Jill Wechsler is Pharm Exec's Washington Corespondent

	While complaints about too-high drug prices will remain a hot topic on Capitol Hill, the legislators also will address a range of regulatory issues related to ensuring the safety, quality, and timely approval of medical products. The Republican-controlled Congress enacted legislation repealing

 the Affordable Care Act (ACA) as its first order of business in January, knowing it would be vetoed by President Obama.  But several several specific Obamacare reforms were enacted just before Christmas, including a number of health-related provisions likely to impact biomedical innovation.

	An important change was to make permanent the federal R&D tax credit, a long-sought reform slated to boost private sector investment in biotech companies. Medical device makers gained a two-year delay in paying a new tax authorized by the ACA, which industry says will promote device development. And the legislators extended the rare pediatric disease priority review voucher program until September 2016 to keep it going until the legislators can review and reauthorize it.

	These achievements now leave Congress free to focus more on program and policy shortcomings of federal agencies. And Republican leaders won’t mind if such efforts help tarnish lead Democrat presidential candidate Hillary Clinton in the process.

	The 2016 budget provides a hefty funding increase for the National Institutes of Health (NIH), and a smaller, but important, boost in resources for the Food and Drug Administration-along with a number of admonitions and requests for agency action. While most of FDA’s $132 million budget increase goes to expanding food safety programs, there are specific amounts to prevent drug shortages, increase foreign drug inspections, and enhance medical product safety. This last category includes support for precision medicine, the evaluation and approval of innovative sunscreens, orphan drug development, and efforts to combat antibiotic resistance.

	The legislators also criticize FDA’s overreliance on draft guidance documents to make “substantive policy decisions” and put a hold on agency consideration of new therapies that utilize genome-editing tools capable of modifying the DNA of human embryos [see 

http://docs.house.gov/meetings/RU/RU00/20151216/104298/HMTG-114-RU00-20151216-SD002.pdf

	Antibiotic R&D gets attention: in addition to an increase in resources to improve FDA oversight of these therapies, there are hefty funds for NIH antibiotic development and for other HHS agencies to prevent and monitor superbug outbreaks 

and to test new therapies and diagnostics to protect against infectious disease threats.

	Biosimilar development also remains in the spotlight. While FDA has made progress in addressing issues related to developing biosimilars and interchangeable biotech products, the legislators are concerned about using draft guidances to set regulatory standards for these products and want a report pronto from FDA on when it will finalize all pending draft documents and regulations.

	Similarly, Congress wants FDA to ensure the safety and quality of “complex” generic drugs that are not regulated as biologics, but are more diverse than conventional drugs. The House Energy and Commerce (E&C) Committee has asked the Government Accountability Office (GAO) to assess if FDA requires  appropriate scientific analytic methodologies to fully identify the structure and properties of such products and to ensure their bioequivalence, safety and efficacy [see 

http://energycommerce.house.gov/letter/letter-gao-requesting-study-fda%E2%80%99s-pathway-review-generic-non-biologic-complex-drugs

	Drug shortages continue to be a top concern for the legislators. They want to know how well an FDA task force has collaborated with other federal agencies to prevent shortages, particularly those affecting children and involving tuberculosis medicines.

	Congress also seeks more information on how well FDA is expanding oversight of foreign drug manufacturers to create a more level playing field for domestic firms. The budget provides added funds for this program, and the E&C panel wants GAO to examine the effectiveness of FDA foreign drug inspections and overseas offices in the face of ever-expanding imports of drugs and active pharmaceutical ingredients.

 Republicans and Democrats together propose that GAO update its 2010 report on FDA’s overseas regulatory capacity to see if the agency has made much progress in implementing a risk-based inspection system and in staffing up its operations around the world [see 

http://energycommerce.house.gov/press-release/bipartisan-committee-leaders-enlist-government-watchdog-fdas-foreign-inspection

	The lethal impact of the expanding prescription opioid epidemic is a serious concern for many Congressional leaders. They are watching FDA closely for progress on limiting distribution of abused therapies and for bringing new abuse-deterrent formulations to market.

	Some legislators have proposed tapping drug compounders for less costly alternatives to high-priced medicines, an idea that is focusing more attention on FDA’s oversight of drug compounding and “outsourcing” facilities.

	Monographs for over-the-counter medicines are under scrutiny, as FDA discusses with policy makers and manufacturers a new approach for approving nonprescription medicines following years of limited progress.

	Drug cost issues will keep generic drugs in the spotlight on Capitol Hill. Some legislators complain about FDA’s slow pace in whittling down the generic drug application backlog as a factor limiting competition. At the same time, there’s criticism of notable price hikes for long-available generics. This has prompted a Congressional investigation of FDA approval times, action dates, user fee payments and other factors related to market competition and prices for generic drugs.

	And all signs point to a heated debate over FDA regulation of laboratory-developed tests (LDTs), which are increasingly important in the development of more targeted therapies and for accurate patient diagnosis and monitoring. FDA has proposed extending its oversight to tests developed by clinical labs to ensure that results are correct and reliable. Manufacturers of FDA-approved in vitro diagnostics (IVDs) back such efforts, raising questions about the quality of LDT software and test kits. Clinicians and biopharma companies similarly want good evidence that lab tests can ensure the safe and appropriate use of critical drugs such as blood thinners and cancer medicines.

	But clinical labs oppose any increase in FDA regulation and have support on Capitol Hill for a hands-off policy. LDTs can be valuable in testing patients with rare diseases, and in addressing health emergencies because of their ability to adapt quickly, and won’t go away quietly. 

's Washington correspondent. She can be reached at 

Columns

Congress to Keep a Close Watch on FDA

	Traci Medford-Rosow is a practiced patent litigator with a life story that defies the insider technicalities of a profession that few people understand. Her new book, 

Inflection Point: War and Sacrifice in Corporate America

, begins as a careful, step-by-step exposition of the biggest drug patent litigation case in history but ends up as something much more than that: a rich, often messy journey of personal discovery that, in the telling, exposes the sharp edges that underlie career success in big Pharma.  

	Medford-Rosow’s story challenges the idea that the route to the top, as Pfizer’s SVP and chief IP counsel, is paved by superior intellect and the right background and connections. 

 Academically, Medford-Rosow had the right stuff but her greatest achievements in the courtroom were propelled by the gut instinct-that shock to the solar plexus-you don’t find in a legal tome. “I see patent litigation as the place where science and art come together,” she affirms. 

Not if you include a distant, abusive mother who ended her life just six weeks before her only daughter’s wedding. 

A supportive work environment marked by an absence of gender bias? 

Medford-Rosow spent four long years in her first assignment at Pfizer: in the HR department, helping set up the company’s first employee assistance program. It was a chance encounter with then CEO Ed Pratt that got her that coveted entry level position in the legal department. After that came another serendipitous series of “lucky breaks.” All in all, it was an all-too-familiar female career trajectory eerily dependent on the random kindness of men who’d already made it.  

 In addition to Pratt, the author counts only one, her predecessor as chief patent counsel, Peter Richardson, an unflappable British expat 13 years her senior, who was sidelined during some of Medford-Rosow’s most productive years with a rare cancer that he managed to defeat despite low odds of survivals. 

	Notably, the 60-year-old author also had to cope with an endless series of health problems, many stemming from her years as an overachieving competitive swimmer. It was an unwelcome accompaniment to her long courtroom hours on two continents defending the patents that gave Lipitor its distinction as the first modern medicine to surpass $10 billion in annual sales.

	Overall, however, Medford-Rosow’s memoir takes a positive view of the biopharmaceutical industry and especially the unheralded characters who discover, develop, and defend its innovations. Not that the task is easy,  she said in a Jan. 19 interview with 

. “The book is really a series of lessons about the struggle of the individual and group against adversity and the triumph over it-in work and in life.” 

	Interspersed with the personal anecdotes is a well-documented analysis of the roller coaster ride to ultimate success in a battle that saved the Lipitor patents against the high-profile infringement case launched in January 2003 against Pfizer by one of India’s biggest generics producers, Ranbaxy. All told, the litigation lasted nearly a decade and cost Pfizer tens of millions of dollars in legal costs. Most important, Ranbaxy’s campaign damaged Pfizer’s reputation while distracting company management from the critical task of advancing the R&D pipeline to connect sick patients with disease-busting products. Medford-Rosow bluntly calls it a hollow victory. “In the end, what we achieved was to preserve only what had been ours in the first place.” 

was Amazon’s top-selling new release in both the pharmaceutical/biotech and patent/trademark categories-Medford-Rosow is trying out another new role: as a policy advocate. “We need a new collective effort to reform and revive the US patent system,” she says. “The current road map, the 1984 Hatch-Waxman Act, is outdated and no longer works as a balanced compromise between the interests of innovators and generics-neither side today is well-positioned to gain from this procedure.” 

	And the starting point for change is found in her book. “No one who reads my story can leave it without sensing a perfect storm may be brewing in the commerce of new drug innovation, but there is a larger lesson at work, too: in every bad experience there is a rainbow of redemption-with perseverance comes the hope for a better future. That’s the life blueprint I am working off now.”

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

In the patent scrum, a litigator finds her true self.

Life and Lipitor: Pfizer's Traci Medford-Rosow

	Whatever used to be wrong with the world of big Pharma could be fixed with a single tag phrase: emerging country markets. Most of the majors have invested heavily in this geographic segment, and the biggest of the big-companies like Novartis-now rely on it for more than a quarter of their global sales. Like all good things, however, there are shadows amidst the sunlight, and the task of turning volume sales into sustainable profits is getting harder. Economic growth in these markets is fading as commodity prices ditch in tandem with capital flight and a rising public and private debt burden. Local governance challenges are adding to the risk of building the reputation essential to securing commercial rewards. Most important, can these markets maintain the GDP growth momentum necessary to make that difficult transition to a strong middle class of consumers able to pay for the quality medicines that drive better health?  

 met recently in a Roundtable exchange with principals from the McKinsey & Co. pharmaceutical practice emerging 

country market access team. The message: rich opportunities still await those companies that (1) put long-term potential before one-off profit; (2) live-and learn-locally to find the right path to market access, because every geography is unique; and (3) recognize the importance of investing in human capital as a differentiating factor against the competition. And knowing who that competition is comes from having your boots firmly planted on native ground: the McKinsey Global Institute estimates that by 2025, 45% of the Fortune 500 list of the world’s biggest companies will be based in emerging markets. 

	The following are highlights from the conversation.        

 McKinsey & Co. is best known for providing forward looking strategic advice to the “c-suite.” As a scene setter, what’s the one question that comes up most frequently in your work with multinational biopharma companies on emerging country markets?    

Boris Bogdan, Regional Leader EMEA, Pharmaceuticals and Medical Products (PMP) Practice: 

The answer depends on an idea fundamental to competing successfully in the emerging countries. Every market is different; there is no “one-size-fits -all” approach that works across geographies. This has been true since the industry began focusing on opportunities outside the mature market triad of North America, Europe, and Japan a decade ago-and we don’t see it changing, because today conditions in the emerging counties require an even greater level of local commitment. 

	In non-EU Eastern Europe, Russia, and Central Asia, the key question facing the industry is precisely about the level of that commitment: given the price collapse of oil and other commodities and the accompanying pressures on fiscal stability and economic growth, should they continue to invest and build up our local

 presence? Should they instead fall back to a “hibernation” mode, or even withdraw from the market entirely? Companies are carefully evaluating each market and opting to consolidate some operations, which means they are withdrawing from several of the smaller regional markets. Strategically, it’s an important decision as a common theme in government policy in this region is pressure to make binding commitments to local manufacturing, distribution/packaging, and research-all of which can be costly when they don’t conform to the business imperative for global economies of scale.   

Tania Holt, Partner for Africa, PMP Practice: 

Africa is a large continent consisting of 54 countries, each of which is distinctive in market demographics, health status, and medical practice. The top-of-mind question is how to move beyond the traditional focus on South Africa and North Africa and build a viable business presence across sub-Saharan Africa-still a blank spot for most companies. What does a go-to-market business model look like here? While industry recognizes the long-term potential in Africa, there are concerns that the standard approach of relying on the high-end discretionary spend customer through physician detailing might not be the best way forward. Investors realize this is the one region where you cannot find long-term success by repeating the playbook in mature markets. Instead, investors are seeking a more innovative and customized approach to unlock the enormous latent demand for better healthcare that exists throughout the sub-Saharan zone. 

Julio Dreszer, Regional Leader, Americas, PMP Practice:

 Industry is asking a question relevant to all emerging country markets, and which naturally reflects the evolution in how companies take advantage of this burgeoning global market for healthcare.   It’s simple: how do I capitalize on the growth factors that drive potential in emerging countries? In the Americas, there is a focus on two aspects of this growth. The first is the diversity of local health systems and the new financing and delivery infrastructure now being established throughout Latin America. The changes call for a focused strategy to advance market access for products. How do you assess commercial potential for your product line in national health systems that now provide a variety of options, ranging from full or partial public reimbursement to private insurance as well as the traditional self-pay, out of pocket model?  

	The second is managing risk, particularly across therapeutic categories, to reconcile what you have in your portfolio against local public health priorities and patient need. In other words, the demand for great therapies is there, but are your product offerings consistent with what payers and patients want? The two have to be in sync if you want to capture a share of the growth. Thus, it’s important to examine the drivers in the health system, review the commercial portfolio, and then decide where you want to play. Is the approach a broadly-based one that covers not only the top of the pyramid but the bottom and everything in between as well? Or is it a tailored strategy built on specialty or biologic drugs that appeal to a narrow innovative core?   

	Hence, when an executive asks what their company’s strategy should be for emerging country markets, I often say there is no answer until you’ve examined your product portfolio and, based on that, figure out how to ensure that portfolio is best positioned to capitalize on incentives embedded in the local health system. So how you play in each market will differ, based on a good understanding of these distinctive market characteristics.   

Gaobo Zhou, Regional Leader Asia, PMP Practice:

 The key issue in China today is making sense of the economy’s slower growth trajectory and what it means for biopharmaceuticals. The sector still has an enviable growth rate compared to the industrialized country markets, but it will be slower that the double digits we’ve seen in the past five years. Pricing is a challenge due to a combination of regulatory factors and the impact of many branded drugs that are nearing the end of their life cycle. With the off-patent segment poised to assume a larger share of the product mix, the question is, again, how do you drive future growth? It’s a salient point when 90% of the market still consists of commodity generic products where low-cost local producers dominate. 

	One way is for foreign-based drugmakers to introduce in China products that appeal to patients’ desire for innovations that address prevalent local diseases. The government is promoting the transition to quality biologics and other innovative treatments, with the recently announced boost to the mandate of the CFDA serving as a case in point. Change will be necessary, as the government pushes domestic players to upgrade their capabilities and establish a presence in the global market. One well-traveled strategy is to start producing APIs (active pharmaceutical ingredients) for markets outside of China, where quality standards are high. But only a few local firms appear ready to scale the innovation and quality divide with internationally competitive finished products. Hence, it falls to the foreign multinationals to figure out first how to take advantage of all the government pressure to perform better. The dilemma is that there are still risks to making China the launch market of choice for cutting edge therapies.

 Can you identify the most transformative business trend within your region over the last 10 years? 

 In Latin America, it is the gradual evolution of a sustainable financing and delivery infrastructure for healthcare. Institutions have taken root and a budgeted allocation of resources is in place. For example, Brazil and Mexico now have public reimbursement programs that provide universal coverage for drugs to treat conditions identified as priorities from a public health perspective.
	Governments are actively making decisions on what drugs to cover, using formal budget planning to estimate the tradeoffs involved. Although private insurance mechanisms are becoming more common, it is interesting that most of the big money to support reimbursement of innovative, high-cost drugs is coming from the public side. In practice, big Pharma has to be conversant in the politics of government partnering to become a sustainable business in Latin America.  

 Opportunity in Russia and periphery along with Central Asia have become more differentiated due to variant rates of growth in GDP. This means that new, attractive markets are emerging beyond the big country players like Russia, Turkey, and Ukraine. Kazakhstan is the best example of this trend, with a growing drugs market whose prospects have been hidden due to the larger pall cast by sanctions and the commodity recession in Russia. Kazakhstan is following a carefully drawn path to health reform, focusing on building physical infrastructure and professionalizing their human capital-and the foreign multinationals are paying attention. 

	Another important development is the commitment of governments in the region to make smarter decisions on building market access for higher priced innovative drugs. Every country is looking to create networks to share data on drug prices with other countries and to build capabilities around health technology assessment (HTA). But much of this is still aspirational. The tool of choice remains the budget impact estimate, a blunt instrument by any measure. Politics matter here.

 In Africa, companies are starting to expand their presence beyond South Africa and North Africa along with some representation in the old colonial 

markets associated with their home country base. We are seeing French-based and UK-based drug companies investing in Portuguese-speaking Angola, for example. Another trend is that you do not see corporate social responsibility (CSR) as the rationale for investing in Africa. The mindset today is to forgo history and heritage for something more pragmatic: where is the best business growth opportunity and how can we capture it?  

 The challenge of patient access and coverage have been consistent themes confronting foreign drugmakers in China over the past decade. Obtaining share of voice in the more affluent coastal cities and major hospitals has gradually become more difficult, persuading pace-setters like AstraZeneca to extend investments to second-tier interior cities with untapped demand for better healthcare. 

	That’s still a viable strategy, but overall the situation has become much more complex. Patients are more discriminating and are “market shopping” to get the best treatment, which means that drug companies need to develop a detailed

 understanding of how patients in their therapeutic areas are diagnosed and treated. Every company has to create its own “ecosystem of delivery” by cultivating ties with KOLs, professional associations, and government agencies while raising the talent/expertise bar on sales reps-all to ensure patients have access to quality medicines. Affordability remains the key to access, so several companies are investing in their own privately sponsored insurance vehicles to bring more patients into the reimbursement stream.  You have to work every appropriate angle to get the product on reimbursement lists.

A common thread in your assessment of changes is that products do make a difference-building a strategy tailored to each market begins with the portfolio profile.   

 A company with bench strength in high-end oncology products, where the out-of-pocket segment is going to be quite limited-in Africa, maybe less than a half of one percent of the patient population-will need to focus on obtaining third-party reimbursement, from government or private insurance. If the portfolio is centered on lower-priced primary care medicines, the eligible population expands significantly and a reimbursement portal is less important. For example, anti-infectives will find a market even if access is not subsidized in some form. Thus, as a general rule, companies with a diversified portfolio around a strong primary care orientation tend to have the stronger presence in emerging countries. Companies with a more specialized portfolio, as in biologics, will be likely to put their emphasis on a few select markets that may support the brand through partnerships with the private sector and government.  

 There is an imperative today to not only grow sales but to secure long-term profitability as well. It requires being able to achieve strong volume growth without compromising too much on the margins that deliver profits. 

Getting this right is particularly important in the largest emerging markets.  

 What we are really talking about is access. Our research (see sidebar) indicates that the most successful companies rank access, not profits, as their first priority. They recognize that profits will come, but only after you invest in infrastructure, build strong KOL relationships, and boost patient adherence with the right disease awareness programs.    It’s important to think beyond the product, to engage governments in helping them spend healthcare funds more wisely, and through partnerships geared to removing barriers to patient access.  

A common theme here is the importance of managing each emerging country business differently, based on its distinctive market characteristics. If a decentralized approach to decision-making is key to success, what is the appropriate role for HQ? How does a biopharma organization strike the right balance between autonomy and control?  

 A strategy for emerging markets must be based on three pillars. The first is maintaining a standard around the overall corporate interest in building a productive business with global reach. HQ works to ensure all the constituent parts contribute to the objectives of the whole, which is to maximize company return on revenues while conforming to its legal and reputational obligations. It also prioritizes among the countries as far as the best long-term opportunities are concerned.   

	The second is to define the overall strategy for the product portfolio and provide oversight so that necessary resources are applied in each market, whether it be R&D, commercial sales and development, or medical affairs.  This involves everything from centralized procurement of services to building a regional drug development center in China. 

	The third is overseeing the deployment of management talent, by transferring relevant skills to fill the gaps that often exist locally. Finding and supporting the right people with a broad mindset is a critical task for HQ, particularly now that corporate reputation cannot be ring fenced. 

Overall, emerging country markets are facing a reversal in economic conditions due to the fadeout of the commodity boom, fiscal deficits, currency instability linked to the strong US dollar, and unresolved governance issues. Has the situation been overblown-are emerging markets still a good deal for biopharma?  

 The only thing that has changed is that opportunities must be evaluated over a longer time frame. It also requires greater confidence about the merits of 

your strategy. Consistency counts, too. In some markets, economic privations will increase the temptation to cut and run. Experience in Latin America suggests that this is not a wise move-the winners in countries like Argentina are those that found a way to make it through the debt default and currency crises, reaping the benefits when the economy came back. You have to see these markets as a portfolio of risk; it’s a long cycle business. The biggest mistake is to make strategic decisions about the local business on the basis of the situation today. 

 Russia has a population of 142 million. It will always be a market with the size and reach to stand on its own. Again, companies will have to wait longer for the pay off. It’s a question of timing. Throughout the region, there are positives beyond the adverse economic conditions, the most important of which is the steady trend toward the professionalization of health services. In addition to Russia, Turkey, Kazakhstan, and the Ukraine are modernizing their delivery and financing infrastructure. Iran and its long dormant health sector is a wild card that may be interesting for some foreign companies once economic sanctions are lifted.   

 Two factors are driving the current situation in Africa. The first is the plunge in oil prices, which has a disproportionate impact on some of the big economies, including Nigeria, Angola and Gabon. The second is the knock-off effect of the downturn in China. The PRC is a major investor in Africa, particularly in financing large-scale infrastructure projects at the country level.  

	That said, demographics paint a positive picture long-term. Africa’s population is young and growing at a rate faster than any other continent. By 2025, 70% of African households will have an annual income greater than $5,000, which is the accepted entry point for an emerging middle-class lifestyle-with enough discretionary income to spend on health. 

	Given the potential customer base, drugmakers are slowly building a long-term presence in strategic markets like Nigeria, with its 180 million people, while maintaining a stable base in South Africa and the North Africa states. East Africa, led by Kenya, is attracting interest because its small generic companies with links to Indian producers offer a vision of the future for off-patent medicines. 

	Africa is also a source of innovation in healthcare technologies. Its limited infrastructure offers the opportunity to invest and test new approaches. Donor agencies and private enterprise are exploring health applications from mobile phones, particularly in the collection, analysis, and dissemination of patient data. The technology is applicable to everything from the communication of treatment guidelines to community health workers in rural areas to the practice of telemedicine. 

Hasn’t the downturn endangered a crucial transition in the emerging market economies-the establishment of a strong, viable middle-class able to afford high-quality medicines?  

 The number of people that have evolved into the middle class has accelerated sharply over the past 10 years Lower growth is definitely a bump in the road, but the trend is clear and we don’t see that reversing.  

 The middle class transition in China has been taking place for some time. You must evaluate this transition in the context of other positive changes such as urbanization, which evidence demonstrates enhances patient awareness and access to healthcare services. Demand for healthcare from an aspiring middle class also puts more pressure on the public health system, which is good for reforms that improve quality. This is true not just for China, but for other countries as well.

Can we conclude by identifying the most important capabilities, skills and credentials to enable biopharma companies to compete successfully in emerging country markets over the next five to 10 years?

 Companies must move from a narrow, limited product focus to a system-wide perspective that relies on outreach to external stakeholders. It’s going to be about engaging with governments, providers, and patients to solve barriers to access-to spread best practices. Multinational drugmakers have considerable expertise and awareness that can help emerging country policymakers move the delivery and financing of healthcare to the next level. This will raise the level of trust, which, in a reputation-driven world, is going to be an essential part of a foreign company’s license to operate.  

 Biopharma has been active in emerging country markets for several decades. It took a while to resolve key
	strategic questions like whether to make big investments in branded generics as a way to gain market share. Applying that past learning curve to keep the thinking fresh about how to benefit from the growth cycles of the future will be a real competitive differentiator. The next wave in emerging markets is not going to involve more of the same. Companies will need to think and act differently.  

	For example, everyone acknowledges that obtaining reimbursement status is a critical business issue. But achieving that alone is not going to be enough to create access.  In some markets, the patient may be eligible to have a drug reimbursed, but may lack the money or the time to take the bus ride to the place where they can get diagnosed and treated. Access in emerging markets is all about connecting the patient to the product-end to end. 

 Competition from local industry in the big emerging markets will increase. This is going to require the foreign multinationals to refine their ground game through more effective partnering and outreach to the KOLs that matter most to the product portfolio. In China, we will see more competition between the big local players and smaller biotech companies, which will be reflected in more frequent strategic tie-ups to be better positioned for entry to the global markets. 

	Foreign drugmakers must recognize that innovation in the Chinese biopharma industry is increasing dramatically. The rationale for continuing to invest in China, even as economic growth slows, will be the ability to tap into this expertise through “win-win” partnerships with leaders of the local industry. In fact, the best long-term opportunities can be found by staying close to the market. Bright spots include continued expansion of China’s interior mid- and low-tier market, where government is funding hospital infrastructure to advance the progress of universal health insurance coverage; expanded regional pharmacy networks, which gives industry a new distribution and access channel for medicines; and a big push for digital health, including new platforms for remote physician consultations, online sales of medicines, and customized big data analytics. 

 The referenced article reflects our thinking on what biopharma must do to stay relevant. A point that we emphasize is HQ investing in human capital through the sponsorship of capabilities training for local executives. This accomplishes two objectives: (1) defining what the necessary management skills are to succeed in the local environment, with access-building capabilities as a

 central precept; and (2) embedding such skills internally so that proficiencies don’t go lacking within the organization.  

	We found it is particularly important to develop a talent pool with strong executive leadership capabilities, which means combining the ability to drive the local business plan with the outward-facing political savvy to navigate the many sensitivities involved in relationships with external stakeholders-including HQ. In other words, companies should cultivate the multi-faceted characteristics of a “Chief Access Officer” as their role model for leadership in every emerging country market.  Field managers who simply execute orders is not the formula for future success. Some companies are deliberately recruiting talent from other industries outside biopharma-this virtually guarantees a split with status quo, linear thinking, and bolsters the creativity side of the management equation.

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

Features

Whatever used to be wrong with the world of big Pharma could be fixed with a single tag phrase: emerging country markets. Most of the majors have invested heavily in this geographic segment, and the biggest of the big-companies like Novartis-now rely on it for more than a quarter of their global sales. Like all good things, however, there are shadows amidst the sunlight, and the task of turning volume sales into sustainable profits is getting harder.

The Staying Power of Emerging Markets

	As the reputational challenges to big Pharma progress from bad to worse, what steps are the industry’s trade associations taking to reverse the slide? Worth citing for its wider implications is the overhaul that Canada’s Rx&D, the industry’s oldest functioning trade association, has just given itself to

 commemorate 100 years of representing the interests of local patented drugmakers. On Jan. 4, Rx&D formally changed its name to 

, replacing its single pill-form logo with a floating, dot-connected circle designed to represent the many points of collaboration that drive the process of modern drugs, from discovery to the market. In addition, the group adopted a new five-point mission to provide a long-term structure to its relationships with patients, providers, regulators, and others. Specifically, Innovative Medicines Canada will work to: 

		Ensure patients have access to the innovative treatments they need.

		Lead Canada with the discovery of innovative treatments for longer, healthier lives.

		Support balanced patented drug regulations that are predictable and equitable for innovators. 

		Set high standards for ethical and open practices that respect the relationships between our employees, the life sciences sector, healthcare professionals, and the public.

		Cooperate with all healthcare partners to provide patients with the information and tools they need to take their medicines safely and effectively. 

	In policy shorthand, the new mission commits the R&D industry to promote increased patient access to breakthrough drugs through a strong domestic and international research profile; protect basic rules of IP that recognize the upfront financial risks assumed by inventors; advance a promotional controls and ethics agenda that has made the Canadian industry a world-class leader in compliance; and contribute to appropriate drug utilization through improved patient adherence to drug therapy.

	“Our approach is to emphasize that innovation is not just about what we do, but how we do it,” Innovative Medicines Canada President Russell Williams told 

. The strategy is also strongly inclusive, rooted 

in a program called “100 Conversations” launched in the organization’s 2015 centenary year by Board of Directors chair Michael Tremblay of Astellas Pharma Canada. 

	At a recent symposium, Tremblay noted that the consultations with the health community were the most extensive ever by the industry-designed to cement its 

 around the partnering required to move the needle on the industry’s three-year strategic plan.  That commits the organization as a solutions-oriented driver of efficient regulation, one that increases drug access through clear approval pathways, consistent use of objective evidence, a better climate for attracting clinical trials, and a “globally competitive” IP regime. Through 2018, expect to hear the new Innovative Medicines Canada initiate a national dialogue around the one question that strikes at the heart of Canada’s public health dilemma-why a country with a historically strong research base and significant assets of human capital, located astride the world’s largest market for new health technologies, continues to punch below its weight in turning good science into great products. It’s all about this, says Tremblay: “What is the cost of not innovating? Of not prolonging life, treating chronic diseases, and promoting wellness?  Most important, are we as a country willing to pay that price?”

	Timing of the overhaul is opportune. New Prime Minister Justin Trudeau has declared its time for the country to move from a resource-based economy to one focused on “resourcefulness”-“on what’s between our ears rather than below our feet.” In two languages, Innovation Canada is resolving to hold him to the promise.

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

Canada’s Rx&D, the industry’s oldest functioning trade association, recently changed its name-with a mission of bridging the many points of collaboration that drive the process of modern drugs, from discovery to market.

Canada's Rx&D: Fresh Start for a New Era

	The January JP Morgan investor conference is a head-clearing exposé of who really calls the shots in today’s biopharmaceutical industry.  As one CEO after another mounts the stage to deliver those “forward looking” statements, the underlying tension is palpable. Are the forecasts on earnings guidance and share price good enough to satisfy the relentlessly inflated

 expectations of the capitalist tools-not for more of the same but for something spectacular, even transcendent? The truth is that private investor sentiment is decisive, swift, and unforgiving-everything that law, politics, and patient power is not. Those who carry the impression that medicines are a “public good” have never been to San Francisco for this New Year’s dose of postprandial reality programming. 

	Certainly there was little sign that popular concerns about the high cost of medicines has persuaded investors to lower the bar on profit performance. Wall Street’s message to price aggressively was communicated across the board. The harshest criticism at Morgan was actually aimed at generic companies and drug wholesalers-both of whom operate on rail-thin margins, compared to the rest of the industry-for not doing enough to reverse the current market trend toward off-patent price deflation. For big Pharma, “shareholder value” expressed through annual double-digit earnings growth-and doing whatever it takes to stay focused on this goal, including the divestment of entire lines of business-remains the starting point for conversation. CEOs know that conforming to this mindset is the only way to guarantee the breathing space to take risky bets on investments requiring a long-term payout.  

	However, a closer reading of the conference provides evidence that the insular, often maladroit tone of the industry-investor dialogue may be morphing to something more grounded in the larger societal context that all health providers are expected to embrace, at least rhetorically.   

, we saw at Morgan that the science behind many new medicines is so revolutionary it allows industry to redefine the blockbuster drug as a game-changing 

 advance rather than just another billion-dollar product. In fact, many of the “blockbusters” now emerging from industry labs will plateau at much lower revenues due to the precisely targeted therapeutics of such drugs in delivering the right dose to the right patient, for the right outcome. With the onset of precision medicine, the much derided “placebo effect” will become a historical anomaly. Pricing is never going to the same, or as predictable, as that for the previous generation of easily manufactured, one-size-fits-all, small molecule drugs for common chronic diseases.    

, poor drug adherence, a $300 billion annual burden of unnecessary health costs, is catching the attention of payers, with leading PBMs and insurers committing in their Morgan presentations to meld vast new data retrieval technologies with human capital investments to raise prescription compliance rates. For big Pharma, it’s a win too-an alternative to one-off price hikes, through volume growth driven by better utilization. Reliable compliance data also allows for a more visible demonstration of that all-important value proposition to payers. 

 discussions at Morgan showed how changes in the ecosystem of medicines development and financing is making outside constituencies more consequential in driving performance expectations for big Pharma. 

	A pertinent example is the National Immunotherapy Coalition 

 project, an alliance of stakeholders from industry, academia, and government to validate combination immunotherapies for up to 20 cancer tumor types, ultimately leading to the introduction of a personalized, vaccine-based platform immunotherapy for major cancers by 2020. The Morgan  conference concluded with a symposium tracking the project’s progress.  It was conceded that the key barrier to success-poor interoperability among data retrieval and management systems established in the historically siloed world of healthcare-could not be overcome unless government stepped forward as honest broker between competing companies, academia, health professionals, and the payer community. A logical conclusion to take here is that the price points for new therapies derived from this ambitious template will not be determined by the conventional standard of what the market will bear.    

	Finally, there is the shifting geography of new drug competition, chiefly from China and India, who tout their ability to conduct R&D at lower cost compared to big Pharma-the catchphrase is “frugal innovation.” A Morgan panel on China’s innovation potential fixed on 2020 to 2023 as the date when a novel, single-source drug developed entirely in China would be successfully introduced to the global market-that’s practically tomorrow, in drug timelines. Will fresh competition from producers with lower fixed overhead lead to a revolutionary adjustment in price expectations? At least that’s how markets are supposed to work. 

From the Editor

A closer reading of this year's JP Morgan investor conference identifies three areas where the insular, often maladroit tone of the industry-investor dialogue may be morphing to something more grounded in the larger societal context of healthcare.

Morgan Moments: A Closer Reading of the JP Morgan Investor Conference

	Regulatory intensity and its impact on pivotal economics (pricing, LOE, NDAs, etc.) has put the biopharma industry’s traditional business model under tremendous pressure. According to a recent  Forbes/KPMG survey of  CEOs, regulation is now the  issue with the greatest impact on corporate success in the “new economy” marketplace.

	 Given these developments, the biopharmaceutical industry needs to ask itself: who are we and where are we going  in this new era we call the  Regulatory Age? This article examines the dynamics shaping the future of the global biopharma enterprise and presents a new,  emerging business model from which executives can learn how to compete and succeed. Six actions that companies can take to manage this transition successfully are also outlined. Underscoring the analysis is a simple message: Those that choose to “wait and see” will not survive.

	A few years ago, the industry’s business model was a typical old-economy supply chain framework in which products moved from R&D to manufacturing, distribution, sales, and on to the customer. Pharma companies still consider physicians and other intermediaries in the value chain, such as distributors, wholesalers, and drugstores, to be their customers.

	That old business model has been attacked at every link in the supply chain by the new demands imposed on companies in the Regulatory Age. Reforms have moved from saving costs to initiatives focused on improving health outcomes and

 sustainability. They have redefined the customer to be payers and patients, who with health information have been empowered to make real, value-based decisions on their health outcomes. Retail pharmacies’ profit margins are eroding as they sell less product to uninsured and/or underinsured patients. Pharmacies require bigger discounts from wholesalers to remain competitive. 

	All of this flows upstream to manufacturers, who have their own problems with new fees and higher rebates. In addition to draining margin from the value chain, there is the cost of compliance, which generally creates a drag on business by slowing down processes. The sea change flowing from the regulatory environment is so impactful that companies must change the business model to survive.

	Let’s start with the real customer. The pharmaceutical industry is flooded with customer data made available by emerging digital technologies and generated directly by consumers, giving manufacturers valuable insight into how patients are using their products. This information can help companies provide payers the real-world evidence they demand as part of an outcomes-focused healthcare system. 

	These shifts are attracting many non-traditional players to the value chain including online pharmacies and e-health and mobile health firms that allow buyers to skip over traditional sales and distribution links and to provide a direct conduit between pharma companies and patients. That emerging link in the supply chain puts patients in touch with drugmakers in an easier, faster, and often cheaper fashion. It is here to stay.

	In addition to products, “infomediaries” provide information about drugs, doctors, hospitals, counseling, and other services-one-stop shopping at its best. How does pharma make use of this valuable information? Unfortunately,  not very well. Approximately 48% of all US companies are using big-data technologies to unlock customer behavior data. Pharma lags significantly behind, with only 7% of companies using big-data technologies. 

	Increasingly, the regulatory approach is putting pressure directly on manufacturing, with a huge emphasis on quality and drug safety. Compliance requires analyzing vast amounts of digital data and is driving a need for agility in manufacturing. This means more than just being fast when there’s an emergency; it means building and establishing a business model that can better respond to demand shifts and customer wishes-at the same or even reduced cost. 

	Building an agile supply chain model requires stability in production, replenishment, and visibility. Adopting demand-based supply systems coupled with big data computation capabilities will enable companies to quickly establish the link between finished product and all the input materials and processes, whether they be in-house facilities or outsourced partners. The pharma industry finally has the tools to create virtual enterprises that span the entire supply web. “Not-at-all” manufacturing has replaced “just-in-time” manufacturing, as the CMO emerges  as a “strategic partner” versus the old school business model of “vendor-customer.” 

	Similar changes are afoot  in R&D. The new business model goal of R&D is collaborative activity, not secretive, to enhance the linkages among all stakeholders in research, development, commercialization, and delivery to focus on personalized drugs and disease preventions. Increasingly, savvy executives avoid building expensive, time-consuming, in-house capabilities. Instead, they form partnerships that coalesce and dissolve with each new project-a process of dynamic trade. 

	In the old economy supply chain framework, it was good enough to manage top-line revenue and cost for profitability. Not true today. In recent years, top pharmaceutical companies increased sales an average of 4-5% per annum; however, margins dropped by a similar amount. Net margin erosion continues with regulatory change; for example, a recent Credit Suisse study found that extension of “price protection” in Medicare Part D drove the average gross-to-net (GTN) margin ratio down approximately seven points during 2008-2012. 

	Real customer profitability can stay hidden deep within the business, masked by regulatory obligations such as best pricing, power purchase agreement (PPA), mandatory rebates, cost to serve, cost to comply, and manufacturing fees. Watchful executives realize that, to manage their supply chain, they need tools that empower them to surface and line up all the costs of business. This is not about wrapping

 metrics around the supply chain to tell executives where they’ve been, but rather predictive systems to foretell where they are going. 

	Pharmaceutical companies are, unfortunately, saddled with legacy systems containing heterogeneous and disparate data. They are struggling and failing to manage the GTN process using Excel spreadsheets and disintegrated data. This area is ripe for automation. GTN done right produces results such as those illustrated in Figure 1, which captures the attributes of customers concerning behaviors that drive costs into the business. Notice that the accretive profit begins to decline when costs, such as PPA, best pricing, marginalizing rebates, and cost to serve, are triggered. Uncovering, simulating, and predicting true net margins provide the knowledge that completes the missing dimension in the new business model.

	The smart money will be on the new business model. The payoff looks good, with supply chains now accounting for nearly 25%, or  $230 billion, of pharma costs. 

Even minor efficiency gains could free up billions of dollars. Opportunities from the transformation can be found across the whole supply chain, with profit improvement ranging from about 6% for retailers to 20% for hospitals, according to a  recent study, “Strengthening Healthcare’s Supply Chain,” by McKinsey (see Figure 2).

	What will be the result of these disruptive dynamics at work in the biopharma industry? First, companies must learn how to do business with the real customer, in order to build an outcomes-based business model where the traditional product, a drug, is only one part of pharma’s value proposition. As services become

 increasingly important, infomediaries will be a permanent addition to the value chain, and a conduit to the real customer (see Figure 3). Pharma companies must integrate them into the supply chain because those organizations will be a key source of valuable customer data, which is expected to grow at a compounded annual rate of 41% through 2020.

	Second, the new business model recognizes that the line distinguishing in-house from outsourced manufacturing, R&D, and SG&A has blurred. In the new model, dynamic trade will prevail as companies of different strengths and capabilities partner to produce health-based outcomes. Some experts imagine that many enterprises will become tripartite virtual partnerships: one arm will handle R&D, another will take on manufacturing, and the infomediaries will handle sales and marketing. The one certainty? Agility will rule the day.

	Last is the missing dimension: GTN. Biopharma executives must know where their book of business is taking them before they write it. Surprises are dangerous and regrettably, companies have tremendous risk exposure in this area when struggling to manage the GTN process manually. 

	Quite simply, pharma companies must restructure their thinking to survive. Ultimately, the new business model calls for a seismic shift away from capital investment toward the arena of intellectual capital, where the new battles are being fought.

	Here are six keys that experience shows are critical to linking all partners in this virtual value chain.   

1. Raise executive awareness - don’t “wait and see”

	Today is the Regulatory Age-it’s here to stay and it’s driving a new business model that requires executives to do things beyond their current comfort zone. Executives  must open their eyes to building a new business model by:

		Exploiting social media and Millennial generation tools.

		Developing partnerships with players from other industries.

		Rethinking, and in some cases discarding, supply chain processes that are delivering good margins and solid growth in their current configuration in order to survive in the long term.

		Developing an enterprise-wide data strategy, big data, and traditional data that caters to and supports the dynamic supply web of trading partners.

		Expecting incremental results by starting slow, realizing benefits, pausing, taking the next step, and reaping subsequent benefits.

2. Shift to a health outcomes based supply chain

	Companies must put their old economy supply chain framework-one  that focused largely on cost-to the side, and take a zero-based approach to building a health outcomes-based supply chain. That is to say, linkages (internal and external) should be examined for the perceived value they deliver to health outcomes, be it enhancing efficiency, increasing safety, reducing cost, providing health information, supporting diagnosis and monitoring, or driving compliance in medication. If they don’t contribute, then eliminate them, change them, or rethink them.

	Pharma companies need to either partner with “infomediaries” or start grassroots development efforts with them right away. The Internet is a marketplace with low 

barriers to entry-but only for those that get there first. Once an infomediary gathers a mass of buyers, the sellers arrive with products to attract more buyers. It’s a fast-moving cycle that quickly builds a few dominant players, and smart companies won’t want to be shut out. Remember, infomediaries are more than just online pharmacies, and they are here to stay.

	Technology is the major enabler to a health outcomes business model; unfortunately, pharma has long lagged behind other industries in leveraging efficiencies from data and technology. Here are the major enabling technologies that pharma must embrace going forward:

		Big data leveraged with predictive analytics are crucial to understanding your customer, company, and industry.

		Scalable and flexible integration, including cloud architecture and cloud platforms coupled with Web speed, is vital to collaboration and transparency among dynamic trading partners.

		Demand-based supply systems that segment the supply chain according to the characteristics of products and customers will open the path to agile manufacturing by aligning the production cycle with patterns of patient demand and increasing the low frequency of their manufacturing processes. It’s all about replenishment and packaging times. 

		Digital sensors and devices represent immense opportunities to gather data used to empower R&D, analyze drug efficacy, and to improve manufacturing agility. 

	Put simply, there’s too much at stake to manage such a complex and vital process manually. GTN automation allows management to highlight the costs of poorly designed internal and external linkages in their supply chain accurately, timely, and as a competitive weapon for the enterprise.

6. There is neither time-nor money-to do everything in-house

	The Web’s instant communication power, along with big data technologies and new operational analytics software, makes it possible to draw the full economic benefit from outsource operations and services-from manufacturing to SG&A. 

	Companies must learn to collaborate in areas where they have solid footing; agree on benefit sharing models; select partners for potential value collaboration; dedicate resources to the collaboration; involve senior leadership; and start with that long-term perspective.

 is President of BPI Technologies. He can be reached at 

An advocate of business system automation in the global pharma supply chain offers a six-pronged approach to adapting to the realities of a new age of mounting regulation and customer expectations.

Pharma dot-gov: A New Business Model

More oversight of regulatory programs and policies planned by GOP critics.

Mollie Rosen is EVP, Agency Relations and Membership at the 4A’s. She can be reached at mrosen@aaaa.org

Healthcare and pharmaceutical advertising is a litmus test for the rest of us in the industry. Highly regulated as the sector is, you could easily argue that it’s the hardest kind of advertising to do. It may also be the most rewarding.

	Advertisers tend to view their work in healthcare and pharmaceuticals as some of the most meaningful of their careers because they’re being given the opportunity to, in some cases, have a huge impact in people’s lives. The gravity of their position is why so many pharmaceutical companies call on advertising agencies that are well-versed in the art and law of healthcare advertising. For those advertising professionals who market direct to physicians, their challenge is especially significant, as they are marketing to one of the most educated populations possible. But whether direct-to-doctor or direct-to-consumer, it takes experience and expertise-and no small amount of perseverance-to manage these challenges while bringing results. Those who do it and do it well are some of the industry’s most masterful storytellers.

	As healthcare communications and advertising have become more mainstream, they have also become more comprehensive. Healthcare agencies are no longer specializing solely in Rx, OTC, medical devices, or even animal health. Because patients and caregivers want products and services that get results, much of the agency focus is on telling the stories that achieve these results. Have a look at some of the work taking home trophies from the Cannes Lions Health Festival, which heralds the “life-changing creativity” of those in the industry, and you’ll see that the stories being told are those that could change the world. As the world could use some changing right about now, life-changing creativity is especially resonant with today’s consumers and award-givers.

	This year, to better celebrate the creativity and contributions of those in the healthcare communications space, the 

American Association of Advertising Agencies (4A’s)

 has added a health and wellness category to its second annual 

, which celebrates the creativity that brings unlikely partners together to make surprising new things.

	Speaking of unlikely partners, as health agencies focus more on consumer campaigns, they are finding they have more in common with their peers at general market advertising agencies and seeing the ways they can benefit from their expertise. Likewise, general market agencies have much to learn from the health agencies, which are so often trendsetters when it comes to creative technologies like virtual reality. This is just one of the reasons the 4A’s is actively welcoming new health agency members; another reason is that we see that health agencies may need our support now more than ever. Just lastmonth we saw the American Medical Association demand a ban on pharma’s direct-to-consumer (DTC) advertising-complaining that marketing budgets are fueling demand that is pushing drug costs up inappropriately.

	The 4A’s has long defended health agencies. We were a founding member of the 

 in 1991, and today we count many of the biggest, best, and most groundbreaking health agencies among our members. Just last year we welcomed the largest independent medical advertising agency in the world, AbelsonTaylor, into membership. We have a government regulations committee, and much of the legislation and lobbying that we do on behalf of the industry is for the health agencies. Of course a lot of our general market agencies also do pharmaceutical work, or for hospitals and related industries.

	Much of our efforts in D.C. in 2016 are going to be about fighting the potential ban on pharmaceutical ads. We have beaten it back in the past when it has come up, and we will work to do so again and to lobby for the role of advertising in this industry. As it shapes up to become an issue in the 2016 US presidential race, it’s going to be a top agenda item for us.

 is EVP, Agency Relations and Membership at the 4A’s. She can be reached at 

Defending pharma and health direct-to-consumer advertising is a top 2016 priority for the 4A’s industry trade group.

The Creative Impulse: Defending Pharma and Health DTC

	It’s the most obvious question for every pharmaceutical executive-and it’s the question no one dares to answer: what happens if the UK leaves the EU? The threat of new trade barriers, abandoned research projects, and strategic disinvestment figures high among the concerns, while the aspirations for advocates of a British exit-and the anxieties of its opponents-include greater national autonomy and the end to years of uncertainty.

	There’s no mystery about this still being a mystery. Right now it’s just too open-ended for comprehensive answers, because just what any “Brexit” will mean is too hard to predict on current knowledge. Not just too many known unknowns, but too many unknown unknowns, Donald Rumsfeld would have said.

What the drug industry stands to gain - or lose - from the unthinkable: Britain departing the European Union.

Pharmaceutical Executive-02-01-2016