Fourteen states filed suit yesterday to challenge the constitutionality of the health care reform bill.

The states of Florida, Alabama, Colorado, Idaho, Louisiana, Michigan, Nebraska, Pennsylvania, South Carolina, South Dakota, Texas, Utah, and Washington joined together in a suit filed in Florida.

Virginia filed its own suit separately.

The crux of these suits is the constitutionality of the new health care legislation, which will now increase the federal government’s regulatory powers into health care insurance, which had been traditionally regulated at the state level (along with most private insurance), and will impose penalties on individuals for failing to purchase private insurance policies.

If you have been following the commentary on this issue at all, you know that this argument is basically a classic states’ rights debate: that the legislation deprives the states of sovereignty and violates the 10th Amendment to the Constitution, which says that powers not delegated to the federal government are reserved to the states.

Of course, the other side of the argument says that the bill is constitutional because Congress has the power to regulate interstate commerce under the commerce clause of the Constitution.

As most lawyers recall from our Constitutional Law courses in law school, the commerce clause has been read in recent years to provide the federal government greater and greater powers to regulate interstate commerce in various ways.   For this reason, many commentators are predicting that the legislation will stand up under constitutional scrutiny.

But should it withstand constitutional scrutiny?   There is no question that insurance generally, and particularly health insurance, has up until now been entirely within the purview of state regulation.  Each state has its own regulatory requirements for what can be in health insurance plans offered under that state, each state has its own insurance commissioners, and each state makes independent regularly decisions about the activities of individual insurers.  We haven’t even been able to buy insurance over state lines–if you move to a new state, you have to get a new policy entirely.  So, clearly insurance has long been viewed as falling under the purview of the states.

Moreover, this legislation now allows the federal government to mandate that you buy health insurance, and if you do not, you will be penalized by the IRS.  While supporters argue that this is like state laws requiring that you buy car insurance, I think that there is a valid argument that this is different.  In the case of car insurance, states are imposing these requirements on residents of their state who choose to avail themselves of the privilege of driving, in order to protect other drivers from injury.  It’s hard to see the parallel when this is a federal instead of a state exercise of power, and when there is no privilege like driving involved with health care, which Democrats are now calling a “right.”

The bottom line is that the IRS is entwined in this bill, and there is a good chance that the Supreme Court will read this bill to be a valid exercise of commerce clause powers–even more so because a taxation component is involved.

However, if that happens, I think supporters of this bill should look beyond the current legislative debate and consider how continuing to broaden the commerce clause powers might be used in the future.  Extending the commerce clause is going to someday make it that much easier for a Republican Congress to use the new enhanced commerce clause powers in a way that may not be quite so palatable to Democrats.  Continuing to allow an encroachment of states’ rights does have consequences and they are consequences that may very well cut in both directions.   I think it is an open question as to whether we as Americans want to continue to see the commerce clause powers continuing to encroach on states’ rights.   The line is moving further and further over into the traditional purview of the states: where is the hard stop?  Do we as Americans care enough to draw a line in the sand and say it stops in any particular place or are we okay with the states’ powers continuing to dwindle?

Clearly, this challenge raises some very interesting constitutional and societal issues.  So, whether you support health care reform and this particular piece of legislation, or you oppose it, I would urge you to tune into this Constitutional debate.  How the issues are decided will have an impact that goes far beyond our recent health care reform debate. The California Biotech Law Blog will continue to follow this issue as it unfolds.

Well, unless you have spent the last few weeks stranded on a desert island, you probably know that yesterday was the big health care vote.  As expected, the Democratic majority in the House passed the health care reform bill–despite the fact that the bill was vigorously opposed by a large percentage of the American public.

While the legal battle challenging the constitutionality of the law is just getting started and is likely to continue for some time, the biotech industry is just starting to process what yesterday’s vote will mean for its industry.

BIO,  the biotech industry organization, released a statement on the vote yesterday, which took a decidedly positive tone.  In support of its position, BIO cited three key benefits of the bill:

1. The bill provides hope for Americans living with debilitating diseases.
2. The bill created a pathway to enable the U.S. Food and Drug Administration (”FDA”) to approve biosimilars.
3. The bill included a Therapeutic Discovery Project Tax Credit, which is designed to provide financial relief to some biotech companies that are suffering in tight credit markets.

Why was BIO so positive about this legislation?

Well, the remarks suggest that BIO is happy with several of the carrots that were thrown at the industry in this bill: biosimilar legislation and a tax credit for biotech companies.

Noticeably absent in the BIO statement, however, was any statement to the effect that health care reform will advance the biotech industry in any way.  Instead, the only reference made to reform itself was that it will bring “hope” to Americans suffering from diseases.  Is this an oversight on BIO’s part?  In my opinion, no.

While there is no doubt that most biotech industry members applaud the idea of providing health care to all Americans, and you can certainly say that reform will increase the potential customer base for biotech products, it is a definite  stretch to say that this reform bill will prove beneficial in any way to the biotech industry.   How could it?  Any enterpreneur in the biotech space knows that the U.S. market has always been the most lucrative due to compensation issues–the U.S. consumer finances the world’s drug development costs.  What happens when you impose drug price controls, which are inevitable in government-controlled health care?  It doesn’t take an expert to see that the world’s most lucrative market will become a lot less lucrative.  It will become like most of the other markets in the world, which have price controls, too.  This kind of change will inevitably impact entrepreneurship in the biotech space.  Launching a biotech company requires huge risk and tremendous investment capital.  Will the capital be there when the huge  potential payoff is not?  It will take a huge amount of increased business to make up for the loss of revenues in the U.S. market due to price controls.  Will what is left be enough to encourage drug development?

While the answer to that question is still unclear, I think it is a safe bet that true entrepreneurs will find away to adapt to the new realities of the market.  Many entrepreneurs–me included–have had to do this in the past year to survive the recession.  I have adjusted my business model completely to deal with the new realities of the legal market,  and I think it is a safe bet that many other small businesses who survive this recession will have done the same thing for their markets.  I am sure that there will be biotech entrepreneurs who can adjust their business models to the new realities of the U.S. market after the passage of this bill as well.

Having said this, there is no question that this bill is going to have an impact on the industry.  Change is coming to biotech–and it may not be the kind of change that members of the biotech industry wanted.

So, what about the carrots that got thrown into this bill for the industry?  What kind of impact will those carrots have on the industry?

Well, the tax credit may be beneficial to some companies, but my guess is that it will have a minimal impact on struggling companies who are unable to land the capital they need to survive this recession.   It seems a stretch to say that a tax credit is going to “save and create thousands of jobs across our nation” as the BIO statement claims.  A tax credit only helps if you are generating revenue to pay taxes with, and many stuggling biotechs likely need investment capital more than they need a tax credit at this point in time.

As for the biosimilars piece to the legislation, this topic has been heavily debated for some time and remains controversial.  It is legislation that is going to benefit some companies at the expense of other companies, so it is difficult to say it really will “benefit” biotech.  The legislation will benefit companies seeking to manufacture biosimilars at the expense of the brand.  The California Biotech Law Blog will explore this issue in more detail in a separate blog entry.  The bottom line is that BIO is supporting the legislation simply because it creates a pathway for the approval of biosimilars, which previously did not exist, and BIO is taking the position that this is the right decision for biotech.

All in all, the impact of this bill on biotech is one that may be debated and evaluated in the months to come.  The California Biotech Law Blog will continue to follow the developments as they unfold.

Despite ongoing negotiations in the Senate and House throughout 2009, the new year is beginning with the SBIR reauthorization effort at a continued standstill.

While Congress did successfully save the SBIR/STTR from extinction by implementing a series of five continuing resolutions (”CR”) since the authorization expired back in September 2008, no permanent solution has been reached and the current CR is set to expire on January 31, 2010.  Thus, the SBIR/STTR programs continue to be in limbo.

If you have been following this issue at all and are familiar with the SBIR/STTR programs, you may be wondering why these programs continue to be in a perpetual state of almost extinction.

According to the SBIR Gateway, which has been covering this issue, the problem is that the Senate and the House cannot agree on the terms of a reauthorization bill.  There are apparently eight issues that are still being debated:

1. Length of reauthorization;
2. Venture capital participation in SBIR;
3. Award levels;
4. Sequential Phase II award;
5. Retention of Phase I requirement;
6. Allocation increase;
7. Administrative funds; and
8. Rural and state outreach.

SBIR Gateway attributes the problems to the fact that ” the more the Senate was willing to compromise, the more the House wanted” and asserts that the “House Small Business Committee under the leadership of Nydia Velazquez and her staffer Michael Day wanted to hold the SBIR program hostage.”  According to SBIR Gateway, a key issue is that Velazquez is receiving large campaign contributions from the National Venture Capital Association (”NVCA”) and biotech investors, and they are the groups who would stand to benefit from the House Bill the most.   So, the argument is that Velazquez is unwilling to agree to more than a two year reauthorization for this very reason.

Regardless of what is going on here, it is clear that the whole SBIR reauthorization effort has become bogged down in politics and has been therefore left on the backburner.  Based on what I personally have observed this past year, I would argue that this seems to be the current state of affairs for anything involving small business: Congress seems to have put small businesses in general on the backburner for whatever reason, despite the fact that small businesses, which include biotech companies and other start-ups, provide the majority of jobs in this country and unemployment as well as underemployment continues to be the overarching concern of most Americans today. So, small businesses have largely been left to fend for themselves through this recession and deal with the fact that access to capital has all but dried up, while Congress has been out bailing out banks, failed auto companies, and other “too big to fail” institutions–which employ only a small percentage of the nation’s workforce–with our taxpayer dollars.

Does any of this really make sense?

The California Biotech Law Blog would like to see Congress to reassess its priorities in 2010:  it is time to put the focus on small business.   I am certain that many of you in the biotech community would agree that getting serious about finally passing a  SBIR/STTR reauthorization bill would be a good start.

Following up on our recent coverage of the patent reform debate, Genetic Engineering & Biotechnology News recently interviewed me for their article Patent Reform Battle Pits Biotech against High-Tech. The interview addressed the competing perspectives of the biotech and high tech industries on the issue of patent reform.

Here we go again. . . .Patent reform is back on the table: two bills have been introduced and are again being debated in Congress.

The first of the two bills, the Leahy-Hatch bill, S. 515, was introduced on March 3, 2009.  According to a summary by the Congressional Research Service, the key points of this patent bill, also known as The Patent Reform Act of 2009, are as follows:

Defines “effective filing date of a claimed invention” as the filing date of the patent or the application for patent containing the claim to the invention (thus establishing a first-to-file system).

Declares that, to the extent consistent with U.S. obligations under international agreements, patent examination and search duties are sovereign functions. Requires that those functions be performed within the United States by U.S. citizens who are federal employees.

Revises various other rights and requirements related to patents, including regarding: (1) damages; (2) post-grant procedures; (3) citation of prior art; and (4) inter partes reexaminations; (5) preissuance submissions by third parties; (6) venue and jurisdiction; and (7) the regulatory authority of the Patent and Trademark Office.

Replaces the Board of Patent Appeals and Interferences with the Patent Trial and Appeal Board.

Revises provisions concerning the residency of federal circuit judges and the facilities and administrative support which must be provided to them.

Two biosimilars bills have just been introduced in the House, each of which would establish regulatory path for biosimilars to be approved.

The first bill, HR 1427, the Promoting Innovation and Access to Life Saving Medicine Act, was introduced on March 11, 2009 by Representatives Henry Waxman (D-CA), Frank Pallone (D-NJ), Nathan Deal (R-GA), and Jo Ann Emerson (R-MO).

A second bill was introduced the following week. H.R. 1548, the Pathway to BioSimilars Act, was introduced on March 17, 2009 by Representatives Anna Eshoo (D-CA), Jay Inslee (D-WA), and Joe Barton (R-TX).

What are the key elements of each of the bills?

According to the HR 1427 Bill Summary, highlights of HR 1427 include as follows:

• FDA authority to approve biosimilars;
• approval process will require showing that (1) there are no clinically meaningful differences between the two products and (2) that the two products are highly similar in molecular structure and share the same mechanisms of action;
• biosimilar may establish that it is “interchangeable” with the original product, and the first such biosimilar able to make such a showing will receive six months of exclusive marketing;
• an original product with a novel molecular structure is entitled to five years of exclusive marketing, and a modification of a previously approved product is entitled to three years of exclusive marketing.  These periods can be extended by up to one year if it can be established that the product can be used for a new disease or that it conducts pediatric studies; and
• a new procedure is established to resolve patent disputes prior to approval of the biosimilar, and penalties are put in place for failure to timely litigate such disputes.

In contrast, highlights of HR 1548 are as follows:

• establishes safey standards for establishing interchangeability;
• establishes exclusivity for the first  product found to be “interchangeable”  for a period of 24 months after the product has either been deemed to be interechangeable or goes on sale;
• the reference product receives 12 years exclusivity, and that period of exclusivity will extend to 14 years in the event that a new indication is found for the product in the first 8 years after licensure;
• an additional exclusivity period is also established for pediatric studies and use of product;

Which bill has been more widely received by the biotech industry?

Well, the biotech industry group BIO has indicated its preference for the second bill, according to reports by Fierce Biotech.    Fierce Biotech explained as follows:

For biotech companies, the difference between five years and 12 years of exclusivity could amount to billions of dollars.

In contrast, BIO did not have such a positive opinion of the first bill, stating in a press release as follows:

Unfortunately, the legislation introduced today would take patients and our industry down the wrong path – a path that jeopardizes the continued development of new breakthrough therapies and potential cures for debilitating diseases such as multiple sclerosis, HIV/AIDS and Alzheimer’s. . . .

“This bill seeks to cut prices but instead cuts corners.  This proposal leads us off the map as we seek an effective, fair and safe pathway to a biosimilars market.

“The legislation introduced today does not strike the necessary balance for patients or the economy.   Any biosimilars legislation must ensure safe and effective biosimilars, promote the continued development of new therapies and cures, and ensure the benefits of additional competition among biologics through the entry of biosimilars.

The California Biotech Law Blog will continue to follow this issue as debate on each of the proposed bills continues.

The House and Senate have reached a compromise to extend SBIR through July 31, 2009, according to a report that broke late this evening by the SBIR Insider.

The SBIR Insider reports that the House will originate the bill and that the legislation will amend PL 110-235 (the current CR), which expires on March 20, 2009.

The compromise was announced on the same day that President Obama announced his new plan to assist small businesses.  The President’s plan is intended to unfreeze the credit markets for small businesses by providing additional liquidity and guarantees of small business loans, and to also reduce lending fees and provide tax breaks for small businesses.

As the California Biotech Law Blog previously reported, support for SBIR reauthorization has been waning in Congress and there were genuine concerns that Congress would let the SBIR expire without taking action to save it before the March 20th deadline.  Apparently there was a last minute change of heart, however, with the President’s announcement today of his plans to help small businesses.

Of course, this bill has not yet been signed, so it is not yet a done deal.  The California Biotech Law Blog will keep you posted as any news breaks on this effort.

As we reported previously, he SBIR/STTR program is set to expire on March 20th of this month, unless Congress takes last minute emergency action to save it.

Unfortunately,  SBIR Insider author Rick Shindell reports that there is growing opposition in Congress to saving the SBIR/STTR program.

In fact, the idea of even providing funding for the SBIR/STTR program was rejected with the passage of the Stimulus Bill in Congress, where according to The SBIR Coach’s Blog, a provision that would have provided the SBIR/STTR programs $250 million was struck at the last minute from the bill and language was inserted which explicitly precluded the NIH from using the stimulus money for the SBIR/STTR programs.

Does this really make sense?  Regardless of how you feel about the Stimulus Bill that was passed, does it make sense to exclude funding for small businesses from a bill that is supposed to stimulate the economy and create jobs?

The SBIR Coach’s Blog voices its opinion on this issue as follows:

What were they thinking? As Ann said in her alert, “Such an exclusion is underhanded and entirely inappropriate.” There’s the understatement of the year (so far)!

Entirely inappropriate for sure. Does it make sense for the NIH to not seek additional innovative solutions from our small businesses — a sector hailed by President Obama himself as being the most likely one to create the jobs that we so desperately need? 2.5% +0.3% of $7.4B is $207.2M that’s been inappropriately withheld from our small businesses. That could be used to create a whole bunch of jobs!

And underhanded to boot! They snuck the wording into the fine print in “code” so we wouldn’t spot it. A search for “SBIR” or “STTR” won’t turn anything up.

While I agree that the SBIR/STTR program is far from perfect, and I have been critical of the whole SBA program in the past based on my personal experiences with the SBA in trying to secure loans for my business, it is my personal opinion that, at a time like this when the economy seems to many of us to be in freefall, reauthorizing SBIR/STTR should be a no-brainer.  Why wouldn’t Congress want to maintain support for small businesses, which, in my opinion, are the lifeblood of our economy?  Moreover, why in the world wouldn’t Congress want to include funding for small business programs like the SBIR/STTR in a huge spending bill intended to stimulate the economy?

I can tell you personally that it is nothing short of impossible right now to secure funding for a small business, period.  The help seems to be going to Detroit, the banking system, and AIG, as well as to all kinds of random programs in various states across the country (which to be honest, have made me scratch my head a little bit and wonder why we are funding many of them with taxpayer dollars),  but there is little or nothing that small businesses can do right now  to get access to additional funding.  Supposedly there is some provision that did make it into the Stimulus Bill which will free up some funding fo help small businesses refinance debt, but this funding is not yet in effect and most small businesses have yet to get much in the way of details on this particular program.

So, back to the topic of the SBIR/STTR program, which will shortly expire: in this economic climate,  why in the world  isn’t Congress acting to ensure that this doesn’t happen?

Your guess is as good as mine.  However, the bottom line is that the expiration of SBIR/STTR is all but a done deal now.  If this is a concern to you, you have 16 days left to take action and get your voice heard by Congress.  Perhaps there is still time to save this program from extinction.

Rick Shindell has provided a list of instructions for how to get your voice heard on this issue:

Develop a brief message urging an SBIR extension for a year, stating its importance to you, your business and community. Stress that a collapse of SBIR could be catastrophic not just for you, but the entire high tech small business community. Stress that SBIR community is a pillar of America’s innovation and economic stimulus . Do it in your own words because boilerplate language is far less effective.

1. Call your Senators, both their local and DC offices. http://www.senate.gov/general/contact_information/senators_cfm.cfm
2. Call your Representative, both their local and DC offices. http://www.house.gov/house/MemberWWW.shtml
3. Go to their web sites and use the email or webmail links to send them your message.
4. Contact the Senate Committee on Small Business and Entrepreneurship info@small-bus.senate.gov - 202-224-5175
5. Contact the House Small Business Committee (202) 225-4038 www.house.gov/smbiz/
6. Contact the House Committee on Science (202) 225-6375 - http://science.house.gov/contact/contact_generalform.shtml
7. Go to the President’s web site at http://www.whitehouse.gov/contact/
8. Write to your local newspapers, TV and radio stations.
9. Work with other small business groups to form a united effort.

The California Biotech Law Blog will continue to keep you posted on any new developments on this issue, and will let you know if there seems to be any movement towards saving the program.

As the State of California sinks into a deep economic crisis, California’s Stem Cell Agency is so well-financed that it gave out $19 million dollars last month and is in the process of giving out another $66 million this month. 

David Jensen of the California Stem Cell Report raises the timely question: are California’s priorities in the right place?

Clearly, California voters believed in the value of stem cell research when they voted for Proposition 71, and there is little doubt that stem cell research has the potential to be tremendously beneficial to the state’s biotech community, but did the voters really intend to fund stem cell research with state taxpayer money in lieu of everything else? 

The problem with research, of course, is that it can take years to bear fruit. So, while investing in stem cell research today can easily be viewed as an investment in the future, that future may be years down the road.  Meanwhile, the state is out of money and that reality is having an immediate effect today across the board on a variety of programs as well as the overall operation of the state.  While California can certainly raise taxes, in this economy where so many residents are losing their jobs and their homes, raising taxes is probably not going to fix the states’s economic problems. 

Jensen addresses the situation as follows:

No one – except for those congenitally opposed to hESC work — is contending that all these millions are going to unworthy scientists or to dubious research. But the CIRM giveaways stand in marked contrast to what is happening to the rest of the state in the light of its $40 billion budget crisis. . . .

The disparity raises major public policy issues about the use of ballot initiatives to promote and protect various causes. Should the elderly and poor see their much-needed assistance and medical care cut while cash flows unimpeded, in this case, to researchers, some of whom are already exceedingly well funded?

In my opinion, Jensen’s point is well-taken.  As a transplant from the South–not Southern California, but the "real" South–I have always been uncomfortable with California’s ballot initiatives for the simple reason that I always felt like I was missing some critical information to making a decision: the budget.  I have run my law firm now for five years, and I can assure you that while I made some mistakes early on, I quickly learned that a business owner cannot make any spending decision without carefully reviewing the budget that will finance such spending.  I serve on a nonprofit board of directors, and the same is true in making spending decisions for that organization.

Yet, as a California voter, I am somehow expected to make a decision on a ballot initiative without being able to see the overall financial picture of the state.

Does this really make sense?

In the case at hand, I doubt that the current funding imbalance is going to turn Californians against stem cell research.  By and large, I think people support the research and recognize its potential.  On the other hand, it should make us all stop and think about our state’s priorities in this economic crisis.  Are they invested in the right place?

The status of SBIR reauthorization is unclear, according to an update by Rick Shindell of the SBIR Insider..

In his October 3rd newsletter, Rick Shindell had pronounced SBIR reauthorization dead.  Shindell wrote in his email update the following:

Over the last month and through today, October 3, 2008, there has been a flurry of intense efforts in the Senate to get an SBIR Reauthorization bill passed. . . .  Unfortunately the valiant efforts on SBIR reauthorization by the leaders and staff of the Senate Committee on Small Business and Entrepreneurship (SBE), John Kerry (D-MA) chair and Olympia Snowe (R-ME), were rebuffed by a few and ultimately could not be brought to the full Senate for a vote, in spite of the fact that the original bill S.3362 was passed unanimously 19-0 in the SBE committee back in July. . . .

In today’s update, however, Shindell appears to have changed his opinion somewhat, stating:

In our October 3rd issue we announced that SBIR reauthorization was dead in the 110th Congress. Although this scenario is still likely, the events of the last few weeks heighten the chances for more action in a “lame-duck” Congress which “may” present an opportunity for additional SBIR reauthorization activity.

So, the question is this: will the current economic climate push the Senate to move forward on this reauthorization effort?

In all honesty, I doubt it.  I have a bit of a bias when it comes to the subject of the SBA, since I started my law firm in a down economy following the sudden closing of my large law firm, and I found it disappointingly difficult to obtain funding through the SBA.  At one bank, I asked about SBA funding, and to my surprise, I was asked what my spouse’s salary was.  When I replied in some shock that I was single, I was told the bank could not assist me.  At another bank, I received the run-around on SBA funding on the basis that law was a “highly risky profession” and I wouldn’t be able to do anything other than practice law if my business failed.   Of all the businesses I could have started, I honestly would never have thought that a law practice would have been placed in a high risk category–particularly when I had already practiced law for a number of years.   Wnile I did eventually obtain a small SBA loan, I never obtained the loan I really needed to build my business. I must admit I became somewhat disenchanted with the whole concept of the SBA.  In my opinion, the whole program would benefit from an overhaul.

So, having disclosed my personal bias on the SBA program, I would argue that the SBA program is exactly where Congress should be focusing its attention in a down economy.

Why do I say this?

Well, in a down economy, there are generally a number of layoffs, and a number of laid off employees will not be able to find the right job.   Rather than sitting home, collecting unemployment, and potentially losing their home to foreclosure, many of the unemployed will contemplate starting a small business.  As anyone who has ever started a small business can tell you, securing adequate financing is often critical to the success of a small business.  So, in my opinion, it makes perfect sense for Congress to focus its efforts on improving the SBA program in a down economy, if it is serious about taking steps to invigorate the economy.

So, how does this relate to SBIR reauthorization?  Well, I would argue that Congress should ensure that the SBIR gets reauthorized for the very same reason–to promote small business and invigorate the economy.

Unfortunately, however, to date I have heard absolutely nothing of any plans by Congress to focus on the SBA as part of its economic relief efforts.  Instead, Congress and the administration are busy taking all kinds of economic steps that have little or nothing to do with small business.  For this reason, I doubt that SBIR reauthorization is going to get much attention by the Senate before the end of the year either.

The California Biotech Law Blog will continue to keep you posted as any new SBIR reauthorization developments occur.