The role of FDA Commissioner has in recent years become a graveyard for professional reputations, with occupants of the post roundly criticized on everything from undisclosed ownership of drug industry shares to failure to anticipate the presence of salmonella in tomatoes and hot peppers. In terms of impact on the public at large, the post ranks near the top of the executive branch, as the agency's regulatory mandate covers more than a quarter of all consumer-led economic activity in the US. Yet despite this high profile, Commissioners spend much of their time negotiating the boundaries around Congressional mandates that amount to "mission creep" accompanied by ad hoc—and never sufficient—additions to already constrained resources.          

In office for six months, Commissioner Margaret (Peggy) Hamburg believes that a more focused public health orientation, diverse management, and an organization-wide commitment to following good science will break the bureaucratic model of "best enough and no more," restoring the FDA as an exemplar of government efficiency and responsiveness. Not surprisingly, Hamburg's main complaint is that she has only 24 hours each day to accomplish all these tasks. But last month she took time from her schedule to discuss her priorities and policies in a one-on-one interview with 

One of the first things one notices about Peggy Hamburg is her candor. When the Obama administration rolled in at the beginning of the year, Hamburg admits she was not on any short list of possible FDA commissioners. Although she had been in and out of Washington research institutions and health agencies for 30 years, she was not closely associated with FDA, with clinical research, or with food and drug regulation.  

But she had top credentials in the public health community, was an expert in bioterrorism, and presented an attractive mix of medical training, government service, and management experience at a large city (New York) health agency. The White House wanted an outsider at FDA to tackle food safety, tobacco marketing, and the looming influenza pandemic. The fact that she had no ties to the drug industry was also a plus.  

Hamburg sped through the Senate confirmation process last May, with the same candid style in which she readily admitted she was unfamiliar with many of the complex issues raised by the legislators. Her earnest approach drew plaudits from Senators on both sides of the aisle, and her confirmation marked a note of contrast with the recent past: Support was bipartisan and quickly rendered. The new Commissioner kept up the momentum with a well-timed message of solidarity with FDA staff, as well as securing a hefty budget increase.  

She and deputy commissioner Joshua Sharfstein co-authored a May 26 editorial in 

 that cut through the bureaucratic murk to lay out FDA's central role in protecting public health. It advanced three major policy themes: FDA should (1) help advance science for the products it regulates; (2) assess imported food and drugs more thoroughly; and (3) minimize the risks associated with pharmaceuticals through education, regulation and enforcement. The underlying message is that FDA should not be measured by the number of facilities inspected or drugs approved, but by how well it meets the larger goal of promoting health and preventing illness.

Before Hamburg's confirmation, there was speculation that she and Sharfstein, who ran FDA during the first months of the Obama administration, would divvy up agency oversight and operations, with Hamburg handling food and tobacco, and Sharfstein overseeing drugs and medical products. Again, in a burst of candor, Hamburg moved to dispel such notions, asserting that if confirmed, "I would be the Commissioner."  

That strong affirmation of singular leadership was good news for pharma. Hamburg's background as an AIDS researcher and in tuberculosis treatment exposed her to the importance of biomedical innovation and drug development in providing doctors with tools to treat serious diseases. After attending medical school in the 1970s, the emerging AIDS epidemic lured her away from academia. During those early days of clinical trials for AIDS treatments, "I decided I wanted to work at the intersection of medicine with broader social, legal, economic and service issues." She saw how important it was to support those discoveries and translate them into "real-world care for the people who need them." 

Hamburg also understands the nuances in assessing risk in bringing new drugs to market. An approval process that is too fast might fail to detect safety problems, while too slow a process can delay treatments for patients with life-threatening diseases. Hamburg considers it a "false dichotomy" to separate safety from innovation, and says that promoting public health involves finding the right balance. FDA can do more in the area of drug safety, she suggests, but not at the expense of delaying innovation. As she and Sharfstein wrote in the 

 article, "Some benefits are not worth the risk; some risks are worth taking."  

FDA may be willing to take more risks, Hamburg says, due to additional authorities provided by the FDA Amendments Act (FDAAA). The ability to restrict distribution and to better detect safety problems of newly approved drugs may support earlier approval of important medications. And more collaboration with other government agencies, industry, and patients could help detect safety problems and identify fruitful pathways for research that can lead to the approval of treatments. 

To assess drug risks and benefits appropriately, FDA needs to fully understand the science behind emerging research and products. Hamburg is concerned that the nation's huge investment in biomedical research has not been balanced by comparable support for regulatory science.  

"[FDA is at] the nexus of translating genomics into targeted therapies and new diagnostics," she noted at a symposium on the "Future of Personalized Medicine" in October.  This requires moving beyond randomized, controlled clinical trials to new test methods that can to distinguish responses and effects on smaller patient groups.  

Hamburg promises a more consistent, more integrated approach to evaluating medical products related to personalized medicine, citing plans to issue draft guidance on biomarker qualification and on co-development of drugs and diagnostics. FDA also hopes to spur development of new biomarkers that can identify patient subpopulations most likely to respond to a drug, or to have an adverse reaction.  

For FDA to support the translation of discoveries into medical products, Hamburg believes it's important to define more effective and efficient regulatory pathways for emerging products. This involves recruiting and retaining top scientists and giving them the facilities and opportunities they need to do their jobs.  

It also means stronger collaboration with the scientific community on ways to streamline the drug review process. One idea is to bring together academia, industry, and government at centers for regulatory excellence in order to assess biomarkers and develop new strategies for clinical trial analytics. The Commissioner envies Europe's Innovative Medicine Initiative, which has 2 billion Euros to spend on developing biomarkers, diagnostics, and translational research.  Hamburg would like to start a similar interconnected program in the US.  

One vehicle for a replenished regulatory science base could be the Reagan-Udall Foundation, which so far has been undermined by a lack of Congressional funding. Hamburg supports it, recognizing that the National Institutes of Health (NIH) and the Centers for Disease Control and Prevention have benefitted from their ability to tap outside resources to support important projects. As a regulatory agency, FDA is "a little bit different," according to Hamburg, and needs clearly defined standards and guidelines to avoid conflicts of interest.  But Reagan-Udall, she believes, could be valuable in providing access to new research.  

Credible, well-funded regulatory science is equally critical to improving readiness for the next pandemic flu crisis. FDA has taken some of the blame for delays in providing an effective H1N1 vaccine this fall, and Hamburg admits to being frustrated that the production process was not smoother. Still, she prefers to regard the response from FDA and industry as "quite remarkable in terms of how much has been mobilized in response to a previously unrecognized strain of flu virus."  

Peggy Hamburg is also interested in tackling the sensitive issue of conflicts of interest, and whether eliminating such conflicts is always in the best interest of science. Informed evaluation of new drugs requires input from experts outside the agency, and Hamburg acknowledges the importance of populating FDA advisory boards with people who have the appropriate knowledge.  

The problem is that many top experts have relationships with companies developing products.  Hamburg notes that a range of stakeholders have advised her not to exclude necessary experts from discussions.  

"[The challenge is] to find the right balance of having critical expertise at the table and avoiding conflicts of interest that distort the assessment of science," notes Hamburg.  

In addition to promoting science and safety, Hamburg wants to enhance FDA's clout in enforcing compliance with its rules. In a high-profile address last August, the Commissioner outlined a more aggressive, more efficient FDA compliance program, and issued the agency's expectations that manufacturers of drugs and medical products will take an equally serious stance in this area. Setting clear enforcement policy, she said, will increase public confidence in FDA oversight, while establishing a level playing field for industry and keeping unsafe and fraudulent products off the market.  

Too many serious violations "have gone unaddressed for far too long," Hamburg says, citing problems with product quality, false and unlawful labeling, and misleading advertising. She explained that she wants to limit the back-and-forth between FDA and regulated companies, and encourage fast resolution of enforcement actions.  

The "carrot" for manufacturers is a "close-out letter" for companies to inform investors and customers when a facility or product is no longer tainted. The stick for frequent and serious violations is product recalls or seizures, even before issuing a warning letter in situations that raise serious health and safety issues.   

FDA's success in spurring compliance "should be measured not by the number of warning letters or injunctions or seizures, [but by] our impact on the health and welfare of the public," says Hamburg. Failure to meet FDA standards not only puts the public at risk, she notes, it is also "jeopardizing the public's confidence in industry."   

The message is that FDA is determined to share responsibility for public health problems with industry, as evidenced by the proliferation of post approval safety studies the agency is now requiring as a condition for market authorization.   

In her enforcement speech, Hamburg cited an agency crack-down on fraudulent Internet promotion of products that supposedly would protect consumers from swine flu. This development, along with concerns about drug companies posting unbalanced ads on search engines, has prompted a broad initiative to clarify FDA rules for marketing medical products via Web sites and social media.  

				"FDA is very concerned about fraudulent claims," Hamburg says, adding that US marketers need to "maximize the educational benefits of talking to consumers about health conditions."  			

Hamburg also understands that some policymakers want to impose a DTC advertising moratorium on newly approved drugs and adopt curbs on drug advertising similar to other nations. Her response is to express curiosity about standards in other countries—including New Zealand, the only other OECD country where drug DTC is officially allowed —and to urge marketers to provide "a stronger educational component" in medicines advertising. Hamburg recognizes that there are many under-treated health problems and poor compliance with medication regimens that could benefit from sound communication by industry. But she also is concerned about consumers "getting accurate and constructive information about important medical conditions. There are opportunities currently being missed," she says.  

These issues will be addressed in a broader effort to modernize the rules governing prescription drug promotion, as proposed in FDA's Strategic Plan for Risk Communication unveiled in September. Current rules reflect a time when drug marketing was focused on health professionals, and not consumers, and thus overburden patients with detailed labeling information and technical data that is confusing and  often uninformative.  

FDA is drafting several possible new approaches, including a one-document method that provides patients with useful written information at the pharmacy. Other priorities are to finalize guidance on presentation of risk information in medical product promotions, and to conclude the ongoing effort to revise the brief summary of drug prescribing information. The overall plan is to evaluate FDA regulation of drug advertising, labeling, and sponsor interactions with healthcare professionals, and weigh the need for new legislation or rule making.  

 Key Mission: Restoring FDA's Reputation 

Improved public confidence in FDA is "mission critical" for Hamburg, mainly because she recognizes that this is essential to securing a steady level of funding and resources. One of her key roles, she acknowledges, is to be an advocate for FDA and its needs. Policymakers must understand the importance of FDA's mission—quite simply, there is no other government agency, academic entity or private organization that can "step in and backstop" for the agency.   

"It's astounding to me that given our centrality to the health and well-being of all Americans, we have been under-appreciated and under-resourced for so many years," says Hamburg. Digging out of the agency's depleted funding state will take some time, she acknowledges. "There is no quick fix. It's not a one-time funding increase." 

Meanwhile, new legislation continues to expand FDA responsibilities. Congress established a new program to regulate tobacco products, which Hamburg considers vitally important for protecting public health. Support to fund this new responsibility will come through a user fee program, but it remains unclear whether this will be sufficient to meet the needs. Similarly, new food safety legislation will require a major expansion in inspection of food production and imports that may not be fully covered by added revenues. In addition, a required two-year inspection schedule for manufacturers that export to the US would be totally unmanageable and would far exceed proposed fees to support this assignment—all of which Hamburg told Congress a few months ago.   

This, in particular, is where FDA is on the hot seat over conflicts of interest. Expansion of user fees to support these and other FDA activities raises concerns about the agency's over-reliance on industry funds. And the issue is sure to resurface as FDA begins to negotiate the next round of the Prescription Drug User Fee Act (PDUFA), which is up for renewal in 2012.  

Hamburg does not feel that user fees compromise the integrity of the FDA review process. She believes that it's appropriate for regulated companies to contribute a share, along with public funding through the appropriations process. "What matters to me is that our work is important, and it has to be recognized that our responsibilities outstrip the available resources," says the Commissioner.  

So far, Hamburg has enjoyed strong support from the Obama administration, Congress, and FDA's many constituencies. But at some point there will be a food contamination crisis or a drug safety problem on her watch, accompanied by a wave of finger-pointing. Hamburg is anticipating such an event, and is working to manage it by leveraging the current goodwill. How? 

				"We need to explain who we are, what we do, and how we do it so well, given all the constraints."  			

Articles

Features

FDA Commissioner Margaret Hamburg has a history of health advocacy and a clear mandate to transform the agency. But can she succeed where others have failed?

Change Agent

This sponsored supplement was produced by Focus Reports.  

			For exclusive interviews and more info, please log onto 

While the global economic system is still adapting to China's role as the 'world's factory,' the country's explosive pharmaceutical sector presages yet another seismic shift in global trade flows.  Two revolutions are currently underway in China: The first is the rapidly growing importance of the Chinese pharmaceutical market, which has outpaced GDP growth, expanding at approximately 20% in recent years.  Many analysts project China to become the world's second largest market by 2020.  The second is the explosive growth of Chinese R&D, bootstrapping with outsourced services and inexorably moving towards in-house portfolios of innovative drugs.  

Current figures mask these subterranean shifts, where Big Pharma only sees 1.5% of total sales from this market, which is projected to reach USD 28 billion in prescriptions in 2010. The conventional OTC market is also tremendous, currently valued at around USD 10 billion and counting.  As with most everything in China, the market also has 'Chinese Characteristics,' where Traditional Chinese Medicine (TCM) represents another segment worth approximately USD 21 billion encompassing sales of herbal remedies and other treatments that have been handed down over the millennia.  TCM treatments are part and parcel of an ancient Chinese philosophical tradition that aims to bring the body's various organs into harmony, rather than focus on individual symptoms and proximate causes.  The TCM segment is undergoing rapid modernization with both modern formulation techniques as well as exhaustive research into isolating active ingredients for pharmacological efficacy.  However, these modernization efforts are still in their infancy.  In the pharmaceutical segment, innovative therapeutics are dwarfed by generics at a scale of four to one, and this proportion is likely to increase as healthcare reform favors local generic producers.  Only a few years ago, investing in Chinese R&D was hamstrung by fears of IP leakage. Today these fears often seem a distant memory as global pharma sinks hundreds of millions of dollars into R&D infrastructure, while Chinese startups build competitive IP portfolios of their own.  In some cases, Chinese firms have even pursued IP litigation against the multinationals.  If there is to be a reset to the innovative pharmaceutical business model, the Middle Kingdom will likely be ground zero.  

Chinese Style Universal Healthcare: A dose of pragmatism

As the Chinese economy has rebounded, global investors are hoping that Chinese consumption may make up for continued lackluster performance in Western markets.  Unfortunately, a household savings rate at nearly 40% has kept a lid on consumption.  Consumers' reticence to open their wallets is frequently attributed to shortcomings in the social safety net, particularly in education and healthcare.  Thus the 2009 Chinese healthcare reform, an investment of USD 124 billion over the next three years, will not only directly impact the lives of tens of millions of rural Chinese, but may also have global implications. The reforms are not in response to a deficit in the quality of care. Eric Bouteiller, Chairman of the EU Chamber of Commerce in Tianjin, believes that "now, especially in the big cities and large hospitals, you have doctors on the same level as European or American specialists." The major problem is sharply unequal access to high level care and disseminating services to a large and impoverished rural and suburban population.  There are a number of programs currently in place and they have been hastily extended in an attempt to cover China's 1.3 billion citizens by 2020.  

However, conditions are far from perfect. Christian Grapow, General Manager of Solvay China, indicates that corruption, inefficiency and inequities in the system have even prompted cases of patients attacking doctors in hospitals. The government is certainly aware of poor patients' frustrations and has long been searching for an effective solution.  Howard Balloch, former Canadian Ambassador to China and President of China's leading independent boutique investment bank, The Balloch Group, relates an encounter between a Canadian official and the Premier of China.  "The Premier turned to the Canadian official and said, 'we would love to be as Socialist as Canada, but we can't afford it.'"  Ambassador Balloch observes "Like many areas of reform, this country doesn't start from an ideological basis, but rather from a pragmatic viewpoint, recognizing that the provision of basic healthcare services to the people is a necessary component of social stability."  

The mechanics of the health care reform are very much a pragmatic affair, emphasizing the construction of community health centers in rural and suburban areas to alleviate the pressure on this under served population.  Yu Mingde, former member of the National Development and Reform Committee (NDRC), describes the highlights and implications of the health care reform.  "There will be a general expansion of the total market affecting all companies across the country," predicts Mr. Yu.  "The five policies adopted by the government include: new farmers and the health care system, the health care insurance system for urban residents, the 15 types of infectious diseases with the national free treatment policy, the planned 13 types of vaccine with nationwide free vaccination, and the State-aid system for poverty-stricken populations."  Mr. Yu further estimates that reform policies will result in an "increase in drug consumption between 160-170 billion RMB."  There will also be strong support for generics and the primary drug reimbursement list, under the auspices of the Basic Medical Insurance program (BMI), is undergoing a long awaited overhaul, the first since 2004.  Dan Zhang, Chairman and Founder of Fountain Medical Development (FMD), a Contract Research Organization (CRO), outlines other structural reforms such as "new guidelines issued by the SFDA specifically saying they will speed up approval for four classes of drugs.  First are New Chemical Entities (NCE), candidates that have never been approved anywhere.  Second are unmet medical needs such as oncology or pandemic diseases.  Third, orphan medications.  Fourth, new uses or combination uses of Traditional Chinese Medicine (TCM)."  Mr. Zhang believes that further changes are on the horizon.  He points out that the State Food & Drug Administration (SFDA) "has begun to systematically translate US drug development guidelines into Chinese."  This is a significant signal regarding the direction in which China wants to move.  

Big Pharma executives have not played a very vocal role in the Chinese health care debate.  Many would probably agree with Merck Sharp and Dohme's GM Michel Vounatsos who advises, "One should not be in China to change China.  One should come to this country to understand China and be here to support the policy priorities already established in the country."  However, many multinational pharmaceutical firms view the short-term impact of the reforms with a certain level of caution.  Pony Lu, General Manager of Servier, notes, "We are likely to see even stronger price controls by the government in order to manage its healthcare spending.  The patient pool in these new areas is indeed huge, but consists mainly of people with very low income levels, who have little ability to pay for drugs themselves." These concerns have kept most MNCs on the sidelines, yet there can be little doubt that current infrastructure investments and structural reforms will significantly improve patient outcomes over the coming years.  

Let a Hundred Flowers Blossom: A Deeply Decentralized Framework

China has always had a deeply decentralized political structure, where ancient emperors could often hope for little more than loosely administering the many far-flung provinces.   The modern Chinese government is somewhat more centralized, however, aside from military and foreign affairs, regional and local governments often have vast and far-reaching jurisdiction. Decentralization has played an important role in China's rapid economic growth, spurring intense competition to attract investment.  Less positively, decentralization has spawned a vast array of policies and standards across the country.  These regional differences have a distinct impact on all economic activity, and particularly on heavily regulated industries such as pharmaceuticals.  To begin with, there is no Chinese pharma company with nationwide operations.  The largest Chinese firm is Hayao, based in the far North Eastern city of Harbin, but it remains a distinctly regional player.  Some distributors have attempted to build nationwide scale through acquisition, such as Sinopharm and Shanghai Pharma, but they are quite far from operating as a single entity.  These firms function as holding companies comprised of independent, and at times competing, regional players.  David Ricks, General Manager at Eli Lilly observes, "people talk about the country in terms of cities, and there's a reason for this: the cities behave differently.  There is not one China.  I think of it more like four Europes, which in population and differences between markets is roughly right."  Regional policy variations impact every aspect of the business, from sales and marketing to the design of manufacturing facilities.  Hooker Cockram, a construction firm headquartered in Melbourne, has extensive experience working with multinational pharmaceutical firms.  The company has developed a consultative approach to help multinationals navigate the complexities of China's provinces' ever-changing rulebooks.  Hooker Cockram General Manager, Greg Mithen, believes "The SFDA (State Food and Drug Administration) rules are more like guidelines, as the interpretations in Jiangsu Province and Tianjin Municipality could actually be completely divergent.  When we create a design, we have to do it on a basis of what we think will work in China but when we put it through the actual process, we need to adjust our plans based on each province's characteristics."  The SFDA itself is quite decentralized with independent branches that execute policy in each of the leading urban markets.  Thus, many foreign firms tend to approach the Chinese market with an array of regional strategies as opposed to conceiving of the country as a single market.  

The Search for the next Growth Center: The Rural Question

It is often said that there are two Chinas, a sophisticated urban and modern China, close to or on par with the developed world, as well as a rural and poor China that is still very much a part of the 3rd world.  Of course the truth is far more nuanced.  Major cities such as Shanghai, Beijing and Guangzhou have large, wealthy populations and are experiencing steady growth, while the markets in lesser-known cities such as Zhengzhou and Chongqing are undergoing booming expansions. As quickly as the recent boom markets have emerged, new ones will necessarily take their place and companies are constantly on the lookout for the sudden emergence of the next growth engine.  However, it is not only a search for new physical locations, but also for new market segments.  There are certainly many options to choose from as outlined by Michael Ryde, General Manager of Lundbeck.  "The market is extremely fragmented; in a way it is as if there were several coexisting small markets for different groups of patients such as those paying out of pocket, city workers, farmers, etc."  

Drug portfolios must be carefully tailored to these fragmented market dynamics, especially to the huge potential in lower market segments.  Eli Lilly still sells Prozac in China, which is actually one of the key markets for the ageing drug worldwide.  However successful penetration of these segments comes down to more than careful portfolio selection.  Marketing carryover is sharply lower than in Western markets, meaning that drugs are far more promotionally responsive.  Portfolios need to be sustained with constant investment, but on the other hand, new drugs can grow far more rapidly than in Western markets.  Lilly's GM, David Ricks, comments, "We know that if we don't invest, it will slow down, and if we do invest, it will grow stronger.  A manager can't be so clever with their money in China: they have to make a business case product by product."  

One of the big challenges in creating the right marketing strategy is timing.  The opportunities are staggering and in some ways obvious, but timing market penetration is not.  Some companies have even suffered from premature investment in this market.  Ryde remarks, "one of the keys to success in China is to have a lot of patience and long-term perspective."  In this vein, Lundbeck has been working to increase sophistication in the marketplace and has recently opened a branch of the Lundbeck Institute to help train doctors in the field of Alzheimers and other Central Nervous System (CNS) diseases.  Mr. Ryde sees this as particularly important in fighting misperceptions, such as the idea that Alzheimers is an unavoidable 'old man's disease' as opposed to a treatable, chronic condition.  Bayer is also taking a proactive approach to market creation through its doctor training program, but on a vastly larger scale.  While most other innovative pharma companies are content to take a wait and see approach to the health care reform's community health centers, Bayer is committed to building a presence in this area.  Liam Condon describes Bayer's program, which is conducted together with the Ministry of Health. "There are a lot of people in rural parts of China that call themselves doctors, often it is a role handed down by families, but in reality they have undergone no formal education."  Simply educating doctors is vital to improving care in rural regions, while improving these centers will also alleviate pressure on the overall system.  Condon continues, "One of the main problems in China is that people who feel sick flock immediately to the big hospitals and specialist centers.  Of course this leads to a very chaotic and inefficient system in which patients can wait half a day or more in overcrowded centers just to see the doctor for a couple of minutes and then walk out with a bag full of antibiotics.  So what the government wants to do is set up a gatekeeper type of system in which community healthcare centers play a key role."  Bayer's investment in the public health infrastructure and its cooperation with the Ministry of Health will certainly give it a favorable position in this segment, laying a foundation for the day the rural market becomes profitable for MNCs.  However, as the number one multinational pharmaceutical firm in China, Bayer is probably one of the few firms to have the scale and experience to engage in such an undertaking.  At this point, most MNCs are sticking to the urban centers and trying to capture market share in China's booming Tier Two cities.  

Many Strategies for Waging the Talent War

China has been called the pharmaceutical battleground of the future, and understanding this market will be at least as important as understanding the US or Europe, if not more so.  Executives who understand China are already in hot demand at the headquarters of multinational firms and thus GM positions in China are highly coveted.  At the same time the prospect of such a vast, rapidly changing and high stakes market can be daunting.  One of the primary challenges that GMs face in China is extremely high turnover.  Howard Sui, GM of Merck Serono, refers to an "ongoing talent war."  He says, "Every company is committed to China and is expanding here.  The competition for talent is quite intense."  Training at Western firms is highly prized and some employees are looking to eventually 'cash out.'  However, firms employ a wide array of strategies to retain top talent.  As in any market, focusing on career development and providing opportunities for advancement is crucial.  While salaries have gone up, many MNCs avoid bidding up salaries, instead offering training and frequent promotions in fast growing organizations.  Perks can help as well.  Mr. Mithen advises on the benefits of social events, noting, "We look after our staff and coordinate social activities such as company conferences, barbeques and the like.  Interestingly, 10 to 15 years ago these kinds of perks were something most Chinese would not care about, but today these benefits are becoming more attractive."  While MNCs offer, on average, better pay than local firms, local players find ways to adapt.  For example, Mr. Zhang has built a relationship with the local government that allows the director of his central lab to have a position and publish through a local university.  Mr. Zhang describes this as "a huge golden handcuff.  This is a non-cash reward that allows me to be competitive with Quintiles but at a lower cost."  

A distinct genre of China oriented business literature has emerged, advising foreign managers on how to avoid cultural pitfalls in the Chinese workplace.  There is certainly a Chinese management style that is often discussed.  Mr. Grapow encapsulates this advice as "ensure employees get respect and recognition for their work.  Praise in public, criticize in private."  On the other hand, some firms have managed to build more of a hybrid culture, which prize outspokenness and minimize hierarchy.  Bioduro exemplifies this mixed company culture, as an R&D outsourcing company founded by serial entrepreneur John Oyler.  Oyler relates an anecdote that occurred during a visit from a French scientist.  "He was asking where people on the team are from and they were telling him the names of some cities that he didn't recognize.  I drew a rough map of China on the white board, and pointed out Beijing and Shanghai.  The first team member said he was from Chengdu and I drew a star on the map where that was, and the next team member said Xian and I drew a dot for that city.  This young scientist who had worked at our company for less than one year jumped up, ran to the board saying, "no, no, you're completely wrong," and grabbed the pen out of my hand and drew it a little further South on the map."  Afterwards the French scientist remarked that even at his company, a first year team member wouldn't tell the CEO that he's wrong and grab the pen out of his hand.  

However, beyond communication, the principle cultural barrier that newly arrived executives are cautioned on is 'Guanxi.'  Often translated as relationships, many local executives claim they have it, while foreigners struggle to build it.  Eric Zwisler, CEO of Zuellig Pharma, has over 20 years experience in China and seeks to debunk some of Guanxi's mystique.  "When markets are inefficient, relationships are important.  When markets are more efficient, relationships become less important because the markets become more systematic, professional, and objective in the way they operate."  Mr Zwisler continues, "It may be a bit controversial, but I think the importance of relationships in this market is overstated.  Relationships are a protective barrier to avoid change and a method of maintaining control in the market.  If local companies use 70% relationship and 30% content, we use 70% content and 30% relationship, and we are just as successful."  

Innovation: Provincial Style Central Planning

The Chinese central government has made a fundamental commitment to transforming the country from a manufacturing economy to an innovation-driven economy.  The state has supported basic research for many years and its strong support for science education has created a highly trained pool of researchers.  Wang Hongguang, of the China Naitonal Center for Biotechnology Development (CNCBD), notes that annual R&D investment has reached USD 44 billion.  Mr. Wang relates that "the number of essays published in international journals is six times larger, and eight new drug applications were granted clinical approval. Compared to the year 2000, the number of patent applications between 2001 and 2005, has increased 11 fold."  

"There is a significant political push on the national level to accelerate the growth and importance of innovation," notes Mr. Grapow.   "However, the execution is completed on a provincial level.  Some regions such as the Shandong Province or Shanghai Municipality have made a huge commitment to pharmaceuticals and biotechnology and pharmaceutical innovation will certainly play a role in such regions."  One such Shandong pharma pioneer is Luye Pharma.  The firm's banker turned entrepreneur, CEO Liu Dianbo, decided to axe a profitable API business in favor of focusing on moving up the value chain with formulations.  Mr. Liu has also decided to take the road less traveled in building his business.  "Luye is a small company that cannot afford a lot of new drugs," says Mr. Liu.  "So we decided to focus on differentiating our drug delivery systems and concentrating on the most difficult applications with the aim of using these platforms to make a new global standard."  Beijing has also produced a number of innovative firms, which are coordinated through the Beijing Pharma & Biotech Center. The center has helped a number of firms overcome early stage hurdles through its affiliate, the Alliance of Biobox Outsourcing (ABO).  Ting Lei, Director of the center, described a member company who had "encountered obstacles in operation since the establishment of the company.  We provided consulting services and convinced him to transform the core technology of his company, transitioning to a service based business model.  The company then grew 10 times in two years." Despite the emergence of other innovative hubs, Shanghai is the epicenter for China's innovative industry, with a wide array of institutes, biotechs and service firms all engaging in cutting edge R&D.  Most Big Pharma players have R&D facilities in Shanghai including Roche, Novartis, Eli Lilly, AstraZeneca, Pfizer, and GSK, while other firms such as Merck have established collaborations with local firms.  These multinational firms followed the talent and infrastructure in coming to Shanghai, and that makes the local players the true success stories.  WuXi PharmaTech pioneered the outsourcing trend, opening its doors in 2001 and its success has spawned a huge service industry whose epicenter is Shanghai's Zhangjiang Science Park.  

One of the most unique firms in the Zhangjiang park is Shanghai Biochip (SBC).  The company was initiated from 2000 and officially founded in 2001, when the mapping of the human genome had captured the worlds attention.  Chairman Hua Yuda describes the context of the founding of the company, saying "the US and various European countries invested a great deal in developing the biochip industry.  China had limited resources at the time and thus we decided to build up capacities in this area through this organization."  This state backed approach to development has enjoyed significant success in lower tech industries.  However there has been a more collaborative, public-private approach in R&D oriented sectors, particularly pharmaceuticals.  Shanghai Biochip is designed to develop technologies that change the way research is conducted.  Mr. Hua says, "We are providing research services designed to measure and test human disease and health conditions."  China's vast potential pool of patients provides an excellent population for these diagnostics.  The company has also been utilizing the country's large population to build out a sample collection quality standard and tissue bank in addition to genomics, pharmacogenomics and biomarker analysis platforms.  Shanghai Biochip already provides these services to ten leading global firms.  According to CEO of ShanghaiBio, the CRO of  Shanghai Biochip, Dr. Jason Gang Jin, the company already has a number of validated biomarker analysis methods for personalized medicine research in clinical trials, in addition to genomics services for discovery researches.  The company's highlight thus far, has been a biomarker analysis platform that allows physicians to target chemical and radiotherapy treatment regimes.  Companies such as Shanghai Biochip are utilized as a site of translational research, whereby work done in universities and institutes be channeled into the market directly, without hoping for the market to develop on its own.  Additionally, for core emerging technologies such as genomics, these technology platforms are a part of the push to catalyze expertise and jumpstart innovation.  Reflecting a commonly held view, Mr. Jin is highly bullish on Shanghai's future as a hub for innovation citing Shanghai's highly trained scientists, dramatic MNC investment, ambitious local entrepreneurs and extensive outsourcing services.  Mr. Jin says, "I have a bold vision that within five to ten years, Shanghai will become the epicenter of global pharmaceutical R&D."  

Lilly R&D partnership with Hutchison Medipharma			

The service sector boom, occurring primarily in Shanghai, has the potential to reshape the way pharmaceutical research is conducted.  Firms have been experimenting with different risk sharing and outsourcing models and a single approach has yet to dominate the market.  Chen Chunlin, Co-Chairman of Medicilon/MPI Preclinical Research – Shanghai sees "a trend among companies in the region starting with chemistry based services, adding preclinical services and then expanding with biology services."  Medicilion was indeed one of the first firms to take this approach and it is now a major player in the space.  The company entered a joint venture with US based MPI in order to broaden its service offerings and provide a more fully integrated approach to drug discovery outsourcing.  Mr. Chen believes that the current wave of startups is just the tip of the iceberg.  "I foresee an increased number of viable start-up companies as the bio-eco system and workforce matures in China.  Many of my colleagues in the service sector, and in pharma positions, are frustrated entrepreneurs who eventually want to start their own companies to launch novel biologics and pharmaceuticals."  Many firms including Wuxi Pharmatech, ChemPartner, and Sundia Meditech have achieved rapid growth and repeat customers with this business model.  However, some of these newer firms have a different outlook on the best strategy to thrive in this crowded sector.  Mr. Ji, from PharmaLegacy, sees a future in highly specialized services.  Mr. Ji's philosophy is that "everybody can set up a good banquet, with every type of dish available.  But there's still a market for a great coffee shop, and we want to brew the best coffee in town." Thus far, the market is hungry enough to sustain both models, but when supply finally comes to keep pace with demand for outsourced drug discovery services, there may be a sharp consolidation in the cards.  

China's explosive growth in R&D is putting the natiion on its way to becoming the world's second-largest market by 2020

China: Big Pharma's Long March to End?

Despite a quarter-century of investment by the government, academia, and the drug industry, Alzheimer's disease (AD) remains essentially untreatable. The five drugs on the market offer, at best, ephemeral cognitive benefits with no bulwark against the disease's ravages. Sadly, patients and caregivers desperate for effective treatments will likely see little relief over the next decade, as the industry's late-stage compounds appear to be falling like dominoes. In 2007, Neurochem's Alzhemed went bust in Phase III; last year, Myriad's Flurizan fell after the largest-ever Alzheimer's clinical trial. At the International Conference on Alzheimer's Disease in July, GlaxoSmithKline, AstraZeneca, Johnson & Johnson, and Abbott all reported failures.       

Even Elan and Wyeth's bapineuzumab, once hailed as one of the most promising drugs in medicine, is looking more star-crossed than starlike. Disappointing—and, to some critics, dubious—Phase II data showed only modest cognitive improvements in only one third of the patients. Still, eight Phase III trials have been bankrolled. 

What all of these compounds (and 13 of the 20 other late-stage contenders) have in common is that they target amyloid beta, a peptide whose dense, sticky plaques are AD's main hallmark. Amyloid has been hypothesized as the sole cause of AD ever since its sequence was decoded in 1984. But with pharma's apparent failure to produce a disease-modifying drug with this amyloid-targeting approach, that theory, and the field itself, is in grave disarray. "Everyone is waiting on bapineuzumab," Michael Gold, Glaxo's vice president of neurosciences, told Businessweek. "If that one fails, then everyone will say we have to rethink the amyloid hypothesis." 

That rethink has, in fact, long been the focus of researchers laboring in the shadows. Claude Wischik, at Britain's University of Aberdeen, has been pursuing the tau protein, whose neurofibrillary tangles are AD's other distinctive hallmark. By contrast, the metal-ions theory of Ashley Bush, who runs an AD lab at the Mental Health Research Institute of Victoria, Australia, has gone from fringe to buzz.  

For years, Wischik, Bush, and other alternative theorists have railed against what they call the "church of the holy amyloid" and amyloid bias in federal funding, publication, and venture capital. "It is extraordinary that a disease of such importance has been hijacked for so long by a narrow school of thought," says Wischik, whose original claim to fame was his 1986 sequencing the tau protein. "What is particularly tragic is that this has led to a correspondingly narrow perspective in the pharmaceutical industry." 

Key opinion leaders, not surprisingly, scoff at these accusations. Says William Thies, medical and scientific officer at the Alzheimer's Association: "The success or failure of the amyloid-targeting drugs doesn't mean the paradigm in Alzheimer's is changing. That's how science works. It's a naturally evolving process as we learn more and more about the underlying pathology. "  

But the science isn't working, says Zaven Khachaturian, who was head of AD research at the NIH in the '80s and '90s when the correlation between amyloid deposits in the brain and the symptoms of AD was institutionalized as causal—a leap too far that nonetheless found support from important advances tagging AD-related genes. "All this provided legitimacy and excitement to the field," Khachaturian recalls. "But it also established a 'scientific orthodoxy' about the hypothesis, acceptance of ideas without questioning the premises, and dismissing opposing views." 

Despite such resistance, a series of discoveries over the past decade have significantly undermined the amyloid claim. Some even argue that far from being toxic, the naturally occurring protein may be neuroprotective. This argument gained force last year when San Francisco biotech Medivation reported unprecedented benefits in Phase II results of dimebon, capped by the confounding news that this potentially disease-modifying compound appeared to raise amyloid levels in the brain.  Says Khachaturian: "There is a growing recognition that the neurodegenerative processes [of AD] involve several alternate paths, but there the consensus ends. We need a new unifying theory." Lacking that, he fears that "drug companies will walk away from Alzheimer's as untreatable." 

In 2002, announcing a "war on Alzheimer's disease," Wyeth CEO Robert Essner said, "This is going to be the disease—and maybe one of the biggest healthcare political issues—of my generation." More than 5 million Americans are afflicted, and nearly 10 million are unpaid caregivers, according to the Alzheimer's Association. The annual cost of the disease is already $150 billion, and over the next decade, as Baby Boomers swarm the Medicare rolls and the incidence of AD rises 30 percent, a crisis is in the offing. 

For pharma, every crisis is an opportunity. "The barrier to entry is not very high," says Datamonitor CNS senior analyst Terence McManus. "Any drug that is disease-modifying will be an instant blockbuster." Yet the brain remains something of a mystery, and AD research presents a minefield—poor biomarkers and animal models, and clinical trials that are among the longest, largest, and costliest in the industry. Humans appear to be the only animal to suffer from this slow-to-develop, late-to-diagnose neurodegenerative process, so drugmakers with a promising—but dimly understood—compound have to choose between shelving it or going headlong into Phase III. With risks like those, scientific orthodoxy at least provides cover for pharma managers.  

B-mab is the big weapon in Essner's war. Working with Dublin-based Elan, Wyeth developed the compound by reverse-engineering their failed experimental AD vaccine and injecting pre-made amyloid-protein antibodies directly into patients. Currently in Phase III, b-mab is expected to face FDA in early 2011. Though its data have underwhelmed, J&J liked it enough to pay $1.5 billion for a small stake in Elan and a big share of b-mab sales, which McManus estimates to peak at $2.8 billion in 2018.  

B-mab's early hype sent other drugmakers searching for their own anti-amyloid monoclonal antibodies. Lilly's solanezumab is the only competitor to have advanced into Phase III—and that by skipping a Phase II efficacy trial. The company also rushed its novel gamma-secretase inhibitor, semagacestat, which turns off amyloid production, into Phase III. Baxter International's Gammagard, an immune-globulin cocktail for leukemia that also has anti-amyloid antibodies, is due to report Phase III results next year.  

Each of these compounds binds to amyloid in a unique way. But none appears to halt, let alone reverse, the relentless progression of AD. How they'll fare at FDA is a great unknown. But one thing is certain: Pressure from patients and caregivers for treatments that offer even incremental improvements will be intense. 

With so much focus on b-mab, an the old Russian antihistamine revamped by Medivation to treat AD flew under the radar. Yet dimebon has emerged, however unexpectedly, as the best hope of mastering the Alzheimer's beast. "It's the only drug in the history of Alzheimer's where there was actual clinical improvement on all five outcome measures, and these benefits increased substantially at week 52 compared to week 26," says McManus. The chemical's neuroprotective power remains a bit obscure, but it appears to modulate several neurotransmitters—improving AD's symptoms—while also hitting the mitochondria, which confers its disease-modifying potential. (Mitochondria, cells' "power plants," are central to many critical cell functions, and may spark brain-cell death by the production of free radicals.) Pfizer is partnering with Medivation in five Phase III trials in a deal worth up to $725 million in milestones; the drug is being tested in all stages of the disease. If these data are consistent with earlier results, dimebon looks destined for FDA approval. Yet proving that dimebon is truly disease-modifying will be an uphill battle. "Clinical trials don't last long enough to confirm reversal, and the mechanism of action has yet to be clearly defined," says McManus, who projects that dimebon will become the first-line treatment with peak sales of $5 billion in 2018. 

Claude Wischik is also working the mitochondria angle at his biotech, TauRx. He argues that tau tangles, not amyloid clumps, are central to AD's neurotoxic cascade, which is set in motion by mitochondria whose finely tuned programming goes haywire with aging. TauRx's lead product is Rember, a formulation of MTC, the reagent methylene blue. According to Wischik, it prevents tau protein aggregation by boosting production of a mitochondrial enzyme. In Phase IIb trials, the startup reported—albeit in a rushed fashion that sparked controversy—significant improvement at 24 weeks and stabilized AD over 50 weeks. Meantime, Ashley Bush's metals-ion has moved from marginal to mainstream. His hypothesis is that aging wreaks havoc on the body's delicate balance of metal ions: Zinc causes amyloid to accumulate, and copper bound to amyloid peptides catalyzes oxidative damage. The technology he and his colleagues developed at Prana Biotechnology—called metal-protein attenuating compound—has yielded four AD candidates, including a lead compound in Phase IIa. An analog of the antifungal clioquinol, PBT2 acts as a chaperone for zinc and copper, blocking oxidative neurodegeneration and preventing toxic amyloid accumulation. (The next discovery required of both Bush and Wischik is a deep-pockets partner to launch large-scale trials.) 

With some 600 other compounds in the AD pipeline, Khachaturian's fears of a mass exodus by pharma may be exaggerated. Still, the AD veteran is preparing a contingency plan. "We have to adopt strategic partnership models where risk, cost, and revenues are shared among industry, academia, and government," he says. His "Campaign to Prevent Alzheimer's Disease by 2020" is organizing think tanks to explore options, including virtual research to bridge the drug discovery/development gap, collaborative projects, and sharing of novel ideas. "But intellectual property issues that restrict progress need reform," he says. That's one paradigm shift, however, that may make pharma take flight.   

As the old orthodoxy shatters, pharma must stand firm or leave the field.

Fight or Flight?

The President's Council of Advisors on Science and Technology defines personalized medicine as "tailoring medical treatment to the individual characteristics of each patient by classifying individuals into subpopulations that differ in their susceptibility to a particular disease or their response to a specific treatment." To this end, FDA is now developing guidelines that address the co-development of a drug and the companion diagnostic test (or diagnostic test and companion therapeutic) that will allow these subpopulations to be identified and treated accordingly.      

 diagnostics, and medical devices have historically used different marketing techniques. For the most part, pharmaceutical marketers have targeted office-based physicians, both primary care and specialty; pharmacists, both retail and hospital-based; and hospital and managed care formulary committees. Diagnostic marketers have targeted hospital-based physicians—particularly pathologists, laboratory managers, laboratory department supervisors, and point-of-care coordinators. Device marketing has an extremely broad range of targets, from physician specialties such as radiologists, cardiologists, orthopedic surgeons, and other surgical disciplines to nursing and materials management representatives.  

One of the major differences between marketing in these three segments has been the size of the promotional budget: large for pharmaceuticals, small for diagnostics, and somewhere in between for devices, depending on the type. Personalized medicine blurs those boundaries, and will require interdisciplinary marketing of drugs and diagnostics by marketers that historically have been siloed. Except in those situations where therapeutic drug monitoring is necessary, drugs and diagnostics have been historically separated. Now, however, drugs and  diagnostics will not only be co-developed, but also co-marketed, requiring marketers to possess both pharmaceutical and diagnostic expertise. 

What do marketers consider when trying to sell a diagnostic test? Sample type and ease of sample preparation, specificity, sensitivity, reproducibility, accuracy, precision, false positives and false negatives, turnaround time, hands-on time, compatibility with automated platforms, and cost/test. When personalized medicine arrives (as it has in the case of breast cancer and Herceptin, leukemia (CML) and Gleevec, metastatic colorectal cancer and Erbitux), the key attribute for a genetic-based diagnostic test will be all of the above plus its clinical utility.    

Within the proposed FDA drug and diagnostic co-development guidelines will be a definition of clinical utility. The definition previously developed by the National Institutes of Health Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS), reads as follows: "Clinical utility refers to the usefulness of the test and the value of information to the person being tested. If a test has utility, it means that the results—positive or negative—provide information that is of value to the person being tested because he or she can use that information to seek an effective treatment or preventative strategy. Even if no interventions are available to treat or prevent disease, there may be benefits associated with knowledge of a result." 

One of the first examples of clinical utility in a molecular diagnostic test was Roche Molecular Systems' quantitative PCR assay (Amplicor HIV Monitor), which allowed clinicians to measure extremely low levels of HIV viral load in order to monitor a patient's response to a Roche antiretroviral drug. While not an example of a genetic-based companion diagnostic, this serves as a good example of using a diagnostic assay based in molecular medicine to demonstrate clinical utility.  

When marketing diagnostic products, it is very tempting to sell the technology rather than the result, particularly when the input is coming from the point of view of the assay designer. That may be fine for the laboratory performing the test—they'll want to know how the assay is performed to help determine if they have confidence in the test platform. The same will not be true, however, for physicians. 

				When discussing a diagnostic test, a physician will invariably ask, "If I know the result, will it change the way I treat the patient?" In the case of many personalized medicine examples, the answer is a resounding "yes."			

The basic strength of any diagnostic test is the assay's ability to get the same result on the same sample day after day (reproducibility); the ability to detect the target even when it is present in extremely low quantities (sensitivity); and the ability to measure the correct concentration (accuracy) on a single sample every time it is tested (precision). If the assay is robust, its reproducibility, precision, sensitivity, and specificity will result in few, if any, false readings so that physicians can rely on the results to help direct treatment. 

As personalized medicine becomes a reality, more drugs will be marketed with a diagnostic test (companion diagnostics), which means a patient's treatment will be guided by his or her own genetic information. Currently, there are approximately 37 products that facilitate personalized treatment, mostly in cancer, and approximately 10 percent of labels approved by the FDA now contain pharmacogenomic information. In fact, studies of a gene called KRAS have recently resulted in the makers of Erbitux (Lilly/Imclone) and Vectibix (Amgen) requesting that the FDA limit the use of these drugs in colorectal cancer patients with a mutation of the KRAS gene because the drugs do not work for this population.  

The emergence of companion diagnostics has opened the door to new marketing channels. One example of pharmaceutical marketing in the diagnostic space is the appearance of print advertising for therapeutic agents in the College of American Pathologists' official publication. Pathologists, molecular pathologists, and heads of molecular diagnostic laboratories will be new marketing targets for gene-based therapies. It is important that you familiarize yourselves with the media that can be used to reach companion diagnostics decision-making audiences.   

Personalized medicine has the potential to replace traditional trial-and-error medicine. Marketers will need to be fluent in marketing companion drugs and diagnostic tests, including laboratory-developed tests, analyte-specific reagents (ASRs), and IVDMIAs (

 diagnostic multivariate index assays) such as the multi-gene, multi-pathway gene expression test (XDx AlloMap), which can be used to assist physicians in managing heart transplant patients for potential organ rejection. Clinical laboratory diagnostic testing will become as important as the drug entity as it identifies suitable patients for treatment. Will we soon hear the phrase "blockbuster diagnostic"? 

Comparative effectiveness research, recently funded at $1.1 billion under the US government stimulus bill, will seek to identify which treatment protocols provide the best patient outcomes. Based on the role some diagnostic tests have played in identifying populations that would benefit from a particular drug, we may see diagnostic medicine—both laboratory- and imaging-based—gain as much importance as the drug itself, especially if the tenets of personalized medicine can be incorporated into this legislation. 

What does this all mean for marketers? Just as new therapeutics will be much more specific in terms of intended patient subpopulations, equally targeted will be communications that speak to the therapeutic/diagnostic decision maker. Pharmaceutical and diagnostic companies will be able to contribute even more fully to informed decision-making, and not simply interact with physicians. Third party payers will need to be educated on new—and potentially more costly—treatments. Quality rather than quantity will be rewarded.  

Simply put, medical marketers, regardless of past experience, will need to break out of their silos and greet the bright new day of personalized medicine. 

Who are the in vitro diagnostic test leaders today?

Roche, Siemens, Johnson & Johnson. Bayer has dropped from fourth to seventh. 

Where will the next diagnostic breakthroughs originate?

Probably not from the large IVD players who are accustomed to developing assays for high throughput of high volumes of tests.  

Where do I look for a companion diagnostic partner?

Look for companies with proprietary technologies; for example, Asuragen and its expertise in miRNA; or OncotypeDX testing from Genomic Health, whose IVDMIA test predicts recurrence of breast cancer.  

What's the profile of the ideal companion diagnostic?

It is a molecular diagnostics test performed at the point-of-care, using a buccal swab, immersed in a room-temperature, ready-to-use amplification reagent that provides a definitive colorimetric endpoint, read by any operator as "yes" or "no," with sensitivity and precision at 100 percent and unquestioned clinical utility. This immediately triages the patient, who is protected by GIST legislation, to a dispensing unit for a one-time treatment.   

 is president of KFDunn Life Sciences, a division of Aloysius Butler & Clark, and a member of the Personalized Medicine Coalition. She can be reached at 

Columns

Marketers will need to address not only the benefits of the therapy but also the benefits of a diagnostic assay.

Personalized Medicines: Implications for Pharma

Since enactment of the Hatch-Waxman Act 25 years ago, the generic drug industry has grown exponentially, a cause for celebration among generics firms and their customers. Generics now account for 70 percent of prescriptions in the US, with health plans, payers and pharmacy benefit managers (PBMs) promoting these less expensive, bioequivalent products as a way to curb healthcare spending and expand patient access to drugs. Sales of generics are currently near $50 billion, and industry analysts anticipate another growth spurt as brand-name products with about $60 billion in sales lose patent protection over the next two years.     

One aim of the 1984 legislation was to maintain a balance between stimulating generic product development and maintaining incentives for innovation. That goal has been tested over the years by both sides "gaming the system." Generics makers have aggressively challenged drug patents before scheduled expiration, while brand-name firms have delayed generic entry through 30-month stays, citizen petitions, and deals to "authorize" their own generic products. 

With 25 years of product development and manufacturing experience, generics makers are looking for future growth in follow-on versions of more complex dosage forms and "biosimilars" of large molecules. Health reform legislation is slated to establish a pathway for the Food and Drug Administration to approve follow-on biologics (FOBs), something that wasn't included in Hatch-Waxman. There's general agreement on Capitol Hill over how much clinical research FDA should require to document similarity between an innovator and FOB, and on difficulties for establishing interchangeability. But patent exclusivity remains contentious.  

"A 12-year market exclusivity policy will result in few, if any, generic biologics and less, rather than more, innovation," said Teva North America president Bill Marth at the September meeting of the Generic Pharmaceutical Association (GPhA). Teva will be involved in this market, he said, but only as an innovator firm, not to make biosimilars if exclusivity is so extensive. 

There's also a conflict over the framework for resolving patent disputes. Proposals differ for requiring disclosure of patent information, for challenging patent terms, and for communicating pending challenges to involved parties. Generics makers won a requirement in Senate legislation for the same Medicare billing codes for brand and follow-on products—an approach that encourages biosimilar utilization. But that's a minor item in the larger, high-stakes debate. 

Generics makers would like Congress to support their fight against several policies designed to curb or delay product utilization. One threat comes from state "carve-out" laws that limit generic substitution at the pharmacy. Such policies arise from anxiety, often generated by brand competitors, that a generic raises safety issues for patients. Congress' Government Accountability Office may investigate. 

Another fight involves marketing of authorized generic products by pharma companies just before patent expiration, which usually results in limited generic competition during the 180-day exclusivity period. The looming wave of major patent expirations is prompting development of more "branded generics," produced either by the original manufacturer or under contract with a generics firm. Brands are expanding their capacity in this area through the purchase of generics firms around the world.  

Interestingly, both brands and generics want flexibility to settle patent disputes through agreements that involve pharma payments to generics firms to delay market entry until an agreed-on future date. While the Federal Trade Commission (FTC) and other critics have labeled these "pay-for-delay" deals as anti-competitive, manufacturers on both sides claim that such arrangements can avoid lengthy patent battles and end up accelerating consumer access to generic products. The FTC has gone to court to block delay settlements, and Congressional leaders may try to curb these deals.  

Generic-brand market competition also affects FDA regulatory programs. Agency officials maintain that its test procedures and standards ensure that an approved generic drug will yield the same clinical results and safety features of the reference product. Such assurance, however, requires clear documentation that generic drugs meet manufacturing standards and comply with regulatory requirements.  

Here, generics makers could do more, according to FDA officials. At GPhA's October technical conference, Helen Winkle, director of the Office of Pharmaceutical Science in FDA's Center for Drug Evaluation and Research (CDER), urged manufacturers to be more vigilant in monitoring manufacturing processes and supply chains. A number of product recalls and FDA warnings have tarnished the industry and aggravated public concerns. Last year FDA banned the import of Ranbaxy products from two plants in India. In recent months, FDA hit KV Pharmaceuticals and Caraco Pharmaceutical Laboratories with consent decrees, launched an extensive recall of products from Actavis' New Jersey plant, and banned imports from Canada's Apotex.  

This growing skepticism about the equivalence and safety of generic drugs troubles Gary Buehler, director of CDER's Office of Generic Drugs (OGD). He's alarmed about a wave of anti-generics claims in consumer publications and television programs featuring charges about extreme adverse reactions to generic therapies. The fuel for this fire may be FDA approval of generic versions of newer epilepsy treatments, which have generated complaints from neurologists about poor patient response and adverse events.   

As the demand grows for more affordable generic drugs, Buehler noted, it's important for the public to have confidence in these treatments. "Many Americans are waiting for our products," he said, "but we want them to be the products they are waiting for." 

At the September GPhA meeting, FDA deputy commissioner Joshua Sharfstein called on generics industry leaders to assume more responsibility for informing doctors and patients about how to use drugs safely, and urged greater industry collaboration on such important public health issues as those described in FDA's Safe Use initiative.  

Sharfstein also responded to manufacturer complaints that it still takes almost two years to gain approval of a generic drug application, and that backlogs in pending applications are growing. He said that reducing the generic application backlog is a top priority for FDA leadership, but that a user fee program was needed to achieve this goal. At that meeting, both Sen. Orrin Hatch (R-UT) and Rep. Henry Waxman (D-CA) agreed on the need for increased funding for OGD and for generic drug user fees. This would expedite the review process for generics, said Hatch, and speed consumer access to medicines. Waxman noted that a user fee program should come with "real accountability" on review processes and regulatory transparency.  

OGD currently receives more than 800 abbreviated new drug applications each year (up from about 350 in 2002) and approves about 600; the result is more than 1,600 pending applications. Congress earmarked an extra $10 million for OGD in its 2010 budget, but the office needs more to make a real dent in the backlog, Buehler acknowledged.  

Earlier this year, the Obama administration proposed a $36 million fee program for generics, (more than double previous levels), but industry opposed the plan and Congress dropped it. Now industry leaders say they're willing to reopen fee negotiations in what they see as a more congenial environment at FDA. Manufacturers are encouraged by the agency's progress in responding to citizen petitions within a new six-month time frame and in dealing more efficiently with 30-month stays. Such gains could lead to performance metrics that could form the basis of a fee program, such as consults on complex drug development, and timely plant inspections and specific application approval limits. "But we want some value for what we're paying," said Teva's Marth.  

One way to address generic drug quality and safety concerns, says OPS director Helen Winkle, is for "the generics industry to step up to the plate" and support efforts to "strengthen the science underpinning FDA regulatory decisions." FDA researchers are examining the effects of excipients on bioavailability and new sequential designs for bioequivalent studies on highly variable drugs, but many other topics require collaboration and support from manufacturers. Outside research organizations also are examining generic drug safety and efficacy. The National Institute on Neurological Disorders and Stroke at the National Institutes of Health, for example, is studying pharmacokinetic results of patients who have reported problems with generic epilepsy treatments to assess whether generic anticonvulsants do pose safety problems for some patients. 

And payers and PBMs want information to support prescribing decisions when new generics come to market. In anticipation of generic versions of the anti-clotting drug Plavix (clopidogrel), Medco has launched a large study comparing deaths and heart problems of patients prescribed the blockbuster Plavix to those using the newer brand Effient (prasugrel). The study will identify patients who are able to metabolize Plavix normally through pharmacogenetic assessments with an eye to determining that certain patient populations could fare well on low-cost generic clopidogrel when it appears in two years, while a smaller group that does poorly on clopidogrel should be allowed to stay with the more expensive brand prasugrel.   

's Washington correspondent. She can be reached at 

Washington Report

They already dominate the pharmaceutical market, and now generics are poised to move into biologics and complex dosage forms.

Go Go Generics

Are pharmaceutical companies getting full value for the billions of dollars they pay managed care companies for market access? Unfortunately, the answer is often "no."      

Healthcare payers exercise significant control over market access for pharmaceutical products by using tools such as tiered formulary plans and copays, adjudication, spillover, pharmacy reversals, and promotions. In response, pharmaceutical companies spend significant amounts on rebates designed to gain market access for their products. In 2008, these rebates totaled $40 billion—that's 20 percent of industry gross sales.  

When used effectively, these rebates can improve sales and profitability. But much of the spending is wasted. According to ZS Associates' research, at least 15 percent, and possibly as much as 50 percent of all payer rebates exceed their expected rate of return. (The variance is due to differing product life cycle stages, market differentiation, and company focus on revenue as opposed to profit.) 

Several factors account for this disconnect, but the primary reason is that while industry spends almost twice as much on rebates than on its sales force, many companies do not apply the same kind of objective, analytical decision-making to managed care rebates that they do to sales strategy. Furthermore, the contracting department often operates in a silo, and does not account for other variables that can influence outcomes.  

In recent years, as managed care companies have consolidated and gained market power, their influence has become both stronger and more variable. As a result, pharmaceutical companies receive less for more with their expensive rebates. And yet managed care rebates have increased 5 percent in the last five years. This trend will continue as payer consolidations persist and generics proliferate. In addition, healthcare reform and pressure to increase Medicaid rebates will only increase costs for pharmaceutical companies.  

In response, pharma executives must revamp their rebating strategies by capitalizing on the wealth of data available today. They must use rigorous analytics to determine which products should be rebated, which payers to contract with, and be clear about the conditions needed for pull-through. While developing a process-oriented managed care rebating process is challenging, the effort can be well worth it. Executives must account for three critical elements when developing a well-integrated, results-driven managed care rebating program. 

Pharmaceutical market data available today offers companies a unique opportunity to quantify the impact of various rebating decisions on market access and profitability.  

Data can help companies understand the "spillover" effect for different formularies, and determine the impact of formulary tier positions and copay variation within these tiers on market share. For instance, anonymous patient-level data can help companies calculate copay elasticity, helping them set more accurate and effective rebates. Copay elasticity varies by geography as well as patient demographic. Typically, a copay differential in excess of $20 will bias patient preferences, and, as a result, a $20 difference in copay can sometimes affect up to 20 percent of the baseline share for a particular product.  

In the women's healthcare market, products such as oral contraceptives and prenatal vitamins come in many branded and generic versions. Patient decisions for these products are based heavily on copays; pharma companies pay rebates to get a favorable formulary "tier" (as opposed to taking copay amounts into account when modeling deals and contracts with payers). But many payers insufficiently reduce the differences in copay amounts between branded product and generic alternatives, and the rebate goes to waste. 

In addition to helping determine proper rebates, leveraging data can help companies refine the relationship between managed care and sales effort. It can give companies a better understanding of the sales force activity and marketing investment required to pull through formulary access. 

The complexity of negotiating contracts and the variety of data needed to evaluate them means pharmaceutical companies need to supplement available data with technological tools to evaluate managed care contracts in the context of an integrated marketing strategy. 

The best tools share a common platform across the company. They must not only help predict likely outcomes for different contracting scenarios, but also inform the allocation of sales force and marketing resources (coupons, samples, direct-to-consumer marketing), given changes in managed care access. 

A technology tool alone will not solve a pharmaceutical company's managed care rebating shortcomings, however. It needs to be part of a comprehensive promotion framework that can help determine when the company should change its managed care access and when it should complement or supplement managed care access with sales force or marketing investment.  

The "spillover" effect is an important factor to consider when developing a managed care-rebating program. As plans consolidate, spillover becomes more relevant. However, its effect isn't uniform, so it's important for companies to account for spillover's divergent impact in different locations. Despite its importance, companies rarely measure spillover objectively or include it in their contracting strategy. 

Spillover is essentially how formulary changes in one payer plan affect market share within that plan but also across other plans, as there is a "spillover" in physicians' prescribing behavior. While not universal, the basic premise of spillover is that since physicians do not know the formulary information or copay for each of their patients, they make educated guesses when writing prescriptions.  

Depending on their overall patient mix, physicians tend to write prescriptions that are filled at the pharmacy with minimum callbacks. Callbacks occur when patients make a "reversal," or refuse to pay for a prescription (a growing trend in today's economy. Spillover occurs when a physician's decision to stop prescribing a drug because of a restriction on one formulary influences that product's performance across the rest of his patient's plans.  

When formulating contracts with payers, it is vital that pharmaceutical companies understand plan spillover. For instance, a high-controlling formulary plan may justify a high rebate; not contracting can prove debilitating to a product's market share. Conversely, contracting with a local plan in geographies where most managed care plans already favor a company's product may not further influence a physician's prescribing. 

For instance, a Big Pharma company actually walked away from a contract with a commercial payer because they believed the rebate amount exceeded the potential sales return on the plan. What the company failed to foresee was the additional 30 percent "spillover loss" with other payers because it did not pay the initial rebate. Having a good handle on the spillover effect thus changes how a pharmaceutical company approaches rebates. 

Until now, evidence about the existence of spillover has been largely anecdotal, and efforts to measure it have been crude. Today, there are ways to measure spillover accurately at the physician level, and executives must incorporate this data when making contracting decisions. 

The cornerstone of any effective managed care-rebating program is alignment between a company's various marketing groups. Most companies put their contracting strategy in a silo isolated from sales force and marketing. A lack of communication between the sales, marketing, finance, and contracting teams causes many rebating programs to fail. 

Take the case of Highmark Blue Cross Blue Shield, a regional payer that controls 50 percent of all covered lives in the Pittsburgh area. Since a contract with Highmark BCBS has a profound impact on a drug company's local market share, it fundamentally changes the level of sales force activity and marketing (samples, coupons, spot-TV) investment required to pull through the formulary access. Even contracting decisions with national payers can make smaller locales ripe for pull-through via sales force and marketing activity. 

Companies that integrate their managed care contracting with overall sales and marketing strategy, and adopt robust promotional planning processes that encompass different decision-makers, will give themselves a competitive advantage. Furthermore, since managed care rebating decisions tend to be local rather than national in nature, it is best to evaluate them jointly and locally, rather than individually and nationally.  

For example, the Boston area tends to have controlling payers such as BCBS (of Massachusetts) and Tufts, as well as large group practices that work with payers to support generics. Brands lacking good formulary access in Boston require less sales force investment than other areas in the country that may also lack good formulary access. The local strategy for Boston is therefore very different from any other part of the country. A local mindset can be especially beneficial when considering pull-through resources that are available in a given area to influence formulary access.  

As payers consolidate and gain power and the government threatens to wade into the payer market, the ability to know precisely which payers a pharmaceutical company should work with, where, when, and how much it should rebate and how it should change its contracting and promotion strategy over time is not just useful, but imperative to ensuring long term profitability. 

is a principal with ZS Associates.He can be reached at 

is associate principal with ZS Associates.He can be reached at 

Process-driven managed-care rebating programs can drive profitability

Make Rebates Work

After five years of in-licensing drugs and buying biotech companies outright, Big Pharma's shopping spree may be finally moving from promise to payoff. The new drug applications (NDAs) submitted by the Pfizers and Mercks of the world are increasingly for out-of-house discoveries to which the world's biggest drugmakers biggest contribution is bankrolling, designing, and executing late-stage clinical trials.  

This trend is nowhere more dramatic than in oncology. Major companies are poised to profit from Cougar Biotechnology's albiraterone, a promising therapy for hormone-refractory prostate cancer, Medarex's ipilimumab, a potential blockbuster in hard-to-treat malignant melanoma, and PARP inhibitors by BiPar and KuDOS Pharmaceuticals.      

"There hasn't been much to show for the last five years," said Barbara Ryan, managing director and pharma analyst at Deutsche Bank. "It's time to look for the fruits of those collaborations. There is a glimmer of hope that the payoffs may now become apparent." 

On the whole, buying promising pipeline candidates has yet to result in more—or more successful—NDAs. IMS Health, a healthcare information and consulting company that charts NDAs, does not expect the number of new launches to begin climbing back toward 50 a year. (It peaked at 49 in 1997.) "We believe the range for 2010 will stay the same as it is for 2009," said Anthony Riggio, a spokesperson for IMS. The company sees 25 to 30 launches in 2010. Only 25 new drugs were launched in 2008. 

That said, the 2010 pipeline promises therapeutic advances and, here and there, a potential blockbuster. Of the 44 Phase II and III compounds, several merit special mention. Denosumab, Amgen's versatile monoclonal antibody, offers hope for metastatic cancer patients as well as people combating bone disease. Four late-stage Factor Xa inhibitors are racing to replace the blood thinner warfarin, one of the oldest and most widely prescribed medications in the world. And multiple sclerosis patients can see an oral therapy on the horizon.  

The most notable absence is in the CNS diseases, a.k.a. the "black box" of drug R&D. As the current disarray in the Alzheimer's pipeline illustrates, neuroscience has a great deal left to learn about the fundamental workings of the brain before truly disease-modifying drugs are developed. 

Our 2009 Pipeline Report take-home? It may not be an age of bounty in the pharmaceutical industry—but it is a time of hope.  

Difficult field sees first advances in many years

Antithrombotic drugs balance patients on a tightrope between two risks: blood clots and coagulants. Fall off on one side and thrombosis and stroke threaten; slip in the other and surgery is dangerous because of uncontrollable bleeding. For decades, warfarin has been just about the only drug to keep patients in balance. Now, a few possible successors are moving toward pharmacy shelves.  

The desire to supplant warfarin has little to do with its efficacy as a blood thinner. Problems usually center on excessive bleeding and interactions with common drugs and foods, including aspirin derivatives, certain vitamins, and alcohol. "Any drug that posed a lesser risk of excessive bleeding while preventing clotting equally well would take patients from warfarin," says Nikhil Mehta, who heads the Cardiovascular and Metabolic Division at Decision Resources.    

In Phase III data presented in August, Boehringer Ingelheim showed that a higher and a lower dose of 

, which inhibits thrombin directly, were superior to warfarin for patients with atrial defibrillation, a heart arrhythmia frequently associated with strokes. The higher dose was more efficacious than the lower, but both doses were safer when it came to unwanted, uncontrolled bleeding. "People with a high risk of bleeding can get the lower dose. People at higher risk of stroke can receive the higher dose," Mehta says.  

A novel class of factor Xa inhibitors is also in the race for better oral anti-thrombotic therapies. These compounds works by inhibiting the catalyst, factor Xa, for the cascade that converts prothrombin into thrombin and thereby stimulates blood clotting. Slowing the catalyst slows the clotting process. 

 is expected to be approved for atrial fibrillation. "A-fib will be the first indication, we think, for apixaban—straight prevention in a-fib patients," says Mehta.  

 has been launched for the prevention of post-surgical thromboembolism in Canada and Britain, but as with apixaban, the high stakes are riding on Phase III trials in acute coronary syndrome. If that indication is approved, the drugs will compete for a huge market. "We're predicting there will be room for both compounds—and in fact follow-on agents—in the market," says Mehta, who pointed to 

 as the next promising factor Xa inhibitor up the pipeline. "Both Pradaxa and Xarelto will hit that magic $1 billion number and become blockbusters."  

 is being developed by Daiichi Sankyo. The company announced in July that it was reshaping its Phase III design in light of new data showing that a single dose of the compound caused fewer adverse bleeding events than two doses—trough levels of the drug, not high peak levels, govern bleeding.  

Further back in the pipeline are two compounds from hot biotech Portola Pharmaceuticals, which scored two major deals with big pharmas this year for two Phase II compounds. Merck bought its factor Xa inhibitor, 

, for nearly $500 million in milestone payments. Novartis nabbed Portola's 

, an adenosine diphosphate (ADP) receptor antagonist that aims to prevent thrombosis and heart attack in patients with acute coronary syndrome. The Swiss firm paid $75 million upfront and an undisclosed amount in milestones. 

One of the major launches of 2010 in terms of potential sales is likely to be AstraZeneca's ticagrelor (Brilinta). This new antiplatelet is aimed squarely at the market for acute coronary syndrome, one of the largest cardiology markets in the world. 

Because the need for antiplatelet agents is less acute than the need for new anticoagulants, drugs like Brilinta may not take off as fast as a new drug that proves superiority to warfarin. But head-to-head data comparing Brilinta to market leader Plavix presented at the American Heart Association meeting last month showing that Brilinta has clear clinical superiorities to the BMS/Sanofi megablockbuster. In the 18,000-patient study, the Brilinta group had fewer heart attacks and a lower death rate than the Plavix arm. The study had one unexplained statistical anomaly: The 9 percent of patients enrolled in North America showed no benefit over Plavix. Brilinta also appears to work faster than Plavix, and its effects are easily reversible. "If the doctor decided within a short window of time that they wanted to perform some sort of interventional surgery, they wouldn't have to worry about the long duration of the drug," says Barbara Ryan. 

Some cardiologists see the new drug replacing Plavix, which boasts more than $9 billion in annual sales. (But Plavix already faces generic competition in Europe and will face it in the US in 2012.) Still, Physicians might hesitate to use Brilinta, since it must be taken twice a day instead of once. "That doesn't sound like much of a difference," says Mehta. "But there's that potential for someone to have an MI [myocardial infarction] if they're not very compliant." 

In the treatment of multiple sclerosis, advances in convenience or tolerability can make a big difference in sales. Interferon beta 1-a (Avonex from Biogen Idec) is an established therapy for MS relapse prevention and, in the US, a first line treatment for newly diagnosed patients. In a new pegylated form, patients can look forward to fewer, less painful injections. Avonex is currently injected once a week in a doctor's office. The new longer lasting drug will not require the same large-bore needle for intramuscular injections. Instead, patients will give themselves a subcutaneous shot every other week or perhaps once a month. "We expect it do very well, with sales of about $1.5 billion by 2018," says Andrea Witt, an analyst at Decision Resources.    

Even as current patients look forward to self-injections, drugmakers are racing to launch the first oral MS drug in this $8.6 billion IV-only market. 

, a new formulation of anti-leukemia injectible Leustatin from EMD Serono, an affiliate of Merck KGga, was leader of the pack until FDA issued a "refuse to file" letter in November, which puts all market plans on hold. The chemical promises better efficacy than the interferons but worrisome side effects, including headache, upper respiratory tract infections, and nausea. "

 will have efficacy between these two broad classes of drugs—better than the interferons and Copaxone, but not as good as Tysabri," Witt says. "However, it will have the oral formulation—but with the bad side effects, it's not going to be a first line therapy."  

 the new front-runner, doing about as well as oral cladribine, and for the same reasons. "It has efficacy very similar to cladribine, and the same side-effect profile," she says. "Just a little risky, so it won't be first line." But given the advance in convenience offered by an oral drug, she expects both drugs to reach blockbuster status by 2015. 

, is expected to conclude its main Phase III trials in mid -2010, although an extension trial, will assess the drug's safety and efficacy over two years. Teva and Sanofi-Aventis also have promising oral MS compounds in early Phase III. 

In the short term, look for injectibles, perhaps more convenient ones, to dominate the market. But in the long run, effective oral therapies are on the way. The next challenge will be differentiating among the new crop and determining which treatments work best for which patients, given how disparate their range of symptoms can be.  

Two kinder, gentler oral drugs for a fierce virus

Sometimes being first to market is not only the best thing but the only thing.  

, are competing to be the first compound added to the current standard of care—a cocktail of pegylated interferon and ribavirin—in order to reach the more than half of all patients with hepatitis C (HCV) who do not respond.  

The stakes are higher than usual for drugmakers in a race to approval because the rate of incidence of new cases of HCV in the US has dropped sharply over the past decade due to public education and needle exchanges, according to the CDC. If current nonresponders are cured, the patient pool is expected to remain small. "Whoever you have right now, you have to treat," says Alexandra Makarova, an analyst at Decision Resources. "But then you will not have the influx of extra new patients. It's so key to get there first." ThinkEquity LLC analyst Jason Kolbert estimates the market for hepatitis C treatments at about $2.5 billion a year and—oddly, given the projected decline in patients—estimates that it will quadruple over the next decade.  

Our sixth annual pipeline report details 44 drugs that industry will be talking about in 2010.

Pharmaceutical Executive-12-01-2009