 with a cover feature on Russia's ambitious plans to build a homegrown biopharma business. Back in 1980, the biotech industry did not exist.  Drugs were still classified as chemicals, developed from the random screening of many thousands of small molecules. Finished medicines were produced in bulk quantities for an undifferentiated patient base; individualized efficacy was difficult to prove. More important, there was little difference between the means of production in Western markets and the socialist planned economies embodied by Russia – medicines, still a low-tech purchase, played a modest role in the delivery of health care in both sectors. 

What happened in the ensuing decades has clearly produced a different result, leaving the Russian industry far behind its U.S. and European counterparts in the two key indicators of the quality of medicines and the state of public health. The Russian industry remains mired in an imitative model that has failed to generate a single "world class" medicine that can be sold outside its own borders, while statistical measures of mortality and morbidity have soared in the context of a demographic crisis that has the UN projecting the country's population will fall to 110 million by 2050 – a loss of some 35 million people compared to today. 

A big part of the solution depends on increased access to the life-saving drugs developed in the US and Europe over the past 30 years, including treatments for hypertension, stroke, cardiovascular disease, HIV, and diabetes, all of which are at near epidemic levels in Russia today – and precisely where more local investment in R&D is needed to make an impact. 

Russia's lag confers a lesson about the fecundity of science when it encounters three things: an open environment for learning, characterized by the easy transfer of knowledge and other forms of human capital; ready access to financing; and a predictable, transparent regulatory structure, founded on rule of law. Government involvement in funding the unallocated costs of basic research is important too.  And there is a hidden element behind successful science that big Pharma tends to take for granted, but which accounts for many of the setbacks companies are encountering not just in Russia but in all emerging countries: a functioning, system of health        financing that guarantees most patients will be able to afford the care they need. Without this infrastructure, selling any kind of health care product is an opportunistic game of chance rather than a viable, permanent business. 

Interviews for our cover feature indicates a dire need for Russia to make progress in each of these areas if it wants to transition to a knowledge-based economy, where life sciences seed the partnerships that lead to a more global market orientation less reliant on commodity exports. 

The challenges are straightforward. First, there is a continuing local talent gap, where the best scientists leave for the West at the peak of their learning curve, leaving behind a fading generation of Soviet-era scientists and an untested surfeit of new graduates. Second, money to fund biotech start-ups is virtually impossible to obtain outside of government, which makes entrepreneurship hostage to the ebb and flow of the budgetary cycle, which is itself driven by conflicting – and largely political – pressures. Third, power to regulate the industry is paradoxically centralized and fragmented at the same time, leading to inconsistencies between strategy and execution that investors are often left to sort out on their own. Finally, though Russia has been talking about expanding its fragile safety net for basic medical care, the loss of hydrocarbon revenues makes it unlikely there will be a significant government commitment to medicines access anytime soon. For at least the next year or two, an economically pinched middle-class will face a drop in the discretionary income it might normally spend on health care. 

The one bright spot is the steady acceleration of collaborative networks between big Pharma and Russian investors and producers. If there are any remaining doubts about globalization as a preferred business behavior in biopharma, look no further than Russia. It's a slow process, but over time these networks will reinforce positive behaviors at both ends of the business: foreign MNCs will no longer be saddled with a reputation as money-hungry interlopers, while "brand Russia" moves a bit closer to earning a coveted spot on the global league tables of innovation. 

By the way, is anyone in Germany – pharma's latest poster child for bad behavior – listening? 

Articles

From the Editor

Pharm Exec begins its 34th year with a feature on Russia's ambitious plans to build a homegrown biopharma business. Back in 1980, the biotech industry did not exst. Drugs were still classified as chemicals, developed from the random screening of many thoughts.

For Russia—Tough Love

June 17–18, 2014
Philadelphia, Pennsylvania

Changing the DNA of Pharma Patient Adherence Programs 

The First and Last Word on Medication Adherence: Keep Trying

As big Pharma   ponders options to address a seemingly endless cycle of market churn,   the merits of strategic focus and operational                          discipline are more important than ever. It's   time to be decisive — muddling through is so yesterday. 

Will 2014 be a   year of compromise and collaboration or a retreat into the trenches? In   the world's largest markets, regulators                          and payers are making it increasingly clear that   a retreat – from pay-for-performance, from quality over quantity, from   cost                          as a critical component of health outcomes –   means defeat, the difference between a blue ocean opportunity and a mud   puddle.                          Pharma's successful pivot toward orphan drugs   and pulse-pounding prices for innovative specialty products as a way to   offset                          patent losses is proof that an old dog can   indeed learn new tricks. But sweeping reforms necessitate more than a   pivot: the                          bones won't come from begging. 

"In 2014, I think   we will see a few breakout pharmas that will say, 'We want a seat at   the table in solving the larger issue                          of healthcare,'" versus a shoegazing focus on   drug delivery and therapy alone, Anurag Gupta, leader of Booz &   Company's digital                          health practice tells 

. Companies in the latter camp may find themselves crowding the boardroom window as payers and providers compile real-world                          evidence and establish treatment protocols without their input – or their drugs. 

The   silent guest at this table is the quixotic effort of the US – still by   far the largest single market play for pharma –                          to get the menu straight on health reform. With   uncertainties continuing as to what provisions of the Affordable Care   Act                          [ACA] will or won't be functioning in 2014,   companies are going to be tested in unexpected ways as they attempt to   conduct                          business around the new law. Overall, says NHD   Smart Communications' Tom Norton, "Rx managers will need to pay careful   attention                          to a new, Obamacare 'medical culture' that will   present itself as the new insurance plans comes on line."

For Norton, there   are several issues to watch. What are the chances, he asks, that the   30-plus new FDA-approved prescription                          drugs expected to arrive on the market in 2014   will be accessible to all those new patients enrolled in the health   insurance                          exchanges? Given that the majority of these   products will be high cost specialty drugs, the prospect is relatively   low, even                          though some may address important unmet needs in   areas like rheumatoid arthritis and hepatitis C. Norton adds, "it's   also                          very likely that the only way to access these   new products will be with prior authorization approvals and high   copays." Pharma                          will need to offer patients a lift to jump   through these hoops, putting more attention and pressure on Patient   Assistance                          Programs. 

The ACA's   emphasis on "preventive" medicine is another sticking point.   Traditionally, Norton points out, preventive care/compliance                          schemes for managing chronic Rx regimes have   generally not ended up with satisfactory results. That's due to the   often narrow                          and transparently commercial voice of pharma to   patients: Non-adherence hurts our bottom line, so take your medicine.   New                          strategies are needed to make this key aspect of   the law work as intended, particularly since 2014 marks the beginning   of                          a formalized effort by the new Patient-Centered   Outcomes Research Institute [PCORI] and other agencies to collect data   on                          comparative effectiveness of drug therapies in   specified disease areas. These results, embellished by the efforts   already                          underway by insurers and payers, will have a   huge bearing on the future success of every chronic care prescription   medicine                          on the US market. 

Another   implication is how the reform law's emphasis on preventive care will   work to lower healthcare costs. 2014 will establish                          a metric for proving whether this approach has   any value in promoting system efficiencies. Moreover, in order to lower   medical                          costs, the health care exchange insurance plans   aim to reduce the number of physicians practicing in the networks by   utilizing                          more community hospitals and smaller, local   health centers. Many patients will thus have to switch to new doctors   located                          outside of their home neighborhoods and   experience a new type of lower cost medicine, with a limited number of   prescription                          drugs listed on highly restricted formularies. 

Why is this   important to the Rx industry? Because, says Norton, many of the brand   name industry's "high prescriber/early adopter"                          physicians practice in urban, specialty   hospitals. On the assumption that the ACA delivery and financing   structure discriminates                          against these higher cost physicians, the use of   newer, more expensive brand name drugs could drop substantially. 

The net result,   some argue, will be a clearly defined two-tiered system of Rx care in   the US. Many of the people who buy health                          plans through the ACA will have access to fewer,   cheaper drugs, while those who continue to be covered through their   private                          employers will enjoy much more robust Rx   coverage. The fly in that ointment is the actions by private sector PBMs   to cut access                          to dozens of prescription drugs offered through   private employer programs. For the first time, PBM behemoth Express   Scripts                          late last year published a list of over 40   products that it would not cover; many observers agree that this trend   is attributable                          to the onset of Obamacare. Therefore, as with   patients enrolled in ACA subsidized plans, it's possible that   prescription drug                          options for private insurance patients could   also be reduced in 2014. 

So as the new   "less is more" medical culture begins to take hold, says Norton, the 85%   of Americans currently enjoying some                          level of private medical care and have access to   the latest Rx prescriptions, may start getting less prescription drug   care                          in 2014 than they had in the past. But for those   15% of Americans who will be getting access to many older, lower cost   Rx                          products for the first time, it will feel like   more – a lot more. 

Europe   also is punctuated by a question mark. The EU Parliament is due to hold   its five-yearly elections in May and the results                       are likely to produce a more populist,   "eurosceptic" and unpredictable approach to policy-making. This is a   potential problem                       for big Pharma, which has been a key beneficiary of   the market-opening trade and regulatory processes coordinated by the   European                       Commission over the years. The current Commission's   term also expires late in 2014. "All 28 Commissioners will likely have                       to make room for a new generation of leaders whose   views on the industry are unknown," notes Reflector, 

s   Brussels correspondent. This may or may not mean some let-up for the   industry on the patent pay-for-delay cases that the                       present Competition Commissioner, Joaquín Almunia   of Spain, has been pursuing so relentlessly. Almunia will not be   retaining                       the competition portfolio, but this means he may   press all the harder for action on outstanding cases as the new year   unfolds.

The EU's legislative   calendar for 2014 will also bring new rules on clinical trials, in a   belated bid to maintain Europe's                       status as an attractive location for clinical   research; an update to the EU rules on medical devices that will yield   new opportunities                       for investments in personalized medicine; a   proposal to charge fees to companies to pay for expanded European   Medicines Agency                       [EMA] authority over pharmacovigilance; and new   rules on countering serious cross-border threats to health that allows   for                       joint procurement of medicines and vaccines. Timing   is short, however, and failure to secure the full agreement of member                       states and European Parliament on clinical trials   and medical devices before the end of the parliamentary term in April   2014                       could consign the proposals to the legislative   trash can, delaying any new EC proposals to 2015 at the earliest. 

As the EU's   legislation on combating falsified medicines comes more fully into   force, the industry will have to put in place                       measures for identifying and verifying individual   packs. The opportunity to combat the relatively limited level of   counterfeiting                       in Europe risks being seriously outweighed by the   costs of the new system.

Austerity economics   and the demographic decline will focus thinking around the latest   political slogan – sustainable health                       systems, which in many quarters is seen as a   euphemism for budget cuts. It is also linked to a move toward the   systematic                       health technology assessment of medicines, on which   the EU will move forward this year to implement collaboration   mechanisms                       involving most of the 28 member states. Calls for   more equitable access to healthcare could offer some opportunities for   redressing                       imbalances in availability of medicines across   Europe. Implementation of the rules on rights for cross-border patients   could                       expose wide discrepancies in many aspects of   healthcare provision. 

Further, the   widening demands for accountability, transparency, and good governance   will tighten monitoring on both the drug                       industry and on regulators, with calls for stronger   provisions to prevent conflict-of-interest cases multiplying in the   context                       of persistent public distrust. But, warns   Reflector, "even the pro-active publication of clinical trial data   foreseen by the                       EMA for 2014 is unlikely to satisfy the gathering   chorus seeking more open access to information." 

Specific changes in   the administrative arrangements confronting the industry in Europe will   also present challenges as well                       as opportunities. There will be new opportunities   for research funding from the EU's $100 billion program to support   innovation,                       which comes into effect at the start of 2014 and   runs through to 2020. As much as a tenth of this funding will be for   life-sciences                       research, channelled through IMI2, the successor   public-private partnership to the Innovative Medicines Initiative.   Favored                       areas include chronic diseases such as diabetes and   dementia, as well as filling the antibiotics gap. 

In broader terms,   there will be greater focus in Europe on value-for-money for innovative   medicines. Pressure will mount for                       closer links between marketing authorization   procedures and health technology assessment [HTA]. "Even drug companies,   long                       resistant to any notion of a 'fourth criterion' of   comparative benefit contaminating the sacred trio of safety, quality and                       efficacy, are starting to recognize the possible   efficiencies in avoiding duplicative data collection exercises, as HTA   becomes                       the norm for pricing and reimbursement   discussions," says Reflector. 

Issues surrounding   value are particularly controversial in the UK. The government's much   touted value-based pricing (VBP)                       initiative has been hotly debated since at least   2010, when the new Coalition government announced a commitment to VBP   and                       established the Cancer Drug Fund as a "bridge" to   the new scheme. Where the drug price-setting body the National Institute                       for Health and Care Excellence [NICE] had so far   based its decisions on drug affordability on a cost-to-benefit ratio,   VBP,                       it was announced, would also consider a drug's   wider social benefits, how it addresses an unmet medical need, and, not   least,                       how innovative it is. 

But the January 1,   2014 deadline for launch of VBP appeared increasingly ambitious, given   the government's reticence to provide                       guidance on how VBP would actually operate, and   whether it would replace or co-exist with the long-established   Pharmaceutical                       Price Regulation Scheme (PPRS), which currently   applies to branded in-patent drugs (accounting for about 70% of NHS drug   spending).                       In June 2013, the Department of Health handed   responsibility for VBP to the NICE, leaving less than six months for the   Institute                       to finalize a program of implementation.   Complicating the issue further, the government announced in November   2013 a new PPRS,                       which took effect this month and is to run for five   years. 

NICE had been   tasked with setting the price for new products under the initial VBP   plans, but the new PPRS has reclaimed that                       responsibility. The announcement instead confirmed   that NICE will "undertake all elements of assessment for a broader   definition                       of value," adding, with further vagueness, that the   "assumption is that prices at launch will be set at a level that is   close                       to their expected value as assessed by NICE."

Many commentators   see this as proof of a government retreat from VBP. While companies do   have the option to request a value-based                       appraisal of a treatment, a wider scheme for this   process will not be introduced until late this year. There was also   little                       industry enthusiasm for the confirmation that NHS   spending on branded medicines will stay flat for two years — followed by                       increases of 1.8% in 2016 and 2017, and 1.9% in   2018 — and that the NICE cost-effectiveness threshold will remain at its   current                       level for new drugs for the next five years. Pfizer   complained that the new PPRS is symptomatic of the government's   "growing                       disconnect" between its ambitions and its actions,   and displays its bias toward "managing NHS costs rather than valuing the                       long-term benefits of medicine innovation". 

Further afield, in   the BRIC markets, questions of value are more concerned with the value   that multinational companies are                       bringing to the table. The tide has been turning in   BRIC, and few companies are heading into 2014 under any illusions that                       these countries and other emerging markets present   the easier path to success. BRIC lost the glow of its early promise some                       time ago, thanks to relentless price capping,   fierce competition and fervent local protectionism, especially in India   and                       China. The position now is not one of the BRIC's   proving their value to western pharma, but of western pharma proving its                       value to BRIC. New investigations into corrupt   business practices, particularly in China, negatively affect the value   proposition. 

But the BRICs   continue to be important and from a short-term perspective there may be   wins to be had in Brazil, says Reenita                       Das, Partner at Frost & Sullivan. That,   however, will generally come down to a "false acceleration" of the   economy resulting                       from the country's hosting of the 2014 soccer World   Cup. And while the Brazilian government has been busy granting   concessions                       to strengthen the infrastructure, things are   progressing very slowly. "Unless there's a lot more investment into the   private                       sector, I don't think we're going to see the 10–15%   growth that the country has been promising," says Das. But the pressure                       to keep healthcare costs low is creating a big   opportunity for generics and biosimilars, and there's a growing focus on   healthcare                       IT, as hospital efficiency becomes a top priority. 

On the back of its   2020 pharma care program, China is on a race to modernization and still   "has potential if you play the                       game right", says Das. There's a lot of investment   in building infrastructure like hospitals. The private hospitals sector                       is aiming to gain 20% of beds share in the next   five years, compared with 10% currently. And the in-vitro diagnostics   segment                       is set to grow to $5.7 billion by 2015. But, Das   reminds us, it's vital to forge alliances with decision makers, to work   with                       the government and, especially, to establish   public-private partnerships in China. Multinational companies have seen   some                       success where they have acquired local companies.   But the country remains a hard one to call, not least because of the   volatility                       of the last couple of years. 

Compared with the   other BRICs, India is underperforming in GDP spend on healthcare, but   it's the transparency, IP and investment                       control issues that are causing the biggest   headaches. The urban/rural divide is high, with most private healthcare   projects                       being carried out only in tier 1 cities and metros,   while government funding remains inadequate. On the plus side, Frost   &                       Sullivan estimates that 90% of retail pharma and   80% of the diagnostic services business is still unorganized in India,   leaving                       a huge opportunity for new players. 

It's therefore more   vital than ever to work beyond the pill and "more within the fabric of   each country," says Das. Lessons                       learned in the BRIC are ones that the industry can   take forward to the next generation of emerging countries — Mexico,   Turkey,                       Vietnam and Saudi Arabia. 

Despite pressure   associated with cost around the world – more companies opted to withhold   medicines from the German market                       this year over pricing disagreements, exemplified   by the latest move by BMS/AstraZeneca to pull the diabetes drug 

 – global spending on medicines will cross the $1 trillion mark for the   first time in 2014, according to estimates from the                       IMS Institute for Healthcare Informatics.   Interestingly, drug spending in the US is expected to grow – for the   first time                       in two years – due largely to a decrease in   exposure to patent expiry. Japan, which now ranks third in global sales   after                       China, is also looking more positive due to a   promised boost in support for vaccines and the continuing demand for   medicines                       among a rapidly aging population. This will dilute   some of the effect of the government's very aggressive goal to raise   generic                       volume as a percentage of total listed drug sales   to 60 per cent by 2018. 

Companies that   succeed in 2014 will have to accomplish three things, simultaneously:   increase revenues from drug sales while                       demonstrating a reduction in cost to the overall   health system, and an improvement – over the standard of care – in   health                       outcomes for patients. That's a tall order,   requiring open collaboration between stakeholders and the identification   of common                       ground, plus a heavy dose of new technology and   creative thinking to help patients become more accountable for their   own,                       costly decisions. 

Laying the blame on   patients for non-adherence, or unnecessary hospitalizations, is just   blaming the victim, says Guptag.                       It has always been true that only a small   percentage of a total patient population ever gets diagnosed, and   another smaller                       percentage of those diagnosed patients get access   to therapy, of which a still smaller percentage is adherent and   compliant.                       The make or break question in 2014 is what will   pharma do about it? 

is European Editor. He can be reached at 

Features

For Big Pharma, the merits of strategic focus and operational discipline are more important than ever. It is time to be decisive - muddling through is so yesterday.

Pharm Exec's Annual Industry Outlook 2014

In 2012, the U.S. pharmaceutical industry enjoyed a benchmark year. According to 

s "Pharma 50 Survey," it was the first year in a half-century in which sales in the key U.S. market actually declined.  Much of this was the result of the loss of revenues. 

The root problem is not expiring patents—which, though a distressing financial event, is relatively easy to forecast and model. What's devastating is the lack of new products in the pipeline to replace them. One study claims that for each dollar being lost in major-drug patent expiries, the revenue from new products is forecast to be only 26 cents.  

The good news is that, in terms of raw numbers, the industry's rate of new molecular entities approved seems once again on the upswing. The FDA approved 39 NMEs in 2012, the most since 1999 and is on course to achieve the same results for 2013. Twenty of these were 'first in class', each representing a new and unique mechanism for treating a medical condition. And many were in high-value target areas like oncology. 

The bad news is this increased output comes at ever greater cost. The productivity of US pharma R&D — as measured by new drugs approved per billion inflation-adjusted dollars of R&D spending — has been on a downward spiral since at least the early 1950s, when it peaked at 64 new drugs. By 2010 that $1 billion in R&D produced something less than ½ a drug — a loss of over 99% in productivity. Seen the other way around, it now costs an average of about $1.8 billion in R&D to launch a new drug. 

Analysts at researchers Sanford C. Bernstein have dubbed this "Eroom's Law," since it seems exactly the reverse of the productivity gains consistently seen in the computer chip manufacturing industry ("Moore's Law".) Though the metric blips up and down, over a 60-year period the trend line moves consistently in one direction: down. 

These facts are widely known and discussed, particularly on Wall Street. There is a variety of causal factors noted, both within and outside the industry. But, as is often the case with complex data, the interpretations vary widely. The major scenarios being discussed by industry leaders seem to be the following: 

In this interpretation, there are externalities not directly controllable by the industry, for example the greater regulatory scrutiny during the filing and review process, best exemplified by the Vioxx withdrawal crisis. Others claim that the lower returns to R&D come from the fact that the industry's past spectacular successes (for example, in controlling cardiovascular disease) have left progressively fewer high-value areas in which to develop products. "Today's blockbuster is tomorrow's generic", the saying goes. 

"That's the way we were, but we have already turned the corner."

 Dr. Janet Woodcock of the FDA recently testified before Congress that the FDA is "seeing a lot of innovation, much more than in recent memory." McKinsey predicts that NMEs will exceed 30 per year through 2015, and will provide 9% of global industry sales (up from 7% in 2011.) Skeptics point out revenues from new drugs have been notoriously difficult to forecast. 

 In this view, incremental fixes can and will get the process back on target. Many claim that the industry has successfully shifted its emphasis away from small molecules toward biologics and specialty drugs. Still others say the industry has moved away from a 'fortress R&D' approach toward an open innovation model that partners with academics, smaller companies, regulators, and even direct rivals. 

 The 'value engine' of novel branded drugs that essentially funds discovery, development, and shareholder returns is significantly impaired.  Some 80% of prescriptions are now filled generically in the US, a metric that is expected to keep rising. This puts even more pressure on the pipeline, where the seemingly intractable negative long-term innovation productivity trend (Eroom's Law) suggests that incremental fixes to the product innovation process alone will not be enough. 

Under this scenario, significant innovation can and must come from areas other than new drug development: sales model innovation; commercial model innovation (including positioning, branding, and merchandising); and business model innovation. These other kinds of innovations ('Innovation 2.0') can be competitive differentiators, and even shift the basis of competition. The textbook example is Apple, which in its early years as Apple Computer always had innovative products, but by the late 1990s nearly had to declare bankruptcy. In the 2000s they introduced a string of category-establishing product innovations (iPod in 2001; iPhone in 2007) and business model innovations (Apple Store retail chain in 2001; iTunes Store online in 2003). The combination was powerful, and Apple's results took off. 

In an example of 'non-product' innovation closer to home, TKA recently did some modeling of the effects of patient non-adherence to pharmaceutical regimens. According to our figures as much as 37% of potential industry revenues (or $188 billion annually in the US alone) are lost to non-adherence caused by various factors. Solving this problem—which has little to do creating with new drugs—would be a huge boost to the top line across many diagnostic categories.  

Given the lack of clear consensus on whether there even is an 'innovation crisis', companies predictably are responding in a range of ways. Some are undertaking wide-ranging retrenchments, but most firms who are cutting are doing so surgically. Pfizer, hit by the patent loss of Lipitor and generic challenges to Viagra in Europe, recently slowed cuts in R&D spending that began in 2011. BMS recently announced that it is cutting development in hepatitis C, diabetes, and neurological disorders, and will lay off about 1% of its R&D workforce.   

Others are continuing to invest. Lilly leads the industry in R&D investment among the majors, spending over 23% of revenues despite upcoming patent losses on Cymbalta and Evista. It now claims to have thirteen products in late-stage development or awaiting approval. Roche is continuing to invest in biologics, where it is the worldwide market leader. Biologics are expected to garner 25% of industry sales by 2018, up from 21% last year. 

However, all these seem like largely tactical responses to a strategic challenge, where maybe a big-picture rethink is indicated. I'd propose that the industry give itself the 'Moneyball test'. The key lesson of Moneyball is not only that metrics should be used in making decisions—which is true enough—but rather that sometimes the metrics that 'everyone uses' are not those that best describe the 'value essence' of a situation. 

The Moneyball example comes from professional baseball, but its lessons of aligning metrics with strategic value priorities are being applied in a range of businesses. It is especially relevant in industries undergoing significant change like pharma.  

When measuring the productivity of an 'input' metric (like R&D spending), too often we rely on 'output' measures—like drug approvals. But what really defines value is 'outcome' measures—in this case, individual patient outcomes, costs saved, and overall population health. These latter are the kinds of value-based metrics that payers are beginning to move toward under the US Affordable Care Act, and that will increasingly guide most health care sectors. 

Perhaps the pharma industry needs to recalibrate its own R&D metrics in light of these sea changes in the overall economic environment for health care. The recent improvement in raw drug approval numbers may give us a false sense of hope, since they don't speak to the relative 'value-added' by each new molecule. One wonders whether these innovations address the optimal disease categories, in terms of the number of patients affected, and the length of time treatment is typically needed. The criterion that we recommend is lifetime value—incremental revenues/profits (to the seller) or savings (to the payer)—not just raw approval numbers. 

The current move seen in some companies toward a 'value-weighted' R&D budget is a positive step. The discovery cuts recently announced by BMS, for example, were positioned as allowing it to 'focus opportunities on where the value is greatest'. 

 is President of The Knowledge Agency. He can be reached at: 

Column

Successful innovation now has to align with key metrics of value-can an old baseball metaphor help guide the way?

Innovation: The Moneyball Test

For years now,  the increased spend on healthcare in the U.S. hasn't evenly correlated with better health outcomes for patients. Despite spending more on healthcare than any other country in the world, the U.S. still trails most developed markets in cost-driving disease areas like heart failure and unmanaged respiratory disease. Citizens of over 20 countries can expect to live longer than Americans. In the U.S., taxpayers aren't getting the outcomes for which they've paid. 

As anyone working in the drug industry is quick to point out, spending outlays for pharmaceuticals represent only a tenth of the total healthcare spend; actually 9.3% of the total spend in 2012, according to a September 2013 report from the Office of the Actuary at CMS. But that 9.3% is equivalent to $260.8 billion: not exactly pocket change. While a lot of blockbuster drugs lost patent protection in the last few years, and have become available in generic form at a fraction of the price (this fact accounts for the year-over-year decline of 0.8%, to 9.3% of total health spend in 2012), a lot of new drugs are getting approved and launched with bold price tags, and most of them are biologic drugs. 

Where are the biosimilars to help cut costs as the first wave of biologics, or complex, small molecule respiratory drugs, for example, go off patent? They've arrived in Europe, but the U.S. lags, in part because biologics patents live longer in the U.S. (unlike its citizens). GSK's Advair, a combination inhaler for asthma and COPD, earned over $8 billion in 2012. It lost patent protection in 2010 and isn't even a biologic drug; it's a small molecule product with a complex, patent-protected inhaler device. To achieve biologic equivalence, FDA in many cases must issue product-specific guidance to inform manufacturers what new clinical trials will be necessary for approval. 

That determination – what kind of trials are required, and how many – represents a cost barrier to entry. Many would-be manufacturers simply don't have the resources to successfully develop biosimilars given the cost of clinical trials. On top of that, a biosimilar launch doesn't resemble the flood of generic tablets that follow a small molecule patent expiry. Brand-like commercial teams are needed to educate physicians about new biosimilars, and to drive utilization. 

Switzerland-based Sandoz, a division of Novartis, currently has several biosimilar products in phase 3 trials. The company is targeting some of the world's biggest selling products: AbbVie's Humira, Amgen's Enbrel, and Roche's Rituxan. But without the financial backing of parent Novartis, "it would be hard for Sandoz to invest at the level we're investing today," Ameet Mallik, Sandoz's head of biopharmaceuticals and oncology injectables, tells 

 Mallik says Sandoz has learned a few things about launching biosimilars based on experience with its "first wave" products including Zarzio, Binocrit and Omnitrope, also known as biosimilar versions of Neupogen, Procrit and Genotropin, respectively. For the company's next wave of biosimilars, "especially the monoclonal antibodies," Sandoz will "take a more branded approach than when we launched the biosimilars in the first wave," says Mallik. 

When he took over the business in late 2009, says Mallik, Sandoz and its competitors were "treating [biosimilars] very much like a generic market...if we lower the price, somehow the products will sell themselves." With Omnitrope, a human growth hormone product (approved in the US in 2006, via the 505(b)(2) pathway), Sandoz grew its market share against branded products from 5% to 17% in four years, due to a scale up in field forces, and an increase in its service offering to patients and physicians, says Mallik. Initial access is important, but biosimilar companies also have to "make sure the physician education and training for patients is as good or better than what the original [brand] company was doing," says Mallik. 

Combine a robust commercial function with a costly manufacturing and clinical trial capability, and you get a product that needs to charge more than cents on the dollar. "Each one of these [biosimilar] molecules is $100 to $250 million in development costs, over seven to eight years," says Mallik. "Your payback periods are going to be long." Given that the biosimilars market is worth roughly $2.7 billion in 2013, but is expected to climb to nearly $20 billion by 2018, it seems unlikely that health systems, in the U.S. and elsewhere will see a dramatic decline in the overall cost of prescription drugs due to biosimilars. 

Where are the biosimilars to help cut costs as the first wave of biologics, or complex, small molecule respiratory drugs, for example, go off patent? They've arrived in Europe, but the U.S. lags...

Biosimilars or Bust

Russia's post-Marxist economy is ailing and is long overdue for a reset­ — but will the visible hand of government in promoting a "world-class" biopharmaceuticals sector be enough to secure a future where innovation trumps ideology? 

Winner, Prix Galien Moscow 2013 "Best Research in Russia award," left to right: Vladimir Lunin, Alexander Sobolev, and Andrey Rosenkranz, for modular nanotransporters. 			

On the outskirts of Moscow, nestled in a grove of native birch trees, sits a gray, rather functional building whose modest profile belies its ambitions as the crucible for a new Russia—one whose prosperity is built on health, not hydrocarbons. Once the home of a Soviet-era state radio company, it now serves as the headquarters of ChemRar, a consortia of biotech start-ups and R&D venture investment companies, funded through a diverse combination of private capital and public funds, dedicated to a single goal: to develop and commercialize innovative medicines with therapeutic potential for Russia and ­—ultimately—the global market.  

ChemRar is more than just an enterprise. Instead, it is the template for a new business model that merges the private incentive in finding new growth opportunities in a country that has historically underinvested in health, to the public interest in diversifying   

Russia's economy away from its reliance on volatile cyclical commodities like oil and gas.  

Many business analysts contend the time to change that model is now. The International Monetary Fund [IMF] has real GDP growth slowing to an anemic 1.4 per cent in 2013, accentuated by declining oil revenues, a shrinking population base, and uncompetitive levels of fixed investment. In contrast to most other emerging countries, Russia's share of world output is now falling, not rising.  

ChemRar is not the only embodiment of the push for industry diversification. Another, perhaps more prominent example is the Skolkovo Foundation, a non-profit, government-backed technology "incubator" established in 2010 that, among other things, offers tax incentives for biotech start-ups that locate at its state-of-the-art research campus in the Moscow suburbs.  

While ChemRar serves primarily as R&D real estate for biopharma start-ups, Skolkovo is one of the big publicly funded institutions established during Dmitry Medvedev's presidency that pursue a much broader range of business and industrial policy objectives. The 200 companies with resident status at Skolkovo benefit from a partnership with the Massachusetts Institute of Technology [MIT], the centerpiece of which is the jointly run Skolkovo Institute for Science and Technology [SkTech]. Beginning this year SkTech will provide basic science, education and entrepreneurial support to Skolkovo resident companies and researchers in five multidisciplinary fields, including biomedicines. All told, some 30,000 workers are now engaged in activities linked to the Skolkovo innovation cluster — the government's dream is that it will someday emerge as an eastern version of California's Silicon Valley.  

Clearly, Russia desires a future in the pharma big leagues. IMS Health predicts that Russia, now ranking 11th in market size, at $16.6 billion in annual prescription sales, will rise to 8th by 2017, with $26.6 billion in sales, surpassing the UK, Canada and Spain. Russia's push for prominence in pharmaceuticals reveals a complex mix of positive and negative factors that will take much effort, more years and some luck to deliver the desired outcome: a globally competitive industry, with the grassroots capacity to discover, develop and market drugs with global appeal. 

interviews with key players in the Russian industry highlight four strategic questions that will prove critical to success:  

» Will government efforts to advance the "front end" of innovation – through new infrastructure, financing of basic research, and tax incentives – be accompanied by the far more essential "back end" of a fair and transparent investment, regulatory and pricing regime based on international standards? 

» Is there political will to ensure that public health gains a higher profile as a strategic driver of Russia's future, where medicines — both patent and generic — are recognized as a key part of service delivery within an adequately financed national health care system? 

» Are the market opportunities in Russia sufficient for the top 10 foreign players to establish world-class R&D operations in the country, effectively transferring to Russia the expertise required to access global knowledge networks and fill the local gaps in financial and human capital?  

» Can domestic pharma producers build the size and scale to surpass the foreign-based multinationals in Russia and extend that success to international markets, making the transition from copying, distribution and manufacture to an originator of world class innovations? 

Predicting the future with accuracy is complicated by the fact that the Russian market is in transition – and has been so ever since the end of the Soviet era in 1990. The legacy of communism still exerts a subtle influence on the domestic industry, which continues to be strong in manufacturing, packaging and other rote tasks suitable for a market characterized by inflexible tendering and static demand. Through the 1990s and well into the last decade, much of the old Soviet system's bench strength in fundamental research was destroyed, replaced by an emphasis on marketing to a middle class forced to purchase medicines out-of-pocket as the government safety net disappeared. 

Recent times are characterized by a return to aggressive government involvement in the sector, with a focus on import substitution through localized drug production and the encouragement of cheap generics to address key areas of unmet medical need. Many observers contend the business environment has become politicized, with continued domination of the market by the foreign multinationals, as it has since the collapse of communism. Less than 20 per cent of annual sales of drugs in Russia come from domestic producers; of the top 20 pharma companies in Russia, only one – Pharmstandard – is based in Russia [see table]. 

Predictably, the government has focused on subsidizing physical plant and trophy-like infrastructure rather than repairing the less noticeable gaps in science and human capital created by several decades of political upheaval. "There are numerous disconnects in the pathway from academic science to pre-clinical development and then commercialization. Nothing in Russia today offers a complete way from the laboratory to the practicing clinician," said Alexander Bakhutashvili, lead scientist for the Innovation and Technology Center at the Russian Academy of Sciences 

Professor Alexander Sobolev, a fellow researcher at the Academy of Sciences Institute of Gene Biology, agrees, noting the importance of a competitive, grant-based system for funding preclinical studies similar to the U.S. National Institutes of Health [NIH]. In fact, Sobolev, who is also the first recipient of the Prix Galien Best Research in Russia award, attributes this success to a NIH grant he obtained jointly with Duke University scientists on the application of nanotechnology to create potent and effective drug delivery systems that attack cancer cells.  

One important development is the evolving national consensus on investing in health. An Executive Order implementing a "2020 Healthcare Development Concept" was signed in May 2012 by Vladimir Putin as the first official act of his new term as President. Long in coming, it is the embodiment of an earlier commitment by Putin in 2005 to make health care a national priority. By 2020, the program commits to stabilizing Russia's declining population at 145 million; raise average life expectancy at birth to 74 years [the current average for men is 63 years, which puts Russia 144th among the 194 WHO member countries]; cut mortality rates in half against the benchmark year 2007; and reduce the rate of smoking and alcohol use by 25 per cent and 9 liters per capita, respectively. More important, it promises to improve the quality and availability of basic health services by increasing national public health care expenditures to nearly $300 billion, or roughly quadruple the level of 2009. 

Here, Russia is clearly in a catch up phase, given that total health spending is only six per cent of GDP, compared to the OECD average of nearly 10 per cent. "What is still fundamental about health in Russia is that patients bear most of the cost burden–two thirds of spending is out-of-pocket," notes Anton Artyomov, head of Aston Consulting, a Moscow-based market research, analytics and intelligence firm. "Today, we have a much more commercialized system. What this means in practice is public oversight is sporadic, transactions are not very transparent, it is hard to account for costs, and the quality of care and professionalism outside major urban centers is quite low. "  

Is the Health Concept plan on track? Most observers say it's hit or miss. Adds Artyomov, "the focus is always the next budgetary cycle rather than incorporating any long-term perspective. In my view, the government is not interested in health as a social policy priority." This is despite officially sponsored research that has established a direct link between increased mortality and disability since the fall of communism and lower economic growth. In 2007, for example, health system failures affecting the Russian population were estimated to have slashed GDP that year by nearly a fifth – or $270 billion. 

Among the issues cited around the plan is sketchy execution due to inter-governmental rivalries and a lack of trained personnel. More important, fiscal constraints caused by the global slump in commodity prices means that health financing has fallen below target; government funds are also being siphoned off for other, largely political purposes. 

Another concern is the seeming lack of coordination between the health plan and an equally ambitious program – known as Pharma 2020 – to restructure the provision of pharmaceuticals and build a stronger, internationally competitive Russian industry. "Our view is that the health plan should have preceded any program for pharmaceuticals so that the critical role of medicines in health care could be accentuated and made part of the whole," Vladimir Shipkov, Executive Director of the Association of International Pharmaceutical Manufacturers [AIPM], a key Moscow association representing the innovator segment of the industry, told 

. "In fact, the reverse took place, which makes it more challenging to integrate the value our companies provide with the actual provision of care." The potential for added value is clearly there: despite a compound annual growth rate [CAGR] of 21 per cent between 2004 and 2012, drug consumption per capita in Russia is still much lower than in the US and other developed countries. 

It is true that Pharma 2020 is more an industrial development plan than a health strategy. Adopted in 2009, it was the first formal government decree to focus on pharmaceuticals. There are two broad objectives:  

1. Expand drug provision to cover essential medicines for key current and future unmet health needs; and  

2. Reduce the country's dependence on foreign imported drugs by improving the international competitiveness of the Russian industry, particularly through support for new drug innovation.  

The Ministry of Industry and Trade was the initial lead but now other branches of government are involved, including the ministries of Health, Economic Development, Education and Science as well as — interestingly — the Federal Anti-Monopoly Service. The program is also unique in having its own budget of approximately $4 billion to fund various projects through the year 2020.  

Pharma 2020 envisions an industry overhaul in three phases. The first, which is now underway, is localization of drug manufacturing and development. The goal is to have at least 50 per cent local production by 2020, with a higher 90 per cent target set for 57 medicines deemed essential to public health and are eligible for public reimbursment. Another, less controversial objective is to encourage more international, multi-center clinical trials to be conducted in Russia through streamlined processing and approval under supervision of the Ministry of Health. In Russia, it is mandated for foreign companies to conduct some clinical trials to gain registration, and the government has pledged a target of 14 days in reviewing the protocols for these trials. Some 17 trial centers are being set up and staffed with government funds to facilitate Russian participation. 

The practical impact of the "go local" edict is that all foreign-based pharma majors that sell in Russia are being pressured to invest in local manufacturing facilities. As recently as 2011, only two such companies actually did manufacture, but the momentum is shifting – six companies [Novo-Nordisk, Takeda/Nycomed, Gedeon-Richter, Sanofi, GSK and Servier] are now producing some drugs locally, while Novartis, Teva and Astra-Zeneca are in the final building phase. Pfizer has taken a slightly different approach, offering a tech transfer for manufacture of its vaccine Prevnar to a local company, Petrovax Pharm.  

The government has not been subtle. On government tenders, foreigners who manufacture locally get a 15 per cent price preference. There is confusion as to whether a packaging facility qualifies as local production – the government now says it does not, even though international customs agreements affirm the opposite. In addition, it is proposed that foreigners who do no local manufacturing be barred from local procurement when there are at least two drug alternatives from Russian sources.  

And even when foreign companies are supporting the localization drive, they can still face regulatory action against their choice of suppliers and distributors – as Novo Nordisk recently did when the Anti-Monopoly Service imposed a fine on the company for what it claimed was discrimination and a lack of transparency in the awarding of supply contracts. "Expect to see pricing and procurement used as a wedge to push foreign producers to share their production skills and knowledge assets with Russia," says Andrey Novikov, a Partner in EY's Moscow practice. "It is also important to recognize that the policy is designed to help make drugs cheaper for the Russian consumer, to enable the government to support more patients and especially to those who lack any reimbursement assistance." 

The second and third phases of the Pharma 2020 program address a more elusive goal: upgrading the innovative capacity of Russian companies. At present, the drug market is heavily biased toward generics, with the focus on non-proprietary INN drugs rather than so-called branded generics. It is estimated that at present less than five per cent of the innovative, patented segment of the market consists of products manufactured locally; the remainder is imported. The government recognizes that the ability to originate new medicines and raise the overall quality of supply will open the door to markets outside Russia, increasing exports and diversifying trade away from a dependence on the commodity boom and bust cycle. So by 2020, Russia wants to grow pharma exports to eight times the volume in 2008 – again, a very tough assignment.  

There is much debate within the government on how to accelerate innovation, but the central concern right now is complementing localization with a domestic regime on good manufacturing practices [GMP]. This month, a new GMP rule is scheduled to take effect. It is based on the four relevant GMP Directives in force in the EU, but it is presented mainly as an interpretative document. "Our position is it's a semi-standard, which, while definitely an improvement, still falls short against the best practices embedded in the global GMP rules we find in Europe and the US," contends the AIPM's Shipkov. AIPM also wants assurances that resources will be available, particularly for site inspections. "Execution is critical," he says.  

Beyond its regulatory agenda, Pharma 2020 provides seed money for capacity-building through partnerships linking academia, both in Russia and abroad; smaller Russian start-up companies; and the major drug multinationals. Skolkovo and ChemRar are prominent examples. Another, related example is Rusnano, a state-sponsored enterprise formed in 2007 and headed by the former post-communist privatization czar Anatoly Chubais. Its aim is to put Russia at the epicenter of global high-tech innovation by 2020, through selective investments in Russian and foreign companies, principally in the emerging field of nanotechnology – the science of the small – which has significant potential in medicine as a powerful new mechanism for drug discovery and delivery. Like ChemRar, Rusnano has opened a satellite operation in California to tap ideas and obtain access to venture capital.  

Ultimately, the success of Pharma 2020 may depend on a factor that extends beyond its own remit: a sustainable system of financing access to medicines for the millions of citizens forced to pay out of pocket and who thus lack the resources to consume more drugs. At present, some 68 per cent of drug sales consist of out-of-pocket purchases at retail pharmacy, with another 20 per cent from hospital tenders; only the remaining 12 per cent are subject to some form of government reimbursement. That category includes coverage for all patients with HIV as well as to designated essential drugs for elderly pensioners. Those with coverage amount to only about 4 million people at present. 

The Health Concept 2020 plan calls for the introduction of a national drug insurance program by 2016, but virtually no one believes it will come that soon, particularly as Russia's tax base – along with an expanded social safety net – must adjust to the global decline in commodity prices. The expectation is for a modest piecemeal approach, starting with a series of pilot programs at the regional level. "Industry would benefit from a subsidized drug benefit to increase access to the underserved population and ensure a predictable platform for future growth. The challenge is balancing more access with pricing that incentivizes innovation," Aston Consulting's Artyomov told 

 Evidence from other countries also shows how difficult it is to make the transition to international competitiveness from a domestic base characterized by low rates of ROI.  

Can innovation trump ideology? Russia faces a stark choice in betting on the visible hand of government in promoting a "world class" biopharmaceutical sector, writes William Looney.

Russia's Bet on Biopharma

A midst the turmoil over implementing Obamacare, federal policy makers continue to seek ways to prevent disease and improve care while reining in health care spending. Innovative therapies that keep patients out of hospitals promise to help realize these goals, provided industry, regulators and policymakers can address key scientific, regulatory and marketing questions in the coming months: 

The promise of Obamacare is that extending coverage to millions of uninsured Americans will greatly increase drug utilization and reimbursement. But the picture has been clouded by reports of new exchange plans with limited formularies and high co-pays for medicines, particularly for specialty drugs. Such actions threaten patient access to needed therapies, generating talk of legislation to curb specialty tiers and to extend Medicare Part D "protected drug classes" to private plans.  

Many analysts blame access problems on high drug prices, particularly compared to lower cost medicines in Europe and other regions. So far, pharma companies have deflected proposals to reduce public spending through rebates on drugs for low-income Medicare "dual eligibles" or by government negotiation of Medicare drug reimbursement. But limits on drug exclusivity have support, and specialty pharma will face more intense scrutiny this year. 

Will inexpensive generic drugs continue to increase?

More than 80% of prescriptions in the U.S. involve generics, with the Medicare Part D program driving the trend. More will come to market faster with generic manufacturers now paying user fees to speed up the Food and Drug Administration approval process for these products. But the shift to generics may slow down, as many blockbuster drugs already have lost patent coverage.  

Insurers and pharmacy benefit managers are eager for less costly versions of key biotech therapies, but the first such product has yet to make it through the complex U.S. regulatory and legal framework. Many widely used biotech therapies will lose patent protection over the next few years, and dozens of small and large biopharma companies are lining up to develop comparable therapies. FDA promises further guidance on the testing needed to demonstrate biosimilarity, and agency officials will continue to meet with firms to help them establish viable product development strategies.  

FDA had approved only 26 new molecular entities as of early December 2013, much less than the near-record 39 new drugs in 2012. There's no slow-down in approvals, explained John Jenkins, director of FDA's Office of New Drugs, at the December FDA/CMS Summit; the problem is that fewer new drug  applications were filed. Jenkins noted that a more transparent new drug review program is helping sponsors remedy shortcomings more quickly and rescue troubled applications.  

Can personalized medicine fill pharma pipelines?

Access to genomic data and effective diagnostics will continue to spur development of therapies for small patient populations with serious conditions. Orphan drugs already account for a significant portion of new drugs approved by FDA, and that will increase as Big Pharma shows more interest in these markets. FDA will continue to encourage orphans and breakthroughs with special assistance to streamline development and approval.  

What about treatments for major diseases?

At the same time, regulatory officials worry about declining investment in new therapies for broader conditions, such as diabetes and cardiovascular diseases affecting millions. Jenkins urged another look at "me-too" drugs. "Having more choice is good," he says, noting the first-in-class drug is not always the best.   

Can the industry regain its credibility and public trust ?

Can new partnerships fill gaps in biomedical research funding?

The budget squeeze at FDA and the National Institutes of Health, along with declining drug company revenues, are spurring more collaboration across the biomedical research enterprise. Three leading cancer research centers recently formed a joint venture to investigate innovative pathways for developing cancer treatments. Major manufacturers are negotiating research agreements with biotech firms, instead of just buying them. Pre-competitive partnerships are proliferating, tackling data sharing and patent issues in the process.  

Can clinical trials become more efficient?

High R&D costs underlie the hefty price tags on many new drugs, emphasizing the importance of streamlining research operations and testing requirements. Multiple partnerships and collaborative initiatives are working to establish standards, harmonize electronic data systems and utilize new models for protocol design. Yet concerns about patient privacy and safety complicate the process.  Debate will continue over these issues, plus appropriate use of biomarkers and endpoints in clinical trials and the role of more innovative analytical methods and study designs.  

Patients and health providers become alarmed when they can't obtain needed medicines, and when alternate supplies from compounders turn out to be contaminated and lethal. FDA is moving quickly to establish policies and procedures authorized by new legislation to detect and prevent critical shortages and to regulate large-scale compounders of sterile injectibles. However, the long-term solution, say agency officials, is for manufacturers to invest more in systems to ensure consistent production of quality products, and FDA wants to see more action in this area. 			

How will social media transform pharma promotion?

Personalized medicine means more targeted marketing, along with less spending on traditional advertising. Reliance on legions of sales reps continues to decline as doctors and hospitals close their doors. Yet, FDA regulations limit marketer use of the Internet and electronic messaging systems to discuss their products. Pharma companies want to utilize social media to better educate patients about proper compliance and prescribing. FDA oversight of these strategies is critically needed.  

Jenkins and FDA commissioner Margaret Hamburg also emphasized at the FDA/CMS summit the need for more resources to support the agency's ever-expanding responsibilities. While praising Congress for providing added authorities that will help FDA fulfill its mission, Hamburg  urged the legislators to approve the "kind of real resources — not just new mandates and authorities"— needed to meet greater challenges. Jenkins expressed frustration that budget cuts and sequestration have siphoned off resources, including a portion of already-paid user fees. This development, together with the steady rise in fees supporting drug regulation, may prompt a broader re-examination of the user fee program in coming months. 

s Washington correspondent. She can be reached at 

Pricing and personalized medicine are key themes shaping drug development and marketing

Pharma Challenges for 2014

In October 2013, Pharm Exec released its "12th Annual Pharmaceutical Industry Audit" (

), which identifies how well companies advance shareholder value by evaluating eight benchmark corporate metrics. This audit ranked Novo Nordisk, Gilead Sciences, Biogen-Idec, Celgene, and Roche (in order) as the top five pharmaceutical companies. Editorial Advisory Board member Stan Bernard of Bernard Associates conducted an analysis of these five industry stalwarts to identify seven habits that drive their success. Here are his conclusions – William Looney, Editor in Chief. 

Biopharma's best companies provide valuable lessons for preparing, planning, and playing to win. Here's how:

1 Commit To and Execute a Specialty Mission 

In '61 President John F. Kennedy announced the aspirational goal of landing the first man on the moon and tasked NASA with this mission. While visiting NASA Space Center in 1962, he asked a janitor what he was doing. The janitor responded, "I'm helping put a man on the moon, Mr. President." While many biopharmaceutical companies focus on a specialty area, highly effective competitors ("HECs") focus on a specialty mission. Since 1923, Novo Nordisk's employees from top to bottom have fervently committed to "preventing, treating, and ultimately curing diabetes." Novo's CEO Lars Sørensen exemplifies the evangelical leadership and zeal that characterizes such companies and ensures employee alignment to and execution of this mission: "We attract people that want to work for a company that sees itself as part of a solution and are not just working for the money to reward the shareholders but to make a difference." Novo currently treats 20 million diabetics by manufacturing over 50% of the world's insulin, including generic insulin which is sold in emerging economies and extremely poor countries. Gilead Sciences, Biogen-Idec, and Roche are similarly passionate about overcoming viral diseases, multiple sclerosis, and cancer, respectively. 

2 Knowingly Pursue and Develop the Best Products 

HECs cleverly hunt for the best internal and external drug candidates and efficiently develop these compounds. They demonstrate ­exceptional scientific acumen, clinical judgment, and R&D leadership, the three top traits of successful R&D organizations, according to a recent BCG 10-year analysis of 842 developmental molecules. Moreover, HECs knowingly pursue compounds that their rivals might consider irrational gambles. For example, Gilead in 2011 took a seemingly huge risk by acquiring Pharmasset and its lead Hepatitis C ("HCV") antiviral compound sofosbuvir for $11 billion, the "largest deal ever for a company with no products in late stage development and valued at a 98% premium to its previous closing price," according to FirstWord Pharma. Sofosbuvir was considered a particularly risky compound since previous NS5B polymerase inhibitors for HCV had failed clinical development.  

In fact, Gilead's senior leadership – including three top executives with science Ph.D.'s and over twenty years' experience at the company – made a shrewd scientific and strategic decision. The company relied on its leading anti-viral research experts and knowledge of nucleotides from its HIV research to place a huge bet that so far appears to have paid off.  The FDA last month approved sofosbuvir under the brand name "Sovaldi," and FactSet Research Systems projects annual sales of the drug to reach $6.4 billion by 2017. Gilead exhibited the audit's highest "Enterprise Value Growth" measure for its unmatched operational efficiency.  

Similarly, Celgene took a big strategic risk by developing a derivative of the notorious drug Thalidomide into the $4 billion blockbuster Revlimid for multiple myeloma. Not resting on its laurels, Celgene has emerged as "biotech's shrewdest, nimblest dealmaker" which is "fast building the biotech industry's best network of partnerships with innovators," comments Xconomy Biotech.  

The company has acquired strategic players such as Pharmion and Abraxis Bioscience; partnered with many IPO companies such as Epizyme and Agios Pharmaceuticals; and invested in "some of the best venture-backed companies in the hottest areas of biomedicine," including epigenetics, immunotherapy, and regenerative medicine. According to Celgene's SVP Business Developmet George Golumbeski, "We tend to be looking for things that could be transformative, truly step-ahead therapies, not just incremental gains." 

Once HECs find their products, they are experts at launching them. These top competitors conduct election-style — not military-style —launch campaigns and seek to win the "Pre-Launch Years" versus the traditional but belated "Launch Year." Novo's launch of GLP-1 diabetes agent Victoza demonstrated such extensive pre-market preparation. At an analysts meeting in 2010, Novo SVP Jakob Riis said, "We've also been very conscious about early on opting our resources and our preparedness to engage in ... 200,000 interactions last year of more than an hour's length with physicians globally explaining the science behind GLP-1" to maximize pre-launch awareness. Novo successfully counter-launched against Lilly's GLP-1 rivals Byetta and Bydureon, including stealing their thunder prior to the 2008 American Diabetes Association Meeting. The Journal of Managed Care Pharmacy highlighted Victoza's launch as a textbook case, saying the product "came to the market with unusually robust data demonstrating clinical comparative efficacy and safety," including head-to-head studies versus Byetta and other competitors.  Despite being delayed by regulatory authorities, Victoza became a U.S. blockbuster within one year. 

Biogen trumpeted its new MS therapy Tecfidera so much prior to its 2013 U.S. launch that analysts claimed there was "a bolus of patients in the queue ready to transition to therapy" with an estimated $100 million in pent up demand, which the Wall Street Journal reported "overwhelmed some pharmacies." Called the holy mother of all launches" by ISI analyst Mark Shoenebaum, Tecfidera doubled analysts' first quarter projections and is expected to reach blockbuster status in 2014 and exceed $5 billion annual global sales by 2018. FirstWord rates the launches of Tecfidera, Celgene's multiple myeloma agent Pomalyst, and Roche's breast cancer therapy Kadcyla as the top three 2013 product launches outperforming analysts' consensus projections.   

HECs shape their specialty markets to force rivals to play their game. For example, Gilead shaped the HIV market to be a drug combination game based predominantly on its compounds. A relatively late player in the HIV space, the company in 2004 launched the two-drug fixed-dose drug ("FDC") Truvada and two years later the three-drug FDC Atriplia, consisting of Truvada and Bristol-Myers Squibb's Sustiva (efavirenz). Preferring to use all Gilead ingredients, the company in 2012 launched a four-drug, once-daily single-tablet regimen nicknamed the "Quad" and branded as Stribild, which is projected to have 2015 sales exceeding $3 billion.  

Gilead is determined to dominate the HCV space using the same game plan: leverage its new agent Sovaldi as the backbone for first-line HCV therapy and fixed-dosed combinations. As a testament to the company's competitiveness, Gilead has refused to collaborate with Bristol-Myers Squibb on co-development of a highly promising regimen featuring Sovaldi and BMS's drug daclatasvir; instead, Gilead has chosen to develop a similarly-effective HCV regimen featuring only Gilead products. Gilead's market-leading approach to drug combinations has transformed the HIV treatment paradigm and is likely to do the same in HCV.   

HECs practice of "Multi-Level Competition," the strategy of seeking to win not only with individual brands but also at the franchise, portfolio, and corporate levels. Roche wants to win with its HER2 breast cancer agent Herceptin, a $5 billion brand; its emerging HER2 franchise which includes recently launched agents Perjeta and Kadcyla; its overall oncology portfolio which includes blockbusters Avastin and Rituxan as well as biomarkers and diagnostics; and to further enhance its industry-leading oncology reputation.  

Similarly, Novo's diabetes portfolio offers multiple brands and franchises including basal, rapid-acting, and premix insulins; GLP-1 agents including Victoza and soon other GLP-1 combinations; and a myriad of devices. For over two decades, Biogen has concentrated on Multiple Sclerosis, resulting in the industry's most robust MS franchise (Tysabri, Avonex, Fampyra, and Tecfidera) to help manage this debilitating disease across its continuum. Competing at multiple levels provides many advantages, including better stakeholder relationships, more product combination opportunities, and improved operating efficiencies. Not surprisingly, Novo and Roche held the top two spots in the PE Industry Audit of sales-to-assets, a measure of corporate efficiency.  

6 Mitigate the Impact of Payers and Generics

In the industry's Competitive Lifecycle Stage, both payers and generics represent significant threats. HECs realize that payers are not only customers but also potential "budget competitors," often fighting for the same funds as biopharmaceutical companies. These payers use numerous tactics to control the access, pricing, reimbursement, utilization, and perception of innovative drugs, including leveraging generic competition. Roche has relied on innovation to address payers and generics. The company recently launched 2nd generation follow-on products Gazyva and Kadcyla for its aging blockbusters Rituxan and Herceptin, respectively. Kadcyla, which links Herceptin's antibody with ImmunoGen chemotherapy agent DM1, is one of 25 antibody-drug conjugates in the company's pipeline.  

Celgene has also emphasized new product development with a three-pronged strategy: expand Revlimid, its core $5 billion hematology-oncology agent, into new indications; develop new blockbusters such as apremilast for psoriasis and other indications; and build its early-stage pipeline through active deal-making. These efforts have provided Celgene with a 90% pricing margin, the highest in the PE Industry Audit.  

While many companies focus on specialty areas of unmet and growing therapeutic need, the most successful competitors seek to dominate and own their respective therapeutic areas. With an impressive portfolio of insulin and non-insulin products, Novo is the leading player in the burgeoning global diabetes market with a 27% global market share according to EvaluatePharma Research. Roche dominates oncology — the world's largest pharma market — where it owns nearly one-third of all cancer product sales worldwide totaling $22 billion. Roche markets the industry's three best-selling cancer brands and is poised to have five of the six best cancer sellers by 2018. Gilead is expected to capture 43% of all anti-viral sales by 2018 by owning the HIV area while challenging the HCV arena. Catapulted by its recently launched Tecfidera, Biogen will cast an increasingly dominant shadow over the MS market. The company is expected to grow from a 34% to a 50% share of the projected $20 billion MS market by 2018.  

In summary, highly effective competitors demonstrate three fundamental ways to win. They prepare to win by committing to a specialty market mission with the right people and products. They plan to win by shaping their market and competing at multiple levels. They play to win by mastering the Pre-Launch, countering payers and generics, and seeking to dominate their competitors.

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

Lessons to win in a shifting market dynamic