Health Care Reform and Biotechnology

If you even occasionally read the news these days, you probably suffer from more than a little health care debate-related fatigue. What I would like to do here, rather than double down on the fanaticism and hyperbole that already pervade the airwaves, is to examine the nuts-and-bolts practicality of the law as it relates to the biotech sector in general, and more specifically, how it affects the sector's most fragile entities: micro-cap biotech start-ups.

To frame this discussion, let's go back to the months leading up to the law's passage. Biotech companies were worried, with good reason, that the government's efforts to curb health care costs would target their expensive therapies for price fixing, diminished patent protections, or both. During legislative negotiations, the Obama administration pushed to limit biotech drugs' patent exclusivity to 7 or even 5.5 years before the gates would be opened to lower-cost, generic competitors. However, the late Senator Ted Kennedy, representing as he did over 46,000 biotech employees working for 480 companies and 120 universities in Massachusetts, objected to this infringement and insisted on the 12 year patent exclusivity that was ultimately enshrined in the law. Senator Kennedy understood the vital role of the profit motive in American innovation, and thanks to his persistence, a biotech company that assumes the great risks and costs of developing a new therapy and succeeds, will:

A) Recover its vast research and development expenditures (estimated at $1.0-1.2 billion per drug),

B) Reinvest profits into its development pipeline and its future growth,

and most importantly,

C) Present the biotech sector to the capital markets as an attractive and worthwhile destination for their investment dollars.

The above discussion, however, is of immediate relevance mostly to companies who are soon anticipating or already generating product sales. How does reform affect the start-up companies, whose best case scenario is becoming profitable after working for 6-10 years on a long-shot drug candidate? The answer lies in the law's Qualifying Therapeutic Discovery Project (QTDP) program, which provides $1 billion to be distributed to certain early-stage research programs, whose commercial potential might be remote, but which nonetheless show "the greatest potential to create and sustain high-quality, high-paying U.S. jobs and to advance U.S. competitiveness in life, biological and medical sciences." Recipients get some combination of grants and tax credits, and among those benefiting are two truly promising companies: RXi Pharmaceuticals and Marina Biotech.

RXi and Marina both pursue the development of therapies based in RNA interference. RNAi is a biochemical pathway whose groundbreaking discovery turned classical genetics on its head and earned Craig Mello and Andrew Fire a Nobel Prize in 2006. Hopes for its therapeutic application are sky-high because, among other reasons, it is considered capable of targeting conditions that are not suitably "drugable" by traditional methods. Here is a cursory break-down of the two companies with regard to their QTDP awards under the health care law:

RXi

• Employees: 27
• Annual Cash Burn: ~$18 million
• QTDP Grant: $977,917

Marina

• Employees: 46
• Annual Cash Burn: ~$25 million
• QTDP Grant: $733,000

At 5.4% and 2.9% of annual cash burn for RXi and Marina, respectively, one might wonder how significant these grants could possibly be. Keep in mind, though, that early-stage companies often subsist on operating cash that will only take them a few months out, and frequently find themselves scrambling for the funds that will see them through their corporate infancy. Grants issued under the QTDP program in fact go a long way toward attracting and retaining talent and buying expensive equipment and supplies. In short, they offer added continuity to vulnerable organizations who may be sitting on breakthrough medicines (Using the grant money, RXi is pursuing treatments for Fibrotic Disease, Age-Related Macular Degeneration, Lou Gehrig's Disease (ALS) and Rheumatoid Arthritis; Marina is targeting Familial Adenomatous Polyposis and Inflammatory Bowel Disorder). Important to note is that these companies are only two of an extensive list of recipients.

Since the health care law began to take shape almost two years ago, it has been derided as a socialist intrusion into the private sector, an unaffordable government hand-out, a sure-fire killer of jobs...the list goes on. I will not purport to understand the full breadth of problems in the health care system, nor how the massive reform law addresses each of them. However, if we examine the law's effect on biotechnology, on which I think I am authorized to comment, the frenzied warnings of apocalyptic job loss and stifled innovation just do not hold water. On the contrary, the law's treatment of the sector is stridently pro-capitalist, not only offering robust protection of mature companies' profits but also nurturing the start-ups that will become the growth engines of the future. The law creates and protects American jobs, and not just for the sake of doing so. Rather, the scientific and technical positions supported by the law are those that will yield the breakthrough treatments of tomorrow, ultimately lowering health care costs and raising the standard of care for a range of terrible afflictions.

Stem Cell Controversy Rears Its Head Again

It seemed as though we had finished flogging this carcass.

In 2007, James Thomson at University of Wisconsin-Madison and Shinya Yamanaka at Kyoto University independently announced the creation of induced pluripotent stem cells (iPSCs), adult fibroblasts to which they delivered four key stem cell genes via viral particles, that when taken up by the fibroblasts, induced them to revert to pluripotency (i.e. the potential to differentiate into any of the hundreds of cell types that make up the human body). Researchers could then hopefully unlock the vast therapeutic potential of stem cells without stoking pro-life objections by destroying viable embryos for the purpose of obtaining embryonic stem cells (ESCs).

Then in March 2009, with the blessing of Nancy Reagan and other moderate conservatives, President Obama overturned the Bush policy which had limited federally funded scientists to work on the few dozen ESC lines already in existence. Dismissing the supposed conflict between "sound science and moral values," Obama's executive order allowed researchers at the National Institutes of Health to pursue work on the myriad other stem cell lines obtainable from the private sector, so long as those lines were generated in accordance with strict ethical guidelines.

The momentum seemed unmistakable. For one thing, technical breakthroughs were subverting the traditional ethical controversy around the issue. And furthermore, a mainstream recognition of the potential of stem cell therapies to alleviate the ravages of Parkinson's, Alzheimer's, spinal cord injury and various cancers seemed to be trumping the political ideology and religious dogma that had put a stranglehold on this burgeoning field of research.

Enter Judge Royce C. Lamberth, appointed to the United States District Court for the District of Columbia by President Reagan in 1987. On August 23, 2010 Judge Lamberth issued a temporary injunction preventing NIH from issuing any new grants for ESC research without a further order from the court. Whereas Obama's 2009 order allowed for the expanded study of ESC lines so long as federal funding did not contribute directly to the destruction of an embryo, Judge Lamberth is not so keen on the distinction, and invokes the 1996 Dickey-Wicker Amendment to insist that insofar as embryo destruction is integral to a given line of research, such study is precluded from any federal funding even at a point far downstream of the actual cell harvesting. The injunction is particularly jarring because it appears even to disallow the funding that was available within the stricter confines of the Bush policy.

Well, then! When I first read this story, my gut reaction was that Judge Lamberth must be politically motivated. The timing seems very suspicious, since old culture wars always seem to flare up during election years. And the argument seems flimsy and short-sighted - Does he really intend to roll back stem cell research to less then what even George W. Bush deemed permissible? But then I took a deep breath and reminded myself that conservative justices have proven before to be dispassionate and even-handed interpreters of the law, and issued rulings that would seem to run counter to their political orientations. The chief example there being Judge John E. Jones III, a Bush appointee, who in the 2005 Kitzmiller v. Dover Area School District trial dealt a devastating blow to religious fundamentalists by ruling the teaching of intelligent design in a public school unconstitutional. As such I will temporarily give Lamberth the benefit of the doubt.

An obvious question to raise here is: If iPSCs can be created uncontroversially, why is it still necessary to hash out the argument over ESCs? The answer is that for a number of reasons that exceed the technical scope of this entry, many researchers deem ESCs to be superior for research and therapeutic applications. You can read about it here. Also on the tip of your tongue is the question of why it matters to apply federal funding to stem cell research if all this promising work could be pursued in the private sector. To that I will answer that pharmaceutical companies will typically sink large amounts of capital into a project only if its commercial prospects are reasonably understood. For the pioneering of a new technology, we often rely on front-end development being conducted at least partially by scientists at NIH or in academia, who do not answer to shareholders and thus have the luxury of a longer-term outlook in their activities. Having said that, on July 30, 2010 Geron Corporation was given the go-ahead by the Food and Drug Administration for the first stem cell trial in humans in an effort to treat spinal cord injury, which has generated immense excitement in the field. Geron will be using ESCs derived from embryos rather than iPSCs.


So with that I put it to the audience. Is Judge Royce C. Lamberth acting on some legitimate legal nuance that has simply eluded the newswires thus far, or is he a bald-face partisan activist? More importantly, why didn't he throw his hat in at some other point in the last fourteen years? As mentioned above, the injunction reads as unforgiving to Bush-era policy as it does to the Obama administration. And lastly, does the promise of ESC therapies justify the destruction of viable embryos, given that those embryos would either be discarded by the fertility clinics in which they originated or frozen for perpetuity?