Posted on: Monday, November 5, 2001

Drug firms face new dilemma

By Mark Jaffe
Bloomberg News

NEW YORK — The Bush administration wants to spend $1.1 billion on anthrax antibiotics and smallpox vaccines, and that is changing how the U.S. government and the drug industry do business.

To boost the nation's stockpile, drug companies will have to behave more like defense contractors, industry analysts say, requiring them to balance federal demands against corporate goals.

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, and Bush administration officials have pressed other major drug companies to speed development and production.

The government demand for such pharmaceuticals is forcing the industry to balance a desire to help against a need to remain profitable. Mark Pauley, professor of health care systems at the University of Pennsylvania's Wharton School, noted, for instance, that "when the government is your major customer, you are always one bureaucrat away from bankruptcy."

Bayer felt this pressure recently when it negotiated with Health and Human Services Secretary Tommy Thompson to produce Cipro. When Thompson threatened to ignore Bayer's patent, the German drug maker cut the price for the U.S. from $1.77 to 95 cents a pill. The next day its stock fell 5.7 percent.

Thompson has said he would be as tight-fisted in negotiations with other firms as he was with Bayer.

Other companies, such as GlaxoSmithKline Plc and Johnson & Johnson, have donated antibiotics. In the meantime, such companies as Acambis Plc, American Home Products Corp., Aventis SA and Baxter International Inc. have ramped up production of smallpox vaccine in a way that evokes the mobilization of penicillin development during World War II.

Critics are wary of what they dub a "government-pharmaceutical complex."

"Seeing CEOs of the top drug companies in one room with the government makes me nervous," said Jack Calfe, a health industry analyst at the American Enterprise Institute. "You can get a lot done. You can also get a lot of anti-competitive behavior."

Sidney Wolfe, director of the Public Citizen Health Research Group, agreed. "The pharmaceutical industry already gets huge breaks from the government," Wolfe said. "It doesn't need anymore."