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. Last Updated: 07/27/2016

Drug Makers Cozy Up to State

WASHINGTON -- As a handful of antibiotics become the weapons of choice against bioterrorism, drug companies are asking for U.S. government contracts to undertake research on bioterrorism drugs, creating an uneasy debate among executives, politicians and consumer advocates over how close the industry should be to the government.

The central issue involves who should pay for the development and stockpiling of new vaccines and antibiotics to protect civilians against the deliberate release of deadly diseases like anthrax and smallpox.

The U.S. Defense Department has long paid for some research and production of medicines, especially to prepare soldiers for germ warfare. But the government has mainly relied on the free market to create pharmaceuticals and distribute them to the public.

But industry executives say they need to be treated more like defense contractors and be paid to develop bioterrorism drugs because the market need is uncertain and pricing is likely to be a sensitive topic. In the process, the companies say that the relationship between the government and the drug industry will inevitably grow closer.

"It shouldn't grow for colds and flu, but for bioterrorism, there is room for it to grow," said Hank McKinnell, the chairman and chief executive of Pfizer Inc., adding that the government should allow the industry to bid for long-term research contracts at prices that will be profitable for the companies.

The threat of bioterrorism is also leading consumer advocates to take a new view of drug prices. Some now say that companies should rely on retail sales of drugs like the anthrax antibiotic Cipro, instead of government contracts, for an incentive to produce the medicine.

"We're already paying the highest prices in the world for research and development, supposedly," said Susan Sherry, the deputy director of Community Catalyst, a consumer group based in Boston. "I hadn't noticed that there was no market for Cipro -- there's a big market for it."

Many pharmaceutical executives have been reluctant until now to publicly address the issue of making money on bioterrorism responses, for fear of being accused of profiteering. Some of the largest companies, including Pfizer and Bristol-Myers Squibb, have offered the medicine free for the treatment of people exposed to anthrax.

Peter Dolan, the chairman and chief executive of Bristol-Myers Squibb, laid out the industry position at a news conference last week. "Several of us," he said, "have said we have no intention to make any profits on bioterrorism."

But McKinnell and other executives now say that is not a viable long-term strategy. Without the potential for profits, possibly from government contracts, drug companies will have no reason to create medicines for which there is no everyday market, they said.

"How will you fund this when you are hopeful -- and the likelihood is high -- that the products will never be used?" asked Helge Wehmeier, the chief executive and president of Bayer's U.S. operations. "It has to be a subject for discussions with the [Capitol] Hill and with the White House."

Bayer's Cipro is a case in point. The company developed the drug to treat pulmonary and gastrointestinal infections, and it was only approved to treat anthrax years after it was introduced as a general antibiotic. Bayer has been criticized in recent weeks for charging too much for Cipro, and Tommy Thompson, the secretary of health and human services, warned last week that unless Bayer nearly halved its price for sales to a government stockpile, he would go around the company's patent on the drug.

Thompson has since insisted that his comments did not represent threats to Bayer and that he was not eroding the incentives for companies to develop responses for bioterrorism. "I did not threaten anybody, I don't do that," he said. "I strongly encouraged them to sharpen their pencils."

Representative Christopher Shays, the Connecticut Republican who headed the hearing at which Thompson spoke, said Wednesday that companies should be allowed to have profitable contracts with the government to develop bioterrorism drugs.

John Calfee, a health care expert at the American Enterprise Institute, said that federal contracts for drug development could prove inefficient and costly because the government would probably have to cover any costs the companies incurred, plus a profit margin.

But McKinnell said companies would be willing to make fixed-price bids on contracts to develop vaccines for rare diseases.