The new competitor: Prepping to do harm
Combined, these trends lay out the terms of battle for Big Pharma—even if the true day of reckoning has yet to arrive. "2013
is the Year of Competition," Pharm Exec editorial advisory board member Dr. Stan Bernard told Pharm Exec. "Companies will have to start adapting to three aggressive and sophisticated types of competitors: rival brands, numerous
generics, and the 'budget holders,' consisting of cash-strapped PBMs vying with drug-makers to control increasingly limited
funding for prescription reimbursements."
On the brand side, 2013 will see more crowding in major therapeutic categories, especially in the high-margin specialty drugs
segment, resulting in negative pricing pressures and bigger investments to defend against the now ubiquitous counter-launch
campaigns. Meanwhile, the race to "genericize" continues: 80 percent of all scrip in the United States is now written for
generic medicines, while most European governments are deliberately skewing reimbursement away from brands.
At the same time, generic companies are more formidable competitors to Big Pharma, not only as a consequence of consolidation
(Teva alone supplies nearly one of every five drugs prescribed in the United States) but also as they build a pipeline franchise
in innovative medicines, combinations, complex therapies, and biosimilars—strangely enough, all hard to copy. JPMorgan analysts
predict that, by the end of this year, diversification will set root and the top three generic companies in the United States
will each generate less than half their sales from INN generics.
Expect no truce in the industry's battle with PBMs over their effort to limit prescription choices for patients participating
in contract formulary networks. This month, United Health Care (UHC) begins barring member pharmacist acceptance of drug company
coupon cards offered directly to patients to help them meet the high tiered co-pay fees on six widely prescribed branded drugs
for which there are cheaper available alternatives. The ban eliminates an incentive that UHC—and other leading PBMS—says is
being used by half of its enrolled patients to frustrate formulary management objectives through choice of medicines that
are not as cost effective as recommended off-patent alternatives.
Health reform weighs heavily on this dispute, since the PBMs claim that what they are doing conforms to a longstanding rule
prohibiting couponing for patients in Medicare, Medicaid, and other federal programs. It also carves out a new front for Big
Pharma in the political debate about rationing—how PBMs are limiting choice of therapy by short-circuiting the physician-patient
A world of hurt
Churn on the product and customer fronts is accentuated by the unraveling of the geographic map that once drove strategy on
everything from launch sequencing to manufacturing. The familiar neighborhoods for Big Pharma are changing—and the industry
is not trading up.
In the United States, market forces are shifting toward an overt government role in the financing and delivery of care; some
observers contend that the current flexible, employer-based system will start to morph into a European-style social insurance
model after 2018, when the ACA is fully phased in and the first big employers calculate that it costs less to pay fines for
not providing employee coverage than incentivizing their workers to move out to the government-run insurance exchanges. It
is also hard to see how market pricing for a new generation of costly branded biologics is compatible with a scenario calling
for expansion of the government Medicaid program that subsidizes medicine at below market rates as well as extensive new regulations
on all providers seeking to access and serve the working uninsured population, a significant portion of which will be at incomes
just above the federal poverty level.
"Most observers agree that under reform there will be more revenue coming into the system, on a net basis," Les Funtleyder,
investment analyst for Polliwog Inc., told Pharm Exec. "The key issue is who captures that revenue; whether pharma can do it is an open question, even though the evidence shows
when people are insured, utilization of medicines goes up." This returns us to the basic strategic dilemma of whether more
volume can substitute for the certainty of lower margins—it was not irrational that those specialty medical practices dependent
on big-ticket oncology drugs were among the most ardent foes of the 2010 reform bill.