When calamity strikes, Americans tend to look for a villain.  This is how we regulate our industries, keep our government honest, and even how we go to war. Unfortunately, it means that many policies forged in haste end up being repealed years later, when it's clear that they were the result of overreaction.  

Today, we stand on the cusp of another mistake that could sink American industry in the midst of a recession. Congress is toying with the idea of placing artificial caps on executive compensation. 

The latest battle in this crusade began on Wall Street. Several years ago, a handful of people in the finance arm of AIG began engaging in risky behavior that led to heavy losses. To prevent the firm's ruin, the US government bailed out AIG with cash infusions exceeding $180 billion. And just as the media was primed to report on every dollar spent by the company, public disclosures revealed that AIG had given out more than $218 million in 2008 bonuses—a hefty sum by most standards, but hardly a dot on the balance sheet of the firm's otherwise staggering losses. 

Nevertheless, the backlash was harsh. A Gallup poll showed that 85 percent of Americans were bothered or outraged by the bonuses. Chief Executive Edward Liddy, who took office after the firm's most egregious recklessness, was subjected to a grilling on Capitol Hill. 

Now Americans are demanding regulation of executive compensation. However, the call for broad caps on what executives can earn, without regard for their performance, is not the solution. In fact, such a blunt tool would ultimately hurt American interests and leave us at greater risk. 

"We cannot attract and retain the best and the brightest talent if employees believe their compensation is subject to continued and arbitrary adjustment by the US Treasury," Liddy wrote in a letter to Treasury Secretary Timothy Geithner earlier this year. 

Previous attempts to legislate limits on executive compensation have only escalated the arms race. In 1993, Section 163(m) of the Internal Revenue Code limited the deduction for executive compensation under the corporate income tax to $1 million; but corporate America not only found a way over the hurdle by turning to stock options, it used the hurdle as a jumping-off point for setting higher baseline salaries. 

"The $1 million limitation on deductibility of senior executive compensation resulted in many companies increasing CEO salaries to $1 million," says Richard Floersch, executive vice president of McDonald's and chairman of the Center on Executive Compensation. "Earlier limitations on exit packages had the same effect—the ceiling became a floor."  

Lawmakers need to realize that they have more tools at their disposal than simply capping what key employees can earn. For example, it may be time to review the relationship between boards of directors and management. Because boards often set executive pay, a chief executive who also sits on the company's board can present a conflict of interest. A clearer  separation of the CEO and chairman roles would go a long way toward ensuring the board's interests lie with the shareholders.  

Another idea is to link executive pay more closely to performance. Federal Reserve Chairman Ben Bernanke supports new rules tying management's rewards to its accomplishments.  

In a study conducted in 1999 at the University of Southern California's Marshall School of Business, Kevin Murphy found evidence that stock ownership and stock options are more effective drivers of performance than base salaries. One way to increase managers' stake in the company's health would be to place stricter limits on the length of time executives can hold onto stock options before cashing out. 

Many firms are also instituting "Say on Pay" policies, in which shareholders are given the opportunity to cast votes on compensation. The vote is nonbinding, but it offers another voice in the boardroom that's difficult to ignore. 

In sum, there are many options for reforming how companies go about rewarding their employees aside from setting arbitrary limits on what they take home. Simply writing down a number may quiet the crowds for now, but in the long run it will do the country a disservice. 

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

Articles

Column

Congress-and the public-needs to take a deep breath before making a big mistake.

Compensation Overkill

A dvertising spending was depressed across the country in 2008, and pharma was no exception. According to Nielsen, DTC ad spend among pharma companies dropped 18.4 percent in 2008, from $5.3 billion to $4.3 billion. Predictably, the drop was spread unevenly across media. For example, TNS Media Intelligence compared spending on direct-to-consumer advertising in 2008 to 2007. The findings: Magazine DTC spending fell 23 percent, to $1.45 billion, and radio dropped 51 percent, to $25 million, while television fell only 3 percent from $2.95 billion to $2.86 billion. Meanwhile, Internet display ads (not including search) were up by a third in 2008, though they still accounted for just 5 percent of all DTC spending.  

The year's drop in advertising is due, in part, to increased FDA scrutiny and the low number of potential blockbusters reaching market. But a deeper look into the numbers reveals some interesting trends. The recent explosion of digital media is having an impact on the marketing mix, and social media have finally made their debut on the pharma promotional scene. Despite the fall in overall DTC ad expenditure, it's clear that new advertising doors opened in 2008 for an ambitious (yet cautious) pharma to enter.  

But if "innovate" is one of the watchwords for pharma marketers today, another is "optimize." And 2008 was a year in which companies looked hard at their marketing mix, analyzing which channels are most responsive and effective. That trend distinguished 2008 from previous years, according to David Baron, senior manager in Ernst and Young's advisory services group. "It's not necessarily 'out with the old and in with the new,'" he says. "It's more 'in with the old and in with the new.'" 

Television remains an invaluable tool for pharma marketers. The medium's ability to forge connections with an audience is converging more with digital media. Spending on TV may have dropped a bit last year, but much of that drop was attributable to the increased cost of advertising in an Olympic/election year, plus the effect of several big-spending brands reaching patent expiration. "Television advertising is still the leading vehicle when it comes to generating awareness," says Fariba Zamaniyan, senior vice president of Nielsen IAG. "It's not that we expect to see ad spending go away in the DTC category, but what we may see is some share of the mix expanding to incorporate some online [advertising]."  

According to Annie Touliatos, vice president for sales development, Nielsen Monitor-Plus, many pharma brands did up their spending. "When you look at the top 10 brands, you still have many that increased their ad spending in 2008, like Advair, Viagra, and Crestor," says Touliatos. Why the increase? In some cases it was brand strategy; in others, the launch of a competitor; in still others, the company may simply have decided the product was losing traction and needed more exposure. 

Take Sepracor's sleeping pill Lunesta. In 2006 and 2007, it was widely ranked as the most heavily advertised drug in industry. But when top-selling Ambien became available as a generic in April 2007, the competitive landscape changed. It became difficult for brands like Lunesta, in the prescription side of the insomnia market, to reach sales goals. Advertising for Sepracor was cut back significantly from $293 million in 2007 to $109 million in 2008. "When you look at rankings on ad spend, it's purely a function of not advertising at the level they have been for business reasons," says Zamaniyan. "There were no adverse effects reported for the brand; it was purely a decision made on a financial basis." 

Most of the industry cut back on unbranded advertising in 2008. Not Pfizer. Instead, the company spent 80 percent more on its unbranded "tortoise and hare" campaign for Chantix, the smoking-cessation drug. Other companies should have followed suit, says John Busbice, principal in commercial effectiveness for IMS Consulting. IMS conducted an optimization study that suggested that the top 25 percent of DTC advertisers should have spent more in 2008 than they have historically. In other words, larger brands should have spent more, and smaller brands less. "When people think about cutting to environmental pressures, they are prone to overreact," Busbice says. "One of the things we found is that brands with sales over $750 million per year should have had, optimally, budgets of no less than $100 million. Ideally, the top 15 brands should have spent more." 

The great debate in DTC these days is whether consumer-directed advertising will continue to use mass media such as network television and general-readership magazines, or shift to more targeted vehicles such as specialized magazines and cable. Bob Liodice, president of the Association of National Advertisers (ANA), believes predictions of the death of television have always been exaggerated. As a medium for pharma advertisers, he says, "TV is going to be in really good shape." 

In 2008, 1,325 products—of all kinds—were promoted to physicians, according to Kantar Media Research. And pharma companies have plenty of options for delivering messages about these products to doctors, from TV and radio spots to newspaper and Internet ads. At any moment, some channels are waning—case in point is journal advertising, which has decreased by 16 percent over the past two years, according to PERQ/HCI More. Meanwhile, others are increasing—such as the use of medical science liaisons to communicate complex data about new products.  

The trick is to find the right mix and eliminate media waste. But that's not easy, because promotional activities are synergistic. "When a physician sees an advertisement on television, gets visited by a sales rep, or reads a journal publication and sees an ad, all of those things have a compounding effect and work to make the physician prescribe a product," says Baron. 

The past few decades have seen an astonishing growth in narrowly targeted information sources for doctors. For example, 20 years ago there were seven measured oncology journals. Today, there are 37 publications and demographic editions. That means that the number of oncology publications has doubled—while the number of oncologists remained basically the same. Industry consultant Charlie Hunt explains that new publications are being created to address specialized audiences and gain advertising for new drugs that are increasingly targeted at specialists. "From an advertising standpoint, pharma is moving toward targeting specialty physicians," Hunt says. "For example, if I have a neurology or oncology product, I'm not going into the broad-based publications as much as I'm going to publications specifically designed for oncologists." 

Meanwhile, pharma marketers will be forced (if they haven't already been) to find ways to replicate the value of a sales rep visiting a physician. Ronald Schulman, senior vice president and director of connect marketing for inVentiv Communications, believes that part of the solution is to stop driving physicians to company and brand Web sites, and start engaging them at the locations where they consume healthcare information. This is a process that has already begun on the consumer side, and according to Schulman, "We expect the same dynamic on the professional side, as well. Shrinking reliance on sales forces and journal advertising will continue, but the growth of Sermo and the younger and larger Medscape Physician Connect social network as destinations for healthcare providers will create new avenues for engagement."  

From one perspective, digital promotion of drugs is exploding. Companies spent about $1.2 billion online in 2008, and the research firm eMarketer predicts that they'll spend $2.2 billion online by 2011. But that growth must be taken with a grain of salt: US pharma and healthcare companies spent about 5 percent of their ad budgets online in 2006—almost the exact percentage they'll spend in 2011.  

So are budgets really shifting toward online? Lee Slovitt, senior media director of Heartbeat Digital, thinks so. "Digital is the one medium to get concrete results and do more with less," Slovitt says. However, in order for this to work, digital media must be approached strategically. "It sort of needs its own campaign," he says. "Advertisers oftentimes overlook the fact that sites like Facebook are user-controlled personal environments. It's more important to recognize, ask to participate, and get permission from users to be a part of their life." 

Clients' patterns of spending are changing, says Lisa Flaiz, vice president, group director, and national pharmaceutical practice lead with the Philadelphia office of Razorfish. To her, the trend suggests that clients are still willing to invest in broad DTC campaigns, but that the portable and "beyond the browser" touch points may be more appealing. "Our communications plans look much different now than they did two years ago," says Flaiz. "They include mobile, social, out-of-home, and more digital touch points than ever before. Pharma will continue to be conservative about advertising in the social media space, but will continue to look for ways to surround the discussion in a targeted and relevant way." 

A key question is whether brand advertising will benefit or hinder the brand. For example, will commercial presence on a social media site be met with skepticism? Flaiz expects to see advertising on third party social media sites to increase slightly as more pharma companies develop policies for how to use social media, and get "braver." But she doesn't anticipate significant growth. "Pharma, along with all other industries right now, is rethinking its distribution strategy," she says. "Occupying more of an online presence is how to leverage consumer behavior. The brand of the future has a ubiquitous digital relationship. This is a mostly digital world. It is no longer enough to have a small Web presence; that worked when we lived in a mostly analog world." 

Companies trying to place their advertising next to valuable online content used to have two choices: They could advertise on Web sites and online magazines, using technology to bring their ad up when content with certain keywords appeared on the screen, or they could create content of their own—better controlled, but potentially less valuable to readers, if they perceived it as promotional. Today, an increasing number of online content providers are offering another alternative, what Laura Klein, senior vice president of sales and marketing for Everyday Health, calls "custom centers." In this model, a healthcare information provider creates a mini-site devoted to a particular condition, exercising complete editorial control. The drug company sponsors the entire site and runs its advertising on all the pages. 

The content, in this model, can take a wide variety of forms: patient stories, tips for living with and managing conditions, Q&A with experts, and a robust array of interactive tools. For example, the What to Expect Foundation developed a successful custom center on its site with support from GlaxoSmithKline. The "What to Expect Guide to Immunizations" includes video clips covering a variety of concerns about childhood immunizations, selected articles, and even a downloadable book, including charts that help parents track immunizations and ask appropriate questions during visits to doctors. The popular health site Everyday Health includes more than a dozen "Everyday Solutions" covering everything from heart health to children's nutrition. These mini-sites include content custom written by the Everyday Health staff (though with full editorial control) and ads by sponsors that include pharma and consumer products manufacturers. 

As of October 2008, there are 250 advertisers with Everyday Health in the consumer packaged goods and pharma industries, which include Abbott Labs, Bayer, GSK, and Pfizer. Advertising business for the company more than doubled in 2008 over 2007 and remained on par with growth in Q1 for 2009.  

Among the many metrics measured, average click-through rates for marketers' ads in custom centers are two to four times above the industry average. Klein points out that when a custom center is running, Everyday has the ability to market to all users (about 24 million monthly as of January 2009) throughout networked sites, which really exposes them to the advertisers' custom center and ultimately sends them through to be counted as traffic.  

According to DataMonitor, pharma promotion is moving from traditional brand promotion toward a streamlined, customer-oriented approach. Perhaps that is why Baron believes that maybe it is time for pharma to see the patient as more of a consumer. "There is nothing wrong with raising brand awareness and brand recognition. It doesn't have to drive incremental scripts; brand awareness could be enough to help keep the marketing mix optimized," he pointed out.  

Pharma companies are scaling back—not just for budgetary reasons, but because of delayed product launches, regulatory concerns, and the impact of the PhRMA guidelines. Advertising agencies are understandably concerned about what the future holds for them. In the short run, it's probably more of the same. Schulman, for example, expects 2009 to look similar to 2008. "We do not expect the measured media mix to change all that much in 2009," he says. "The total spend will shrink but the allocation will probably hold to form."  

All in all, Big Pharma remains at the top of the rankings in terms of most promotional advertising dollars spent. But the future holds a much wider playing field for both large and small companies aiming to optimize the marketing mix.  

Features

Despite the downside in ad spend, an upside remains in the digital space that's wide open for exploration.

Ad(Ventures) in Pharmaland

We leap tall buildings to bring you the definitive guide to the world's top pharmaceutical companies.

2009 PharmExec Top 50

			"Half the money I spend on advertising is wasted; the trouble is I don't know which half." 			

John Wanamaker, the famous Philadelphia retailer, made that comment more than a century ago. Today, as the global financial crisis continues to gather force, his words resonate loudly with pharma marketers, who are being pushed to do more with less and be more accountable for every dollar they invest. 

Changing marketers' behavior requires understanding customer motivation and the ability to implement strategies and tactics that drive customers to engage with the brand. Behavioral science-based relationship marketing can be highly advantageous for the marketer determined to meet this challenge.  

Not to be confused with "online behavioral targeting," behavioral science–based marketing goes deep into the human psyche to understand what motivates people to act as they do. This approach also builds models that show how to shift underlying beliefs or change resulting behaviors.  

The insights and models behavioral science gives us, coupled with solid relationship marketing—including creative, planning, and execution—can provide a powerful glue that connects overarching brand positioning and awareness efforts to everyday tactics. And because behavioral-based relationship marketing uses a targeted approach, this strategy is extremely cost-effective, providing measurable results and demonstrable ROI. 

As the name implies, this form of relationship marketing is based on scientific data. A behavioral science-based approach begins by collecting information in order to unlock insights about the customer. It identifies proven, validated behavior models that are shown to predict outcomes and determine how to change behavior. Examples include the patient's or even the doctor's perceptions of the illness, severity of the condition, the patient's sense of control, and the healthcare provider's preferred learning style. Understanding these factors is critical to creating a dialogue and personal brand experience that will be likely to inspire behavioral change. 

Applied to a marketing strategy, the predictive nature of behavioral science is used to understand a person's attitudes, preferences, and barriers to action; identify and engage the right customer for the brand; develop a blueprint for communications and creative strategies; and deliver focused, relevant communications on an individual level and maximize ROI.   

Behavioral science can sharply focus targeting plans and provide information that is relevant to each specific customer who inquires about the brand. With this knowledge, pharmaceutical marketers can begin to build a relationship with their customers. 

If it's done well, behavioral science-based marketing can address hidden attitudes and translate product benefits into assurances that are meaningful for the patient. For example, in the case of a breast cancer drug, the brand team sought to increase adherence among survivors taking a medication designed to help prevent the cancer from returning. An analysis of patients' behavioral motivators determined that for the brand to be accepted as a trustworthy source of that information and increase the likelihood of adherence, it was necessary to understand three things. First, the breast cancer survivors' community; second, the challenges women with breast cancer face every day; and third, what motivates breast cancer survivors to be adherent. Research also showed that patients need support throughout their lives, and that stress— caused by fear of recurrence as well as the stress of daily life—could be a key barrier to adherence. 

As a result of the research, the brand was able to deliver a multi-pronged, behavioral science-based program that provided techniques, tools, and resources to assist women in coping with stress and encourage them to seek social support. Program communications addressed both specific behavioral drivers and barriers to adherence and support. Tools for positive coping strategies ranged from educational materials to patient support groups. These communications converted leads and helped establish new and ongoing patient relationships, allowing women with breast cancer to better cope with the disease.  

A very different challenge faced the makers of a brand designed to treat ADHD. Behavioral research showed that the attitudes of parents or other caregivers were influencing treatment, resulting in low compliance and persistence. Further research revealed that parents of children with ADHD not only often have a negative perception of the impact of the condition on their child's quality of life, but also experience daily stress.  

To address these issues, the marketing team looked to a proven behavioral model. The Social Cognitive Theory model shows how responses and actions, environmental factors and beliefs, and attitudes impact compliance behavior in the ADHD category; it served as a guide for the entire communications program. Therefore, the communications stream, in this case newsletters, offered coping techniques for addressing environmental barriers and reducing stress, while other components focused on overcoming the reluctance of parents to administer medication to their children. In an unusual comparison study, the pharmaceutical company retained two agencies for the ADHD brand. One agency used traditional marketing methods, while the other applied a behavioral science-based approach. Patients and caregivers receiving relationship-marketing materials based on behavioral science generated a 13 percent increase in length of therapy, according to match-back data. 

An effective behavioral science–based plan should: 

1. Identify which customers to spend money on based on predictions of what future actions they are likely to take. A good plan  defines customer segments and separates them into groups based on their likelihood to respond, then determines which message will resonate with each group.  

2. Create a conversational platform that engages each customer segment emotionally, making a behavioral connection while continuing to support and enhance the core brand proposition. A "one size fits all" approach is unlikely to engage the patient in a meaningful dialogue. Marketers need to understand the patients' mindset and develop communications materials that speak to their immediate needs.   

3. Provide a cost-justified engagement plan that reveals which touch points are likely to yield the greatest returns. How many communications will it take to get the desired result? How can the team leverage other brand assets to maximize the return on spending? 

4. Facilitate a measure of success. This is perhaps the most important attribute of a good plan.  Brand managers should ask themselves: What are the key performance metrics? What is the allowable amount to spend and what is the acceptable break-even point and ROI? A well-designed behavioral science–based, relationship-marketing program can focus resources on people the brand is most likely to move. Because the goal is to engage in a dialogue, built-in measurement points such as levels of engagement, satisfaction or click-throughs can be used. Since relationship marketing is an ongoing strategy, current and year-to-date results can be tracked. 

Behavioral science-based relationship marketing is not a replacement for traditional marketing. It's a way of doing more with less. As a strategy, it is particularly effective for the pharmaceutical industry, where decisions—such as visiting the doctor, writing or filling a prescription, and continuing to take a medication in the prescribed manner—are often based on emotional and psychological factors.  

By using behavioral science to predict and understand behavior, which is a prelude to changing it, pharmaceutical manufacturers can tailor a brand experience to those who are most likely to respond. In this day and age, when it is the enlightened customers themselves who decide what they want to know, when they want to know it, and how they want to experience it, this approach might be far more appropriate. 

 is president of MicroMass Communications. He can be reached at 

Columns

In an era of shrinking marketing budgets, increase ROI with behavioral science-based marketing.

Behavior and the Bottom Line

The trend is undeniable: ever larger portions of media budgets are moving to the online channel. This movement is now accelerating rapidly, as marketers look for greater efficiencies in a challenging economic environment. The implications for every business category are vast, but no industry is in a riskier position when it comes to online media than pharma.  

For a variety of reasons (regulatory review time lines, uncertain approval dates, lack of familiarity with the channel, innate industry conservatism), pharma buyers tend to be slow to make online advertising commitments. As a result, when they finally pull the trigger they often find the best inventory gone. 

That's a problem. Quality online advertising real estate is in short supply, especially premium placements on marquee destinations such as MSN, Yahoo!, MayoClinic, and WebMD. By being slow to buy, pharma companies often end up with remnant inventory that fails to perform. Small wonder that a 2008 eMarketer study found that only 4.1 percent of pharma ad dollars went to the digital channel, compared with an average of 7.3 percent in other industries.  

But with Internet usage now on par with TV viewership, according to Jupiter Research, it's essential for pharma to be competitive in the online market. In order for pharma marketers to compete effectively, we need to fundamentally shift the way our online campaigns are planned and purchased. We need to change our approach to the planning continuum, from start (strategy) to finish (regulatory approval). And we need to venture into new territories—such as social media and widgets—to have any chance of keeping up. 

No other industry is so plagued by product launch-date uncertainty. The result: Pharma is at a buying disadvantage from the get-go. Compounding the problem is the fact that we can never be sure how these shifting timetables will affect our media budgets, so we don't know what size of buys to commit to the strategy and planning of our online campaigns. There are no simple answers here. But by being more innovative in the types of ads we use and how we design our planning schedules, pharma can help level the playing field. 

One simple way to ensure the success of a campaign that may be forced to use less-than-ideal placements is to take advantage of hybrid pricing. This technique lowers risk by structuring deals around pay-for-performance media, whereby we pay for user interactions or completed registrations, rather than simply buying impressions and hoping for the best. One vendor, Videoegg, facilitates this model by allowing advertisers to pay only upon user engagement.  

Another strategic solution lies in breaking the typical planning cycle. Most companies plan media campaigns from January through December. As a result, if regulatory realities require you to plan later than say, October, there is typically very little premium inventory available early in the next calendar year. To address this problem,  consider planning your media campaigns from March through February. Because underperforming sites and placements are cut from plans in the early stages, by Q2 inventory tends to free up as buyers optimize their plans.  

Though it might seem counterintuitive to purchase poorly performing inventory, a different message, offer, or creative execution might perform well in the same online real estate. Just because a placement or site underperforms for one brand doesn't mean it will underperform for yours.   

Planning media campaign launches during Q2 not only allows you to pick up on the cheap inventory that's been dropped by other advertisers, but also gives you the opportunity to test those premium placements in Q1 of the following year—then you'll be ahead of next year's typical planning cycle.   

Bottom line: Understanding the planning habits of others—particularly your competitors—is crucial to your own planning success. Pharma agencies must be more dynamic in their strategy than their non-pharma counterparts, and look to shift their planning cycles accordingly. 

Smarter buying of "traditional" online inventory will dramatically improve online ROI. But to really maximize returns on your marketing dollars, you also need to think differently about the online media landscape as a whole. That means reaching beyond the normal channels and exploring the newer terrain of social media and user-generated content. 

At first glance, this horizon may look not just unfamiliar but downright bleak to an advertiser. Click-through rates (CTRs), a standard metric, are notoriously low on social media sites such as MySpace, Facebook, and YouTube. Valleywag, for instance, quotes one media planner as saying, "Facebook was consistently the worst performing site on just about every campaign we ever ran with them." Their example cites a CTR of .04 percent—well below the online industry average of .21 percent listed by MarketingSherpa. While this may seem like unfamiliar terrain to pharma marketers, with the right approach it can be quite effective.  

The true promise of social media lies in using them in a way that fits the form, not forcing the ad model to function where it doesn't belong. In the social media world, you have the chance to engage with the active social media participant who may be a brand maven in hiding. Capitalize on the inherent, outspoken nature of bloggers; allow them to become your brand stewards and your media planning partners. Sites like 

 have already taken the step to mediate such interactions. 

In addition to social media partnerships, pharma marketers must explore other innovative digital tactics that have the potential to reach consumers in powerful, diverse ways. For instance, branded widgets—portable, downloadable tools that users can post on their Facebook page, download to their desktop, or install on their iPhones—provide users with real utility while offering advertisers a messaging platform that doesn't require banner ad space.  Some pharma companies are already developing tools for filtering specialized healthcare content, pollen-trackers for allergy sufferers, and bathroom guides for those suffering from an overactive bladder. By introducing your brand in a subtle, yet informative and interactive way, you build a trusting relationship from which both parties can benefit.   

Being a dollar short and a day late in the digital realm was never a smart strategy for pharma marketers, but now it's downright dangerous. By looking at problems as opportunities and thinking beyond the 'normal' digital channels, we have the opportunity to break away from the status quo and generate superior results. 

 is senior media director at Heartbeat Digital. He can be reached at 		

Pharma marketers face a crisis in digital media. But there's a way to turn it around.

A Day Late and a Dollar Short

What pharma wants, biotech has. So how can it be that large pharmaceutical and biotech companies face an unprecedented need for products at the same time that emerging companies with promising drugs face—in large part—bankruptcy?   

DEAL TRENDS REFLECT THE NEEDS IN THE PIPELINE  

Of course, deals will continue to occur, but a shakeout is coming to the pharma and biotech industry. Surviving in an environment like this starts with understanding the current situation, which presents industry leaders with a challenge because strong forces are pulling in opposite directions. The three sets of conflicting pressures are: 

1. The exclusivity cliff vs. the Phase II "baby boom" 

2. Financial distress of emerging companies vs. reduced appetite for risk of larger companies 

3. Competition for products in select fields vs. an oversupply of development programs in de-prioritized areas 

This article explores these conflicting pressures and discusses the five actions that smart out-licensing companies should take to thrive in this bifurcated market. On one side are factors that suggest licensing activity could "catch fire" in 2009; on the other, factors indicating that licensing activity could collapse. In the end, neither extreme is likely to be the case.  Rather, we are likely to see a flurry of activity in selected areas and strong declines in others. Most importantly, success is only likely to come to the out-licensors who recognize the new perspective of in-licensors and adjust their licensing approach accordingly. 

Massive Patent Expirations Vie  with Surplus of Pipeline Products 

Everyone in the industry knows the dreaded date—2011. That's the year that billions of dollars will go off patent, putting an 11-year high water mark for revenue at risk. Most of the leading companies will be affected, with products losing patent protection to include Pfizer's Lipitor, Bristol-Myers Squibb's Plavix (in the US), GlaxoSmithKline's Advair, AstraZeneca's Seroquel, Takeda's Actos, and Lilly's Zyprexa. 

Certainly, the industry has spent years planning ahead for the patent cliff. Logically, these major patent expirations should fuel pharmaceutical and biotech companies' interest in licensing. That need for near-term revenue was reflected in 2008 licensing trends; deals with large up-front payments (above $10 million) for Phase III deals increased in the second half of 2008, as deals for Phase II products declined sharply. With all this activity, there aren't many more late-stage products with high sales potential still available for licensing—but it's certain there will be a bidding war for the attractive ones that remain. (See "Deal Trends Reflect the Needs in the Pipeline".) 

If there's a bright spot in the industry's pipelines, it's in Phase II. (See "Burgeoning Phase II Pipelines"). Over the past five years, the pharmaceutical and biotech industry has made vast investments in early-stage technologies and committed unprecedented resources to develop products aimed at new targets and pathways. Millions of dollars later, the industry is fat with Phase II compounds in development. However, it will be some time before these compounds overcome the steep clinical and regulatory hurdles they face. However, if this generation of Phase II products—which we call the Phase II Baby Boom—is at least as effective as its predecessors, success rates will overwhelm companies' budgets for Phase III trials.   

Fortunately, a range of alternatives is emerging for dealing with the Phase II Baby Boom. To make better choices about which compounds to move forward, companies are applying "rapid review" development processes to cost-effectively learn more about their Phase II assets. In parallel, advances in biomarkers are allowing some companies to peek inside the body's biochemical processes and test whether drugs are having the desired effect. 

Leading companies are also applying models to reduce the risk for Phase III investments. Lilly, for example, has found financing partners to take on part of the cost of risky Phase III programs. (Those partners, of course, expect to share in the returns for the product.) BMS took another non-traditional approach by sharing development risk for high-cost Phase III programs with other large companies, including deals with Pfizer on apixaban, with Merck on muraglitazar, and with AstraZeneca on saxagliptin.  

In the near term, the new approaches to Phase II programs may increase attrition rates, resulting in fewer programs moving into Phase III. Large pharmaceutical and biotech companies may be less likely to look outside their own pipelines unless there is a very compelling case for displacing an existing pipeline product. This may also mean that lower priority, but still viable, Phase II programs get cut from pharma portfolios because limited development budgets are reserved for the higher priority programs. 

Cheap Assets Abound  as Companies Tighten Belts 

 Financial Distress  of Emerging Companies 

The current financing environment is taking a toll on both emerging biotech companies. According to a late 2008 report from the Biotechnology Industry Organization, 46 percent of 387 publicly held US biotech companies surveyed have less than two years' worth of cash on their books. An astonishing 34 percent have less than a year of cash left. At the same time, funding is down significantly for private companies, and the opportunity for an IPO is virtually non-existent. (See "Tight Cash for US Biotechs".) 

Most emerging companies have responded by cutting costs by focusing on lead programs and minimizing staff. In a recent review, Campbell Alliance identified more than 80 emerging companies that announced major staff reductions in 2007 and 2008. In 2009, the trend may continue, with companies reducing staff to align with a focused set of development programs.?Future reductions could occur as those programs experience normal levels of attrition. 

Financial distress creates opportunities for deal-making and M&A. Companies are not going to buy unattractive programs because they're cheap, but many companies are seeing a risk/reward trade-off that they can't resist. While the flurry has yet to occur, some mid-sized and larger companies are beginning to actively track companies with promising late-stage programs but limited cash.   

The volatility in the worldwide economic environment is creating less tolerance for risk. All companies, regardless of size, are reducing costs and preserving capital. This "belt-tightening" is making companies more inwardly focused and less inclined toward outside deals. An initial sign of this might be seen in the reduction in Phase II deals. 

In the early 2000s, some large pharmaceutical and biotech companies would overlook or discount the level of risk surrounding a potential asset in favor of filling their product pipelines. But in recent years, the tolerance for risk has dropped as pipelines were slowly replenished through a combination of in-licensing, acquisitions, and internal development efforts (as evidence by the Phase II Baby Boom). Even though companies are still competing to get the "right" deals done for the most attractive assets available, they are wary of taking on development or financial burdens that may not bear appropriate returns. Moreover, development organizations face the same belt-tightening applied to commercial organizations. Today's investment dollars are dear, and they're not likely to be applied to riskier programs even if the rewards suggest the outlay is justified. 

  En Vogue Therapeutic Areas Offer an Upshot Versus Differentiated Drugs  

 Competitive Nature of  Select Therapeutic Areas 

For those who attend the usual business development and partnering conferences around the globe, the most up-to-date information on a given company's therapeutic areas of interest is found in companies' business development brochures. We recently consolidated information provided by leading companies on the areas where they are focusing their licensing efforts.   

Of the top 12 traditionally small molecule–focused pharmaceutical companies, all 12 have expressed an interest in oncology and metabolic disease. Eleven of the 12 are looking for neuroscience (CNS) products, and nine of 12 are specifically looking for pain products. On the other hand, only six companies report focusing on respiratory products, five companies are looking for opportunities in gastroenterology (GI), and only four are interested in ophthalmology products. With large companies essentially all looking for the same types of products, out-licensors with high-quality assets in desirable therapeutic areas will likely have many suitors.   

 Movement Away  From Previous Therapeutic Areas 

While many companies are moving toward oncology and CNS, industry headlines report movement away from certain other therapeutic areas. We've seen that before. In the early 2000s, many companies moved away from respiratory and women's health conditions. In September 2008, Pfizer surprised many when the company announced that it was cutting early-stage funding of cardiovascular programs. Similarly, AstraZeneca signaled its de-prioritization of investment in GI when the company spun out several development programs to Albireo in February of 2008.   

In the long term, a select group of companies are likely to succeed by bucking the trends. Look for mid-sized companies focused on GI or women's health to break out of the pack, as Shire (CNS and GI) or Gilead (infectious disease) did during the early 2000s. However, in the near term, it means that there are fewer targets for emerging companies developing assets in these areas. Finding financing or attractive deal terms may be more difficult for these companies, even if they hold the assets that prove in the end to have been the most attractive. These companies may have to look harder at options to commercialize their own assets—which may lead to mergers within this group of companies in order to boost economies of scale. 

As a result of the conflicting market pressures, the industry is headed for a shakeout. Companies with products with strong profiles in desirable therapeutic areas will see increased interest and licensing activity, and will be positioned to succeed. Companies that may have products in less-desirable therapeutic areas with less favorable profiles—or an inability to concisely tell the value "story" around their product—will face troubled times, and quite possibly failure. In the past, a larger share of these companies might have struggled on; some would have seen their products through the exhilarating experience of later-stage development. Not this year. Only the companies that navigate carefully through this environment will see their products advance. 

In order to survive the shakeout, smart out-licensing companies should do five things. 

 It is essential to evaluate the strengths and weaknesses of your portfolio in light of the factors driving market bifurcation. Know where you stand, so you can fully understand your position in this changing marketplace. The sooner this is done, the more time companies will have to take appropriate action. 

 It is critical that out-licensors have a well-thought-out approach to communicating the value "story" of their pipeline and individual assets. While products with poor clinical data are likely to fail regardless of how they're positioned, proven products are not necessarily guaranteed success. Be certain to put your offering in context within the market and the partner's specific interests, and make an airtight case for the quality and value of your assets. 

3. Leverage the advantage of multiple suitors

 Companies should ensure that they undertake a process to reach out to all parties who may be interested in an offering. Approach your deal with an auction mentality, promoting a competitive environment among potential partners bidding to do business with you. In a market environment where potential in-licensors are looking closely at the same therapeutic areas and products, you should keep in mind that your valuation is partially driven  by the fear that another company will scoop up your product.  

 Out-licensors need to partner early to ensure that they are negotiating with potential partners from a position of strength. By no means should you be in financial distress while trying to negotiate; this will only attract "sharks" determined to take advantage of the situation. Partnering early also ensures that you are not left holding the bag  if the market turns or if negative data is uncovered. Creative deal-structuring can work to preserve your share of future value, while at the same time managing risk for both you and your partner. Of course, there's a risk/benefit trade-off, and some companies may choose to wait for a potentially larger deal once an asset is in later stages. But more often than not, companies cannot afford the trials in the interim. 

  5. Understand your potential partner's needs

 Out-licensors must understand and clearly communicate where their product fits in a potential partner's pipeline. Knowing target companies inside-out, as well as the value your product can bring to their business, will raise your profile and position you for a deal. For example, if the company you've targeted has an asthma product coming off patent in the next few years, and you have a Phase III asthma product that is likely to be approved in the near term, then it's important to clearly communicate the notion that you can fill a key pipeline gap for your potential partner. 

The shakeout will bring with it headline deals and headline disasters. Large pharma and biotech companies are likely to pay top dollar for products—or even companies—with a high probability of success. And it's also probable that we'll see bidding wars for the highest value assets in the most sought-after therapeutic areas—namely oncology and CNS.  

For those emerging companies that fail to recognize the prevailing trends, the end result could mean a last-minute "fire sale" of assets in an effort to get cash on hand simply to survive or, even worse, bankruptcy. Licensors need to be both nimble and savvy to ensure that they're on the right side of the shakeout and come out unscathed.

 are executives in the Business Development Practice at Campbell Alliance, a pharmaceutical and biotech management consulting firm. They can be reached at 

When it comes to licensing in this market, there are winners and losers. Learn the new rules of the game.

The Shakeout

With drug sales continuing to decline, pharmaceutical companies are pinching their pennies and closely picking and choosing what areas they should invest in. Unfortunately, infrastructure technology is one of the more expensive areas, and also one of the first to be scaled back. From manufacturing mainframes to desktop computers, almost every aspect of IT is being evaluated. And if an existing solution is working, chances are that a non–mission critical update will be skipped, or a new installation will be put on the back burner. 

 reached out to some of the biggest players in IT to find out what advice they're giving to life sciences firms that are more interested in investing in dollars and cents than ones and zeroes.  

Pharmaceutical companies should consider an elastic service in which customers pay for computational services when they need it.  By moving services into the digital cloud, companies can move not only their storage capabilities, but also compute programs to the Web at a variable cost. Then not only can they get away from the fixed cost of managing their own data centers, they can also leverage their partner company's internal resources. Those people can write applications for the cloud rather than have the pharma install them and maintain them internally. The best part is that you can  pay for those applications when you use them rather than depreciate the fixed cost over a period of time. 

Companies must look for really well-articulated service agreements that can provide assurance that what they put in the cloud is secure. I think that's a problem for everybody getting into the cloud space. That is a paradigm that we have to establish. Increasingly, life sciences organizations are becoming global performance networks, so it's not just about research and manufacturing or development that's being done within the organization. Increasingly, these organizations are being spread out across entire continents and the globe. So when I think of applications, I think of managing all the consumables that go into R&D, managing the global integration of a company with the proper approved vendors, and manufacturing inventory-item lists that these vendors are providing product to. Those are all things that could be in the cloud. Establishing any information market in the cloud and having it be accessible by vendors and the organizations that make up the pharmaceutical company is a good use for this type of service.  

We are working with our customers to establish guidance and procedure to get a cloud that can pass an FDA-validated environment. So expect to see more applications hosted in the cloud in the near future. 

Drug firms have committed to moving to a paperless environment for processes such as batch record management. The problem is that companies insist on keeping paper backup records that require an army of people to manage, process, and move it around in parallel with the electronic data. Going paperless is a binary thing—either you are paperless or you are not. 

In the last 15 months, we have seen a greater push to truly paperless environments. That means that companies validate what they have in order to eliminate redundant paper-backup personnel. It becomes a productivity and cost of compliance enhancement by having a more disciplined approach to the assets they already have. 

I've seen poorly considered investments in software and technology that proposed to solve a problem without having done the proper re-engineering or organizational change management. They throw a technology band aid on something and end up with a solution that is not used at all used or only partially used. That typically happens outside or above plants. Because of the regulatory nature of that environment, I think there has been a "if it ain't broke, don't fix it" mentality within manufacturing. So sticking to a paper-based process has been perfectly acceptable. There's a risk of supply disruption when you have to implement any kind of change in a validated environment. That becomes an impediment to a new technology. 

But I think that's changing right now. In the current economic climate, it is important to look at manufacturing and operations to save money. The spend on technology in operations has become a C-level priority. 

On the supply chain side, I've seen planning and scheduling leveraged to increase capacity in manufacturing, particularly in the biologics area where the complexity of the scheduling environment tends to be extraordinary compared to traditional small molecule companies. Capacity is really expensive in biologics; the idea is to improve your scheduling to create capacity. We've seen companies erroneously move to commissioning more capacities when through better utilization of their planning tools, they could use the same capacity that they have. That doesn't go on forever, but it certainly can bridge a major capitol gap. 

The most effective way for life sciences companies to manage the high costs of IT is to generate more value out of the systems they operate. It can be done—if companies follow a simple plan. Companies need to align IT with their business goals, define the strategic systems that will be the foundation of their IT architecture, and modify their IT environment to achieve their business objectives. 

Aligning IT with business is a challenge in any market. Processes that were put in place to roll out a new drug may not be the best processes to support new product lines developed internally, through partners, or through acquisitions. Market disruption and economic turbulence provide the perfect opportunity for life sciences executives to evaluate every aspect of their business and make bold changes.  

As the IT business alignment changes, executives have to re-examine their entire IT environment (application portfolio, operation processes, and infrastructure). Life sciences IT executives need to identify mission-critical systems, "sunset" the software and hardware the company does not need, and augment other systems with cost-effective, strategic alternatives. 

The entire IT environment must address business goals in the following ways:    

1: Strategic applications (ERP, CRM, Clinical Systems, Adverse Event Reporting Systems, and LIMS) must be used globally and expanded to address life sciences functions such as CAPA, Regulatory Reporting, and Quality Management.  

2: Supply chain systems must be modified to meet life sciences business goals. 

3: IT compliance must be aligned with the increasing numbers of regulatory bodies. 

4: Long term partnerships with life sciences consultancies increase IT responsiveness and reduce costs for the IT environment. 

5: Corporate IT management and its employees must focus on business goals, while trusted partners are used for world-class quality and world-class cost of services. 

Cutting IT budgets alone won't help Life Sciences companies gain advantage in this current climate. Companies must utilize their IT systems more effectively to meet business goals, improve service and lower costs. 

Worldwide Director of Health and Life Sciences, 

You can't improve what you do not measure. IT organizations of all sizes are faced with cost containment and reduction on a daily basis. Yet many lack the discipline to actually measure those investments. They have to ask: 

1: What IT assets are being under-utilized, and where is there an opportunity to consolidate? 

2: Where do we see redundancy in capacity that, if reduced, could produce savings in both capital and operational charges? 

3: How much of our IT budget is spent supporting tactical tasks with a limited lifespan (e.g., point-to-point integrations), as opposed to developing more efficient and robust enterprise capabilities (e.g., a formal data integration and management infrastructure)? 

4: What projections can we make about future business and IT demands that would allow us to negotiate better terms with our IT providers? 

5: What organizational processes are creating disproportionately high costs, and what process improvement and cost-arbitrage mechanisms could we use to improve them? 

 By institutionalizing IT asset and performance management into both periodic planning cycles and ongoing executive decision making, organizations can discover previously unknown opportunities for improvements that can deliver financial returns not just this year, but also in the years to come. In this way, IT cost reductions need not be seen as potentially harming the business—they become a tool to improve it. 

Whether you know it or not, you and your IT department have been trained by your vendors to think rigidly when it comes to pricing. You pay for 

 amount of licenses or hardware units, and abide by a "rational" maintenance increase each year. However, IT pricing is not nearly that simple. In fact, it's pretty darn complex. Last year, SAP made 36 changes to their pricing. Do you know how that affected your SAP investment? Probably not. The reason why companies grossly overpay for IT is that pricing fluctuates so greatly and so often that it's impossible to keep up with it.  

A remedy to this problem is to take back control of IT pricing—put it on your terms and make it flexible. The first thing you need to do is take a look at your existing vendor contracts, and explore ways you can inject more flexibility into these relationships. The key is knowing where to find the potential for flexibility. Every industry is suffering from a severe market contraction right now. This contraction has probably impacted how much server capacity you need, your network traffic, and the number or licenses being used within your organization. Rationalize and reduce the number of applications or licenses needed, and ask your vendors to consider transaction-based pricing models that allow you to pay only for what you're using. Or conduct a license audit to determine how many licenses for which maintenance is required. Lastly, challenge your vendor to reduce their purchase and maintenance fees. In this economy, the traditional rules of vendor pricing have gone out the window. It's time to make them work to your advantage. 

The biopharmaceutical industry is undergoing a remarkable transformation. At the center of this much-needed evolution are new challenges specific to the increasing role of IT in enabling the new clinical development landscape.  

Tough economic tmes call for a bold approach to evolving information technology solutions.

Bank on IT

A friend of mine is struggling to keep her mother on her blood pressure regimen. "She keeps skipping her medicines because the economy is bad and she wants to save money," the friend says. "But I keep telling her that her health is more important than money, and we'll make whatever adjustments we have to." 

It's not just patients and their families who need to make adjustments—pharmaceutical marketers do, too. In the quarter ending June 2008, the number of prescriptions filled dropped nearly half a percent, according to IMS. It was the first time that number failed to rise in the 12 years IMS has tracked it. And in a Kaiser Family Foundation poll conducted last October, 36 percent of respondents said they or a family member had put off needed care, compared to 29 percent in a similar poll the preceding April. Certainly some of these people are in actual financial trouble. But there's a contagion of consumer sentiment that is affecting even those who are able to make financial adjustments, such as my friend's mother.  

Twenty-nine percent of respondents to a November 2008 Futures Company OmniPlus survey said they were worried about job security, and a Gallup poll from February 2009 reports that more than 80 percent of consumers expect the economy to get worse. The Futures Company report says that those with severe economic anxiety—more than half of adults—are most likely to exhibit poor health behaviors. 

As anxiety causes an increasing number of consumers to risk their health and quality of life by turning away from therapy, what are pharma companies to do? Here are four key considerations.  

When consumers engage in what may seem like irresponsible behavior regarding their health, it's important to understand their motivation. For many people, health is not a high priority. As the economy worsens, many people become focused on putting food on the table or keeping a breadwinner's job. 

A consumer's financial condition may be stable, but as they see friends and colleagues lose jobs and retirement savings, stress levels skyrocket. Anxiety leads patients to lose their sense of control, and that can be bad for adherence to a treatment regimen. In times of economic difficulty, stress and anxiety can cause patients to "forget" to take their medication, lose sight of their medication's value in maintaining health and helping them achieve personal goals, and lose their commitment to treatment, especially if they weren't keen on it from the start.  

Nonetheless, times of anxiety for patients can be an opportunity to show that you support them. Brands and companies that connect with and partner with patients will reduce the impact of a down economy on brand sales in the short term, and be rewarded with brand loyalty in the long term.  

It is important to acknowledge customers' most pressing concerns, and show how your brand fits into their lives. We urge our clients to use language that focuses on values. For example, "When the economy is down, your health is the most important resource you have to bring the best to your family and your job." 

Whenever practical, tailor your communications to the individual by asking questions like, "What is your level of economic anxiety?" The economically anxious have a higher risk of dropping or reducing their medications. You can diminish this risk by offering them extra financial incentives and/or messages that urge them to stay on their medication regimen.  

Novartis Oncology, in connection with its drug Zometa (zoledronic acid), asks attitudinal questions and delivers tailored content to users as part of its Bone Health Program. (See graphic, next page.) This is a proven and powerful way to improve medication adherence and brand loyalty. 

Pharmaceutical companies have long provided financial assistance to patients who cannot afford their drugs. AstraZeneca, for example, has offered patient prescription-assistance programs for 30 years, and actively promotes its AZ&Me prescription savings program. AZ goes even further with some of its prescription brands, such as Symbicort, for which it offers a Measures of Success program that bundles adherence programs, reminders, and money-saving coupons.  

As an increasing number of consumers run into financial difficulties, many for the first time, they may be unaware of these programs or be too embarrassed to seek help. It's our job as marketing professionals to help direct distressed patients to programs that will help them maintain their health—and their loyalty to our brands. 

A word of caution: Pay close attention to the tone of your financial assistance copy. It can be a touchy subject with patients, and it's easy to make mistakes. Here are two examples taken from the Web sites of major pharma companies: 				

 "Schering-Plough believes that the pharmaceutical industry needs to address the challenges facing low-income, chronically ill, underinsured and/or other uninsured people who cannot access the prescription medicines they need to improve their health." 			

 "Healthcare costs are an issue—for all of us. Getting sick carries with it a lot of concerns. Will I feel well again? Will I miss work? What about my family? How much will it cost? As healthcare costs have gone up, some patients feel that they have to do without medicines they need. That's why we offer savings programs and coupons in addition to the many programs available elsewhere."    

While Schering-Plough addresses financial assistance as if it's a public policy issue, GSK addresses it as a personal concern using warm, understanding language. Patients will appreciate this empathy, and be more likely to raise their hands and take advantage of the offer—which in turn will make them more loyal to the brand.  

Usually, patient education takes a top-down approach. Patients struggling with chronic disease, however, tend to tune out even the best advice. To reach them, marketers can't simply issue instructions. Instead, the patient must feel empowered. After all, while the brand is the expert about the product and the disease, the patient is the expert on his or her life.  

One proven, effective, and very simple tool to empower patients is a "decisional balance tool"—a graphic presentation that helps patients balance the pluses and minuses of various health decisions, and understand the trade-offs they are making. For example, a decisional balance tool created for the American College of Sports Medicine compares the benefits and costs of regular exercise with those of inactivity. (See chart, left).  

The power of these assessments is to highlight the often strong dissonance between patients' actions and their highly cherished values and goals, which helps motivate them to take action. 

When patients feel stressed and vulnerable, as they do now, the opportunity is ripe for pharmaceutical brands to benefit by partnering with patients to help keep them healthy through the hard times. Those patients will thank you with their loyalty and their adherence to their medications. 

 is president of Star Healthcare. She can be reached at 

Marketers must stress that maintaining good health behaviors is one of the best things people can do to survive a down market.

Weathering the Storm

The economic stimulus package approved by Congress in February set off a firestorm of speculation that comparative studies will block patient access to necessary treatment. Although the $1.1 billion allocated for research comparing medical products and procedures is just a tiny piece of the $789 billion American Recovery and Reinvestment Act of 2009 (ARRA), it has already prompted cries of "government rationing" and "cookbook medicine" from conservative legislators and commentators. 

 Comparative studies aim to identify the treatments that will be most beneficial for the largest number of people, in contrast to personalized treatments for small patient populations. Comparative-effectiveness research (CER) enthusiasts insist that better information on medical products and procedures can improve care and cut unnecessary spending, but pharma companies have raised the specter of limiting coverage for targeted therapies essential to personalized medicine.  

 The final report on the stimulus bill sought to diffuse this controversy by asserting that Congress does not intend CER to be used to "mandate coverage, reimbursement, or other policies for any public or private payer." Senate Republicans tried to insert similar limitations in the 2010 budget resolution, but Democrats objected to specific curbs on CER use. Even if public programs are constrained from basing coverage on comparative studies, there's nothing to stop private insurers and payers from using the data as they see fit. As a Congressional Budget Office (CBO) white paper stated last year, CER can "provide a basis for applying costly new technologies only when they are likely to confer added benefits."  

What's clear is that the federal government will play a large role in selecting treatments and topics to be analyzed, as well as the methods for conducting comparative studies. (See "Better Methods,".) Instead of creating a new, multi-billion dollar CER operation, the stimulus package divides the $1.1 billion among three arms of the Department of Health and Human Services (HHS). The HHS secretary gets $400 million to run the program and build infrastructure for future CER, including registries and data networks. The Agency for Healthcare Research and Quality (AHRQ) adds $300 million to its $50 million outcomes and effectiveness research program. And $400 million goes to the National Institutes of Health (NIH). That's just a drop in the bucket when compared to the $10 billion ARRA funds for NIH scientific research and facilities improvement.  

How these agencies dole out the money will be determined by a June 30 report from the Institute of Medicine recommending CER priorities. The IOM panel is considering the needs of populations most served by federal programs, such as the elderly and children, as well as subpopulations such as women and minorities.  

A new Federal Coordinating Council for CER will weigh in on investments, monitor how well HHS grants fit the IOM priorities, and coordinate government-funded initiatives. This 15-member council includes top officials from HHS, NIH, AHRQ, FDA, and other federal agencies. HHS will publish information on grants and contracts awarded under the program, disseminate research findings, and report to Congress each year.  

The big question is whether investment in CER will steer providers and patients to more effective care and reduce inappropriate expenditures. Instead of drug-to-drug cost assessments, pharma companies want CER to compare medicines to surgery or other treatments, and assess the value of disease management, care coordination, and benefit design. Focusing on drugs and devices "misses the point," according to Gail Wilensky of Project HOPE. "The real explosion in costs is in medical procedures."   

However, pharmaceuticals are an easy CER target because so much drug data is available from clinical trials, outcomes studies, and adverse-event reports. The clamor for information on pharmaceutical value and quality ensures that more studies will be conducted in this area. AHRQ's research program began in 2005 with an emphasis on pharmaceuticals to support the then-new Medicare drug benefit, along with instructions from Congress not to use CE information in making coverage decisions. But at an AHRQ advisory meeting, Anthony Wisniewski, head of health policy for the US Chamber of Commerce, said that it is unrealistic to ignore cost-effectiveness issues in CER. Analysis of costs should not be the first priority, he noted, but "it must remain a critical component" of CER activity.  

If the past is prologue, costs will indeed be a regular CER component. Several large, multi-center trials sponsored in recent years by NIH have made headlines by concluding that newer, more costly drugs for blood pressure control and schizophrenia treatment, (among others) may not perform any better than older, cheaper medicines. All eyes (pun intended) are now on the National Eye Institute's assessment of treatment for age-related macular degeneration (AMD) with Lucentis (ranibizumab) or Avastin (bevacizumab). Both drugs (produced by Genentech) derive from the same monoclonal antibody. However, Avastin is less than one-tenth the cost of Lucentis.  

Analysis of drug effectiveness and cost-effectiveness is nothing new for insurers and payers. Blue Cross and Blue Shield Association's Technology Evaluation Center has reviewed clinical evidence since 1985 to determine the effectiveness of drugs and medical technologies. The Drug Effectiveness Review Project (DERP) at the Oregon Health and Science University provides comparative efficacy and safety information on high-cost, heavily used medicines, as well as drugs frequently used off-label. 

' Best Buy Drugs program uses the DERP analyses to provide advice on medical appropriateness and affordability of widely used medicines.  

Foreign CER programs have spurred interest in US initiatives. Most prominent is the National Institute for Health and Clinical Excellence (NICE) in the United Kingdom, which provides Britain's National Health Service with recommendations on the coverage of new drugs and diagnostics. NICE sets a clear cost-effectiveness threshold that has led to controversial no-coverage decisions on a number of new, but costly, therapies.  

Pharma companies have also been sponsoring more of their own comparative studies to meet regulatory and reimbursement requirements. Payers and formulary committees increasingly want to see data indicating superior efficacy or safety of new drugs compared to available treatments. There are more postapproval comparator studies to meet FDA requirements, and comparative clinical information is increasingly important for gaining market access, particularly in crowded therapeutic classes or for new products that raise serious safety issues. There, of course, sponsors write the protocols, select the comparators, and control the results.  

The future promises more oversight of industry studies, along with more CER. Pharma is lobbying hard for such research to focus on clinical value and outcomes, as opposed to cost-effectiveness. Drug and device makers have enlisted support from patient and medical groups to form the Partnership to Improve Patient Care, which has signed up former Congressman Tony Coelho to carry the banner for ensuring that CE studies are well-designed, promote continued medical innovation, and protect patient access to "advanced treatment options." The National Pharmaceutical Council has narrowed its agenda to focus on CER issues and plans a mid-June symposium on the CER landscape in the US and abroad.  

Pharma fears comparative effectiveness research will focus on costs and stymie personalized medicine.

Pharmaceutical Executive-05-01-2009