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Pharmaceutical Executive Digital Edition - February 2011

Gilenya is the first FDA-approved oral medication for Multiple Sclerosis (MS), a chronic, disabling illness with a significant but largely undocumented impact on society.  Gilenya is a broad pathfinder drug, with the potential to raise the profile of MS as a public health priority, stimulate new science, and motivate clinicians and patients to seek a wider range of approaches to ease the burden of disease. And there is the more dynamic element of market uncertainty that will make for an interesting debut. High cost—and the ramifications of a controversial co-pay program—side effects, and patient compliance are issues for Gilenya that cannot simply be washed down with a swig of water.  

On September 23, 2010—161 years after the disease was initially diagnosed —

 called the FDA approval of Gilenya "another sign of the improving picture for MS treatment." Last month, The European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion for Gilenya in patients with highly active recurring-remitting MS (RRMS). John Golding, president of the European Multiple Sclerosis Platform (EMSP) called Gilenya a "welcome alternative" for the more than 500,000 people in the EU who live with the disease. Switzerland and Australia have also approved the drug. And several new drugs with a similar oral indication are on the way.  

Plaudits aside, Gilenya may indeed signify the beginning of long-awaited change in the MS community: It treats the disease in a new way, boasting an ease of use and efficacy profile that many competitors cannot hold a candle to. "It's an area of intense fascination for people," says Trevor Mundel, global head of development for Novartis. "I take my hat off to the patients for participating and for bearing with us ... It was a roller coaster of a program to develop this drug."  

First diagnosed in 1849, Multiple Sclerosis currently affects between 250,000 and 350,000 people in the United States, with as many as 200 new cases of MS diagnosed in the US every week, according to the National Institute of Neurological Disorders and Stroke (NINDS). MS strikes women twice as often as men, and usually appears between the ages of 20 and 40, making it the leading cause of disability among young adults in the nation. 

MS is a disease of the central nervous system (CNS), affecting the brain and spinal cord. In individuals with MS, the body's own immune system attacks the insulating layer of fatty tissue called the myelin sheath that surrounds and protects the nerves of the CNS. This attack erodes the myelin sheath over time, producing scar tissue (sclerosis), which eventually disrupts the communication between the CNS and the rest of the body. These communication disruptions can lead to mobility and vision impairments, in serious cases resulting in an inability to walk and/or perform many activities of daily living (ADL) skills including cooking, cleaning, exercise, or other activities involving strength, mobility, or endurance. Other possible symptoms of MS include weakness, numbness, loss of muscle coordination, and problems with speech and bladder control. 

The impact extends even further into the social interaction space. According to an article by Nicole M. Sabapathy and Clare L. Minahan published in 

 and data from the "Sonya Slifka Longitudinal Multiple Sclerosis Study" in 2007, such reduced ability to undertake ADL activities is also associated with higher levels of depression and decreased quality of life in those with MS. 

Unfortunately, in addition to being diagnosed with a CNS disease and facing a reduced capacity for mobility-related activities, potential treatments of MS thus far have done little to improve the quality of life and instances of depression among this population. MS is commonly a progressive and relapsing disease; therefore, treatments can only aim to slow the progression of physical disability and increase the time between relapses. 

"It is extremely dangerous to use improved 'quality of life' verbiage around these drugs," says Julie Stachowiak—MS patient, PhD, and author of 

 "Many people assume that taking medicine if you have a condition makes you feel better. The MS disease-modifying therapies (DMTs) are different. Often they make us actually feel worse in the immediate than if we hadn't taken them."  

Some of the most well known MS medications currently on the market are Rebif (Merck Serono), Copaxone (Teva Pharmaceuticals), and Avonex and Tysabri (Biogen Idec). Rebif must be self-injected three times a week at roughly the same time on each injection day and may have side effects including flu-like symptoms, depression, abdominal pain, increased liver enzymes, and blood cell count decreases; Copaxone does not have many of these negative side effects, but can leave itchy, painful welts and must be injected every day; and Avonex is injected only once a week but has many of the same side effects as Rebif. Treatment options with inconveniences and side effects like these can be a breeding ground for patient noncompliance. "It's scary and it took me a long time to get used to. And it's inconvenient to take the injections because when you're in your twenties, you don't really want a set schedule to take meds," says MS patient L. Mello. 

"DMTs do not fix people with MS; they slow down the rate at which we get worse," adds Stachowiak. 

The most obvious difference between medications like these and Novartis' Gilenya (fingolimod) is that there's no injection. Gilenya is the first oral medication to gain FDA approval as a first-line treatment for patients with relapsing forms of MS in the United States, administered as a 0.5-milligram pill to be taken once a day. "Many people prefer to take a capsule because they don't like to stick needles into themselves," Dr. Nick LaRocca of the National Multiple Sclerosis Society told the 

Negative patient reactions to injectibles may be why Mundel maintains that one of the biggest differentiating factors of Gilenya is the lifestyle change marked by the convenience of an oral treatment. Up until the FDA advisory committee met last June to hear patients' accounts of their experiences with Gilenya, "the skepticism was overwhelming," says Mundel. However, one patient account may have swayed a panel that was still very uncertain about whether the compound was really a breakthrough. A young woman spoke to the committee about her lifestyle with injectible treatments and shared how she would often cry for half an hour before injecting herself. Mundel believes this testimony and others like it swayed the committee in their decision to make Gilenya a first-line, rather than a second-line, treatment because, "they had to ask themselves, 'What do we say to patients like this one if we have to tell them it won't be a first-line treatment, and that they have to continue on like this?'" 

Certainly, at first glance, this shifting of disease treatment and management seems to be quite significant. "If you ask a 22-year-old, 'Do you want a shot every day or a pill every day?', I don't think there's any contest," says chief medical officer for the Multiple Sclerosis Association of America (MSAA) and neurologist Dr. Jack Burks. But Burks cautions that oral delivery of medication has its own inherent problems. 

While the obvious assumption may be that the convenience of a pill would cause patient adherence to skyrocket, Dr. Burks warns that commonplace oral medications for MS may cause patients to become blasé, or to take the disease and its treatment regimen less seriously. "If this drug works well and the patients' symptoms of MS are very minimal with Gilenya, I'm concerned it will be like patients on blood pressure medication—unless you keep pushing them, they won't take their medication," he says.  

"None of these drugs cures a disease—the disease is still there," advises Burks. "So it's going to be up to the physicians, and the medical community in general, to keep reminding people that the reason they feel so good is because they're on the medication. And in fact, the reminder of taking a shot every day is much more powerful than the reminder of taking a pill every day; we have to be very vigilant." 

In fact, there seems to be a greater "If it's not broke, don't fix it" mentality springing up among all those involved—patients, physicians, and analysts alike. "Although the majority of the disease-modifying therapies for MS are currently given via an injectible delivery mechanism—which is inconvenient, painful, and requires specialized storage conditions—compliance is quite high, at 80 percent or higher," notes Datamonitor healthcare analyst Trung Huynh. MS patient L. Mello echoes this sentiment when she says, "The medication I am on 

 working for me. Why chance switching over when I don't know what will happen?" 

Another point of differentiation for Gilenya may be why and how it affects MS. Mundel translates the science into layman's terms for 

 "Gilenya effectively blocks a system that the body has in place to control certain white blood cells—lymphocytes, which are trafficking around your body and through the lymph nodes," he explains. These lymphocytes monitor what's going on in the body, assessing potential invaders and problems. In the case of MS, the lymphocytes get out of control in the body and "go wild," participating in the destruction of the myelin sheath that surrounds the nerves of the CNS. Gilenya effectively contains the rogue lymphocytes, keeping them locked in the lymph nodes and preventing them from reaching the CNS, where they could potentially attack this protective covering. This method is unique among MS treatments in that many other medications kill off the lymphocytes, whereas fingolimod merely traps them. 

In the beginning, no one at Novartis knew exactly how fingolimod worked, or why it worked, or even that it would turn out to be such a breakthrough for MS; the compound started out in the company's transplant department back in 1997. Novartis has a strong background in the transplant area, with drugs such as Neoral, and while fingolimod looked promising at first, it eventually was decided that it was no more effective in the transplant area than anything else out there at the time. 

However, as a matter of what amounts to standard operating procedure, Novartis tests any compounds that may affect the immune system for potential effect on MS, through profiling in animal models. So Gilenya was tested in a rat model of MS, with three different variances: First, the rats were given the drug beforehand to prevent them from getting the disease; Second, those already having the MS disease were treated and; Third, one group was allowed to progress quite far in the disease and was treated afterward, at a later stage. "Anything we did—in any of those setups—worked fantastically well," recalls Mundel. 

Once promising results like these were documented, switching the compound from the transplant group to the neuroscience group was a bit of an arduous process, but in 2003, a small study of fingolimod was defined to determine whether the same outcome would occur with patients. Both high and low doses were extremely effective in Phase II (begun in 2003), so the company moved on to Phase III—the largest study to date to ever have been launched for an MS drug. Phase III ended in 2009, and in September 2010, FDA gave the green light for Gilenya. 

Perhaps because of its potentially lifestyle-changing capabilities, Gilenya qualified for fast track through the FDA. Any drug being developed to treat or prevent a disease for which no current therapy is available is obviously a potential fast-track candidate, but when you take into consideration that, if there are already existing therapies available, the new drug must show some advantage over available treatment, then Gilenya may fit the bill. What this means for Novartis going forward is that further trials must be done to gauge long-term safety and efficacy of Gilenya. "We have a Risk Evaluation and Mitigation Strategy (REMS) in place, we've committed to a 5,000-patient long-term study, and we are studying an even lower dose of Gilenya," says Mundel. There is risk involved, as recent precedents involving cancer drugs show that failure to slow morbidity or symptom progression can lead to a narrower licensing indication or even refusal of a final authorization to market.  

Common side effects of Gilenya are similar to those that occur with many other MS treatments, such as headache, flu symptoms, diarrhea, back pain, and liver transaminase elevations. Macular edema is also a significant concern, with an estimated risk at about 4 in every 1,000 patients. The most noteworthy potential side effect of Gilenya, however, may often appear upon taking the first dose. Significantly, patients must take their first dose in their doctor's office, and be observed by a physician for the next six hours for signs of decreased heart rate (bradycardia or bradyarrhythmia). Patients may "feel dizzy or tired or be aware of a slow or irregular heartbeat ... during the first six hours of the first dose," and "heart rate will usually return to normal within one month" of beginning Gilenya, according to the medication guide for patients. In clinical studies, adverse reactions of bradycardia following the first dose were reported in 0.5 percent of patients receiving Gilenya 0.5 mg, according to the Full Prescribing Information document. 

"The key is for us to make sure the patients understand the pros and cons," says Dr. Burks. "When I talk with patients I always start with the risks, not the benefits." But just as important as how the physician presents the benefit/risk ratio to the patient, says Burks, is how the manufacturer presents those facts to the physicians. "Drug companies should not be pushing these new treatments as a cure for MS." 

With similar caution, Stachowiak warns, "Just because a drug makes it through a two-year trial does not mean that it is safe—or effective for the long-term. I understand why longer-term trials are unfeasible, but trials that last one or two years are not ideal to determine anything about an MS drug." 

In addition to side effects, another major patient concern is cost. Eight days after the official press release from Novartis announcing Gilenya's FDA approval, 

 reported that Gilenya would cost up $48,000 annually—nearly $1,000 more per month than competing drugs such as Teva's Copaxone.  

To offset such cost concerns, Novartis has put several financial-assistance and patient-support plans in place. The Gilenya Co-Pay Support Program is a single point of contact for patients and healthcare providers, offering information, guidance, support, and reimbursement services to assist patients and providers. The program is proving to be controversial with the managed care community due to the fact that in most cases patients receiving the drug will be subject to virtually no co-pay; it will be up to the insurance provider to bear the cost burden of treatment. And Gilenya has been priced very aggressively, on the assumption that the oral dose will prove popular as a differentiating factor with patients. Additionally, to ensure immediate access to treatment, Novartis is offering the option of a free starter product during the benefits investigation period. 

"Cost has to be looked at from two perspectives. One is what the managed care companies are going to have to pay—and $48,000 is a lot," says Burks. The other perspective to consider, he says, is the patients'. "When patients hear that number, they just sort of drop to the floor. But what they pay is actually going to be very little."  

Gilenya is still flying under the radar in terms of building awareness among the clinical and patient communities. While many neurologists have heard of the drug, no consumer campaign has been launched as of yet. Novartis is currently only promoting Gilenya to healthcare professionals as per the Gilenya full prescribing information. "During this time we are focusing on educating physicians and nurses about the efficacy and safety of Gilenya and the process for initiating patients on therapy," says André Wyss, head of pharma North America and president, Novartis Pharmaceuticals. 

But it's the side effects that are inducing the caution. "Novartis' first focus is making sure people understand what this drug does, how it's different, and what the potential adverse events are," says Burks. "And if that means they don't sell quite as many pills this year as they do next year, then that doesn't bother me at all, because I want to make sure that we have an informed patient population." 

Wyss says that the company plans to launch its consumer campaign once the company receives DDMAC preclearance comments. 

The company spent a great deal of time in advance of approval planning for a variety of scenarios, so that approximately 85 percent of the prelaunch work was done before approval, says Wyss. As a result, the company was able to launch quickly—just a few days after FDA approval. 

While much of the work was done in advance, the company is continuing to tap into patient concerns linked to side effects, which must also be taken into consideration. "Novartis has a commitment to understand and, when needed, to refine our benefit/risk profile assessment for all of our marketed therapies," says Wyss. "As Gilenya is a new therapy, we understand the importance of anticipating potential unknown side effects. We will continue to build on that safety experience by expanding into real-world-setting evidence generation programs." Additionally, the company has initiated safety-focused Phase IV studies in the US as part of its efforts to ensure that Novartis continues to evolve the benefit/risk profile on a regular basis in the way that patients, customers, and regulatory partners expect. 

"We are very committed to the MS community and have done extensive market research with all of our key audiences, including patients, nurses, and doctors," says Wyss. "We have really put in the time and energy getting to know the MS marketplace to ensure preparedness and a successful launch."  Building stakeholder support in a crowded therapeutic space is a challenge, so the emphasis will be on cementing roots to a select community of influentials—starting with specialist prescribers.  

One positive marker for the future of Gilenya is that the competition is feeling the heat. On September 22, 2010, Biogen Idec—maker of Avonex—released a press statement that read, "The long-term safety profile of Gilenya has yet to be established ... We agree with the FDA that there is a need for safety monitoring for Gilenya through a comprehensive Risk Evaluation and Mitigation Strategy (REMS)." Thus, the sensitivity of Novartis to potential side-effects issues is not misplaced, as it appears this will be a key tactic of manufacturers of alternative medicines to maintain their patient base. After all, it's up to Novartis to make the proposition to switch.  

Features

Novartis' Gilenya is a step forward in treating Multiple Sclerosis. But generating increased compliance is another story

Skipping the Needle: Pharm Exec's Brand of the Year

Growth in the Chinese market for pharmaceuticals has been so robust and abundant in recent years that Western companies could score gains simply by being there. Today, the momentum has shifted: China is becoming a more complex market, with the potential for missteps if investors fail to accurately assess the dynamics of change and build a strategy that anticipates the new incentives that guide the actions of all key stakeholders in health. Many of these incentives are driven by the strong arm of government, while others reflect the impact of global trends on China as regards how medicines are developed, manufactured, marketed, and reimbursed. Key changes affecting the market include a drive toward generic commoditization, expansion of the OTC franchise, more pressure on hospital profit margins, consolidation in key adjacent businesses such as distribution and pharmacies, realignment toward a more competitive domestic manufacturer base, and fresh options for private health services.  

 what matters most is helping your China-based team embrace change and avoid that "business as usual" mindset that tends to accompany a past record of success. What's the key message? The "altered state" of Chinese healthcare is moving from abstraction to reality—and 2011 is the deadline year for a strategic repositioning. Those who refuse to anticipate and prepare for change do so at their own risk. 

Indeed, it would be a misinterpretation to assert that the massive reforms launched by the government in 2008 are simply a paper exercise. They have altered the structure of almost every facet of the medical product and service value chains—a fact often downplayed because in China there is a large gap between policy and implementation. Policies set at the national level are re-articulated at the provincial and local levels (a lengthy process), where they are enforced with varying degrees of fidelity to their original embodiments. Nevertheless, the overall direction of reform is clear—as is the fact that it, in conjunction with the central government's commitment to the 12th national economic plan which promotes increased domestic consumption, will irrevocably change the face of China's healthcare and pharmaceutical sector moving forward. 

Over the past decade, multinational pharmaceutical companies (MNCs) have proven able to compete on China's crowded generics playing field, and enjoy growth levels at or above the medicines sector as a whole. (Japanese pharmaceutical companies have been the notable exception for a number of reasons, including painfully slow decision-making in the boardroom.) Pharma MNC success in China has been built on the foundation of branded generic products, which have enjoyed higher prices and preferential treatment in the marketplace. Going forward, however, the branded generics space is one that will likely be increasingly unattractive for MNC players. Key factors clouding the horizon include systemic changes in China's health system in the areas of: 

 In their capacity as product originators, overseas drugmakers have been granted higher maximum pricing (referred to as "separate pricing") for their branded generics compared to their domestic generic brethren, which are limited to a lower maximum price ("general pricing") by the National Development and Reform Commission (NDRC). These separate prices, which may be significantly greater than general maximum prices, have played a major role in rendering MNC-branded generics attractive to hospitals. A new price list released on Nov. 29, 2010, focusing on essential drug list (EDL) products reduced separate pricing on 49 drugs (counted by molecule name) out of the approximately 200 Western drugs (including chemical and biological drugs) on the EDL. Moreover, the edict canceled separate pricing altogether for 13 products from 10 MNC pharmas. Going forward, reports coming from the NDRC indicate that the pricing body is now considering reducing or halting separate originator pricing 

. Specifically, the NDRC will likely set a transition period of four years, during which the government will gradually reduce differences between separate and general drug pricing.   

This news has been greeted with enthusiasm from some corners of the domestic drug industry, which chafes at what it perceives as preferential treatment of overseas pharma. In fact, a significant number of local pharmaceutical companies have achieved separate pricing for their products, often via non-innovative reformulations or combinations with vitamins or other products—a stratagem likely to be snuffed out by the new regulations. 

 With markups on drugs limited to an average of 15 percent by governmental regulation, hospitals have historically been keen to push higher-priced products, a position that favored the separately priced branded generics segment. The Ministry of Health (MOH) has made it clear that "profit-seeking" activities at hospitals will be curtailed, and profits on drugs (which have constituted a large portion of hospital profits) will be targeted directly. Measures being piloted by the government include prescription fee systems (in which hospitals are reimbursed a set amount for each drug, independent of price) as well as zero-markup policies in smaller community clinics. 

 These are closely tied to the hospital incentives. Physicians typically receive a monthly bonus on top of their (meager) salary, which is based on revenues earned for their parent department or hospital. As profit motives are eliminated at the institutional level, this will translate into disappearance of physician rewards for prescribing more costly treatments. 

 A key pillar of healthcare reform has been creation and implementation of the EDL system. Many smaller hospitals and clinics have found their formularies restricted to generic products on the EDL, which must be provided to these facilities and then sold at rock-bottom prices. Under most circumstances, supplying EDL products is an unattractive prospect for MNC pharmas. 

 (Nov. 2010, page 18) discussed the significant changes afoot in provincial and municipal drug sourcing, including the commencement of mandatory centralized online procurement and tendering. The establishment of such systems is serving to reduce drug wholesale prices via competitive bidding processes (and evaporation of incentive payments under the harsh glare of transparency). Much attention has focused on the creation of local "drug exchanges," the most notable example being the Chongqing Medicines Exchange. These entities seem poised to suck much of the value out of the drug distribution area and, moreover, speed generic drugs in China further down the road to commoditization. 

The route to future success for multinational pharmaceutical companies in China may in fact be a forked one, with innovative/patented products on one side and consumer health product lines on the other. The middle path of branded generics, today a mainstay of many pharmas, will see comparatively less activity. Sanofi-Aventis's recent $520 million acquisition of BMP Sunstone, the largest cross-border consumer health M&A play in China to date, may be a blueprint for things to come.  

With branded generics in danger of becoming commodity products, pharmaceutical manufacturers will need to look to their diversification strengths in forging a path forward. Sanofi, which has a major global consumer health presence, has added nationally recognized pediatric and women's health brands to its China portfolio and acquired a large sales network with the Sunstone transaction. While generic pharmaceuticals become a low-price/high-volume, government supplier game—one that only major Chinese domestic pharmas will win—the OTC and consumer health area will remain comparatively untouched, and perhaps even further invigorated, by the reforms. Pushing patients to self-funded OTC products sold at retail pharmacies instead of reimbursed/subsidized ethical drugs is one method of relieving the strain on government coffers in paying for the broader goal of universal health coverage.  

For many of the reasons listed above, implementation of the new reforms will fuel consolidation in the domestic pharmaceutical industry. Many companies that have survived on aggressive physician incentives and local relationships and protectionism may be confronted with a less-hospitable business environment. Overseas drug manufacturers may encounter increasing numbers of potential M&A targets as well as larger, better-organized competition among the remaining domestic champions. 

China's retail pharmacies are currently suffering a double identity crisis, at once both externally unsure of their place within the healthcare system and value chain, and internally struggling to find sustainable business models and successful product mixes. China Nepstar Chain Drugstore, the nation's largest retail chain pharmacy by sales revenue (and an industry bellwether), reported 2010 second-quarter revenues of RMB 565 million (US$83 million), an increase of 5.8 percent over the same period in 2009. This is a comparatively lackluster showing in a pharmaceutical market that has seen growth rates upwards of 20 percent. Like pharmaceutical manufacturers, pharmacy chains will also need to evolve and adapt to the changing face of China healthcare.  

Drugstores are under pressure on several fronts. The pricing reductions being applied to prescription pharmaceuticals hits pharmacies as well as manufacturers, and it is likely that ethical products will continue to represent a decreasing portion of drugstore sales. Moreover, zero markup policies for medicines on the essential drug list mean that these will be loss leaders, or, more likely, simply pulled from pharmacy shelves. Also, even though hospitals have been told that drug profits are to be minimized in the future, they continue to steer patients to in-house pharmacies. In particular, the growing phenomenon of e-scrips, whereby physicians transmit prescriptions straight to hospital pharmacies at the end of a consultation and patients need only present their ID/insurance card, seems almost expressly designed to make sure patients do not stray beyond hospital walls to purchase medications.  

Despite these pressures, retail pharmacies may have some key advantages moving forward. As mentioned above, governmental desires to offload drug costs to medical consumers, as well as reduced incentives for physicians to prescribe ethical drugs (if not needed), will likely increase OTC usage. Also important will be consumers' desire for choice. As the essential drug policy rolls out, there have been instances where Chinese medical consumers have demonstrated that they will shun facilities offering reduced formularies. Retail pharmacies will presumably be able to benefit from such activities if they are able to offer higher-end products that local hospitals cannot. Finally, the government itself may call upon drugstores to serve as surrogate in-house pharmacies for clinics. Early reports indicate that the "Development Plan of China's Medical Distribution Industry (2011 to 2015)," a policy currently in the drafting stages, suggests that community medical institutions need not establish their own in-house pharmacies if there are retail pharmacies nearby.  

China's retail pharmacies are already responding to the shifting landscape with concerted efforts at diversification. Drugstores will tinker with product mixes and move away from ethical products to include nutraceuticals, personal care items and devices, household consumables, and convenience merchandise. Some smaller chains have already chosen to focus on more high-end/high-margin products, while larger operations will likely increasingly extend their footprint into the market space occupied by convenience stores. Promotions inspiring customer loyalty as well as reward card/points programs will also be on the rise. 

Like the domestic pharma industry, M&A activity is on the horizon too. To be sure, the retail pharmacy sector has already undergone several rounds of consolidation; however a recent uptick in M&A activity in the sector suggests that there is more to come. There are now a number of strong players in the retail pharma space, yet it remains the case that China still lacks a truly nationwide drugstore chain. But perhaps not for long: Much of the recent deal flow in the retail pharmacy space can be considered land-grabs by large retail pharmacy chains and/or large pharmaceutical distributors.  

Retail drugstores are also being purchased by large conglomerates, with interests in other areas of the pharmaceutical commerce value chain, in particular by distributors such as Sinopharm and Shanghai Pharmaceutical. While conglomerate/SOE ownership of pharmacy chains is not new, it is likely that, rather than being isolated assets in a sea of healthcare holdings, attempts will be made to better synchronize gearing between distribution and retail assets (especially with central procurement now sucking profitability out of distribution in many cases).  

China's drugstores will be profoundly affected by the rollout of China's new healthcare system, but, viewed as more commercial rather than medical-related businesses, they arguably have one of the weakest voices in determining the direction of medical reform. (The other laggard is China's beleaguered physicians.) The retail drug industry will need to be nimble in its navigation of the path forward. It must take pains to remain part of China's new health system to prevent being bypassed in delivering products to medical consumers, but at the same time avoiding, as much as possible, shouldering the burden for subsidizing the system.  

Physicians, facing the prospect of losing departmental and pharmaceutical company incentives and likely mandatory service requirements at community clinics, will also be looking for ways to supplement their paltry government incomes. The MOH continues to slowly follow through on its promise to allow doctors to practice at multiple locations, with an announcement from the Beijing Health Bureau that, effective March 1, licensed physicians will be permitted to work simultaneously at a maximum of three hospitals. Under these circumstances, practitioners, especially those with experience and reputation, will inevitably establish part-time practices in private settings charging market prices. (This has always occurred at a certain level, with surgeons operating "weekend clinics" for paying patients, but it has been actively discouraged by the MOH.)  

Coupled with the release last November of a multi-ministerial opinion suggesting that private medical facilities be allowed to participate in public insurance schemes, enjoy tax benefits, and, at long last, carry  100 percent foreign ownership (versus the previous 70 percent maximum), it seems that private healthcare may have a chance at a new life. Growth of private pay has been hampered by the inability of top physicians to leave public practice as well as the privatization of hospitals by real estate developers and speculators, rather than by experienced hospital management teams. The government has suggested that it will actively encourage a new round of (well-supervised) creation of private healthcare facilities and is also beginning to push commercial health insurance. As is the case with OTC medicine, this is a clear attempt to ease the rapidly growing burden on public health systems by providing alternatives for those who can afford them. The government will move slowly in this area, with multiple safeguards to prevent a major siphoning of quality to any upper-tier private system. Widespread public discontent over healthcare disparities is, after all, the prime reason for the healthcare reforms in the first place.  

Interest in the private option is just another illustration of how profound the transition is in China's healthcare sector. It's an appropriate conclusion to this story to cite again the magnitude of what is being attempted: basic, blanket, pay-as-you-go health coverage for 1.3 billion people, or more than a sixth of the world's population spread out over 3 million square miles of rural and urban territory, with an aging population subject to vast extremes of income. Other countries with a similar demographic—most notably India—have not even attempted to make a start in doing this. With a challenge like this, it is no wonder there are so many avenues being explored to cut costs and distribute the burden of funding such a system. Over time, the US and other industrialized countries may find that China is the real innovator in health system reform—for better or worse.  

If there is one market that requires a click on the 'refresh' button, it's China. General Biologic provides a snapshhot of what's ahead for Big Pharma in the country

China: Business as UNusual

Many years ago, Charles Darwin said, "It is not the strongest of the species that survives, but the one that is the most adaptable to change." Today, the same can be said of pharma's sales force. Survival is no longer about power and numbers. It is about adaptability.  

For many years, there has been talk about upgrading pharma's sales force. In many ways, these upgrades are under way. Representatives are learning more about the increasingly complex forces shaping healthcare decisions, and sales reps also have access to more customer data than ever before. In other ways, however, there has been failure. Sales efforts continue to be thwarted by limited face time with physicians, managed care hurdles, and physician access restrictions. But there are new ways to help representatives adapt to the new selling environment. 

Hallway calls represent a tremendous opportunity for sales organizations. These calls generally last two minutes or less, occur between patient visits, and account for up to 75 percent of the representative's day. While hallway calls provide less than ideal selling situations, they have become a permanent part of the selling environment. Hallway calls are here to stay, and sales leaders who can help representatives improve the effectiveness of hallway calls will reap big rewards.   

Most hallway calls leave much to be desired. According to recent data, most representatives neither deliver a core message during hallway calls, nor do they display other fundamental sales behaviors desired by their companies. Most often, they talk about samples or upcoming speaker programs. 

To understand why this happens, put yourself into the shoes of a sales representative. You are standing in a busy hallway waiting for the doctor to exit an exam room. As you wait, you realize that there are three patients in exam rooms and the doctor is running 20 minutes behind. You begin to ask yourself questions: Is this a good time? Should I bring up my product? Will I upset the doctor? In the end, you pass on the opportunity and move on to your next office.  

Sales trainers can increase both the quality and frequency of hallway calls by helping representatives eliminate anxious hesitation. To do this, training departments must show sales representatives how to deliver calls briefly and in a way that makes both physician and representative comfortable.  

The payoff for training successful hallway calls can be enormous. A representative who A) confidently strives for hallway interactions; B) possesses the ability to create hallway product discussions; and C) knows how to deliver a concise—yet effective—message can provide significant sales increases for any organization. 

For many years, pharmaceutical companies have relied on selling models adopted from other industries. Until recently, these models worked. However, in the early 1990s, when physicians had less time to meet with sales representatives, consultative and other "long-sell" models became less effective.  

Today's selling models fail to provide representatives with adequate guidance during brief physician interactions. Trying to cram a consultative sell into a quick hallway call is like trying to force a square peg into a round hole. It doesn't work, and it angers physicians. A more flexible selling model is desperately needed, and modern advances in consumer psychology point the way.  

Consider the work of Dr. Shelly Chaiken and her colleagues at New York University. According to Chaiken, the pace of modern medicine has forced physicians to use a different set of criteria to judge products. In the past, when physicians had more time, they wanted to know about studies. They scrutinized data. Today's physicians are increasingly forced to rely on a more efficient set of mental criteria. Psychologists now know a great deal about these criteria, and new selling models have emerged from their work.  

In essence, the work of Chaiken and other psychologists stimulated 30 years of research into "short call" models. While beyond the scope of this article, these models offer two distinct advantages. First, because they are in sync with the way physicians make decisions in fast-paced environments, new models offer more effective selling systems. Second, new models offer the flexibility of adjusting to shorter time frames, thereby making physicians more satisfied with representative interactions.  

When implemented in the field, sales leaders find that new models blend nicely with existing models. Training directors, for example, are able to maintain the core structure and philosophy of their current selling systems while integrating critical elements of newer systems. Ultimately, sales performance is enhanced.  

An updated sales model is one step toward improving pharma's sales force, but it's not enough. Access continues to be a hurdle. According to SK&A, up to 50 percent of physician offices now restrict representative access. The key word is 

. Most physicians are neither completely open nor completely closed to representatives but somewhere in between. This means that representatives with access skills can improve sales by reaching more high-prescribing physicians.  

To date, pharma has addressed the access challenge by either A) telling their representatives, "Go where the doctors will see you;" or B) providing representatives with nebulous instructions such as, "Implement the total office call." This is not enough, and minor changes to sales representative training can lead to significant improvements in access. 

In office-based settings, training needs to be focused on three points of contact: 

 How does the rep get beyond the gatekeeper?  

 How does the rep get beyond secondary gatekeepers, including nurses and offices managers? and 

 How does the representative engage the physician in meaningful product discussions?  

The good news is that access can be taught and learned. In fact, when you look at the behavior of the best representatives, you find that they successfully access many physicians that average representatives cannot. Moreover, they use a common set of strategies to do so. These strategies can be systematically learned, trained, and coached. 

While a great coaching tool, field rides fall short when it comes to helping representatives adapt to the new selling environment. The reason for this is lack of randomization. Over and over again, sales representatives take their managers to the same subset of offices within their territories. These offices are almost always open access and representative friendly. Sales representatives refer to these offices as "milk runs." They offer easy opportunities to impress managers.  

While most companies feel that this practice is acceptable, there is a hidden detriment. When representatives know their managers will not be asking to visit their most challenging offices, performance in these offices lacks during ordinary visits.  

One way to help sales representatives adapt to the new selling climate is to randomize field rides. When representatives know that managers will be visiting all of their offices, things begin to change. Calls that were once nothing more than a sample drop become filled with a purpose (if nothing more to impress the manager on upcoming visits). Suddenly, knowing names, understanding office dynamics, and consistently accessing the physician is a priority. Ultimately, market share begins to improve, and representatives learn to adapt. 

This approach comes with a caveat. In difficult offices, initial standards for success need to be relaxed. Progress should be measured in gradual steps. For example, initial success means that the representative has an understanding of office dynamics and has created allies with key office personnel; secondary success means that the representative consistently details the nurse, accesses the physician, and delivers a successful sales call.  

In the end, representatives who succeed in their most challenging offices learn skills that can be used in all of their offices. 

 is president of Persuasion Consultants. He can be reached at 

Columns

Adapting training techniques is necessary to thrive in the fact-changing dynamic of a physician's office

Accelerated Evolution

Francis Collins devoted more than 15 years in the lab to deciphering the human genome, an intensive labor of love that yielded new tools for diagnosing and curing disease. Ten years later, as Director of the National Institutes of Health (NIH), Collins finds himself in another unique position: to deliver on the promise of the genome through the translation of research into technologies, products, and services that are clinically relevant and commercially marketable.  To underscore his agenda for closer interaction with the private sector, and in anticipation of some rough sledding on the budget front this year, Collins recently sat down with 

 to explain why these and other initiatives are critical for NIH, the industry, and public health.  

It is rare for any scientist to have the opportunity to drive a new discovery and then help seed its benefits in the real-world setting of patients, but this is precisely where Collins aims to distinguish his tenure as NIH chief. Certainly the tools are there for him to make an impact. The NIH is the world's largest institution of biomedical research, with a $31.2 billion budget distributed among 27 different medical institutes, largely in the form of research grants to 325,000 scientists working at more than 3,000 scientific enterprises.          

Collins regards translational medicine as the key to turning knowledge about genetics and disease into new treatments that can benefit patients. This past December, an NIH advisory committee recommended establishing a new NIH National Center for Advancing Translational Sciences, a move engineered by the NIH director to bring together a number of programs that provide resources for translating basic discoveries into new medicines and diagnostics. The goal is to encourage more collaboration between academic researchers and biopharmaceutical companies and to strengthen ties to the Food and Drug Administration (FDA) to ensure that NIH-sponsored studies provide the information needed to support product registration. In the process, Collins' translational science campaign aims to convince Congress and the public that the federal investment in biomedical research will pay off in terms of new, life-saving therapies.  

In fact, a critical task for Collins this year is to convince Congress to provide healthy funding for NIH amidst plans to cut federal outlays. Flat NIH budgets during the last decade created a huge pent-up demand for funds, which quickly absorbed the extra $10 billion provided by the 2009 stimulus package. Even though the White House sought a 3 percent increase for NIH for 2011, Congress never approved it, and most federal agencies are currently operating at last year's funding levels. Analysts at Deutsche Bank predict that NIH budgets will remain flat, while investment in science and basic research is on the rise in Europe, and even more in China.  

Collins pressed for Committee approval of the new translational sciences center in December 2010 to be able to include it in the administration's 2012 budget plan and thus obtain initial funding this fall. But the lack of new money for NIH means that most of the $700 million that would be needed to support translational sciences will have to come from existing funds. That makes the research community nervous, as well as pharma companies that want NIH to continue its focus on basic research. Richard Klausner, former director of the National Cancer Institute and now a biotech venture capitalist, is skeptical of a larger shift of NIH resources to translational medicine. "NIH research should provide a better understanding of human pathology and its relation to disease and treatment, he says, and "then translation will occur."  

Many observers note that translational medicine and public/private partnerships are not new to NIH. The agency's previous director, Elias Zerhouni, launched the NIH Roadmap Initiative to speed biomedical discoveries from the bench to the bedside. The Foundation for NIH (FNIH) has bred numerous industry collaborations with individual NIH Institutes for more than 10 years (see sidebar).  

Academia and Industry: Kissing Cousins			

Yet, little translation of biomedical research will happen if the private sector does not detect a positive climate for new drug research based on basic economic calculations around risk versus benefit in committing large sums of money over long periods of time. Collins says the role for NIH is to "de-risk" the process of drug development and to leverage its own human and financial capital to foster better partnerships with Big Pharma and biotech.  

Collins sees a rapidly changing biomedical research landscape as the prime driver behind stronger NIH partnerships with the pharmaceutical industry. He's optimistic that new genetic discoveries can chart pathways for discovering new medical treatments, and that the emergence of more well-validated genes will be useful in "identifying drug targets in unprecedented numbers."  

At the same time, biotech and pharma companies face serious financial challenges in funding research projects. "These are not easy times for the development of new therapeutics," Collins allows, noting that venture capital is limited and many biotech companies are struggling to stay afloat.  

"So it's kind of the best of times, and worst of times," he observes. The scientific enterprise is yielding up a lot of new ideas about therapeutics. Yet, "the traditional private sector efforts to capitalize on that are taking a hammering." NIH, thus, is "an attractive alternative" for supporting new partnerships between academic researchers and industry.  

This was not the case six or seven years ago, Collins said. Back then, pharma companies did not consider academic research institutes a prime source of support for drug development. Conversations with industry about collaboration were not that productive, especially suggestions that companies open up compound libraries to outside parties. The general response, Collins recalls, was "No, we're not going to share our crown jewels with you; we might find something to do with those later."  

Now, says Collins, "it's all changed." He detects more private sector interest in NIH-funded preclinical and clinical testing, as well as in compound rescuing or "repurposing." Pharma companies have long lists of compounds that have been abandoned along the way, maybe because a business plan changed or the money ran out or clinical trials failed to show efficacy, Collins notes. "We have been talking with leaders in the pharmaceutical industry about an opportunity to open the freezers and make such compounds available, with appropriate intellectual property protection for them," Collins explains. "This isn't a giveaway, but could be a win-win if such a compound were found to be active for a different application than originally considered."  

Yet, scientists at pharma companies maintain that it takes considerable work to identify failed or abandoned compounds suitable for further research. Providing materials to NIH for drug repurposing is not straightforward, explains Amgen R&D chief Roger Perlmutter. "Every step along the way requires real effort on the part of very busy people doing other things."  

Collins has an eye out for tax provisions, patent incentives, and regulatory assistance that can encourage such collaboration. And he emphasizes that NIH won't move into full drug development, but will support projects just long enough for them to become attractive for a biotech or pharma company to pick up. For a completely new molecular entity to treat a common disease, "I suspect the interest in the private sector would be very high, very early," he says. Conversely, a treatment for a rare disease that affects only a few hundred patients is not likely to generate much interest until further along. NIH is prepared to contribute to promising projects as far down the line as it has to—"but no further," he maintains.  

The NIH translational sciences center envisioned by Collins would house a spectrum of programs now scattered among different NIH entities, according to the report to NIH's Scientific Management Review Board, which was established two years ago to examine and recommend changes in the agency's vast organization and structure. Current translational research programs cover the development waterfront, many funded by the director's Common Fund, a $500 million kitty that Collins administers to support cutting-edge, trans-NIH projects. Instead of shifting these activities to an existing NIH institute, the advisory group thought it best to establish a new organization to emphasize the importance of these changes. Under the proposal the new Center will contain NIH's: 

Molecular Library and Chemical Genomics Center.

 A network of high-throughput screening centers that can assess thousands of possible drug targets against library compounds and provide researchers with chemical probes to study the functions of genes, cells, and biochemical pathways.  

Rapid Access to Interventional Development (RAID) program.

 Makes available developmental resources and services that support product formulation, test compound production, pharmacokinetic (PK) assays, animal toxicology testing, and assistance in navigating the regulatory process. NIH has fully renovated its in-house drug production operation so that it can produce custom-made pills, vaccines, and injectibles—along with placebos—for preclinical testing and clinical trials using state-of-the-art equipment that meets FDA good manufacturing practices standards.  

Therapeutics for Rare and Neglected Diseases (TRND) program.

 Supports preclinical animal and PK testing to bring potential treatments for neglected diseases through the "valley of death." One TRND pilot seeks new treatments for schistosomiasis, a disease affecting some 250 million people in Africa, but neglected by industry and researchers for decades. Another project supports preclinical testing of an orphan drug for sickle cell disease discovered by a small biotech company, AesRx of Massachusetts. TRND also is tackling very rare conditions, such as hereditary inclusion body myopathy and Neimann-Pick Type C, a disorder of lipid metabolism. The goal is to get to the point where a private sponsor could apply for an IND (investigational new drug application) with FDA to launch clinical studies.  

Clinical and Translational Science Awards (CTSAs) program.

 The most controversial recommendation is to shift this network based at 55 academic health centers, which receives about $500 million a year from NIH, to provide translational support to clinical research efforts. The move, though, would rob the National Center for Research Resources (NCRR) of nearly half its budget, prompting heated opposition from NCRR staff and grantees. 

One interesting component that would move with the CTSAs is the Pharmaceutical Assets Portal, designed to match up research scientists with abandoned or off-patent drugs available for rescue or research. The Portal wants to include compounds from pharma companies, but so far only Pfizer has become involved. The Portal organizers hope that a new discontinued clinical compound library of fully tested products will attract broader support. 

 which was authorized by last year's health reform legislation to fund drug development projects. The new Center would provide a visible home for CAN if it is ever fully funded by Congress. An initial $50 million budget for 2011 is still on hold, and the outlook is dim that it will ever become the $500 million program originally sought by former Senator Arlen Specter. 

Several NIH activities may remain outside the new Center, such as the Pharmacogenomics Research Network (PGRN), a group studying how genes affect patient response to medicines for cancer, heart disease, asthma, nicotine addiction, and other conditions. The panel also decided to leave NIH's Clinical Center as a distinct entity, but with strong links to the Center. 

The new Center also will support NIH collaboration with FDA. Collins acknowledges the importance of ensuring that federally funded research produces information needed to gain FDA approval of a test therapy and has formed a "real partnership" with FDA commissioner Margaret Hamburg to achieve this objective. A year ago this month, the two agencies announced a formal collaboration, with an NIH/FDA Joint Leadership Council providing a forum for communication between FDA and NIH research sponsors and a process for agency staffers to discuss clinical protocol questions.  

Under the collaboration, NIH is funding several research projects designed to assist product development and enhance regulatory review. The first round of grants, which total $10 million over three years, support research on predicting harmful effects of nanoparticles in drug delivery, new models for safety and efficacy screening of drug candidates, innovative statistical methods and study designs for clinical trials, and a novel strategy for predicting eye irritation in clinical studies.  

Collins acknowledges that the funding is very modest, but more than what FDA has for this kind of research. FDA chief scientist Jesse Goodman regards FDA's collaboration with NIH as a real "culture change, and recognition that FDA's engagement in the development of medical products is very important." Ellen Sigal, chair of Friends of Cancer Research, agrees that a mechanism for the two agencies to query each other on endpoints and adaptive trial designs should be very useful. "Anything that anyone can do to help FDA make decisions based on science is incredibly important," adds Richard Klausner. 

One assignment for the new Center is to reduce barriers to public/private collaboration that can be created by conflict-of-interest (COI) concerns and intellectual property (IP) issues. Collins is working to put "NIH's COI house in order" with more stringent and more transparent financial reporting requirements. Pharma and academic researchers fear that the strict standards will discourage joint projects, just as broad "Sunshine" policies governing pharma payments to doctors threaten to undermine industry relations with health professionals. Yet Collins maintains that collaborative relationships can't even appear to provide personal financial benefit to academic partners funded by NIH, or that could raise doubts about the validity of resulting research.  

Equally challenging is the task of balancing open access to research data against IP protection. NIH wants to establish models for collaboration agreements and licensing arrangements, although Collins sees most discoveries from public/private collaborations residing in precompetitive space; exclusive licensing agreements should be "limited to circumstances where it's really needed as an incentive for product development," he says. Collins made waves in September 2010 by announcing that NIH would license a key protease inhibitor to the UNITAID HIV medicines patent pool, a move designed to spur pharma companies to take similar action. 

Drug pricing is another issue that emerges in discussions about NIH/pharma collaborations. Collins doesn't see NIH trying to influence drug prices per se, blanching at remembrance of the "reasonable pricing" debate that made industry very skittish about partnering with NIH back in the '90s. Yet, he also is concerned about the trend toward more high-cost therapies. "The market can't bear $93,000 for compounds across the board that give you four months of additional quality of life," the NIH director told 

 magazine in May. "That's just not going to be sustainable."  

Instead of pressing for lower prices, Collins looks to reduce upstream R&D costs—and resulting product prices—by providing data that supports smaller clinical trials and by rescuing abandoned compounds. "If we could simply improve success rates by a factor of two—you know, only a 90 percent failure rate—that would be a phenomenal achievement," he enthuses. Throwing out unpromising projects is key to improving the process, he adds: "People should be rewarded for having the courage to do that." 

The dark cloud over these and other NIH initiatives is an ever tighter funding climate for federal agencies. "That's what keeps me awake at night," Collins says. "We have such exciting scientific opportunities now, but we're really in a squeeze as far as our ability to support them."  

While trying to figure out what NIH can afford to do, Collins insists the wrong move is to "just hunker down and not try anything new." He notes that translational science will be just a tiny part of NIH's $32 billion budget, at most 1 percent of its funds. And translation, he adds, "gets a lot of traction with Congress as well as the public." 

Collins values industry input and expertise in implementing his vision for a more effective and collaborative approach, recently luring Rajesh Ranganathan from the Novartis Institutes for Biomedical Research to be a senior advisor. And he's meeting with pharmaceutical executives to discuss practical issues related to drug repurposing efforts, and to see "who wants to play," explains Christopher Austin, who came to NIH in 2003 from Merck to help Collins tackle many of these same issues arising from the human genome project; Austin heads TRND and the chemical genomics center, both on the list of activities for the new translational sciences center.  

Collins cheered the advisory panel's recommendation to establish his new entity as a "momentous occasion" because it was based on "scientific arguments" and not politics. Drug development is at "a critical juncture," he told the committee. Filling the biomedical pipeline requires a whole new approach, he said, and "not an incremental tweaking of the system." Pushing for such a significant organizational change at NIH in a very short time is certainly risky. But NIH "is about innovation," he emphasizes. "It's about taking risks." 

With Francis Collins now calling the shots at NIH, will be be able to deliver on the innovations behind the genome?

The Building Block of Drug Discovery

Today, despite a history of deep pockets and ample resources, biopharmaceutical and medical device companies face limited financial capital. The current global economy is challenging these companies to operate under modest revenue growth, intense time-to-market pressures, and strong growth in worldwide clinical research spending and activity. In response, companies are placing more demand on their capacity planning and forecasting processes and capabilities and setting lower tolerances for variance between planned and actual performance.  

Current industry practices present their own set of challenges. A recent study commissioned by ClearTrial and conducted by the Tufts Center for the Study of Drug Development (Tufts CSDD) indicates that senior managers from clinical development, operations, and outsourcing functions at biopharmaceutical companies believe their capacity planning and forecasting techniques are neither sophisticated nor data driven.  

Many organizations report that they are currently relying on institutional knowledge, experience, and "gut feeling" in their planning decisions. Nearly all companies stated that there is wide variability and inconsistency in capacity planning and forecasting practices across various departments and areas within clinical development. Surveyed companies were asked about their capacity planning systems and methodologies. The answers are revealing: 

				"We do not have a good handle on it now. [Vendors] may be taking us for a ride—we don't know."				

			"Our models are like putting a finger in the wind. It's not apples to apples, and certainly not 100 percent predictable."				

				"We have no costing model and no real forecasting. We send out a request for proposal to CROs and they tell us what they think the costs may be." 

These responses are not too surprising when the most common capacity planning and forecasting methods used in the industry tend to be intuitive and highly unsophisticated. Some of the more "robust" methods at this time include the use of spreadsheets, CRO bids, and the reliance on past experience and intuition.  

 Allowable Budget Variance: Then vs. Now			

Hands down, spreadsheets are reportedly the most common planning and forecasting "system" in use today. Unfortunately for those companies using spreadsheets, there are several major shortcomings with this approach: 

1) Difficulty Coordinating Decentralized Global Resources:

 It's extremely difficult for people working in a decentralized manner, across the globe, to collaborate using a desktop file-based spreadsheet;   

2) Difficulty Mining Disparate Spreadsheets for Performance and Capacity Data:

 It is problematic to mine operational performance history that is scattered across individuals and desktop computers. As a result, spreadsheets are more of a static approach as opposed to a dynamic, routinely updated, and coordinated approach; and 

3) Spreadsheets Lack Agility and Consistency:

 Spreadsheets will give different answers depending on the data inputted, the assumptions made, and who is setting them up and operating them. Today's CFOs and staff involved with planning and forecasting need a consistent and agile approach in order to make informed decisions rapidly. 

Facing the growing need to improve their competence in capacity planning and forecasting, some companies are moving to more sophisticated approaches such as commercial databases of prior trials, or third-party planning software based on study tasks. Clearly these new approaches require compatibility with existing systems, processes, and company culture. In addition, they must be intuitive, quick to deploy, and easy to maintain.  

				As life sciences companies begin to embrace more sophisticated planning and forecasting solutions, a key success factor appears to be giving staff enough time to learn, adopt, and integrate the solution(s). The organization needs to allow sufficient time, and to set clear and measurable goals that define the success of the new solution(s). 

Drug development sponsors are beginning to adopt best practices from other industries. These best practices include increasing coordination and centralization of capacity planning and forecasting, and enhancing vendor integration and collaboration.  

A growing number of companies are recognizing that resource and capacity planning and management is a strategic competency. Biopharmaceutical and medical device companies are increasingly coordinating and standardizing inputs across functions, and centralizing capacity planning and forecasting activity, typically within clinical operations. Based on interviews with pharmaceutical and biotechnology companies, Tufts CSDD finds that organizations expect to make strong investments in planning and forecasting capabilities in 2011 with the goal of achieving higher performance and reduced variance between planned and actual performance and cost. 

The vast majority of companies recognize the need to address inefficiency and fragmented operating structures, as well as the unsophisticated ways that they plan and forecast their capacity and resources. The few companies that are ahead of the curve have centralized their capacity planning and forecasting capabilities and have achieved a higher level of efficiency and coordination across functions.  

The importance of company culture cannot be understated. For many years it was easy for pharmaceutical and biotechnology companies to succeed historically with siloed functions and fragmented decision making, in part because the companies were resource rich. In addition, the underlying focus of pharmaceutical and biotechnology companies was on the science of drug development. Over the last decade or so, operating effectiveness and efficiency have entered the management mindset. Only recently, as resources have become far more finite, and economic and operating conditions have become more difficult, are companies being forced to take a step back and approach capacity planning and forecasting in a more rigorous and strategic way.  

Tufts CSDD research has noted a rising level of integrated vendor relationships driving program-level and portfolio-level planning and forecasting. A growing proportion of pharmaceutical companies are entering into more extensive relationships with CROs in order to integrate systems and processes and achieve higher levels of efficiency. As such, pharmaceutical companies are sharing more operating risk with their contract service providers. 

Key foundational components common to these approaches are: 

 Prenegotiated billing rates have become more common, and this transparency is moving toward CROs sharing their study approach with sponsors, including staffing, design, and assumptions of effort required. 

 A professional recognition of the other party's needs, replacing the traditional approach of arms-length and heavy-handed demands on supplier approach. Enlightened sponsors recognize that CROs should make a fair profit, while CROs recognize that study sponsors should get lower rates if they can lower the CRO's cost to serve and sell, or else commit to a large number of studies. 

 Many sponsors and CROs are moving to link their systems and share the clinical planning and performance tracking function via a collaborative system, operating as one team. The goal is to increase efficiency and reduce the operating costs for both parties by eliminating duplicate activities. 

Given the current state of the drug development enterprise, pharmaceutical and biopharmaceutical companies need to retain a growing collection of variable resources to handle capacity and to provide expertise. More integrated relationships are a key to successfully managing a growing team of resources based internally and externally among full- and niche-service CROs. 

Such alignment can pay dividends. Tufts CSDD research has demonstrated that higher levels of CRO usage are associated with faster development speed at comparable quality. Another study revealed that higher growth rates in operating profit are associated with higher levels of outsourcing. In addition, more integrated relationships are associated with faster study startup and higher levels of satisfaction with the sponsor-CRO relationship.  

Respondents in the recent Tufts CSDD survey believe that a more standardized approach would go far in establishing more predictable fee-for-service costs that can be compared more easily between contract service providers. 

It's clear that capacity planning and forecasting has reached an inflection point—driven in large part by economic and operating conditions, and by the growing reliance on the integration of outsourced capacity. Many companies have implemented, or are in the process of implementing, initiatives to improve and centralize their fragmented capacity planning and forecasting approaches. Finally, the movement to better integrate sponsor-CRO partnerships will help guide efforts to create greater transparency and more coordinated resource allocation and management. 

 is a Project Manager at the Tufts Center for the Study of Drug Development. She can be reached at 

 is a Senior Research Fellow at the Tufts Center for the Study of Drug Development. He can be reached at 

 is the CEO of ClearTrial. He can be reached at 

Increased efficiency and lower operating costs for both CROs and vendors can be achieved by eliminating activities

Honing Reforms from Clinical Development

The global financial crisis has led many pharmaceutical companies around the world to make strategic changes and, more often than not, reduce costs. Fluctuating prices, aggressive generics entries, and challenging pipelines, are adding increased pressure on the top line, so executives need to have an efficient annual setup in order to free up cash flow for R&D, while also preserving margins and shareholder returns. 

 Reassessing ways of doing business, then changing your organization's behavior to your advantage is key to finding the sweet spot between managing demand and consumption. (getty images / andy roberts)			

While working to manage company growth and operational challenges, one of the key levers in cost strategy is excellence in global procurement and, above all, execution of the broad project portfolio across the organization. These imperatives have elevated the role of the procurement executive from a buyer of goods and services to a true business partner in the pharmaceutical companies' quest to remain profitable and competitive in the turbulent economy.  

Making an impact on costs is complex in large multinational, matrixed corporations. To see a true impact on your bottom line, you need to ask the right questions from the start, and tailor your programs to your business's unique circumstances. While there is no one-size-fits-all strategy, I have found through many years of working with pharma companies that there are five key questions every global procurement executive should ask as they enter a constrained fiscal and payment environment in 2011. Addressing these issues will not only put you in a better position to plan for the year, but also help you come closer to meeting your financial goals.  

1. Are you aggressive enough in your targets on procurement cost savings? 

Many executives limit themselves by comparing their results with other large pharmaceutical companies. Consider looking at more aggressive businesses in generics and other industries, which have taken more of a hard line on their cost reduction strategies and, consequently, have seen bigger payoffs. For example, one professional benchmarked the travel expenses of a pharmaceutical client's executive office to those of other global manufacturing firms with the same geographical footprint. He found a $9,000 to $10,000 difference per person in total annual costs, demonstrating an enormous opportunity to revisit travel cost targets. This strategy can even be more dramatic if you start comparing industries like automotive or high-tech, which are making most of their profits from their ability to source and procure effectively.  

2. When you look at procurement costs, are you looking at all the factors affecting them?

Just focusing on driving prices down with suppliers is a good start, but usually this will have its limits, as it affects only your suppliers. The concept of total cost of ownership has gained greater importance in many corporations, but the degree to which it is implemented is a different story. We find that managing demand and consumption remains mostly unexplored. The key is to reassess ways of doing business first, then change behavior within your organization to modify—to your advantage—the current demand and adaptation to new processes.  

A leading pharmaceutical company needed to reduce their overall marketing spend. We worked to prioritize their needs, while looking for ways to generate greater compliance and reduce costs. Several new processes were developed, such as requiring that 90 percent of all purchases go through an approval process, scaling back catalogue offerings, and requiring longer lead times for placing orders. As a result, the company experienced 40 percent savings across the key regions with no loss of business.   

3. Do you have the right mix of tactical versus strategic productivity initiatives?

While your quarterly or annual targets are usually the most important objectives (and you cannot defer good results), many of the elements you implement this year will also determine what you can achieve next year. While focusing on easy cost reductions and short lead times can be a solution for the current year, this cost-saving strategy will likely create a problem the year after. Savings which require more strategic cost initiatives and longer lead times need to be started earlier rather than later, and you should aim for a healthy blend of initiatives that will allow for short-term success but also ensure that you are set up for the long-term. Peppering in a few strategic initiatives will help you avoid the need for quick fixes over time.   

For example, a life sciences supply company wanted to implement simple tactics for reducing inventory by reorganizing its ordering processes and payment terms. At the same time, it aimed to reduce complex overhead by phasing out some of the products in its inventory, improving its supply chain footprint, and managing how it deals with its supply chain sourcing throughout the network. This initiative yielded limited savings in year one, but more importantly, will be key to achieving cost savings targets for next year as it implements a more streamlined inventory and supply chain organization. 

4. Are you putting the right amount of resources in implementation and execution, or do your projects get stuck after the initial planning phase?

There is tremendous value in planning a cost reduction and productivity program very carefully; however, there can often be a disconnect between the planning and implementation phase. This problem is often elevated by a lack of transparency around the real total number of projects occurring within the organization, and therefore a gap in knowing where resources can best be allocated. While it can take some time and investment to assess the true value and return on any given project and the real internal resources deployed on it, having an accurate view on which projects people spend their time is often all it takes to make the right resourcing and prioritization decisions. This resource allocation transparency is instrumental to making these decisions. 

5. You might pursue all the right procurement activities, but are you sure that you are going at the right speed?

Investing in strategies that help you gain speed is a counterintuitive notion in a climate of reduced spend. Spending money, even if outside the budget, to accelerate capture of the opportunity is worth considering, as it might result in savings. For example, implementing an initiative with a $12 million annual cost savings target beginning in April, rather than July, has an incremental bottom line impact of $3 million. This adds up to a massive amount when you consider the large cost base of leading pharmaceutical companies. Adding more resources or management attention to a project in order to complete it faster is one approach to increasing speed; improving processes and systems is another. 

Overall, executives throughout the industry have said that meeting lofty cost reduction goals set for 2011 will require major changes in their company's approach. At the same time, these executives are charged with growing their organizations during a time when resources are being cut back.  

Companies are challenged now more than ever to simultaneously reduce costs and to continue to grow and innovate. They will, therefore, need to find the most effective mix of measures to be executed both through the line organization and the launch of new cost reduction products. In a resource-constrained environment, it will be key to get the most out of each initiative and every project they execute to stay competitive. Pharmaceutical companies that execute well and confront these changes will most likely come out on top, emerging stronger and fitter after the storm. 

is the CEO of a-connect, a global consultancy and project execution partner. He can be reached at 

To manage through a resource-constrained environment, it is essential to get the most out of procurement planning

Growing Stronger After the Storm

One of the last acts of Congress in 2010 was to approve sweeping food safety legislation. The new law provides FDA with more authority to recall and monitor food products, boosts its inspection force, and strengthens its capacity to halt unsafe imports.  

But this may be the last time for a while that the legislators bolster FDA's oversight capabilities or authorize added resources. With Republicans taking over the House last month and increasing their clout in the Senate, Congressional leaders are looking to cut federal spending and to aggressively examine administration health policies and regulatory programs. FDA is a clear target as agency critics zero in on an apparent slowdown in new drug approvals and the agency's difficulties in keeping violative products off the market.  

The Three Cs could be taxing on FDA resources as the new Congress brings stiffer oversight and leadership revisions to the agency

Pharmaceutical Executive-02-01-2011