathway for biosimilars since 2005. Under the EU’s rules, biologic drugs enjoy 10 years of data exclusivity and may gain an additional year at the end of that period for new indications for a treatment, for a total of 11 years of data exclusivity. In the 111th Congress, two major pieces of legislation have emerged addressing the issue: H.R. 1427 by Rep. Henry Waxman (D – Calif.) and H.R. 1548, also known as the “Pathway for Biosimilars Act,” by Rep. Anna Eshoo (D – Calif.), Jay Inslee (D-WA) and Joe Barton (R-TX).

Chairman Waxman’s bill provides only three years of data exclusivity, with an additional two years available for a product that is a substantially new molecule (although “substantially new” is not defined in the bill.) The Eshoo/Inslee/Barton bill offers 12 years of data exclusivity, with an additional two years available for new indications. The life sciences industry has argued that the longer data exclusivity period is necessary if companies are to remain viable targets for venture capital investment.

Deloitte released a paper, “Avoiding no man's land: Potential unintended consequences of follow-on biologics,” discussing the importance of data exclusivity periods in any pathway for biosimilars in the United States in April. Several governors, including California Governor Arnold Schwarzennegger (R–Calif.), have issued letters of support for Eshoo’s bill. Within the Congress, Eshoo has amassed 101 co-sponsors for her legislation, versus 12 co-sponsors for the Waxman approach.

Yet, there are still substantial push back against the longer data exclusivity window. The Federal Trade Commission (FTC) issued a report last week that questions the need for extensive data exclusivity periods for follow-on biologics. The report stated that, “a 12 to 14-year exclusivity period is unnecessary to promote innovation by pioneer biologic drug manufacturers,” which is the period of time allowed for data exclusivity in Eshoo’s bill. However, FTC Commissioner Pamela Jones Harbour was subjected to critical bi-partisan questioning during a hearing on the report held by the House Energy and Commerce Health Subcommittee, chaired by Rep. Frank Pallone (D-NJ). Pallone, interestingly, is a co-sponsor of the rival bill authored by Waxman that affords only five years of data exclusivity.

The bottom line remains that the life sciences industry will only be able to attract venture capital if investors are confident that the intellectual property attached to the investment is protected. Without appropriate and sufficient data exclusivity for follow-on biologics, the effective intellectual property protections for pioneer products will be curtailed dramatically. Congress should follow Europe’s lead and create a pathway for biosimilars that protects patient health and safety, promotes cost competition, and maintains the United States’ competitive edge for biotechnology research and development.

CHI-Advancing California biomedical research and innovation

Executive Spotlight: Andrew Thompson, Proteus Biomedical

Andrew Thompson, president and CEO of Proteus Biomedical, has lived in Silicon Valley since 1987 and has been working on what he calls “technology-based healthcare companies” since he graduated from Stanford GSB in 1989. Last week I talked with Andrew to hear his views on challenges the industry will face in the coming years and what new technologies are on the horizon that will transform healthcare.

Q: What does Proteus do?
A: We are a company that is pioneering a field that we call Intelligent Medicine. We embed computers and sensors inside proven therapeutic products—drugs and devices—so that you know when you take a drug and know how you respond to it. For example, if you’re a heart failure patient you can track taking your ACE inhibitor, your diuretic, and your beta-blocker. If you’re older, and you have a family member who wants to help you, then we’ll give them reminders and notices so they know whether you’ve taken your medicine. Because you’re a heart failure patient, we can also remind you to do your exercise and give you incentives every day to go for your walk. And because you may need to be on a special diet when you go shopping, we’ll help you select low sodium products. We’ll do all of this for the same price as the drugs you buy now. For one daily price of your medicine you get the drug, the monitoring, the applications and tools, the incentives and the connectivity.

Q: How long do you think until that technology becomes mainstream?
A: Broad adoption will probably happen in developing markets like China first because they can’t afford to replicate the type of healthcare delivery system we have here in the US. We think that Intelligent Medicine can be delivered at low cost compared to delivery systems that rely on lots of physical infrastructure and many high cost professionals. If you think about what I described here, it’s a drug that is a “healthcare delivery system.” It includes all kinds of behavioral medicine tools so you can get your drug, know that you take it, know that you’re responding to it, get coached by your family caregivers and be paid to do all this. Intelligent Medicine empowers the patient and their family to look after themselves and reduce the burden on the professionals. From a health systems perspective, that’s terrific!

Q: What companies do you view as your main competitors?
A: Walmart. What Walmart is doing is to understand that you can be very successful delivering healthcare products and services whilst you monetize the customer around different aspects of their lives. So they’re effectively giving away drugs. They’re providing very low-cost clinics inside their stores and making money because they monetize peoples’ purchase of food and apparel.

We put computers and sensors inside proven drugs. We make use of the Internet and mobile computing and put application layers on top of those proven products. The consumers’ experience of a drug now has an interface on their phone or desktop. I like to use the analogy of Apple. Why does Apple sell songs for 99 cents? Because they monetize hardware and they monetize carriers and increasingly they will monetize other applications. A song to Apple is what a drug is to Proteus. It is content we can repurpose.

Walmart is doing something similar to Apple. They’re taking products, drugs and healthcare services, and they’re repurposing them. It is a way to get people into their stores so that they can spend money on other things. Why does that make sense for Walmart? Because in most other channels, healthcare costs a fortune. If you went to have a routine clinic check at Stanford it might cost $500. Its $19.99 at Walmart and the drugs are basically free. That’s a real innovation.

Q: Who have been your business partners over the years to get Proteus to where it is today?
A: We’ve got a great team. I’ve worked with the same business partner for 20 years, George Savage M.D., who is our chief medical officer. Another co-founder of the company is Mark Zdeblick, who is a Stanford Ph.D. and inventor—he is our chief technology officer. David O’Reilly is our senior vice president for corporate development.

Q: What do you see as major changes the industry will face in the near future?
A: The first thing is the funding environment. I think there will be fewer start-ups and the start-ups that do get funded will raise much larger amounts of capital. There needs to be fewer companies.

Number two, the nature of innovation in healthcare will change dramatically. Innovation in healthcare has to map innovation in the real world and that means things have to get better and cheaper. And the bar for what is a meaningful innovation is going to get much higher.

The third thing is geography. America is going to become relatively less important to companies from a financial perspective and countries like China will become much more important.

Q: What keeps you up at night?
A: That’s a good question. I would have to say that the single-most important thing that I worry about is that we do nothing that harms a patient.

CHI-Advancing California biomedical research and innovation.

Policy Spotlight: The California Budget

Governor Schwarzenegger addressed a joint session of the Legislature on Tuesday to discuss California’s worsening budget situation. He noted that state revenues are down 27 percent from their peak in 2006—taking the total general fund dollars available back to 2001 levels. Adjusted for inflation, the state’s buying power has diminished where it was in 1998. He expressed that voters on May 19th stated clearly that they do not want tax increases, and that the Legislature must cut; he continued to catalogue a list of cuts to public safety, healthcare, and education. The governor also advocated for revisiting public employee contracts and eliminating wasteful state spending, citing the California Integrated Waste Management Board as an example.

Democrats praised the governor for the “can do” tone of his speech, but expressed reservations about the cuts proposed. Speaker Karen Bass acknowledged that difficult decisions lay ahead and that the Legislature must preserve, “some semblance of a safety net.” President pro Tem Darrell Steinberg echoed the speaker’s concerns saying it is the job of the Legislature to, “minimize the ‘harsh’ in ‘harsh realities,’” when it comes to slashing state services.

Former State Senator Sheila Kuehl chimed in to the debate in an essay that argues the governor is misguided about the political message voters were trying to send in voting down the special election propositions. She concludes that Californians favor a balanced approach to rectifying the state’s budget woes and are not behind the Republican intransigence to raise taxes. (Interesting sidenote: Kuehl was appointed to the California Integrated Waste Management Board after terming out in December—and that Board is at the top of the governor’s hit list for budget cuts).

CHI has been monitoring the budget situation, and has provided our membership with a series of updates on the cuts proposed by the governor in his May revise and subsequent proposals. The life sciences industry is in a unique position as the budget negotiations unfold: cuts to public health programs, such as Healthy Families, Medi-Cal, and the AIDS Drug Assistance Program have the potential to seriously affect our bottom line—but so do reductions to various tax credits designed to stimulate research and development and economic growth in the state, and increases to corporate taxation. Cuts to the University of California and California State University systems, as well as the CalGrant Program, have the potential to leave our industry without qualified workers to research, develop, and manufacture new treatments. We will continue to keep our membership informed of the developments in the budget negotiations, and how the taxes and cuts will affect our industry and the environment for biomedical research in the state. In the mean time, if you’d like to share your thoughts on the California budget crisis, email me: engelhardt@chi.org or comment below.

CHI-Advancing California biomedical research and innovation