http://www.nytimes.com/2001/11/04/business/04PHAR.html

November 4, 2001

DRUG INDUSTRY

A Muscular Lobby Tries to Shape Nation's Bioterror Plan

By LESLIE WAYNE and MELODY PETERSEN

ith anthrax spores turning up all over Washington, plenty of people are heading out of town.

Not those in the drug industry.

Executives of the major pharmaceutical companies have been hopping trains and planes to the nation's capital, where they are staging an enormous lobbying campaign, at the highest levels of government, to help shape the nation's bioterrorist plan — and beyond.

So far, they have had some remarkable victories. While the government has struggled to make sure the nation will have enough drugs to treat biological weapons that were largely hypothetical a few months ago, drug companies have managed to stave off many actions that would harm them, like violating patents or forcing them to supply free drugs.

As that success shows, the pharmaceutical lobby, which represents the nation's biggest drug makers, from Eli Lilly to Pfizer (news/quote) to Merck (news/quote), is both large and politically adroit and, if anything, more sophisticated than when it gained fame in the early 1990's for helping to defeat the Clinton administration health plan.

It has more lobbyists than there are members of Congress — 625 who are registered. It had a combined lobbying and campaign contribution budget in 1999 and 2000 of $197 million, larger than any other industry. Now it is harnessing those resources to influence major policy decisions being made by the Bush administration that may well influence public health issues and industry profitability for years to come — much to the dismay of many consumer groups and others.

"When you've got this access to high places, it will encourage these guys to coordinate instead of compete," said Jack Calfee, a health care expert at the American Enterprise Institute, the conservative research group. "It's more likely to forestall getting good products than to encourage it."

Because of the anthrax scare, and all the attention given to Cipro, the anti-anthrax drug of choice, that access has been enormous. In recent weeks, the chief executives and other top executives of Merck, Bristol-Myers Squibb (news/quote), Bayer, Pfizer, Eli Lilly and Johnson & Johnson (news/quote), along with trade association officials, have been meeting regularly with Bush cabinet members. On one occasion, with executives from other industries, pharmaceutical executives met with President Bush in New York to discuss the administration's response to terrorism. Drug company executives have offered to send scores of industry scientists, now on their payrolls, to work in government agencies in what the industry calls a gift to the nation, but critics say it is both a conflict of interest and a way for the industry to get a toehold in government.

In return, at these top-level meetings, industry executives and lobbyists are seeking exemption from antitrust regulations, reduction of the timetable for getting new drugs to market for treating the ills of biological warfare, and immunity from lawsuits for any vaccines they develop to combat bioterrorism. The administration, those in the meeting say, has offered other help, asking the pharmaceutical executives to identify the regulatory barriers they would like to see eliminated for this fight.

Last Wednesday, for instance, a dozen industry lobbyists and executives, among them Peter R. Dolan, chief executive of Bristol-Myers, and Raymond V. Gilmartin, chief executive of Merck, met for an hour and a half in the Roosevelt Room of the White House with Tom Ridge, the director of homeland security. According to one person at the meeting, Mr. Ridge was so impressed with what the industry executives said that he responded: "I'm grateful for your offers of assistance. I accept."

That , according to the meeting's participant, reflected "a true partnership between the federal government and America's pharmaceutical companies."

Industry executives say they are just trying to help. "We are part of the nation's defense system," said Mr. Dolan, who has met with President Bush in New York and with Tommy G. Thompson, the secretary of health and human services, and Mr. Ridge in Washington. "As an industry, there is a real opportunity for us to give our resources in a time of great need."

But that partnership is troubling to some industry watchdog groups. They say the cozy relationship threatens to compromise regulatory standards on new applications of medicines at a time when millions of Americans may be seeking new drugs and vaccines. They worry that the industry's efforts to present its proposals as patriotic gestures mask an effort to increase its power in Washington and to improve its image while still protecting its financial interests. Critics also say consumer groups and executives from generic drug companies, which make cheaper copies of well-known drugs, have been conspicuously absent from any administration meetings.

"I am concerned that the industry is trying to subvert the normal regulatory process," said Dr. Sidney Wolfe, director of the health research group of Public Citizen, a Washington research organization. "These meetings have no transparency, no openness nor any involvement of the public. It's a dangerous precedent."

The pharmaceutical industry, of course, has not always had its way. Some of its efforts to speed federal drug approval have failed. Federal regulators are actively investigating several companies' attempts to keep generic drugs off the market and are taking a harsh look at some marketing practices.

There is no lobby in Washington as large, as powerful or as well-financed as the pharmaceutical lobby. Battle-honed over a number of health care initiatives that began with the creation of the Medicare program in the 1960's, the industry spent $177 million on lobbying in 1999 and 2000 — a good $50 million more than its nearest rivals, the insurance and telecommunications industries.

Thanks to Washington's well-oiled revolving door between government and business, the industry is able to claim friends in especially high places. Defense Secretary Donald Rumsfeld is the former chief executive of the drug maker G. D. Searle, for example, and Mitchell E. Daniels Jr., the White House budget director, is a former Eli Lilly executive.

Even more important, more than half the drug industry's 625 registered lobbyists are either former members of Congress or former Congressional staff members and government employees, according to a report from Public Citizen. Former members of Congress who now work for the industry include Beryl F. Anthony Jr., Birch Bayh, Dennis DeConcini, Vic Fazio, Norman F. Lent, Robert L. Livingston, Bill Paxon, Robert S. Walker and Vin Weber. While in Congress, many of them led key legislative committees, and they still have close ties to those now in power.

Along the city's fabled K Street corridor, 134 lobbying firms are on the industry's payroll. One company, Bristol-Myers Squibb, has hired 15 lobbying firms with 57 lobbyists, including such superstars as Haley Barbour, a former chairman of the Republican National Committee, and Thomas H. Boggs Jr., the city's legendary Democratic lobbyist and son of the former Louisiana representative Lindy Boggs (and the late Hale Boggs, a former Democratic House majority leader).

The industry has also hired such up-and-coming lobbying rainmakers as Deborah Steelman, a powerful Republican insider, and Anthony Podesta, brother of President Bill Clinton's former chief of staff.

On top of that, the industry makes generous campaign contributions — giving much more to Republican politicians than to Democrats. Of the $26 million that the industry donated in the presidential election cycle, nearly 70 percent went to Republican candidates. Last January, the industry wrote a $625,000 check — one of the biggest — to the Bush-Cheney inaugural committee.

One of the industry's staunchest critics, James Love, the director of the Consumer Project on Technology, who works to get low-priced AIDS drugs to poor countries, called the industry's drive for government contracts for medicines against bioterrorism "a feeding frenzy."

"They are putting together another gravy train to cash in on some big government contracts," Mr. Love said.

With Americans spending more than $100 billion on drugs last year — double the amount of 1990 — and with public pressure increasing for pharmaceutical companies to lower their prices, the companies concluded quickly that they had to become an active participant in the resolution of the nation's crisis. Executives have gone to great lengths to say that they are not going to profit from it. They point to the fact that Bayer, under pressure from the government, reduced the price for government purchases of its anti-anthrax antibiotic, Cipro.

At every opportunity, they have also noted that they plan to give away additional drugs and vaccines to the government fight bioterrorism — albeit with some important strings attached. The medications would be made available only if the government agreed to speed the process that would allow existing drugs to treat anthrax and only if there was a national emergency.

"It's very unusual for our industry to get a large number of chief executives to come to Washington on short notice," said Alan F. Holmer, chief executive of Pharmaceutical Research and Manufacturers of American, the industry's trade group. "But it reflects our overwhelming desire to do whatever we can to address these issues. This is not about profits. It is not about patents. It is about making sure we have an adequate supply of medicines available to the American people."

Not so fast, critics say. They say the drug industry is trying to stockpile good will at a time when it badly needs to improve its image in Washington. For years, the industry has been roundly criticized for putting profits ahead of people when, for example, it has blocked or stalled the production of cheaper, generic drugs. Criticism comes most loudly from senior citizens and health care providers.

The drug industry needs this political capital both now and the future — especially when it comes to patents. For the industry, the protection of patents — which give companies monopoly control over the drugs they bring to market for a number of years — is basic to their existence. For them, any threats to that protection, even at a time of national crisis, is a clarion call to action.

"This is a huge issue to them," said William Nixon, chief executive of the Generic Pharmaceutical Association, which battles the large drug companies with a budget of about $2 million a year. "They will do everything in their power to maintain their monopoly. There is no question of that. And that's what made Bayer and Cipro so important to them. It could be perceived by them as the crack in the dike that they have been trying to put a finger in. They didn't want this to escalate."

Companies are fighting so hard to protect their patent rights in part because they have so few drugs with large potential that will move from development to the market over the next several years.

By 2011, brand-name drugs with more than $40 billion in annual sales are expected to go off patent; they can then be sold by generic drug makers at prices of, say, 70 percent less. Last year, the Food and Drug Administration approved just 27 new drugs, down from 35 the year before and about half the number approved in 1996. To prevent huge drops in revenue, drug makers need to hold on to their patent protections for as long as possible — or even extend them further.

The industry is also hoping that its effort will build political capital for legislation pending before Congress and later as well. At the moment, industry lobbyists, among them Mr. Boggs, the Democrat, and Mr. Barbour, the Republican, are swarming through the halls of Congress because the House is about to consider a Senate-passed bill to extend the industry's monopoly patents by six months on many existing drugs — a measure that could reap billions for the industry but cost consumers. Also on the horizon are trade talks in Qatar that will deal with patent rights and a battle over prescription drug benefits in Medicare.

"The industry has been under the gun and losing the public relations war," said Ira S. Loss, a drug industry analyst for Washington Analysis, which provides research for institutional investors. "The drug industry has been pointed to as a major reason for the rise in health care costs. They are trying to position themselves for the future and to be able to say: `We are not the bad guys. When the country was in a crisis, we stepped in and were willing to donate our products.' "

But Mr. Loss says, there is less than meets the eye to the industry's offer of free medications. Johnson & Johnson, GlaxoSmithKline (news/quote), Bristol- Myers Squibb and Abbott Laboratories (news/quote) have all made offers of free medications to fight bioterrorism — should the government speed these drugs through the approval process.

"It's a very contingent offer," Mr. Loss said. "If they get the approval and if there is a national crisis, they will provide it for nothing. You have to have two ifs for it to work."

And there may have been another motive for the corporate offers. Drug makers depend on patents to help them recoup their research and testing costs, but once those costs are recovered, the high prices they charge for patented drugs give them operating margins that are among the highest in corporate America.

Several of the offers of assistance came a day or two after Mr. Thompson, the health secretary, threatened to seek Congressional approval to break Bayer's patent for the anthrax drug Cipro if Bayer did not lower its price for the drug. A few days earlier in Canada, the government had momentarily overridden Bayer's patent by ordering a generic version of Cipro from another company.

The drug companies say their offers of free drugs had no connection to Mr. Thompson's comments on Cipro's patent. "We only wanted to be as helpful as we can," said Jeffrey J. Leebaw, a spokesman for Johnson & Johnson.

In the end, Bayer backed down and agreed to reduce the price of Cipro tablets to the government to 95 cents a pill from $1.77 for the first 100 million, to 85 cents for the second 100 million and to 75 cents after that. It also agreed to increase production.

Still, while these price reductions will dent Bayer's profits, they pale next to the $800 million the company could have lost, according to analyst estimates, if the Cipro patent had been overridden. Sales of Cipro, Bayer's best-selling prescription drug, were $1.6 billion last year out of total pharmaceutical sales of $5.8 billion for the company, which is based in Germany. Stewart Adkins, a Lehman Brothers (news/quote) analyst in London, said the cut in price for Cipro would reduce Bayer's profit margin on the drug to 65 percent from 95 percent.

"Bayer will still be doing O.K. on it," Mr. Adkins said. "If Bayer lost the patent protection and the drug could be sold in the U.S. at generic prices, it would have been devastating for the company."

In the last few days, as Congress has debated a patents measure, the industry has been pulling out the stops to renew a law that provides the pharmaceutical industry with a six-month extension on patents in return for the drug makers' agreement to do more testing of drugs for pediatric use.

Consumer groups say the bill would require the drug companies to do little new research but would cost consumers $14 billion over what generic equivalents would cost. On Cipro alone, for instance, Public Citizen, the consumer group, estimates that Bayer would get an additional $357 million in business that it could have otherwise lost to cheaper generic drugs.

Fighting the hardest is Bristol-Myers, which is also seeking a three- year extension on the use of Glucophage, a diabetes medicine, based on studies of the drugs on children. Analysts estimate that the company could reap an additional $1 billion in sales for every six months the patent is extended.

Eli Lilly, meanwhile, is lobbying Congress to overturn guidelines that limit the use of its antipsychotic drug in Veterans Administration hospitals — over the strong objections of some government doctors in those hospitals. They contend that it would be a "dangerous precedent" for Congress to start telling them which drugs to prescribe.

"This is a great time to buy some good will," said Jake Hansen, a lobbyist for Barr Laboratories (news/quote), which wants to make a generic version of Glucophage, the Bristol-Myers diabetic drug. Under "normal times," Mr. Hansen said, "the press would be having a field day" over the patent- extension issue now in play.

But, with the attention on anthrax, big pharmaceutical companies "know they are not under as much scrutiny," he said, adding "and they are taking advantage of that." 

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