A Good Session for Biopharma—So Far

For biopharma, the Connecticut General Assembly is a major cause of cognitive dissonance—the discomfort caused by contradictory information.

Over the last two decades, state legislators have enacted many policies that have nurtured the growth of biotech R&D labs and corporate headquarters and, in so doing, the discovery of new treatments and cures and the good jobs that come with them.

Most sessions, though, as much as they opine about the merits of biotech for patients and the economy, legislators also hold numerous hearings and otherwise contemplate legislation that are anathema to the industry.

This year was no different.

Price Controls Sidelined for Now

As the session took hold and legislators figured out how they would conduct the business of the General Assembly in the age of COVID, more than 70 biopharma-related bills were under consideration.

Two were particularly important and cause for concern.

The first, HB 6447, instituted price caps and price controls on medicines. The rising cost of healthcare no doubt makes this type of legislation politically appealing, but it is profoundly counterproductive to the goal of growing the biopharma sector in Connecticut.

The bill ignored the biopharma industry’s need to recoup its vast R&D investments.

The bill ignored the biopharma industry’s need to recoup its vast R&D investments and the fact that the few medicines that obtain FDA approval must pay for all the valuable research that doesn’t result directly in a new medicine.

The bill also assumed drugs are a significant healthcare cost driver when, in fact, they are not—drugs are only 10%-15% of each healthcare dollar and medicine innovation consistently reduces the cost of healthcare.

Controls ‘Never Work’

Finally, the bill’s drafters shut their eyes to history: price controls on whatever good or service never work and result in shortages, slower introduction of new medicines, and loss of productivity.

HB 6447’s advocates were not able to muster enough support for the bill to obtain a floor vote.

Price controls never work and result in shortages, slower introduction of new medicines, and loss of productivity.

This was due in part to a sense among many legislators that, given the stunning success of biopharma in delivering safe and effective COVID vaccines in record time, this was no time to hobble the industry’s highly effective R&D/business model.

Unfortunately, the battle over HB 6447 is not over. The General Assembly will hold a special session to implement the state budget and supporters could mount a campaign to insert the bill’s provisions into the implementer legislation.

The Connecticut Bioscience Growth Council will be advocating forcefully against such action.

Public Option Fails

The second bill of considerable concern was SB 842, which implemented a complex and fiscally unsound state-run healthcare system.

It would have set a course for a single payer system and the sapping of innovation, drug shortages, delayed entry of new medicines, and erosion of quality care that go hand-in-hand with such systems.

SB 842 reflected a misunderstanding of the biopharma R&D profile and business model.

Like HB 6447, SB 842 reflected a misunderstanding of the biopharma R&D profile and business model, as well as the many factors that impact healthcare costs.

After much advocacy against its passage, SB 842 was sidelined and it is highly unlikely that it will be resuscitated in a special session this year.

R&D Tax Credit

The legislature is of two minds, and 2021 also saw several important changes that will do much to strengthen the biopharma sector and improve the delivery of healthcare to patients.

First and foremost was the partial restoration of the R&D tax credit to 70% of its value over two years. This state budget provision was especially important to the biopharma industry because it is uniquely defined by research and development.

No other industry spends so much on R&D over such extended stretches of time—on average, it takes $2.7 billion and 12 years to bring one medicine from research insight to a fully developed FDA-approved drug available on pharmacy shelves.

One hundred percent is really 70%—can companies count on the credit, or will it be reduced the next time the state budget is under pressure?

And only about one in a thousand of those research insights succeed in being safe and effective. This means that the price of the few successful research projects/FDA-approved drugs pay for all the valuable research that doesn’t pan out.

Restoration to 70% of the R&D tax credit’s original value is of course preferable to the status quo (roughly 55% of its value). But the General Assembly’s awkward and frustrating whittling away in one statute the credit’s stated value as set forth in another statute undermines Connecticut’s economic development credibility with companies and their investors.

One hundred percent is really 70%—can companies count on the credit, or will it be reduced the next time the state budget is under pressure?

Childhood Immunization Exemption

Another bright spot in the 2021 legislative scorecard was passage of HB 6423, which removes the non-medical exemption from the childhood vaccination requirement for enrollment in schools and childcare and group daycare centers.

The legislation became necessary as the percentage of children vaccinated in the state fell below 95% in several communities.

HB 6423 removes the non-medical exemption from the vaccination requirement for enrollment in schools and childcare and group daycare centers.

This put those who cannot be vaccinated for medical reasons at risk for highly contagious diseases like measles (which can have many harmful effects, including brain inflammation and long term disability).

In a reasonable compromise, the bill grandfathers those who submitted a non-medical exemption prior to the bill’s passage.

Co-Pay Accumulator Prohibition

SB 1003 bars use of so-called “co-pay accumulator programs” whereby some or all of the monetary assistance provided by a biopharma company is not counted toward a patient’s deductible or out-of-pocket thresholds.

The bill was signed by Gov. Ned Lamont on June 2 and is now Public Act 21-14.

Capital Base Tax

Connecticut’s capital base tax is essentially a tax on corporate cash accounts for corporations without income (and therefore not subject to the income tax).

It disproportionately affects biotech companies, which, due to the time and huge cost of research and developing a new medicine, often raise and hold large sums of investor funds for years in their corporate “savings” accounts.

The capital base tax is a major disincentive to start-up biotechs when they are assessing where to locate.

This tax is a major disincentive to start-up biotechs when they are assessing where to locate.

It made a great deal of sense to remove this tax years ago when first proposed and it is highly unfortunate that this year’s budget delays the capital base tax phase out to 2024.

Drug Importation

No fewer than four drug importation bills came before the General Assembly in 2021 (importation was also part of SB 842).

The issue of importing drugs from foreign countries to possibly capture their perceived lower prices for Connecticut citizens has been debated in the legislature for more than a decade.

This year’s importation bills didn’t progress very far but legislators should be mindful of the reputational damage they do.

It has been shown repeatedly that the safety of imported drugs—their purity and potency—cannot be assured by the U.S. Federal Drug Administration or the drug regulatory agency of the country of origin and, in any case, that an adequate supply of foreign drugs does not exist.

This year’s importation bills didn’t progress very far but legislators should be mindful of the reputational damage they do to Connecticut economic development efforts with the biopharma industry.

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For more information, contact the Connecticut Bioscience Growth Council’s Paul Pescatello (860.244.1938) | @CTBio.