The Payer C Change: From Customers to Competitors - Pharmaceutical Executive


The Payer C Change: From Customers to Competitors

Pharmaceutical Executive

Pharma's competitive responses

Reflecting on the multitude of recent payer challenges, GSK's CEO Andrew Witty announced at the annual EFPIA meeting in June that the pharmaceutical industry is "adapting to a new [payer] reality." To contend with the increasing power and control of payers, pharmaceutical companies are experimenting with a variety of approaches, which I refer to as the nine "C's" of pharma's competitive payer responses:

Cooperation. In 2010, Novartis announced plans to invest $500 million in Russia over five years, including construction of a manufacturing plant in St. Petersburg. Similarly, Teva, Novo Nordisk, and Nycomed are each investing $80-100 million to build local manufacturing and other facilities in Russia to try to satisfy the government's new manufacturing requirement.

Collaboration. In June, Novartis announced collaboration with the Malaysian Health Ministry to establish a $700 million fund to support new healthcare ventures to help enhance its stakeholder relationships and selling opportunities in Malaysia.

Cost-cutting. Roche is significantly cutting the price of MabThera (rituximab) and the breast cancer agent Herceptin (trastuzumab) in India and giving the cancer therapies new names. The company hopes to boost patient access and prevent a compulsory license transfer, resulting in potential generic competition. Roche spokesman Daniel Grotzky stated in a Wall Street Journal article that "there is the expectation that companies should do more to improve access to drugs. One instrument that has been used unilaterally by the Indian government was use of the compulsory license. We'd like to provide solutions to that, rather than be in a situation where you see unilateral action." Roche is also reducing the price of its non-Hodgkin's Lymphoma agent MabThera/Rituxan in Egypt and South Africa as part an overall emerging markets strategy in highly price-sensitive markets.

Contracting. In 2009, Merck and the US health-insurer Cigna signed a performance-based contract which provided higher discounts on Merck's diabetes agents Januvia and Janumet if Cigna's members achieved specified clinical outcomes and adherence measures. "Merck should be recognized as the first major pharmaceutical company to offer increased discounts on its oral anti-diabetic products, supporting Cigna's efforts to reduce A1C levels for individuals with diabetes, regardless of what medication they may be taking," said Eric Elliott, president of Cigna Pharmacy Management. "Improving people's health comes first for both Cigna and Merck. We hope this agreement will become a model in the industry." In 2010, GSK agreed to provide the United Kingdom's National Health Service a partial, retroactive rebate if the company's kidney cancer drug Votrient did not match up to Pfizer's rival Sutent in a head-to-head clinical trial to be completed in 2012. This special "guaranteed" pricing approach compelled NICE to recommend Votrient for NHS coverage.

Companion diagnostics. To help ensure US approval and reimbursement, Pfizer coupled its $100,000 per year cancer drug Xalkori with a companion diagnostic test from Abbott Laboratories to help physicians identify the 5 percent of patients whose non-small cell lung tumors expressed a specific ALK gene mutation. The goal is to ensure that the cost of the medicine is justified by targeting it only for those patients most likely to benefit. According to consulting firm PricewaterhouseCoopers, there were over 25 companion diagnostic deals in the United States in 2010 and 15 in the first half of 2011, up from only seven in 2008. A key question is whether drug inventors like Pfizer will have to continue to fund the cost of co-developing these diagnostics without any contribution from payers or patients.

Comparative effectiveness. In the past, pharmaceutical companies rarely conducted head-to-head trials against rival agents. However, with dramatically increasing competition for provider prescriptions and payer funding, many large pharmaceutical firms are conducting variations of "comparative effectiveness" studies, typically pitting their new medicine against other widely-used medications. Companies are also investing heavily in observational studies—real-world evidence—to protect their franchise against the growing tendency of payers to revise prices downward if exposure to the market suggests a medicine does not perform as expected in advancing therapeutic outcomes.

Criticism. Companies are using their global presence to pinpoint instances where payers may be denying access where others do not. In April, GSK executive Simon Jose publically criticized NICE stating that, "By denying access to benilumab [Benlysta], which is the first treatment specifically licensed and developed for lupus in over 50 years, UK patients are being left behind those in other countries, including the United States, Germany, and Spain who already have access to this medicine."

Challenges. Novartis is legally challenging the Indian government's refusal to grant a patent for its leukemia drug Gleevec, which has patent protection in over 40 countries, but which is facing a potential generic onslaught in India.

Confrontation. In Germany, Novartis recently pulled its anti-hypertensive Rasilamlo from the market three months after launch, while Lilly and partner Boehringer Ingelheim bypassed the German market for the launch of its diabetes drug Trajenta. Novo Nordisk refused to give in to price cuts in Greece and Spain by threatening to keep several new agents off the markets until both countries relented in later negotiations. In response to public criticism, Novo Nordisk CEO Lars Sorensen said, "I think actually it ought to be the [Greek] government who faces the patients and talks to the patients about why we cannot afford to buy the products that you have been used to getting because we didn't manage our finances well enough." Statements like these are controversial and represent just how seriously companies are taking the pressure from governments to serve as "lender of first resort" once public finances go bad.

Worldwide financial pressures will mount as national economies face low rates of GDP growth, mounting public debt, ageing populations, and the demands of growing middle classes in emerging markets seeking greater access to medicines. At the same time, pharmaceutical companies must work to maintain traditionally high margins on existing products to fund investment in higher-priced biologics. Consequently, the competition between pharmaceutical companies and payers—their long-standing customers—for funding will become dramatically more intense. Pharmaceutical professionals better get ready to handle the ultimate competitor.

Stan Bernard MD, MBA, is President of Bernard Associates, LLC, a global pharmaceutical industry competition consulting firm. He can be reached at


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