SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4584 words

COMMITTEE: HOUSE TRANSPORTATION AND INFRASTRUCTURE

HEADLINE: TRANSIT SYSTEM BENEFITS

TESTIMONY-BY: MITCHEL SAYARE, PH.D.,, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,

AFFILIATION: IMMUNOGEN, INC., CAMBRIDGE, MASSACHUSETTS

BODY:
Statement of

Mitchel Sayare, Ph.D., Chairman and Chief Executive Officer, ImmunoGen, Inc., Cambridge, Massachusetts

Testimony Before the House Committee on Ways and Means

Hearing on Integrating Prescription Drugs into Medicare

April 17, 2002

Good morning, Chairman Thomas, Congressman Rangel, members of the Committee. My name is Mitchel Sayare, Ph.D, and I am President, CEO and Chairman of ImmunoGen located in Cambridge, Massachusetts. I am here today representing the Biotechnology Industry Organization (BIO).

This committee has been the driving force for Medicare drug coverage for many years. The Medicare drug coverage legislation this committee reported out in the 106th Congress represented a positive step from BIO's perspective, and the association is pleased that this committee is continuing to work to add drug coverage to Medicare. I am particularly honored to be here to describe BIO's views on Medicare drug coverage issues. Background on ImmunoGen

ImmunoGen, Inc. is a publicly-traded biotechnology company that has anti-cancer drugs in various stages of clinical development for colorectal, pancreatic, small-cell and non-small cell lung cancer. We were founded with venture capital in 1981 and had our initial public offering (IPO) in 1989. Since its inception, ImmunoGen has focused on achieving more effective, better tolerated therapies for the treatment of cancer. The company uses tumor-targeting monoclonal antibodies to deliver highly potent cell-killing (cytotoxic) agents specifically to cancer cells. Two products originated at ImmunoGen are currently in Phase I/II clinical trials under licensing agreements with other companies, but we have no products currently on the market. One product (huC242-DM1/SB-408075) currently being tested is for colorectal, pancreatic and certain non-small-cell lung cancers. The other (huN901-DM1/BB-10901) is for small-cell lung cancer and other cancers of neuroendocrine origin.

ImmunoGen's proprietary tumor-activated prodrug technology (TAP) combines extremely potent small-molecule drugs with monoclonal antibodies that recognize, bind directly to, and kill tumor cells. Our targeted delivery technology increases the potency and efficacy of these cancer-specific antibodies, which allows our drugs to kill cancer cells with minimal harm to healthy tissue.

From inception through December 31, 2001, ImmunoGen has invested over $160 million in Research and Development (R&D). About 80% of the Company's expenses since it was founded have been R&D expenses.

One example of our research demonstrates some of the risk faced by companies in the biotech industry. ImmunoGen invested over $120 million in the development of a product (Anti-B4-bR) that failed in Phase III clinical trials. We are only back on our feet, developing other products for the treatment of cancer, because the investing public was willing to give us another chance. We need to repay their confidence. I am here to urge this committee to keep the fragile state of companies like ImmunoGen in mind when making changes to Medicare. While we are very excited about some of the potentially lifesaving therapies we might discover, we can only do so if we have the ability to continue significant investments in R&D.

About BIO

BIO represents 1,071 biotechnology companies, academic institutions, state biotechnology centers and related organizations in all 50 U.S. states. BIO members are involved in the research and development of health care, agricultural, industrial and environmental biotechnology products. Ninety percent of our companies are involved in health care product development and 90% of those companies do not have a single product on the market. Many more have only one product. Clearly, the vast majority of BIO's members do not have an array of health and/or other consumer products to absorb the cost of R&D; more importantly, many biotech drugs are for small populations. Forty- five percent of FDA-approved biotech products have orphan status.

For many of BIO's members the level of investment in innovation is far from an academic concern and more a question of survival. Most BIO members aren't members of the Fortune 500; rather, they are small companies funded by venture capital, companies that may hold the key to many potentially lifesaving therapies. Anything that could upset the delicate balance these companies live in could deprive patients of these important breakthroughs-because if venture capital investment is reduced, many companies will be unable to survive. The President of NASDAQ recently wrote that a "decrease in investor confidence [in the biotechnology industry] can only result in a decrease in investment dollars, thereby placing critical research at risk." When the Clinton health bill was being considered in the mid-1990s, the growth rate of R&D investment dropped markedly, potentially delaying new products on their way to American consumers. In addition, venture capitalists became less willing to invest in biotech companies, forcing 13 out of 16 companies to withdraw their initial public offerings (IPOs) of stock and their efforts to go public.

During this period, the situation for ImmunoGen was very grave. Investors continually asked me how ImmunoGen could offer a return on R&D investments under a regime of price controls. In order to survive, companies like mine must be able to generate a reasonable return on R&D investments. Imposing price controls could significantly hamper our ability to do so.

Given the unique dependence of drug innovation on capital formation, rather than existing product sales, we, as the biotechnology industry, would be remiss to discuss Medicare prescription drug coverage without briefly addressing some issues related to the formation of that capital.

Biotechnology companies are by definition R&D intensive, and approval processes are often time-consuming. As such, the product development timeframe is longer than in most other industries. In many cases, it takes upwards of 10 years before a product is developed and approved. When, as is usually the case in biotechnology, a company has no product in the market place - and therefore no taxable income - the major R&D tax incentives employed so effectively by other industries simply do not apply. Tax deductions are only theoretical when there is not yet income, and net operating losses cannot be carried forward long enough to apply to profits down the road.

Paradoxically then, the R&D intensive nature of biotechnology makes today's R&D incentives more crucial to apply but less likely to do so. Fixing this "mismatch" would go a long way to improving the investment environment in our industry. Allowing us to continue developing the drugs and therapies that our Seniors rely on to improve and extend the quality of their lives.

Legislation addressing problems in this area has already been drafted, and we look forward to working with this Committee as solutions are further developed.

BIO urges Congress to ensure that any Medicare drug coverage proposal considered or enacted does not upset the delicate balance of the biotechnology industry. Price controls and other non-market solutions could be highly damaging to the industry, and therefore to the patients waiting for cutting edge new therapies.

Over the past two decades, biotechnology has produced 133 drugs and vaccines, and there are 350 more in late stage development. The biotech products that have been approved by FDA are the work of only 71 of BIO's members, only 37 of which are profitable. The biotechnology industry invested nearly $14 billion in R&D in 2000- reinvesting, on average, more than 50% of its revenues into R&D. This is in an environment when most of BIO's members have no product revenues at all-those companies can be said to be investing more than 100% of revenues in R&D. Across all other industries, the average re-investment in R&D is just 4%. The biotech industry as a whole lost nearly $6 billion in 2000.

In addition to the hope of promising new therapies offered by biotechnology, I also want to point out that BIO's members are an important part of the U.S. economy. According to Ernst & Young Report, the biotechnology industry employs more than 170,000 people-this excludes companies that are mostly pharmaceutical in nature. We have employees in all 50 states and add more than $20 billion to the economy annually.

Many biotechnology products are oriented toward treating, preventing and diagnosing diseases of the aging population and are targeted toward small segments of disease categories and thus small patient populations. Recombinant DNA technology has enabled us to target products at the genetic level. Increasingly, new therapies will be designed specifically for unique and small populations. While we expect this to allow for more effective treatments, many with fewer side effects, it will also mean smaller markets over which we can spread the cost of R&D investment.

One example of this type of product is ImmunoGen's huMy9-6-DM1 for the treatment of Acute Myeloid Leukemia (AML). While only 10,000 new cases of AML are diagnosed each year, an estimated 7,200 patients die from AML each year. Most of these patients are older, as risk of having AML rises after age 40 and increases thereafter with each advancing decade.

ImmunoGen expects to file an IND to begin clinical trials with huMy9-6-DM1 in 2003. Thus, we are still several years from the market. While we are optimistic about this product, there are no guarantees and significant risks remain.

The bottom line is that the biotechnology industry, while being a vital part of the current economy and the source for many potential new cures, is still fragile. We would urge you to take care when designing a Medicare drug coverage plan not to upset the delicate balance of the industry.

BIO's Medicare Reform Principles

The issue of Medicare modernization and the proposal to add outpatient prescription drug coverage to Medicare is of high interest to the members of the BIO and the patients we serve. Many of the products in biotech companies' pipelines target diseases that predominantly affect seniors.

Accordingly, BIO believes that the Medicare program should include drug coverage for all Medicare beneficiaries. In recent years drugs and biologics have become an even more integral part of health care, while the drug coverage available to seniors has increasingly included lower coverage limits and higher premiums. BIO strongly believes that prescription drug coverage should be offered to beneficiaries in the context of an overall, market- based reform of the Medicare program, but we believe that seniors need drug coverage now-and comprehensive reform may take years to enact. Thus, we support efforts to enact a Medicare drug benefit in 2002, but we must also continue to work to make Medicare a program that reflects the best of the 21st Century marketplace. BIO stands ready to work with this committee & the Congress to pass Medicare prescription drug coverage legislation this year.

BIO's priority in the debate is to ensure that any steps taken to increase seniors' access to drugs today are consistent with the incentives needed to develop breakthrough medicines to treat the seniors of tomorrow. Consequently, we will staunchly oppose any price controls or non-market solutions.

The following are the full text of BIO's Medicare principles, as approved by our Board of Directors in 1999.

BIO strongly believes that pharmaceutical benefit options should be offered to beneficiaries in the context of an overall, market- based reform of the Medicare program. If interim prescription drug proposals are considered, they should facilitate and not deter the adoption of comprehensive reforms to the Medicare program. As part of any Medicare modernization effort, prescription drug proposals must be designed to:

1) Rely on the private marketplace and competition, not price controls that harm innovation - BIO believes that Medicare benefits - including coverage for prescription drugs and biologics - should be delivered through a decentralized, pluralistic market structure that encourages meaningful competition in order to preserve patient choice, improve quality and encourage innovation. Government regulation should be limited and market-based delivery mechanisms should be utilized. Explicit or indirect price controls that stifle innovation must be avoided.

2) Include stop loss protection and protection of those most in need first - Federal assistance for Medicare beneficiaries should be targeted to those with the greatest economic and medical need in order to focus limited funds where they can have the most impact. Inclusion of "stop loss" coverage in order to protect the financial security of the sickest and neediest Medicare beneficiaries must be a top priority of any Medicare drug proposal.

3) Expand beneficiary choices among private plans - Medicare beneficiaries should have expanded choices of quality health plans and benefit packages that include prescription drug coverage to ensure that all of the elements of modern health care are provided in a system built on the advantages of our market- based economy

4) Improve patient care through innovations in biotechnology - The future of patient care and our ability to prevent, diagnose and treat illness is inextricably tied to innovation in health care. By promoting strong incentives for the discovery and development of innovative new prescription drugs and biologics, America can assure that the new tools of biotechnology are applied as quickly as possible to create medicines for our aging population. BIO believes that such innovation and discovery will generate real savings by reducing the need for hospital, long- term care, and other expensive services and procedures.

5) Maintain Medicare solvency - In the context of over-all market- based reform, we must ensure that drug coverage for Medicare beneficiaries does not jeopardize the financial security of the program. Medicare needs to be modernized in such a way as to assure that it is a fiscally responsible program for the coming generations of seniors.

6) Do no harm to current coverage and reimbursement - A majority of Medicare beneficiaries have some form of drug coverage today. Additionally, Medicare does cover prescription drugs and biologics in certain circumstances. BIO believes strongly that any Congressional action on Medicare prescription drugs must avoid interfering with existing coverage and payment rules for the types of drugs and biologics currently covered by Medicare.

BIO's Recommendations

Based on our principles, BIO has tended to be most supportive of drug coverage plans that focus beneficiaries with very high prescription drug costs, as well as those with low-incomes. We have been the strongest advocate of what many in Congress are calling "stop loss" or catastrophic coverage to cover all or a high percentage of prescription drug costs after a certain level of out of pocket spending. We are encouraged that most of the major drug coverage proposals-from both sides of the aisle-now include some sort of stop loss coverage. We believe that a well- crafted stop loss coverage plan may be an idea whose time has now come, despite the earlier experience of this committee.

Stop Loss Design Issues

There have been a variety of different stop loss coverage plans introduced in various bills in the 106th and 107th Congresses. In our opinion, it is the presence of stop loss coverage that is important-coverage that is important for a variety of reasons.

We support stop loss coverage because we are quite concerned that the fruits of the most promising research that some of our members are conducting are likely to be costly-and we want to be sure the results of this research is widely available. Because of some of the dynamics of the biotech industry discussed earlier, the populations they treat are often small, sometimes very small. Moreover, biological products are often more expensive to produce than traditional pharmaceuticals because biotech products are generally made through recombinant techniques. The reagents and tools necessary to make a recombinant protein are generally more costly than traditional pharmaceutical products. As a result, we expect that some new biotechnology products may be too expensive for many seniors that lack outpatient prescription drug coverage.

While most seniors will not make claims under stop loss coverage, the coverage will provide valuable protection and peace of mind for all by ensuring that high cost therapies are available to those who need them. Stop loss coverage is true insurance against the cost of debilitating, and potentially financially devastating disease. While few people ever have their houses burn down, we all believe that fire insurance is valuable. Senior citizens should have the same protection from the potentially devastating costs of disease.

Other Coverage Design Issues

BIO also believes that all beneficiaries should have Medicare drug coverage with greater subsidies targeted to those with low incomes. We believe that subsidies should be carefully crafted to emphasize the private market. Some low-income subsidies could have the effect of expanding Medicaid-with the corresponding government rebates and price controls the program entails. BIO believes that the private marketplace offers cost control mechanisms that will not threaten research and development investment. Private sector discount arrangements are made in exchange for movement of market share, while Medicaid rebates are unilateral government price controls.

One issue that we at BIO have spent considerable time wrestling with is the gaps contained in some drug coverage proposals between the initial coverage limit and the attachment of stop loss coverage. Since some of these bills contain no subsidies during these gaps, we are particularly concerned about how the gaps will affect low-income beneficiaries.

Current Coverage Issues

In addition to the Medicare drug benefit issues I have just discussed, I would like to spend a moment on some of the current coverage issues facing the biotechnology industry. Many of the treatments available for cancer, hemophilia and other life- threatening diseases are currently covered by the Medicare system because these products are administered in the hospital setting or in physicians' offices.

Medicare Hospital Outpatient Department Reimbursement

A number of changes in reimbursement methodologies have emerged in recent years, and pending additional changes could create more uncertainty in the system. Products administered in the outpatient hospital department prospective payment system (OPPS) have been subject to reduced reimbursement due to the pro rata reduction under the "transitional pass-through" rules. BIO is grateful for the work of the members of this committee in convincing CMS to delay the pro rata reduction until problems with the agency's data could be resolved. Unfortunately, the pro rata reduction implemented earlier this month is still based on inadequate data. This is particularly true for drugs and biologicals because the hospital acquisition costs used to determine the costs subject to reduction are based on faulty estimates. In December, members of this committee on both sides of the aisle urged CMS to resolve this problem in a letter calling for acquisition cost for drugs and biologics to be imputed at no less than 75% (across single source, multi-source and generic products). Unfortunately, CMS never responded to this portion of the committee's letter and implemented a pro rata reduction that we believe has caused inadequate reimbursement for many products.

When addressing Medicare reimbursement concerns, BIO's foremost priority is to ensure that hospitals and providers are reimbursed adequately when using biotechnology products so that they do not have distorted incentives to user lower cost-but potentially less appropriate-means of care. While cost effectiveness must be taken into account, Medicare patients deserve high quality healthcare. BIO attempts to craft its reimbursement policies to ensure that providers receive sufficient payments so that their decisions are based primarily on the most appropriate care for patients and not merely on the cost of the therapies involved. It is with this in mind that we urge you to ask CMS to implement your December request and set imputed hospital acquisition costs at no less than an average of 75% across sole source, single source and multisource drugs covered in the outpatient hospital setting.

BIO is also concerned about some of the decisions CMS must make between now and mid-summer when the methodology for "folding in" current pass-through products into the OPPS is proposed. At a recent town hall meeting, BIO suggested a possible approach to ensure that hospitals are adequately reimbursed for folded in products. We stand ready to work with members of this committee on this important issue. We are particularly concerned that products folded in to the OPPS are assigned to separate payment classification groups and reimbursed based on adequate data. We have called for a system of product-specific ambulatory payment classifications (APCs) with a delay in reimbursement changes until the Secretary can gather adequate data-not only for product acquisition costs, but also for handling and storage costs that are otherwise not reflected in the OPPS.

Physician Reimbursement for Products Medicare Currently Covers

Products that are physician administered also need to have a stable reimbursement path so that companies can be sure that there is a market available for their products among Medicare beneficiaries before investing the hundreds of millions of dollars it takes to bring a new medicine to market. Changes to Average Wholesale Price (AWP) must be carefully crafted to ensure that patients continue to have access to biotech products and providers are adequately reimbursed for handling, storage and administration costs. These administration costs are unique for biotech drugs in that most require refrigeration and other special handling requests.

Impact of Reimbursement Problems on Research

I applaud recent increases to government funded biomedical research. It's been said many times before, but this research could help to find cures or treatments for many life-threatening illnesses, continuing a golden age of medicine. Government funding through the National Institutes of Health (NIH) and new biodefense funding will provide investment into the basic research that underpins new treatment, but applied research will be necessary to bring new medicines to market. It is companies like mine, and other BIO members that do the applied research needed to convert basic theories into useful new products. However, we will not have success doing this in an environment where government reimbursement policy removes the incentive for investors to fund new innovation. It would be ironic, to say the least, for government reimbursement decisions to cause the funding for applied research to dry up at the same time that new funding is being infused into basic biomedical research.

I would urge this committee specifically to move carefully when making changes to current Medicare reimbursement formulas discussed above to ensure that payment to hospitals and providers accounts for the unique handling and storage costs that are associated with biotechnology products. In general, members of Congress should take care when trying to extract new budget savings from the biotech and pharmaceutical industries. Companies like mine may not survive if new government rebates and price controls hamper investment in new medicines. Investors must know that there are stable coverage and reimbursement rules at the end of the R&D pipeline in order to keep investing in discovery research.

Moving Forward on Medicare Drug Coverage This Year

BIO believes that it is important to move forward this year with a new drug benefit for Medicare beneficiaries. Unfortunately, a BIO member made this same testimony last year, but this year it is even truer! The Medicare benefit package becomes more antiquated with each passing year, and we believe that the time is now to at least begin the process of bringing drug coverage to senior citizens and the disabled.

We believe that the best plans will emphasize stop loss coverage and subsidies targeted to those most in need, as the best interim steps toward more comprehensive coverage for seniors and the disabled. Based on the numbers CBO has provided in the past, we believe that stop loss protection, and some level of subsidies could be affordable. Such a plan would also provide benefits to all Medicare beneficiaries, since all would benefit from the peace of mind that stop loss coverage would offer. Moreover, by taking over some of the risk of rising drug expenditures, government subsidies for stop loss coverage could make primary prescription drug coverage more affordable for seniors.

BIO prefers comprehensive drug coverage in a fully modernized Medicare program. We still think it is important to take the first steps now so that a fully modernized Medicare program can be ready before the new influx of baby boom generation beneficiaries arrives.

Benefits of New Biotechnology Products

Sixteen new biotechnology products were approved in 2000. Of the 350 products currently in the pipeline, many are targeted toward Alzheimer's, Parkinson's, cancer, diabetes, osteoporosis and other diseases of aging. The products that make it through clinical trials will be on market before baby boomers retire. BIO's first priority after bringing these new therapies to market is to make sure that patients have access to these new medicines that may save lives and improve overall health and quality of life.

These new products, by reducing hospitalizations and improving overall health could generate savings in the health care system. They will allow people to remain productive longer, with potentially corresponding economic benefits. While we understand that CBO may find these savings difficult to score, we are firmly convinced that they will represent a net benefit to patients in the United States and around the world.

Conclusion

In closing, Mr. Chairman and members of the subcommittee, I invite you to think of a future without Alzheimer's Disease. Think of a future without Parkinson's Disease, without leukemia. Think of a future where cures are targeted to patients where treatments can be highly effective with very limited side effects. In the biotechnology industry, we firmly believe that these hopes will be realized. However, in order for these visions to become a reality, we must continue to invest heavily in the research and development of new and potentially lifesaving therapies. Moreover, in order for new treatments to have any benefits, the patients who need them must be able to obtain them. This is why BIO believes that coverage and stop loss protection are so important.

Mr. Chairman, I want to commend you for holding this very important hearing, and for your leadership on drug coverage and stop loss coverage issues. I will be happy to attempt to answer any questions you may have.



LOAD-DATE: April 18, 2002