	It’s not hard to envision the mercury rising. With propellant from daily headers on the high-cost--of-drugs inferno and constant agitation by candidates on either side of the US election, the industry is going to be tested by regulators, patients, and payers with the high expectations commensurate with drug innovation’s status as a “public good.” Meanwhile, however, the progress of science slows for no one. The industry will find the most comfort from a return to its roots, away from price manipulations and financial maneuvering and toward the research and development of quality drugs with a focus on patients.

The Gilead pricing of sovaldi started a tremor that turned into a 8.0 earthquake when Turing priced Darapim. The top issue for 2016 will be trends in pricing and market access in the EU and US. Companies are focused on establishing value for their products in their clinical trial programs to make sure they have definitive evidence to present to payers as validation of pricing - Joseph Truitt, Achillion Pharmaceuticals.

	There’s a consensus among industry commentators that pricing will dominate the policy agenda in 2016, driven by a remarkably bipartisan sense of urgency in the US, where healthcare costs are a key contributor to a spiraling rate of public debt. A single tweet from candidate Hillary Clinton last autumn was sufficient to send the industry’s market valuations tumbling-billions in value swept away in less than 140 characters. With 5,000% price hikes and $1,000 pills in the headlines, Republican candidates for the White House have questioned the industry’s pricing practices. Actions can no longer be anticipated along the traditional left-right divide. 

	This year, the effect of high drug prices on patient care will continue to draw attention on Capitol Hill and on the campaign trail. Several House and Senate committees have opened investigations of pharma company price setting for new therapies, as well as for brand and generic drugs available for many years. Pharma will continue to be an easy and necessary target for vote seekers, even if the likelihood of real action in Washington is uncertain given a dysfunctional legislative process and inability to act decisively on the Hill.

	“Gilead’s pricing of Sovaldi started a tremor that turned into a 8.0 earthquake when Turing priced Darapim,” Joseph Truitt, of Achillion Pharmaceuticals, reminds us. “Suddenly, the industry is being called on its pricing model and tactics,” says Mason Tenaglia, managing director for the Amundsen Group at IMS Healthcare. “Due to the increased presence of pharmacy deductibles, patients are being exposed to the ‘raw, naked’ price of mainstream drugs like insulins, LABA, DPP4, and others.”

	This leads to the situation where “the pharmacy passes these on at ‘full price’ when the payer probably is getting a 40% rebate,” exposing the branded model to more scrutiny, as well as hitting generics, particularly when there is limited competition. Tenaglia believes that 2016 “might be the year when all pricing heuristics disappear and pharma companies lower their list prices for new launches while holding back on rebates to the payers.”

	Meanwhile, as overall healthcare prices continue their upward trend, industry backers and critics squabble over the impact of biologic and pharmaceutical therapeutics on the overall bill. With the patent cliff in the rear view mirror, as generics approach 90% of prescriptions, and with the new biosimilar class looming, the refrain from industry has changed little: while healthcare spending has increased, outlays for drugs remain consistent at around 10% of the total. Critics say this misses the point. Dr. Peter Bach of Memorial Sloan Kettering Cancer Center, who developed the DrugAbacus to single out the most cost-effective interventions, points to the steep average rise in prices for cancer therapies that extend life for short periods of time: from $50,000 in 1996 to $250,000 today.

	Public attention to drug prices means 2016 is ripe for price control actions at both the national and state level, notes Pharm Exec contributor Tom Norton. If Hillary Clinton’s campaign for the presidency is successful in November, “look for a serious initiative to control the price of prescription drugs provided to Americans under Medicare.” Potentially, such an action would have major impact on all American Rx pricing, with federal involvement serving as the precedent for equivalent protections on the private commercial side. At the state level, it’s real people who get to speak; watch the Golden State, which will be considering a citizen proposition, “The California Drug Price Relief Act.” This measure states that any prescription drug obtained by the State of California shall be purchased at the same “fixed price” that is negotiated with manufacturers at the US Veterans Administration. If this California proposal passes in the November election, look for the new California law to have an immediate, national impact on Rx pricing, Norton cautions.

	With drug pricing attracting so much attention and concern, both payer and non-payer stakeholders have become vocal about the impact of drug cost and the value delivered on prescribing decision-making. As Ed Schoonveld, principal, ZS Associates, points out, the value of a drug treatment may be judged very differently between physicians, patients, payers, employers, and various influencing and advising stakeholders. “Identifying what constitutes value to each stakeholder, and communicating evidence of value delivered will be the optimal communication strategy for pharma companies in 2016.”

	Physicians are likely to play an increasingly crucial role in evaluating the value of a drug across patient populations to patients and payers, and they will also play a key role in advising patients, as direct-to-consumer (DTC) communications “are severely impaired by regulation,” says Schoonveld. He adds that recent mechanisms, such as the ASCO Value Framework, Sloan Kettering’s DrugAbacus, and Institute for Clinical and Economic Review (ICER) evaluations, “fail to distinguish between patient populations in establishing value.” This may simply illustrate “the complexity of defining a meaningful algorithm,” he explained, but “simply rejecting these tools is not the answer; they need to evolve so that value is defined in a way that is meaningful and fully understood by the main stakeholders, including individual physicians and their patients.”

	Certainly, drug value calculators should gain prominence in 2016 as they improve and the industry gains practice with them. Perhaps they will push the industry to find “Goldilocks” price levels as tools to encourage “collaboration-with insurers, patients, and new value assessment groups, which may be the key ingredient,” according to PwC’s Health Research Institute’s latest annual report. So far, the calculus from outside the industry has done little but add kindling to the drug pricing and political firestorm. ICER’s reckoning that the new PCSK9 inhibitors ought to have been priced close to $2,400 rather than $14,100 for Amgen’s Repatha and $14,600 for Sanofi/Regeneron’s Praluent, respectively, is a clear indicator of how far apart groups currently are on defining value. 

	Demonstrating the value of innovative drugs “will fit well in a system of ‘pay for performance’ that allows for differential pricing,” says Daniel Pascheles, VP, global business intelligence, Merck & Co. Teva’s Michele Holcomb agrees that industry needs to prepare for a further shift toward pay for performance, but adds, more ominously, “the time will come when we have no choice.”

	Strategies that also embed realworld evidence (RWE) “in the infrastructure that supports R&D and market access, and the way that commercial teams communicate value to clinicians”-will become increasingly vital, as the use of RWE becomes more prevalent in decision-making and pharma shifts further toward collaborative work with payers.

’s Brussels correspondent Reflector highlights “unprecedented collaboration between industry and authorities” in efforts at the European level to bring new order to the drug-development and decision-making processes.

	He points out that a new joint exercise in health technology assessment (HTA) will be launched during 2016, and an announcement of the results of the European Medicines Agency’s pilot on new authorization pathways “will guide further steps in early dialogue between drug developers and regulators.” Among other things, says Reflector, the European agenda will be increasingly dominated by “further exploration of reimbursement by outcomes rather than payment for pills.”

In 2016, the customer relationship must be orchestrated through tight collaboration between sales, marketing, IT and other functions. These teams, which work in silos in many large organizations, can be brought together through technology solutions. Take the shared information about the customer, add human interaction, and you have a strong recipe for a commercial process that yields customer satisfaction and ROI - Drew Bustos, Global Marketing, Technology Solutions, IMS.

	This year, individual Americans who choose not to purchase health insurance can expect an IRS penalty that’s the greater of $695 or 2.5% of their modified adjusted gross income (MAGI), notes Norton. For a family, the penalty could top out at $2,085. The question is-is this stiff penalty enough to force individuals into Obamacare in 2016? Most likely not. “This will be interesting to watch as even the cheapest silver-tier Obamacare premium will likely come in around $3,700 per unsubsidized individual. Needless to say, to get health insurance at these levels, Rx options in these basic plans will continue to be reduced, and pressure to lower Obamacare Rx drug prices will only increase,” Norton adds.

	Additionally, the much discussed “employer mandate” goes into enforcement in 2016. Businesses must provide their full-time employees (and their children up to age 26) health coverage options, and ensure that those options cover at least 60% of total allowed medical costs. Failure to comply may result in serious penalties that can end up between $2,000 and $3,000 per full-time employee (FTE). Again, one place that employers can look to cut back on health premium costs is to reduce the Rx benefit that they offer to their employees. Therefore, the employer mandate is likely to result in fewer Rx options under Obamacare insurance offerings, Norton states. And it looks like 2016 will be the year that insurers offering Obamacare healthcare policies will be forced to raise premiums, often by double digits. “A clear concern for the American Rx industry is that consumers may be so strained by the increased cost of their premiums that not only will they not be able to afford the out-of-pocket deductibles to see a doctor, they may also forgo buying the Rx pharmaceuticals prescribed for them.”

	The impact of higher prices hitting home may force those currently working inside the Washington beltway to see legislation that backs the industry as too hot to handle. Consider the progress of the 21st Century Cures Act, a legislative undertaking that had built substantial backing early in 2015 but faltered as the year went on. The bill may spark intensified resistance in 2016 as the pricing debate taints good will toward the industry. It may impede the Senate’s efforts to craft a companion bill to the House measure as politicians question whether the Act, which seeks to extend incentives for drug innovation, might lead to developing drugs that are too pricey for their constituents.

	Patient groups will have to line up with pharma to voice their approval for any action on 21st Century Cures, as well as a smooth re-authorization of the FDA Prescription Drug User Fee Act (PDUFA VI). The fee renewal process is sorely needed to keep industry payments flowing to support FDA oversight and foster more participation by patient groups.  

	There are larger reputation challenges as well. One can envision the drug industry as a object of ridicule for its DTC drug ads, broadcast on the same television outlets used by presidential candidates in an election whose total cost is estimated at $5 billion. The American Medical Association broke ranks in the professional provider community and decided to publicize its stance against DTC last year. However, significant changes in DTC policy will require legislative action, and that is not likely until after the presidential election, noted John Kamp, executive director, Coalition for Healthcare Communication. Kamp expects a challenging go in the next year as “the politicians proposing limits on marketing are paying close attention to public opinion polls that reflect significant concerns about drug pricing and lesser but articulated concerns about the role of marketing in pricing and inappropriate use.” Public and political sentiment is against the industry, he warned.

	Another point of contention in 2016 will be the FDA’s voucher programs. The escalation of values for the transferable assets awarded to approvals in areas of tropical diseases and rare pediatric diseases peaked when AbbVie bought a priority review voucher from United Therapeutics for $350 million in August. Being part of the PCSK9 race was an interesting wrinkle for the voucher program. The voucher’s astonishing price tags have set off alarms and a change is on its way. It will be interesting to see if vouchers will be eliminated outright, or if the incentive structure can be realigned toward novel drug innovation as originally intended.

	Industry consolidation also will remain a hot-button issue as Congress struggles to reform corporate tax policy to stem the tide of US multinational corporations shifting headquarters overseas. Pfizer’s $160 billion inversion deal as it acquires 

(or is acquired by) Allergan in pursuit of an Irish tax address, is one more knock against the industry. Pfizer CEO Ian Read’s testament that the move will ultimately be good for the US, though framed optimistically, has been taken as a tongue-in-cheek barb at the IRS.

	Whether legislation will ever be in place to freeze M&A focused on tax inversions, the indication is for even more M&A activity in 2016, with one report pointing out that acquisition and other deal types are vital for an industry needing to offset the cost of drug development at an average $2.6 billion per drug.

	In addition to M&A activity, in-licensing, partnering, and joint ventures will bolster pipelines across pharma and biotech. 

	For an indicator of the next big deal, look no further than Gilead’s balance sheet, which has analysts haranguing its leadership for sitting on some $25 billion in cash and equivalents, thanks largely to its hepatitis C proceeds. What the winner of Pharm Exec’s Annual Pharmaceutical Industry Audit and 2015’s Brand of the Year will do is one of the industry’s hottest topics. Management has hinted at the possibility of both piecemeal add-ons and transformational deals. 

Pfizer’s deal with Allergan and the threat of tax inversion means that the Washington lobby baton will be formally passed from the traditional pharmaceutical gorillas to the companies leading more innovative commercialization strategies, including the big guns, Amgen, Genentech and Gilead. This huge power shift means less influence towards the objectives of the mass-market players and more opportunities to reinforce the market momentum towards therapeutic innovation and pioneering new treatments - Elys Roberts, President, Ipsos Marketing.

	While R&D, marketing, and sales “used to be the most important functions for pharmaceutical companies,” notes Kristina Pelzel in her Industry & Supply Chain Optimization blog, the critical skills now needed to succeed are “operational capabilities and efficient cost management.” Pelzel points to five strategic steps necessary to developing new supply chains: 1) improvement of planning capabilities; 2) reconfiguration of the supply chain footprint; 3) more flexible product design and packaging; 4) adoption of tailored business streams; and 5) creation of a network of third-party suppliers. The key to realizing these steps, says Pelzel, is analytics: “Almost all of these can be implemented significantly faster and much more cost effectively by utilizing advanced analytics software.” 

	But before the potential of analytics can be fully realized, pharma needs to get its house in order on a practical supply-chain level. Of the top 10 challenges facing the global supply chain, identified in December 2014 by academics Natalie Privett and David Gonsalvez, the most pressing were those found at the system level, such as lack of coordination, inventory management, HR limitations, and absence of demand information. Vitaly Glozman, partner at PwC, agrees, saying “there is definitely a lack of integration across companies-these are the basics at which the pharma industry still hasn’t excelled.” 

	Regulatory compliance will inevitably bring more pressure on the supply chain. UPS’s 2015 Pain in the Supply Chain survey identifies the European Union’s Good Distribution Practices (GDP), Brazil’s serialization law, and China’s Medical Device Good Supply Practice as the international regulations currently causing the most “pain” for companies. For Glozman, “the industry is still dealing with the regulator as an enemy rather than as a collaborator.” But with so many changes facing the supply chain over the next few years- not least, the evolution of personalized medicine, new manufacturing technologies (e.g., 3D printing), the push for lower costs, and the drive for better anti-counterfeiting

 security-“the only way for the industry to change is to have a much more collaborative relationship with regulators.” 

	The inevitability of further collaboration between industry and regulators will reach a milestone in Europe in 2016 with the June deadline for all European Federation of Pharmaceutical Industries and Associations (EFPIA) member companies to comply with EFPIA’s Disclosure Code, documenting and disclosing all transfers of value they make to or for the benefit of an HCP/HCO recipient. At CBI’s November 2015 Compliance Congress in Munich, Marie-Claire Pickaert, EFPIA’s deputy director, said it would be a “disaster” if disclosure levels are not consistent across countries by this time, although EFPIA communications director Andy Powrie-Smith has indicated that we can expect “significant variance in reporting rates between countries.” 

	Most compliance-focused firms-where pharma is particularly exposed-have been priming their compliance teams over the last 7–8 years into proactive outfits that anticipate challenges at the policy development level rather than run to catch up with legislation after the fact. But there remains much to be done to improve the industry’s reputation. Results from a 2013 survey of 17 countries by the global anti-corruption NGO Transparency International (TI) stated that “more than 70%” of the public believed that medical and health services were corrupt or extremely corrupt. Further, TI’s 2013 Global Corruption Barometer showed that 17% of people said they had paid a bribe when dealing with the medical sector at least once in the past year; in some countries the figure was as high as 60%.

	TI will be pushing forward with its investigation into pharma practices in 2016, said UK executive director Robert Barrington at the November Compliance Congress: “We will challenge you, and we expect this to be disruptive to your industry.” Barrington added that TI’s planned 10-year investigation will begin by focusing on five priority areas: procurement and distribution, marketing practices, manufacturing (including counterfeits), registration processes, and R&D. 

’s Reflector, 2016 “could be the year of a seismic change in healthcare systems in Europe,” with the European Union (EU) exploiting its new powers to vet national public spending plans more fully each year and “scrutinizing health budgets with unprecedented rigor.” Conditions are falling into place for a radical switch from the traditional responsive approach of health systems in Europe-the “You’ve got a problem, we’ll try to fix it” attitude-to a more calibrated and metered approach based on planning-that is, “We’ll allocate X million euro for dealing with that problem, and not a cent more.” The old model, dominated by patient demand and by drug industry offers, “is going to be increasingly displaced by armies of statisticians and social planners, whose priorities will be making the best use of limited resources.”

	How fast all this will happen will depend in part on Europe sorting out more effectively how to confront the obvious challenges, says Reflector. “The speed of travel is not so easy to predict. But the direction of travel is inevitable. Discomfort will drive fundamental change, and ultimately the bid for greater comfort will dictate the new order.”

's Senior Editor. He can be contacted at cmcdonald@advanstar.com. 

's European & Online Editor. He can be reached at jupton@advanstar.com

Articles

Features

It’s easy to foresee controversy in 2016 as lagging global economic growth and a messy US political slugfest force the pharma industry’s feet to the fire. Can the industry reclaim a semblance of public approval by confronting its pricing demons and focusing on innovation and a fresh, patient-first message?

Feeling the Heat: Pharm Exec's 2016 Industry Forecast

	Is there virtue in obscurity? As media and investor coverage of biopharmaceuticals skirts closer to tabloid fodder, it’s a question worth asking. Over the years, 

has chosen to focus on what we call the industry’s “stealth” players: mid-sized companies, often privately-held, with specialized expertise in areas like rare diseases. By aiming smaller, we have discovered some large truths about this industry, the most important of which is the sheer diversity of private-sector initiative in medicine. Such diversity extends beyond the science of drug development to the platforms and methods of drug delivery, itself a subtle but vital driver of innovation, and especially to organizational culture and management styles-a particularly rich vein of differentiation that we call “freedom to operate.” 

	Our latest incursion into the “stealth” space puts the spotlight on Swiss-based Ferring Pharmaceuticals. Two factors make its corporate brand stand out from big Pharma’s blurring shades of gray. The first is its scientific legacy as the first company to synthesize peptides-a natural hormone produced by the pituitary gland-into drugs that can treat a wide variety of endocrine-based disorders. The second is a tight, highly personalized ownership structure. Not only is Ferring privately held, 100% of its shares are owned by one individual, Frederik Paulsen, the son and namesake of a research physician from the North Sea Frisian islands whose “passion for peptides” led him to found the company in 1950. The Ferring name comes from the Frisian dialect pronunciation for the isolated, windswept island of Paulsen’s family home. In fact, company diaries handed out to Ferring’s 5,000 employees worldwide list days of the week in English, French, German and Frisian, the latter being a subtle but constant reminder of the company’s roots-an outpost of science in more ways than one.  

	To explore what’s behind the Ferring mystique, 

 met recently with Michel Pettigrew, Chief Operating Officer (COO) and President of the company’s management Executive Board. Pettigrew, 62, is a native French Canadian and 30-year industry veteran whose credits include supervising the launch of Bristol-Myers Squibb’s iconic breast cancer drug 

	In the following discussion, Pettigrew highlights the strategies that have doubled sales in the past six years, transforming a formerly Europe-centric business into a diversified global player with nearly €2 billion in revenues 

spread among operations in 60 countries. This includes the US, which, on the merits of a strong reproductive health franchise, now accounts for nearly 30% of company sales. Through 2020, the plan is to invest heavily in R&D, at 16% of sales annually, and to grow sales at an average annual rate of 10%, to reach the €3 billion mark. On deck for success is a pipeline of 24 drugs  in development and 14 major strategic collaborations, all centered on four therapeutic areas: reproductive health, where the goal is to become the No. 1 global player by sales; urology; gastroenterology; and endocrinology.  Ferring is also investing heavily in manufacturing technology as well as related product sourcing work in APIs, peptides, and biologics; its expertise in  producing more than 100 formulations, in different dosage forms, represents a delivery platform that is a competitive differentiator for a company of its size.  

	Finally, Pettigrew says he is spending more time on building in-house organizational capabilities, not just in attracting and maintaining talent but in creating a largely autonomous regional hub network centered on five priority markets: the US, China, Japan, Brazil, and India, in addition to the European home turf. Pettigrew relays that the tasks he has committed to are a bit easier-at least in terms of process -than those for his former counterparts at big Pharma. “The decision queue here begins-and ends-with one person, our chairman.  And we are not for sale.”         

Ferring stands out as a curiosity in this industry for being a multi-billion dollar company owned by a single shareholder. How does this unique structure shape the company’s business model, culture, and decision-making process? Given your previous background in big Pharma, do you see any aspect of the Ferring operation worth emulating by other players in the industry?  

 I joined Ferring 14 years ago. What struck me when I was approached to join the management team was the clarity of the company’s identity and mission. It was literally the expression of one man, Frederik Paulsen, our sole shareholder and owner. He inherited the position of Board Chairman from his father, Frederik Paulsen Sr., a physician who discovered the significant commercial potential of peptide hormones as an aid to healing and fighting many common infections and inflammatory conditions. Father and son share a fixation on leading the world with great science-I was told by Frederik within a minute of first meeting him that “for us, the science comes first. If the science behind the product is strong, a financial return will follow.”

	 This simple maxim is the reason why I joined the company. It remains true to our thinking to this day. Our business model is not driven by the need to demonstrate quarterly financial results.  It means we are willing to take more time to make sure we are doing the right thing for patients and customers, which sometimes requires you subordinate the short-term for the long run.   

	Of course, you will find many other pharmaceutical companies touting the same commitments. What gives our position real heft is that we are free of the distractions and obligations that accompany status as a publicly-held enterprise. As 100% holder of the company’s shares, Frederik Paulsen has no rivals to deflect his thought process. And let’s be clear:  Ferring is not a “family-owned” business.  It is Frederik Paulsen’s business. In fact, Paulsen believes that family-owned firms are destined to fail in the long-run because successive generations carry different priorities; siblings grow apart. Eventually we expect that he will pass full ownership on to someone in the family, to continue the tradition of independence. 

	Ferring has never been for sale, it is not for sale currently, nor, barring a serious business reversal, will it likely be in the future. This fact has an enormous effect on how Ferring colleagues approach each work day. There is certainty built in to our work. The perspective is long term, so projects get completed. People feel less pressure to leave. When I consider all the disarray created by today’s surge in M&A activity, I see the ownership issue as a real driver of competitive differentiation for us. I have a finance background.  It is my role to enforce discipline in how we manage our investments and direct resources. But I suspect this task is easier than my counterparts in other companies due to our Chairman’s singular insistence on following the science first.  

Can you document the impact this unique culture has had on financial results?  How is it manifested in the type of people Ferring attracts to management-isn’t the absence of any ownership stake through the distribution of shares or options a disincentive to retaining top talent?  

 When I started at Ferring in 2001, the company was posting annual revenues in the $400 million range. We are a long way from that today, as we expect sales of more than $2 billion for 2015. We remain private and our commitment to great science has

 expanded into new therapeutic areas as well as building extra value for patients, right through the end of the product life cycle. And we are able to attract the most experienced, accomplished people to Ferring that we once thought were beyond our reach. Senior R&D and line managers from big Pharma want to review opportunities with us because they are frustrated by the way public companies must satisfy the short-term financial needs of institutional investors and shareholders. 

Can you describe your current role at Ferring? How is it different from your previous assignments in the industry as a line manager-does being a CEO require a different skill set? 

 I must correct you-a distinctive feature of Ferring is we do not have a CEO. Instead, we opt for a more collegial approach to management, in which day-to-day activities are overseen by a five-member Executive Board consisting  of myself, as Board President and COO, and four Executive Vice Presidents: our General Counsel, Chief Scientific Officer, Chief Medical Officer, and Chief Finance Officer.  

	We work mainly as a group.  One of my responsibilities is to encourage each of us to contribute to decisions, even in areas outside our specific functional responsibilities. This is a bit of a test for me, as I am expected to convince the Board to follow my suggestions rather than deciding everything myself and expecting the functional leads to execute around it, which is the traditional notion of what a CEO does. In this way, we avoid the “standard practice” trap and allow fresh ideas to circulate.  

	I do everything to ensure this mindset is embraced further down in the management ranks. I’ve held a variety of positions in my 30 years in the industry, and the chief benefit of this exposure has been to make me culturally aware. I am tuned to appreciate the good things that people from diverse backgrounds are able to do, without necessarily telling them what to do. In other words, motivating people to succeed is the most important thing I do here. 

	Ferring’s operating structure puts a premium on this capability because we are so dispersed geographically. We operate in 56 countries. Each of our local businesses matter in terms of the ultimate bottom line. This contrasts to the big Pharma model, where you have a very large stake in the US along with five or six big markets in Europe and these together consume all the company’s energy and focus. Our approach puts much emphasis on allowing most decisions to be taken at the local level, closest to the customer. We encourage each country unit to act in an entrepreneurial manner, to set their own strategies and fix a budget on sales and profit contribution. The Executive Board approves the budget; what happens in between is up to the local team. 

	A practical manifestation of this is we have a highly decentralized approach to business development, including acquisitions, partnerships, and licensing. We give the countries a lot of flexibility in engaging around products and completing deals with other companies.  

	Of course, in our highly regulated industry, a balance must be struck to ensure that actions in the field don’t pose problems for the business overall. If just one affiliate has a compliance issue, it could rebound negatively and harm Ferring’s global reputation. The Board devotes a significant amount of time advising our local management teams on what we call a “culture of carefulness”-prudent risk-taking.  

Finding managers able to act independently within an entrepreneurial culture makes it very important that you choose right-the first time. By definition, there is little opportunity for micro-management. So how do you find the right people to head your country businesses?

 Handling “people” issues is the key component of my job. I think you will find CEOs at other companies saying the same thing. We devote much time here at HQ vetting every job candidate for a senior management job. They are seen by every member of the Executive Board, with the basic criteria being “will he or she make a good fit for the Ferring culture?” I personally interview two or three candidates a week, on average.  My basic message to interviewees is that, while we have 48 nationalities and 30 languages represented here at Saint Prex HQ, we work extra hard to stay aligned. Ferring also has a bias toward starting people early in their careers. We have a special program where every year we recruit a select number of new graduates and put them on a two-year program that exposes them to different parts of the business, helping them figure where they want to apply their talents. I’d say most of my human capital activities are now devoted to the younger generation. 

Your experience gives you a certain perspective on the pace of change in the industry. What do you see as the most significant transitions taking place in the biopharma business model? 

 We are on the cusp of some dramatic reversals in investor sentiment. The past five years has been all about companies like Valeant that rely on financial engineering as a growth strategy instead of the traditional reliance on big bets on science and R&D. It’s all about maximizing shareholder returns-end of story.  I think the days are numbered for this model. The alternative is exemplified by my former employer, Bristol-Myers Squibb, which went through a fallow period where the pipeline was stressed and money was tight, but the commitment to science continued on track. BMS persevered and took big risks that are finally panning out. The company is destined to do very well for the next five to 10 years. Why? Because management focused on being strategic rather than opportunistic. 

	To me, this is the big differentiator. My philosophy is that being a good biopharma company means you have to be active in developing new drugs. You can’t borrow or acquire your way to long-term sustainability unless you are a generic house that has little choice but to consolidate. There are few other options to compensate for the dramatic drop in patented products ready to be genericized. 

	Even though I was trained in finance, I don’t believe that financial criteria necessarily determines what’s good for a company over time. I am also amazed at the steep acquisition prices being paid for assets today as well as the increasingly complex contract vehicles that introduce multi-billion dollar penalties in the event an M&A deal fails to close. In other words, actions supposedly taken on behalf of shareholders actually impose penalties on them. The break-up fee awarded to Shire when AbbVie’s management abandoned its takeover bid was so big that Shire used the proceeds to buy an entire pharma company, NPS. If I was on the Board of AbbVie, I’d feel compelled to ask its CEO, “how did you end up with that kind of deal?” It turned out to be a less than prudent use of shareholder money, I’d say.

How does Ferring fit within this model favoring more patient-focused innovation? Are you big enough to fit comfortably in this new tent? 

 There are many ways to be innovative today. One of Ferring’s strengths is its commitment to finding creative opportunities at every stage of the product life cycle. We have a stable of patent-protected medicines that represent an advance in the standard of care. Our mainstay is in branded generics, where we have established a global reputation for innovation in developing new forms of medicines that are better adapted to patient needs. A good example is Pentasa, for the treatment of ulcerative colitis and Crohn’s disease. Although it is off patent, we have, nevertheless, invested significant sums over the past 15 years to increase its efficacy for patients through better dosing. Today, Pentasa is the only treatment for these conditions that allows for maximum dosing strength on a convenient, one-a-day schedule. It basically sells itself because of the positive impact Pentasa has on patient compliance. Ferring believes there is a lot of growth left in this medicine. We continue to invest in clinical trial work to evidence its value.   

	The pricing pressure on branded generics, especially in Europe, demands that we strive for innovation in areas like manufacturing to keep our product costs down. Manufacturing efficiencies are part of our investment planning for Pentasa. Payers like what they see. The new dosing indications advance patient compliance, improving overall health outcomes, while we can price competitively due to the lower manufacturing costs we have achieved over the past few years.   Frankly, the investments we have made make it too costly for the low-end commodity generics to vie for this space.  

Ferring revenues place it in the middle-rank of biopharma players in Europe. It shares a characteristic with this segment by being privately held. Is it your long-term goal to transition Ferring to big-time status, on a par with Novartis, Roche, and the other globally integrated giants?

 We are definitely committed to growing our business.  The goal is to secure double-digit gains in revenues, of roughly 10 to 12%, consistently, year by year. Organic growth will continue to be the principal driver, from existing medicines and our R&D pipeline. The plan is on track: over the past two years, Ferring has launched three new products, including 

for inducing labor in pregnancy. We are also excited about the Phase III trial results for our personalized fertility product, 

, which, based on the data, was accepted for a market licensing  review  by the European Medicines Agency (EMA) on October 30. This puts us in a prospective position to launch 

	These products represent the specialty segment, serving a niche audience of patients with an unmet medical need. I think this is the right place to be. I would rather have a stable of 10 new products with revenues of $100 million each than one maturing blockbuster earning $1 billion that is in sight of losing its patent exclusivity. Actually, I like that Ferrings’ portfolio lacks a single “signature” drug, as it allows us to spread our risks across different product portfolios and therapy areas. Start small, launch, and improve-that’s our motto.  

Which therapeutic areas do you expect will drive this double-digit revenue growth? 

 We intend to build on new first-in-class therapies like Rekovelle to become the world’s No. 1 company in infertility. We have three other areas of focus: urology, gastroenterology, and endocrinology. The commitment extends back to our founder Frederik Paulsen’s original vision of developing medicines based on synthesizing hypothalamus and pituitary-based peptide hormones.  However, this does not imply we will never look at other areas. Ferring is an entrepreneurial enterprise, which by definition means we have to be opportunistic too.

Isn’t reproductive health a hotly contested field where competition is a restraint on margin growth?  

 In our view, it’s the opposite-two players have left the field recently. Our competition is now down to Merck & Co. and EMD Serono. Ferring is the only one of the three to market human-derived fertility medicines; the other two produce recombinant drugs based on molecular cloning. We also made a wise strategic bet about nine years ago to sponsor a major study comparing our approach to their artificial DNA model. The results showed very clearly that, if a woman wanted to get pregnant, her chances were best with our drug, Menopur.  

What role does business development activity-product licensing and external partnerships-play in Ferring’s growth strategy? 

 Business development is definitely a part of our growth plan. We are always scouting for external assets that fit within our therapeutic profile. However, being privately held, I don’t have shares to exchange when we wish to make an acquisition. Our policy is to pay cash. That’s a big difference from the practice in publicly-held companies. If I make a $100 million mistake, I have just one shareholder -not 10,000-who is in a position to hold me accountable. So you can say our management is more exposed to risk.  

How does the US market figure in your plans? 

 The US accounts for a third of our global business today. When I joined Ferring in 2000, it was just 6%.  I am actively managing the US business, as I hold the title of CEO of Ferring USA. That came about in 2010, and since then we have grown sales from less than $200 million to $650 million this year-a threefold increase. Sometime in 2017, we anticipate the US will surpass Europe as our largest regional market.  

	I am bullish on the US. I have no doubt it is the one market where Ferring will grow fastest over the next 10 years. We started from a low base, which means that the faster our local business expands, the better off we will be in terms of margins, profits, and pricing.  Simply put, if a company is not “all in” in the US, it is losing all out. Ferring is investing heavily there, including a new manufacturing facility in Parsippany, NJ, that complements our R&D campus in San Diego.  We have created a strong market access capability -essential to doing well in the US -that has our pharmaceutical development, commercial, and manufacturing groups all operating under one roof.  We don’t follow a matrix approach to management in the US-as CEO, I am responsible for everything.

What about emerging country markets? Is Ferring sufficiently capitalized to ride the next wave of growth in these high potential geographies? 

 We have identified four emerging countries where Ferring is looking for a bigger stake: China, for its sheer size and scope; India, as a source of new ideas, especially in manufacturing; Brazil, due to its bulging consumer demographic; and Russia, where the need for new medicines to repair declining life spans is particularly acute. I would be remiss without mentioning Japan as well, with its large, affluent and aging population. 

	All of these priority markets rely on Ferring’s distinct perspective on organizing for commercial success. There is a single leader for each country, with full responsibility for integrating the different functions. No silos here.

 Is there one particular aspect of your management style that has contributed the most to your success? 

 I am not a micro-manager. My greatest satisfaction is to get something done without actually instructing people to do it-nor how to do it, or when.  Influencing is what it is. When I see people I have managed out there leading on their own, I see it as a personal accomplishment of the highest order.  

	I am also a forward thinker, for which the best example is Ferring’s acquisition of Savient Pharmaceuticals’ Biotechnology General (BTG) manufacturing business back in 2005. The purchase, which few people thought we could pull off, allowed us to achieve three goals: (1) obtain full control over one of our licensed products, the growth hormone Zomacton, increasing our revenue base beyond the licensed geographies; (2) acquiring expertise in recombinant DNA and related manufacturing technologies, as a platform for future expansion into this important area for specialty biologic drugs, and accompanied by ownership of a state-of-the-art biologics facility in Israel; and (3) thus securing the high potential drug asset Euflexxa, a hyaluronic acid used to relieve pain in osteoarthritis of the knee, which we quickly launched in the US, where it helped diversify our product offerings beyond fertility. Today, Euflexxa accounts for a third of our US sales. 

	Most important, Ferring got a great deal on the price we paid for BTG. It stands as one of the best deals negotiated in the industry at the time, yet still today few people know about it.

The biopharma sector is looking at an extended period of disruptive change. What are some key issues that industry has to keep its eye on to avoid being blindsided by trends that at the time seem insignificant? 

 Getting a new product launch done right is the merit test for all companies today. The biggest bar to success is failing to anticipate actions by competitors. You would be surprised by the number of managers who assume that our therapeutic rivals will simply stand there and wait, doing nothing, until we act. Forget that. A competitor will always do something-today, many are willing to spend even more than the launch product to preempt any loss of market share.    

Another concern I have is disruption from non-traditional players outside the industry. Our biggest long-term threat is not from fellow members of our own vertical but among companies that amass, interpret, and control information. It’s not the Mercks and Pfizers we must worry about, but Apple and Google. It’s probably true that today the two latter companies know more about US patients than any company involved in the business of healthcare. Their data allows them to analyze patient histories and to deduce patterns that will result in better targeting of a drug to the needs of an individual patient.   

	It’s important for drugmakers to get proactive in taking control of all this rich data, in the best interest of providers and patients, instead of seeing it as an enemy. Otherwise, Apple and Google, not the industry, will end up as the essential intermediary with the patient-the arbiters of innovation-while big Pharma finds itself  confined to distribution and other low-end activities.

’s Editor-in-Chief. He can be reached at 

 Ferring Pharmaceuticals’ new manufacturing facility in Parsippany, NJ.  

Ferring: The Quiet Company

Still a 21st century growth industry… 

		At 45 novel FDA drug approvals, 2015 ranks second only to 1996 on this key marker of innovation. A third secure the full FDA “trifecta” of breakthrough, fast track, and orphan drug status, confirming the quality of the science now emerging from industry labs (see page 54 for more).    

		The “idea sector,” where biopharma is a major player, today accounts for 31 per cent of the profits of Western-based multinationals, compared to 17 per cent in 1999, according to the McKinsey Global Institute. 

		M&A activity will continue to dominate in 2016 as biopharma companies respond to a similar wave of restructuring on the insurance and provider side of health care.  Even though the track record for ever-larger combinations is mixed, scaling up remains a compelling proposition for biopharma in an era of growing payer power and the high-cost complexities of drug development.

		Continued progress in the basic science of biology and genomics lead to a cascade of advanced treatments that use the body’s own defenses to attack disease. Oncology, anti-viral and auto-immune disorders are poised for the greatest gains, along with better diagnostic tools to make the delivery of medicines more precise for the individual patient.

		Brand sales increase at double digit rates for 2015, with torrid pace to continue in 2016 due to positive demographic factors, an improving US economy and a bumper crop of specialty biologic products.  Generic sales growth is significantly lower, at 3 per cent.  Worldwide sales of all drugs have surpassed the trillion dollar mark; IMS forecasts a 1.3 trillion dollar market by 2018.

		Specialty and biologic drugs requiring complex manufacturing protocols will make up half of industry sales by 2020, with oncology drugs dominating at a record high growth rate of more than 10 per cent CAGR up to 2020.  

		Specialty and biologics is where the industry will continue to make the bulk of its profits; biosimilar products will begin to play a small but measurable role in US sales by the end of 2016.   Therapeutic vaccines are also a significant long-term opportunity.

		Generic drugs now account for 85 per cent of prescriptions written in the US, but margins are increasingly pressed, which will trigger additional consolidation in this segment.  Generic prospects are also impacted by a slowing of brand patent expiries, with 19 brands set to lose coverage [

] in 2016, compared to 48 in the peak year 2012.

 2015 Pharma 50] is currently the largest company by overall sales, but consolidation will offer more opportunities for newcomers like Gilead [now ranked 9

, up from 18 in 2014], and Teva [now at 12

] to rise within the top ten.   A Pfizer-Allergan combination will immediately vault to the top spot if the merger is approved in 3Q 2016.

		A restructuring of capabilities is emerging as biotech companies capitalize on their increasing status as the primary source of new innovations, while big Pharma looks more toward its competence in global-scale, late-stage development, distribution and marketing. Biotech will benefit from the surge in IPO activity in 2014-2015, with more options to go it alone or partner rather than face outright acquisition by big Pharma.  

		New and emerging threats to global health underscore the industry’s continued relevance in tackling disease. Eradication of global scourges like polio are within reach, while promising new treatments are on the way against dengue fever and malaria.  Solving for one major killer – drug-resistant TB – remains elusive.      

But investment dynamics no longer favor organic growth…

		Big Pharma is cash rich and asset poor – and unlocking the promise of the pipeline does not proceed sequentially in a way that recognizes the pressures on short-term quarterly earnings performance.  M&A activity is reaching an all-time high, with 37 transactions worth $200 billion completed through 3Q 2015.    Pharma’s demand for the few high-quality assets ready to be commercialized will continue to keep biotech valuations high through 2016.
		 

		Smaller biotechs with unique, clinically differentiated assets are driving big Pharma innovation.
		 

		Questions remain about the productivity of in-house R&D:  if the model is not “broken,” fixes are needed to control the cash burn rate.  Tufts Center for the Study of Drug Development posts estimate of average $2.6 billion per NCE along with high drug candidate failure rate, especially in costly Phase III studies.  While opinions differ as to the amount, there is a consensus that costs of new drug development are increasing.
		 

		The “get big to scale” philosophy driving the trend to consolidation is running counter to an equally significant trend:  the shrinking pool of patients available to initiate treatment with new, innovative – and high cost – drugs.  Cheap generics now account for 85 per cent of US scrip, with the remainder focused on proprietary drugs for smaller, precisely segmented groups of patients, like those with rare diseases or specific types of cancer.

		The strategic question for 2016:  as the science of personalized medicine drives drug discovery into progressively smaller niches of treatment, where are the patients going to come from to keep revenue per patient sufficiently high to fuel the requirements of big Pharma for those ever-higher multiples demanded by investors?   

		“Frugal innovation” as an emerging theme in R&D, with local champions in China, India and a few other emerging country markets leading the way – but still to be proven as a viable drug development model. 

		Collectively, all of these the changes promise a more diverse industry, although the expertise barriers to entry are formidable, particularly in manufacturing the new generation of complex biologics and biosimilars.

		âContract research organizations [CROs] are maturing and now have the scale and size to assume the burden of big Pharma’s drug development and post-marketing obligations – the latter, especially the generation of “real world” evidence, is a lucrative new source of CRO revenues.  Exclusive strategic partnerships with big Pharma are becoming commonplace, while CROs from China and India are emerging as competitive rivals to the established US and European players.     

		Biopharma’s bottom line: future global profits depend on maintaining price freedom in the US, which accounts for more than one-third of global industry revenues. 

		The 2010 Affordable Care Act [ACA] prompts more consolidation in health care and increases payer leverage in pricing and market access. Insurers, PBMs and pharmacy wholesalers that do business with biopharma are now down to two or three players with a dominant share of their respective markets.    

		Activist investors continue to apply shareholder arbitrage to force companies to “get lean.” 

		Partnering and licensing opportunities are increasingly selective, with less margin for error.  Risk protection is advanced through detailed milestones and contingent rights clauses. 

		PBMs tighten the screws on drug prices. More drugs are excluded outright from formulary coverage while high co-pay tiering placements are used more aggressively to drive the outcome of rebate negotiations. Expect legal action by PBMs to sever the sweetheart arrangements between some manufacturers and specialty pharmacies revealed through activist investor pressures on drugmaker Valeant.   

		Relentless compliance scrutiny.  Supply chain irregularities are a new area of regulator interest. 

		Big distribution wholesaler chains grab a bigger share of the generic compounding business to capitalize on quality issues confronting smaller players tainted by scandal. 

		Growing complexity in clinical trial requirements, including big Phase IV population studies extending beyond the patent term. The “adaptive pathway” of contingent approvals takes root in Europe-and it’s positioned as a system cost-saver. 

		New competitive threats from adjacent sectors. Google uses its data strengths to carve a broader role in raising efficiencies in drug development, taking it beyond its previous focus on consumer health applications.

		The European Medicines Agency [EMA] moves toward a new registration model:  the Adaptive Pathway. A one-time market authorization yields to faster initial approval in return for periodic regulator reevaluation of a product through its life cycle. 

		Industry responds to a more diverse customer base, with multiple engagement points beyond the physician, especially through integrated care models targeting patients.  Costly investments in predictive analytics are required to activate these multiple channels.

		Operational challenges in high-potential emerging country markets: commodity crisis and slowing GDP growth puts more focus on how to turn short-term revenues into sustainable profits.  

		Anticipating the reimbursement climate after marketing authorization requires full commercial mobilization of in-house capabilities at a very early stage of drug development.    Early investment is a big bet, which in turn incurs big risks.

		China growth engine slows – GDP 14.2% in 2007 vs. 6.5% in 2015 – amidst more government scrutiny of foreign drug multinationals. Health system restructuring creates additional market uncertainties on drug pricing along with a stronger regulatory emphasis on rewarding quality and innovation.

		Greater pricing pressures in Europe amid generalized budget austerity.  Treating drugs as a tendering purchase – like band aids – begins to take root in some countries.

		Growing complexity in clinical trial requirements, including big Phase IV population studies extending beyond the patent term. Led by the EMA, pressure increases to make all clinical trial data publicly available, including trials that fail.  

		Crowding in key therapeutic categories -- “counter launch” campaigns hype the marketing bill. 

		Formal patient group engagement in drug development, regulatory approval, market access. How will the Cystic Fibrosis Foundation spend its $3 billion royalty windfall from Vertex?
		 

		Social media’s disruptive effect on the patient/physician relationship, data disclosure, privacy and the accuracy of clinical trials – an alternative, open source information stream. 

…Leads to more pressure to define a drug’s value 

		Congress, the courts and the states continue to chip away at key elements of the 2010 Affordable Care Act [ACA], adding to operational uncertainties for business amid cost and coverage concerns for middle-class consumers.   The Independent Payment Advisory Board – which carries authority to impose cuts in Medicare, including the Part D drug bill – has yet to convene, and the so-called “Cadillac tax” on high-benefit, high-cost insurance plans has been delayed until 2020, depriving the law of a major source of revenue.  Tax penalties for individuals and families that opt out of insurance coverage start to bite, exposing deficiencies in plan design like high deductibles and co-pays.   

		2016 will test the limits of growth in the US insured population. To date, the Obama Administration has enrolled only 38 per cent of the 24 million people eligible to participate with subsidies made available under the law – a rate too low to sustain the program’s cost over the long term.  Unless enrollments of younger, healthy, middle-class patients currently without insurance step up to broaden the risk pool, commercial insurers that represent the backbone of the exchange-based private insurance market under the law will be compelled to drop out – launching the “death spiral” foreseen by ACA opponents.  

		Outcome of the November presidential election will lead to still more legislative debate, with a Democratic president seeking to make exchange-based insurance premiums more  affordable to the middle-class, while a GOP administration, assuming support from a GOP Congress,  revisits the entire premise of the law beyond that one provision with bipartisan support:  no discrimination against pre-existing conditions.  

		Drug costs are due to increase as percentage of overall health spending, making the activities of individual drug companies on pricing more politically visible.  Scrutiny of double digit price hikes for older, off patent drugs – a practice that continues among the big Pharma majors, not just smaller industry “outsiders” – will add to the debate on what true ” innovation” is in medicines. One path to reform is to introduce more competition in the off-patent segment by increasing the pace of FDA approvals of generics through fast-track FDA review. 

		The Obama Administration will use its executive authority to test non-legislated approaches to pricing restraint, including reliance on pilot demonstration projects authorized through the ACA.  The HHS Center for Medicare and Medicaid Services [CMS] is already introducing a form of European-style “reference pricing” by grouping different biosimilar products intended for use in the same therapeutic category into a single reimbursement code.   

		With formal action by government on drug pricing unlikely, PBMs, insurers, professional groups and academia are developing new approaches.  Indication-based pricing for cancer therapies – where prices for the same drug might differ depending on its success in treating one cancer versus another – will be implemented by Express Scripts in 2016.

		Industry image continues to face challenges – neither elites nor mass opinion believe the industry is a leader in innovation.  

From the Editor

The changing tides in the global healthcare market are showing no signs of letting up. Here's my take on the opportunities, threats, and other big issues facing the industry in the new year.

2016: A Biopharma Market in Flux

	It’s a new year with new forecasts  informed by last year’s rear view mirror. They’re often insightful. Sometimes misguided. Always interesting.

	What many in our industry overlook as they try to identify some new trend are the changes that move below our feet-biopharma’s tectonic plates. These are forces so powerful they will continue to shift our business not just this year, but into the foreseeable future. And they have the potential to disrupt even the most thoughtful marketing plans. So ignore these 

Change is faster today. Technology moves quickly. Thinking, experimenting, and iterating happen rapidly. And while this acceleration is bringing life-changing therapies to market faster than ever before, it’s also bringing more failed molecules and more “me-too” competitors. Leveraging exclusivity and setting competitive barriers become more difficult.

	How to succeed at this pace? You can either jump in and swim as fast as you can, or take the time to examine the market and focus your resources on the greatest potential for success. Each approach has its risks, so it’s a matter of which makes you less uncomfortable. 

85% of pharmaceutical units sold in the US are generic. Pick virtually any specialty drug category, and sitting right in the middle is a well-known, generic 800-pound gorilla that dominates the market. All are effective, cheap, taught in medical school, and on most formularies.  

	A new drug with any hope to take down a generic gorilla must offer an advantage so clear, so meaningful that it makes up for a price tag that makes payers instantly nauseous. The game today is outcomes and long-term cost reduction. And it is happening-with high-priced drugs that in some cases turn out to be cures. These are tomorrow’s blockbusters. So as they say in TV commercials, “What’s in your Pipeline?”

The key diagnostic questions have been asked, test results are in, and the critical moment is here. The physician informs the patient that he or she has a serious disease and begins to explain treatment options and next steps. A very personal, devastating version of “shock and awwww” begins. The patient is now forced to face the reality of a disease and make treatment decisions they barely understand. 

	Moments of truth like this have been a part of medicine for centuries. So what’s different today? The opposing forces of a more complex dialogue versus a time-challenged physician. Doctor-patient communication, so critical to therapy compliance, is compromised from the start. 

	What can be done to improve this moment of truth? More, better patient education and support. But perhaps more important, practitioner training designed to improve sensitivity and clarity when he or she is having that difficult conversation. 

#4 The morphing of the pharma sales rep. 

According to Cegedim Strategic Data, the number of pharmacy industry sales reps declined 40% between 2006 and 2014. Not quite last man or woman standing, but dramatic nonetheless. 

	So in an era of no-see docs and dramatically-priced complex new drugs, what does today’s remaining  rep force look like? The “attack of clones” approach is over. No longer will a rep be successful just by delivering the script they role-played at the sales meeting. 

	The successful rep’s new role has shifted from sales to support:  Isolating barriers and patient problems, then providing support/solutions to the physician, the practice, and the office staff. The question for the manufacturer then becomes: What can we do to support our reps in this changing role?

Have you ever thought about the surprising similarity between today’s Hollywood business model and that of pharmaceutical companies? What was once a studio system in which the directors, writers, and stars were all kept in-house on contract and used for movie after movie is now a business of outsourcing. And what once were the in-house resources of pharmaceutical giants are now a pharm team of outsourced specialties. CROs, medical review, discovery, and more are now orchestrated from best-of-class, proven partners that play well with others.

	So the lesson learned here is that in a high-risk venture like launching a new movie or a new drug, it’s best to spread the risk. How can you spread yours?

To keep going with the Hollywood analogy, let’s look at the concept of the opening weekend. Many Hollywood movies win or lose on first weekend’s receipts. Expensive blockbusters turn into failures in a few short days, while cheaper independent films with low expectations become heroes by Monday. 

	Sound familiar? A new drug misses early, sky-high forecasts that management pushed higher. Uptake is slower than expected. All of a sudden, the brand is lucky to keep its initial budget for a full year and risks losing the attention of the sales force.

	How can brand teams manage expectations when management, shareholders, and competitors expect a big box office weekend each launch?  Thinking long term anyone?

 With all the attention focused on patient centricity, one reality continues to be overlooked. In a world that’s shifted from treatment from primary care to specialties, where drugs are more complicated and expensive, and where illogical insurance coverage continues to frustrate patients, there’s a clear unmet need-for a quarterback. 

	Specialists focus on a specific body part or set of symptoms, handing the patient to the next specialist once their job is done. Some medical specialties have taken a broader view and adjusted their approach to overall patient care. Neurological teams, diabetes specialists, cancer clinics, and cardiology practices now focus on the whole patient and their treatment. The patient’s specialist becomes the quarterback directing the process. Pharmaceutical manufacturers in these specialties have supported this model with in-depth patient and practice support programs. They should be the ones to emulate. 

	Seven tectonic plates moving at their own pace, sometimes one at a time, sometimes in combination. Pay attention to how they continue to shift the healthcare landscape, and adjust your plans accordingly. 

 is President, Topin & Associates, an HCB Health Company. He is a member of Pharm Exec’s Editorial Advisory Board.

The “seven significants” for brand planning in 2016 that pose the best chance for stable footing amid the seismic state of today’s ever-changing healthcare landscape.

Feel the Earth Move Under Your Brand?

	As the industry and the public focuses on mergers, tax inversions, pricing, and the drying up of research pipelines, there seems to be little interest in re-evaluating the underlying intellectual property regime intended to promote research and development of new drugs. While that regime has largely remained unchanged since the Hatch-Waxman (HW) Act was first passed in 1984, much else has changed, including increased discovery and research costs, longer development and approval times, greater regulatory hurdles, and mandatory substitution laws, all resulting in a very different environment than the proponents of the law envisioned in 1984.  

	HW was intended to be a fair compromise between research-based pharmaceutical companies that invent new drugs, and obtain regulatory approval to sell them, and generic companies that copy them. A bit like communism, the deal looked great on paper but broke down over the years in practice. It is our opinion that the 1984 Act has more than achieved its goals of providing lower-priced generic drugs to the American consumer, but that the goal of incentivizing research and new drug discovery has fallen short.

	In order to sell a drug in the US, marketing approval must first be obtained from the FDA. This is a time-consuming and expensive process taking anywhere from 10 to 15 years and costing over a billion dollars. This daunting statistic is made even more so when one realizes that for every 10,000 drugs discovered, only one ever survives the rigorous FDA process and makes it to market. 

	In 1984, the time to obtain FDA approval, as well as the cost to do so, was much less. The increase in cost is perhaps not even as significant as the increased number of years the process requires. Since patent protection must be obtained at the time of drug discovery, each year that is consumed gaining FDA marketing regulatory approval chips away at the patent’s 20-year term. This is exactly why the research-based companies initially thought the HW trade was a good one. In exchange for allowing generics to piggy-back on the innovator’s health approvals, research-based companies were awarded certain limited patent term extensions to recoup a portion of the years lost during the onerous regulatory process. 

	Prior to 1984, the burden of providing efficacy and safety data to the FDA was required of generic drugs, thus limiting their availability. Hence, in an effort to get more lower-priced generic drugs to the American consumer, while maintaining incentives for innovation, Sen. Orrin Hatch and Rep. Henry Waxman negotiated the HW deal, thus allowing generic companies to use the regulatory data of the innovative company during their own regulatory review process. As if this was not enough incentive for generic companies, HW added another sweetener to the deal. It awarded six months of marketing exclusivity to the first generic company to knock out a drug’s patent, in essence awarding a mega million dollar prize (and in some cases a billion dollar one) to the generic company with the most aggressive and clever legal team. 

	It didn’t take the generics long before they were all trying to win this prize. When the law was first passed, generics would typically challenge patents toward the end of the term of the drug’s primary patents. However, generics quickly began to challenge each and every patent as soon as was possible under the HW rules-a short four years from the date the innovator launched its product. It quickly seemed that, according to the generics, there was not a single valid pharmaceutical patent in the US. 

	Now, ironically, this same system has made hostages not only of big Pharma, but the generic companies as well. Since there is rarely, if ever, a single first filer, no generic company can obtain the coveted six months of marketing exclusivity. Without this incentive, generic companies are now faced with a win, they lose; lose, they still lose outcome. For example, if the group of first filers (that often numbers in the teens) wins the patent battle, the generics essentially lose the war anyway. The patent is held invalid, and all generics can enter the market at the same time, thus creating an instant commodity. And commodities don’t make money, even when owned by a single entity, much less when shared by several. 

	We recently sat through a patent infringement trial for one of our firm’s clients. During a break, one of the generics’ attorneys came up to us to say hello. Many years ago, he had represented research-based companies defending against the continuous onslaught of generic attacks against patents. We not so jokingly told him that we were surprised to see that he was now representing the generics and that he should be ashamed of himself. He did not seem to get our hidden criticism. Rather, he laughed and said, “Well, it’s always fun, isn’t it?” 

	It certainly wasn’t fun for our client trying to protect the patent on one of its major products. It didn’t seem that it was even all that much fun for the generics, many of whom had realized the “tails you win, heads we lose” conundrum. Perhaps it was fun for the legal teams whose practices are dependent on such cases. 

	The final breakdown in the system occurred when the current pay-for-delay plethora of plaintiff antitrust lawsuits became the soup 

, and a new rash of cases were filed challenging virtually each and every abbreviated new drug application (ANDA) patent settlement that has been entered into in the last 10 years. 

Regardless of how well the agreements complied with the edicts set forth by the Federal Trade Commission (FTC), or even if the FTC and the Department of Justice reviewed and “blessed” the settlement, both the research-based, as well as the generic companies have been forced into more expensive lawsuits to defend them. The only karmic irony in all of this is that for the first time the generics are getting a taste of what “winning” actually means in these types of ransom-like cases. Winning simply means that after years of litigations, millions of dollars in legal fees and countless sleepless nights, all that is “won” is the preservation of the status quo. 

	What is the cost of these vicious circles of litigations for Americans? Less money available to funnel back into much-needed research. As stated in the recently published book, Inflection Point (authored by Medford-Rosow), at the end of the day, only research-based companies can be counted on to finally find a cure for diseases. Our government will not do that for us, nor will generic companies. 

	It is our opinion that the HW system is indeed broken and a rebalancing of the interests between generics and research-based companies is necessary. Clearly, without future research, there will be very few new drugs, not only for American consumers, but for generic companies to copy. 

	Among the most valuable intellectual property developed by the research-based companies for a drug is the clinical trial and related data needed for FDA approval. Under present law, only five years of protection for this data is available, and a patent challenge can be filed four short years after the innovative product is launched. While perhaps appropriate in 1984, today this is out of balance and heavily favors the generic industry. 

	Europe and Japan provide ten years of data exclusivity and there are no ANDA provisions.  The US did lead the way in providing 12 years of data exclusivity for new biologics, but now even this seems threatened. Therefore, as a first, but certainly not last, step in rebalancing the interests between consumers, generics and research-based companies, we are advocating an increase in the number of years of data exclusivity awarded to all new drug discoveries, analogous to what is currently provided in Europe and Japan, as well as to that awarded to newly-discovered biologics. The US is by far the largest market in a global pharmaceutical arena, and all research-based companies, whether domestic or foreign, are significantly affected by the patent and data exclusivity regime. 

	A system that encourages the killing of the goose that lays the golden egg is rarely a good trade in life. 

 are partners at the law firm of Richardson & Rosow LLC 

Columns

While the 1984 Act has been a boon for lower-cost generics, its goal of incentivizing new drug discovery has failed.

Pharmaceutical Executive-01-01-2016

Feeling the Heat: Pharm Exec's 2016 Industry Forecast

Ferring: The Quiet Company

2016: A Biopharma Market in Flux

Feel the Earth Move Under Your Brand?

Is the Hatch-Waxman System Broken?

2015 FDA Drug Approvals

Rough Road Ahead for Innovation

Country Report: Puerto Rico

Pharmaceutical Executive, January 2016 Issue (PDF)