's Finance Roundtable 2009, a hot ticket scheduled for March 3, was scuttled by a surprise snowstorm too treacherous for travel. Though we were disappointed to miss out on what is always a spirited debate, a weather-borne paralysis seemed all too appropriate at a time when the financial markets have collapsed like a house of cards (or credit default swaps).  Alas, we had to make do with phone interviews of our 13 would-be guests, a diverse mix of professionals representing every link in the M&A supply chain—biotech heads and pharma business developers, experts in the strategy and execution of transactions, Wall Street analysts, and private equity firm investors—plus one Harvard Business School professor for critical mass. We asked this brain trust not only to identify trends in the increasingly complex science and art of drug industry dealmaking, but also to share their own strategies—and, of course, make predictions.  

Which biotechs will survive the credit crisis? Can Pfizer get megamerging right this time around? Which businesses will which pharma gain or shed? What's the latest in risk sharing and alternative funding? These were just a few of the questions we asked our experts. And then, just as we were concluding the interviews, lightning struck 

 more: the Merck-Schering and Roche-Genentech deals were announced, possibly changing the game entirely—and forcing us to bother our experts again. 

As you might expect, there's no consensus on whether bigger is better. The one thing everyone agrees on is that between the financial crisis and healthcare reform, pharma is going to be acting—and transacting—as fast as it can.

It's no secret that pharmas have a number of challenges—patent expirations, getting drugs approved, drier pipelines, and payer pushback over prices. There is also a general feeling that they need to diversify. Consolidation gives the Pfizers and Mercks the ability to quickly address some of these challenges. 

There is definitely a strong rationale for each of the three mergers. Wyeth provides Pfizer critical mass, especially in the area of vaccines, and allows it to shift its focus away from blockbuster primary-care products. Genentech gives Roche full access to its oncology portfolio and the ability to improve coordination on product development. Merck gets Schering's anti-clotting drug and its women's health and respiratory treatments clinical program, but also helps diversify its revenue with the 70 percent of Schering's revenue that comes from outside the US. 

The three deal structures are different from the debt deals we've seen in the past. They all had a decent-sized equity component—Merck put up 44 percent in cash. This is a trend we expect to continue. 

I think these three megamergers are just the tip of the iceberg. There are still a number of other pharma companies with a fair amount of cash on their balance sheets, and M&A is a logical path to pursue, as it's often cheaper to buy than build. You also don't want to be left out of the game—more companies will join forces to ensure they stay competitive. 

Pricing pressures and healthcare reform will impact where pharma companies invest their money. Blockbuster drugs and primary-care products are likely to be under the most pricing pressure, forcing companies to diversify. This has already started to happen, as pharmas have started to move from big categories such as cardiovascular and lifestyle products into cancer, Alzheimer's, and obesity, where the needs are not well met. Even more important, real product differentiation in terms of meaningful safety and efficacy advantages will be the best defense against pricing pressure. "Me too" products will be the most vulnerable, even if they have strong patents. 

No two deals are alike—and that's the case with the three megamergers. Each deal was structured in a different way for particular strategic reasons—a straight merger, a reverse merger, and an unsolicited takeover that finally became friendly. However, once the deals are consummated, the strategic imperative becomes the same: how to execute the alignment and/or integration in a way that will capture value. 

By creating three mega biopharma companies, the landscape of Big Pharma is transformed. Biopharmaceuticals are no longer a mid-cap game.  

The collapse of the financial system makes this a great time for acquisitions in general; pharmas have a lot of cash, and biotech valuations are low. But when there is such a discontinuity in strength between buyers and sellers, it's more important than ever for pharma to ask, "Does this acquisition accelerate my ability to execute my strategy?" For companies that don't have their strategies straight, their ability to be successful in a major merger are reduced. 

Being the partner of choice is not something pharmaceutical companies are known for. Their ability to be flexible, to grow based on other people's innovations versus their own, and to understand how to create a win/win has been limited. The partnership has been defined as "what I need" at a point in time.  

We're seeing the start of a marriage between private capital and the pharmaceutical industry, in terms of financing business activities in which one partner is willing to take the scientific risk and the other is willing to take the financial risk. Recently, there was a very interesting partnership among Lilly, TPG-Axon, a private equity partnership, and NovaQuest, a joint venture created by TPG-Axon and Quintiles. It's an example of how pharma can be part of someone else's grand strategy as opposed to having to create the grand strategy themselves.  

Right now, the entire revenue stream for a pharmaceutical company is based on what it makes, not what it knows. Content and research and benchmarks about the product are monetized only through sales. At the same time, pharma companies educate consumers and doctors so that they are more effective and efficient in their choices—and they give that away for free. The future involves moving from a product-only company to a product-and-service company in order to have a long term revenue-generating relationship with customers. 

Senior Vice President, Corporate Strategy and 

You'll never go find a merger between two large pharma companies that has gained market share. That doesn't mean the Pfizer-Wyeth or Merck-Schering mergers will destroy market share, but it does tell you why they merged in the first place. A merger can help you become more efficient and cut a lot of cost, but do not expect to see more innovation or big growth. 

For Lilly, the acquisition of ImClone—besides being very interesting because of Erbitux and other products in the pipeline to substitute our patent expirations and complement our oncology franchise—also had the element of the biologic capabilities. We see our portfolio in the future split approximately 50/50 between biologics and small molecules, and ImClone will help us achieve that. 

We need to become a lot more productive to decrease the cost of bringing one molecule to market. At Lilly we set our goal at a one-third reduction—from $1.2 billion to $800 million. We believe we are already half way there. We spun out all our in vivo toxicology to Covance, We think they can actually run their operation more efficiently than we can, so we've done a lot to decrease our costs through a better percentage of variable versus fixed costs.  

We're experimenting with a lot of pilot programs, trying to establish a network of partnerships to develop many of our molecules. There is an element of risk sharing, because they take the risk of the development cost; if the molecule is successful, we have an option to buy it back, but at more than we paid for their costs. We've done a few arrangements with external investors on some of our more expensive internal development projects. The expected return that a financial investor requires is a lot less than what a fellow big pharma does. 

At Lilly, the targeted therapy approach is a top priority, and virtually every program in development has a biomarker strategy. That really justifies having a very high market share in that group of patients, because your drug is absolutely better than the alternative, and its value justifies the price. 

The days when pharma just came in and paid a biotech to give up its program are gone. The smart biotechs and pharmas both realize that they need each other, and there's a very positive, mutually beneficial overlap around mid-stage development—as opposed to arm's length transactions.  

Evolution is often hastened by cataclysmic events, whether a meteor strike or an ice age. The equivalent here is the economic crisis combined with a very challenging regulatory environment, where the hurdle for products is very high. At the same time, the need for innovation has never been greater. Big Pharma has had to evolve beyond the small-molecule platform. The three new megamergers are a response to all of that. 

It's an even more Darwinian period for the biotech industry. But I think most of the companies that have compelling technology and intellectual property will make it through. And on the other side, there will probably be somewhat less capital, but that capital will probably be focused on a smaller set of stronger companies. 

This isn't the first time. I remember going to BIO in 1998, and people thought it was the end of the industry. It can be a desert, and every once in a while it rains and flowers bloom and people say, "Gosh, now we've entered this verdant new world." And then we go back into the desert. 

The absence of capital may have lowered the prices of biotechs somewhat, but it's not like pharma is on some kind of shopping spree. They aren't buying things that they wouldn't have bought otherwise. They're very disciplined. They recognize that moving into a non–small molecule world is a long game, and they're asking what kinds of companies can we work with in order to position ourselves to be a winner. 

The days when pharma just came in and paid a biotech to give up its program are gone. The smart biotechs and pharmas realize that they need each other, and there's a very positive, mutually beneficial overlap around mid-stage development—as opposed to arm's length transactions.  

At Alnylam, we think hard about how we monetize the value of our intellectual property and platforms, while retaining the opportunity to develop our own pipeline. We generally do large, non-exclusive platform partnerships or license out our products as they enter the clinic. Both involve up-front and milestone payments, and often shared royalties.  

It's program funding that's highly rational and recognizes where relative skills lie. That's really the future, where companies learn to work together in long term collaborations. 

Articles

Features

From the depths of the Great Recession, Pharm Exec called in pros on all sides of the M&A business to help us deal.

A Season in Financial Hell

Not so long ago, when a pharma company launched a new drug, it didn't have to worry about how competitors already in the market would respond. For the most part, they'd get a "free launch"—with competitors ignoring the product completely, typically not even mentioning it by name. Today, that free launch is gone. The industry has entered the competitive stage of its life cycle; brands are fighting to maintain and extend their share in markets that are increasingly constrained by price consciousness and promotional regulations. 

These days, your launch is likely to be met by a competitive counter-launch, often created by a cross-disciplinary counter-launch team. Companies have learned that the best time for aggressive market defense is when a new competitor is still awaiting approval—when the product has the least corporate resources, market experience, and brand recognition, and when regulatory restrictions limit the manufacturer's ability to respond to attacks.  

To borrow from business guru Harvey Mackay's metaphor: If you want to swim with the sharks, you need to execute a classic "shark launch," in which your product attacks the market, steals substantial share from rivals, and ultimately becomes the dominant beast. What you want to avoid is becoming shark bait.  

Counter-launch comes in many forms. Here are case studies of three classic shark attacks: 

 In 2003, AstraZeneca was preparing to launch Crestor (rosuvastatin), a cholesterol-lowering agent in the same class as Pfizer's Lipitor (atorvastatin), but with greater cholesterol-lowering potency. Recognizing that Lipitor could not compete with Crestor on cholesterol-lowering efficacy, Pfizer changed the game, targeting the safety profile of Crestor, which appeared to have a slightly higher rate of muscle toxicity. Pfizer deployed a technique called "shark-baiting," skillfully alerting key stakeholders about this potential safety issue. By putting some of Crestor's "blood" in the water, Pfizer created a virtual feeding frenzy among practicing physicians, the media, consumer advocacy groups, investment analysts, and even some FDA officials. Ultimately, Pfizer's shark-baiting tactic crippled Crestor's launch, and ensured that the drug never became a serious competitive threat.  

 Since the 1999 approval of Epogen, Amgen's portfolio of erythropoietin (EPO) anti-anemia products has been the company's lifeline. In 2005, Roche tried to launch a competitive EPO product, Mircera, in the US market. Anticipating this move, Amgen prepared a "shark net" by filing patent infringement lawsuits to keep Mircera off the market. Kevin Sharer, Amgen chairman and CEO, stated that "Amgen is working to win the peg-EPO trial, and to keep Roche's product off the market until EPO patents in the US expire some years from now." The next round of legal proceedings is scheduled for late 2009. 

 Amylin and its partner Eli Lilly currently co-market the twice-daily drug Byetta (exenatide) for patients with type II diabetes, and are preparing to launch a once-weekly version of the drug called Exenatide LAR in the US. Novo Nordisk is seeking to launch its own GLP-1 analogue, with the generic name liraglutide, prior to the launch of Exenatide LAR. At the American Diabetes Association (ADA) meeting in June 2008, Amylin planned to present long-anticipated, new data for Exenatide LAR that had many physicians, investors, and media members excited.  

On the eve of the ADA meeting, however, Novo conducted "hammerhead attack." The company issued a press release stating that preliminary results in a head-to-head clinical trial revealed that liraglutide was superior to Byetta in controlling blood sugar. Releasing preliminary data without any peer-review was a nearly unprecedented approach at such a high-level professional conference.  

Market analyst David Kliff wrote in the journal 

, "With their bush-league tactics, Novo was deliberately trying to control the news flow, damage Amylin's share price, and steal Amylin's thunder." Amylin's stock price plummeted 9 percent that day; the buzz among the meeting attendees focused on liraglutide, not Exenatide LAR. 

To keep your product launch out of the jaws of a wily competitor, I recommend six steps: 

 Select a team that is committed to developing and executing a comprehensive competitive launch plan. Many companies delegate a single brand-team member to handle competitive issues; in contrast, the more successful companies select an entire cross-functional team and dedicate the necessary resources.  

 While pharmaceutical companies spend enormous resources securing corporate work sites and employee laptops, they often fail to secure launch products, which typically take over a decade to develop and a billion dollars to bring to market. Engage a specialized competition consultant to lead the team through the planning and protection process; this consultant should have deep industry expertise and extensive experience in both product launches and counter-launches. Importantly, do not rely on agencies that specialize in product launches but disregard product protection.  

 The competitive consultant can lead the team through the development of a comprehensive analysis process that incorporates assessments of competitive, corporate, product, stakeholder, and market factors.  

 Establish a surveillance network and a process to identify signs of impending attack. This network can consist of field personnel, competitive intelligence experts, key opinion leaders, and other stakeholders. There should be a clear process for identifying, assessing, and acting on potential threats.  

 The best way to prepare to swim with the sharks is to practice, practice, practice. Perform competitive simulation exercises—the new, improved version of war games. Competitive simulations are designed to be more realistic, engaging, and productive than traditional war games. Most importantly, competitive simulations lead to real results, including specific action steps which can be directly integrated into product launch plans. 

 Ultimately, the competitive planning team needs to prepare and execute a winning Competitive Launch Plan that synthesizes the findings from the competitive analysis, surveillance, and simulation. Ideally, this plan will not only shark-proof the product launch, but also create a ferocious shark launch that overwhelms competitors and captures the market for years to come. 

 is President of Bernard Associates LLC. He can be reached at 

Column

Launching a product? Your competition likely plans to interfere. Here's how to counter a counter-launch.

When Sharks Attack

Marketing preparation for a brand takes years. The fate of a brand, however, can be determined in as few as 10 minutes. Today, that is the average length of the office visit between patient and physician. When that patient or caregiver is a woman, the 10-minute interaction becomes even trickier. Because of subtleties in how women communicate, brand potential can be affected by as little as a look, a word, or one question left unasked.   

What women are looking for is less consultation and more conversation. This is especially true for non-life-threatening conditions such as menopause or contraception, or manageable conditions such as migraines and chronic pain. The new ideal in health management is physician-as-partner. But that doesn't lend itself well to a few short minutes in the doctor's office.  

Is the conversation dynamic impacted by the fact that there are more female physicians in women's health? The common belief is that women prefer female physicians, but a recent "She Says" national survey of 1,200 women conducted by Marketing Technology Solutions indicated that the preference is less about gender and more about the qualities commonly associated with women: empathy, listening, partnership. If women leave a physician's office without experiencing those qualities, they leave feeling uncared for, regardless of their physician's gender. 

With pressure from managed care and the resulting demands on medical practices, healthcare professionals are torn between a desire to give the best care possible and their daily race against the clock. Meanwhile, women's expectations are increasing. Medical knowledge is becoming a commodity for patients, caregivers, and consumers because information about any drug or disease state is just a Google search away. Women search health information more than any other topic online. The digital age has created an instant gratification factor that extends even to the doctor's office. 

Pink Tank is a full-service consultancy specializing in marketing to women. The company conducts qualitative research on behalf of clients, including focus groups and other research done by brand counselors with expertise in psychology, patient advocacy, gender, and cultural studies, as well as extensive experience in marketing to leading consumer and healthcare brands.  

In recent qualitative research on the subject of menopause therapy, an OB/GYN said, "A successful conversation is when we both come to the same conclusion." In the same research a patient answered, "When I'm involved in the decision." Physicians want to feel they are giving the best care possible, and women want to feel cared about. The key is that they both want to agree. The contribution a brand can make to this insight is twofold: First, it helps both physician and patient walk into their visit prepared to agree, and secondly, it acts as a conversation catalyst to facilitate agreement, so both leave feeling more satisfied.  

Every conversation has two sides; each side is equally important to success because conversation can be derailed on either side. Every time a doctor says "I don't think so," or a woman leaves with unspoken concerns or unanswered questions, an opportunity evaporates. To help each side prepare to agree means looking at the conversation as a destination in the marketing communication plan, rather than just another channel. On each side the beliefs that drive behavior must be addressed. To assume those beliefs are simply about therapy is a limited, product-centric view. The beliefs that need to change could be how the physician or patient feels about the disease itself, about each other, or even about themselves. Taken from real-world successes, below are some guidelines on becoming a conversation catalyst—and what to avoid—in the physician/patient dialogue.  

There are a number of sensitive topics that must be avoided in order for physicians to take best advantage of the 10 minutes they have to reach their female patients: 

 Embarrassing or stigmatized conditions. Sensitive topics like facial hair, sexual dysfunction, urinary incontinence, or moodiness cannot be brought up. These are what physicians refer to as "door handle subjects" (mentioned just as the doctor is leaving and feels most time-pressed) or "Kleenex box topics" (that cause women to become emotional). In qualitative research, these are situations doctors admittedly try to avoid. 

 Lack of validation. As one physician confessed in an online focus group, "I'd rather have anything behind the door than a menopausal woman." Women often feel unsure of themselves when facing a healthcare professional. For example, in a patient/physician dialogue focus group for a vasomotor treatment, a woman complained emphatically to other women about the severity and impact of her hot flashes. Later a physician leaned toward her assertively and asked, "Is it really that bad?" She backed away and replied, "No, I guess not."   

 Caregiver syndrome. While they readily speak up on behalf of others, women can often be stoic about their own health and tend to minimize their own problems. In recent qualitative research on rheumatoid arthritis (RA) treatments, women confessed that they didn't disclose the extent of their symptoms because that meant they would need more serious treatment. Doctors felt they should be doing more, but allowed patients to lead the way. More effective therapy didn't even enter into the conversation. 

 Auto-pilot. Patients have an average of 20 seconds to speak before physicians interrupt them. Low-priority or low-interest subjects are often treated by rote, and get a doctor response that is simply automatic. 

 Stereotypical conditions. In situations like obesity or diabetes, or in cases where a higher level of patient commitment is required, physician bias can stagnate potential. In qualitative research on osteoporosis, it was revealed that doctors were visually profiling women who they thought would not accept a self-injected treatment based on how fragile the woman looked. That option wasn't raised often with those patients. When it was, it was framed in a way that suggested non-recommendation such as, "Well there is another option, but it's an injection." 

Likewise, there are certain subjects physicians can raise in order to facilitate communication in the crucial 10-minute interval they have with female patients. These include: 

 Find the issue magnifiers (for both physician and patient) that will take their mindsets from "why" to "why not" before the conversation occurs. When the issue value is understood and addressed ahead of time, the conversation can happen in shorthand. For Gardasil, Merck found the issue in connecting HPV to cervical cancer. Making sure the next generation of women has less cervical cancer is something mothers will support, while getting a 10-year-old daughter vaccinated for a sexually transmitted disease seems too much. 

 Give women the support to speak up. Overcoming lack of validation (this is a real condition) or creating normalization ("other women have what I have") is key to getting women to open up.  Connecting women with each other can help accomplish both. Wyeth does that with 

, where women can hear others talk about their menopause symptoms and strategies. They also offer symptom-assessment tools on the site that can speed up the discussion. 

 Create a commonly own-able language. Allergan used public relations as a way to teach women to say, "I want to erase my 11's" for Botox. Years ago, Depo-Provera understood the need for the right language to talk with teens about contraception, and actually had a positive impact on the number of teenage pregnancies in the US. Today, Yaz has carved out a unique niche "beyond birth control" with its own vocabulary. 

 Make sure the "one question" gets asked. By getting physicians to ask frequent sufferers, "How do you feel between migraines" instead of just "How frequent are your migraines?" Topamax was able to redefine prevention, from taking a pill at migraine onset to taking medication daily to break the cycle of pain and dread. The same question was used in DTC to help women self-identify and speak up to their physicians. 

 Help doctors to be better listeners. Quality-of-life impact can sometimes be hard for physicians to visualize, especially when they need to focus on life-threatening issues in the few short minutes they have. In urinary incontinence focus groups, doctor sentiment was, "No one has ever died from wetting her pants." But in fact many women are dying. A brand can help physicians know ahead of time what women are feeling and offer conversation tools that bring a sense of empathy, listening, and partnership, without adding a lot of extra time to the office visit. 

Impacting both sides of the conversation doesn't automatically require a big budget. Some of the examples above worked in a more targeted way, without mass media through advocacy groups, online communities, patient materials, and PR. 

After the 10 short minutes they spend together, the physician wants to walk out feeling like the best care was given, and the patient wants to leave feeling more cared for. The bottom line: Marketers who focus their efforts on simply getting doctors to agree to the benefits of a brand are missing half the answer, because for many women's health issues, the agreement that counts is the one that happens between women and the physicians who treat them.   

 is founder and president of Pink Tank, a division of GSW Worldwide specializing in women and health. She can be reached at 

Columns

How one conversation between a woman and her physician can make or break a brand

Ten Minutes to Connect

On one cold Monday in March, the global economy lost nearly 14,000 jobs in a perfect storm of layoffs reported by news organizations around the world. What was so striking about these particular losses was not the number of people they left out of work, but the breadth of the affected industries. Financial services giant HSBC cut 6,100 jobs. General Motors, the poster child for the struggling auto industry, let 1,633 workers go. Even Yale University trimmed its staff by 300 people. Other organizations reporting layoffs included three manufacturers, two newspapers, two bearings factories, two municipal governments, and a casino. Kmart, too, announced cutbacks.  

These companies have little in common. They market unrelated products of varied importance to unique target audiences; they're headquartered in different countries or states; they're no closer to one political party than the other. Yet they all took the same approach to cost-cutting—an approach that many lawmakers, economists, and executives believe is flawed. The psychology underlying these mass layoffs had more to do with misguided management, the scrutiny of the media, and the short-term whims of shareholders than with true commitment to long-term growth. 

During the current recession, the ax has fallen at a remarkable rate. In the fourth quarter of 2008, 508,859 workers lost their jobs to what the Labor Department calls mass layoffs—staff reductions of 50 or more people lasting at least 31 days. And just like that day in January, it was difficult to lay blame on a single industry.  

We know that mass layoffs are bad for the economy. Fewer people working means fewer people spending, a higher unemployment rate, and a larger share of tax dollars dedicated to unemployment benefits. What may be less obvious is how layoffs impact bottom lines and prospects for growth at the very companies that implement them. Labor research has never found solid evidence linking layoffs to reduced costs, higher profitability, or improved productivity. 

"While downsizing rages through the US economy, there is a great deal of uncertainty about its bottom-line effects," William McKinley wrote in 1995. McKinley cited a warning from management legend James Lincoln, whose storied no-layoff policy at the Lincoln Electric Company was born out of a belief that staff reductions can actually increase costs. 

Layoffs also cast a shadow over the workforce. A decision to cut the B- and C-level players can leave the A-players not only overworked, but also concerned about their future. Nonetheless, here we are tallying job losses at many of the nation's most successful companies. What's happening here? 

Peter Cappelli, director of the Center for Human Resources at the Wharton School, says firms that make sweeping job cuts simply may not know any better. There are few reliable metrics for gauging the cost of rehiring staff after a recession or the impact of layoffs on morale. 

The good news is that many American companies are turning to more effective ways to cut costs. A survey conducted this year by the outsourcing firm Challenger, Gray & Christmas found that the most popular method is to scale back travel expenses. Roughly 67 percent of respondents said their firms would dedicate fewer resources to travel.  Other popular measures included canceling holiday parties, freezing salaries, and trimming or eliminating bonuses. 

Shift reductions are also gaining popularity. At Hardinge, a machine toolmaker in Elmira, NY, management has saved about 20 jobs by cutting staff hours to the equivalent of a four-day work week. The upshot is that workers get to keep their benefits and the firm saves on retraining costs when the economy picks up again. 

"Very few companies rely on a single cost-cutting initiative," John Challenger, chief executive of Challenger, Gray & Christmas, said in a statement. "While layoffs are usually the most visible action, and usually the most painful, companies are finding a multitude of ways by which to cut costs and, in some cases, delaying, reducing, or eliminating the need to make permanent job cuts." 

As a chief executive, your employees are your most valuable resource. They should be your first priority and your last option for trimming costs. 

 is managing partner of Flaum Partners and chairman, Fordham Graduate School of Business, Leadership Forum. He can be reached at 

Layoffs are raging through the economy. But do they actually affect the bottom line

The Unkindest Cut

A handful of times in the span of a human life, there come moments that illuminate how the world could change. For some, it was Woodstock, or the resignation of Richard Nixon, or, more recently, the fall of the Berlin Wall. For Deborah Dunsire it came in 1990, in South Africa, the country she'd called home for most of her life, when the legendary anti-apartheid fighter Nelson Mandela was liberated after 27 years in prison. Like the rest of the country, Dunsire was transfixed by the broadcast image of the aging but unbowed hero of the country's downtrodden, as he told the throng that had gathered before Cape Town's old City Hall, "We have waited too long for our freedom. We can wait no longer." 

"Watching it on TV, you got the sense that nothing was impossible," remembers Dunsire, "That ultimately things can change. There's never a need to accept something as a given." 

Don't accept the given. It's an idea that resonates throughout Dunsire's life as well as her career. Born of parents lacking even high school education, Dunsire has used her own learning to traverse the world. She took an insignificant oncology unit at Novartis and built it into one of the company's crown jewels, along the way rewriting the story of cancer care for patients by leading the introduction of such important drugs as Gleevec. As CEO of Millennium Pharmaceuticals, her vision has been a game changer for the company, turning an underperforming biotech into a robust center of oncology excellence by way of a nearly $9 billion acquisition by Takeda.  

Dunsire is one of the few female biotech CEOs (and almost certainly the only one who speaks fluent Afrikaans). Part of her success, say those who know her, is that she has always been governed by who she is—a physician who got her start treating the poor in Johannesburg, a mother and wife, and a deeply religious woman as well as a business leader.  

"Deborah is warm and caring as well as strong and decisive," says Linda Heath, her executive assistant. "When she speaks, we clearly see that her head is that of a leader and her heart is that of a healer." 

Her achievements have earned Dunsire the Healthcare Businesswoman's Association 2009 Woman of the Year Award, a prestigious recognition that has been bestowed on executives such as Charlotte Sibley, Meryl Zausner, and Susan Desmond-Hellman. This year's designation is made even more special given that the WOTY Award—which has helped recognize and advance women's leadership in the industry—is celebrating its 20th anniversary, while Dunsire also celebrates 20 years of career achievement. 

Deborah Dunsire started her career by following a simple lesson that has only become more true as the years have passed: "You can't be too sure of the path you're on because you might shut down some side roads that are incredibly important."  

Dunsire's parents were born in a small mining town in Scotland. Her father dropped out of school at age 13. He should have worked in the mines, but his mother wanted something better for him, so he became a carpenter. Life went along just fine until the 1940s and early 50s, when Scotland hit a building slump. Rather than stay there, he went looking for work in far-off places, first the Shetland Islands and then Africa. In the 1960s, he took Deborah's mother, whom he'd first me in elementary school, to Zimbabwe, where they married and Deborah was born. 

Her parent's bold journey would color the rest of her life. "Nobody moved from that town—it just wasn't in the fabric of that society," says Dunsire. "Yet my father's initiative took him to another place. He's a person who never believed in boundaries and he passed that on to me." 

Dunsire remembers a childhood of sunny afternoons spent swimming, riding bikes, and building forts in the forest. By the time she reached high school, her family had moved to South Africa, and Dunsire herself was solidly focused on academics. She performed brilliantly—she was named the top female student in her state, and selected as the national runner-up for a Rhodes Scholarship.  

In 1980, Dunsire enrolled in the University of Witwatersrand in Johannesburg. At first, she studied occupational therapy, but she noticed she was getting better grades than the medical students in some of the classes she shared with them. She began to rethink her focus. "A therapist always works under the orders of a physician," says Dunsire. She tells a joke: "'What do they call the guy who came last in his class at graduation day? They call him doctor.' I remember thinking, 'I don't know that I want these boys telling me what I'm going to do with the patients.'"  

Dunsire made the switch. She would soon experience up-close the major health disparities between black and white South Africans—and realize that she could make a difference. For a med school project, she worked in a rural maternity clinic, a desperate place that served poor women. "Women were coming with newspaper to cover the beds where they delivered," remembers Dunsire. "That wasn't acceptable to me. Through outreach efforts and advocacy we managed to change that for the clinic—to get more nursing staff, and also more facilities...even just sheets, pillows, blankets, and laundry services." 

After graduation, Dunsire became a general practitioner in Johannesburg. There, she was expected to make house calls. The phone would ring in the middle of the night, and Dunsire would get in her car and visit the ill. It was a chaotic career, but an extraordinary learning experience. In South Africa, a physician treated not just the ailments of  Western society, such as diabetes, hypertension, and heart disease, but also the diseases of the Third World—malaria, tuberculosis, and malnutrition.  

At one point, feeling that she needed better balance, Dunsire applied for and won a fellowship in ophthalmic surgery. The program didn't start for nine months, though. In the meantime, young Dr. Dunsire found herself in the unusual circumstance of having time on her hands. 

  Novartis: Building an Oncology Empire   

An ad in the newspaper pointed her in a new direction. Sandoz needed someone to implement Phase III studies for specialty drugs. At the time, it was just what she needed: a paycheck to tide her over until the fellowship began and a chance to learn something new—plus a company car.     

Working in the pharma industry wasn't, at first, a pleasant experience. Dunsire felt like she was just biding time; she really missed working with patients. "A GP sees a different patient every 10 to 14 minutes; it's intensely interactive and personal," says Dunsire. "I remember sitting in the office and wondering, 'Doesn't anybody ever talk to you in here? What am I doing?'" 

But as the days went on, the big picture clicked into focus. "I finally understood that by bringing new medicines forward, you can touch so many more lives than you can in a practice, where you're more personally engaged with patients but your universe is much smaller," says Dunsire.  

The starting date for the ophthalmology fellowship arrived, but Dunsire decided to stay at Sandoz. By that  time, she was working in transplantation, Sandoz' largest division and a place where it was possible to see new drugs make dramatic improvements in patient's lives—something that would always stick with Dunsire.  

She took on sales and marketing responsibilities, and directed commercial development for all specialty products, determining which data packages and clinical studies would optimize the drug's market share.  She was successful, accountable for 35 percent of corporate sales and 68 percent of the profitability of the local affiliate.  

Dunsire's success opened doors. The company invited her and her husband to work in their headquarters in Switzerland and three years later, in their North American offices in New Jersey. Dunsire was put in charge of portfolio management of oncology drugs, though the company's portfolio wasn't much to speak of. "At the time, Sandoz was a real 'wannabe,'" says Dunsire. "We really wanted to be an oncology company, but we weren't quite there." 

Then, in 1996, Sandoz merged with Ciba-Geigy, at the time the largest corporate merger in history, forming Novartis. Dunsire saw opportunity in the chaos. There were stronger oncology companies than Ciba-Geigy, but it did have Aredia (pamidronate), which helped build bone, particularly in patients with multiple myeloma. The drug made a big difference in patients' lives, and it was enough to give Novartis a real platform in oncology. Dunsire teamed up with David Epstein, Greg Burke, Alex Matter, and others to make a case for the importance of investing in oncology—for patients and the company alike. The team proposed a global business unit, where the decision-makers would be close to the business, science, and thought leaders. "At the time, it was a really different way of thinking for Novartis," says Dunsire. "But Daniel Vasella saw what it was doing for patients and the fact that it was good for business, so we got more support." 

In 2000, Dunsire was named senior vice president and head of North American oncology. "I was really fired up about it, and I couldn't do any harm because it wasn't big business for the company."  

There, Dunsire helped craft the business from the ground up. She led teams through six new product/indication launches, including Femara (letrozole), Gleevec (imatinib), and Zometa (zoledronic). Over the span of a decade, the unit grew from $50 million in sales to $2.1 billion—and Novartis became one of the most important oncology companies on the planet. (Novartis also nominated Dunsire for the WOTY Award, the first time a woman was backed by two companies.) 

Dunsire could see just how much she'd learned at Novartis. But she was getting comfortable. So when opportunity knocked in 2005, in the form of an offer to become CEO at Millennium, she answered, realizing it was time once again to push her boundaries. "One always has to grow," she says. 

Millennium was founded in 1993 in Cambridge, MA; by May 2003, after a decade of sophisticated science and intense deal-making, it had its first marketed product: Velcade (bortezomib). 

Velcade looked like a winner: It was the first FDA-approved proteasome inhibitor, the first approved treatment for multiple myeloma in more than a decade (it is also approved for second line treatment of mantle cell lymphoma), and the second fastest drug approval (at 10 weeks) in history.  

In Velcade's first seven months on the market, its sales reached $60 million, doubling the initial guidance. In 2004, sales more than doubled to $143.1 million. But by the time Dunsire joined Millennium in July 2005, growth was leveling out. Then, at the end of the year, Celgene launched Revlimid (lenalidomide), a competing drug for multiple myeloma. As a once-a-day pill, Revlimid soon outsold injectable Velcade.  

This was bad news for Millennium. Velcade was the company's only marketed product; promising candidates such as MLN-0002 for ulcerative colitis and Crohn's disease lagged many years behind it in the pipeline. "The $2 billion oncology division at Novartis is less than 10 percent of the whole," says Dunsire. "But at Millennium, the success of the company and the ability to invest in your portfolio, to achieve your mission and vision is totally dependent on that one product." 

Many were doubtful that it could. "[Dunsire] stepped in at a time when competitive threats were heightening, and people wondered if Velcade could compete against an emerging competitor," says Christine Poon, the new dean of Ohio State University's Fisher School of Business, and former vice chairman of Johnson & Johnson, Millennium's partner in Velcade. "There was doubt about whether she could position the product and the company to make people believe that it could grow, and that the pipeline was something to be excited about." Headlines echoed the sentiment: "The Future Millennium Isn't So Exciting," opined investment Web site The Motley Fool. 

But Dunsire had a vision for how to get Velcade—and Millennium—to achieve their potential. First, she addressed what she called the "burning fire" (there was no commercial head) by hiring Christophe Bianchi, a seasoned oncology exec who had previously run Sanofi-Aventis' $2 billion cancer business. Together, they brought Big Pharma sales and marketing know-how to the table, doubling the size of the sales force.  

They also simplified the drug's selling points. "Velcade is a great drug, and there is a gold mine of things you can say about it," says Christophe Bianchi. "But at the end of the day, the customer will only remember a couple of them, not 20. You have to choose what to say—and also what not to say." 

Velcade sales started to grow again. In 2006, a 20 percent increase for Velcade put Millennium in the black with a net profit of $8.3 million. But what really changed the trajectory of the drug was the expanded FDA approval to use Velcade in first line multiple myeloma patients in 2008. (It was originally approved in 2003 as a third line therapy, then in 2005 as second line.) By November 2008, Velcade was a blockbuster.  

Certainly, the drugs will continue to jockey for position. Revlimid also became a blockbuster in 2008, bringing in $1.3 billion. There's also evidence that the drugs work well in combination. "I can see two winners in this game," says Howard Liang, an analyst for Leerink Swann. "There is room for both drugs to increase penetration of the first line setting, and then eventually combine and continue to grow." 

Revlimid never swept the market the way many expected, thanks largely to Velcade's promotional response. Baird analyst Chris Raymond predicts that sales of Revlimid are likely to disappoint in 2009 due to strong competition from Velcade.  

Meanwhile, Dunsire saw another problem—sweeping R&D spend, without much to show for it. "I tend to simplify things, as opposed to looking for complexity," she says. "I remember saying, 'The arithmetic doesn't add up. The R&D budget's wildly bigger than the revenue, and we just have to fix that.'" 

Under founding CEO Mark Levin, Millennium started out as a genomic-based company, but it expanded to include efforts in inflammation as well as oncology. Dunsire worked with the R&D team—Joe Bolen, Nancy Simonian, and Pete Smith—to decide where to scale back. "It's not just a resource or scale issue, it's also about where your skills are," says Dunsire. Ultimately, the team decided to focus exclusively on oncology. The decision was a hard one, mostly because it meant laying off workers. Ultimately, though, the move to focus the company promised to be the key to its future success.  

"When Deborah came into the company, she certainly spent a lot of time on the commercial side. Given her background, that was natural," says Christine Poon. "But what impressed us is how much time she spent with her R&D organization—looking at the pipeline and where to allocate resources, and making the tough decisions on where to focus."  

"She got us focused on what was important," says Mark Levin, now a partner at Third Rock Ventures, who remembers meeting Dunsire and getting excited about her commitment to doing great things. "When you bring a product to market, especially in a small company, it's a long haul. We got part of the way, but Deborah came on board and took our capability to market and sell up by an order of magnitude."  

Others see Dunsire's value not only in the skills she brought to the company, but also in her ability to lead. "Few CEOs have stepped into more challenging situations," says Marsha Fanucci, Millennium's former CFO. "She inherited the legacy of an audacious company vision, a great but under exploited product, and an operating infrastructure that was by any measure suboptimal. Perhaps most important, she followed a CEO who was an inspirational leader loved by all. So many ways to fail, yet through her leadership she unlocked the potential of the product, and even more important, the people." 

"Sometimes the price of success is that you get acquired," says Dunsire. Indeed, by all accounts, Millennium has been a success. Last spring, Takeda, Japan's largest drug manufacturer, plunked down $8.8 billion (roughly 13 times Millennium's revenue) for the biotech—the largest deal ever for a Japanese company.  The price translated to $25 a share, a 53 percent premium over the price of Millennium shares the preceding day. Takeda got what it was after: a sleek, focused oncology outpost, and a blockbuster with room still left to grow. The biotech, with its single marketed product, made its exit with the eighth largest market value in that industry—roughly twice as much as the next ones in line, Cephalon, ImClone, and Vertex, according to the In Vivo blog.  

Nearly a year after the deal was announced, there are but a few signs at Millennium of its new parent company. A clock displaying Tokyo time hangs in the lobby. Pamphlets are on the way, explains a PR person, to explain the new structure. Dunsire says she's learning to speak Japanese.  

Rather than slash-and-burn M&A tactics, the Takeda/Millennium deal is expected to bring new drugs (and jobs) to the company. Takeda wants Millennium to become a center of excellence for oncology, keeping its name and assets, and taking on the job of developing Takeda's other cancer drugs as well. Millennium now has a pipeline of 14 oncology compounds in early to late development—previously it had five.  

From her start as a physician working in apartheid-era South Africa to the dramatic turnaround and takeover of Millennium, Deborah Dunsire has lived a life that has defied all expectations.

Millennium's Deborah Dunsire: Woman of the Year

Eli Lilly's August 2008 announcement that it will transfer not only its clinical trial monitoring function to Quintiles, but also its early drug development facility to Covance, sent tremors through industry R&D. That transaction, and others like it, signals a profound shift in outsourcing practices. More and more drug companies—including Merck and Pfizer—are moving from "transactional" (capacity- and project-based) outsourcing to "functional" (competency- and portfolio-based) partnerships. One industry exec said, "The pharmaceutical industry has sailed right into a perfect storm that will likely increase its reliance on CROs [clinical research organizations]: an uncertain global economic and political environment, profitability and productivity pressures, tighter regulations, rising workload and tighter capacity."  

The acute need to increase productivity while cutting costs is driving companies to better leverage performance and efficiency in their CRO relationships; higher levels of integration and standardization are key. Based on in-depth interviews with 10 

mid-sized and large biopharmas, we analyzed both the advantages and the challenges of this industry-wide shift. Here, we offer management how-tos to support outsourcing relationships.  

Traditionally, companies have outsourced their clinical research tasks on an ad hoc basis driven by insufficient internal capacity.  (For more on the rapid growth of worldwide clinical trials, see the chart below right.) The sponsors profiled in this study by the Tufts Center for the Study of Drug Development (CSDD) reported that they generally use transactional outsourcing to perform circumscribed protocol tasks such as site selection and management, study monitoring, data management, and some medical writing. By contrast, quality assurance, biostatistics, and regulatory affairs are typically handled by internal staff.    

Under such ad hoc arrangements, sponsors interact with a large number of providers: full-service and niche CROs, as well as functional contract services that provide statisticians, medical writers, and the like. Sponsors typically solicit three to five bids,  and select the one with the lowest cost. This approach is primarily tactical, often last minute, and focuses only on the current "work package." Although cost control is a primary goal, the unpredictable nature of these projects often results in cost overruns. Sponsors tend to micromanage the relationship to ensure communication, and require the provider to use the sponsor's standard operating procedures (SOPs). Middle managers usually do the planning and problem solving. As such, most governance is reactive. 

More recently, major drugmakers such as Amgen and Wyeth have begun outsourcing on a functional rather than transactional basis. These functional arrangements give almost all responsibility for a function to a single CRO. One pharma sponsor told us, "The primary purpose of these relationships is standardization—of processes, practices, and systems. They can reduce duplication and inefficiency by [removing] overhead expense." (Under the study's rules of confidentiality, all quotes are anonymous.)  

Still, the outsourced function must be integrated with the rest of the sponsor's development activity, circumscribing the CRO's involvement in long term planning. For this reason, fully functional outsourcing tends to be tactical—and of limited value. 

A small but growing number of pharmas are pioneering more strategic, partner-based outsourcing. The process begins with an in-depth assessment of the company's core competencies, determining which functions are best performed in-house, and which should be handled by a CRO offering greater expertise and efficiency. "We're deliberately trying to establish alliances because we believe vast [CRO] development experience [and expertise] can be accessed that way," one biotech exec told us. In fact, on an annual basis, the top ten CROs have managed a much higher volume of work in many areas of clinical research than their sponsor partners. The five largest CROs have succeeded in submitting more total INDs and NDAs than almost any pharma or biotech in the industry. (For more on CRO vs. in-house performance, see "CRO Development Speed and Quality," page 65.) 

In these partnerships, the goal is to build a team with complementary competencies to take full advantage of what each party brings to the table. Sponsors look to retain senior level expertise (for project planning and concept sheet development), while reducing the number of internal staff. As a result, sponsors can streamline operations by managing rather than doing the work. 

The selection of the right CRO provider—based on such criteria as expertise, capacity, positioning, and culture—is essential. (See "A New Approach to Selecting a CRO Partner," page 65.) From the outset, there must be a shift from capacity- and project-based to competency- and portfolio-based outsourcing. On the CRO side, this affords an opportunity to plan for upcoming activity, and reduces the likelihood of cost overruns.  

Governance is a shared responsibility. Once a sponsor has picked a partner and determined the scope of the work, the companies together create a senior level governance committee. Members, chosen from both companies, meet once or twice a year to review projects. Meanwhile, lower level committees implement the relationship on a day-to-day basis. The sponsor and the CRO rely on a set of coordination operating procedures (COPs) to ensure that each party's SOPs are consistent, integrated, and compatible; conflicts are resolved by the appropriate mid- or senior level committee. In this way, the CRO has greater autonomy to leverage its expertise and efficiencies. 

Sponsors tend to work with only a few full-service CROs in partnership relationships, and the responsibility of managing niche service CROs is often transferred to the partner provider. The sponsor's time is focused instead on overall strategy and planning, as well as high level management of the relationship's performance.  

Nearly all of a drugmaker's functional tasks can be outsourced in partnership relationships. Companies are increasingly receptive to using CROs for protocol development, site selection and management, study monitoring, data management, biostatistics, medical writing, quality assurance, and routine regulatory affairs tasks. 

Having decided to move to a more strategic partnership, how can you do it smoothly and successfully? The execs we interviewed generally agreed on the following five tips: 

1 Make a total commitment to the transition

 Sponsors too often ignore the importance of—or discount the difficulty of—such a sustained company-wide shift. If parts of the organization are allowed to maintain "pet" providers, or insist on keeping a competitive environment, the transition is almost certain to fail. At minimum, a three-year commitment is typically required to make the transition, ride out bumps, and create a stable environment. 

2 Determine which parts of drug development must be retained internally

 An unbiased evaluation of core capabilities typically reveals that many tasks can be fully outsourced.  (For a phase-by-phase breakdown, see "R&D Outsourcing Continuum," page 66.) For instance, sponsors often view their interface with regulatory agencies as too critical to be handled externally. However, their regulatory affairs groups often handle such routine agency filings as annual reports, requiring additional staff. Moreover, most sponsors fail to meet all annual report deadlines, since that work tends to take a back seat to NDA filings and other essentials. Outsourcing the less significant tasks can reduce internal workload and increase on-time performance in areas like annual report submittals.  

 Topping the list of core elements are goals, duration, service levels of both parties (such as staff availability, turnover, cycle times, and quality), workload, funding, transition of work from the sponsor (and its many vendors) to the partner, governance, information sharing, and problem resolution (for both project and relationship issues). It is critical that an agreement be designed based on a vision of shared success rather than on factors that might result in penalties or a breakup. For example, a failed enrollment campaign must be viewed not as the CRO's failure, but as a mutual mistake to be corrected. In this way, the partnership can improve both organizations through better planning, information sharing, and problem solving.  

 Companies should typically identify more than one CRO that shares your stated vision and supports the anticipated pipeline. Instead of using the typical competitive Request for Proposal process, evaluate and compare each potential partner's business philosophy and day-to-day practices. 

 with the CRO partner An investment of both time and commitment by both parties is essential to making good on a shared vision. 

Making the move from a multi-contractor approach to a more limited number of outsourcing partners can be done in two different ways: Ask a single partner CRO to manage all the various vendors now under contract, or consolidate the various vendor tasks into a few long term CRO contracts.  

The first approach, which is tantamount to simply "outsourcing the outsourcing function," is quicker and creates minimal disturbance. The partner takes over management of the existing patchwork of vendors and contracts going forward. No economies or efficiencies are gained, but you are now relieved of a non-core task and its incumbents hassles. 

The second approach is slower but ultimately more valuable. For instance, as clinical studies finish, the follow-on studies are transferred to the strategic partner—as are other clincal-study functions as contracts with existing vendors terminate. All of this is done in a phased way to minimize disruptions in portfolio activity and avoid overload.  

While the advantages of partnership relationships are still only theories, the test cases are too few and too new for proof of concept. And some disadvantages were voiced by our interviewees. Several sponsors, particularly small and mid-sized companies, expressed concern that "as a small company, we won't get the best CRO staff. They [CROs] allocate resources based on availability and the promise of future business. Small companies can't hold up to the larger companies."  

Yet given the large and growing number of full-service CROs worldwide, and the competitive nature of the business, it is likely that you will find a sufficient number of CROs willing to become strategic partners. Also, as the outsourcing market migrates to more strategic relationships, entrepreneurial CROs will likely find new ways to ensure a sponsor's teams satisfaction.  

Sponsors have also expressed concern that high levels of CRO staff turnover will prevent companies from realizing the maximum benefits of strategic partnerships. Those sponsors already engaged in partnership relationships are quick to respond that they themselves have comparable, if not higher turnover, and that their partnerships typically offer good stability and continuity. 

One risk that must be mitigated is a relationship termination. Given the time-consuming care that must be given to a collaboration's successful delivery on pipeline commitments, any breakup is disruptive and costly. For this reason, you should plan your partnerships carefully and commit for the long term. However, it may also be prudent to establish multiple strategic partnerships to guard against the loss of a single partner.  

During the next several years, most outsourcing biopharmas anticipate gradually establishing partnerships for select new programs while also maintaining transactional relationships to support the existing portfolio. As a result, the landscape for niche and small CROs will no doubt change. Given the growing volume of global clinical trials, these companies will continue to have an important role to play. But they may need to form tighter relationships with major CROs that have been engaged as partner providers. The major CROs can act as lead contractors, managing a larger group of individual service providers. This model is similar to that of the "prime contractor" used by the US government. 

The current drug development environment, with tougher capacity constraints and rising global activity, necessitates that sponsors achieve higher levels of performance and efficiency. Strategic partner-based outsourcing relationships hold promise in helping you meet that challenge through a competency-based team approach to managing development portfolio demands. 

, a research analyst, at the Tufts Center for the Study of Drug Development, in Boston. 

 is president of Customized Improvement Strategies LLC, in St. Louis, and author of "Pharmaceutical Metrics" (Gower Press, 2006). 

, PhD, is president of CEP Consulting, in Chicago. 

Big Pharma is finally making a commitment to partner-based outsourcing.

Make a Match

Despite the economic crisis and the soaring federal budget deficit, President Barack Obama maintains that reducing the number of uninsured and improving the quality of American healthcare will support economic recovery. The Obama health reform campaign was launched in February, when Congress approved the economic stimulus package. That bill boosted funding for Medicaid, provided support for laid-off workers, and funded health IT and research initiatives slated to make the nation's healthcare system more efficient.   

The next round won't be as easy. The administration's preliminary budget plan for fiscal year 2010 proposes to establish a $634 billion reserve fund to support healthcare reform over the next decade. However, the proposal to get half the money from tax increases on the wealthy immediately met resistance from both Democrats and Republicans. Congressional leaders seem reluctant to finance expanded coverage by assuming future savings—which means that a lot of money will have to be found, now, for any major health system change to be implemented. 

Pharma is slated to do its part by paying higher rebates for drugs purchased by state Medicaid programs. The budget plan seeks to raise almost $20 billion over 10 years by boosting rebates from 15 to 22 percent and revising the system for calculating payments. The administration also promises to boost generic drug utilization by prohibiting "collusion" between brand-name and generics companies to keep generics off the market, and by establishing a "workable regulatory, scientific, and legal pathway" for the approval of generic versions of biologic drugs. The plan projects only $9 billion in savings from follow-on biologics, which acknowledges support for an exclusivity period that maintains incentives for innovation.  

These initiatives and others were discussed at a White House health reform summit last month, the first in a series of regional gatherings in which healthcare constituents voiced wide-ranging views on how to expand coverage, cut costs, and improve care. At the initial summit, members of Washington's healthcare circles pledged to earn a seat at the table by agreeing to accept some painful changes.   

Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America (PhRMA), used his two minutes to endorse disease prevention and chronic care management, which can save money while also increasing demand for medications. Pfizer chief Jeffrey Kindler backed universal coverage, but raised concerns about linking comparative effectiveness research to coverage decisions.  

Despite all the talk of coalition-building, cracks have already emerged in the united front for health reform, with Republican leaders voicing reservations about a government-run health plan option, a "show-stopper" for insurers and employers. Meanwhile, two leading unions dropped out over disagreements about the public-plan option and employer mandates. Fears are that such rifts will widen as details emerge for cost-cutting and coverage requirements. 

The White House summit served as a signal to Capitol Hill that it should get ready for the big reform push. Senate Finance Committee chairman Max Baucus (D-MT) and Senate Health Committee chairman Edward Kennedy (D-MA) set a June date for marking up reform legislation in order to have a bill moving forward by summer. In the House, the chairmen of the three committees with jurisdiction over healthcare policy pledged to coordinate efforts in order to approve similar legislation before the August recess. 

As the healthcare reform debate moves forward, legislators are weighing dozens of health-related initiatives. First up for House Energy and Commerce Committee chairman Henry Waxman (D-CA) is a bill to put tobacco marketing under FDA control. This measure has been approved at different times in both the House and Senate, and could move through Congress quickly. Philip Morris and anti-tobacco advocacy groups back the measure, while smaller tobacco companies oppose it. Some public health groups complain that the measure doesn't go far enough, while medical product makers fear that tobacco oversight will be a huge burden on an already overloaded agency.  

Follow-on biologics are back on the front burner, with Waxman sponsoring new legislation featuring a very low five-year period of exclusivity, plus a process for resolving patent disputes early on. The bill gives FDA authority to collect user fees from biosimilar applicants and to determine what clinical trials and postmarket studies are needed for interchangeable "biogeneric" products as well as regular biosimilars. Generics makers, pharmacy benefit managers, payers, and consumer groups have cheered the prospect of lower cost biotech therapies. However, Big Biotech has said that Waxman's proposal jeopardizes future R&D. Industry greatly prefers an alternative sponsored by Rep. Anna Eshoo (D-CA), which offers 12 years of market exclusivity and makes it much more difficult for a generic to establish interchangeability. 

Following the Supreme Court's ruling against preemption in 

, Waxman also introduced legislation to eliminate the preemption shield still available to medical device makers. Last year's Medtronic decision upheld the law that prevents patients from filing suits claiming injury against makers of heart devices, stents, and hip replacements. Waxman has long opposed FDA preemption policies, and was poised to tackle the issue legislatively; the Wyeth decision will make his task easier. 

And it looks like Congress may give patent reform another try. The leaders of the House and Senate Judiciary Committees have introduced revised versions of legislation that was approved by the House last year but stalled in the Senate. Pharmaceutical companies, which back heavy penalties for infringement, have complained that the new bill erodes patent protections and makes it too easy to copy medical products. Computer and high-tech companies back the proposed limits on damages for infringement, which they hope will discourage patent suits. The legislators want the warring factions to agree on an equitable approach to calculating damages, and there's hope that the dire need for reform of broader patent issues will bring about compromise.  

Meanwhile, the recent peanut contamination episode has generated a host of legislative proposals for fixing FDA. Rep. Rosa DeLauro (D-CT), chairman of the House Appropriations Committee, wants to create a separate Food Safety Administration that will provide more focused oversight of food quality. Several Senators, led by Senate majority whip Richard Durbin (D-IL), are supporting another food safety bill that sets fees for inspections while giving FDA more power to monitor food quality and recall noncompliant products.  

The lead proposal to overhaul food and drug oversight is the FDA Globalization Act, sponsored by Rep. John Dingell (D-MI) along with Rep. Frank Pallone (D-NJ), head of the E&C Health subcommittee, and E&C Oversight subcommittee chair Rep. Bart Stupak (D-CO), who has been investigating FDA import and inspection failings for several years. Pallone says he plans to hold hearings on the legislation and to move it through committee simultaneously with health reform measures.  

The bill authorizes FDA to inspect foreign drug manufacturers every two years, to block questionable imports, and to crack down on those that fail to comply. FDA would gain the power to recall, destroy, or detain unsafe or misbranded goods, to subpoena records, and to impose criminal penalties for drug counterfeiting—a power long endorsed by pharma and legal authorities. All registered manufacturers and importers, including generics manufacturers, will have to pay user fees to support the broader oversight program. Manufacturers will ensure the integrity of product supply chains through electronic pedigrees. The goal is regulatory "parity" to ensure that lax oversight and fewer inspections are not a reason for manufacturers to shift sourcing and operations from the US to Asia. 

Ironically, legislation that increases FDA oversight of foreign drugmakers may re-open the drug reimportation window. Several leading senators have proposed a bill that promises to save $50 billion over 10 years by permitting nationwide re-importation of prescription drugs. However, all imports would have to come from FDA-approved manufacturing plants in Canada, Europe, Australia, New Zealand, and Japan—a requirement that anticipates more frequent foreign inspections and a drug pedigree system. 

The delay in appointing a secretary of Health and Human Services (HHS) has not diminished contentions from the White House that healthcare reform is on track for this year. Nancy Ann DeParle is settling in as White House healthcare reform czar, while Office of Management and Budget director Peter Orszag has been making the administration's case for reform on Capitol Hill with Congressional Budget Office chief Douglas Elmendorf. Ezekiel (Zeke) Emanuel, previously head of the National Institutes of Health bioethics office (and brother of White House chief of staff Rahm Emanuel), rounds out the team as Orszag's right-hand man in crafting reform options. With any luck, Kansas governor Kathleen Sebelius will soon be heading up HHS, and FDA will have a new commissioner. 

's Washington correspondent. She can be reached at 

Washington Report

In addition to overhauling healthcare, Congress is weighing proposals for updating FDA policies and expanding access to drugs.

Kickoff for Reform

Many pharma companies have followed a stagnant business model for decades, guided by precepts that held, in effect: When R&D is pumping out blockbuster drugs, bask in the glow of Wall Street analyst reports; when new products are few, cut costs across the board and hunker down until things get better. Pharma marketers, in turn, have usually followed this simple paradigm: Increase spending when markets are strong and cut spending when they weaken. Cause and effect are frequently reversed. Executives often ask how big a brand must be to support a sales force of a certain size. R&D is viewed as the driver of the business, with marketing and sales regarded as costs of doing business.  

But things are much different now that blockbuster drugs are few and far between. Blockbuster drugs made it too easy to be very profitable without being very productive, so marketing and sales productivity were rarely high-level issues. Calls for marketers to "do more with less" are just a lot of brave talk, as most companies are ill-equipped to cope with the R&D slowdown. Although cost reductions are justified, profitable activities are often cut along with the losers.  

In the last decade, major areas of marketing and sales productivity have become nearly a hard science, but you wouldn't know it by the way most pharma companies make decisions. It seems companies are so comfortable making judgment calls and so focused on cutting costs that they have missed the potential for real productivity improvements. 

Addressing marketing productivity issues will require most companies to go outside for much of their analytics (forecasting/resource allocation) work. This would represent a reversal of the current trend. Though this may this appear self-serving, it has several advantages: 				

			Work conducted in-house will be subjected to political considerations that decision-makers will not know about. Some packaged goods giants say this is a primary reason they go outside. 

The best outside consultants are probably enormously better than in-house analysts in many areas. A few have made discoveries that are not taught in universities. 

It's time for pharma market research to advance science-based decisions and foster judgement calls

Pharmaceutical Executive-04-01-2009