On Friday, the US Treasury released details about its Therapeutic Discovery Project Program, which was created by the Affordable Care Act to support small pharmaceutical and biopharmaceutical companies’ research efforts. The program’s goals are to promote the development of new therapies, create US jobs, and increase US firms’ competitiveness.

Companies with 250 employees or fewer can apply for tax credits worth as much as 50% of the cost of qualifying research investments. Each company could earn a maximum credit of $5 million. To provide an immediate boost to the industry, the credit will cover research investments made in 2009 and 2010. To startup firms that have not yet become profitable and thus cannot take advantage of a tax credit, the Treasury will offer grants.

On Friday, the Internal Revenue Service published guidance that explains how firms can apply to have their research projects certified as eligible for the credit. Projects must show “significant potential to produce new therapies, address unmet medical needs, reduce the long-term growth of healthcare costs, and advance the goal of curing cancer within the next 30 years,” according to a statement from the US Treasury. The application period begins on June 21, 2010 and lasts through July 21, 2010.

It’s heartening to see the US government try to encourage the development of new treatments, especially in a difficult economy. With luck, the industry’s pipelines and the country’s patients will both benefit. The Therapeutic Discovery Project Program should remind industry of just how valuable R&D scientists are, and I hope it encourages small firms to hire more of them. The program might just put a spring back in the step of these researchers.

First, the Act will mean an increase in drugmakers’ sales, according to a PriceWaterhouseCoopers (PWC) report. About 32 million additional people will be insured by 2019, and about half of them will be covered by Medicaid. The insured are more likely to fill prescriptions, so this is to the industry’s benefit. But the Act will also raise the rebates required of branded-drug manufacturers from 15.1% to 23.1%. Will this hurt drugmakers? Probably not. “The impact of an increase in the Medicaid rebate rate may be less extensive than believed as rebates currently in place already exceed this rate,” says the PWC report.

Previously, pharmaceutical companies often lost sales when beneficiaries entered the doughnut hole in Medicare coverage. But the Act contains several provisions to help patients move through the hole quickly. As of the Act’s signing, the government will pay a $250 rebate to each patient in the hole. By 2011, manufacturers will have to provide 50% discounts on branded drugs to patients in the doughnut hole. Although this might sound bad, the PWC report notes that drugmakers already provide discounts on prescriptions filled in the coverage gap. So this part of the Act might not affect drugmakers much, except perhaps by boosting sales.

On the other hand, the Act requires each pharmaceutical manufacturer to pay a fee based on its share of total branded-drug sales to government programs. Executives told of this detail might have responded, “I knew there was a down side.” Not so fast. The Act divides sales amounts into five ranges and taxes each range at a different percentage. A company with $300 million in sales would pay nothing on its first $5 million, 10% on sales between $5 and $125 million, 40% on sales between $125 million and $225 million, and 75% on sales between $225 million and $300 million. “Given the fixed dollar amount, over time, the impact diminishes relative to pharmaceutical sales,” said the PWC report.

Finally, large biopharmaceutical companies knew right away that healthcare reform would be good for them because the Act gives innovators 12 years of data exclusivity. Many small biopharmaceutical companies and manufacturers of generic biologics likely felt left out when they heard the news, but there’s a silver lining. The Act allocates $1 billion for a two-year temporary tax credit to encourage the development of new therapies. The 50% tax credit will go to companies with 250 employees or fewer, and is intended to help small, undercapitalized biotech companies, according to the PWC report.

At worst, healthcare reform will likely have little effect on drugmakers’ pocketbooks. At best, it will increase their sales without greatly increasing the amount of tax or rebates they pay. Pharmaceutical executives may soon be moved to paraphrase Patrick Henry and say, “If this be socialism, make the most of it.”

Ernst and Young’s report noted that the gap between small and large biotech companies widened last year. Funding remains scarce, and investors are likely to favor established companies’ research and development programs, which are perceived as less risky and more likely to produce immediate returns. In contrast, purses probably will be closed to small and startup companies that need cash just to get off the ground.

Deloitte Touche Tohmatsu’s new white paper, based on a survey of 281 senior life-science industry executives, reinforced the grim picture for small biopharmaceutical companies. About 68% of the executives predicted that 20–40% of biotech companies would cease to exist in five years as a result of economic downturn. Small biopharmaceutical companies also will experience a brain drain, according to the white paper, as scientists jump ship and head for the safer shores of bigger firms.

The best scenario for struggling startups might be to be acquired by a larger firm. This seems a likely prospect; Deloitte’s white paper predicts an increase in consolidation that will enlarge the bigger biopharmaceutical companies. These established companies might find themselves competing for acquisitions with Big Pharma as the latter expands more aggressively into the large-molecule arena.

Recent events suggest that the biopharmaceutical industry will survive. Genzyme, Shire (Hampshire, UK), Biogen Idec (Cambridge, MA), and Vertex (Cambridge, MA) are all hiring. The shape of the industry is changing, though. As small companies sink or are absorbed, the balance of innovation will shift to large, well-financed enterprises. The predicted increase in consolidation could reduce competition and slow the pace of innovation, however. An ideal situation would be an improved economy that brightens the picture for startup biopharmaceutical companies.

To close what Cindrich called a “critical gap in the nation’s defenses against bioterrorism and infectious diseases,” the initiative seeks to construct a flexible vaccine development and production facility. GE Healthcare will take charge of the manufacturing-related aspects of the collaboration, and its contributions to the project are a short list of the hot topics in the industry at the moment. The company will use its own single-use components to help build a flexible manufacturing facility that can produce several vaccines at the same time and switch production quickly from one vaccine to another. Branded manufacturers and contract service providers alike have been using the same tools to achieve the same goals, albeit for reasons that have more to do with the marketplace than with biodefense.

If the 21CB initiative gets the government funding that it’s looking for, the collaboration promises to benefit more than the public health. The interactions between Battelle and Merck could lead to the development of new kinds of vaccines, or at least new methods for discovering and developing these products in high demand. And GE Healthcare, helped by its private partners and public funding, could create process and facility designs that the rest of the industry could learn from. The collaboration seems a ripe opportunity for increasing biopharmaceutical manufacturers’ efficiency. Also, the project could directly create 1000 jobs, and possibly as many as 6000 indirectly.

This initiative is emblematic of the pressures, priorities, and technologies that influence the drug industry today. I think it has the potential to show the way forward for the biopharmaceutical manufacturers and safeguard the public welfare. It sounds like it could be a win–win situation.

Not so fast. The study points out that only five approvals originated at US-based companies. This number decreased from seven in 2008. Johnson and Johnson (New Brunswick, NJ) and Genzyme (Cambridge, MA) were among the lucky few US companies to have products approved in 2009. The record number of FDA approvals is mainly grounds for celebration in Europe.

What gives? A new study published in the Journal of the American Medical Association reveals a plausible reason: the growth rate of research funding in the US has slowed. If you adjust for inflation, the rate may even have fallen. Between 1994 and 2003, which were boom years for research, the growth rate in funding was 7.8%. From 2003 to 2007, the growth rate was only 3.4%.

The industry’s spending priorities could be problematic. More and more, companies are dedicating most of their money to late-stage clinical trials and leaving small companies to be liaisons between academic research and the industry. In this economic climate, sponsors are only likely to work with small companies that can prove that they have surefire molecules. Given this pressure and their limited resources, these small go-between firms are less likely to spend money on innovative research that has a high risk of failure.

If the US biopharmaceutical industry wants to substantiate its claim to be the worldwide leader in innovation, I suggest that it adjust its budget to favor research over clinical trials. Congress may soon give the industry 12 years of data exclusivity for new biologics. The Biotechnology Industry Organization (BIO) has long demanded this exclusivity, which it calls an incentive for innovation. If BIO gets its prize, its members should pony up and put their money where their molecules are.

Its triumph might be fleeting, though. On the same day that Allston Landing began shipping vials of Cerezyme, Pfizer (New York) signed an agreement with Protalix (Karmiel, Israel) to develop a competitor for the drug. Protalix has successfully completed Phase III studies of taliglucerase alfa, a potential treatment for Gaucher’s disease. The company will soon submit a New Drug Application for the medicine, which the US Food and Drug Administration has already granted Orphan-Drug and Fast-Track status. The product could be on the market sometime in 2010.

To create taliglucerase alfa, Protalix uses a plant-cell expression system, which remains a fairly novel technique for the biopharmaceutical industry. Protalix claims that their system is quicker and safer than animal-cell production. They also say that plant-cell expression avoids the risk that cross-contamination would affect a patient.

If FDA can see its way to approving a drug produced through plant-based expression, then Cerezyme’s market position might be in jeopardy. A superior manufacturing method and clever marketing could steal some of Genzyme’s thunder. On the other hand, the Pfizer–Protalix deal could spur Genzyme, and indeed the entire industry, to look more closely at plant-based production. In any case, the availability of several therapeutic options would be good news for patients with Gaucher’s disease.

At first blush, it looks like drugmakers took a beating. The New York Times said that the drug industry receives “harsh treatment” in the bill. In June 2009, President Obama and the Pharmaceutical Research and Manufacturers of America (PhRMA) agreed that the industry would provide $80 billion in rebates and discounts on branded pharmaceuticals over 10 years. The House bill would require drugmakers to provide another $60 billion in rebates over the same period, making a total of $140 billion in concessions.

These rebates might have been what Ken Johnson, PhRMA’s senior vice-president, had in mind when he said in a press release that the House bill would kill tens of thousands of jobs in the pharmaceutical industry. Yet the additional rebates might not be included in the healthcare-reform bill that the Senate eventually passes.

The House bill also would enable the government to negotiate the prices that Medicare pays for drugs, a policy that the industry has so far opposed. On the other hand, the bill would not allow Medicare to create a formulary. This omission essentially vitiates Medicare’s price-negotiating power, said Steven D. Findlay, senior health-policy analyst of Consumers Union, in the New York Times article.

Ultimately, I think it’s too soon to draw conclusions about what healthcare-reform legislation will mean for the pharmaceutical industry. The Senate has yet to pass its own version of the bill. The Senate bill might not, for example, require the additional rebates from the industry that the House bill does. It might, as the House bill does, give biologics protection from generic competition for 12 years. And after the Senate passes its bill, it will have to be reconciled with the House bill.

Despite its initial alarm, PhRMA seems determined to withhold its judgment. “This is a three-act play, and a good critic doesn’t write a review after the opening scenes,” said Johnson in the press release. Time will tell what shape the final legislation takes. It is at least conceivable that the industry could gain from healthcare reform. The law that Obama finally signs could expand the industry’s market, increase drug sales, and provide incentives for innovation.

That’s why news from Ecuador made me do a doubletake.

Last Monday, Ecuadorean President Rafael Correa gave local officials the power to issue compulsory licenses that enable Ecuadorean companies to bypass patents and produce inexpensive versions of various drugs. Correa’s decree did not specify which, or even how many, drugs’ patents could be bypassed. The licenses, issued according to the World Trade Organization’s rules, are intended to expand access to medications and improve public health.

To my surprise, Pfizer (New York), GlaxoSmithKline (GSK, London), Bayer (Leverkusen, Germany), and others reacted to the announcement with equanimity. In a statement, these and several other companies said, “We accept the democratic decision … to use this extraordinary legal measure, observing the rights and responsibilities” laid out in international law. “No legal right of any kind can take precedence over the interests of public health,” they added.

This reaction is 180° from the opposition that Brazil and Thailand faced in 2007 when they used this tactic. The International Federation of Pharmaceutical Manufacturers and Associations criticized Brazil for not collaborating with Merck (Whitehouse Station, NJ) before its government issued a compulsory license for the AIDS treatment Efavirenz. After Thailand issued a compulsory license for Abbott’s (Abbott Park, IL) Kaletra, the company said it would no longer register new drugs for sale in that country.

I could not find statements responding to Correa’s directive on these companies’ websites and I don’t know why they reacted differently than Merck and Abbott did in 2007. Maybe Pfizer, GSK, Bayer, and the other companies coordinated their response to improve their public images. Or maybe their statement reflects a changed attitude about the limits and ethics of patent protection.

Whatever their motivation, these companies’ endorsement of compulsory licenses will likely set a precedent that makes other drugmakers more willing to accept this legal measure. Compulsory licensing is sanctioned and regulated by international governments and trade organizations. I think it can be a valuable tool that saves patients’ lives, and I’m heartened by the thought that Big Pharma might be more tolerant of this measure in the future.

Let’s recap a few major developments to date. At first, ethical concerns hampered progress in stem-cell research when the best way to obtain the cells was to harvest them from discarded embryos. After scientists learned how to create induced pluripotent stem (iPS) cells by deprogramming adult cells, these ethical concerns were rendered moot.

The deprogramming method itself raised problems, however, because it permanently integrated genes with the potential to induce cancer into adult cells to transform them into iPS cells. The resulting stem cells had the potential to cause tumors and were thus not considered safe for use in human patients.

Then, in May 2009, researchers in Wisconsin described a method for creating iPS cells with nonintegrating episomal vectors. In contrast with the previous inducement method, the episomes in this process are lost during cell division, thus leaving the resulting iPS cells free of potentially problematic foreign genes. It therefore became possible to use the same tools in a different way to create iPS cells that were safer than before.

Things changed once again last week when a team at the Harvard Stem Cell Institute found a small molecule that could replace at least one of the cancer-related genes in the inducement process. Like the Wisconsin researchers’ method, the new technique created stem cells that are safer than was previously possible.

These efforts represents various routes toward the goal of creating personalized cells that are safe enough to be the basis of cell-based therapies. The researchers hope that a chemical-based (rather than gene-based) process for creating stem cells would yield therapies that require no immunosuppressive drugs.

These exciting reports have ramifications for research, personalized medicine, and the development of effective new biological drugs. During a challenging time for the drug industry, advances such as these offer hope for the future.

The researchers created micrometer-sized capsules by wrapping metabolism-resistant material around spherical particles that they later dissolved in acid. The scientists filled the empty capsules by heating them in a solution that contained the drug compound. Heat made the capsules shrink, thereby trapping the drug inside. These capsules can be inserted into live cells through electroporation (i.e., the administration of a small electric shock).

In one experiment, the researchers exposed capsules to an infrared laser beam. The laser changed the structure of nanogold particles in the capsule and released drug into the host cell, which was unaffected by the laser beam. The capsules could also be made to release drug in response to a biological trigger such as a drop in blood sugar.

The researchers said that their technique could deliver DNA for gene therapy or insulin to manage diabetes. I imagine that it might also deliver small molecules. The capsules can be designed to be stable in the body to protect drugs that are easily degraded and store them for later use.

Like the magnetite nanoparticles, the micrometer-sized capsules are not ready for use in humans, but they seem full of possibility. To some patients, administration through electroporation might be more palatable than that through injection. This delivery method could enable various release profiles and might be appropriate for acute and chronic conditions.

Developments such as this are encouraging reminders of researchers’ ingenuity. One day, drugmakers and patients alike might benefit from this work.