Damn Democrats

Still, an empowered Democratic majority, led by healthcare and finance committee mavens Ted Kennedy and Max Baucus in the Senate and Henry Waxman and John Dingell in the House— dubbed "the four horsemen of the apocalypse" by St. Joseph's University's Bill Trombetta—is likely to mobilize behind important legislation that pharma lobbyists had helped block under the Bush administration.

Biosimilars Follow-on biologics are widely viewed as a done deal, even with four different bills afloat in Congress. "We've crossed swords a few times with Waxman, who proposes no data exclusivity at all," says Joe Panetta. "But we're encouraged that other members of Congress support 12 years." Trombetta predicts an even more disruptive process. "A company will produce a biological generic of an expensive cancer drug, and it will win the lawsuit brought by the brand maker because it is offering a lifesaving drug at a much more affordable price."

Part D Pricing Estimates of how much margin pharma stands to lose if the noninterference clause is killed range anywhere from $10 billion to $30 billion, according to the Boston Consulting Group.

With most Americans opposed to the $700 billion Wall Street bailout, pols may think better of messing with Part D. "The question of the amount of government intervention you really need is going to be front-of-mind," says Terry Hisey, head of life sciences at Deloitte. "If a program works, they will let it be. And Medicare Part D is hugely popular."

Yet Waxman has already pledged to introduce a bill requiring drugmakers to pay rebates to Part D dual eligibles. "The Democrats may start there, and see how much resistance there is before taking on the noninterference clause," says Daniel Kracov.

Says Michael Russo: "If the government says it wants to negotiate prices with pharma just like it does with its other suppliers, how can pharma justify being the exception? With the economy in the tank, that's probably a nonstarter."

But pharma and its lobbyists will try. PhRMA is already rolling out a multimillion-dollar PR blitz trumpeting what the group's Ken Johnson calls "our free-market healthcare system," including national TV ads with talk show host Montel Williams boosting early diagnosis and patient assistance programs. "The government does not negotiate prices, it dictates prices, and that impairs our companies' ability to be innovative with the ability to develop lifesaving medicines," Johnson says.

The old arguments, however, may have little traction. The free markets are in free-fall. When it comes to prescription drugs, many consumers worry less about having a choice than about meeting their copays. As for the threat to industry innovation posed by lower reimbursement, "It's a really hard sell," says Lawyer. "People take for granted the availability of lifesaving drugs. And the drug industry doesn't get much sympathy for its own economic troubles."

Most Pharm Exec sources say that the industry must be far more proactive than in the past—willing to level with consumers and make concessions to Congress. "Industry needs to figure out the right way to present what the fair price for a drug is," says Daemmrich. "It has to be in terms that are meaningful to consumers—showing the value of a drug in terms of a health outcome and what that's worth."

Sommatech Consulting's Russ Somma adds: "Big Pharma needs to speak in a unified voice, and present an alternative. They should consider something bold, like developing a blended price rather than competing one against the other in every single little drug niche."

Pharma may not be ready to embrace blended prices, but some insiders indicate that the industry is evolving—cautiously—a new, more cooperative strategy to meet demanding economic and political conditions. Says Charlotte Silbey: "Our biggest problems with our customers are pricing and perception: The reality of very high prices, the cozy relationship between doctors and the industry, and the post-Vioxx safety monitoring that scared people. The new administration's commitment to healthcare reform is really an enormous opportunity for us to fix all that. But we need the courage to step up to it."

Dealing with the healthcare reform juggernaut isn't, of course, the only item on pharma's 2009 to-do list. Every drugmaker also needs to step up its efforts to produce more (safer, better, cheaper) drugs more quickly and efficiently while getting smaller, going global, and keeping shareholders, customers, and Wall Street happy.

"We have to be careful that we don't end up like the auto industry in front of Congress asking for a bailout in exchange for restructuring," says Evan Loh. "The companies that will survive these times are the ones that ask, 'Are we the best in the world at doing this?' and if not, then stop doing it."

Says Peter Lawyer: "I wouldn't surprise if companies look back in a few years and say 2009 was pretty good, in light of what's probably ahead."