Business Reporters Race to Keep up With Biotech Momentum

Biotechnology has come of age, pronounces BusinessWeek in the June 13 issue. Yeah, we've heard that hype before, but this time is different, the cover story contends — biotech firms are starting to produce actual drugs that work.

"Biotech, Finally" reports that 230 drugs and related products have now been created through biotechnology. The Food and Drug Administration is approving all kinds of biotech treatments for the gamut of diseases, including cancer, multiple sclerosis and even insomnia. Dozens more in late-stage trials are on track to win approval soon.

"The past 30 years of biological discoveries, insights into the human genome and exotic chemical manipulation have unleashed a wave of biological drugs, many of them reengineered human proteins," the article states. "These molecules have the power to change the prognoses for a huge range of diseases all but untreatable just five years ago."

Cancer patients have been among the biggest beneficiaries of advances made by biotech firms. Just 10 years ago, less than a dozen cancer drugs were in trials, most with debilitating side effects. Now, there are more than 400 cancer drugs with minimal side effects being tested.

"We are now in a golden age of drug discovery," one source proclaims in the story.

So what does this mean for long-suffering biotech investors? Many of these stocks still experience fantastic price spikes — followed by precipitous declines. Few of these companies have yet to turn a profit and the group continues to underperform the market. But all that could change in the next couple years as these drugs start selling big-time. The pharmaceutical giants are increasingly partnering with biotech firms, which should bolster overall development efforts.

The problem is, how do we pay for all this progress? The U.S. government will foot much of the bill. A new Medicare law, passed in 2003 and set to go into effect in January, will offer broad prescription-drug coverage for the first time in the 40-year-old program's history.

The benefits will cost the government an estimated $720 billion over the next decade —and Forbes magazine calls the outlay an "Rx for Fraud" in its June 20 issue.

"It won't be long before bad guys start helping themselves to the giant honeypot created by the new Medicare drug benefit, beginning next January. How do we know? Because they're already busy going after the much smaller drug program — a warm-up to the big act — in place today," writes Nathan Vardi in the cover story.

The article reports that complaints are already surfacing about "hucksters and providers violating the rules," ranging from door-to-door salesmen hawking phony benefit cards to insurers enrolling Medicare beneficiaries without their consent to get them to use services and products that Medicare reimburses.

Medicare estimates that $20 billion in improper claims were paid out last year — a harbinger of the abuses to come, Vardi asserts in his story. The government is trying to anticipate types of cheating, but prescription drugs are particularly vulnerable to fraud, sources say, including shifty discounting, drug switching, prescription shorting and good-old palm greasing.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism