Where They Stand on Drug Imports: VCs for Bush –

Lost in the war of words over the war in Iraq and the U.S. economy is whether the United States should import cheaper drugs from Canada and Europe. Sen. John Kerry has come out in favor of the idea, while the Bush administration has come out against it, raising concerns about whether imported drugs would be safe.

On this particular issue, the thinking of venture capitalists is more in line with that of President George W. Bush. When VCs head to the ballot box, they will have to balance where they stand on this issue with one that they largely support but that Bush opposes: removing federal funding restrictions on embryonic stem cell research.

The Food & Drug Administration is studying drug importation, and the issue is one that should be watched carefully by venture capitalists, says David McIntosh, a partner in the Washington, D.C., office of the law firm Mayer Brown Rowe & Maw. At first blush, lowered drug prices would seem like a great benefit to Americans, particularly the elderly. But McIntosh and others are concerned that allowing drug importation will undermine America’s development of new pharmaceuticals. Furthermore, says McIntosh-who served in the first Bush White House and helped draft that administration’s policy on biotech-importing drugs will weaken U.S. patent protections and make investment in biotech a less desirable venture.

“Incentives will be reduced for biotech and pharma companies to engage in research and development and for venture capitalists to invest needed funds in startup biotech firms,” McIntosh says.

The FDA is already under the gun on this issue. During the summer, Illinois announced that it would help its citizens buy drugs from Canada, and Vermont announced plans to sue the FDA for the right of its residents to buy drugs from the Great White North. Also, mayors and governors from Alabama to North Dakota have helped their constituents obtain more affordable drugs from Canada via the U.S. mail. Such purchases are illegal, but so far, the federal government has not prosecuted.

The cheaper Canadian drugs are the same ones sold at higher prices in the United States. But Canada has a policy of controlling drug prices through its national health insurance system.

Kerry Says

“I call on the president to do what he should have done in the first place; I call on the president to get out of the way of Americans being able to import drugs from Canada at a lower price,” Kerry said to a gathering of 300 elderly at a forum in Nevada in August.

Not so fast, is the refrain from the Bush administration. “Terrorists might try to attack the domestic food and drug supply, particularly illegally imported prescription drugs,” acting FDA Commissioner Lester Crawford told the press in August. Crawford said the possibility of such an attack was his most serious concern about the increase in states and cities importing drugs from Canada to save money.

Bush Says

Following Kerry’s speech in Nevada, Rep. Bill Thomas, chairman of the House Ways and Means Committee, spoke to reporters on a conference call organized by Bush’s campaign. On importing drugs from Canada, Thomas said the idea holds some appeal but is more complicated to institute than Kerry suggested and might lead to Canadians jacking up drug prices and erasing potential savings.

Despite this recent rhetoric, the Kerry and the Bush campaigns have been almost non-vocal about the FDA during the presidential race. However, what to do with the agency will certainly be a point of interest for either administration during the next four years. Deborah Stone, a health policy expert at Dartmouth University, suggests it’s not the drugs that the United States should import; it’s the Canadian policy on price controls. However, McIntosh and some other VC experts worry that price controls would crush biotech investments.

Bush is unlikely to use the FDA to institute price controls, if history is any indication. The Medicare Modernization Act that the Bush administration pushed through Congress last year prohibits Medicare, the largest purchaser of pharmaceutical drugs, from negotiating cut-rate bulk prices. Again, the issue is one of providing more affordable health care and available drugs to Americans. No one is talking about how price controls will affect venture capital and innovation. Sen. Kerry has said that, if elected president, he would likely try to make changes to the Medicare bill, though the Democrat has not specifically talked about reforming the FDA.

Speeding Drugs

Besides price controls on drugs, Mark Heesen, president of the National Venture Capital Association, is concerned whether the FDA will work at improving the drug approval process during the next four years. Heesen is worried that Kerry would naturally appoint a new FDA commissioner who would want to institute more research and due diligence into the drug approval process, thus slowing the time it takes for new pharmaceuticals to come to market.

Heesen notes that it’s no accident that the drug approval process has gotten quicker and more efficient during the last four years, just as more VC funds are sprouting up to invest in life sciences. “Many VCs would say it’s just not worth their time to invest in a pharmaceutical company if the time it took for the them to realize a return on their investment is lengthened by a slowed drug approval process,” he says. “Definitely, the time it takes to get a drug to market is going to affect the bottom line of VCs.”

However, others say it is unlikely that Kerry would slow the approval process. McIntosh notes that it was a Democrat who helped to make the drug approval process more efficient. “I’m a partisan Republican, but I have to give praise to the Clinton administration for helping to reduce the time it takes for drugs to come to market,” says McIntosh, whose wife was a delegate at the Republican National Convention.

During Clinton’s first term, it took an average of nine to 10 years for the FDA to allow new drugs to hit the market. During Clinton’s second term and Bush’s first, the average fell to six or seven years, McIntosh says. He adds that the average could be reduced even more, say three to five years, under either a Bush or a Kerry administration.

As of early September, Bush had not made any indication he was ready to nominate a candidate to replace acting commissioner Crawford in the top post of the FDA. Any hypothetical Kerry nominee would likely share with a Bush appointee a desire to quickly get new drugs to market. Where their two choices for FDA commissioner would differ is on stem cells. And it’s been argued by some Bush critics that he could use a new FDA appointee to call back the approval of RU 486.

Sides Are Similar

Brenda Gavin, managing director of Quaker BioVentures, says criticism of the FDA and its acting commissioner is probably not warranted in the venture community. “The FDA is in a tough position, but is performing quite well,” Gavin says. “If they approve new drugs too fast or slow, they’re criticized either way in the court of public opinion. But all the companies I’ve dealt with have positive opinions of the FDA, regardless of who’s in the White House.” Trials take time, Gavin says, and it’s doubtful that a Bush or Kerry-controlled FDA would have a negative impact on the drug approval process.

Kerry is from Massachusetts, a state known for technology development and a healthy venture capital community, and that colors his views, says Joe Bartlett, an attorney in the New York City office of Fish & Richardson. “You can count on Kerry on being sensitive to biotech and taking a keen interest in supporting early stage life science companies if he’s elected,” Bartlett says. How that would translate at the FDA is another matter.

Changing a culture of an agency and the way it does business is harder than anyone thinks, even if Kerry appoints a new FDA commissioner, Bartlett says. “The more things change, the more they stay the same,” he says. “Whomever bets on the status quo happening at the FDA after the election will probably win the bet.”

In truth, whether Kerry or Bush win in November, little may change at the agency, since it is probable that Republicans will keep their majority in the U.S. Congress, says Shawn Terry, managing director of MHT Partners. In either a Bush or a Kerry scenario, Terry doubts that significant shifts in policy will occur at the FDA.

“Both candidates are likely to continue to push for policies generally supportive of the biotech industry, such as including expedited drug approval processes,” Terry says, “But given the strong focus on foreign policy in this election and the likelihood of continuing Republican control of Congress, major domestic policy shifts are unlikely to happen no matter who wins the presidential race.”