Lemonade 101

Sep 01, 2009

Dear Representative Waxman:


Sander A. Flaum
I'm sure you've heard by now about the successful late-stage clinical trial of Benlysta for the treatment of lupus—a life-altering autoimmune disease that affects about 5 million people around the world and 1.5 million in the US. Benlysta is the first new lupus treatment in 40 years, and its novel mechanism has the potential to treat the disease more effectively than anything on the market.

You also know that Benlysta's success did not occur overnight; nor did it come out of a single lab. Many pharmaceutical companies spent millions of dollars to find a new treatment for lupus. Benlysta is the result of a long process and a collegial but competitive race fostered by the publication of experimental data and driven by the free market. It is the work not of one company, but of one industry.

Today, that industry is in trouble. Without support from people like you, and the opportunity to compete fairly and openly, the pharmaceutical industry will be forced to scale back its efforts to formulate new treatments. If stifled, companies will divert their limited resources to drugs that sustain them, not the health of their countrymen. And millions of Americans will suffer as a result.

It doesn't have to be this way. The pharmaceutical industry can overcome incredible obstacles—but only if it is allowed the resources to do so. Regrettably, you have been instrumental in limiting those resources.

In the last 34 years, your systematic bashing of the pharmaceutical industry has accomplished much. In 1984, the passage of the Hatch-Waxman Act laid the groundwork for the generic drug industry, a sector whose noble goals have been corrupted by an environment that ultimately suppresses development of new drugs. Later, by turning public opinion against one of the world's most important sources of medical breakthroughs, you helped inhibit research and innovation. Because of your negative rhetoric and subsequent legislation, Big Pharma has been forced away from projects that might benefit the greatest number of people, and pushed instead toward higher margin markets that ensure their own financial survival. As a result, the American people have not seen a new compound for lowering cholesterol in the last five years. They have seen only one new anti-hypertension drug and no new antibiotics. It's tragic that industry has not produced a single breakthrough in these categories for years. And it's tragic that Congress doesn't consider that a problem.

If your committee held a hearing on the matter, you might discover that you, Senator Grassley, and the insurance companies have severely limited the funds for research and development in these key therapeutic areas. By pressuring doctors to prescribe generics, whether or not they are the best choice for the patient, you have created an artificial market force that places irrational limits on demand and stunts growth in the industry.

In addition, your demand that pharma companies trim $63 billion from their collective budgets—so that you may reverse the 2006 shift of a subset of patients from Medicaid to Medicare—is not in the best interests of public health. Not only will the move slash industry resources for research and development during an economic downturn, it will also drive up the cost of small-market drugs.

Your plan to open the biologics market to generics competition is equally flawed. Research and development in cancer treatment is at a critical stage. Scientists are moving forward, but they need more resources—not fewer. Cutting off an industry revenue stream because you feel that the treatments for heart disease and cholesterol are somehow "good enough," is one thing, but stranding hundreds of thousands of cancer patients who are not responding to current treatments is quite another. We owe it to those patients to keep trying. But we can't do it without your help.

I implore you, Mr. Waxman, to rethink these issues. Despite the fact that you've turned pharma into Public Bogeyman Number One, prescription drugs account for only about 11 percent of US healthcare spending. And most of that—about 7 percent of the total—represents sales of generic drugs. In other words, the branded drug industry, the engine for innovation in life saving technology, now represents only about 4 percent of healthcare costs. I encourage you to ask your friends, family, and constituents if they believe that is too much.

We have an opportunity to help restore American pharmaceutical innovation, and as the chair of the House Energy and Commerce Committee, you are in a position to play a critical leadership role. By encouraging innovation that will help patients and drive the economy, you can bolster your political legacy and help save millions of lives.

Sander A. Flaum is managing partner of Flaum Partners and chairman, Fordham Graduate School of Business, Leadership Forum. He can be reached at