President's Budget Offers Mixed Bag for Biopharma
The $3.77 trillion budget proposal for fiscal 2014 that the White House unveiled Wednesday offers drugmakers a mixed bag of good news and bad news in terms of tax reforms and health care spending.
When it comes to the tax reforms, whether the news is good or bad depends on the size of the company. Small biotechs could qualify for tax write-offs for up to $500,000 in new investments and a 10 percent tax credit for hiring new employees or increasing wages.
The budget also would reform an R&D tax incentive and make it permanent.
On the bad news side, at least for big pharma, the proposal includes reforms that would prevent multinational drugmakers from shifting profits overseas in an effort to avoid U.S. taxes.
The idea, according to the administration, is to encourage U.S.-based companies to bring jobs home.
On a personal note, CEOs of big pharma companies would have to give 30 percent of their earnings of $1 million or more to the government, and the budget would limit the value of tax deductions and other tax benefits for other high-income earners who haven't entered the millionaire's club. It also would tax carried interest of private equity and venture capitalists as earned income.
On the good news side of the equation for health care, the budget includes $4.7 billion for the FDA, an increase of $821 million over 2012 funding, the administration said. User fees would fund 94 percent of the proposed increase.
Some of that increase includes $10 million more to support agency inspections in China. Another $3.5 million would be used to improve the development and success rates for medical countermeasures (MCMs). The president's 2012 budget proposal included similar requests. (See , Feb. 14, 2012.)
The bad news is that, despite the bump in funding, the FDA would see a $15 million decrease in budget authority for its drug, biologics and medical device programs.
"These are tight budget times, and the FDA budget request reflects this reality," FDA Commissioner Margaret Hamburg said.
The news for the National Institutes of Health (NIH) also is a bit mixed. The institutes would see a slight funding bump from $30.6 billion to $31 billion. But part of that increase would be earmarked for the president's recently announced BRAIN Initiative.
Funding Medicare Savings
More bad news for drugmakers can be found in President Barack Obama's proposals to reduce Medicare spending. For the most part, they're not new ideas, and the administration hasn't had much luck in getting them through Congress. They include:
reducing biologic exclusivity from 12 years to seven years to facilitate the entry of "generic biologics," for a 10-year savings of about $3.3 billion;
ending pay-for-delay patent settlements between brand and generic drugmakers, for a savings of $11 billion over the next decade. In the past, the administration has said ending the settlements would produce a 10-year savings of $3 billion, according to Mark Schoenebaum, an analyst with the ISI Group;
aligning Medicare drug payments with Medicaid rebate policies for low-income beneficiaries, for a savings of about $123 billion (Schoenebaum said he thinks the dual-eligible proposal has, at best, a 40 percent chance of becoming law);
cracking down on Medicare fraud and abuse, and stepping up civil and criminal enforcement. That would include expanded authority to exclude individuals affiliated with companies sanctioned for fraudulent or other prohibited actions.
A new item added to Obama's Medicare wish list is closing the Part D "donut hole" for brand drugs by 2015, instead of 2020, for an $11 billion savings. That goal would be achieved by increasing the discounts drugmakers offer Medicare.
Meanwhile, the news is nothing but good for makers of MCMs. The budget proposes $415 million, including the FDA funding and continued funding from the NIH Concept Acceleration Program, to enhance the advanced development of next-generation MCMs. It also calls for $250 million to replenish the BioShield Special Reserve Fund and provides new, flexible contracting authority. Another $140 million would be used to support programs to respond to an influenza pandemic, including licensure of low-dose vaccines and support of international vaccine production capacity.
Like the budget itself, industry's reaction is mixed. The Generic Pharmaceutical Association (GPhA), for instance, praised the inclusion of shorter biologic exclusivity and provisions to encourage increased use of generics. But the trade group warned that measures to end pay-for-delay settlements and change Medicare rebates "would do more harm than good."
Noting that Medicare Part D continues to operate at 40 percent less than the original estimates, GPhA credits the program's success to the market-based competition built into the program. "Imposing rebates would upset this structure," the group said.
While the budget, which would end sequestration, shows what the administration wants to see, it's not likely Congress will approve it, as it comes in at $160 billion over the baseline set by the Congressional Budget Office and is higher than both the House and Senate budget resolutions. (See , March 22, 2013.)
Normally, presidents submit their budget proposals in February, so the House and Senate can use them as a starting point for their own proposals. Because of the administration's delay in releasing its proposal this year, the budget process was reversed for fiscal 2014, which begins Oct. 1.