's 2010 roster of Emerging Leaders are the incoming landlords of a building in receivership, riddled with more dents and pockmarks than the Parthenon. P& L margins are down, only government workers are being laid off at a higher rate, public trust remains an unmet ethical need, and the odds from investing in R&D are certainly not on the house.        

Nevertheless, our 25 up-and-coming leaders know well to cast their gaze in the right direction—down to the foundation—and to adjust the mortar mix around new ingredients—the basic sand and water multipliers of institutional credibility and strength.   

Tomorrow's biopharma business will be built around two pillars: people and perceptions. One cannot stand without the other. No industry focused on the commercialization of intangibles like scientific knowledge can thrive unless it has an engaged and motivated work force. Nor will there be a market for that knowledge if the world outside has no confidence in the industry business model or its reputational imprint on society.   

There is no fixed course to putting these two pillars in place—it's not a teachable moment. This is why few of our profiled leaders emphasize the conventional resume points of length of service, where they went to school, or who they trained with. Our interviews with the group indicate that leadership will depend less on mastery of the "quant" topics like finance and marketing than on the "soft" disciplines like human resources, ethics and governance, enterprise diversity, leadership development, and community/stakeholder relations.  

Management wags call it a change in mindset, from the "era of expertise," where tenure and technical skills drove performance, to the "era of behavior," where intuition and people skills are prized assets. If the world provides no clear direction, then leadership is less about commanding ship than in being first to identify trends, spot problems and shape better questions that at least help define what needs to be done. A focus on behavior also means that interdependence and collaboration are key drivers of process, while ethics has to be treated as an element of business performance rather than a legal or public relations sidebar.  

The interviews have produced some additional insights in tagging biopharma's drivers of leadership success.  

First, diversity is not just a human resources construct—a measure of ethnic or gender equality—but a source of competitive advantage. From an enterprise perspective, diversity generates ideas. It facilitates the contributions of cross-functional teams and thus leverages all the advantages of a more global work force. Most important, diversity is critical to the innovation process because the more promising work in medical research today occurs at the intersection of different fields—for example, nanotechnology, where biology and engineering are combining to create novel delivery vehicles for complex medicines.   

A second theme is the central task of good leadership: keeping talented people motivated in a world where there are zero expectations about job security. Pay and perks count for something, but the larger challenge for leaders is harnessing their people's discretionary energies—what management experts dub the vast "cognitive surplus" created through our individual day-to-day experiences and insights. Traditional carrots and sticks work less in this environment than does creating a mission that marks every participant as wanting to contribute to a community to which they really want to belong.  

Of course, the added value provided by a motivated employee will matter more as Big Pharma gets "lean" and scales down—this is the first leadership generation that can no longer count on a surplus of resources to get things done.  

Third is the emphasis on a new style of communicating, which paradoxically must cultivate the capacity to listen. To reach out to the masses effectively, the communicator must begin by framing a highly individual question, as in "How would I explain this to a patient?" It is the quality of the conversation that counts, as this is fundamental to establishing trust.  

Finally, even in this new business environment, company culture remains a key fault line in managers' success or failure. Says organizational consultant Marilyn Nyman: "Culture is still destiny for leaders today. The ability to discern that culture at work is a critical skill. Can I jump three levels in the organization to get the answers I need or is that viewed as doing an 'end run'? Flawless execution—the precise area where future leaders will be expected to excel—is impossible if you bungle the culture challenge."   

All of this suggests that our 2010 leaders will still need unprecedented reserves of old fashioned toughness to prevail in the years ahead. Hard choices must be made, and simple life experience will throw some unexpected curves. As our cover tag notes, even this under 45 generation favors a monochrome wardrobe of black. But the real fabric of the workplace is decidedly shaded in gray.  

 Senior Vice President, Human Resources, GlaxoSmithKline    

To Claire Thomas, life experience matters in molding the diversity of talent that enables a large organization to thrive as more than just the sum of its parts.  "I'm Welsh; I was raised on a farm.  My parents are entrepreneurial and have encouraged myself and my two sisters to be independent, different and brave in how we approached life.  Today, as a member of GSK's corporate executive team, Thomas leads a staff of 1,700 human resources professionals; she uses this background as a tool to execute a new business model—one built around a more diversified product portfolio, a different contract with society, and a strong global market mindset.  

Thomas notes she has a mandate from CEO Andrew Witty to drive change throughout the organization.  One focus is the role of the country General Manager—the front line for engagement in an increasingly external-facing, customer-driven operating environment. He or she is the one responsible for leveraging a more complex product and operations structure to consistently achieve against plan targets and motivate people to perform above expectations.   

The goal at GSK is as simple as it is specific:  to ensure all colleagues have the skills to realize their leadership potential in a turbulent commercial environment. Business outcomes can be hard to predict; all this external uncertainty calls for an internal management structure clear on its capabilities, creating an atmosphere that fosters strong performances.  "At GSK, we are putting more emphasis on delivering the softer strategic elements of HR such as talent and leadership development, strategic capability building and change management, while running an effective, efficient HR service organization across the world," she says. "We have established Centers of Excellence to design HR products and services for global application and we are consciously upgrading our function through skills training and different ways of working." 

Communication is also a priority for Thomas, who believes that social media tools can enhance the relevance of human resources in creating a world-class organization—particularly those as big as GSK is today.  "GSK has always had a rather paternalistic, top-down culture, which is inconsistent with the drivers that shape our prospects as a business today," she says. "New social media technologies allow the opportunity to tap contacts throughout the organization and lessen the dead weight of hierarchy."   

Two key characteristics come to mind when Thomas defines an ideal leader at GSK. The most important, she says, is courage.  "If an organization is serious about a commitment to change, people have to believe that there is no penalty for being a contrarian.  We need people able to chart a path that leads us out of the intellectual wilderness of conventional wisdom."  The other is self-awareness, a desirable personality trait when there are fewer fixed boundaries around which to set strategy and guide decisions.   "Good managers have to be able to adapt.  If your own internal compass is rigidly set in one direction, then decisions are not always going to mesh with reality," Thomas says.  Assessment of this leadership skill is now being built into the "360 degree" feedback process for top managers. Part of this process is the "Ideas Engine" program that allows the company's employees to suggest and vote on ideas to improve staff engagement, morale and productivity. "It is proving to be a tremendous engagement tool," she says. 

The bottom line?  "We are a unique industry in that our business mission is linked to passion about the human condition. We don't make chocolates – we want to improve the state of public health.   This passion is a competitive advantage.  If we can overlay this with outstanding leadership and an engaged workforce we have a powerful recipe for success."  

Vice President of Commercial Development, Specialty Care Business Unit, Pfizer  

Andy Schmeltz joined Pfizer in 2003 to help bring the firm's novel HIV drug from proof of concept to market. Pfizer was late to HIV, but Selzentry promised to be a significant addition to patients' treatment options, and Schmeltz had proved his mettle launching Abbott's Kaletra, one of the protease inhibitors that transformed the disease. 

Although Selzentry's performance has been underwhelming, Schmeltz himself did not disappoint, handling the scientific and regulatory hurdles with aplomb. His reward? More responsibilities, of course. "At the end, I was leading our infectious-disease therapeutic area, including HIV, hepatitis C, and our hospital anti-infective portfolio," he says. 

His career path took an unexpected turn when he was asked to be chief of staff to Ian Read, the then-president of Pfizer Pharmaceuticals, in 2007 and 2008, when the firm was restructuring its business model and deciding the company's future. "It was a big change, from being the head of a small cross-functional team to a staff role supporting a top manager," says Schmeltz. Yet his exposure to how top-level strategy is done, especially at such a formative time for the company, taught him a great deal. "My takeaway from that experience is, Be flexible with your career aspirations." 

Schmeltz was in on the decision to acquire Wyeth and worked closely on the integration of the two companies. These experiences primed him for his current position as head of commercial development for the specialty-care business unit, which went from a pre-merger $6 billion revenue line to $16 billion once Wyeth's rich biologics line was added. The job combines global marketing with new product planning—in other words, the full Monty. "The main challenge," he says, "is focusing energy on the commercialization issues that are relevant to each individual asset, rather then trying one-size-fits-all." 

"It's the unique combination of both hard skills and soft skills that can set people apart as leaders," says Schmeltz. Emotional intelligence, situational management, and other fashionable phrases make his soft list, but so do time-honored talents as communication and inspiration and such outmoded traits as accountability. "You have to walk the talk and model the behavior that you expect from others," he says. "A good leader is committed to the development of future leaders, not just future products." 

"I try to create an environment where people feel proactive and personally engaged. Don't wait to be told what to do.  Go out and do it." In the spirit of walking the talk, after observing that Pfizer lacked junior-level marketing talent, Schmeltz has spearheaded the creation of an MBA marketing rotational program, recruiting fresh MBAs from the top schools. 

As pharma goes global, diversity makes economic as well as ethical sense. "Making sure that our workforce and our leaders reflect the diversity of our customers will enable us to realize better business outcomes," he says. But managing an organization that spans continents poses new challenges, ranging from how to communicate to how to create a coherent culture. Technology helps on a day-to-day basis, but that doesn't change the need for face-to-face contact and taking the time to build relationships, especially where we're working on matrix teams," he says.   

The growing complexity of technology, science, and society itself is roiling the drug industry. "It often feels like no one is in charge," Schmeltz says—and that makes the need for leadership even more acute. But if there's such a thing as next-generation leadership, it is distinguished by coming to grips with this ever-increasing rate of change. 

Trained in public health with early exposure as a US Peace Corps volunteer in Africa, Erin Gainer came to her present role by serendipity via a common acquaintance with the founder of HRA Pharma. Ten years later, her decision has been vindicated. "My job combines scientific leadership on women's health and reproductive rights with the practical satisfaction of commercializing new medicines to improve the quality of life," she says.   

Headquartered in Paris, HRA is a pioneer in emergency contraception and other products for gynecological use. It also specializes in orphan drugs for endocrine disorders, including the treatment Lysodren for cancer of the adrenal glands. HRA's sales footprint now covers 60 countries.  The key management challenge for Gainer is adjusting to growth that has seen company staffing more than double in the past 18 months.  "As a small biopharma company, deploying our human capital effectively is critical," she says. "Regulatory and compliance burdens are increasing and pricing pressures require more specialized expertise.  If we don't manage these issues right, they can quickly become barriers to market entry."   

Gainer depends on her teams to tap these cross-functional capabilities. "No one doubts these teams are empowered to make very basic decisions," she says. To build motivation in a flat organization, she relies on the company's geographic reach to give promising employees the chance to test management skills in different cultural settings.  "Geographic mobility is going to be critical to individual management success in the next decade," Gainer says.  Teams have to be flexible in both mandates and membership; HRA has recently moved to add drug safety and health economic capabilities to all its internal groups.  

And looking forward? Gainer believes that transparency has to be front and center in the leadership skill set for future CEOs, if only for the fact that sales will depend increasingly on good contacts with governments and public buyers who are heavily influenced by reputational issues. Ethics and integrity are closely related—"Absent these, in this industry you have no business." 

Vice President, Informatics, Centocor, Johnson & Johnson   

I am the "management by walking around type." I enjoy chance meetings and interacting with all levels of the organization; if your team understands why something is important, they are enabled to get it done. 

The challenges of the pharmaceutical industry have focused me. Good science and medicine alone are not going to improve healthcare. We need good and transparent business practices, a focus on low cost value to patients, and complete diligence to safety. I find all these aspects are present every day at J&J. On a daily basis, I feel enabled to do the right things for patients and the company without conflict. 

I look at globalization, cultural diversity, and strategic decentralization as opportunities. Globalization has opened new skills and new markets. Cultural diversity brings new perspectives, histories, and thinking that is potentially non-traditional. Strategic decentralization allows each piece to focus on excellence internally without overextension and distraction. The leadership challenge is about helping your organization optimize the utility of the matrix. 

Unlike the previous generation, I never had any expectation of long-term security with any given employer. It is pure employment at will and performance-based advancement. I think this approach is a necessity of the challenging economic environment in which business is now conducted. I also feel the new leadership model is decentralized and virtual. I seldom sit in my office, but everyone knows where I am and what I am doing. 

Large pharmaceutical companies have traditionally been dependant on internal R&D to fill their pipelines. Inward-looking culture and the NIH (not-invented-here) syndrome in the large pharma companies is stymieing innovation, as reflected in weak pipelines when compared with the total investment in R&D. Many of these large companies are coming to the realization that they need to radically change their outlook on R&D to get a better bang for their R&D buck, and that inward-looking culture is slowly giving way to a more transparent attitude. 

The leadership team at Nektar weathered a number of challenges in the early days. Our biggest challenge was when the company's most meaningful product—an inhaled form of insulin—was pulled from the market by our pharma partner. We faced this challenge head-on and initiated a major shift in strategy away from out-licensing our technology to developing our own clinical pipeline.  In addition, we got out of the inhalation drug arena, where the opportunities were limited. Instead, we focused on developing drugs using the company's validated polymer conjugation technology, which offers more possibilities across multiple drug classes of both large and small molecules. 

Articles

Features

Strong, skilled management is on the agenda as never before. Find out who made 2010's roster of high-potential change masters-and how they plan to lead the industry through the turbulent times ahead.

Emerging Pharma Leaders  2010

Issue PDF

Pharmaceutical Executive Digital Edition - June 2010

Non-governmental organizations NGOs are an increasingly important constituency for Big Pharma, particularly in repairing frayed relations with regulators and managing the rising expectations of patients and payers. Another factor is the necessity to build a wider circle of partnerships as companies execute a diversified commercial model. To take the pulse of a key NGO healthcare player, 

 recently sat down with Allan Coukell, a pharmacist who directs the Pew Health Group medical safety portfolio, including the Pew Prescription Project. Both are initiatives of the Pew Charitable Trusts, which ranks in the top three of Washington-based policy operations in terms of size and funding. —

PHARM EXEC: Pew has a high profile in areas like the environment and climate change. What is unique about your franchise in health and pharmaceuticals? 

 The Pew Health Group is the health and consumer product safety arm of the Pew Charitable Trusts, a nonprofit organization that applies an analytical approach to improve public policy, inform the public, and stimulate civic life. Unlike traditional foundations, Pew is a public charity, which allows us to operate our own projects and to raise funds independently. Regarding health and pharmaceuticals, we take a data- and research-driven approach to consumer issues like fostering good evidence, advancing transparency and ethical behavior, and stimulating pharmaceutical innovation.  

PE: You lead the Pew Prescription Project. What key priorities and the progress have you made to date? 

: We launched in 2007 to focus on two areas where we believed industry practices were placing consumers at risk. The first is the conflict of interest inherent in the way drug companies market medicines and influence prescribing. The second is the safety of the drug supply for US patients. As with other consumer products, pharmaceuticals manufacturing is increasingly outsourced, particularly to developing countries. There is real concern that reduced GMP compliance and the absence of FDA oversight pose danger to consumers.  

With reference to physician–industry financial relationships and drug promotion, the project has successfully advocated for transparency laws at the state level, and through the federal Physician Payment Sunshine Act that Congress passed as part of comprehensive healthcare reform. But progress does not depend on tougher laws alone: advocacy with the health professions, medical schools, and academic teaching hospitals has been very important.  One of our initiatives, with the American Medical Student Association, is a "PharmFree" scorecard, a competitive rating tool inducing medical schools to re-examine their industry relations policies. Academic–industry collaboration is essential, but certain kinds of relationships, such as gifts to providers, don't contribute to patient care, and should be eliminated. We agree with the Institute of Medicine that more transparency is in the public interest. 

PE: How well have drug companies managed updating relations with healthcare practitioners to reflect current regulatory standards and political realities?  

: Some companies have embraced an ethos of disclosure and updated internal standards in dealings with professionals, while others have sat on the sidelines. In general, the industry continues to follow a business model that includes extensive financial ties with the medical profession. Some questions are difficult. For example, we need solutions that don't require CME and other priority activities to be subsidized by companies. In other industries, continuing education is self-financed, at relatively low cost. Why not in healthcare?  

PE: Are there new initiatives you intend to prioritize in the year ahead? 

: Recognizing the serious health impact of resistant bacteria, we continue to press for changes that will reduce the use of antibiotics as growth promoters on industrial farms. We have also launched a new initiative to advance incentives that will stimulate innovation and address the desperate need for new treatments for drug-resistant infections. We are engaging a broad range of stakeholders, including the Infectious Disease Society of America. We are delighted that Congress will examine this issue in a hearing later this month.  

PE: What's most important in helping companies work with the nonprofit community? 

: Dialogue is essential. We talk to a wide range of companies and industry groups. Sometimes our goals align, but when they don't, there is still benefit from discussion. Ultimately, I think everyone wants consumers to have access to safe and effective medicines.  

Back Page

The public-interest charity takes on pharma-influenced medicing and drug-resistant bacteria.

Pew's Rising Profile in Public Health

When it comes to promotion of marketed products via Web 2.0 and social media, the pharmaceutical and device industries seem compelled (at least until regulatory guidance becomes public) to continue finding their way by trial and error. But the current state of affairs should not dissuade life sciences companies from engaging in one of the most promising and mutually beneficial online marketing activities: leveraging social media networks to drive clinical trial patient recruitment.   

Many trial sponsors have questions about the value and legality of reaching potential participants online. Social networks have already demonstrated the ability to generate targeted numbers of pre-qualified patient referrals as well as lower sponsors' overall cost per randomized patient. And whether recruitment happens online or through more traditional means, it doesn't matter; clinical trial sponsors are neither selling a product nor making promises or claims about treatment. They are simply presenting trials as an option to potential participants. As long as we utilize sponsor- and IRB-approved content, the mechanism should not matter.  

As in other enterprises, fortune will favor the bold in this venture into online clinical trial recruitment. Social networks—including MySpace and Facebook as well as increasingly popular sites such as bebo, Hi5, and Ning—have already proven that they have a place in the modern clinical trial recruitment mix. Sponsors who hesitate to utilize them are missing opportunities to proactively and cost-effectively place trial information directly in front of potential participants.  

Social networking provides a tremendous opportunity for clinical trial sponsors. According to a February 2010 report from the Pew Research Center, 52 percent of adults ages 18–64 now have a profile on at least one social networking site. And since individuals have actively opt-in to social networking services, they are more likely to receive and act upon messages delivered through those media than they to respond to unsolicited communications or even traditional advertising.  

Social networking sites also provide the potential for peer-to-peer influence and referrals. The viral aspects of social networking sites and related activities mean that a message's reach can expand exponentially—without the accompanying exponential investment.  

Let's be clear though: Social networking is not a trial recruitment panacea. It's highly unlikely that, by itself, a social networking campaign can fulfill the enrollment goal for any clinical study. However, assuming an understanding of the opportunities and limitations associated with social networking and e-recruitment, it can be a valuable part of the clinical trial marketing mix. 

While the first foray into e-recruitment can be intimidating for clinical trial sponsors, social networking really isn't so different from other methods of trial recruitment. Establishing visibility in an online environment requires the same basic approach utilized in more traditional recruitment channels: Define and understand the target patient group, then structure a strategy that will motivate them to respond. 

Social networking sites are already designed to help sponsors target advertising and content based on the patient population, disease state, and research sites. Facebook and MySpace, for example, have the ability to target advertisements to individual users' pages based on information in user profiles, including gender, birth date, and geographic location.  

Given the fact that social networks reach people in nearly every major city in every country on the globe, the ability to target messaging geographically (geo-targeting) is critical, helping ensure the cost- and recruitment-effectiveness of online trial promotion. Both Facebook and MySpace allow advertisers to target messaging within a specific radius of a city or by ZIP code. It's best to stay within 30 miles of the site for most disease categories, as distance to a research site is still, by far, the number one factor in patients' choice to participate in a trial. Trials recruiting for serious indications such as cancer are the exception to this rule. These patients are willing to travel farther for treatment, so sponsors can usually extend the geographic recruitment radius.  

Next, develop approved messaging for use in various formats. It's important to develop a full range of discrete messages in the form of online advertisements, canned tweet responses, and text-based hyperlinks. These are the most common formats that social and online health networks use throughout their distribution channels, and sponsors need regulatory approvals for all of them.  

But the approval process doesn't stop there. Once a sponsor submits an IRB-approved message or advertisement for inclusion on Facebook or MySpace, an internal editorial committee at the respective social networking service reviews the content. If it's approved by this committee, the ad is displayed within specific sizing and placement parameters on the network. Edits to content must go back through the regulatory, sponsor, and social networking approval loop, but the online nature of the messaging makes this process much faster than editing and re-approving advertisements for traditional media like television.  

Once the target patient is defined and content and messaging are approved, sponsors are ready to begin strategically and systematically introducing the content into selected social networking spaces.  

While the list of social networking services with critical mass behind them is always growing, sponsors also have the option to create their own unique, specific applications that run on users' social networking "desktops" (Facebook or MySpace profiles). Advertisers build these applications using publicly available application programming interfaces (APIs) developed and published by respective social networks. APIs enable individual applications to function and behave consistently in terms of installation and dissemination within given networks, including how users share an application with network friends.  

Last year, Acurian created and launched "Click It Forward" (CIF), a proprietary initiative and application designed to grow clinical trial awareness online, increase patient access to relevant trials, and increase sponsors' access to interested participants. The initiative invites Facebook and MySpace users to add CIF, a cause-related social marketing application, to their profile pages, in exchange for a donation to a selected health-related cause. Based on the cause or causes that each user selects, Acurian displays specific clinical trial participation opportunities on the CIF dashboard and sends IRB-approved e-mails to users who have provided permission to be contacted.  

The on-time, on-budget completion of any clinical trial recruitment effort is always dependent upon the ability to measure, assess, and adjust recruitment tactics in real time. This capability has become even more critical in the current environment, as recruitment budgets shrink and the marketing mix becomes more complex. Sponsors need tracking mechanisms that allow them to immediately identify less effective tactics, and redirect time and money into those that are generating a better return—whether online or not.  

The availability of channel-appropriate, effective options should apply to pricing as well. Traditional online promotional pricing is based on cost-per-click or cost-per-thousand impressions. These pricing systems do not protect sponsors from curiosity seekers or geographically inappropriate users who click on trial ads (therefore incurring cost) while never intending to participate in studies. Without a performance-based pricing structure in place, sponsors bear the risk of online advertising that is too broadly disseminated or that attracts too many virtual "tire kickers." Sponsors should look for recruitment partners with the business volume to negotiate payment based on achieving a meaningful recruitment milestone, such as pre-qualified patient referrals that are geographically proximate to a participating research site.  

Equally important is the ability to track and measure all sources of e-recruitment in real time. Performance can vary greatly within social networks, and it is imperative that clinical trial teams have the ability to act quickly when managing a recruitment budget. Most major recruitment firms offer platforms that collect and evaluate conversion ratios from dozens of Internet-based sources simultaneously and in real time, and then integrate these data with the results from more traditional recruitment activities. These dashboards enable study teams to evaluate and adjust their strategy in the heat of battle to further ensure that recruitment funds are allocated to top performing campaigns and research sites.  

In the face of continued uncertainty around online patient and consumer communications, many clinical trial sponsors have adopted a "wait and see" approach toward e-recruitment. Fortunately, though, there is already enough accumulated e-recruitment experience that sponsors can be assured of its viability. Waiting to venture out into this new world could mean sacrificing time, dollars, and potential participants. In 2009, a full 54 percent of all pre-qualified patient referrals generated by Acurian's recruitment efforts came from online initiatives. And, as individuals increasingly get their news and information online, traditional recruitment channels will continue to fall behind in terms of prominence and value. 

With the right approach, the right experience, and the right tools, social networking channels can be cost-effective and efficient recruitment tools that put sponsors' messages in front of selected, active and engaged audiences. 

 VP of Marketing at Acurian. He can be reached at 

Columns

Social networking helps sponsors drive clinical trials recruitment.

Boldly Going Where Many Have Gone Before

Over the past decade, the drug industry has paid tens of billions of dollars to settle state and federal lawsuits involving the False Claims Act—which covers defrauding Medicare and Medicaid, promoting drugs for unapproved uses, paying kickbacks to doctors and pharmacies, and the like. Most of the top 100 pharmas have been nailed at one time or another. The Justice Department is currently investigating nearly 200 pharma fraud cases involving more than 500 drugs. In 2009 alone, 16 cases were settled, netting Uncle Sam more than $4 billion.    

Yet while industry leaders like Pfizer, AstraZeneca, and Lilly have paid some of the biggest settlements, they are also some of the worst recidivists—evidence that the current system is failing. Major drugmakers now set aside hundreds of millions of dollars to settle False Claims Act charges, and contrary to official statements of contrition, these reserves are viewed as merely the cost of doing business. 

Still, record-breaking settlements make the news, attracting the notice of Congress and regulators. Stories about off-label promotion of drugs with serious adverse effects to children, the elderly, prisoners, and the mentally ill have sparked a demand for justice. Now the Obama administration has announced a new enforcement strategy that will take full advantage of the False Claims Act's provisions. Offending drugmakers will increasingly be forced to relinquish product exclusivity. More stunning, the executives under whose watch serious violations occur will be banned from doing business with the government—effectively booting them out of the industry. 

Sound harsh? Lewis Morris, a 29-year veteran of the Office of the Inspector General at HHS—and its top lawyer—was more than happy to make the "responsible corporate official" case to 

 Pharm Exec: Can you begin by explaining what you do as the counsel to the Office of the Inspector General? 

Lewis Morris: Over the last decade, the Department of Justice and the Inspector General's Office have been pursuing a significant number of cases involving the pharmaceutical industry, as well as device manufacturers, hospitals, and doctors. Under the civil False Claims Act, a company can be liable for promoting the off-label use of a drug, for misrepresenting the pricing of a drug to Medicaid or Medicare, or for other fraudulent conduct. In addition, a pharmaceutical manufacturer can be liable under our criminal authority for submission of fraudulent claims, paying kickbacks to doctors, or other activities. After a case has been thoroughly investigated by our agents and partners in law enforcement, the question becomes how to structure a global settlement that puts the matter to rest in the best interests of the American people. That's where our Office of Counsel comes in.  

The OIG has a unique authority to exclude from Medicare and Medicaid any individual or entity that has been convicted of healthcare fraud, abuse, or related offenses. If a company has engaged in, say, a $100 million fraud—that's a pretty modest sum these days—we have to make a decision whether or not to throw them out of the Medicare and Medicaid programs. If they've been convicted of Medicare fraud, their exclusion is mandatory. More likely than not, that would be a back-breaker for any company [because most of its profits come from sales to the federal government]. It's not going to voluntarily commit suicide by pleading to a criminal charge. 

 Lewis Morris, Chief Counsel, OIG, HHS			

So they're likely to have brought their high-priced lawyers into the act and negotiated a settlement. What they then have to do is come to the office and convince us that it's better for the company to stay in business. We take a number of considerations into account, including whether the company is making critical or life-saving drugs, or if the company has a lot of innocent employees who knew nothing of the fraudulent conduct. Also, we consider whether or not the company has a good track record of treating the Medicare program fairly. If the answer to all those questions is yes, we'll generally negotiate a corporate integrity agreement [CIA]. 

Under the terms of the CIA, the company agrees to a wide range of measures including hiring a compliance officer, putting in compliance committees, and doing internal audits and training. The objective is to help the company rebuild its corporate culture. So instead of thinking it's okay to steal from Medicare, they focus on selling good products. 

When making the decision about whether to ban a company from Medicare and Medicaid, where do the interests of the patients fit in? If you exclude the company, don't you also exclude the drugs?

If the company is a maker of brand name drugs, they obviously have a stronger argument. If they're a generics manufacturer, they don't have that argument because someone else can step in tomorrow and fill that need. Interestingly, there is a more subtle response as well. We are considering a strategy that would say to a company, "All right, you have a particular life-saving drug and you're the only one that makes it. Sell it to somebody else. So 

 go out of business, but they'll pick up the cost and continue selling it." 

What about the OIG's other options, such as relinquishing a drug's market exclusivity?

Well, if the reason a company illegally off-label-marketed its product was to gain a larger market share than appropriate prescribing would allow, they've basically cheated the marketplace. They've also put into circulation drugs not tested by the FDA. So we might say to the company, "You tried to cheat the market, so you have to agree to waive your exclusivity in return for not getting thrown out of our program."  

There's also a third option. Let's say you're a big company and one of your subsidiaries is engaged in kickbacks to doctors or off-label marketing. We can tell the parent company, "You have to sell off that subsidiary, all of its trucks, loading docks, patents, microscopes, and everything else, because that part of your company was cheating our program and you don't get to continue to profit from that cheating." Those drugs that the subsidiary holds are valuable. Some other company will pick up the marketing rights. And if it takes six months to divest that subsidiary, we can give the parent company the six months. But at the end of six months, if you haven't divested, we're going to exclude.  

We already do this to the large hospital chains like Tenet, which we believe has engaged in abusive behavior to patients, like invasive, medically unnecessary cardiovascular tests.  

There's been talk that you're going to start going after individual executives at drug companies responsible for committing healthcare fraud. Is that true?

Yes. Part of our strategy is to say to companies, "It's not business as usual anymore." And the reason is that the first time around, we give everybody the benefit of the doubt. Everybody was entitled to make one mistake. And, particularly, in light of the importance of pharmaceuticals and the needs of our beneficiaries, that is a good policy.  

However, when a company, for the second or third or fourth time, seems to have disregarded its commitment to integrity, we have to ask whether they're entitled to another bite of the apple.   

We have been at this enforcement effort, this attempt to reform corporate cultures, for about a decade, and we can identify the recidivists. We've decided that we need to deal with them differently. 

How do you determine that what has worked in the past is no longer working and other measures are needed?

Let me first say, emphatically, that we think that the majority of drug companies get it—they understand that the days of free dinner parties, all-expense-paid trips to play golf, and all that foolishness are over. And we applaud the drug industry for doing the right thing. But for that small group of companies—or executives—who think they know better, the measure of our success or failure is whether they show up at our door again with the same kind of problems that were before us previously. 

Are the corporate integrity agreements having a beneficial effect? 

I think they're having a great beneficial effect. And if you talked to any of the compliance officers at the companies that have been under CIAs, I think they would say the same thing. And if you had a side conversation with some of the sales people, I think they would tell you, "This really stinks." The good old days of being able to make your commission within two weeks at the expense of the Medicare program are largely gone.  

So our strategy is working, all in all. But we have to always be asking whether we could do a better job. And when we are confronted with companies like Pfizer, AstraZeneca, and Lilly, who have had previous problems and yet are back facing us again, we have to ask if we missed something.  

Now, not every case where a company has come in for a second global settlement means that it has necessarily failed to embrace a better corporate culture. A lot of these problems are the result of corporate acquisitions where the parent company bought the proverbial "pig in a poke," and now they've got to pay the piper. 

But there are other cases where the fraud is home grown, and where the company and its employees simply have not taken to heart the opportunity to reform their culture. So, what do we do about that group of companies? We talked about part of the remedy, which is to change the company's cost–benefit assessment. If they think there's profits to be made in off-label marketing of a drug, because they can increase their market share by 20 percent, even though the FDA told them not to—well, unless the settlement is going to cost you more than 20 percent of that product's sales, why would they stop doing it? So, to the credit of the Department of Justice, the cost of this illegal behavior is going up. Sound economic creatures—and everybody running corporate America is a sound economic creature—can do a new cost–benefit assessment and decide whether it's worth the risk. 

Now what we've talked about so far is just the company's money. The other problem we have come to recognize is that as long as unscrupulous individual executives are getting their productivity bonus for getting that product over the top while the company is the one paying out the fine, the bad behavior is still being rewarded—and not a hell or a lot is going to change.  

So, we've been thinking about ways to hold individuals accountable. Now, we aren't making up new law here. The concept of a corporate official being held personally responsible for the conduct of his or her company goes back to the 1940s. The Supreme Court has upheld this enforcement doctrine for the last 60 plus years. The principle is pretty commonsense. A corporation is just a piece of paper—it's people who make corporations run and who make decisions, good and bad. And we need to get individuals at the highest levels of these drug companies to understand that they are going to be held personally accountable if they were in a position to oversee conduct. If bad conduct occurred on their watch, they had the opportunity to do something about it, and they didn't. 

Is the case of the three Purdue Pharma executives convicted of off-label marketing of OxyContin an example?

Yes. The three of them pled guilty to misdemeanor charges under the Food Drug and Cosmetic Act for introducing an altered substance into the market, the OxyContin. They maintained, and I believe the prosecutor agreed, that they did not personally engage in the off-label marketing. But as the chief medical officer, as the counsel, and as the COO, they had within their authority the ability to stop that misconduct and they didn't. So they pled guilty to misdemeanor charges under what would be called a "strict liability," and we subsequently excluded them from Medicare and Medicaid. So that's part of our new approach. 

Does that mean these three executives are barred from working at other companies that do business with the government around Medicaid and Medicare?

The answer is a bit nuanced, but your core presumption is correct. The Medicare program will not pay for services that they deliver, provide, or otherwise cause to be delivered or provided for the period of exclusion. In the Purdue case, that was 12 years. 

Pharmaceutical manufacturers are generally pretty removed from the direct provision of care, so the direct effect of an exclusion is less obvious. But the practical effect is that exclusion from our program sends a powerful message to executives that the federal government considers them untrustworthy. And what corporation would want to bring that sort of individual into a leadership position? Why would you hire a guy who's been convicted of cheating? 

Now, there is a second theory. In addition to this legal theory of the "responsible corporate official," Congress has given us a specific authority to exclude someone who is an officer or a managing employee of a company that has been convicted of a healthcare-related offense. It doesn't mean that the company has to have been excluded, it just means convicted. So let's say you, as a company, enter into a misdemeanor plea for off-label marketing. We can exclude you, but we may choose to let you have a CIA instead. You've been convicted, but it's not a mandatory conviction.  

I would say just about all the top 50 pharmas fall into that category. 

Well, yes, they do. And this is where it's going to get interesting. Shouldn't there be a difference between a company that enters into a settlement under the civil False Claims Act and one that enters into a plea for criminal activities? Shouldn't we be treating the company that enters into a criminal plea more critically? But we now have a conundrum. This is a company that has pled guilty to criminal conduct. Yet if we exclude the company, we hurt patients, we hurt innocent employees, we limit access to life-saving drugs. So now the company is folding its arms and might smugly be thinking, "Ha, you can't get me, because I'm just too precious."  

Our new response is going to say, "All right, you have pled guilty to a criminal charge. But we're no longer just going to let you write another check, and treat a criminal disposition the same as a civil resolution. The stakes have gone up. We are now going to take a look at your leadership, and ask who could have and should have stopped this criminal behavior?"  

It is going to be a very fact-specific determination. We're going to do a lot of careful assessment of the merits, and apply justice. But in a case where a company has had the opportunity to do right and has taken a pass and pled guilty to a criminal charge, we're going to be asking why certain executives should be allowed to continue to run the company. And it's our expectation that other executives, both in that company and in other drug manufacturers, will say, "The cost of engaging in this criminal behavior has gone up because I could be out of a job." And that may be what changes the conversations in the corporate suites. 

Do you prioritize your array of tools—selling meds, relinquishing exclusivity, holding individual executives accountable—in terms of severity. For example, if one doesn't work, then you go to the next? Or do you decide which to use based on the specific case?

We are going to look at the facts and the circumstances of a particular case, and decide which of our many tools will do the best job of protecting our beneficiaries and our program. But ultimately the Inspector General's Office is not here to mete out punishment. We are here to protect the integrity of the Medicare and Medicaid programs, to promote their efficiency and their effectiveness, and Congress has given us a mandate to remove from the program those who have abused our patients and demonstrated that they're not trustworthy. 

How do you decide which cases to apply these responsible corporate official measures to? For example, what about the extensive off-label promotion of the atypical antipsychotics for the elderly in nursing homes, which may be responsible for a large number of deaths? 

When we are trying to calculate an appropriate response to that sort of misconduct, one of the questions we ask is, "Did people get hurt?" In the Purdue executive case, one of the aggravating facts that we cited to justify the period of our exclusion was harm to patients. Now, I will tell you, just so the record's clear, that the Departmental Appeals Board concluded that we hadn't put forward sufficient direct evidence of patient harm—notwithstanding hundreds of newspaper articles about addiction and overdose.  

These cases can present a real conundrum because physicians are free to prescribe a drug for any condition. So one of the causal connections that we have to establish is that but for the company's off-label marketing, the doctor would not have prescribed this drug. And it's often difficult to get a doctor to say, "I was duped. I just did what the drug company told me." More times than not, a doctor's going to say, "I knew exactly what I was doing. What, do you want me to get sued for malpractice? Are you nuts?"  

The other causal connection we have to establish is between the bad act and the executives who are responsible, because in large corporations you've got lots of bureaucratic layers. So from a criminal standpoint, it can be extremely difficult to prove, beyond a reasonable doubt, that an executive broke the law unless you've got him on tape saying something. And most of them are too smart for that.  

But in cases where we can show harm to a patient—such as ignoring black box warnings or marketing to a patient population that is specifically advised against—we can use the responsible corporate official statute.   

How do you get information about potential cases of serious healthcare fraud, kickbacks, and the like?

Most notable is the whistleblower. The False Claims Act provides financial incentives for people to report fraud to the government. A significant part of our pharmaceutical fraud portfolio exists because people inside the company—salespeople, junior execs—have blown the whistle. The other way we build these cases is data mining. We're using highly sophisticated cutting-edge technology to identify aberrant practices and then start the process of investigating. If we see a substantial uptake in the prescription of a particular drug to a nursing home that wasn't present six weeks earlier, and we know that the drug is not approved for the main problems of the elderly, it doesn't mean it's illegal. Doctors could have decided they like it, but it might be worth dropping in on the nursing home. If the evidence shows that a salesman started coming in and handing out a brand of atypical antipsychotics like Chiclets, we might have ourselves a case.  

It's been reported that the Purdue execs are appealing their exclusion. Do you think that once this new responsible corporate official initiative is set into motion, the courts will uphold the OIG judgments?

Lewis Morris, top lawyer in HHS's office of inspector general, explains his new move to target pharma execs for serious and ongoing healthcare fraud.

Crackdown on the C-Suite

There are many questions about the role of sales detailing these days. The main one, however, is "What can be done to improve the impact and effectiveness of sales representatives and the messages they deliver to physicians?" Physicians are trained to base their prescribing decisions on quantitative results of drug trials, along with their own clinical experience. They are generally rational beings, and therefore only rely on information that is fact-based (i.e., quantitative).     

The message development process within many pharmaceutical companies has evolved to fulfill this expectation. Beginning with claims development, head-to-head trials, and the constant presence of a regulatory committee, claims-based messaging has become the default position of most message development processes. Acceptance of this conventional wisdom leads to sales reps focusing almost exclusively on claims-based messages. And generally the same claims are presented to all physician segments.   

Physicians, like everyone else, make emotional decisions about which brands to prescribe, and then back up their decisions with evidence that is claims-based and/or clinical. As such, a message that incorporates both claims-based and emotional characteristics should be a more powerful advocate for a brand than a strictly claims-based message. 

Following the conventional wisdom, multiple pharmaceutical companies send sales reps to the same physicians with a list of impersonal facts and statistics, often trying to create minor distinctions between very similar drugs in the same category. The claims are all valid, but that's not the only factor physicians consider when differentiating among products. 

In order for pharmaceutical companies to grow market share, they must communicate claims data that matters to physicians, combined with information about how that data will actually help them and benefit their patients. Effective messaging links specific claims with the appropriate emotional benefits, creating a much more effective conversation between the physician and the sales rep—and ultimately between the physician and his or her patients. 

A message development study completed by CMI in December 2009 shows that messages combining data-driven claims with emotional characteristics and benefits create a more powerful statement for a brand. In addition, these types of messages allow for better targeting of physician segments. The challenge lies in developing communications that are both claims-based and resonate emotionally—in other words, messages that appeal to the physician's head and heart. 

Luckily, the introduction of benefits-based messaging to the overall physician messaging process does not require a wholesale change in approach. It's entirely possible and practical to integrate benefits messages into a larger program. When this is done effectively, the brand will have a more holistic and potentially more compelling communications plan. 

In this recently completed message development project, the pharmaceutical company—like most of its contemporaries—had historically focused on facilitating sales rep/physician conversations by using only claims-based messages. While the messages were sometimes crafted to appeal to distinct physician segments, the same fundamental claim was presented across all segments.  

However, this particular company saw an opportunity to improve professional communications for their product by implementing a four-step message research–development process that would yield companion benefits statements to support their predetermined collection of claims statements. 

There were two major goals: test head-to-head trial claims and develop messages that would resonate emotionally as well as rationally. 

The first step in the message development plan was to identify the underlying emotional context for claims-based messages. Physicians in this initial, qualitative phase generated emotional attributes (also referred to as "benefits") associated with specific claims from trials. The moderator used a laddering exercise to help physicians articulate benefits they associate with each claim.   

The purpose of this phase was to develop a list of potential benefits to test in a quantitative survey in order to determine which benefits ranked highest with physicians and which benefits were most often associated with each claim. Then in real time, while the qualitative interviews were taking place, the benefits articulated by the physicians were modified by the creative and brand team watching the interviews. The modified benefits were then presented to the physicians to get their feedback, creating sort of a feedback loop. As the number of interviews and benefits built up, the balance shifted from physicians identifying the benefits for each claim to rating the benefits and associating the newly developed benefits with a claim, or with a number of claims. 

Claims messages from the acid reflux category used in the study included significant reductions in episodes at one year; significant reductions in key symptoms as early as week one; and a 90 percent reduction in total episodes. In a placebo-controlled study, 75 percent reported no episodes at week 15, and throughout two-year, open-label studies, the brand maintained significant reductions. 

Benefit messages like "Sets realistic treatment expectations that encourage patients to stay on therapy," and "Improves key aspects of the patient's daily life," or "Gives the physician a sense of confidence when prescribing," were found to effectively augment those quantitative claims.  

In Phase II, the goal was to determine the most effective claims and benefits, and potential relationships between the two. Claims and benefits were each tested quantitatively and then linked. This led to a short list of very compelling benefits and equally compelling claims.  

Using a combination of rating scales, point allocations, pairing, and ranking exercises, certain emotional benefits were clearly identified as being strategically linked to certain claims messages. Researchers then assessed the various claims/benefits combinations to identify the highest ranked combinations. The most unexpected outcome of this second phase was the discovery that distinct claims/benefits combinations resonated strongly with particular physician segments. 

In Phase III, the brand team and creative agency used the claims/benefits combinations from Phase II to develop new messages for sales reps. The brand and agency team were "behind the glass" in Phase I, when the benefits statements were identified, and they created the versions used in the feedback loop and for the quantitative phase, so they were very familiar with what the physicians were really saying. This aided in the development of messages that resonated with the physicians. 

Phase IV is an ongoing message-tracking study that measures the impact of the messages and continuously improves them based on the results. In a comparison, rankings of combination claims/benefits messages wound up differing from the rankings of claims-only messages—the relative rankings of message effectiveness change when a benefit is added. Some claims become more important; others, less. The resulting claim/benefit combinations were indeed more powerful in changing physicians' projected prescribing behavior than claims-based messages alone. 

The discovery that some claims/benefits combinations appealed to specific physician segments and not others offered further confirmation of the potential impact of benefits-oriented messaging as part of an overall physician communication program.  One claim/benefit combination might appeal to physicians who are motivated primarily by quality of life for their patients, while the same claim combined with a different benefit statement will be more appealing to those overwhelmingly focused on the clinical and business aspects of their practice. In both cases, the combination claims/benefits message had higher appeal than claims-based messages alone. 

This program ultimately led to messaging that provides the clinical data physicians need in order to choose a drug within a structure that is benefits-driven. As pharmaceutical companies strive to make their sales rep communications more resonant and valuable, the addition of benefits messaging to an overall claims-driven program puts one more arrow in their quiver—one that strikes directly at the heads and hearts of physicians. 

 is account manager at CMI. He can be reached at 

Improving communication means appealing to physicians' heads as well as their hearts.

Moving Beyond Claims-Based Messaging

While FDA November 2009 hearings on social media regulatory concerns focused primarily on guidelines governing pharma's consumer communications, one issue was largely overlooked during the hearings and ignored in the media coverage: the use of highly targeted social media sites for healthcare companies to communicate with other businesses within the industry, as well as service providers across the industry. And though FDA's oversight might indicate otherwise, this brand of business-to-business communication via secure online marketplaces—used to accelerate deal-making, sales, and collaboration—is expanding.   

The industry understands and is beginning to embrace interactive DTC opportunities, with several companies successfully interacting with consumers online, and a significant number working to incorporate it in their marketing communications strategy. A smaller number of companies realize that social media is a great tool (especially for biotechs, pharmas, and medical device firms during the myriad stages of researching, developing, and commercializing products) for interacting in non-consumer settings. This number is growing as social media changes the landscape for product development by creating endless possibilities to pull together the strengths of all parties—both for and against. 

So what are some companies in other industries doing with social media in the B2B space, and what lessons can the pharmaceutical industry learn? The short answers: Some are using social media primarily to market themselves, and many have been or are well on their way to being successful. This networking can be done in a way that provides protection for each party's patents and intellectual property. Companies like Oracle, SAP, and 

 have made aggressive moves into the world of social media.  

While most existing social media forums are too broad and shallow for the very specialized life sciences industry, they can serve as a means for DTC conversations and for creating basic B2B or peer-to-peer connections. Evidence shows that companies in the healthcare industry are increasingly using social media in business-to-business settings. LinkedIn, a leading business-oriented social networking site, has illustrated the viability of online marketplaces for networking among businesses and professionals.  LinkedIn's growth has enabled the creation of specific industry groups—including dedicated pharma and medical device groups—within the larger site.   

One function to look for in B2B sites is whether the site builds upon similar Web-based business sites that suggest links and products and possible connections to relevant members and technologies—a strategy similar to 

's recommendations based upon each customer's previous behaviors and sales. Criteria include specific business interests, intents, and objectives to ensure members don't waste time connecting with inappropriate members of the online community, as well as a secure environment that protects intellectual property.  

John Miner, a senior licensing associate with the University of Central Florida's Technology Transfer office, coordinates the transfer activities for hundreds of technologies and is always seeking new opportunities to license, collaborate, or secure funding to develop new medical technologies. "Being able to easily and cost-effectively expand our contact list is one of the key benefits to being members of a B2B site dedicated to medical devices," says Miner. "In just a few short weeks, one site with which we have a membership linked us quickly and efficiently to new connections, which is saving our department time and revenue, and creating real partnering opportunities." Miner adds that the 2009 economy has forced the industry to be more cautious in developing and commercializing new products, but these types of online tools offer a powerful way to connect and collaborate versus the manual and traditional means. 

The lesson for pharma is that while the Internet is the ultimate tool for mass communication (read: consumers), what makes it so useful is its ability to help create communities for specialized and geographically diverse audiences. While, ultimately, pharma's primary customers are healthcare professionals, the industry has many micro-audiences it must contact and partner with well before a product reaches either a prescriber or consumer. Dedicated groups have the ability to create relationships and dialogues, and this innate ability to connect people with similar goals offers the perfect tool for product development. What's more, the growing number of companies and individuals using the Internet's social media groups to find partners to help bring a product to market may also provide protection for patents and intellectual property.   

The challenges that healthcare companies face when bringing products from design to market can be overwhelming. These may include detailed road-mapping and planning around the development burdens of the product, as well as understanding early challenges so clinical plans can be designed properly to satisfy safety and efficacy standards and deal with regulatory approvals, competitive analysis, and reimbursement, eliminating the need to suspend development to secure additional capital. 

The medical device industry provides a great example for pharma. In the B2B space, the medical device industry is extremely specialized with a relatively small universe of participants. It uses social media in a number of ways, including marketing products and building loyalty among customers like doctors, nurses, and patients. These sites can also create a feedback mechanism, and can be used as a customer relationship tool, as well as a useful tool for finding partners and creating collaborations across all segments of the product life cycle. 

Social media's ability to create a collaborative environment also comes with a potential challenge: In this competitive environment, researchers, innovators, financiers, and manufacturers—and just about all participants across the industry—need to walk the fine line of accessing the community's collective knowledge and specialized skills while protecting valuable intellectual property, patent rights, and trade secrets that are the economic backbone of the sector. 

In general, social media sites are not in tune with the needs of the healthcare or other industries that are both highly regulated and trade-secret sensitive. A great deal of the risk in using existing sites involves the potential for over-disclosure when communicating product development processes. Whether intentional or inadvertent, the discussion of critical patentable data could be catastrophic. Those few sites tailored to the confidential exchange of ideas are facilitating the Internet's role as the dominant means of collaboration and communication. 

Beyond the multinational firms in pharma, there are many smaller companies and independent research institutions that find it impossible to bring a product from original idea to commercialization without an increasing number of service providers and strategic partnerships. Success for these smaller players requires continual research, a focus on promotion, internal knowledge-sharing, speed, and collaborative partnerships. For all of these reasons, pharmaceutical companies can greatly benefit from customized social media platforms with B2B groups dedicated to specific industries or product categories.  

Pharmaceutical, biotech, and medical device firms—as well as university research departments, technology transfer agents, and independent researchers—should not be asking whether to engage in business to business social media, but how to leverage the new technologies and communications platforms to create a competitive advantage.   

At the very least, each should begin to use these tools so they don't suffer business disadvantages as competitors take advantage of increased global efficiency. Companies should be using social media and specialized social/business networking sites to help them connect rapidly to other companies with which they share important synergies.  

Used to its fullest potential, social media can change the way companies market to prospects, communicate with customers, and find and interact with the most appropriate potential business partners—all without incurring significant time and expense. While these initial efforts can feel foreign at first, the capital costs are typically low, which is good news for the budget-conscious as the economy continues a slow recovery. 

Pharma companies can maximize partnership benefits with social media.

Managing Business Synergies

An international crime wave has hit the pharmaceutical industry. Counterfeiting rings are producing and selling prescription knock-offs that can make people sick. In March, some $75 million in prescription drugs were stolen from an Eli Lilly distribution center, and hijackers hit Sanofi-Aventis' Puerto Rico in January. Pfizer continues to wage war against widespread counterfeiting of Viagra (sildenafil), while GlaxoSmithKline seeks to halt e-Bay auctions of knock-off versions of its weight-loss drug Alli (orlistat).   

One report estimates that there is a $14 billion black market for counterfeit medicines in Europe, and that as much as 90 percent of drugs bought online are fake—often containing too little of the active ingredient. And the problem is even more serious in developing nations; the United Nations calculates that more than $500 billion in counterfeit drugs are traded each year throughout the world. 

FDA officials and industry leaders are calling for concerted efforts to better secure the pharmaceutical pipeline, now extended by increased globalization in drug production and sourcing, and weakened by pressure to cut costs. The situation threatens to deteriorate manufacturer revenues and erode public confidence in drug quality and safety and in FDA's ability to protect consumers.  

In response, FDA is expanding oversight of imports and strengthening drug-tracking systems. The US now receives some 20 million shipments annually of food, devices, drugs, and cosmetics from foreign sources—up from only 6 million just a decade ago. Currently, some 40 percent of the drugs taken by Americans are imported, and about 80 percent of active pharmaceutical ingredients come from overseas. "Globalization has fundamentally altered our market landscape," stated FDA Commissioner Margaret Hamburg at the Center for Strategic and International Studies in February. She said that addressing global supply chain safety "is one of my highest priorities for FDA."  

However, Hamburg and others acknowledge that FDA has the capacity to inspect only a tiny fraction of imports and less than 8 percent of foreign drug manufacturing plants each year. The agency has established offices in China, India, and other regions to increase its presence around the world, but these outposts are too small to handle on-the-ground oversight.  

Thus, FDA has launched a major initiative to target its oversight of imports on the more risky food and drug products through the PREDICT (Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting) information system. PREDICT ranks import shipments based on the nature of the product and past compliance experience of a producer or shipper, among other factors, and targets those products with high-risk scores for inspection. FDA is implementing PREDICT first for foods, while fine-tuning the system to make it viable for drugs.  

The agency also has proposed a Secure Supply Chain Pilot project to provide "green lane" processing for drug imports from shippers and manufacturers with secure supply chains. Although announced a year and a half ago, the program has not yet been initiated because of difficulties working out the specifics with the US Customs and Border Protection (CBP) agency. The sticking point is how to offer priority processing most effectively for products from companies with validated security practices and controlled global supply chains.  

In addition, FDA would like Congress to enhance its authority to detain and destroy illegally imported food and drug products. Food import safety legislation was approved by the House last November, but has been stuck in the Senate for several months, largely due to the legislators' focus on healthcare reform legislation. Once the food safety measure is enacted, Congressional leaders say they will take up drug import provisions that were pulled out of the broader FDA Globalization Act sponsored by Rep. John Dingell (D-MI). 

At a PDA/FDA Pharmaceutical Supply Chain Workshop in April, Deborah Autor, director of the Office of Compliance in the Center for Drug Evaluation and Research (CDER), emphasized the need to update FDA authority over imports. Under current law, FDA has to show that a product is counterfeit or adulterated in order to block its entry. "That's backwards," Autor said, explaining that importers should have to demonstrate that a drug is safe in order to bring it into the country.   

Ironically, efforts to reduce imports of counterfeit and adulterated medical products could be undermined by the continued push for drug reimportation. Sen. Byron Dorgan (D-ND) and Montana governor Brian Schweitzer have both requested federal permission to import drugs from Canada for these two northern states. However, FDA maintains that such a program would open the door to drug diversion and counterfeiting.  

At a Senate budget hearing in March, commissioner Hamburg told Sen. Dorgan that there are "genuine safety concerns" about drugs imported outside the regulated supply chain. Drugs supposedly imported from Canada frequently come from other parts of the world, and many medicines ordered via pharmacy Web sites are counterfeit or substandard. Still, many politicians and consumers regard theses claims as mere ploys by pharma to lock out cheaper competition.   

FDA also is urging manufacturers to assume greater responsibility for ensuring the quality and safety of their products at all points on the supply chain. At the PDA workshop, CDER director  Janet Woodcock called on industry to "up the ante on vigilance," and to devise real solutions to supply chain problems. Modern track-and-trace technology can help manage far-flung supply chains, but they should be linked to programs for qualifying suppliers and for monitoring global conditions. Also important are robust security measures able to deal with overt criminal activity, as well as networks for communicating within industry and with FDA on these issues.  

Although increased outsourcing by manufacturers may appear to reduce production costs, Woodcock advised that such approaches may generate hidden expenditures. Suppliers with weak track records may require more extensive due diligence and monitoring, and doing business in countries with young regulatory systems may open the door to counterfeiting. It's the manufacturer's responsibility to ensure the reliability of suppliers, Woodcock emphasized, especially in times of ingredient shortages or political upheavals that can disrupt manufacturing and product distribution. 

Alternatively, ongoing industry difficulties in managing supply chain issues may lead to stricter oversight and regulation by FDA. The agency is contemplating revisions in good manufacturing practices (GMPs) for starting materials, for example, and Congress may legislate stiffer tracking requirements and other safeguards. 

FDA has taken an important first step toward a system that can identify legal vs. unauthorized products by establishing a standardized numerical identifier (SNI) for prescription drug packages. This policy meets a requirement of the FDA Amendments Act of 2007 (FDAAA) to develop standards and validated technologies that can better secure the nation's supply chain against counterfeit, substandard, adulterated, or expired drugs. FDA guidance issued in March specifies that the SNI should be based on a serialized National Drug Code (sNDC), combined with a unique serial number of 8 to 20 characters; FDA dropped a plan to include expiration date and lot/batch numbers to keep the SNI shorter and simpler. 

The agency has also launched a campaign to heighten public awareness about the dangers of drug theft and diversion, and to spur manufacturers to improve warehouse and supply chain security. In an April letter to trade associations for manufacturers, wholesalers, pharmacists, and makers of medical devices and infant formulas, FDA advised companies to establish action plans for responding quickly to thefts, including prompt reporting of crimes and diversion to local and federal agencies.  

Manufacturers believe that legislation aligning state, federal, and international supply chain management policies would support these efforts. US state licensing requirements for wholesalers and distributors vary considerably, and most states have no specific curbs on pharmacies that resell drugs from "questionable" sources such as hijackers. Legislation before Congress would strengthen FDA's authority over imports, support more plant inspections, and establish a uniform electronic pedigree system. Unfortunately, it may take another crisis, such as that with contaminated heparin, for Congress to move forward and for all manufacturers to invest more in programs to secure their supply chains.  

In addition to identifiers and anti-theft action plans, FDA wants industry to communicate more quickly about emerging health risks and supply problems, with each other as well as with healthcare providers and regulators. A leading forum for this is the Rx-360 consortium, which is moving forward with initiatives to share information on supply problems and to develop standards and best practices for supplier audits. The group of some 40 manufacturers and suppliers recently launched a shared-audit pilot program that aims to reduce redundant supplier monitoring. 

Such collaboration has been inhibited, however, by US antitrust laws that limit corporate information exchange on business practices and decisions. Both industry and FDA are interested in seeking advice from the Justice Department on how the group may discuss company audit results without violating anticompetition policy. 

's Washington correspondent. She can be reached at 

Washington Report

FDA and industry seek to ensure drug quality in a world complicated by global outsourcing and theft.

Pharmaceutical Executive-06-01-2010

Emerging Pharma Leaders 2010