07-21-2001

LOBBYING: PhRMA Fights Back

Just before a National Republican Senatorial Committee fundraising
luncheon at New York City's elegant 21 Club on June 4, Republican leader
Trent Lott of Mississippi and three other GOP Senators hosted a private
meeting with some important party contributors.


Lott, Charles Grassley of Iowa, Bill Frist of Tennessee, and Judd Gregg of
New Hampshire listened for about an hour as a half-dozen top
pharmaceutical executives, representing such industry giants as Eli Lilly
and Co., Johnson & Johnson, Pfizer Inc., and Schering-Plough Corp.,
laid out a legislative wish list. They highlighted the industry's two top
priorities: In crafting any Medicare prescription drug program, Congress
should avoid government price controls and rely on private health plans to
cover seniors; and Congress should reject any change in patent laws that
would make it easier for generic drugs to get to market.


The meeting "was kind of like a seminar," Grassley says.


The Senators had a message, too. Frist, chairman of the NRSC, thanked the
executives for the industry's record donations to GOP committees and
candidates during the 1999-2000 election cycle, which totaled about $15
million. He reminded the pharmaceutical bigwigs that he was counting on
them to keep the hefty contributions flowing to help Republicans in the
2002 elections.


"It was a low-key pitch," one industry participant says.


Low-key, perhaps, but apparently effective. One week after the New York
event, about a dozen lobbyists for the drug industry feted Grassley at a
$2,000-a-person breakfast at the Madison Hotel in Washington. As the top
Republican on the Senate Finance Committee, Grassley is taking a leading
role in pushing for private-sector delivery of prescription drugs covered
by Medicare.


At a late-June fundraising dinner, the Pharmaceutical Research and
Manufacturers of America, the industry's premier trade association, was
among an elite group of organizations, companies, and individuals awarded
GOP "underwriter" status for contributing at least $250,000 to
help elect House and Senate Republican candidates in 2002. PhRMA's
president, Alan F. Holmer, who had attended the 21 Club meeting, was
seated on the dais with President Bush, congressional leaders, and the
other party underwriters.


It's no secret that the pharmaceutical industry and the GOP have
overlapping interests. Both want to keep the Medicare drug benefit issue
from becoming a political albatross around their necks, as it did in the
2000 campaign when Democrats used Congress's failure to pass a drug
benefit for seniors to help defeat some GOP Senators, and drug companies
took a public pounding.


Led by PhRMA, which represents 108 top drugmakers, the industry is now
playing offense. In response to heavy criticism over soaring prices for
prescription drugs, the trade group has launched advertising and public
relations efforts aimed at the public, the press, and the politicians.
Facing a host of political, regulatory, and legal headaches in Washington,
in the states, and in the international arena, PhRMA has also expanded its
lobbying efforts to push for legislation it likes and stave off measures
it doesn't.


No. 1 Issue


No domestic issue looms larger for the industry than the coming fight over
the shape of a Medicare prescription drug benefit. Along with many
lawmakers from both parties, the industry supports some kind of
prescription drug coverage for seniors-and wants to see the issue settled
before the 2002 elections. However, there are key differences over issues
such as whether the benefit will be managed by private health plans or by
government-backed contractors.


Last week, Bush unveiled his own broad principles of Medicare reform. He
endorsed a Medicare prescription drug benefit for all seniors and,
separately, proposed a drug discount card that would allow the elderly to
begin saving on their drug costs as early as next year.


But with Democrats now in charge in the Senate-and emboldened by their
recent victory on a patients' bill of rights-the industry faces new
political risks to its agenda. Brand-name drugmakers are jittery that at
least one Democratic proposal could lead to price controls.


Even before the Senate power shift, PhRMA's 2000-2001 annual report warned
that the industry was sure to face intense public scrutiny in the coming
fight. "This time, the spotlight is focused squarely and only on
us," says the report, quoting association chief Holmer, a
high-powered trade lawyer and former deputy U.S. Trade
Representative.


In an interview, Holmer expanded on his statement. When he took the reins
at PhRMA six years ago, "one or two issues in each Congress"
concerned the pharmaceutical industry, he says. "Now, it's often one
or two issues in a given month." Moreover, he adds, the pace is
faster, and the issues-such as drug coverage for seniors and
intellectual-property protection-"go to the heart of the industry's
future."


Drugmakers have been "on the downward slide in terms of media, public
relations, public perceptions, and congressional perceptions," says
one outside lobbyist who does work for PhRMA. "The industry has
gotten a lot of bad press, and it seems that, each day, there's a new
headline. I think it's going to be increasingly difficult to win battles.
Everybody's looking at the PhRMA companies as villains. They're really
getting nailed."


Industry critics cite the soaring costs of prescription drugs, a heavy
burden not only for the approximately 13 million seniors with no
outpatient drug coverage but also for 26 million other Medicare recipients
with minimal coverage. Meanwhile, corporations, insurers, and state-run
Medicaid programs-the largest purchasers of drugs in the nation-also feel
the pain of continually rising drug prices.


The average price of a prescription rose by about 10.5 percent last year,
or triple the rate of inflation, according to the nonpartisan National
Institute for Health Care Management Foundation. Total retail spending on
prescription drugs rose almost 19 percent for the second year in a row, as
reported in the same study. Meanwhile, the median drug company profit
margin in 1999 was 18.9 percent, compared with a median of 5 percent for
Fortune 500 companies as a group, according to a Harry J. Kaiser Family
Foundation study.


Drug prices are the fastest-rising component of health care costs and a
major reason for higher health insurance premiums, says Dr. Arnold Relman,
a former editor of The New England Journal of Medicine and a professor
emeritus at the Harvard Medical School. It's not surprising, he adds, that
the drug industry has "become a target like the managed care
industry" for public ire.


A recent annual survey by Harris Interactive Inc., a Rochester, N.Y.-based
polling firm, underscored the industry's PR problems, showing that the
number of Americans who say the drug industry is doing a good job of
serving consumers dropped from 79 percent in 1997 to 57 percent in
2001.


Little wonder that the $130 billion-a-year U.S. drug industry is fighting
back. For starters, in recent months, PhRMA has:


Increased its overall budget to more than $50 million this year-a 25
percent rise over 2000-in order to spend more on lobbying and public
relations, according to sources;


Authorized an education and image campaign that will cost almost 50
percent more this year than the $22 million it spent in 2000. The image
advertisements tout the industry's role in developing new, life-saving
medicines. One target audience: women opinion leaders. The industry says
that such women are potential allies whom it has not cultivated
effectively;


Hired Ketchum, the public relations giant, to develop a $5 million PR
campaign to help explain to Congress and pundits the complex issues
involving patent protections and intellectual-property rights. Ed
Gillespie, a GOP political strategist on K Street, has been tapped to help
promote the drug industry's story to conservative publications and leading
columnists;


Paired former Rep. Vin Weber, R-Minn., a key outside lobbyist for PhRMA,
with Holmer to attend a meeting with Karl Rove, the White House's top
political strategist. The discussion focused on broad concepts for a
prescription drug benefit and Medicare reform. (See sidebar, p. 2318.)
Earlier this year, Holmer and a few industry leaders met privately with
Health and Human Services Secretary Tommy G. Thompson to convey the same
message. And the industry also has old friends in the Bush Administration,
led by former Eli Lilly and Co. executive Mitchell Daniels, who now serves
as director of the Office of Management and Budget;


Reorganized and expanded its lobbying operation. Last year, PhRMA and its
member companies spent $66.8 million on lobbying, according to Common
Cause, a 43 percent increase over four years earlier. New hires include
Scott Olsen, a former aide to Senate Finance Committee Chairman Max
Baucus, D-Mont., who will be pivotal in the prescription drug battle.
PhRMA's outside lobbying team-which already includes such high-voltage
talent as Weber and former Rep. Vic Fazio, D-Calif.-has been expanded,
too. Among the new team members is Nick Littlefield, once a top aide to
Sen. Edward Kennedy, D-Mass. Altogether, PhRMA has some 20 outside
lobbying firms on retainer, including Covington & Burling; Verner,
Liipfert, Bernhard, McPherson and Hand; and Williams & Jensen. (One
outside lobbyist no longer affiliated with PhRMA is Mitch Bainwol, who
worked with Weber and Fazio at Clark & Weinstock. He is the NRSC's new
executive director.)


The lobbying lineup reflects the industry's determination to woo not just
Republicans, but key Democrats as well. Historically, the drug industry
has enjoyed strong support from friendly Democrats in such pharmaceutical
havens as Connecticut and New Jersey. Kennedy, whose home state includes
the famed Route 128 high-tech corridor, is working with a few biotech
companies on his own prescription drug bill. And Baucus was slated to meet
on July 19 with a bevy of industry executives to discuss prescription drug
legislation and the industry's opposition to any program that is
government-run or contains price controls. Baucus would like to begin work
on a bill before the August recess.


To further enhance its legislative access, the drug industry contributed
$20.5 million to federal candidates and party committees during the
1999-2000 election cycle, according to the nonpartisan Center for
Responsive Politics. That was a 107 percent increase from the $9.9 million
it gave during the 1995-96 presidential election cycle. In the most recent
cycle, 74 percent of the industry's contributions went to the GOP, up from
70 percent four years earlier.


Separately, PhRMA member companies dug deep into their pockets in
1999-2000 to underwrite a $60 million-plus advertising blitz by Citizens
for Better Medicare, a coalition created by the drug companies to block
the Clinton Administration's proposals for a drug benefit for seniors,
which the industry attacked as a bureaucratic program that would lead to
price controls.


The stepped-up efforts are necessary, industry officials say, because
longtime drug industry critics are gaining support and are using
more-aggressive and more-sophisticated tactics-and are gaining support. In
particular, brand-name companies cite a more robust lobbying campaign by
makers of generic drugs, who highlight that their products typically cost
consumers 30 percent to 60 percent less than their brand-name
counterparts.


The generic drugmakers' push for legislation, brand-name rivals say, is
tantamount to reopening the Hatch-Waxman Act, the 1984 patent rights law
that struck a balance between the competing interests of brand-name and
generic drugmakers. (Brand-name firms were granted extended patent rights,
while the generics were promised access to those markets when the patents
expire.)


"There's a sense that the intellectual-property issues, including
patent rights, are under attack," says John Jonas, a Patton Boggs
lobbyist who works for drug giants including Bristol-Myers Squibb
Co.


For the industry, drug pricing and patent protection have become global
fights. Nothing has underscored this development as much as the battle by
African countries to get expensive AIDS drugs for less. Activist groups
have highlighted the issue of the pharmaceutical companies' charging
$10,000 to $15,000 for a one-year supply of AIDS medication for one
patient-a regimen that costs about $1,000 to manufacture.


"AIDS highlights not only the intellectual-property issue, but the
moral issue as well," says Jonas, noting that some African countries
have said that they won't acknowledge intellectual-property rights. (See
story on international battles, p. 2322.)


At home, key legislators say rising drug prices are opening the door to
bigger battles in Washington and in the states.


"Brand-name companies are on one side, against those who have to pay
the bills: private insurers, self-insuring companies, or government
programs," says Rep. Henry Waxman, D-Calif., who co-authored the
landmark 1984 patent rights law. "Prices have been accelerating at an
unacceptable rate. I think we're seeing the clash of the titans."
These sharp price hikes have the greatest impact on people who lack
insurance coverage, and Medicaid programs are also facing cost pressures
in many states, Waxman says. (See story on state lobbying fights, p.
2321.)


Ian Spatz, a longtime lobbyist in the Washington office of Merck & Co.
Inc., one of the nation's biggest drugmakers, says the industry has its
hands full: "This is the heaviest agenda of congressional and state
activities ever related to pharmaceutical issues."


Rules of Engagement


Pharmaceutical industry leaders say they're perplexed by their political
plight, given the contributions that new drug therapies have made toward
improving health care. PhRMA's annual report boasts that the industry
developed 370 cost-effective, life-saving medicines in the 1990s, compared
with 239 in the previous decade. In 1999, the FDA approved 40 new
medicines, including two breast-cancer treatments, two drugs for Type-2
diabetes, and a protease inhibitor to fight AIDS.


Furthermore, pharmaceutical company research and development budgets have
soared over the past 20 years; R&D for the industry as a whole reached
$26 billion last year, up from just $2 billion in 1980, according to
industry figures. PhRMA has warned that some reforms that reduce industry
profits could end up stifling basic research.


PhRMA's new ads, which appear on CNN and public affairs shows such as
ABC's This Week, are "more emotional in the way that they connect
with the audience," says Holmer. "The ads underscore that if
you're a patient with a life-threatening disease, your best hope is the
American pharmaceutical industry." The spots, created by PhRMA's
longtime ad firm, BSMG Worldwide, show a woman talking about the drugs
that have helped her fight breast cancer, or feature a father discussing
how new drugs cured his daughter's leukemia. PhRMA, which also has an
expensive print campaign with the message that new drugs save money and
lives, is running ads in National Journal and other publications.


But critics say the companies gloss over rising prices, high profits, and
the ultra-competitive marketing environment the drugmakers have created.
They also challenge the industry's record in R&D, noting that many
important new drugs were developed in recent years in part because of
basic research funded by the National Institutes of Health.


Now, the industry's rules of engagement are changing. According to
analysts, some 200 drugs, with combined annual sales of about $30 billion,
will lose their patents over the next five years. That's good news for the
growing generic drug industry, whose products already account for an
estimated 42 percent of all drugs sold in the United States.


Brand-name manufacturers are constantly vying with one another to see
whose drug for ulcers or whose antihistamine will be the best-seller.
Opponents complain that to keep generic competitors at bay, some
brand-name firms abuse their patent rights, which typically run for 15
years to 17 years, by using legal stratagems to extend them beyond the
original intent of the law.


Last year, the Federal Trade Commission filed cases against three big
brand-name firms, charging that they made payments to generic competitors
to keep the rival products off the drugstore shelves. Two of these cases
have been settled, and the companies-Abbott Laboratories and Hoescht
(which is now called Aventis)-have pledged that in the future they won't
try to delay generic products coming to market. In the third case,
Schering-Plough Corp. was charged with paying $90 million to two generic
rivals to delay the introduction of a less-expensive version of the heart
drug K-Dur. Schering-Plough and the other companies asserted they had done
nothing illegal. Former FTC Chairman Robert Pitofsky, who led these
efforts in the Clinton Administration, alleges that the payments amounted
to "private treaties" and thus broke antitrust laws.


As part of a broader FTC probe into whether brand-name firms are trying to
block generic competitors, the commission has asked a total of 100
brand-name and generic drug companies about their business relationships.
The probe, started under the Clinton Administration, is continuing under
the Bush Administration.


Waxman and Sen. Patrick Leahy, D-Vt., the chairman of the Senate Judiciary
Committee, have introduced bills that would require drug companies to
disclose to the FTC any payments meant to stave off generic
products.


Some of the harshest criticism of brand-name manufacturers stems from the
explosion of so-called direct-to-consumer advertising. After years of
marketing their drugs mainly to doctors, brand-name companies took
advantage of a 1997 Food and Drug Administration decision, which relaxed
restrictions on television advertising, to begin aiming their marketing at
consumers.


Last year, the industry spent an estimated $2 billion on such ads.
Industry analysts say that this advertising, much of it on television, was
a key factor in last year's 19 percent surge in prescription drug
spending. The ads are heavily concentrated on best-selling drugs, such as
the anti-allergy medicine Claritin and the cholesterol-reducer
Zocor.


Relman of Harvard says that many such "me-too" drugs are not
significantly different from other drugs on the market. They are
"often high-priced," he says, "and their benefits are not
worth the cost." Relman sees this heavy marketing emphasis as another
example of how drug companies have become "a controlling power over
the practice of medicine."


Moreover, critics say that a growing number of ads fail to provide
balanced information about the products being sold. Rep. Fortney H.
"Pete" Stark, D-Calif., has introduced a bill that would deny
drug companies the standard corporate advertising tax deductions for any
ads that failed to present risks and benefits in a balanced
fashion.


Holmer vigorously defends direct-to-consumer advertising and insists it
has not caused higher prices. "It's very much in the interests of the
patient and the overall health care system," he says, "for the
patient to be empowered to have more-informed conversations with their
doctors about new treatments." In May, PhRMA sponsored a conference
with Hill staffers to spotlight the medical benefits of direct-to-consumer
advertising.


Rising drug prices have also led some insurance companies to take a more
aggressive stance on cost. Drug companies were rocked this spring when
WellPoint Health Networks Inc., a big California insurer, won a decision
from an FDA advisory committee that high-volume products, such as
Schering's Claritin, should be switched from prescription to
over-the-counter sales, thereby lowering Wellpoint's costs. The drug
companies affected by the committee's decision-Schering, Pfizer, and
Aventis-are expected to fight in court if the FDA opts to follow the
advisory panel's recommendation.


Some critics say that PhRMA's no-holds-barred lobbying tactics have forced
opponents to join forces.


"PhRMA tends to stonewall almost every issue," says Ron Pollack,
the executive director of Families USA, a consumer organization. He says
the industry's actions "have virtually forced strange bedfellows to
join together" on efforts that will reduce prescription drug costs.
Pollack was referring to a coalition called RxHealthValue, which includes
Blue Cross Blue Shield Association, three automakers, the United Auto
Workers union, and consumer groups.


Some observers cite the industry's ferocious battle last year against the
Clinton Administration's Medicare drug benefit proposals and its creation
of the Citizens for Better Medicare coalition as exemplifying its all-out
tactics. CBM ran ads in congressional districts praising supportive
lawmakers and criticizing members who disagreed with industry views. The
ads were the handiwork of Alex Castellanos, who also produced tough ads
last year for the Republican National Committee, attacking Democratic
prescription drug benefit proposals.


CEOs Get Involved


This year, the lobbying battle over prescription drug legislation seems to
be following a different story line. PhRMA and most of its members appear
eager to find a legislative package that calls for private-sector health
plans to deliver drug coverage to all seniors without any price controls.
Industry lobbyists have been working for several months to build support
within both parties on Capitol Hill and throughout the Bush Administration
for their market-based agenda. The White House, which just released its
broad proposal, is considered a strong industry ally.


PhRMA's executive committee of about 18 CEOs meets monthly in Washington
and has been aggressive in making the rounds on Capitol Hill. Board
Chairman Henry A. McKinnell Jr. of Pfizer, Raymond V. Gilmartin of Merck,
and Robert N. Wilson of Johnson & Johnson have been among the most
active industry executives.


"CEOs realize this is a very crucial time for the industry,"
says Fazio. "They want to be as involved as possible because they
think they can make a difference with Congress."


Last year, the industry supported a House-passed bill-authored by Ways and
Means Committee Chairman Bill Thomas, R-Calif.-that offered drug coverage
to seniors, with subsidies keyed to income levels. This year, Thomas and
House Energy and Commerce Committee Chairman W.J. "Billy"
Tauzin, R-La., are working with the White House on a similar bill with a
more generous benefits package, as well as some Medicare reforms. This
year's bill is expected to call for spending of about $300 billion over 10
years for a Medicare prescription drug benefit, a substantially higher
figure than last year's bill.


In the Senate, the industry last year backed legislation that had the
blessing of most Republicans and some conservative Democrats. Co-authored
by Frist and John Breaux, D-La., the bill was similar to Thomas's, but it
also would have introduced private-sector competition into the
government-run Medicare program. This year, the Breaux-Frist bill is being
revised by Grassley.


Although many Democrats oppose private plans' managing the prescription
drug benefits, Baucus has started working with Grassley to craft what he
hopes will be a bipartisan bill; he is using legislation introduced by
Sen. Bob Graham, D-Fla., as his starting point. The Baucus-Graham
framework is expected to offer drug benefits through a combination of
government and private-sector management.


The industry has not ignored liberal Democrats, however. Some PhRMA
companies have been working hard to build support with Kennedy, the
chairman of the Senate Health, Education, Labor, and Pensions Committee. A
potentially important ally, the Senator was warmly greeted last winter
when he attended PhRMA's annual meeting in Naples, Fla. Kennedy has been
working quietly for months with some of the big biotech companies in
PhRMA, including Amgen Inc. and Genzyme Corp., on a bill that lobbyists
say may appeal to both Democrats and Republicans. The proposal would
include a sizable drug benefit package for seniors, along with a
private-sector delivery plan. Industry lobbyist Littlefield, is helping
frame his former boss's legislation.


Over the years, PhRMA and its member companies have made their biggest
campaign contributions to allies on key congressional committees. From
1991-2000, for example, PhRMA and its member companies funneled $192,000
in PAC donations to Thomas-far more than they gave to any other House
member, according to a recent Common Cause study. The industry's Senate
favorites in the same period were Orrin G. Hatch, R-Utah, the top
Republican on the Judiciary Committee, who received $257,802; and Frist,
who received $164,707.


Despite the industry's united front on broad goals, some K Street
professionals warn that the brand-name companies' historical differences
over business strategies could influence their lobbying and dampen the
prospects for victory this year.


A few brand-name companies are lukewarm about a Medicare prescription drug
benefit. The nation's biggest drug company, Pfizer, last year endorsed a
plan to help states provide coverage to low-income seniors who now lack
it, an idea that Bush endorsed during the campaign. But that proposal
doesn't appear to have much backing on Capitol Hill.


"The industry is very competitive," Tauzin says, adding that if
a company "can negotiate a competitive advantage, it
will."


Asked whether he's heard from many drug lobbyists, Tauzin laughs and ticks
off a lengthy list. But he stresses that, despite the companies'
differences, "there's logic in believing [a prescription drug
benefit] can be done this year."


Leaving nothing to chance, the industry has put Citizens for Better
Medicare back to work on extensive grassroots efforts with seniors groups
and the media. Tim Ryan, who used to work at PhRMA and is now CBM's
executive director, has been coordinating the effort out of the offices of
APCO Worldwide, a public affairs firm. CBM's key consultants include
Robert Schooling of APCO, pollster Bill McInturff, and ad man and GOP
political strategist Castellanos.


CBM has created a national network of some 15 field directors, based in
states such as California, Florida, Minnesota, North Carolina, and Texas,
who organize local events and meetings with lawmakers in their districts.
CBM's focus this year has been to generate letters and calls to members of
Congress who sit on the relevant committees.


The industry is also banking on another outside coalition, the Alliance to
Improve Medicare, which includes many patients' rights groups, and trade
associations such as PhRMA. The alliance is focusing on broad overhaul of
Medicare as well as on a prescription drug benefit for seniors.


This year, the coalition has been organizing events both inside and
outside the Beltway, targeting its message to new members of Congress,
says Tracey Moorhead, its director. Former Rep. Tim Penny, D-Minn., is the
group's spokesperson.


The Attack of the Generics and Other Price Fights


PhRMA lobbyists, in addition to working the prescription drug issue, are
trying to counter bipartisan bills aimed at amending some provisions of
the Hatch-Waxman Act that critics say have let brand-name companies hold
onto patents longer than intended and slowed the progress of generics to
the market. The Senate legislation is sponsored by John McCain, R-Ariz.,
and Charles E. Schumer, D-N.Y.; the House bill is sponsored by Jo Ann
Emerson, R-Mo., and Sherrod Brown, D-Ohio.


Among other things, the bills would close a loophole in Hatch-Waxman that
allows brand-name companies whose patents are on the brink of expiring to
obtain 30-month extensions just by filing suits against generic
challengers.


The legislation has gained some traction, as makers of generics have
expanded their lobbying in Washington. Last year, three trade groups
representing the generics industry formed the consolidated Generic
Pharmaceutical Association. The GPA tapped Bill Nixon, a former top aide
to ex-Sen. William Roth, R-Del., as its president.


Despite its modest annual budget of $2 million, the GPA has been hiring
well-wired outside lobbyists such as those in the GOP firm of Fierce &
Isakowitz, and former Clinton Administration health guru Chris Jennings of
Jennings Policy Strategies Inc. The GPA is also expected to raise $1
million to $2 million from its members for a campaign to build backing for
the pro-generics legislation.


Lobbyist Mark Isakowitz says that the generic industry, like the
brand-name companies, has undergone "an amazing evolution from
defense to offense." In 1999, he says, the generics companies
"spent every waking moment trying to stop brand-name patent
extensions," as in the lengthy-and successful-fight to keep Schering
Plough from getting an extension on Claritin. Now, Isakowitz says, the
strategy has changed to "correct the imbalance in the marketplace
that favors the brand-names companies."


Some of the generics firms are cautiously optimistic that Tauzin could be
a budding ally. Tauzin says he's weighing whether to add provisions to his
omnibus prescription drug legislation that would help the generics
industry.


For his part, Rep. Brown is preparing for a big fight with the brand-name
companies. The drug giants "are clearly trying to manage the debate
by throwing money at it-and with some success," Brown says. "The
only way to get Republican members out of the drug industry's pockets is
to have another industry come in and take them out."


PhRMA and brand-name companies are plainly worried that these pro-generics
bills are only part of a broader attack against their patent protections,
which they emphasize are essential for financing their heavy R&D
expenditures. "There's a worldwide effort to munch away on
intellectual property," explains one outside lobbyist for
PhRMA.


And brand-name companies are firing their own warning shot. They regard
the generics bills as a wedge to reopen Hatch-Waxman, and have indicated
they may want some additional patent concessions, a prospect that gives
some generics backers pause.


To get PhRMA's messages out to the Hill, PR firm Ketchum has created a
special Web site called innovation.org, and has produced glossy brochures
on the Hatch-Waxman law. For extra lobbying help, PhRMA recently retained
Hogan & Hartson's David Beier, a former top aide to Vice President Al
Gore who worked on the original Hatch-Waxman legislation.


Meanwhile, the industry is also keeping a close eye on another effort to
curb drug prices. Last year, the drugmakers were caught off guard when
Congress passed a "reimportation" bill. The law would allow drug
wholesalers and pharmacists to "reimport" U.S.-manufactured
drugs that have been exported to another country, particularly Canada or
Mexico, and typically sold at lower prices there than in the United
States.


Still, the industry succeeded in getting an important provision tacked
onto the bill, requiring the Health and Human Services Secretary to
certify that reimportation won't lead to a flood of drugs that fail to
meet U.S. safety standards. Clinton's HHS never implemented the measure
and the Bush Administration's HHS opposes it. Secretary Thompson wrote to
lawmakers in July that the reimportation act would reduce drug safety and
wouldn't save money. A measure that would have permitted last year's law
to be implemented without HHS approval was defeated recently in the House.
Still, on July 11, the House overwhelmingly approved an amendment by Rep.
Gil Gutknecht, R-Minn., that makes it easier for individuals to import
cheaper prescription drugs by mail or via the Internet. PhRMA lobbied hard
against both bills.


As concerned as they are over reimportation and pro-generics legislation,
brand-name companies are betting that the passage of a high-profile
prescription drug benefit could inoculate them against attacks over drug
industry prices.


"The Medicare [drug benefit] is in the center ring," says a
company lobbyist. "And if that happens, people will be less concerned
with the sideshows."


But some congressional staffers think that, even if a prescription drug
bill for seniors is passed, the industry will have to continue fighting
other legislative efforts to rein in drug costs. "The cost of drugs
is going to continue to hound the industry, regardless of what happens
with Medicare coverage," says a top Senate aide. "Prices keep
going up and up and up."


Some critics go further.


"The industry is going to have to learn that pricing and expenditures
for pharmaceuticals are a real, bona fide issue and that they need to be
at the table offering solutions-not outside throwing rocks," says
Stephen Schondelmeyer, who teaches pharmaceutical economics at the
University of Minnesota. "I want a successful pharmaceutical
industry, but if it continues to wear blinders with respect to pricing
policy issues, they're likely to end up with very draconian
measures."


Peter H. Stone

National Journal