Calif. price curbs alarm drug makers

WASHINGTON -- Pharmaceutical leaders worry about what a Congress led by Democrats might eventually mean for the industry, but their looming concern is a California law quietly passed this fall .

The law, which provides a glimpse of the type of government price controls the drug industry fears, seeks up to 60 percent price concessions from manufacturers to benefit 5 million California residents, including seniors enrolled in the federal Medicare prescription drug benefit.

California officials call the drug discounts voluntary. But the measure, which takes effect in January , includes language that allows the state in 2010 to remove treatments sold by companies that don't comply from its Medicaid list of approved drugs.

Some of the nation's largest drug firms have begun to negotiate prices with the state , and the ripple effect of those talks will soon hit smaller firms. Biotechnology companies, which a recent report says spend an average of $1.2 billion developing new therapies, say they could be among the hardest hit.

The law is intended to help California's low-income and underinsured residents by leveraging their collective purchasing power.

On average, the state hopes to lower the cash price of prescription drugs by 40 percent for branded products and 60 percent for generic products , said Nicole Kasabian Evans , a spokeswoman for the California Health and Human Services Agency .

Jim Greenwood , chief executive of the Biotechnology Industry Organization , said California aims to implement "arbitrary price controls" that could stifle innovation.

"At the end of the day, you have to have very healthy companies who have the resources to do the research and the development of these drugs," Greenwood said. "You're not going to get it on the cheap. And you're not going to get it under a system of European-like price controls that have stifled innovation."

Tim Hunt , a Biogen Idec Inc. spokesman, agreed.

"Price controls rip right through everybody and directly harm our research efforts," Hunt said.

The Cambridge firm says it invests 30 percent of sales into research and development. Patients, who lobbied the Food and Drug Administration to return the company's multiple sclerosis treatment Tysabri to the market, demand such continued innovations as the four MS drugs Biogen Idec has in clinical trials, he said.

"We've got to keep plowing more money into research for the next big therapeutic option for them," Hunt said.

California Governor Arnold Schwarzenegger signed the measure into law in late September over the objections of pharmaceutical industry lobbyists, who met with him as well as with state legislative leaders.

The Pharmaceutical Research and Manufacturers of America calls the law "problematic," but has not filed a lawsuit to block its implementation.

"We support discounted drugs for Californians," said Jan Faiks , vice president of government affairs and law for PhRMA.

The way the California measure was drafted could make it difficult to achieve the savings promised, she said. "Frankly, I don't know where they are going to get those discounts," since the law doesn't require pharmacists and others involved in the distribution of prescription drugs to also negotiate savings, Faiks said.

A broad coalition of consumer organizations and patient groups that helped garner support for the legislation are now spreading the word of its passage to uninsured residents, said Earl Lui , Consumers Union senior attorney .

PhRMA plans an education effort to promote discount cards that help the underinsured pay medical expenses.

"We think we have to broaden the debate and get these patients actual coverage," Faiks said.

Diedtra Henderson can be reached at dhenderson@globe.com.