The Phrase that Plays

Aug 01, 2012

William Looney
IT'S HARD TO FIND THESE DAYS A FLAT, DECLARATIVE STATEMENT DELIVERED IN CANDOR— that combination of content and expressiveness that hits you straight between the eyes. Pharm Exec struck that rare marker in this month's feature by Ben Comer highlighting what's behind the new Corporate Integrity Agreement (CIA) imposed on GSK by the HHS Office of Inspector-General to compensate for a long list of marketing and pricing malfeasances. As one of our interviewed experts put it, these agreements—now in place for nine of the Big Pharma 10, with Roche the stand-out exception—mean that "the federal government will be running your US operations for the next five years."

Like all good quotes, it exposes for scrutiny questions that relate to something larger and more fundamental. To me, it speaks volumes about the debate now raging on whether the biopharmaceutical industry is overregulated and that it shares many common characteristics with the financial sector: too big; too global; too self-involved and detached from the real world experience of the customer; and too willing to test the boundaries of ethics and risk to pump up profit margins that are already the envy of other businesses. Even if you assume the analogy with finance is overstated because drug makers produce an essential good that improves the human condition, we still trend toward the bottom in public attitudes and reputation. It means that the "incentive to regulate" will always be central to the conversation about this industry.

Our GSK feature points out that the real significance of the CIA is not the financial penalties—though $3 billion in fines and penalties is enough to finance the entire cost of GSK's latest acquisition, Human Genome Sciences. Rather, it is creatively applying regulatory fiat to force fundamental changes in company culture and the way GSK does business. The most important of these is the removal of the age-old link between compensation and volume and profits from sales. In essence, the CIA tells GSK that how well you sell counts more than how much.

There are other examples that lend credence to our source's assertion that the feds are now calling the shots on the way Big Pharma does business. Take the FDA Risk Evaluation and Mitigation Strategies program (REMS). By mandating that selected individual products conform to a tool set of post-marketing approval commitments, the FDA is shaping the basics of the standard marketing campaign. REMS accentuates the importance of "smart" marketing, creating an internal incentive among companies toward smaller niche products able to benefit from carefully targeted, regulatory compliant messaging.

Likewise, drug development is slowly being turned on its head by regulatory mandates that some observers fear has "democratized" the process around a range of outside influences, all of which stand ready to upend the complex interface between private enterprise and science that has produced most new medicines over the past 50 years. A September 2010 Memorandum of Understanding between the FDA and the Center for Medicaid/Medicare Services (CMS) gives the payer a consultative role in policies on market authorization, while the new PDUFA V legislation commits the FDA to devise a "systematic framework" for considering the risks and benefits of candidate drugs under review. That framework grants patient groups a prominent role in evaluating the need for new or modified endpoints that will drive the content of protocols in clinical trials. What these decisions represent is the empowerment of two new players in the already crowded business of drug development, which will shape the basic risk calculation that individual companies make in deciding where to place their bets. Vastly increased commitments to spending on observational, real-world evidence are going to be necessary to compete successfully for the regulators' approval.

If "stealth rule" by government is going to figure in industry prospects going forward, then this month's second feature—"Planning that Thousand Year Future"—shows how Big Pharma can survive, and thrive, by applying the basic lessons of evolutionary biology to keep business strategy alert and on point. It notes that the world's oldest continuously operating company is Japan's Hoshi Ryokan, an inn owned by one family for 46 generations—and a symbol of hospitality, open to all comers. With governments and a host of new fellow travelers at the gates of today's "c suite," that's a mindset worth cultivating.