Vaccines and antibiotics are being transformed from medicines into ammunition in the war against bio-terrorism, and that is changing how the US government and the drug industry do business.
The Bush administration is ready to spend US$1.1 billion on anthrax antibiotics and smallpox vaccines. To boost the nation's pharmaceutical stockpile, drug companies will have to behave more like defense contractors, industry analysts say, requiring them to balance federal demands against corporate goals.
PHOTO: AP
As public concern about anthrax attacks grows, Washington's demands are increasing. After a few days of hard bargaining, Bayer AG slashed in half the price it charges the government for its anthrax-fighting antibiotic Cipro.
Production pressure
The heads of other major drug companies, including Merck and Co and Bristol-Myers Squibb, have met with Bush administration health officials, who pressed them to speed development and production.
"The industry is facing a delicate balance," said Barbara Ryan, a drug-company analyst with Deutsche Bank Securities in New York. "All things being equal, the companies are prepared to help, but they don't want to set a precedent degrading future returns."
The government position is straightforward. "Our goal is simply to make sure we have access to the drugs we need in an emergency at a fair price to the taxpayer," said Tony Jewell, a spokesman for the US Department of Health and Human Services.
"The industry is just trying to be a good citizen," said Alan Holmer, president of the Pharmaceutical Research and Manufacturers Association, a trade group.
Doing that entails new pressures and risks. "Companies making vaccines are like defense contractors, they are dealing with one big customer," said Mark Pauley, professor of health-care systems at the University of Pennsylvania's Wharton School.
"When the government is your major customer," Pauley said, "you are always one bureaucrat away from bankruptcy." Deutsche Bank's Ryan also says that whatever the companies agree to now could influence a proposed Medicare pharmaceutical program, a major political issue before the Sept. 11 terrorist attacks. "The government is going to be a bigger and bigger buyer of drugs," Ryan said.
Bayer has felt the power of the big buyer in negotiations with HHS Secretary Tommy Thompson for Cipro. When Thompson threatened to ignore Bayer's patent, the German drugmaker on Oct. 24 cut the price for the US from US$1.77 to US$0.95 a pill. The next day its stock dropped 5.7 percent.
Other companies, like GlaxoSmithKline Plc and Johnson & Johnson, went a step farther, donating millions of doses of their antibiotics to the war effort.
Smallpox vaccine
Acambis Plc has ramped up production of its smallpox vaccine and will deliver 54 million doses under a US government contract a year ahead of schedule.
Last Thursday, American Home Products Corp, Aventis SA and Baxter International Inc. said they, too, were ready to begin smallpox vaccine production.
The aim is to stockpile 300 million doses of the vaccine.
Thompson has said he would be as tight-fisted in negotiations with the vaccine makers as he was with Bayer.
"We are taking our lead from HHS. It's really their call," said Lowell Weiner, a spokesman for American Home Products.
Holmer compared these events to the drug industry's mobilization to make penicillin during World War II. At the outset of the war, penicillin was still an experimental drug, but ways to mass-produce it were developed by 1944, ushering in the "Age of Antibiotics." On Friday, leaders of four large drug companies met with Thompson for a second time, and a meeting is being arranged with Tom Ridge, the director of Homeland Security. The industry group included the heads of Aventis, Bristol-Meyer, American Home Products and Merck.
Industry critics on the left and right are worried about the rise of what they dub a "government-pharmaceutical complex." "Seeing CEOs of the top drug companies in one room with the government makes me nervous. You can get a lot done. You can also get a lot of anti-competitive behavior," said Jack Calfe, a health industry analyst at the American Enterprise Institute, a Washington, DC, think tank.
Calfe said he is also troubled by the threats to Bayer's Cipro patent. "The US has been a champion of patent rights.
We've tried to get countries like India, Brazil and South Africa to observe patent rights. What can we say to them?"
Sidney Wolfe, director of the Public Citizen Health Research Group, a Ralph Nader consumer organization, applauded Thompson's tough-nosed negotiations. "We ought to have more of that," Wolfe said. But he also voiced concerns over close ties between the Bush administration and drug-makers. "The pharmaceutical industry already gets huge breaks from the government. It doesn't need anymore," Wolfe said.
Drug companies have long been active in politics. The industry made US$6.6 million in campaign contributions in the last round of elections, and it spends about US$90 million a year on lobbying, according to the non-partisan Center for Responsive Politics.
The government's needs are not limited to anthrax antibiotics and smallpox vaccines. The Centers for Disease Control and Prevention has identified at least five other potential biomenaces, including bubonic plague and Botulium, which makes the deadliest toxin known.
The 1950 Defense Production Act gives the government the power to commandeer manufacturing facilities to meet national security needs.
"There are some people who have called for the government to take over production," said Luciana Borio, a researcher at the Johns Hopkins University Center for Civilian Biodefense Studies.
"But first we are going to turn to industry, and part of the story is going to be whether industry has the ability to be flexible and compromise," Borio said.
She pointed out that a smallpox vaccine developed for the military costs US$75 a dose, while Acambis is providing HHS a similar vaccine at US$1.38 a dose. "If this is done on the Acambis model, it will stay with private industry," she said.
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