Friday, February 4, 2011

2011 Biotech/Life Sciences Conference Preview - The Impact of Healthcare Reform

By Loreen M. Brown, MSW, Xcenda

Loreen is speaking on the Regulatory and Reimbursement panel at this year’s Biotech/Life Sciences Conference.

The biotechnology industry continues its steep climb through organizational evolution as healthcare reform brings into full effect the shifting regulatory landscape. Of the numerous, sweeping provisions included in The Patient Protection and Affordable Care Act (PPACA), biotechnology and life sciences are feeling the shockwaves of four smaller items buried deep within the bill.

Market exclusivity for biologics, annual fees on manufacturers, excise taxes on medical device manufacturers, and therapeutic discovery project credits are four major areas in which biotechnology companies must prepare and reorganize for upcoming implementation. Annual fees and taxes will prove burdensome for biotechnology companies, but ample opportunities remain to gain market share, maximize drug exclusivity, and pursue innovation.

Market Exclusivity for Biologics
The most noteworthy piece of PPACA legislation for biotech companies allows biologics and therapeutics produced by biotechnology companies to maintain 12 years of market exclusivity following FDA approval. Not only is the 12-year exclusivity independent of patent time frames, but it muffles the competition from generic manufacturers as well. Upon applying for FDA approval for any follow-on biologic, the generic manufacturer must release all documentation to the company that developed the original therapeutic. This provision may alter the vision of follow-on biologic companies, as they may avoid investing in the development of products that must remain shelved for 12 years, especially when their competitor gets the first peek.

Annual Fees on Branded Prescription Drug and Biologic Manufacturers
Beginning 2011, manufacturers or importers of branded prescription drugs and biologics must pay an annual fee based on relative market share. The fee is only imposed if the manufacturer or importer sells to the following government programs:

· Medicare Part D
· Medicare Part B
· Medicaid
· Department of Veteran Affairs
· Department of Defense

The aggregate fee starts at $2.5 billion in 2011, climbs to $4.1 billion in 2018, and declines back to $2.8 billion for the years following. The fee is based on market share of each manufacturer and importer’s annual sales of branded drugs/biologics. The market share percentage will determine the portion of the aggregate fee each manufacturer or importer must pay. The purpose of the annual fee is to directly fund the Medicare Part B trust fund.

Excise Taxes on Medical Device Manufacturers
Medical device manufacturers will experience a 2.3% excise tax levied on medical device sales beginning 2013. Medical devices applicable to the excise tax are defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act, and are essentially any device that is intended for humans, other than eyeglasses, contact lenses, hearing aids, etc. The excise tax does not apply to devices that are manufactured to further develop or export existing ones.

Therapeutic Discovery Project Credits
Although already in full effect and no longer attainable, biotechnology companies may find helpful the understanding of therapeutic discovery project credits in reference to their competitors or counterparts. Therapeutic discovery project credits provide golden opportunity for smaller biotechnology companies (fewer than 250 employees), as they provide a 50% tax credit or grant to qualified investments made by the company. Qualified investments include research or investments used to treat, prevent, or diagnose diseases, determine molecular factors related to diseases, or develop products that further the delivery of therapeutics. The PPACA made available $1 billion for tax years 2010 and 2011 to be allocated to successful applicants. This provision sparked a “rush to arms” to help smaller biotech companies alleviate R&D expense. When the playing field is leveled from the research and development perspective, innovation wins.

Loreen M. Brown, MSW, is a Vice President and leads the Access and Reimbursement consulting teams. Ms. Brown leads teams that work with Xcenda’s pharmaceutical, biotech, and medical device clients in the areas of field support, account management/ training, and reimbursement and health policy research (including strategic planning to address reimbursement, coding, managed care, and government payer challenges).

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