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One year after the rash of pharma megamergers, Pharm Exec's annual listing of the industry's top-selling companies looks a little different. Find out who disappeared from the list, and what up-and-coming companies finally broke into the top 50.

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Pharmaceutical Executive Digital Edition - May 2010

Sales force field teams are slashed 30, 40, or 50 percent while territories mushroom. New competitors emerge, and everyone is required to do more with less. Physicians limit access, and eventually close their doors—for good. Now, another roadblock has resurfaced, and it's bigger than ever: compliance. 

Compliance used to be an issue that primarily affected Sample Operations, Quality Assurance, and Manufacturing; but now the concern is enterprise-wide. And it's not a simple case of creating a new SOP. Today, compliance is a moving target; the rules change as often as the weather.  

Consider aggregate state expenditure compliance. Six states and Washington, DC, have enacted legislation mandating life sciences companies to track and disclose their sales and marketing expenditures on physicians, and at least 20 states have introduced similar legislation. However, each of these states has different reporting requirements and defines soft-dollar spending in different ways. Some have already changed these complicated regulations more than once. Soon, the Federal Sunshine Act will add another layer of complexity to the situation. 

Off-label product promotion is another (more costly) example of how unexpected changes in regulatory weather patterns can affect sales. Who can forget the PhRMA litigations over off-label product promotion in 2009? Certainly not Pfizer, AstraZeneca, and Eli Lilly, each of which were each slammed with hefty fines. According to the Wall Street Journal, AstraZeneca is set to pay $520 million on its antipsychotic Seroquel claims, which is just a fraction of the cost of off-label promotion settlements at Eli Lilly ($1.4 billion) and Pfizer ($2.3 billion). 

The effect of these and so many other confusing and constantly changing rules can paralyze sales forces, destroy morale, and ultimately detract from performance. Understandably, reps become more hesitant, which is a huge handicap in today's fiercely competitive market. Even the best sales reps, who are typically fast-acting and opportunistic, can become agonizingly cautious in the face of these obstacles. And when the very traits that once defined a skilled sales person begin to fade, your market dominance will do the same.  

How can companies keep their sales teams strong enough to weather any compliance storm? 

Life sciences sales teams require even more training than in years past. Ten years ago, reps were trained on a small range of products once or twice a year. Today, they must know how to detail three times as many products, which can change every quarter. In addition, reps must learn complex selling strategies based on formulary position; how to work with physicians given their patients' payer mix; aggregate state expenditure compliance rules; off-label product promotion restrictions; and more.  

The good news is that training reps on all this material with a limited budget is simpler than you might think. Just use the latest technology. New training tools built on flexible architectures like software-as-a-service (SaaS) allow life sciences companies to train salespeople efficiently via the Web. Cisco's WebEx,for example, offers a SaaS application that delivers dynamic, interactive training to employees anywhere in the world. Sales managers can share visual content in real time; participants conference in by phone, so they all see and hear the whole demonstration as it happens. Because it's a SaaS application, there's no hardware to buy or software to install, and upgrades are included. Its multi-tenant architecture enables unparalleled scalability, flexibility, and efficiency. 

Multi-tenant SaaS applications are built to serve multiple customers from a single, shared application. In the same way a multi-tenant apartment building provides the advantages of economies of scale (i.e., higher powered HVAC systems, industrial-strength elevators, grounds staff, etc), so do multi-tenant SaaS applications. Customers don't have to worry about maintaining the system, they just have to focus on making it fit their requirements, including any specific needs that will help ensure compliance.  

With 10 million users globally, including new users at AstraZeneca, Plateau offers a SaaS training system that enhances the experience for companies of all sizes. This learning management system's SaaS platform enables it to provide customers with curricula that can be changed as quickly as compliance rules. 

In addition to advanced training systems, there are a number of other technology tools, such as closed loop marketing (CLM), that can help sales reps shoulder the heavy burden of regulatory compliance. Used in conjunction with a SaaS customer relationship management (CRM) or sales force automation (SFA) system, CLM tools allow companies to control all of the content physicians see, making compliance much less of a burden on salespeople. 

Exploria SPS offers a SaaS CLM system that integrates with CRM systems to allow brand and sales teams to customize messaging to every physician in every interaction. A business-rule-driven CLM program within a flexible CRM system gives sales teams the power to create customer details for individual physicians that can be changed as often as necessary to incorporate new information. 

That's powerful stuff—especially when that new information happens to be the FDA's "regulation of the week." In fact, the Wall Street Journal recently reported that Pfizer is rolling out a SaaS CRM/CLM system that includes parameters designed to ensure that sales reps are appropriately distributing drug samples, discussing products, and handling physician requests for medical information. The new system is expected to guide reps when detailing products, so that they know exactly which samples can be signed for, and what content can be shown to a physician based on his or her specialty and the approved uses of the company's medicines. Because the new system is built on the popular cloud computing model, all of this information can be changed as often as needed to reflect changes in compliance regulations.  

Arguably the greatest weapon in life sciences sales reps' arsenal is the CRM system itself. But in order for it to make a serious impact, it must be designed to change on a dime. As reps' jobs change, as their organizations change, as their territories change, as the products they detail change, and as regulations change, the CRM system must change, too. Even as sales teams splinter into smaller specialty teams—managed markets account executives, hospital account sales, key opinion leader managers—they will need a system that can adapt to the many different functions of the modern-day pharmaceutical sales professional. 

Unfortunately, most CRM systems currently on the market are not built for change. Most are client/server relics. Trying to add new functionality, realign territories, modify regulatory reports—or make any other changes to these systems—is like trying to move a mountain with a wheelbarrow. It takes too long, requires too much effort, and costs too much. And when it comes to compliance, by the time you finally complete a change, chances are it's already obsolete.  

By contrast, multi-tenant SaaS CRM applications release new features and functionality to their customers every few months. If federal regulations or guidelines change tomorrow, SaaS CRM users will be prepared to comply well ahead of impending deadlines without having to suffer through the traditional upgrade process. Mobile users also benefit: Because all upgrades are pushed to customers via the Web, mobile devices are upgraded seamlessly when users sync—it takes mere seconds. 

Only SaaS CRM applications based on the cloud-computing model are uniquely designed to be able to change as frequently as regulations change. Applications running in the cloud allow for instant, behind-the-scenes upgrades for their customers. System changes necessary to support regulatory compliance requirements can be made and pushed out to customers through these regular, free upgrades.  

However, buyer beware: not all SaaS systems are created equal. The tremendous marketing efforts to brand "SaaS" and "in the cloud" have made these terms table stakes for all vendors. As a result, some software providers are abusing the terminology. In reality, many of these products are just cleverly disguised as SaaS, but in reality are shackled by all the same costs and limitations as outdated client/server and hosted solutions. Be sure that your system is multi-tenant to strengthen your sales team with the full power of SaaS technology.   

 is executive vice president and general manager of Veeva Systems. He can be reached at 

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Timely and accessible information can help break through the firewall of regulation.

Weathering the Compliance Storm

Ron Bartek had never heard of Friedreich's ataxia (FA) in 1998 when his stepson Keith Andrus was diagnosed with the rare genetic disease at age 11 after three fearful years in a medical wilderness. "My wife called me right after leaving the neurologist's office, crying like a baby," he recalls. "I asked, 'Well, what pill does he take?' and she said, 'There's no pill, no treatment, nothing.'" That night, the Barteks shared a chair searching the Web for information about the disease. "We saw all the bad news—the horrific prognosis and not even any research into possible treatments," Bartek recalls. Friedreich's ataxia is a degenerative disease, targeting mainly nerve cells and the heart muscle; many patients die in early adulthood, but not before losing the ability to walk or talk or worse. "The only hopeful information was that a year earlier, the gene that caused the disease had been identified," says Bartek. "We thought, 'If we can start an organization, maybe we can get a drug based on that.'"  

Nowhere does drug development get more personal than in the world of orphan diseases. Some 7,000 rare conditions have been designated by FDA as "orphans"—they have not been "adopted" by pharma because the patient population is too small (200,000 or less) and the R&D investment too big to be sufficiently profitable. As many as 80 percent are hereditary childhood conditions. Our much-touted free market leaves the 25 million Americans who suffer from these diseases out of luck.  

Yet the imperative to literally save their child's life has transformed thousands of parents into activists, even if their strategy and style are far more accommodating than the militant, media-savvy demonstrations of their AIDS activist forbearers. From the Abetalipoproteinemia Collaboration Foundation to the Zellweger Baby Support Network, desperate parents like Ron and Raychel Bartek who refuse to take no for an answer have mobilized to put a rare disease on the map. And with the advent of venture philanthropy, a growing number are investing their hard-won charitable dollars in the discovery and development of drugs. 

Now, 12 years after founding the Friedreich's Ataxia Research Alliance (FARA), the Barteks keep a watchful eye on the progress of 17 experimental FA drugs, including six in clinical trials—a somewhat improvisational pipeline that owes its existence mainly to FARA's own initiative. "Now we can tell a newly diagnosed patient, 'You can get on the registry and be eligible for the first drug in trials,'" he says. (In photo below, Ron and Keith are at Ride Ataxia Philadelphia in October 2009.) 

The Orphan Drug Act was passed by Congress in 1983 to coax the drug industry into the rare disease space. The law offers a raft of incentives, including a tax credit equal to 50 percent of the clinical trials' cost, priority review at FDA, no PDUFA fee, and, most enticingly, seven years of market exclusivity. 

The legislation is almost universally viewed as a roaring success. Since its passage, FDA has approved 353 orphan drugs and granted orphan designations to more than 2,116 compounds. A report in January by Christopher Milne at the Tufts Center for the Study of Drug Development found that even after more than 25 years, the trends in orphan drug development are up. One third of all FDA approvals between 2006 and 2008 were orphan drugs. Revenue from orphan drugs in the US reached $32.5 billion in 2006, more than half of the entire market; sales are set to grow to $50 billion by 2011, an 8 percent jump. Such statistics contrast vividly with most industry trends—a fact that has not escaped Big Pharma, whose share of all orphan approvals leapt from 35 percent in 2000-02 to 56 percent in 2006-08. (For a more detailed breakdown of orphan drug and designation trends, see chart.) 

Seeking Approval: The regulatory road is challenging to get approval for orphan drugs, which are designed to treat rare medical conditions 

Novartis has long been Big Pharma's lonely leader in this space, with four orphan drugs on the market, including the tyrinose kinase inhibitor Gleevec, which brought chronic myelogenous leukemia (and related rare cancers) to heel. Approved in 2001 after clinical trials that broke all records for speed, the "magic bullet" had originally been shelved, the victim of a marketer's "too small" mentality, until a Web-driven protest by CML patients helped the Swiss pharma see the light. Now a $5 billion blockbuster, Gleevec is both a cautionary tale for advocates and the envy of every orphan drugmaker. 

Now Novartis has company. Most notably, GlaxoSmithKline launched a standalone business unit for orphan drugs in February even as it was shuttering several primary-care development programs. Last month, the British firm inked a deal worth up to $1.5 billion with Isis Pharmaceuticals, whose antisense platform is the granddaddy in the RNA-based therapy space. This follows the behemoth's $650 million agreement with Dutch biotech Prosena to take its antisense drug for the orphan disease Duchenne muscular dystrophy into Phase III.  

Ironically, the emergence of the orphan space as a significant opportunity for pharma may have less to do with the incentives of the Orphan Drug Act than the necessities of the industry's radically upended market dynamics. With the collapse of the high-volume primary-care blockbuster model, companies are dancing as fast as they can to stuff their pipelines with high-margin specialty drugs. Not only are orphan drugs the ultimate niche product—they're also a state-protected monopoly free of price controls and generic competition, with guaranteed reimbursement and minimal marketing expenses. And they fetch some of the market's highest price. Orphan powerhouse Genzyme charges from $200,000 to $400,000 for its enzyme-replacement therapies for lysomal storage diseases such as Gaucher, Pompe, and Fabry. 

These budget-busting bills are typically covered by insurance in the US because keeping small numbers of patients healthier for longer is more cost-effective than leaving them untreated and in need of frequent hospitalizations. Drugmakers try to remove some of the sting with patient-assistance programs where shortfalls and steep copays occur. Yet a child with an orphan disease requiring lifelong treatment can reach the lifetime cap in the family's insurance policy before hitting adolescence. As a result, the orphan disease lobby pushed hard for Healthcare Reform Bill's no-lifetime-caps provision. (They continue to fight against cost-effectiveness, seeing it as a serious threat to patients with orphan diseases that are treated only by off-label drugs.)  

Emil Kakkis, Kakkis EveryLife Foundation 

The Orphan Drug Act has its holes and loop-holes, however. Only 200 of the 7,000 orphan diseases have become treatable in the 27 years since the legislation's passage. Pharma has pursued a predictably risk-minimizing approach to orphan R&D, often choosing to develop follow-ons in an already-trod disease rather than batting for breakthroughs in virgin territory. Celgene's thalidomide more than doubled response rates for multiple myeloma, a rare blood cancer, but its notorious safety profile made it vulnerable to potential follow-ons. Rather than plowing profits into a new disease, the drugmaker developed a second-generation version, while Millennium, targeting a different pathway, released Velcade. Several other potential treatments are in the works. Increased options are good for patients with multiple myeloma, but advocates for the many untreated orphan diseases can't help but regret what might have been. Whether increased direct competition among big pharmas will spur increased innovation in the space remains to be seen.   

Of course, no drug developer can predict whether its compound will be a first in class, a follow-on, or a dud. "It's only in hindsight that you can say whether or not it's a wasted effort," says Tom Hemphill, assistant professor at the school of management at the University of Michigan/Flint. And by targeting the most prevalent rare diseases, "you could argue that pharma is trying to maximize its investment by helping the most people," he says. 

Yet pharma has also craftily worked the system by focusing on common disease targets and pathways that may yield orphan drugs capable of accruing additional indications or off-label use in conditions with much larger patient populations. This "expansive" strategy most famously turned the neurotoxin Botox, one of the first products to receive orphan drug status (for two conditions characterized by uncontrollable eye blinking), into a blockbuster treatment for that grave pandemic disease, fear of wrinkles.  

Rare cancers, which comprise 30 percent of all orphan diseases and are the fourth-largest killer in the US, also happen to be the leading therapeutic category in the orphan space—not least because oncology currently attracts the biggest overall industry R&D spend. 

While drugmakers salivate over the expanded label and profits of a Gleevec, critics like Rep. Henry Waxman, who co-authored the original Orphan Drug Act, slam the strategy as an abuse of the law's spirit. Similar criticism recently led the EU to alter its own orphan drug legislation, allowing regulators to shorten the 10-year market-exclusivity granted a drug whose profits from nonorphan indications are deemed unseemly, although regulators have yet to quantify how much is too much. Waxman periodically proposes a similar clawback amendment to the Orphan Drug Act. "There's talk of corralling some of the act's unintended consequences," says Rob Glik, an expert in pricing and reimbursement at IMS Consulting. "Recent industry promises to invest in orphan diseases in the developing world may serve as a good measure to counter that pressure."  

Yet the overwhelming sentiment is, Why mess with success? "The act has been enormously successful, and it's continually expanding," says Dr. Tim Coté, the head of FDA's Office of Orphan Products Development. He allows, however, that minor improvements could be made, such as bringing the EU and US legislations into closer alignment. But Coté opposes EU-style market-exclusivity takebacks. "The point is that people with a rare disease are getting a drug. We aren't interested in penalizing a company for making big profits for other uses of the drug." 

Driven by a sense of urgency, advocates like FARA's Ron Bartek are increasingly entering the drug-development business. Venture philanthropy has emerged as a logical (if last-resort) weapon in the fight against rare diseases as a growing number of groups are investing in companies in order to advance innovative discovery projects—often bankrolled by their own fundraising—across the so-called Valley of Death, the lab-to-clinic passage where most such projects expire. The Cystic Fibrosis Foundation alone has helped fund more than 30 compounds, including sinking $75 million into Vertex Pharmaceuticals to advance two novel mechanism of action into human bodies.  

When they started down this road 12 years ago, the Barteks had only one advantage: political connections. He was a lobbyist on Capitol Hill; she was the manager of Rep. Billy Tauzin's Washington, DC, office. Aided by Tauzin, they sprang into action, stopping first at the National Institutes of Health, where they met Dr. Giovanna Spinella, a pediatric neurologist in charge of ataxia research. "She became our guardian angel," Bartek says. Spinella gave them their first lesson in patient advocacy. "We told her, 'We're here to ask you for your help,'" says Bartek, "and she said, "No, you are going to help us. You are the ones to start the organization and teach us about Friedeirch's ataxia.'"  

And so they did. The Barteks founded FARA, pulling in the field's three top researchers as advisors, including the scientist responsible for discovering the gene mutation. Soon they began to receive phone calls and emails from parents of children with the disease or patients themselves, hungry for information, community, and progress.  

"We knew we had to do more than raise awareness and raise funds for research," Bartek says. "We wanted to get a drug as fast as possible—and that meant creating an entire infrastructure and collaborating with many different stakeholders." Eventually, FARA would boast a global registry of more than 1,200 patients, nine clinical-research sites, an FA natural-history database, and a range of R&D-essential translational tools, including mouse models to screen drugs, cell lines developed from their patients' blood and tissue samples, and clinical endpoints and biomarkers for trials.   

On the drug development front, a single French researcher was testing a compound called idebenone in FA patients with heart disease. Takeda held the patent. "Our scientific director called Takeda US to ask if we could borrow the drug to do research," says Bartek. "They said, 'You're a rare disease? We're not interested.'" So the Barteks turned to their pal Tauzin, who just happened to be chair of the House Energy and Commerce Committee. "Before we knew it, the company had donated all the drug they had left." 

After the NIH agreed to sponsor the first-ever FA conference, they struggled to fill the room, digging up 88 scientists from around the globe who were doing research on anything related to FA. The conference next year will feature some 200 FA-focused researchers. 

As with many compounds with an orphan designation, idebenone was originally in development for a much larger disease (Huntington's) and, after failing, was left on the shelf. (Takeda tried, without much success, to market it over the counter as an anti-aging treatment.) The compound moved swiftly into clinical trials: With toxicology and pharmacokinetics studies already completed, much was known about dosing and safety; with a database of hundreds of FA patients eager to have at it, enrollment wasn't an issue. NIH's Spinella stepped in, launching the first study in patients on the agency's own campus. FARA then raised the money to pay for Phase II trials. When idebenone showed modest efficacy at slowing down cardiovascular degeneration, the Swiss firm Santhera Pharmaceuticals took notice, licensing it from Takeda and launching a Phase III trial. Canada gave the drug conditional approval last July, and if FDA follows suit, Santhera will begin marketing Catena, the first FA drug, next year. But that's a big "if": data from the US trial did not show statistical significance, so the drug's fate depends on results from the longer and bigger EU study.   

In its first foray into venture philanthropy, FARA awarded Edison Pharmaceuticals, a startup biotech, a $3.4 million research grant followed by an investment of $1.1 million to advance its lead product, alpha-tocopherol quinone (A0001), a coenzyme Q10 analog. In the lab, A0001 is able to stop the destruction of mitochondria, the energy source of cells that is believed by most researchers to be the cause of FA's neurodegeneration. With NIH backing, the group joined with Edison and a leading researcher to conduct Phase I studies. New York–based Penwest licensed this star in FA's clinical pipeline and is running Phase IIb trials.  

Unlike some advocacy groups investing in orphan drug R&D, FARA has made a point of diversifying its risk by placing bets on several different mechanisms of action at once. In addition to targeting mitochondrial function directly, FARA-funded researchers are advancing various other approaches, including trying to raise levels of frataxin, the critical mitochondrial protein that is partially lacking in people with FA, using erythropoietin, an iron chelater,  and a synthetic version of the protein.  

Excited by Scripps Institute research showing that a compound that blocks the Histone Deacetylase (HDAC) enzyme was able to target FA's mutant gene and turn up its frataxin-producing capability, FARA paid for efforts to design the most effective HDAC inhibitor, using its own cell lines for the tests. "This is our one near-term shot at getting inside the gene and increasing its productivity," he says. "If it works as well in patients as does in our mouse models, it could be profoundly therapeutic." With backing from FARA and the Muscular Dystrophy Association, Boston biotech RepliGen is refining the HDAC inhibitor further for a planned IND filing later this year. 

Investing in drug development is, for FARA, little different from lending a drugmaker its patient registry, transitional tools, or other resources. "We may get a small percentage of market proceeds if a company gets to that point," says Bartek, "but we're in this for the drugs, not the money." 

But the foundation has not completely abandoned advocacy's tradition of confrontation. When Santhera set the price of high-dose Catena in Canada at $100,000 a year, Bartek was furious, not least because FARA had done considerable heavy lifting for the drug. "We did the basic science and a lot of the clinical research," he says. "Santhera didn't have to invest a dime in anything but a six-month, 340-patient Phase III trial—using our own patients, doctors, and sites. Now some patients in Canada are reporting that their government insurance may fall short. "We have to make sure they can't turn around and price-gouge our patients," he says.  

If there's consensus that the Orphan Drug Act has succeeded in spurring investment and innovation, there's also general agreement among advocates, drugmakers, and regulators that the enterprise must be made less risky, more predictable. For one thing, the approval rate—22 percent, compared to 16 percent for mainstream drugs—needs to increase if Big Pharma is to gamble on potentially breakthrough science. For advocates of a so-called ultra-orphan disease (6,000 patients or less), this issue is especially acute—fewer patients mean fewer profits. A mere 14 percent of all orphan drug approvals since 1983 have been for these very rare conditions. The average patient population for an orphan drug is estimated at 75,000. Because the current system plainly favors the bigger orphan diseases, the "ultra" activists are pushing for sweeping reforms. The status quo is pushing back. This debate reveals one of the few tensions in a community otherwise ruled by uncommon civility and unity. 

 Dr. Emil Kakkis is the new kid on the orphan activist block. "We don't have to blow everything up," he says. "We can just make some very targeted fixes, like in 1992 with accelerated approval." Kakkis is the founder of Kakkis EveryLife Foundation, a new advocacy group for ultra-orphan drug development whose aptly named Cure the Process campaign takes direct aim at FDA. "Neither pharma nor other investors will invest in early-stage products unless they have a high probability of getting to market," Kakkis says. "But the science and rigor are being applied so stringently as to prevent that." 

Kakkis argues that orphan drugs get second-class treatment at the hands of federal regulators. Of the 74 drugs that have come through accelerated approval, 65 are for HIV or cancer, while only nine are for rare diseases. Fast-track approval (along with compassionate use and the introduction of surrogate markers in clinical trials) was an early victory for AIDS activists, who literally shut down FDA headquarters in Rockville, Md., in their effort to force the agency to cut the red tape. "The system has served HIV very well, turning a death sentence into a chronic disease in less than 20 years," says Kakkis. "I want to see the same progress in ultra-orphan diseases." 

Kakkis has firsthand experience of system failure. As a fresh-faced post-doc at UCLA in 1995, Kakkis was one of the world's few researchers working on MSP-1, a fatal genetic childhood disease caused by an enzyme deficiency. He had succeeded in making a synthetic version of the enzyme but failed at finding funds for clinical studies. Finally the Ryan Foundation, a small group started by the parents of Ryan Dant, a boy with MSP-1, raised $1 million on the promise of Kakkis' science.  

Doing clinical development at BioMarin, Kakkis ran into not only red tape but a "do-this-no-do-that" attitude that wasted precious time and money. Although the molecule hit its surrogate endpoints and showed clinical benefits in its Phase III trial, FDA required BioMarin to do a second trial, complete with a placebo group. Then the agency denied accelerate-approval status, although there was no treatment for MSP-1. "Our patients were showing clinical improvement, no question," Kakkis say. "If this drug didn't qualify, what is accelerated approval for?" When data from the second study showed that the drug hit one endpoint but only "came very close to" the other, FDA recommended against approval, asking for yet another trial. In January 2003, the advisory committee looked at the same data and voted unanimously for approval. "They asked us why we didn't use surrogate markers," Kakkis says. "Of course, we had—and FDA signed off on it, but then changed its mind." Kakkis helped steer two more enzyme-replacement therapies to market for BioMarin before leaving last year to fund his own nonprofit.  

The goal of Cure the Process is to prevent such costly bureaucratic bungling.  The changes it proposes in order to meet that goal may amount to more than a few tweaks, however. Most ambitious is the demand for a separate office at FDA to review drugs for genetic and biochemical orphan diseases, since their evaluation requires specialized expertise. Currently, orphan NDAs are reviewed by scientists in the relevant therapeutic category whose evaluations may not be informed by the correct orphan-drug criteria. "Ultra-orphan supporters have the problem that their diseases almost never make any market sense," Kakkis says. "A new division at FDA would send a strong signal to industry encouraging their development."  

Kakkis also wants more flexibility in the clinical trial process, including new study designs and data analysis, since drug effects in a very small population of clinically diverse patients can prove slippery to capture. Also needed are new standards ("qualified" rather than "validated") for surrogate and biomarker endpoints, since many drugs for most unstudied rare diseases are currently disqualified from accelerated approval.  

Ekkis' make-it-new energy may ruffle the feathers of the community's more seasoned advocates. "We're opposed to anything that might dilute the Orphan Drug Act by carving out a separate pathway for ultra-orphans. It's important that the community stick together—that's how we got the legislation passed in the first place," says Mary Dunkle, vice president of communications at the National Organization of Orphan Diseases (NORD), the veteran lobbying and policy-making coalition. Yet strategy differences didn't stop NORD from partnering with Ekkis, along with 100-plus other patient and physician organizations, in his drive for reform.  

FDA appears ready, even eager, to be pushed on the orphan-drug front. Long viewed as saddled with a bunker mentality, the agency is undergoing a dramatic course correction at the hands of its two activist public-health officials who are opening the agency to sunshine ("transparency and accessibility") and its many demanding stakeholders. In February, FDA created a new position of associate director for rare diseases to keep track of orphan drug NDAs as they move through the approval process—plainly a response to NORD's long-, often-, and well-articulated critiques. 

The Orphan Drug Act of 1983 has been a roaring success. So why is everybody trying to mess with it?

Pharma's Orphans

When Apple CEO Steve Jobs heralded the age of the mobile application two years back, few had a clue what it would mean for the way people consume media, advertising, and information. For years, we've been reading about the benefits of using mobile apps in the pharmaceutical space; gallons of ink have been spilled predicting how physicians will one day meet with patients with a stethoscope in one hand and a tablet PC in the other, or how sales reps will be able to detail doctors by beaming clinical data through their Palm Pilots. 

Still, those heavily hyped plans remained pilot programs, and mobility never seemed to catch on. And then came the iPhone. Within a year, the app went from concept to fruition, sparking billions of microprograms that do everything from play games to balance your checkbook. It's official: The age of the app has arrived. 

According to a recent report from Manhattan Research, in 2009, more than 20 million adults used a mobile device to search for health information. That number is pretty staggering considering high-speed Internet access for phones has only really been around for a handful of years.    

"There is nobody that I know [in the pharma industry] that isn't working on a concept design; an RFP ... there's definitely a great deal of interest in looking at where application fit into the communications mix," explains Ignite Health founder and CIO Fabio Gratton. 

Pharma has traditionally struggled with online adherence and compliance programs. Only a fraction of patients sign up for the Web-based programs, and too often patients view the sites as marketing ploys. With mobile applications, however, patients can access programs whenever and wherever they wish, removing the biggest challenge for pharma marketers—getting the patient to remember to access the content. 

Designing the Perfect App (GETTY IMAGES / SCOTT DUNLAP)			

"Applications are easy to use, updatable, and mobile—they just make a lot more sense than a Web site that patients may or may not visit," says Nima Farzan, US head of marketing for vaccines and diagnostics at Novartis. "One of the neat things about the platform is that it really opens our eyes to some innovative ways to reach out to people. There was probably nothing stopping us from having a [Web] program like Vaxtrak available three years ago, but it took something like [the iPhone] to show that mobile applications can really address a problem—which in our case was to raise immunization rates." 

Manhattan Research data shows that, as of this year, 72 percent of US physicians own smart phones. And that's likely to increase to 81 percent penetration by 2012. Currently, the RIM Blackberry and the Apple iPhone are neck-and-neck in terms of physician users, but Google's Android platform is creeping up, albeit slowly. PALM also has an app store, but its numbers are far from healthy. 

Healthcare applications have strong potential for use among physicians, says Monique Levy, senior director of research at Manhattan Research. "You see doctors using their phones to check a drug reference or clinical data, or snacking on content. And the majority of physicians that use the Internet during patient consultation are doing so on a handheld device. Pharma is extremely interested in this. The industry gets that for physicians smart phones are a critical channel and must define what they are offering." 

According to Manhattan Research, physicians' professional use of mobile devices is primarily for research and reference-checking purposes; they generally leave more complex activities like CME and social networking to their PCs. But as mobile browsing capabilities improve, physicians will start to use smart phones for more advanced activities. By 2012, about half of physician smart phone owners will use their devices for administrative functions, learning, and patient care. 

"I don't think anyone would have predicted this type of adoption rate a few years ago," says Rose Crane, CEO and president of Epocrates. "But there are so many apps in the healthcare category. Once you get past the second page of apps in the iTunes store, you get buried. I think the idea of 'If you build it, they will come,' is not always true. [Doctors] need to see value in the application." 

The top applications for physicians include drug reference programs from Epocrates and Medscape; more apps should start springing up for patient monitoring and clinical data dissemination, as well as those that help doctors run the business of their practice. 

"Physicians have always been ahead of the curve in terms of using applications for checking drug information," Levy says. "It's going to be interesting to see how things change when electronic medical records are adopted and how detailed content creation will be done on a larger device like the Apple iPad."    

The challenge with healthcare is that it's such an information rich medium with electronic medical records, etc, but everything has always been hidden behind firewalls and in proprietary systems—the data wasn't accessible. Farzan says, "What we are seeing with mobile platforms, and the concept of these app stores, is a way to break through these barriers of segregated proprietary data."  

FDA on Apps: Dabbling in a Gray Area (GETTY IMAGES / SCOTT DUNLAP)			

Joe Volpe, director of marketplace innovation at J&J agrees, going as far as calling remote healthcare "the future of healthcare." "You're going to see a push towards things that can be done in the home to get the patient more involved in the process, and that inform and educate them," he says. 

Epocrates knows that very well: They've been in the game for close to a decade, having originally launched their mobile physician resource on the Palm Pilot. The reference program is designed for doctors to use at the point of care to look up more than 4,200 monographs. About 180,000 of the 275,000 Epocrates users are using the program on the iPhone. 

"The iPhone, when it came along, just accelerated the use of drug reference tool by physicians, because so many doctors adopted the iPhone," Crane says. "We have a product called DocAlert Messaging that pharma companies can sponsor. One in four of the clinical messages are sponsored by a pharma company."  

Within the app, Epocrates offers technology that allows pharma companies to message physicians directly. These sponsored pharma tools include mobile detailing and a product called "Contact Manufacturer" that allows a doctor to reach out to a manufacturer for more information about a drug. 

"The phone is a great tool for messaging because everything is approved and we work with the regulatory departments to make sure everything is okay to release," Crane says. 

So far, the few apps that have been released for consumers have been healthcare information dissemination tools, which have little to do with marketing regulations. 

"What you are seeing at this point is a recognition from pharma that it needs to change the way the companies are working and talking with their customers," Myers says. "People have come out with unbranded work that is about disease state support, which it appears as if pharma had stepped away from. The apps from Sanofi-Aventis and Novartis are on the cutting edge—they're using GPS-based technology, which is all the buzz right now." 

Early applications were one-way conversations, but things have changed and new apps that really integrate into peoples' lifestyles are beginning to appear on the market.  

"That appears to be the best way to reach your customer," says Marty Hardim, senior vice president, creative director of media lab at Palio. "You're not delivering a message, but you're helping patients." 

The most remarkable, and useful, applications will be connected to tools like biometric sensors, Gratton hypothesizes. "Suppose I'm an Alzheimer's patient. My mobile app can constantly monitor my GPS position. If I lose my way, the app can set off a trigger that alerts caregivers about where I am. 

"We are already seeing things like this on the market, but we're probably 12 to 18 months before we start seeing pharma companies create apps like these and release them on the market." 

Sanofi-Aventis worked with inTouch Solutions to create an application that allows users—particularly people living with diabetes—to track their calorie intake. GoMeals is part of a campaign that includes a interactive Web site and a YouTube channel. 

 "Applications are just as popular in the diabetes community, so we looked at challenges that patients face where mobile could be used," says Lynn Crowe, senior product manager, diabetes marketing, Sanofi-Aventis. 

One of the biggest challenges for diabetes sufferers is carb-counting—the process of making sure they know how much carbohydrate they are consuming, which correlates to the amount of insulin that must be injected. While there are plenty of books and Web sites that can help, few patients can figure their carb intake at a restaurant or do the math on a foreign food they don't eat on regular basis.  

"It's a daunting task that takes years of practice. And people are still not always accurate," Crowe says. "[GoMeals] takes a tool that was well developed on Web sites and puts it in the hands of people when they need it, such as at the grocery store or when they're having dinner with friends." 

The other big challenge was to create a program robust enough to best the other calorie-counting apps on the market. To do this, the team joined forces with CalorieKing and built a database tailored to the diabetes community.  

Sanofi-Aventis talked with patients and dieticians to determine the perfect mix of tools for the application. These include: a calorie goal, the ability to track against that goal, and a way for patients to understand the percentage of the breakdown of the calories that they eat each day. Additionally, the app lists menu items and nutritional value of more than 40,000 food items. If there's a restaurant that a patient would like to see in the app, they can simply send a tweet to SA's GoMeal's Twitter account, and the team will try to get it into an upcoming update. 

The company made a concerted effort not to focus on the disease state on the app, and instead tailored the program around making good choices, which, according to Crowe, is a far less daunting task when you are working with a disease that will last a lifetime.  

"There's a bit of a philosophical intention to remember that folks with diabetes are living their lives like everyone else," Crowe says. "And we just want to get the tools in their hands to remove some of the barriers they have when they are trying to be successful with their disease management." 

As one of the biggest vaccine providers in the industry, Novartis is well aware that parents face a huge challenge keeping to vaccine schedules for infants and adolescents. Between booster shots, immunization shots, and flu vaccines, it's very easy to forget a dosage.  

Enter VaxTrak, a vaccine tracking application that updates caregivers about the latest vaccine information, keeps track of their children's vaccinations, and finds a local vaccination center. Launched in early 2010 and officially promoted as of May 1, Vaxtrak has already been downloaded by 3,000 people—and that's with very little promotion.  

According to Farzan, the three main reasons for pharma to consider using the Apple platform are: ease of use, automatic and painless updates, and a built-in maps system that allows patients to identify nearby locations and get directions. Beyond vaccine centers, pharma can use apps to help patients find specialty physicians, healthcare centers, and clinics.  

The new world of mobile applications is sparking creative platforms for reaching consumers and physicians.

Tech Toys 2: Revenge of the App

Media coverage of the new health reform bill has hardened perceptions among political insiders as well as the public that it represents a giveaway to Big Pharma. There is an underlying grain of truth to the assertion that "more care for more people" will likely stimulate additional sales. But overall margins are likely to suffer as a consequence of higher mandated rebates for the expanded government programs, as well as the new "voluntary contributions" companies have agreed to make in order to shrink the Medicare Part D prescription "donut hole."  

An effective internal strategy for managing the downsides of reform is equally, if not more, important than being on the right side of voter sentiment. Reform is ultimately not about good public relations, but about preserving profitability in a much more dynamic commercial environment controlled increasingly by a few lead payers with vast purchasing power.   

Many Big Pharma companies are now booking charges against revenue in anticipation of the rebates fallout. In contrast to the expansion of insurance coverage—and the arrival of many new customers—these direct "revenue enhancers" aimed at pharma profits will roll out in the next few months. The impact varies among companies.  

An Earlier Precedent: Healthcare Reform and the 2005 Deficit Reduction Act			

Nevertheless, the fundamental truth is that pharma is already in hock to a drug price regime that is highly audited, over legislated, and tied up in yards of red tape. This is because the federal government has a proven model for getting the best price for drugs via rebates, discounts, and other tools across multiple programs. The new law raises the bar yet again in terms of complexity, and showcases government's continuing willingness to change these complex rules mid-game. It overturns well-established aspects of drug pricing and government rebate compliance, while creating new zones of regulatory intervention such as the annual "government programs market share fee," a possibly open-ended contribution that could grow in scale over time, and which launches in 2011. 

The signal to industry is clear: Flexibility and scalability of response in processes, data and systems is paramount now and in the future. Given that healthcare reform (HCR), in essence, is more about improving access to healthcare and less about cost containment, it is reasonable to expect even more cost-saving mandates in the future if the spiraling cost of care does not slow down. 

HCR requires some 20 different and major programmatic changes in how companies approach different aspects of their sales to the Medicaid, Medicare, PHS, and in some cases even commercial markets.      

Key pricing, revenue and compliance provisions of HCR:  

» Material increase in Medicaid drug rebate liability for branded, generics, and special categories of drugs resulting from higher required rebate percentage, expansion of rebate eligible programs, and narrowing of sales in the AMP definition			

» Expanded 340B discount program with provisions dealing with price integrity, retroactive adjustments, and refunds for overpricing to eligible hospitals or facilities. Penalties for intentional overcharges  

» New rule for transparency and public reporting of AMP and FUL "prices" for multiple-source drugs 			

» Manufacturer discounts of 50 percent on brand name drugs for certain Medicare Part D enrollees in the coverage gap

» An annual flat fee on pharmaceutical manufacturers beginning in 2011, to be allocated across the industry according to market share of utilization under Medicaid, Medicare Parts B and D, VA, and Tricare. The fee does not apply to companies with sales of branded pharmaceuticals of $5 million or less. 

Last month, Model N ran the first industry-wide survey to assess how pharma companies are thinking about the strategic and operational implications of the new reform. The 2010 Healthcare Reform Threat Assessment survey launched as an online, invitation-only survey to more than 300 companies with revenues above $100 million a year, and with products in any or all of the traditional categories including branded, generic, specialty, or biological.   

One key finding is that the survey companies believe, by a whopping margin of 87 percent, that the HCR bill enacted in March will have a greater or equal impact on future commercial strategies than the last big piece of federal health legislation, the 2005 Deficit Reduction Act (DRA), which introduced a drug benefit to the Medicare population. In fact, the DRA marked a turning point; five years later, industry is still evaluating what ended up being a multi-year package of clarifications, interim regulations, interim final rules, and additional guidelines.  

We also asked companies to tell us why and how these impacts played out so high in their estimation. Respondents broadly oriented their responses along two dimensions: financial and operational/technical. Below are the top concerns cited by area: 

» Need to analyze and completely re-categorize current class-of-trade (COT) definitions and assignments due to defining provisions that affect the calculation of government reported prices 

» Major modifications to policy and procedure documents for Average Manufacturer Price (AMP) and other prices 			

» Calculation methodology definitions including smoothing and revised definition of retail 

» Technical implementation of new definitions and implementation of the new Medicaid rebate calculations

» Increased strategic pricing and contracting considerations to mitigate effects on government pricing; increased Medicaid rebate processing activities with additional MCO utilization

» Tax treatment implications and potential for non-operating loss (NOL) resulting from the new tax regime

» Costs and infrastructure for new control programs and accountability management

» New payments mandated via required discounts on branded drugs for Part D donut-hole gap coverage

» Increased Medicaid rebates, up to 50 percent higher in some cases (larger rebate percentage and increased volume due to managed Medicaid inclusion), increased longevity, and more data and related costs to manage

Given this list, there are good reasons to move quickly and decisively. However, the survey showed that much more focus is required: Only 41 percent of the survey group said there was "clear accountability and ownership" of the response to HCR within their own company. 

In fact, two-thirds of respondents stated that ownership went no higher than director, with functional ownership most typically lying in the contracting or government pricing arena and a third stating that manager-level representatives are charged with the initial response. Given the potential impacts of HCR on revenue planning and regulatory compliance, CFOs also need to become involved, especially in light of the heavy fines levied in recent years for government pricing violations. The good news is that companies that are responding are doing so quickly in order to address the most relevant issues first. 

Next, we asked if companies have looked into the following key areas: 

» How the increase in the base rebate formula is going to affect rebates —91 percent said yes.  

» Ability to go back and restate/calculate the URAs before Q1 2010 with the old formula—not one company stated an inability to handle this requirement.  

One area where companies also seemed to agree was the perceived challenge of a HCR provision that makes Medicaid Managed Care utilization now available for Medicaid Rebates.  

The challenge is more than just the increase in dollar outlay. With 62 percent of respondents saying they see a challenge with this new model, and some 14 percent saying they were not sure; to clarify, we examined the write-in responses from survey respondents. The following top areas of concern were identified:  

» Data management, including the ability to identify managed Medicaid care claims correctly in commercial submission to prevent rebate double dipping 

» Accruals and financial forecasting and adjustment

» Billing origin and increase in reporting and data submission formats 

Many other changes are on the same order of magnitude, but impact the bottom line differently and require advanced financial modeling. We asked if companies were proactively seeking to model the impacts of the relevant Medicaid rebate percentage increase, AMP definition changes, and relevant provisions on revenue, profitability, and cost projections. Surprisingly, less than half of the companies said they have already done this or are in the process of doing so.   

Furthermore, only 43 percent of responding companies have begun work on assessing their current COT structures or potential reorganization strategies to enable the new exclusion and inclusion rules for calculating AMP. Some of this "wait for now" attitude may be a result of the fact that the AMP changes are not effective until October 1, 2010. This also seems to be reflected in the relatively low number of companies (47 percent) that say they have already begun to model the impact of AMP changes on Medicaid rebate payments and accrual policies. As recent headlines show, companies with a more aggressive and proactive accounting philosophy are already undertaking significant activities ahead of time based on their product/market position and perceived increase in rebate liability. In many cases, companies simply don't have enough information, and are waiting for guidance from the Center for Medicare and Medicaid Services (CMS) or the Office of Pharmacy Affairs (OPA).  

So how do companies go about getting this information? For example when asked: How do you plan to deal with potential PHS refunds resulting from restatements? The most common answers were a) this is an issue, and CMS has not given guidance at this time; b) we don't know yet and c) undetermined. Equally unclear in the survey group's minds is how a PHS refund might influence their initial best price (BP) calculations—60 percent said they have not yet analyzed the issue, while 15 percent will be more conservative in initial BP (lower BP reported), and 15 percent will make no change in the initial BP calculations.  

Likewise, how helpful is CMS going to be in helping companies navigate the changes? It is still too early to say, with a strong majority of manufacturers stating they haven't contacted CMS for clarification or discussion.  One indicator is CMS issued first guidance on the implementation of HCR Medicaid rebate provisions in the form of a letter to state Medicaid directors on April 23.  

Written mostly as a recital of the provisions, it provided no concrete explanation of the changes while noting that CMS would issue additional guidance to manufacturers and other stakeholders concerning the process that will be used to identify clotting factors, drugs with pediatric indications, and new formulations. Curiously, the letter also left out the changes to the AMP definition—one of the more important elements of the new law in terms of shaping company P&R strategies.  

Finally, the survey establishes that there is still considerable uncertainty surrounding even the most basic provisions of the HCR law. Pharma companies clearly see the need to play catch-up. Given the impact on systems and processes, it is not surprising that only half the companies responding to the survey said they are confident about vendor or IT support for the changes that need to be made. Specifically, the survey asked if companies see HCR being an impetus for IT or process improvement investment in the commercial or regulatory compliance areas in 2011 and beyond. Only 18 percent said no, while a full 82 percent said that they anticipate new internal investments in areas tied to pricing, contracting, and revenue management being driven by reform, leading to either complete overhaul of systems or incremental upgrades.  

How will US healthcare reform affect drug pricing, revenue, and compliance?

Code Orange

This month's lead feature is our annual snapshot of the state of the industry—the 

 50. The numbers show a closing of the ranks around a few dominant companies supplemented by an upstart class of "stealth pharma" players whose prospects rest on the potential of two distinct delivery platforms: branded or commoditized generics; and costly, patented, research-intensive biotech drugs. Given the different strategic and tactical approaches required to prevail in these spaces, it's no wonder the industry business model is having a bipolar breakdown. It also explains why cash-rich Big Pharmas are hedging their bets to cover both segments under the rubric of "diversification."  

Our second window on the future is the annual Roundtable Q&A on the prospects for industry dealmaking in 2010. Eight experts from Big Pharma, biotech, and the investment analyst community convened at the 

offices to assess the recovery from the financing recession of the past 18 months. While new survey data from Campbell Alliance shows an upswing in dealmaking activity beginning in the final quarter of 2009, the group concluded that sustained growth depends on improving companies' internal capacity to foster productive collaborations. 

In fact, most good deals are going to progress as a natural corollary to longstanding, mutually reinforcing relationships rather than simply being sales to the highest bidder. The ability to connect with partners is key, and depends on marshaling the operational elements of speed, flexibility, accountability, and transparency behind the "partner of choice." That more of these partnerships will be sealed between Big Pharmas—rather than with the traditional cohort of smaller, cash-poor firms—is a measure of how things are changing; it reveals that innovation as a function or process is today more vital than product price as the driver of competitive success.    

If discontinuity is the guide to the future, our c-suite readers must know that career progression requires a stretch in mindset. It will demand building the predictive, intuitive, and tone-sensitive skills to better scan the horizon. With the "state of industry" in mind, here is set of drivers for the industry's future—the 

 that will shape the rankings for the next generation of the 

 a) diversification to spread risk; b) prioritizing new disease targets through personalized medicine; c) internal efficiencies to reduce Phase III failures; d) externalization of the R&D function; e) the possibility of Big Pharma as biotech marketing/distribution platform    

2. Maintaining value through the product life cycle

 a) corrosion of the IP consensus; b) risk-averse regulation and longer waits for license approval; c) crowded therapeutic categories and more competition within class; d) strategies to push faster market uptake; e) repositioning products for new post-patent growth     

 a) payer and provider consolidation, industry as a "price taker"; b) commoditization of chronic care drugs and loss of price flexibility in oncology/specialty segment; c) competitive differentiation as key driver of value; d) substantial new investments in evidence/information technologies; e) institutional reforms to drive success in high-growth emerging markets     

4. Achieving global operational efficiencies

 a) rationalization of the manufacturing supply chain across geographies; b) outsourcing high cost R&D functions; c) managing a more diverse, scaled-down knowledge workforce    

5. Improving industry's societal reputation

 a) establishing transparency as an ingrained business practice; b) recasting drug promotion as measure of good science; c) anticipating changing expectations of the patient; d) Expanding networks of stakeholders   

From the Editor

Cash-rich Big Pharmas are hedging their bets to cover both segments under the rubric of "diversification." If it sticks to the wall, then buy it.

Five Policies for Pharma's Big 50

Despite its relatively small size in the global market for medicines, the UK retains a high profile because it serves as a window on the industry's future. The Pharmaceutical Price Regulation Scheme (PPRS) is a benchmark for pricing in dozens of other countries, while the National Health Service (NHS)—second only to the Chinese People's Liberation Army in the ranks of the world's largest employers—exists as a laboratory for cutting edge experiments in the delivery of healthcare. In addition, successive UK governments have created an international precedent by raising the status of the biopharma sector as a target for sophisticated industrial policies designed to advance innovation as a business process.  

Thus, it is worth looking at the May 6 parliamentary election to gauge the impact on the industry's business model and related public policy agendas. Given the growing importance of government purchasing—even in the US—progress on policy is sure to drive successful repositioning on the commercial side.    

Healthcare has been tagged as a top issue for voters, and is being discussed within a larger, almost spiritual debate about the relevance of major institutions in an era where the UK seems destined for global economic decline. This theme accounts for much of the newfound appeal of the Liberal Democratic Party, perennial "also-ran" of the UK political system, and its leadership candidate, Nick Clegg. Clegg's boost has come from his strong performance in three televised debate, a media event that the US has been used to for 50 years, but which has been slow to infiltrate UK shores.   

As a result, a solid electoral outcome that delivers a clear majority to the Conservative opposition against the ruling Labour party is much less certain. Going forward, healthcare policy is likely to be more heavily politicized and subject to marginal changes rather than decisive shifts.      

All three parties are highlighting their commitment to the NHS as a free point-of-service healthcare provider. The enormous national deficit is ignored where it comes to health; none of the three parties are advocating significant cuts in NHS outlays, although Labour has already established a consensus that real growth—which over the past decade has pushed UK health spending to a level above the OECD norm—cannot continue.   

Another ripple in the election is the debate about rationing access to key services like cancer care. Just before the election announcement, the Conservatives weighed in with plans to improve the availability of anti-cancer treatments not currently approved by the National Institute for Health and Clinical Excellence (NICE) for use in the NHS. The Tories promised an extra £1 billion in funding for new anti-cancer treatments if they gain power, money they would raise by cutting NHS employment.     

However, John Appleby, chief economist of the right-leaning think tank The King's Fund, criticized the plan as "sleight of hand," saying the money would have to come out of other budgets. Labour dismissed the plan as "selective" and "misleading," and not much more than an attempt to grab headlines. Interestingly, NICE, with a new emphasis on sophisticated public relations, announced that it would not publish any new technology appraisal, in either draft or final form, during the general election campaign. 

Labour, meanwhile, is promising a new set of initiatives to save money for the NHS through expanded preventive services focused on primary care and diagnostics in the fight against chronic disease. The Conservatives have attacked the government's emphasis on meeting complex performance targets, which have led to an explosion in spending on consultants, IT, and management experts. A Tory government would actually commit to spending slightly more on the NHS in real terms than the other two parties, paid for through higher taxes. Nevertheless, the Tories have been less specific than the other two parties in detailing their plans for health, devoting only four of 76 pages in their election manifesto to the subject. Should they form the next government, the Tories will likely revert to type and resume the initiative to open up at least some of the NHS to market forces. As an April 14 

 editorial observed: "One detail that does not make it into the [election manifesto], but which is plainly set out on the Conservative Web site, is a new economic regulator, with a remit to 'promote competition." This will include the health service.  

The Liberal Democrats, in keeping with their message against waste and featherbedding, focus on trimming the NHS of costly management ranks and simplifying the NHS structure through such initiatives as cutting the number of semi-independent health agencies by a third.   

The lack of campaign rancor over health (excepting cancer treatment) may be attributed to the fact that Labour's 13-year record in improving the NHS isn't that bad. The King's Fund released a report in April stating that the NHS in England has improved "significantly" since 1997, and pointed to major and sustained reductions in waiting times, better access to GPs and primary care services, and a substantial fall in death rates from cancer and heart disease. However, it countered this with the observation that the health gap between rich and poor was wider than ever, and that the UK's cancer survival rates, although improving, still lag behind the rest of Europe. 

On the industrial policy front, none of the three parties want to kowtow to Big Pharma. Nevertheless, 

's April 11 story revealing that Novartis and Roche are threatening to pull investments out of the UK in an ongoing row over pricing and rules surrounding clinical safety trials seemed more of an embarrassment to the government than a sign of it resisting corporate pressure. According to the report, "the documents ... make clear that cabinet ministers have been conducting a vigorous charm offensive to prevent multinational drug companies leaving Britain."  

Roche refuted the story and Novartis declined to comment, but none of this stemmed the flow of conspiracy theories about an attempt by Big Pharma to influence the course of the election. The corporate world, of course, has more to gain from a Conservative win—the Tories have vowed to cut corporation tax and new businesses' National Insurance contributions—but Labour is certainly not keen to lose the business vote it worked so hard to gain back in 1997. 

There was more explicit agreement between the parties on the "Patent Box," a scheme proposed by the Review and Refresh of Bioscience 2015 advisory report and confirmed in Chancellor Alastair Darling's March Budget to reduce corporate tax on income from patents from 28 to just 10 percent by 2013. Another initiative that the parties all support is the "Innovation Pass," which will help patients with rarer diseases access highly innovative new drugs not yet appraised by NICE. Although proposed under Labour, both initiatives will come to fruition regardless of the election winner.  

Not long before the election was announced, the Labour government also issued a press release stating that the Prime Minister intended to establish a new cabinet-level "Minister for Life Sciences" in the next Parliament. There is no reason to believe a Tory or Liberal Democrat win would nix this idea either. 

There has also been an overall convergence of policies regarding biotech and SMEs. The Tories are promising that "R&D tax credits will be improved and refocused on hi-tech companies, small businesses and new start-ups," along with government guarantees to create more diverse sources of affordable credit for SMEs. Labour, for its part, aims to "bring together a total of £4 billion of public funds and combine it with private money to channel equity to businesses looking to develop and grow." This scheme will include an extra £500 million of bank lending being made available.  

But the closeness of the three parties on these and other issues has not inspired much optimism among industry analysts. If the May 6 election results in a hung parliament, with each of the two major parties dependent on the Liberal Democrats for support, the larger problem will be the absence of a stable hand at the till, causing more confusion and uncertainty as a cobbled administration awaits improved conditions in which to send voters back to the polls to deliver a clearer mandate.   

And what's the big issue for Big Pharma? Whether or not there will be stable, predictable, consensus-based policies at a time when companies have numerous alternatives on where to place their money and expertise, often at much lower cost. An inconclusive election result will perpetuate the policy inertia that industry leaders such as GSK's Andrew Witty contend is the more serious long term threat to the UK's status as a favoured site for pharma investment.  

's European correspondent. He can be reached at 

The three-way race for control of Parliament leaves the future of the British pharmaceutical industry in the balance.

Healthcare Hung Up in the UK Election?

Business developers and the investors and analysts who specialize in the "art of the deal" are pharma's window on the future—the canaries in the coal mine who can sniff both danger and opportunity from the faintest dry breeze of incentive. Every year, 

 assembles a diverse "brain trust' of experts who meet to identify trends in the M&A and licensing fields and make predictions of the industry's health as a driver of next-stage innovations in medicine. On February 1, we convened our latest panel of eight—drawn from a mix of big and "stealth" pharma, biotechs, and the investment banks—to calculate damage from the recent market decline and lay out new milestones for progress in this year's apparent path to recovery.  

Pictured, from left: Wael Fayad, Forest Labs; Jeff Brennan, Targacept; Mary Tanner, Peter J. Solomon Co.; Ben Bonifant, Campbell Alliance; Dennis Purcell, Aisling Capital; Barbara Ryan, DeutscheBank; Doug Giordano, Pfizer; Alex Scott, Eisai			

What follows is a summary of the group's discussion, covering a wide range of strategic questions: Does 2010 mark the end of the financing drought and a return to robust deal making? Will the caution and sobriety induced by the Great Recession lead to stronger and more lasting collaborations? Is licensing an adequate substitute for Big Pharma's newfound skepticism about the contributions from in-house R&D? How will the 2009 bumper crop of megamergers affect the number and price tags for deals in key therapeutic areas like oncology, primary care, and specialty?  And what are the new markers for success in biotech's effort to secure fresh capital?  

Our panel did find common cause around a single truth: The search for real value—value that can be differentiated against the competition—is irresistible, in good times and bad. And although the circumstances of each deal are unique, the driver that will bring people back to the table in 2010 is still a simple one: Big Pharma is looking to snag marketable new products at minimal risk, while small biotech has to raise money.   Let the games begin. 

 Forward-looking forecasts like the Campbell Alliance Dealmakers Intentions Survey indicate that the market for licensing and M&A investment is beginning to improve after a slowdown in 2009. What factors are driving this trend? And, given the importance of long lead times in this industry - is a recovery sustainable?   

 Aisling Capital: Overall, the sector weathered the recession relatively well. Predictions in early 2009 that up to two-thirds of small biotechs would end up insolvent by year-end proved untrue. Companies did a remarkable job in conserving cash through the financing drought, and as a result the runway for future growth has been extended. However, larger structural challenges remain in play. We need a revival in the equity markets, and the venture capital community has to come back to the table, especially as the hedge funds that helped support biotech in the past have mainly dropped out. The key issue for 2010 is that biotech companies are going to have to return to the financing arena; if the market doesn't respond, we face the prospect of a "double dip"—another round of winnowing that will expose all but the most promising players to a cash crunch. This will negatively impact the sector overall, and lead to fewer opportunities for productive collaborations.  

Campbell Alliance: Our survey shows that the volume of deals picked up significantly in the last quarter of 2009, and that momentum is extending into this year as well. The impact of recession and the reluctance to lend has resulted in a more selective approach, however, with the greatest optimism centered on the potential for transactions around the in-licensing of products in Phase II of the development cycle. Conversely, we are seeing reluctance to engage in riskier transactions involving Phase III products, where the cost of failure is higher. Overall, I'd say the theme for 2010 is a flight to quality, at a stage where the value proposition to the payer community can still be shaped, involving therapeutic classes—like oncology and CNS—that serve an unmet medical need.  

 Forest Labs: The patent cliff facing the industry intensifies the search for new products to fill the gap, and thus we expect an upswing in licensing and M&A deals this year. Deal activity and value will follow the highest quality assets, not necessarily those only in late-stage development. Companies are looking for more certainty. To assure that, you need to spread the risks linked to the time and cost of obtaining market authorization across more assets that you license or acquire after they have been sufficiently "de-risked." This can be an extremely cost-effective way to build a pipeline.    

 Peter J. Solomon Co.: I'd describe the financial landscape as "bipolar." We have to reconcile the desire for recovery with the hard fact that the real cost of capital is often going to be higher than the potential rate of return on your investment. And most of the Big Pharma stocks are still trading at historic lows. I am not convinced that an upturn in dealmaking is sustainable until we have some normalization of the financial landscape, as it is the cost of money and the poor measurability of risks to investors that really drives the calculation around opportunity.      

A panel of bankers and industry executives discuss what's ahead in deals for 2010.

Pharmaceutical Executive-05-01-2010