Biotech and Pharma

Seeking Profit for Taxpayers in Potential of New Drug

Jonathan Weisman
GaryAlvis | E+ | Getty Images

With automatic spending cuts cascading through the government, lawmakers are calling for a review of federal policies they say have allowed businesses to profit on government research with limited return for taxpayers or consumers.

That re-examination could be particularly intense in federal science, once a corner of the government with bipartisan protection that has become something of an orphan caught between Republican efforts to protect the military and Democrats' defense of Social Security and Medicare. Now, advocates for creative new funding policies might have an example for their cause, a new arthritis drug called Xeljanz that got its start in a taxpayer-financed laboratory at the National Institutes of Health.

"Just from the standpoint of sequestration, this is going to make the need for effective use of research dollars more important than ever," said Senator Ron Wyden, Democrat of Oregon. "I can tell you people are talking about it."

In 1994, the National Institutes of Health approached the pharmaceutical giant Pfizer with a plan to work together on promising new research on inflammatory diseases like arthritis. At the time, it was the research agency's policy that the price of any resulting product would have to reflect the taxpayers' investment and "the health and safety needs of the public." Pfizer declined.

The next year, the agency scrapped that pricing clause, and in 1996 Pfizer jumped. This year, Xeljanz hit the market, a potential blockbuster arthritis pill that had its start in the laboratory of the federal scientist John O'Shea. Its price is eye-popping at $2,055 a month wholesale—$24,666 a year—a direct cost to Medicare if, as expected, it takes off with older arthritis sufferers.

On Friday, Senator Wyden sent Francis S. Collins, the director of the institutes, a formal letter requesting documents about the Xeljanz collaboration "to gain an understanding of what the public can expect as a return on its research investment."

"In the face of this difficult economic climate and the increasing scarcity of research dollars it is time to revisit the idea of striking a better balance between encouraging profit, innovation, accessibility and affordability," the senator wrote in a letter intended for public release on Tuesday. "N.I.H. should convene an outside panel to re-examine the pricing of medicines and treatments developed with public funds."

The research agency is hardly the only part of the federal government that is dealing with the repercussions of decisions made in better budgetary times. In the late 1990s and early 2000s, military and veterans' benefits were expanded. Expensive new weapons systems were begun, like the F-35 Joint Strike Fighter. Children's health insurance was extended, paid for by tobacco smokers, who were declining in number.

But with some of its fiercest allies gone, like the late Senator Arlen Specter of Pennsylvania, advocates for federal science are feeling particularly vulnerable.

Federal research and development spending, already down 10 percent since 2010, faces an additional 8 percent cut, or $54 billion, through 2017 under the automatic cuts, known as sequestration, according to the American Association for the Advancement of Science. That would set total federal science spending back to 2002 levels, said Alan I. Leshner, chief executive of the association.

Sequestration pulled $1.6 billion—or 5 percent—from the research agency's budget for the rest of the fiscal year, and unless reversed, it will slice the budget by 8 percent, or $11.3 billion, through 2017.

"We are eating our seed corn," Mr. Leshner, a former N.I.H. institute director, said.

Pfizer played down the role that federal science played in the development of Xeljanz. The company said it first became aware of Dr. O'Shea's work in 1993 at a public conference, but that research—published in 1994—was in the public domain. A company official said "to our knowledge" the cooperative research project did not yield any patentable intellectual property.

"Over the course of 20 years Pfizer invested more than $1 billion into the discovery, development and commercialization of Xeljanz," a company statement said, referring to the screening of hundreds of thousands of compounds and a decade of clinical trials. "It was the culmination of this work undertaken by Pfizer that led to the drug now known as Xeljanz."

Senator Wyden acknowledged the expenses of drug discovery and clinical development. But in December, after the Food and Drug Administration approved the drug, the federal research agency hailed the decision as a victory for itself, and Dr. O'Shea as "the N.I.H. researcher who discovered the JAK3 protein and established its role in inflammation."

The cooperative research agreement "allowed teams from both organizations to work together toward the common goal of finding a new immune-suppressing drug," the research agency said.

No longer preoccupied by cold war research, government scientists have pursued collaborations with private industry. Dr. O'Shea's team began trying to isolate a protein, called JAK3, that latches on to some immune cells. Scientists hoped to control the behavior of the immune cells, and in turn help control autoimmune conditions like rheumatoid arthritis, Crohn's disease, colitis and myositis.

Pfizer was intrigued, but at the time such cooperative research and development agreements were governed by the pricing policy. The company backed off, a development that was reported earlier this year in the trade journal Nature Biotechnology.

An official who was involved at the time said it was not just businesses that were spooked. Scientists did not know what such a "reasonable relationship" was, and they too wanted their work to get to the market.

"The 'reasonable pricing clause' did have a chilling effect on the desire to work with our collaborators," said Dr. Kathy Hudson, deputy director for science, outreach, and policy at the N.I.H.

Harold Varmus, a Nobel Prize-winning scientist and the research agency's director at the time, scrapped the clause in 1995, and Pfizer joined forces in 1996.

Xeljanz, the first commercial drug that targets the JAK3 pathway discovered by Dr. O'Shea, has the potential to be a blockbuster, said Tony Butler, a pharmaceutical industry analyst at Barclays Capital.

Unlike other new arthritis drugs, it comes as a pill, not a shot. Mr. Butler said he expected peak sales to reach $1.9 billion by 2020 or 2021, and that was just for rheumatoid arthritis. Other autoimmune conditions could expand the market.

"This is a pill, and patients like pills," said Les Funtleyder, a health care strategist at the investment firm Poliwogg.

The drug's hefty price has not made some members of Congress happy.

"American taxpayers are entitled to realize a return on their investment in N.I.H. research resulting in this—or any other—breakthrough drug. Surely price gouging isn't what they expect or deserve," said Representative Henry A. Waxman, Democrat of California and a longtime critic of the pharmaceutical industry.

—By Jonathan Weisman for The New York Times