Forecast 2005 - Pharmaceutical Executive

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Forecast 2005
This is the time of year to not only reflect on the past, but to ponder the future. Forget soothsayers, prophets, and fortune tellers' crystal balls. Inside are predictions from some of industry's key thought leaders.

Pharmaceutical Executive


Toby Jane Hindin, EdD Editor-in-Chief, Applied Clinical Trials magazine


Clinical trials: Outsourcing is still on the rise. Look for new approaches to partnerships.
While profits in the pharmaceutical industry have slowed over the past few years, the clinical trials outsourcing market has grown by leaps and bounds. The industry has witnessed some unexpected divergences and paradigm shifts over the last year. This is reflected in sponsors now rethinking how partnerships and alliances with CROs, laboratories, IT firms, public and private research organizations, and academia can fit together to maximize their resources. Future trends will include innovative partnerships, the incredible evolution of diagnostic tools, amazing strides in pharmacogenomics, and specific disease treatments in the development and marketing of new drugs.

Jon Resnick Everyone is talking about Canada... Senior engagement director, Cambridge Pharma Consultancy Over the past few years, the battle over US pharmaceutical prices has focused on importation. There is a widespread perception that importation is the primary threat to free pricing. But that perception is not supported by analysis of how importation is likely to play out over time, or by the European experience of parallel trade. Nor does it take into account other threats to US prices.

...But Medicare reform looms large. The largest of these threats is the Medicare drug benefit. Though language in the act bars the government from direct price negotiation, precedents from Medicare and other federal programs suggest that lawmakers will be pushed to reconsider these "noninterference" protections. If that happens, the real battle over US pricing in the medium term will emerge not from importation—but from Medicare.

The rest of the world can't supply the US. One obstacle to controlling US prices through importation is supply. Even if all the drugs currently parallel-traded in Europe and Canada were made available in the United States, they would meet only 3 to 5 percent of existing US demand. And parallel trade tends to focus on selected, high-volume categories. Just three classes constitute more than 40 percent of imports from Canada, leaving many categories in short supply.

"Savings" won't reduce prices to payers and patients. Would substantial cost savings from importation be passed on to consumers? That hasn't been the case in Europe, where savings to payers from importation have been moderate; parallel traders absorb most of the gains, and prices gravitate toward local market levels. Add in proposed user fees, liability exposure, and distribution costs, and intermediary margins are likely to be squeezed further, reducing the potential to pass gains on to payers.

Most patients will continue to pay the same. More than of 85 percent of patients' scripts are paid for by a third party. These payers are unlikely to pass along savings to patients. Payers buying in bulk would consume the majority of the imported supply, leaving little for retail consumers like our proverbial senior citizen in Buffalo.

Hard choices are on the way. Even under the most optimistic of scenarios, it is difficult to believe that the Medicare drug benefit can be sustained within its budget. Updated analysis from the Office of Management and Budget assumes that actual costs may be 40 percent higher than budgeted. Faced with market failure or cost overrides, legislators will have four options: modify eligibility, reduce benefits, seek extra financing (or take money from other programs), or control prices. The first three are difficult political decisions with direct implications for voters. The fourth, taking pricing action, is the least painful way to deliver a sustainable benefit, although it entails a policy cost (it discourages investment in R&D) and a political one (damage to the pharmaceutical industry).

Setting price or reimbursement levels has a precedent. Since the introduction of DRGs (diagnosis-related groups) in 1983, Medicare has regulated prices in every sector it touches—hospitals, physicians and Part B drugs. It has also directly set prices under the health programs of the Department of Veterans Affairs and Department of Defense through the Federal Supply Schedule and through "best price" rebate legislation under Medicaid.

Our advice: Don't ignore importation—it will have an impact on the industry—but keep an eye on the real game, which is the application of a Medicaid "best price" type solution in Medicare.


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