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Industry Forecast 2012 : Bridging the Divide

Pharmaceutical Executive Digital Edition - January 2012

Now more than ever, regulatory compliance is becoming strategically significant for Big Pharma. Compliance now requires coordination not only across companies on a global level, but across departments, including regulatory, legal, marketing, information services, human resources, and more. The burden of compliance for industry is underscored in the Office of the Inspector General's 2012 fiscal year projections; OIG's involvement in healthcare fraud and abuse activities led to a recovery of $3.8 billion in fiscal-year 2010, exceeding the target goal of $3.4 billion. It's all hands on deck to create an industry of trust and transparency, all built around a "compliance culture." To help companies plot a new course, 

 surveys the landscape and highlights current trends that promise to raise the stakes on compliance even further in the year ahead. The key point is to discover what it takes to not only observe the letter of the law, but to stay one step ahead of it—all from a global perspective. 

"Proactive compliance is more than simple data collection," says the new white paper "Federal and State Sunshine Act Compliance Readiness," by Alliance Life Sciences. "It is about comprehensively protecting and enabling your business to mitigate risk and address regulatory requirements, while increasing efficiencies and reducing cost." Certainly, advice such as this is applicable across the board, concerning compliance around the Sunshine Act, off-label marketing, and other compliance challenges today. 

"Inside the pharmaceutical industry, compliance has grown. Compliance needs to assist the business units in operationalizing the legal and regulatory requirements and still have the business be able to do what it has to do," says John Oroho, executive vice president of Porzio Pharmaceutical Services, a subsidiary of the law firm Porzio, Bromberg, and Newman. Porzio Pharmaceutical Services advises companies on how to comply with current regulations in the industry. "Compliance officers have taken a more significant role in companies, and the compliance departments have gotten bigger because it is necessary for companies not only to understand what the requirements are and to operationalize them, but then you've got to show them that you are adhering to those best practices and adhering to the regulatory requirements," he says. 

The Sun(shine Act) Will Come Out Tomorrow

By this point, pharma should have all its ducks in a row when it comes to gearing up for the Sunshine Act. However, even though pharma was initially required to begin reporting physician payments as the law stipulates by Jan. 1, there may still be some pitfalls to avoid. 

"When the Sunshine Act was proposed, pharma supported it because it was going to give some uniformity to what had been a hodgepodge of different requirements state to state," explains Oroho. This means that as of Jan. 1 pharma would have had to track financial interactions with physicians and teaching hospitals. And on March 31, 2013, the first report of these interactions (anything over $10) will have to be reported by pharma to Health and Human Services (HHS). HHS then has until September 30, 2013, to make that information available to the public in an easy-to-use, searchable website. 

Now for the bad news: the specifics on how drug and device makers are supposed to submit info on payments to physicians—specifics that were supposed to be delivered by the Centers for Medicare and Medicaid Services (CMS) on October 1, 2011—were not released until December 15, 2011. The October 2011 deadline would have given pharma companies 90 days to digest the specifics of the regulations before they began tracking spending information on Jan. 1; specifics that, one could argue, are essential to know and understand in order to know exactly 

In light of the passing of the October 2011 deadline and the continuing absence of specifics from CMS and HHS, a letter was drafted from BIO, PhRMA, Consumers Union, AdvaMed, Community Catalyst, and Pew Health Group to HHS on October 25, 2011, requesting that the Jan. 1 deadline be extended.  

"Delays in establishing procedures for the submission and public reporting of the required information will make it increasingly challenging for manufacturers to know whether they are meeting their statutory obligation as they begin to collect data in 2012. Given that Congress intended that industry have three months to complete implementation based on the government procedures following the October 1, 2011, statutory date to implement the new provisions, we request that a similar time period be permitted following establishment of final procedures for the submission and public reporting of 2012 information for companies to achieve full compliance," the letter reads. "An absence of established procedures could harm both the companies who are trying to comply with the law and the public who stands to benefit from increased transparency of these relationships." 

The finally-released guidelines acknowledge the delay in this way: "Due to the timing of the publication of this notice ... a final rule will not be published in time for applicable manufacturers and applicable GPOs to begin collecting the information required ... on Jan. 1, as indicated in the statute. We will not require applicable manufacturers and GPOs to begin collecting the required information until after the publication of the final rule ... We seek comment on the amount of time [needed] following publication of the final rule in order to begin complying with the data collection requirements ... We are considering a preparation period of 90 days, since we believe this was the time period intended by Congress ... and [we] are requesting comments on whether that is a sufficient amount of time." Comments are being accepted through Feb. 17 of this year. 

Clearly, Jan. 1 has come and gone, with the promised CMS guidelines turning up only weeks before the new year—and the show must go on. In the absence of timely guidelines, Oroho advises the Jiminy Cricket mentality: Let your conscience be your guide. "What you're trying to do with compliance is influence behavior so that people do it just because it's the right thing," he says. "If people are acting on a values-based proposition, rather than doing it so they don't get caught or penalized, you will have less improper behavior. I look at compliance as being the conscience of a company." 

Silencing Off-Label Marketing: Profit Versus Information

Many times, physicians prescribe drugs for an indication other than the one on the label that has the FDA seal of approval. And patients come to rely on those drugs. The difficulty here lies in the fact that no matter how many physicians and patients swear by a drug's ability to improve health in some way, if it's not on the label, pharma marketing must stay mum. In the past, heavy fines have been imposed on pharma for off-label marketing, but compared to the profit to be made from off-label use, those fines can be just a drop in the bucket. 

Some believe, however, that current FDA compliance regulations around marketing have all but eliminated the problem of off-label marketing—perhaps with some collateral damage in the form of the loss of other valuable information. Rather than offering up too much information in its marketing campaigns and being willing to accept the risk of subsequent fines, says Steve Smith, chief marketing officer for M3, pharma is often so afraid of saying the wrong thing that it may play it safe by preferring to say almost nothing at all. 

"Every word that a pharmaceutical company prints or puts on a website or into a commercial is looked at by a brand manager, a brand team, a compliance team, a lawyer. And it is crafted down to the smallest word to make sure that nothing is said that will appear to be out of focus to the FDA," says Smith. "The regulatory scrutiny is amazing."  

The issue, he says, is a lack of trust on both sides. "My impression is that pharma often distrusts FDA to look reasonably and objectively at its promotional programs, and FDA distrusts pharma to promote its drugs truthfully." And so pharma must navigate carefully to avoid sinking its own ship. 

Because of the shakiness of this relationship, Smith maintains that any off-label marketing issues he's seen in pharma lately have been—rather than Big Pharma arrogantly going after profit despite potential penalties—unintentional slip-ups that sometimes result in FDA warning letters.  

Other gray areas in off-label arise in dialogues between overzealous sales reps and physicians, Smith says. "It's odd to have a dialogue between two professionals where the reps have to say, 'Oops, I can't talk to you about that,' but that's actually what's supposed to happen," he says. "The sales people cannot talk about anything that's off-label, no matter how valuable that information is. So the companies aren't misrepresenting their products by talking about off-label indications, but then who 

 talking about those? The government is not funding education to tell the doctors about it, so who is? At the end of the day, you do have to ask the question: 'Where's the patient advocacy in this?'" 

Admittedly, these regulations are in place for a reason, and pharma has certainly been guilty of pushing the envelope too far and abusing its marketing freedoms in the past. "Pharma gets beat on the head a lot, and we see bad news about them a lot. And they deserve much of it, because they're operating like any other business. They're operating because they have investors, and it's sad to say, but yes, they're operating for the bottom line. And they happen to do that in a place where people's health is more obviously on the line than in other industries." The danger, says Smith, lies in curbing vital information along with curbing promotional language—are we throwing the baby out with the bathwater?  

"In the mid '90s, a top 10 pharma ran a nationwide education program in collaboration with the National Heart, Lung, and Blood Institute (NHLBI) that reached hundreds of thousands of physicians and allied healthcare practitioners, improving their knowledge and their treatment of asthma, when it had been clearly shown that doctors were not up on the times with how to treat asthma. And yes, they did it for promotional purposes, but it was a massively successful program from the educational side," says Smith. "So in the past, there have been both benefits and abuses. And with the regulations now, we don't get the benefits. We get a lot less benefits and a lot less abuses. We've trimmed off both ends." 

There are several other laws and issues pharma must be aware of when it comes to regulatory compliance, including legislation such as the Best Price Rule (BP) and the Foreign Corrupt Practices Act (FCPA). 

The Best Price Rule was intended to minimize drug manufacturers from overcharging Medicaid by giving beneficiaries the best discounts that other purchasers negotiated. But as Tony Chen, associate director of government pricing, and David Cesani, senior consultant, revenue contract management at Alliance Life Sciences told 

"BP presents a unique challenge to manufacturers as actions to profit-maximize serve to decrease compliance with Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General (OIG) guidance. Not surprisingly, the OIG has recognized that 'manufacturers have a strong financial incentive to hide de facto pricing concessions to other purchasers to avoid passing on the same discounts to the states' in the form of higher rebates that would have been paid had manufacturers not inflated their BPs.

The details for the offenses typically include fraudulent price reporting based on omitting certain BP-setting transactions or mathematically derived methodologies to artificially inflate BP. In turn, 'whistleblowers' incentivized both morally and financially report these erroneous methodologies to the OIG, triggering increased investigative diligence. 

With recent prosecutorial trends that seek to not only punish corporations through fines and corporate integrity agreements, but also to target individual corporate officers, the risks have never been higher for those responsible to correctly certify and report Best Price."

In addition to BP, pharma must carefully consider the implication of the Foreign Corrupt Practices Act. FCPA aims to prevent government officials from exploiting their positions to gain unfair commercial advantage. Essentially, the law states that it is an offense for a U.S. person, entity, and certain applicable foreign entities to make bribes or offer any inducement for the purpose of obtaining or retaining business with a U.S. firm. While FCPA applies to a wide range of industries, the OIG has begun more strongly focusing on its applicability to the pharma industry within the past five years. 

"Physicians in Europe and in many companies outside of the U.S. are employees of state-owned hospitals or government facilities, so they could be considered government officials," explains Thomas Sullivan, president of CME company Rockpointe and editor of news website 

. The problem, says Sullivan, is that practices that pharma has always considered to be on the up-and-up—such as paying to fly physicians to educational meetings—can technically be interpreted as "bribery," even though there may never have been any deceitful intent. "For the most part, pharma is thinking, 'This is how we've always done it.' Now they're going to have to change their practices," he says. 

For its part, the OIG has been ramping up efforts and cracking down when it comes to the FCPA and pharma. Why? "There's a lot of cooperation between governments now to settle these cases ... There could potentially be a lot of income generated for these kinds of payments back to the government," says Sullivan. "They've done the fraud and kickback rules in the U.S., but companies have introduced pretty serious compliance regulations, so they're going to run out of violations. They [the OIG] see this as the new frontier." 

By all accounts, the buzz is that pharma is not trying to push corruption under the rug or find loopholes in compliance laws. On the contrary, it seems the industry is going above and beyond to understand, comply with, and embrace compliance laws that can lead to a more ethically and financially beneficial way of doing business. In fact, it's not that rare today to find pharma using past scandals as springboards for change—not just paying settlements and putting compliance challenges out of sight and out of mind, but rather highlighting them and leveraging them as catalysts for change. 

For example, when GlaxoSmithKline recently agreed to pay $3 billion to settle U.S. government civil and criminal investigations into its sales practices, the company used the publicity generated as a platform to announce newly stringent compliance and transparency policies. "This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today," Andrew Witty, chief executive officer of GSK, said in a statement. "In recent years, we have fundamentally changed our procedures for compliance, marketing, and selling in the U.S. to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently." 

Deirdre Connelly, president of North American pharmaceuticals at GSK, echoed those sentiments in a bylined column for 

 last April. "We do not sell chocolate or cars," she wrote. "We bring life-altering and life-saving medicines to patients. Society holds our interactions with our customers ... to a higher standard. We must ... create a framework and a mindset in which compliance with rules and regulations is not the ceiling, but the floor from which our organizations operate." 

Features

Pharma must coordinate the efforts of medical, legal, HR, global partners and many other players in the regulatory compliance space to keep itself afloat in choppy seas.

Compliance: Getting Those Ducks in a Row

This sponsored supplement was produced by Focus Reports.  

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With approximately $90 billion flowing into the country (according to the Hungarian Investment and Trade Agency) since it abolished its centrally planned economy and transformed into an open, pro-business economy in 1989, Hungary has been a leading destination for foreign direct investment (FDI) in Central and Eastern Europe (CEE). Together with the automotive and software development sectors, the life sciences sector has been receiving the highest amounts of capital investment in the country.  

(Property of the Hungarian National Gallery, Photo by Tibor Mester.)			

Understandably, Hungary's high-quality infrastructure, highly skilled labor force and central geographic location are often cited as features that have turned the country into an attractive destination for investment. Following historical prominence as a key supplier of pharmaceuticals to the former Soviet Union, the landlocked nation is regularly described as one of the oldest drug industries in the region. It has a rich history that has given rise to a number of successful local drug manufacturers, many of which have been picked up by international MNCs over time, such as Chinoin by Sanofi and EGIS per majority stake by Servier.  

Prof. Dr. IstvÃ¡n Nagy, Director of the AIPM

Economic and healthcare reforms no longer come out of the blue, but global cost cutting trends and ongoing structural reforms are a clear threat to investor confidence in some of Europe's smaller and more vulnerable nations. All the more reason for the International Monetary Fund (IMF) to consider Hungary's Széll Kálmán (Structural Reform Plan) as a welcome step towards growth and sustainability. "I do think that the aim of this government is to stabilize the whole economy of the country in the long run," opines Prof. Dr. István Nagy director of the Association of Innovative Pharmaceutical Manufacturers (AIPM). Needless to say that the Plan did cause quite a shakeup in 2011. "It proposes significant decreases in the drug budget by Ft. 83 billion ($372 million) next year and an additional Ft. 40 billion ($179 million) the year after," adds AIPM's deputy director and market access specialist Tamás David. "Do I think it is a threat? Yes. Did we have conversations about whether or not we should stay in Hungary? Yes," adds AstraZeneca's president for Hungary, Jenny Winter. Much like the rest of Big Pharma, Winter points out that the vast long-term potential of Hungary has prevented the British pharma giant from leaving. Instead, the different players are now focusing on defining a new business model that takes these current challenges into account, one wherein sustainability finds a new meaning.  			

Christophe Gourlet, Managing Director of Sanofi

"Whenever new decisions are announced, it is important that new measures do not put at risk the long-term development of the pharma industry in Hungary, which remains one of the key industries in the country," observes Christophe Gourlet. As country managing director, Gourlet reiterates the economic role the French pharma giant Sanofi plays in Hungary. As the second-largest pharma company employing over 2,500 people and ninth-biggest exporter in the country, he points to the importance of upholding a healthy investment climate.  			

"Hungary is extremely well positioned and a front-runner in some of the toughest austerity measures. Yet, many of the pharmaceutical companies have the cream of their portfolio in a good shape in Hungary," Janssen-Cilag's country managing director Anna Romány says. "Being good enough is not enough in times when governments have to be picky about what can be reimbursed. You have to be excellent. This is why all our products managed to be on the reimbursement list, while I am sure that we can achieve the same status for our two new products," she adds. "Hungary has one of the lowest life expectancies in Europe," Romány continues, "and faces a rather similar level as Romania. Statistics are even worse for males than females. Hungary's drug spending per capita is also half of the Western-European average. In terms of mortality there is thus definitely room for improvement. Even more so, it is unavoidable," she concludes. 

Anna RomÃ¡ny, Managing Director of Janssen-Cilag			

"When I arrived in Hungary in 2007, the country had just been through the first overhaul of the healthcare system," recalls Novo Nordisk's country general manager Morten Vaupel. "When the new government came in in 2010, it was clear that the new policymakers were facing a number of significant financial challenges," he says. While Vaupel has always recognized that Hungary was a market with certain risk, the external environment has not necessarily prevented the world's leading diabetes company to enjoy positive growth numbers in Hungary.  

Morten Vaupel, General Manager of Novo Nordisk			

"In the last four years, we have been proud to be part of the top five or six fastest-growing Novo Nordisk subsidiaries in Europe. Moreover, we have been among the top 10 fastest-growing companies in Hungary, according to IMS data," Vaupel posits. The World Health Organization (WHO) estimates that one out of 10 Hungarians will, to some extent, suffer from diabetes by 2014. Moreover, the track record of most international pharma companies in Hungary is far from negative, and to a large extent this is due to the vast potential in terms of meeting the population's unmet medical needs. 

GÃ¡bor Zalai, General Manager of Boehringer Ingelheim			

With 28 clinical trials running in the country, Boehringer Ingelheim's (BI) country general manager Gábor Zalai barely disagrees. Looking back on a decade where the company climbed the ranks from 47th to 17th in Hungary, Zalai stresses the importance of being present in the newest therapeutic guidelines. According to him, rather than the company saying how excellent its products are, these professional guidelines are a far stronger means to ensure the use of specific drugs. "Especially in the treatment of COPD, we are now the market leader and are proud that Spiriva is the No. 1 product in the retail and the pulmonology business," comments Zalai. "BI does not have this leading position with Spiriva in any other market. In terms of market share, this comes down to 21%, and we are treating round 40,000 patients. That is a great success, which is thanks to a long-term investment in the field of COPD," he adds. Looking ahead, Zalai is keen to replicate Boehringer Ingelheim's previous success in another area of highly unmet medical need in Hungary: the prevention of stroke. "The current gold standard therapy will be replaced by our medication ... In five years from now, Pradaxa will become a very important trademark that all doctors will know about," Zalai posits. 

Erik Bogsch, Managing Director of Gedeon Richter			

"As far as the future is concerned, I believe that there are two key issues which concern every pharma company," posits Erik Bogsch. "The first is the very critical budget problem in every country and the measures that the different governments are taking. The second is the price erosion issue. Sustainability is an important aspect. While the growth potential is there because of an overall aging population, price erosion and budget constraints cannot be ignored," explains the managing director of Hungary's flagship national champion Gedeon Richter.  			

Hungary's distinction as the pharma hub of the former Soviet Union has been a springboard for its local pharma scene to develop in the past 20 odd years. Indeed, as soon as the regime shifted in 1989, several ambitious entrepreneurs recognized these opportunities, each within their own niche. A great Indian inspirational leader once argued that one can make two mistakes: not going all the way, and not starting. In Hungary, the founders of companies such as Genetic Immunity, HYD, and Biosan have put this mantra into practice by avoiding both. "Following 1989, there were increasing opportunities for private companies to be founded and import products from abroad. The most popular areas of activity were in the automobile and computer parts sector, whereas we recognized the unique opportunity to enter the medical area," explains Gabor Vesztergombi, who still heads the local pharma distribution company Biosan today. 

Inevitably, the opening up of the economy brought along a vast array of opportunities for the international pharma players too. Their competitive landscape, in turn, has been changing considerably too. 			

For innovative companies in Hungary, a carefully selected portfolio of some of their highest-quality products has done the trick in the past. Some of the more recent entrants have shown that a strong focus on nurturing the right stakeholder relations is equally imperative when penetrating new markets. "Wherever we go, the doors are already open. There is an extremely high interest from the medical community even in countries we have never been to before, highlights Celgene's country manager.  

Marthin Kwakkelstein established the company's fully-fledged Hungarian affiliate at the start of 2011 and thus, in the midst of the turmoil. "Building up the network with the payers and the other partners" says Kwakkelstein, when asked about his key priorities in such challenging startup phase. "In any discussion on healthcare," he continues, "classically only two or three stakeholders are being involved in discussions, which is a standard mistake that should be avoided. The first reaction is always the doctors, followed by the payers, and the pharma companies. For me, there are two other key players, which are the patients (and their associations) as well as the media. I believe all these stakeholders play a role." 

Marthin Kwakkelstein, Country Manager for Hungary, Estonia, Latvia & Lithuania at Celgene

Dr. Zoltàn Jakab, country general manager of Abbott, adds that "without the presence of innovative companies in Hungary, there would not have been any post-graduate education of physicians—and sometimes medical staff as well—for the last 20 years. It sounds similar to other countries in this region, where doctors and healthcare workers are underpaid and cannot afford access to the latest knowledge and developments. Without  innovators, the quality of care would not have been the same." What is more worrying for the future of Hungary's healthcare system, however, is the ongoing exodus of the nation's highly qualified medical practitioners. "Overall, many of the young professionals have shifted from the national healthcare sector to the private sector in Hungary, or went on to pursue more attractive opportunities abroad," observes Dr. Lajos Tamás Hodossy, Division Head, Diagnostics, at Roche in Hungary. The brain drain is not just a sector-specific problem either, but rather a challenge for Hungary at large. While Hungary has successfully produced 18 Nobel Prize winners so far, many of the Nobel Laureates received the distinction as nationals of other countries.  			

In pharma, many of the sales representatives were traditionally required to be either physicians or pharmacists by qualification, making it relatively easy for most companies to tap into an exceptional pool of Hungarian medical talent. While this situation obviously had no long-term benefit for the healthcare system at large, international pharma has a key role to play in the ongoing nurturing of this talent base. "Even after recruitment, we spend significant resources on training our people, not only on the 'hardware' such as scientific and technical information on the equipment, but also on the 'software,' which includes communication and presentation skills," explains Hodossy. "I strongly believe that people can only be the main competitive advantage today," he continues, "and defines which company can be successful, and which cannot. In general, many of the leading companies have grown to similar levels of technical and marketing expertise, which implies that the difference today can only lie in the people within the organization."  

GyÃ¶rgy Markovich, General Manager of Astellas			

Astellas' secret to success in Hungary? "A strong combination of products and people," replies György Markovich. "Unfortunately, several pharma companies were forced to cut down their staff significantly. To adapt to the external conditions in Hungary, we have focused on reorganizing the company and finding a new optimal structure. For the new products for example, we are taking people from the sales force and moving them into other areas like key account management or the medical department," the country general manager of the Japanese innovator explains. Looking back at a turbulent time in Hungary's pharmaceutical and healthcare sector, Markovich feels the inevitable need for every company to adapt to the new circumstances. "Every market has its own problems, and every government is currently looking into measures to curb costs ... The environment is changing rapidly. To survive in every respect and to adapt to these economic changes, you need a completely different way of thinking. One of the most important topics remains market access and represents an area where you really require highly qualified experts," states the company's GM. You cannot expect to meet the challenges of today with yesterday's tools and expect to be in business tomorrow. And as the European economic powerhouses continue to revamp their respective economies, first in line will be the smaller and more agile nations to enter the fast lane of economic growth.  

Dr. Lajos TamÃ¡s Hodossy, Division Head, Diagnostics, Roche Hungary			

Hungary's high-quality infrsatructure, highly skilled labor force, and central geographic location have turned the country into an attractive destination for investment.

Hungary Report: Redefining Sustainability

 2012 forecast of industry prospects, we forget that the business of healthcare is also the source of a huge opportunity: improving the human condition. Other industries may falter in finding that essential connection between ethics, probity, and profits, but in our sector that connection is direct and measurable. Disease—and death—is the destination marked on the passport of all humanity, so the capacity to delay passage or ease the transition through innovations in science and medicine requires no hankering with the minutiae of a mission statement. The real question for pharma is finding the right places to make that contribution in a way that maximizes the value of its internal resources; meets an unmet medical need through useful engagement with patients and providers (the customer); and delivers an adequate return to shareholders.  

All of Big Pharma today is focusing on how best to identify those right places in the growth markets of the future: the "pharmerging" middle- and low-income countries of the developing world. In turn, the international community is producing a bumper crop of alternative choices for engagement built around the demographic transition in the incidence of chronic disease, which now afflict developing countries to the same degree as has been the case for decades in the industrialized world. Perhaps the most compelling is the struggle against cancer, the incidence of which is skyrocketing as poorer countries grow more affluent. A new report from a global NGO task force, "Closing the Cancer Divide: A Blueprint to Expand Access in Low and Middle Income Countries," affirms that many cancers common in these emerging markets are treatable (and often curable) with the added contributions made by affordable drugs and diagnostics. It claims that as many as 3.7 million people die prematurely or unnecessarily from cancer each year, and that 80 percent of these deaths occur in low- and middle-income countries. High mortality rates among children and women of child-bearing age are particularly glaring because medicines and vaccines have been developed that can extend life or produce a cure, assuming that health systems find a way where these vulnerable populations have access to them.  

Significantly, the report notes that one path to bridge the divide between available technology and impaired access is through joint efforts involving multinational industry to identify "frugal innovations" in cancer treatment. The question that follows: Is Big Pharma willing to step up to the plate? One major player in the field, Swiss-based Novartis, is actively surveying the landscape under an internal effort known as LEAD, to facilitate the specific management skills and cultural sensitivities needed to create new business opportunities in emerging countries that might prove applicable in all markets. 

I had the opportunity to observe a meeting of the LEAD team in India last month, which included direct involvement by CEO Joe Jimenez. His take on the optimal way to "bridge the divide" is through a deliberate business, rather than a philanthropic approach. In fact, the only way to make such initiatives sustainable is when you link them to profit, however modest it may be. "It's in the basic nature of the enterprise," says Jimenez, "no one will walk away from these programs if there is money left on the table." His time with the LEAD team included a fact-finding visit to one of India's most successful publicly funded regional cancer centers, which provides an integrated program of treatment and research for the southern India states of Kerala and Tamil Nadu. Discussions with the center's staff included how it is using its ONCONET telemedicine technology to identify cancers at an early stage and to expand low-cost access to basic chemotherapies and drugs, at a level still profitable to the Indian industry. Center staff said the bottom-line interest for them in a dialogue with Big Pharma is promoting 

 new ideas that stop people from getting cancer in the first place. "Too many people die of cancer due to causes that are entirely preventable," deputy superintendent Dr. Aswin Kumar told the Novartis team.    

A worthy assessment to concentrate the mind, as 

 charts the start of another year in the cyclical dance of innovation. 

William Looney looks at how Big Pharma is attempting to bridge the emerging markets' widening cancer divide.

Emerging Markets: Bridging the Cancer Divide

From the discovery of "heavy water" in 1933 until now, "light" water—deuterium-depleted water (DDW)—has only received scarce attention from the medical community. While some evidence has shown that consumption of the water may be a good adjunct to chemotherapy, medical communities, governmental decision-makers, pharma leaders, and investors have so far remained hesitant on the matter. Hungarian local company HYD is one of the few companies active in the niche. While its founder and managing director, Gábor Somlyai, is positive about the Phase I results, he cautions how increasing awareness and obtaining financing remain tough challenges. As for the latter, Somlyai resorted to a more "natural" version of the water first, that would be classified as a functional food category. Now, by reinvesting the cash generated from the Preventa sales (its branded DDW), he aims to further develop a variant that can be classified as a drug. "The second category should be in the lower D-concentration category that should be registered as a drug, prescribed by physicians with expenses covered by the health insurance," he explains. New investment will not only bring a GMP standard production facility, but also a next trial. "We are sure that if we complete a new Phase II clinical trial, we can proceed to Phase III or alternatively find a license partner to complete the job," Somlyai says.  

The use and study of DDW by the Hungarian medical community

Financing R&D Through a Range of Consumer Products

As the race heats up for the White House and control of Congress, industry will be keeping a sharp watch on how election-year politics affects health policy and drug regulation. A sign of the times is last month's move by HHS secretary Kathleen Sebelius to prevent the FDA from approving over-the-counter access for girls under the age of 17 to the morning-after pill, Teva's Plan B. That action reignited charges of the White House putting politics above science to keep a hot-button issue for conservatives off the table.  

The fate of pharmaceutical marketing under a reformed healthcare system hinges on political and legal developments in the coming months. Pharma backed Obamacare two years ago as a way to expand the market for prescription drugs. In return, industry agreed to pay hefty new fees, higher rebates on Medicaid drugs, and to subsidize the cost of drugs sold to seniors caught in the "donut hole" of the Medicare prescription drug program. Now manufacturers face a worst-case scenario: reform opponents kill the insurance exchanges and subsidies designed to expand enrollment, while retaining policies that cut pharma revenues and raise costs.    

The 800-pound gorilla in the room is the looming Supreme Court decision on the constitutionality of the Obama health reform legislation. While the Justices ponder the weighty legal issues, HHS will continue to implement its multiple policies and programs, working with states to establish insurance exchanges and to expand IT systems and Medicaid programs. The administration's working assumption is that the Affordable Care Act (ACA)—or much of it—will remain in place. 

Just as big a concern is that limited public and private resources will undercut efforts to advance biomedical research and expand public health programs. FDA received a slight increase in its 2012 budget, but barely enough to keep pace with expanded demands. One response from pharma is to continue to look overseas for less costly R&D and manufacturing opportunities, as well as new markets.  

The drive to cut healthcare spending will continue to shine the spotlight on pharmaceutical pricing, reimbursement, and access. New medicines will have to demonstrate value through marketer risk-sharing programs that skew prices to patient response to therapy. Tricky cost versus safety issues will arise, as with the debate over treatment of age-related macular degeneration with off-label use of inexpensive Avastin, instead of its more costly formulation Lucentis.  

Pressure to cut costs will lead to an abbreviated pathway for bringing biosimilars to market. FDA guidance on the scope of preclinical and clinical testing needed to document product comparability and/or interchangeability will spur a land-grab rush in this field. Although several manufacturers have held meetings with FDA to discuss development strategies, biosimilar success will rest on decisions involving such thorny issues as product naming, coding, and the patent challenge process.  

Biosimilars are a big issue because payers anticipate hefty savings from these look-alike therapies, as has been the case with small molecules over the past 25 years. Generic drugs now account for about 80 percent of prescriptions in the U.S., and the proportion will rise further as more blockbusters go off patent. However, Pfizer's move to retain a good portion of Lipitor sales by cutting its price and negotiating long-term deals with PBMs may have broad impact on the market and pharmacy programs—and keep the spotlight on brand/generic patent settlements that can delay when a generic comes to market.   

The search for new pharma sources and new markets will further expand global drug production, with the relevant plusses and perils. The outcry over shortages of critical drugs is pressuring manufacturers to do more to secure supply chains. Proposed legislation could require added reporting to FDA on manufacturing problems, as well as tighter controls on drug imports, better track-and-trace systems, and stiffer penalties for counterfeiting and adulteration. FDA officials want pharma companies to police suppliers and distributors more closely and to establish back-up plans for dealing with production snafus. 

Drug quality concerns will drive more frequent FDA inspections of manufacturing facilities and expanded FDA collaboration with regulatory counterparts in Europe and other regions to combine inspection resources and avoid redundant oversight. The agency also is looking to added user fees to support more inspections of foreign plants as a way to level the playing field between U.S. and foreign suppliers. 

Pharma companies that violate manufacturing requirements, as well as policies against off-label marketing and illegal pricing, face intensified scrutiny from federal and state prosecutors. Many pharma companies have been hit with huge fines and onerous consent decrees for illegal activities, and things may get worse. Government officials keep threatening to penalize and jail individual corporate executives who fail to prevent violations, and some of the saber-rattling could escalate into real blows. 

The search for new drug development models to fill an admittedly dry pipeline will intensify with pharma's loss of revenues from blockbuster medicines. Public and private leaders of the biomedical research community talk more about "game-changing, transformational leaps" in discovery, as opposed to incremental gains. There is growing enthusiasm for developing "personalized" medicines—and relevant diagnostics—that provide more effective treatment based on individual genomic and metabolic characteristics.  

Public/private partnerships are supporting more international research on therapies for malaria, tuberculosis, and other diseases most prevalent in tropical climates. Health authorities are pressing for more R&D on new antibiotics, treatments for rare conditions, and therapies for killer diseases such as cancer and AIDS. There is growing excitement about vaccine discovery, which is attracting more industry investment as markets mature around the world.  

The growth in overseas clinical research, though, will continue to raise concerns about unethical biomedical research practices. A White House panel has examined past U.S.-backed studies in Guatemala and proposed changes in current policy. That exercise may help shape a broader overhaul of rules and standards for all clinical studies sponsored by the federal government.  

The drive for transparency, moreover, will spur more efforts to expand disclosure of active trials and study results on the 

 website. And FDA and the NIH are strengthening financial conflict-of-interest policies to address perennial concerns that economic interests could compromise research results.  

Health reform "Sunshine" provisions, which HHS finally unveiled last month, will require pharma marketers to disclose payments to physicians, raising fears that physicians will be discouraged further from participating in clinical research, as well as pharma marketing programs. Despite these concerns, assurance that biomedical research practices fully protect patients and provide valid clinical data is critical to building public confidence in the R&D process.  

"Patient centeredness" will shape a range of regulatory and research initiatives. FDA is encouraging sponsors to incorporate patient needs and viewpoints into clinical trial protocol design, patient recruitment, and safety evaluation. This approach will be supported by research sponsored by the Patient-Centered Outcomes Research Institute (PCORI), which is slated to have a $500 million annual budget by 2014 to study effective treatments for important conditions. PCORI plans to finalize priorities for its research agenda by March, and its Methodologies Committee aims to report in May on research methods and standards for this field.  

FDA commissioner Margaret Hamburg will continue to seek support for regulatory science initiatives that can accelerate the R&D process. She points to multiple biomarker validation projects that can identify potential drug safety problems early on and reduce trial failures. Coalitions are looking to streamline clinical studies with "adaptive" clinical trials and electronic methods for recruiting patients and collecting research data.  

Despite these initiatives, pharma and biotech companies complain that a risk-averse tendency at FDA keeps promising medicines off the market. Agency officials, though, point to last year's jump in approvals for important new drugs as evidence of its flexibility. FDA promises to do more to assist emerging companies navigate the regulatory process, but it remains to be seen if the recent spike in approvals is a fluke, or a signal of real progress on the innovation front. 

's Washington correspondent. She can be reached at 

Columns

Look for action in 2012 on drug access, shortages, innovation, and transparency.

New Year, New Issues

"Unfortunately for the Hungarian population, but fortunately for the pharmaceutical industry, Hungary has high prevalence rates of certain diseases," says Dr. Kata Mazalin, chief medical officer and country general manager of Vienna-headquartered contract research organization (CRO) Assign Group, who sees the unhealthy Hungarian lifestyle—compared to EU averages—as a key area of improvement. For its unhealthy lifestyles, such as high tobacco and alcohol consumption, unhealthy nutrition, and a lack of physical activity, the WHO has already sent out several warnings. "Hungary," continues Mazalin, "is often a leading country in terms of the number of patients affected by very serious diseases in areas such as oncology and cardiovascular." While these poor health rates indicate that a lot of work remains to be done, these high prevalence rates in combination with a pool of highly skilled medical professionals and a population of nearly 10 million Hungarians, favor Hungary's attractiveness as a base for clinical trials. "Moreover, Hungary has a centralized healthcare system, which means that for oncology, for instance, we have big centers where we can conduct clinical studies with easy access to patients," informs Mazalin additionally.  

 Kata Mazalin, General Manager Hungary of Assign Group			

A quick chat with CMO of Assign Group Dr. Kata Mazalin

Capitalizing on Centralization

It's a disturbing irony: In an industry whose entire economic value is founded on its ability to discover, develop, and market molecules that are—by definition and by regulation—innovative, there is so much discomfort with the risk required for innovation.  

As I have articulated earlier in these pages, we are living in an age of revolution—specifically of digital revolution, in which the continuous doubling of computer power, tripling of bandwidth, and the algorithmic spiraling of network effects are transforming all industries where information is a fundamental ingredient. 

While the end products of the pharma industry are not (yet) 'information' per se, the dexterous application of knowledge affects every phase of the business—from drug discovery and design, to clinical trials, to FDA submissions, to the delivery and marketing of those (finally) approved products.  

And yet despite the fact that pharma cannot continue to flourish without knowledge-based innovation, it has been measurably among the worst industries in applying the new power of knowledge dexterity to its innovation business. Indeed, rather than being energized by the possibilities and promise of Speed of Change, the industry seems to have been paralyzed by it. 

The proof: According to a new report published by Deloitte, the 12 largest pharma companies saw their ROI drop by 29 percent in the last year. The average internal rate of return for R&D dropped to 8.4 percent from 11.8 percent a year ago. "We continue to see a level of late-stage drug failures," says study author Julian Remnant. "That's something that should not be happening to the extent it still is." 

Make no mistake: Drug discovery and development is difficult work, made more difficult by an obdurate FDA and increasingly elusive science (the easy molecules have all been taken). But there's something else involved, too. 

Over the last decade or so, with toes dangling over patent cliffs, companies choose to strap themselves together, in the hope that sheer size would cushion the fall.  

Consolidation has made pharma slower, more risk averse, less innovative. John Lechleiter, CEO of Eli Lilly (one of the few companies that hasn't gone on an acquisition binge, by the way) put it like this in a November 2011 

 interview: "The wave of consolidation leaves only about a dozen multinational pharma companies that have global reach." And that's actually slowed the pace of innovation. "There's an innovation ecosystem," says Lechleiter, "and like any ecosystem, it can get out of balance." 

 hampers innovation; certainly Apple has maintained its breathtaking pace despite its $100 billion size. But in the pharma industry, size seems to have obscured (or trampled) ways of thinking and being that are the true drivers of innovation. 

For those who say that innovation in high science can't be rushed, consider this: Why were Craig Venter and Celera Genomics able to sequence the human genome at a fraction of the time and cost of Francis Collins and his team at NIH? We're not talking about a matter of months faster, but 

 faster. And not marginally cheaper, but an order of magnitude cheaper. Why? 

Because Venter understood the dynamics of Speed of Change, and applied them boldly in his 'shotgun' sequencing approach.  

If you consider DNA mapping too much of a sublime example, consider the ridiculous: Why has the insurance industry been far more innovative in marketing and advertising than pharma? (It's true!)  

Who cared about 'supplemental medical insurance' before the Aflac duck? Who remembered a car insurance ad before the Geico Gecko? These were companies bordering on complete irrelevance, facing existential challenges, that responded in unpredictable ways to change the core perception of their brands. 

The commonality between what Venter did in science, and what Aflac did in marketing, is what's missing as pharma confronts its own existential crisis, enflamed by the accelerant of Speed of Change. 

. (And no, it's not because the FDA won't let companies be courageous. Being a regulated industry selling serious products means you can't make funny ads, but you can still do great marketing.) 

 constraint, and, thus, the responsibility of senior management, and particularly of the CEO. An organization cannot possibly be innovative if it does not encourage nor reward risk-taking. Simply put: Companies that are not innovative cannot thrive in the Speed of Change era. 

And so, I have a message to direct specifically to the CEOs in the room: Some of you are indeed taking innovation seriously, and making the fundamental changes required to see that it is more than just happy talk in the halls. But if your organization is falling behind your innovation goals, if your pipeline is dry, your products ordinary, and your marketing tedious, here's some questions to ask yourself: 

» Is it because you have not made it a job requirement of every employee to take calculated risks, nor have you rewarded them for intelligent bets, even if—no, 

» Is it because you have allowed your company to be run by your attorneys, who are trained and paid to tell you to avoid risks? 

» Is it because you give speeches about the importance of innovation, and then allow people to be fired or exiled for making reasonable mistakes in good faith?  

True story: I attended a presentation given by the chairman of a Big Pharma company on a particular Tuesday some months ago. He said with great passion that innovation was the lifeblood of the company and every employee should take risks. On Wednesday, I had a meeting with a brand director from the same company and discussed a number of innovative marketing approaches for his brand. 

 "Why not? It makes sense for the brand, and none of your competitors has cracked this nut." 

 "Because the last guy who tried something like that got fired." 

Imagine the CEO who heard the Aflac duck idea and had the courage to say, 

Imagine the researcher who had the courage to defend the potential of atorvastatin. And then imagine the CEO who didn't kill the molecule's development despite the risk. That's the inspiring true-life story of Lipitor. 

Imagine what would happen if, in your company, instead of fearing to take a risk, your people aspired to make an impact?  

As I conclude my Speed of Change series, I have a final question for you. My intention at the outset was to illuminate the many ways in which the technology revolution is presenting the pharma industry both chilling threats and thrilling opportunities. I worry, though, whether in the end I have broken through. Whether you are ready, now, to set down this magazine or turn away from this website and take up the nearly limitless possibilities before you, before the possibilities pass you by? 

 is the CEO of Heartbeat Ideas. He can be reached at 

It's a disturbing irony: In an industry whose entire economic value is founded on its ability to innovate, why is there so much discomfort with the risk required for innovation. Where did the courage to innovate go?

Innovation: Why is Pharma Scared to Death?

WHAT IT'S FOR: CONTROLLING RESISTANT HYPERTENSION 

 One in three adult Americans has high blood pressure, or hypertension, which can lead to strokes, heart attacks and kidney failure. Hypertension—not smoking—is the No. 1 risk factor for death in the world. 

 Small nerves that carry signals between the brain and kidneys—known as the renal sympathetic system—play a role in the regulation of blood pressure levels. Research has shown that disrupting these nerve fibers can positively 

affect blood pressure levels, and now there's a 40-minute procedure available to do just that. A catheter-based probe, via the femoral artery in the upper thigh, is threaded up into the renal artery near each kidney. Then, low-power radio-frequency energy is used to manipulate the sympathetic nerves. "Not only is renal denervation a new treatment avenue that causes significant drops in blood pressure, it also has shown promising results for treating chronic kidney disease, insulin resistance, and heart failure," says the Cleveland Clinic. 

CONCUSSION MANAGEMENT SYSTEM FOR ATHLETES

WHAT IT'S FOR: PROTECTING ATHLETES FROM BRAIN INJURY 

 Behind car accidents, sports are the second leading cause of traumatic brain injury, specifically concussions. The CDC estimates nearly 4 million sports- and recreations-related concussions occur each year. Injury occurance is exacerbated when atheletes remain in the game, unaware of a concussion. 

 The concussion management system is the first high-tech assessment tool that objectively and accurately assesses cognitive and motor function simultaneously. The system hinges on an instrumented mouth guard dosimeter that records all hits to the head, monitoring and reporting impact data in real time, via Bluetooth. The device looks exactly like an ordinary mouth guard. 

WHAT IT'S FOR: DRAMATIC HEALTHCARE SAVINGS AND BETTER HEALTH OUTCOMES 

 Big Data, or the terabytes and even petabytes of data being generated by healthcare systems including hospitals and biopharmaceutical and medical device companies, is largely an untapped resource; the data has surpassed the analytic systems needed for evaluation. McKinsey & Co. estimates that proper aggregation and analysis of Big Data would create more than $300 billion in value each year, mostly by reducing healthcare expenditures by almost 8 percent. 

 Using an advanced computing infrastructure, at least one company was recently formed to "act as both a repository and clearinghouse of data coming from different clinics, hospitals, researchers, and doctor's offices," by standardizing and aggregating the data, for use by subscribing member health systems. An online interface allows for "real-time search, tagging, and collaboration across some of the largest data sets in the world," says the Cleveland Clinic. 

GENETICALLY MODIFIED MOSQUITOES TO REDUCE DISEASE THREAT

WHAT IT'S FOR: PREVENTING THE TRANSMISSION OF MALARIA BY CONTROLLING MOSQUITOS, THE WORLD'S DEADLIEST PESTS 

 Mosquito-borne diseases such as malaria, dengue, and yellow fever kill more people than any other disease. Malaria affects over 300 million people annually, and kills close to 800,000 each year. Traditional attempts to control mosquitos—such as insecticides, nets, and the draining of swamps—have failed to swat these bloodsuckers.  

 Scientists manipulate the DNA of male mosquitos to make them sterile—only females bite humans—and then release them to mate with wild female mosquitos, causing a dramatic population drop. "In the future, it's hoped that releasing modified mosquitos into the wild, whose genes cause female mosquitos to die in the embryonic stage, would eventually result in a major sex imbalance in the area," says the Cleveland Clinic. 

A selection of the recent breakthrough technologies showcased at the Cleveland Clinic's Medical Innovations Summit.

Top Medical Innovations 2012

The future of medication coverage under the Affordable Care Act (ACA) gained clarity based on recently released federal guidance for Essential Health Benefits (EHB) required by the ACA. When coupled with ACA cost-sharing direction, the resulting rules will likely define this pharmaceutical market for decades. In addition, federal allowances for state flexibility on these coverage decisions are likely to add to the importance of state health insurance exchanges in this developing market.  

The ACA requires qualified health plans (QHPs) made available in state health insurance exchanges to offer 10 EHBs, one of which is prescription medications. As required by the ACA, the EHBs are to be based on offerings of typical employer plans as determined by the HHS Secretary. The new guidance was issued as a bulletin from the Center for Consumer Information and Insurance Oversight (CCIIO), the entity in the Centers for Medicare and Medicaid Services (CMS) charged with implementation of the ACA. The recommendations considered input from a number of sources about typical coverage, including an ACA-required survey of employer-sponsored coverage from the Department of Labor (DOL) and a report HHS commissioned from the Institute of Medicine (IOM) on "typical" employer plans. The DOL and IOM reports focused on the state of coverage, but did not recommend coverage details for exchanges. The CCIIO now seeks further input on the regulatory approach HHS plans to put forward for EHBs. 

The extent to which medications need to be covered and the permitted degree of cost-sharing present key care issues. However, the CCIIO separates what is to be covered—a central EHB element—from cost-sharing provisions. Thus, the guidance generally focuses on what should be covered, not the financial extent to which it should be covered.  

From a coverage perspective, the Massachusetts health reform law is instructive. In 2006 it established a statutory requirement that health plans provide prescription drug coverage. At question was the acceptability of generic-only plans as the program was implemented. Eighteen months after the enactment of the law and subsequent debate, generic 

 brand coverage were required for minimum creditable coverage among plans in the commonwealth. Given that experience, concerns about generic-only coverage under the ACA have persisted. However, generic-only coverage is generally not considered to be "typical" as required by the ACA. A report from Milliman focusing on medication coverage in plans offered by employers found that health plans "almost always cover both brand and generic drugs." Regardless, vigilance may be prudent. 

Given the latest guidance from CCIIO, the EHB is initially expected to be based on one of four benchmark plan types selected by each state, in an approach based on that used for the Children's Health Insurance Program (CHIP). They include, as listed in the bulletin: "1) the largest plan by enrollment in any of the three largest small group insurance products in the state's small group market; 2) any of the largest three state employee health benefit plans by enrollment; 3) any of the largest three national FEHBP plan options by enrollment; or 4) the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the State." 

An examination of drug coverage under plans that comprise the four benchmark plan types will help assess the implications of state selection of one plan over another for drug coverage. This is important because the benchmark chosen by the state will impact what must be covered on a formulary. If the benchmark covers a medication in a drug category or class, then all plans in that state exchange must offer "at least one drug in the same category or class," although variability will be allowed for what drugs are actually selected, following the flexibility of Medicare Part D. Using this approach, the extent to which drug categories or classes contain multiple-source medications presents the potential for largely generic formularies should the one-drug minimum be applied. Thus, safeguards are in order.  

One approach to assure appropriate coverage would be the establishment of protected classes of drugs for plans offered in the exchanges as used by Medicare Part D, including antidepressants, antipsychotics, anticonvulsants, immunosuppressants, antiretrovirals, and antineoplastics (only those not covered under Part B). Medications that fall into one of these classes under Medicare Part D must include all of the medications in that class for coverage. Final regulatory guidance for drug coverage in EHBs may provide further input on this front. 

As previously noted, the CCIIO bulletin suggests that the EHB will focus on what is considered a "covered service" and not a plan's cost-sharing feature. Hence, issues of deductibles, copayments, and coinsurance are expected to relate to the actuarial value of a plan based on the "metal level" of coverage (bronze, silver, gold, and platinum). Here, states may play a role in the review of such analyses that can likewise relate to medication cost-sharing. While issues of copayments (a flat payment per prescription) versus coinsurance (a percent charge of prescription cost) will be important to consider, it appears these costs will be limited to overall out-of-pocket caps for the program—or at least they should be. Attention to this detail is important to assure patients on costly and multiple medications are protected. 

Ultimately, states will influence essential medication coverage via their exchange or department of insurance by virtue of the EHB benchmark they select and their anticipated review of actuarial equivalence. In addition, state determination of which health plans are allowed into an exchange will have an indirect influence on the application of these provisions by virtue of the coverage choices plans make.  

As all of these issues are addressed, engagement with key government decision-makers is essential. Certainly, input to the CCIIO guidance by the Jan. 31 deadline and subsequent related regulations will be a critical step as federal guidelines are developed. Given the importance of benchmark selection and plan offerings in a state exchange or state insurance exchange boards, staff and advisory committees should also be considered for appropriate interaction. Of course, such interactions with the exchanges will largely be driven by the degree to which states actually establish such entities. 

In October 2011, the National Conference of State Legislators (NCSL) reported that 14 states have enacted exchange legislation in 2010 or 2011, with only Massachusetts and Utah passing exchange laws prior to the enactment of the ACA. At the same time, NCSL reported that 16 states failed to pass such a law in 2011. As the deadline for exchange creation approaches, pressure will mount for state action. Failure by states to establish such an entity will result in the federal government creation of a state exchange, altering the eventual focus of input. 

Within the states, a growing number are completing their exchange planning reports, which illustrates the challenges ahead for ACA implementation. Many of the emerging details articulate the importance of the organization of the exchange and its board membership composition. Establishing a balance of interests should be an important first step in making sure no single perspective dominates the direction of key decisions. In addition, many states call for the creation of advisory committees that may influence exchange decisions and more directly address clinical, coverage and cost decisions.  

Following the creation of the exchange boards, a key development to watch for is the drafting of state exchange plans of action. While not universally included in emerging state legislation, the development of such plans can be expected due to requirements for an "exchange plan" as called for in current draft regulations. Such plans may offer direction on the issues previously discussed above, including the approach for the selection of the EHB benchmark.  

There are a number of factors that will influence the final determination of essential medication coverage, including EHB and cost-sharing provisions defined at the federal and state level. The decisions made in the coming months and years will have profound implications for medication coverage and covered patients for perhaps a generation. Now is the time for biopharmaceutical companies and others concerned about medication coverage to prepare and provide their perspectives to key decision-makers in order to assure that patients have access to the care they need. 

 is Principal at Lighthouse Health Policy Consultants. He can be reaced at 

A key consideration under the Affordable Care Act is how states select plans for drug coverage.

Essential Questions for Essential Benefits

In recent months, Pharmacy Benefit Managers (PBMs) have emerged as vocal critics of the drug industry's reliance on copay cards, coupons, and other tools to help patients offset the cost of innovative brand-name medicines. The PBMs' leading trade group—the Pharmaceutical Care Management Association—has taken the position that the practice represents an additional driver of costs to the healthcare system. Hence the opportunity arises for a potentially useful debate focused around the following question: Do copay cards simply deflect costs from industry and patients back to the payer, or do they instead provide a richer social benefit by delivering access to proven therapies, raising patient adherence rates and generating a superior public health outcome? Mason Tenaglia, managing director of the Amundsen Group and a member of 

 Editorial Advisory Board, weighs in this month with a critique of the evidence behind the Pharmaceutical Care Management Association (PCMA) position—and a spirited defense of current industry practice:

PCMA's position is neatly summarized in a new white paper, "How Copay Coupons Could Raise Prescription Drug Costs by Over $32 Billion Over the Next Decade," which has led to heavy and largely favorable coverage in the media. Unfortunately, it was picked up by the mainstream media and led to a series of newspaper, magazine, radio, and television reports that indict the pharmaceutical industry at large. Unfortunately, no one bothered to ask questions or check the facts on any of the assertions made by the white paper's authors. The arguments against, which attack the use of copay offset programs—such as the claim that copay offset cards lead to less generic utilization and cost the employers and states more for prescription coverage—are not backed up by a single analysis of actual data in any therapeutic class. Amundsen Group believes that now is a good time to let the facts get in the way of this indictment of the industry. 

Over the last several years, we have studied the value of coupon and copay card offset programs to manufacturers and patients across a wide range of therapeutic classes. We have analyzed both redemption data sent to our clients by the copay card offset program vendors (McKesson, Cegedim, PSKW, Triple i, etc.) and in Anonymous Patient Longitudinal Data (APLD) licensed to our clients by Wolters Kluwer in more than 30 retail and specialty therapeutic markets. In the raw APLD data, we can identify secondary payers (the copay card offset vendors) and through a "look-back," can determine whether a patient who used an offset was new to therapy, switched from a competing brand or generic, or was a continuing patient.  

These two data sources and a longitudinal approach are critical to a fair and fact-based analysis of the cost and value of copay card utilization. PCMA charges that their members cannot see these "shadow transactions," but yet has drawn sweeping conclusions about the impact of copay programs nonetheless. Inferences from the design of a single new program—the $4 copay card offset program for Lipitor, and its impact after November 2011, can simply not be applied to all brands and therapeutic classes.  

Our empirical analysis and experience would lead to a very different set of conclusions.  

1. Copay card program usage is not correlated with lower generic utilization in any of the major therapeutic classes; 

2. Coupons are most frequently used by patients taking the least expensive brands for employers and insurers; 

3. Most of the money invested by U.S. branded pharmaceutical companies into copay card offset programs goes into specialty and biologic products or therapies that have no available generic alternatives and benefit PCMA's members as much as the pharmaceutical companies; and 

4. The return on investment for most brands comes from higher adherence to therapies that have already been chosen by the physician and patient.  

For the vast majority of the $4 billion that we estimate the industry will spend in 2011, coupons and copay card offset programs are the only way of ensuring that a brand's patients can always get affordable access to medications and the most cost-effective way of ensuring patient adherence to prescription therapy. It seems unfathomable that PCMA could argue that affordability and extended medication adherence are bad things for patients, employers, insurers or healthcare providers. 

Moreover, we believe that these programs should be made available to "standard eligible" patients in Medicare Part D who carry the greatest individual cost burden for prescription medications and who are the least compliant, least persistent patients in the U.S. 

We will use actual claims data to ask and answer each of the following questions: 

1. Do copay card programs lead to less generic usage? 

Certainly, there are a few copay card offset programs that lead commercially insured patients to fill a branded (and more expensive) product when there is a perfectly good generic that is a near, but not exact, substitute. 

However, for the highest-dollar-value therapeutic classes, the intensity of copay card use has no relationship to generic uptake. Our analysis of the top three classes by Per Member Per Year (PMPY) cost to PBMs and insurers shows that the rate of generic uptake or conversion is not correlated to the percentage of prescriptions that use a copay offset in the 15 largest commercial payers.  

2. Do copay card programs lead to the use of higher-cost brands?

 In these large therapeutic classes, there are actually far more copay card program transactions that are used by Tier 2 contracted prescriptions than by Tier 3 non-contracted prescriptions. Due to the deep discounts now required to obtain preferred Tier 2 status (see "Out of Control," 

 May 2011), the contracted brands are almost universally the lower-cost brand for employers and manufacturers. For example, in the DDP4 class, Januvia, which has paid for Tier 2 status in more commercial payers than its competitors, also pays for more transactions with copay card offsets than all of its competitors combined. In the first half of 2011, 63 percent of Januvia prescriptions that used an offset would have gotten a Tier 2 copay card without a program. 

The competitive dynamics in almost any class led to this same result. The largest brands in the class have an advantage in negotiating for Tier 2 access, as they have the most drug spend "in play." The third or fourth brand to launch in the class ends up "non-preferred," and, in order to get high-quality access for its drug, initiates a copay card program. The larger brands, despite having contracted to get patients lower copayments, are afraid to lose their advantage and "double down" by instituting a copay card offset program. This doesn't make a lot of business sense for the manufacturers, but they may not even realize that it is possible to optimize contracting and copay card offset spending at a payer, or even geographic, level. 

3. Where does the money go? Subsidizing Specialty Tiers?

 No one really knows how much all the U.S. pharmaceutical manufacturers spend on copay card programs in aggregate across all brands. By working across 30 therapeutic areas, comparing actual redemptions from our clients with what we see in APLD, and taking a SWAG at claims that we can't see in specialty pharmacy, we have estimated the 2011 spending on copay card offset programs to be about $4 billion. This represents about 2 percent of gross branded drug spend in the U.S., although the experience varies quite significantly by therapeutic markets. 

The PCMA white paper infers that all this money is being spent keeping patients away from perfectly good therapeutic—though not chemically equivalent—generic alternatives. The truth is that the largest budgets for copay card offset programs are found in specialty brands where there are no substitutes. For TNF inhibitors, MS therapies, HIV products, Hepatitis B and C therapies, and oral oncolytics, individual brands may be spending $20 million to $140 million per year. Collectively, we estimate that specialty products represent just over 51 percent of total annual spending on copay card programs and coupons.  

Mason Tenaglia offers empirical defense of coupons and copay offset programs.

Pharmaceutical Executive-01-01-2012