A juggernaut is building in Washington to increase funding to the National Institutes of Health, as both Democrats and Republicans want to be seen as supporting research on diseases. It sounds as American as mom and apple pie, but the question will be who pays for it and how.

Increased NIH funding probably will be one of the hot topics of relevance to the biotech industry in Congress during 1998. Fortunately for those of us interested in seeing a rational review of the issue, little if anything is likely to be done this year, as Congress plans to adjourn by mid-November.

Still, the first act was played out at congressional hearings last week. And a strange act it was, built around the desire of a single pharmaceutical company, Bristol-Myers Squibb, to maintain a monopoly on its lucrative Taxol drug - in exchange for a donation/kickback to the government in the form of an offer to pay royalties.

Unfortunately, the broader agenda of the proposal on the table is to take Bristol-Myers' specific case and make it general by having other companies pay a royalty - read, a tax - to the government in exchange for an increased period of marketing exclusivity for drugs. While the proposal as written is designed to extend market exclusivity primarily for drugs covered under the Waxman-Hatch Act, the danger to biotech is that the proposal could be extended to all drugs in the drive to increase NIH funding.

(Waxman-Hatch gives new molecular entities that lack patents or Orphan Drug status five years of market exclusivity after they are approved by the FDA.)

The negative implications for the industry of what essentially would be a 3 percent surtax on drugs are manifest: all taxes are disincentives to development of products; such a tax would decrease global competitiveness; and it would decrease incentives to invest in biotech compared to other, non-taxed sectors. Moreover, the rational response by companies to pass along the tax in the form of higher prices would likely lead to renewed calls for reasonable pricing clauses or price controls, especially as health care costs are set to rise significantly in 1998 for the first time in several years.

Furthermore, any discussion of payments to NIH by companies is likely to resurrect assertions that the research conducted by NIH is inherently risky, which is a red herring to downplay the risk taken by the private sector to bring compounds through the development process.

The key for the biotech industry will be to reframe the issue going forward. While increased market exclusivity is nice, the best argument for biotech could be good old-fashioned competition: the proposal for Bristol-Myers is clearly designed to stifle competition and maintain pricing. With health care costs going up, the industry should argue that the government should do nothing to quash competition. At the same time, if the social consensus is that NIH should receive more funding, there are clearly better ways to do so.

Going in the back door

Last week's hearing on a "demonstration project" that would extend Bristol-Myers' monopoly over Taxol through a congressional back door at least whetted legislators' appetites for diverting a portion of profits from drug sales to funding biomedical research at NIH. Senators Arlen Specter (R-Penn.) and Tom Harkin (D-Iowa), the chairman and ranking minority member of the Senate Appropriations Committee's Labor/HHS subcommittee, respectively, expressed strong interest in discussing the issue of imposing a tax - they call it a "royalty" - on drug sales next year as part of their drive to double the NIH research budget.