Life science companies face increasing pressure to manage declining margins while funding R&D and meeting shareholder expectation to generate steady increases in revenue. Achieving optimal pricing across geographies at every stage of the product life cycle is a key component of any sustainable global revenue building platform. But this mission critical goal is made more difficult today due to the increasing complexity of price referencing, often among dozens of countries, each with a commitment to reducing national drugs spend.  

Pricing sits precisely at the crossroads of governments' budget constraints and life science company interest in maximizing the revenue stream. Governments are addressing their budget challenges through increased scrutiny of the clinical value a product brings to market, leading to unprecedented pricing and volume pressures on new launches as well as in-market products. Companies are withdrawing products or foregoing a launch in a particular country due to the disparity in how payers/government agencies and companies perceive a product's value. As a result, pricing has been elevated to a senior management challenge with significant political and reputational implications.  

The trend prompted us to pose a few questions to a selected number of life science pricing executives: 

» How do you know if your price and country launch sequence strategies will deliver the optimal revenue stream?  

» What happens when a critical country launch is delayed?  

» What is your reaction when a country launches out of sequence, or at a price below your floor?  

» What key performance indicators define a successful launch?" 

The most frequent response was, "We are familiar with the market landscape; we know what works, we've been launching products in this fast changing environment for years." However, the fundamental question of how do you know if your strategy is the right one in maximizing returns to the business remained largely unaddressed. 

The interviews did yield some useful insights, as follows: 

Pricing and market access are top strategic priorities for life science companies. Most participants admitted their organizations are not efficient or transparent in addressing current global price practices. Organizational capabilities are often cobbled together and do not adequately support today's business requirements. 

This can result in lost revenue and lower productivity. Failure to monitor and manage global pricing can translate into significant revenue losses. Without proper affiliate insight and forecasting, global organizations can miss financial targets and find themselves taken hostage by unanticipated market events.  

Pricing teams also face demands to run frequent data analyses to simulate alternative market scenarios. This can be a drain on productivity and slow the pace of decision-making. One executive we spoke to explained how each pricing scenario requires extensive computer processing, literally on an overnight basis, which then must be restarted with new assumptions to reflect rapid changes across markets. Such slow processing limits the number of effective scenarios considered and leads to organizational bottlenecks.  

Effective pricing and strong inventory governance are a necessary element of any revenue maximization plan. Companies must oversee regional and country specific pricing activities through prospective reviews, global analysis and approval. It is no longer acceptable to base pricing decisions solely on local country/affiliate objectives. Strategies must be drafted around an integrated, global perspective; they exist to promote the interest of the company overall. A centralized strategy to place global revenue priorities over the affiliates' interests requires organizational alignment to provide the appropriate country level incentives that will enable the country to follow suit and adhere to the global pricing position. Without alignment, affiliates may resist buying in to the strategy and derail corporate goals.  

Currently, many global pricing teams lack the operational mandates to manage the organization's pricing strategy across geographies. Countries launching outside the optimal sequence or below the approved regional floor are likely costing the organization millions in prospective revenues foregone. For life science organizations to remain successful in addressing market pressures, they can no longer afford unchecked affiliate autonomy. Integrated, coordinated management of go-to-market strategies, in-market product pricing and inventory is key to getting it right.  

Launch teams deliver launch strategies with one purpose: to maximize revenue. Within those teams sits a pricing member dedicated to developing a corporate pricing strategy through a comprehensive market analysis scoped to produce a specific launch price recommendations. Yet some executives believe they continue to miss the mark either in decision support, strategy, or execution. 

Contributing to this pricing strategy development are complicated individual country pricing mandates such as external reference pricing rules and price controls. In this environment, country interdependencies can impact other country's reimbursement prices, and therefore global revenue.  

These analyses are currently "under-served" by relying on older, sub-optimal analytical tools such as Excel. For example, if a life science organization launches a product and considers the sequence opportunity across 75 countries within a 90-month period, they are actually considering 8,960 to the 2,030th power of possible price/launch date sequence combinations. Clearly, there are productivity limitations in considering all these iterations with basic tools. Recognizing not all combinations are viable, industry experts can utilize market knowledge, advanced analytics and global goals to create the best market launch scenario.  

Many companies build their own pricing analysis tools using a siloed approach, by brand or therapeutic area. This method prevents best practices sharing and creates challenges to replicate or standardize, leading to subpar pricing analytics and decision support. Calculating the complexities of external price referencing and parallel trade requires advanced analytics that can evaluate any number of variables and millions of scenarios. In addition, tough decisions require trade-off analysis comparing different launch sequences and in-market price scenarios to estimate the corresponding revenue. Variables should be adjusted to simulate potential market situations and deliver the forecasted outcome with a high degree of confidence in their accuracy.  

Pricing challenges don't end once the product is launched. Life Science organizations are reporting selling price erosion during the past several years due to external market forces, including government pricing pressures, parallel trade and global reference pricing modifications. Even a slight price change in a country may have a significant impact on prices, revenues, and margins that reverberate around the globe. In-market simulation capabilities are needed to evaluate market impacts as country specific reform and legislation become realities. It is vitally important to understand downstream impacts on other countries, regions and at the corporate level in anticipation of market movement. With the help of fast, easy to run analysis, deeper insights into the individual market dynamics will become more evident, enabling organizations to negotiate with countries based upon the right metrics. Good metrics are vital to success in a transparent pricing world. 

Creating a centralized yet cross-organizational intelligence pricing center will provide: 

» A platform for data repository and integration 

» Fact-based decision making that is repeatable and standardized to enable options comparisons 

» Advanced analytics such as optimization, simulation, "what-if" analysis, and forecasting 

» Central enterprise communications vehicle to deliver clear corporate strategies and guidelines, to enable market intelligence reporting, and to capture best practices  

Without a single integrated version of the truth, many hours are spent unproductively explaining and adjusting data and analysis. This is time better spent elsewhere. 

We concluded from our conversations that to achieve optimal revenue for a brand demands best in class capabilities: 

» Corporate objectives will drive the optimized launch price and sequence to obtain access to the largest number of eligible patients, at the greatest reimbursable price 

» Country goals will be in concert with corporate objectives 

» Country launch date and price corridoors will be analytically rigorous using market analytics and emperical data points 

» Price events will be simulated to assess and minimize negative global revenue impacts 

» Global Pricing or Market Access Teams will be the hub for communicating launch and in-market pricing decisions, evaluating and adjusting for exchange rates and historical prices 

» Affiliates will be responsible for populating the central repository with sales volume forecasts and country reference price rules 

Today's pricing and market access teams deliver corporate pricing analysis to the organization both at the corporate and affiliate levels. Fortunately these are seasoned teams that understand the market nuances and the products. Yet with so many senior executives questioning the strategies and the supporting analytics for these critical pricing decisions, it's important to critically evaluate the methodologies, use the benchmarking studies and question standard hypotheses. Without doing so there's no way to answer that fundamental question—"How do you know you got the best price?" 

is Principal Industry Consultant, Life Sciences, for SAS. She can be reached at 

is Principal Industry Consultant, Global Practice, Health and Life Sciences, for SAS.  He can be reached at 

Articles

Column

A global life-cycle management strategy should be baked into a drug's initial price at launch, write Alice Swearingen and Patrick Homer.

The Best Price for the Most Revenue

June 17–18, 2014
Philadelphia, Pennsylvania

Changing the DNA of Pharma Patient Adherence Programs 

The First and Last Word on Medication Adherence: Keep Trying

The   strategic uncertainty confronting big Pharma today has put a premium on   generating new ideas from outside sources—it's                          the fresh wind that lifts the sales. CROs and   other biopharma vendors with a business mission to guide the industry   through                          an era of rapid change are under intense   pressure to keep up, with service offerings that bind strategy to   execution and are                          global and cross-functional in scope. In the   following interview, part of our "CEO Snapshot" series, 

 sits down with Patrick Lindsay, President of UBC [United BioSource], a   scientific, medical affairs, and risk management advisory                          firm geared to meeting industry needs at every   stage of the product life-cycle. Jamaican-born Lindsay, 53, and an early   leader                          of UBC, offers an update on the company's recent   merger with drug distribution giant Express Scripts, which puts him and   UBC                          at the center of what is now the nation's   largest supply chain on medicines, filling nearly a third of all   prescriptions written                          in the US.

The acquisition of Medco   Health Solutions [of which you were a key part] by Express Scripts in   April 2012 has placed UBC in                             a unique position as a leading provider of   research evidence, access expertise, brand loyalty and safety management 

all of it within the orbit of the largest pharmacy benefits manager in the US. How has this new combination changed UBC's                             basic business proposition to clients? 

Our capabilities are much   more extensive because today we are part of a truly integrated business,   with competitive scale                          and reach. We do not see ourselves as a   traditional vendor or CRO. UBC is instead a full strategic partner, and   the level                          of engagement that we are able to achieve   through the Express Scripts family gives us access to the most senior   levels of                          the entire pharma and biotech community. In   addition, it allows us to align UBC's business model with Express   Scripts specialty                          pharmacy unit, Accredo, to create a unique and   differentiated service offering geared to the specific needs of   specialty drugs,                          a high-profile segment of the trade. Our work   goes further than project execution: we provide strategic advice on   every aspect                          of the portfolio, at every stage of the product   life cycle, in a way that helps companies save time and money, root out   waste,                          and drive results through demonstrable outcomes.   We refined this integrated service delivery model by choosing   deliberately                          to work with the mid-tier companies in the   industry; based on that record of success, we are now bringing the big   Pharma 10                          into our orbit too. 

UBC is a service organization, which   requires a keen awareness of the external trends and challenges that   confront the biopharmaceutical                             industry, particularly those that come from   adjacent sectors or are otherwise "outside the box." Can you identify   the issues                             that are most prominent in shaping the future   path of the industry and which also affect the ability of UBC to   perform its                             basic mission for clients? 

We see the US Affordable   Care Act as having a profound impact on the current business model in   biopharma. Those of us who                          are strategic partners to biopharma must adapt   as well. Reform will change the way many health interventions are   funded, and                          how success is measured—the Act wants to put the   emphasis on metrics that drive system outcomes, not service income. But   no                          one at this point can easily form a coherent and   consistent operating plan based on how all the new mandates will shape   incentives                          in the marketplace.

The only truth is   that market change is a constant. I spend much of my time observing and   investigating business options with                          players outside the traditional health care   sector. The key influencers in health are changing and strategic service   organizations                          like UBC have to keep up. 

Is there an example where you believe Big Pharma has to be more proactive in adapting to these induced market changes?

UBC is devoting a   significant amount of time to analyzing the implications of a surge of   enrollees in health insurance programs,                          many of whom will be obtaining coverage for the   first time. The structure of benefits under these plans will vary   considerably.                          Drug companies must think carefully about   meeting the expectations of all these additional patients as well as   providers and                          regulators under the new structure. For example,   what adjustments will be required to the Patient Assistance Programs   [PAP]                          that most Big Pharma companies operate to   provide medicines to low income or uninsured patients? Some changes are   due because                          our analysis indicates the key demographic going   forward will be the underinsured, rather than the uninsured. We will   see                          much more complexity in the management of PAP   programs as the level of drug benefit coverage becomes apparent in the   new Health                          Care Marketplace exchange plans. If a patient   has some level of access but still cannot afford the co-pays or   co-insurance                          charges, then you might say that patient is   actually worse off than not having insurance at all. It is important   that uncertainty                          around the regulatory framework for the PAP   programs in health reform is resolved so that they can remain a vital   link in                          helping patients obtain their meds.

There are many   other issues like this, because the ACA legislation is replete with gaps   and unintended consequences—where                          patients are literally being left to fall   between the dock and the boat. In the last six months, UBC has held   several senior-level                          meetings with the major pharmaceutical   companies, looking at ways to ensure this does not happen. Doing nothing   could end                          up damaging company reputations. 

Won't adherence to medication increase in importance if more under-insured patients fail to initiate a course of treatment                             due to concerns about cost? 

Getting a better handle on   adherence is definitely a priority in adapting to health reform. It's a   big part of our business.                          One of the advantages from the combination with   Express Scripts is we gain access to their enormous data retrieval   capabilities                          in key areas like safety and side-effect   concerns. We can easily track for clients how patient adherence is   affected by these                          two critical drivers. This complements UBC's   capabilities in supporting the rapid market uptake of new medicines. 

How is UBC adapting to the increasing complexity in reading market signals? Is greater market insights the rationale for the                             merger with Express Scripts?

In a period of such rapid   change, it is important that we have a clear value proposition to relay   to our clients. Simply put,                          UBC's offerings span every stage of the product   life cycle, from proof of concept to registration to post marketing   surveillance                          and then to loss of exclusivity [LOE] —and   beyond. There are three basic platforms for this work: Safety, covering   activities                          around clinical development, regulatory   approval, and post approval commitments like REMS, and   pharmacovigilance; Loyalty,                          which includes brand reimbursement strategy, PAP   and adherence programming, and benefit program management and   analytics;                          and Access, which includes our growing business   in specialty pharmacy solutions as well as logistics and management   along                          the drug distribution chain. Issues like   adherence show how we bring all three platforms—the triad —together. An   adherent                          patient is one who is using the drug safely,   he/she stays loyal because the drug is working for him, and it enhances   access                          by avoiding the excess cost and waste to the   system when a patient develops complications by not being adherent. 

Express Scripts   brings its enormous on-the-ground operational strength, assets we can   leverage through state-of-the-art data                          and analytics. Express Scripts is responsible   for filling nearly a third of all prescriptions written in the US today.   If                          you believe, as I do, that waste is a huge drag   on productivity in health care, then having Express Scripts as part of   the                          team is a real differentiator in terms of   competitive advantage—it knows precisely where all the spending is. 

Isn't it a conflict of interest that UBC   consults extensively with Big Pharma companies on strategies that might   be of competitive                             interest to a big drug distributor and PBM   like Express Scripts?

 We have a strict internal   firewall in place that prevents us from sharing research results with   our new parent company. The                          legal strictures are quite tight; our   combination was contingent on having these guidelines operative from day   one. For example,                          no one at UBC is exposed to any information   relating to formulary activities or the operation of P&T committees   linked to                          Express Scripts. Likewise, it is not permitted   access to the research and advice we give to companies on benefit   design, brand                          or risk management. Training in standard   operating procedures is conducted for every employee several times a   year. This way                          our commitment is reinforced, especially for new   employees or those who are being reassigned to a new role. You cannot   deselect                          yourself out of this process. 

Evidence is the basic product that UBC   generates for its clients. A question that must be important for you is   the direction                             the US is taking on standards to evaluate the   cost effectiveness of new medicines. Will the federal government move   toward                             formal requirements or is this process more   likely to be driven by the private sector, with multiple varying   standards to                             assess value? 

Diversity is an ingrained   feature of the US health care system. There are still numerous private   payers and many of them define                          value in different ways. Thus, the prospects are   remote we will be adopting a formal QALY-driven system like exists now   in                          the UK. At UBC, we specialize in the analytics   of what we call value demonstration. The centerpiece here is we look at   every                          product as a unique proposition to patients,   clinicians and payers. We evaluate the product against its peer group of   competitors.                          We spend a lot of time on patient perceptions   and how they believe a therapy might affect them. And we work with   manufacturers                          to help them build the case to payers about the   product's unique value, which should be rooted in hard clinical outcomes   data. 

Do you believe your Big Pharma clients are   ready for a world that insists on their proving positive health outcomes   as a condition                          for gaining access to the market? 

 Senior leaders in the industry   acknowledge we are in a different environment today than even five years   ago. Most companies                       have restructured their clinical activities around   what we call parallel development: where once there was no consideration                       of the commercial prospects for a drug candidate   until just prior to registration, we now see this being considered as   early                       as the start of Phase II. In addition, commercial   staff are incorporating genetic profiling and other sophisticated   clinically-based                       data from the development teams to assess how to   lengthen the life span of brands well past LOE. External partnerships   are                       also part of the mix. All of the changes make it   more likely that new products will lead to better health outcomes,   regardless                       of whether this was the original intent. 

What about the contrarian view on early-stage consultations with payers

that   it can actually inhibit innovation by terminating that great idea from   left field before it has a chance to prove its                          merit as a therapy? It is worth recalling that   some of the biggest drug blockbusters of the past might not have made it   to                          market under these narrow parameters. Is it   possible to prove a compound's market potential while it is still being   tested?

 Chance is inherently a part of   the research enterprise. There is always risk, and the impact of   miscalculation around a candidate                       can be costly in terms of future revenues foregone.   But it is equally true that the industry is getting a lot better at   linking                       their science to the needs of the patient and   clinician, which in turn drives market success. There is a clear   strategy, which                       I describe this way: "the new big is a lot of   small." Companies we work with are pinpointing their development dollars   toward                       uniquely differentiated niche products that target   smaller sub-sets of the affected patient population. This way, the risks                       of miscalculating your ROI are lower. UBC's   analytical and advisory expertise is increasingly focused on the orphan   drug space,                       because this is where our clients are placing their   R&D bets. It may no longer be feasible to run up the charts with a   single                       $15 billion drug, but you can generate the same   amount of revenue with nine or ten highly differentiated orphan   therapies                       which justify high price points precisely because   there are few treatment alternatives.

Are you positioning UBC as a leader in the development of personalized medicine? 

The UBC business concentrates   in areas where we have unrivaled expertise. There are other companies   out there with strong                       capabilities in personalized medicine, so we have   chosen not to make this business segment a priority. Our focus is on the                       analytics and advisory services required to develop   and commercialize products, in real world settings. It's real-world   evidence                       applied to actual clinical settings that   distinguishes UBC from the competition. The big challenge for drug   makers is that                       moment when they have to switch: from a carefully   controlled, restricted world—one where they must prove the clinical   attributes                       of their research to a small cohort of   regulators—to the messy world of patients, providers and patients, when   that new drug                       is actually out circulating in the market, being   dispensed. More and more effort is required to succeed in this   post-marketing                       phase. We build the case for the uptake of these   products in an environment where it is harder than ever to stand out.   This                       is precisely the area where we shine. 

Can you identify the next disruptive "shot from the dark" that UBC and others in the industry need to prepare for? 

 The one issue that is going to   be a game changer is the health of your IT assets and capabilities. The   biopharmaceutical                       industry is an information industry. Information   technology, done well, connects all the moving parts of the product   lifecycle,                       from discovery and development to approval,   commercialization, market acceptance and LOE. UBC looks at it as a new   information                       highway, speeding our work with patients,   pharmacists, and providers. The vital accelerant on that highway is   data. The Affordable                       Care Act and other reforms will facilitate the   aggregation of data so that it can be applied productively to find   better ways                       to treat patients and compensate providers, at   lower cost to the health system overall. In that regard, the combination   with                       Express Scripts presents us with rich opportunities   to leverage information: our parent manages the prescription benefit   plans                       of nearly 100 million people—one third of the total   US population. 

What we can do for   our customers with that data, subject to the appropriate legal   safeguards, is nothing less than revolutionary.                       UBC is making this central to our service offerings   in the specialty pharmacy segment, which is becoming the most important                       single segment of drug spend. Express Scripts   forecasts that by 2015, eight of the top 10 selling drugs in the US will   be                       specialty biologics. UBC is determined to be the   lead expert service provider in this space, going forward. 

A second example of a   "shot from the dark" is what I see as the ultimate legacy of US health   reform: the necessity to prove                       outcomes on the basis of clear, transparent metrics   on drug performance. Here, we are helping to advance that objective   through                       the development of decision-support prescribing   models for physicians. 

Building on this   outcomes theme is the increasing sophistication of tools designed to   track patient safety once we move beyond                       the prescribed regimen of the clinical trial.   Patient registries are a key part of our business, which provide an   extra margin                       of assurance in evaluating the safety of a product   in the marketplace. But there is another advantage as well. Such   registries                       are vital to guaranteeing a fair hearing from   regulators when companies start seeking new indications for the same   approved                       product. We tell our clients it's wrong to see   these new evidentiary requirements as a drain on productivity and   innovation;                       instead, they serve as the foundation for   additional product claims that will extend the life cycle of the   product. However,                       it can be a tough task to manage these programs on a   global scale, which is what the market requires. This is where UBC   comes                       in; it aligns perfectly to where we want to be. 

Finally, evidence is   beside the point if patients cannot access your drug. Access, as I   noted, is the third part of our service                       triad. We provide a range of patient support   services that initiate and then help keep patients adherent to their   therapy.                       We apply this knowledge to design the benefit   programs to ensure there is a patient-centric perspective. 

What is your perspective on the patient's role in health care. Is the "empowered patient" still more of an aspiration than                          a practical reality? 

Patients—and the caregiver—are   becoming educated. They are much less passive in decisions on treatment.   We find this particularly                       true among caregivers; our clients are asking us to   look more carefully as to how this cohort drives decisions on care and                       treatment. Technology, and the accessibility it   provides, is allowing patients to ask the right questions to providers.   We                       believe this is a positive trend because it   represents the confluence of the same forces that have helped expand our   business. 

UBC is an organization built on evidence.   Compiling and interpreting data is central to your skill set. How do you   believe                          the current debate on the disclosure of   biopharmaceutical clinical trial data is going to play out? Is there a   downside to                          the goal of full transparency in public access   to this data? 

I have only a personal   perspective to share. It is very early in the debate; there is room for   evolution from both sides on                       the issue. We know how the business model works:   companies sponsor and fund their own controlled trials based on an   approved                       design and retain the rights to disclosure beyond   the regulatory dossier as proprietary, commercially sensitive   information.                       This data is compiled to support a product   submission. It is also used to establish the core components that will   help differentiate                       that product in the market. 

With so much on the   line commercially, one has to wonder what the incentive is to share that   data in an uncontrolled manner,                       with outside groups. Will the data be useful in   answering key questions that relate to public health and safety while   preserving                       individual privacy? When groups are unfamiliar with   the details on how that data has been amassed, there is the potential                       that conclusions can be rendered based on facts   that are misconstrued – the "big picture" gets obscured in pursuit of   the                       small. So I think careful ground rules—a better   term might be guardrails—must be in place before we venture down this   road. 

I would also add   that we already have a great deal of shared data in the form of   publications that compile study results from                       various complementary, contemporary sources – the   meta-analyses. What seems to be motivating those who want more   transparency                       is the ability to get access to very raw data   rather than an overview of results. I don't think we have devised a   method to                       do that without creating privacy, confidentiality   and intellectual property bottlenecks. The responsible course is to   retain                       confidence in the entire trial system by allaying   these concerns, but we're not there yet. 

As a senior manager, what are the behaviors you believe to be most critical to achieving your business mission as a leading                          strategic service provider to biopharma? 

What distinguishes the   biopharmaceutical industry today is the imperative to be global. My   biggest priority has been to transform                       a structure geared to doing business in one area to   doing business without boundaries—on a global scale. Today, we have 18                       offices around the world. At every hour of the day,   someone is awake and working for UBC. The challenge is how to ensure   that                       the colleagues in Germany and the US or the UK are   working seamlessly to move the organization forward. This brings me to                       a related point: as a service business, our   greatest asset is people. I spend a good part of every waking moment   thinking                       how do I attract the top talent in our field? How   do I ensure that I keep the talent we have energized and engaged, with a                       strong learning curve? What are the structures UBC   needs to create leaders able to deliver consistently high performance   against                       the competition? 

My response is to   focus on values —I should cite Express Scripts values of integrity,   mutual respect and passion—that foster                       collaboration across the organization. Values are a   way of overcoming the distractions imposed by geography, language,   local                       standards and cultures. We make these values   central to the business mission we have laid out, in a variety of   formats, to                       our approximately 2,000 employees worldwide. The   values are embedded in every manager's annual performance goals. For   example,                       each of my direct reports has an annual objective   centered on hiring the best people and limiting group turnover. These   two                       levers must work in tandem, because if you attract   talent but then fail to keep it, the business won't grow. 

What about the potential of individual initiative, as opposed to "group think"? Is it possible in a large organization for                          a single person to make a difference? 

You will hear this from   everyone you talk to at UBC: if we want to make a difference for this   industry, we have to act differently.                       Every individual we employ should feel empowered to   make another individual—our customer—happy. When we go out and decide                       we are going to work for a biopharma client, that   client has a right to expect he or she will get knowledge, expertise,   awareness,                       discretion, follow through and proactive   communication. Each and every one of these capabilities will be designed   and implemented                       by an individual, acting either alone or more   likely as part of a team. They will be individuals we have in-house; we   don't                       do pass-through projects reliant on hired help or   freelancers. As I said, we try to hire for keeps. We strive for a   balance                       among people with strategic insight and people with   technical skills. Added to that is a commitment to diversity, including                       the active recruitment of staff with different   geographic backgrounds. 

Although UBC has long positioned itself as a global entity, your new parent company is heavily focused on the US market. Do                          you have a mandate to extend UBC's global orientation to the rest of the Express Scripts family? 

I have expanded the operation   to where we now have a ground presence in 25 countries. It is true that   Express Scripts has                       focused primarily on the US. It is a PBM; that   business model was designed here for a multi-payer system. It may not be   appropriate                       for other countries with a different payer base.   But I am part of the Express Scripts leadership team. I spend part of   every                       month with the CEO, George Paz, and his senior   leadership team in direct discussions on ways to help grow their   business.                       I can say it is readily acknowledged that potential   activities outside the US are necessary to keep the overall business   growing.                       UBC has a significant role in recommending what the   combined organization can do to stay flexible about new opportunities                       in global markets. 

Any learnings you can highlight to date from the integration process with Express Scripts? 

 UBC started out as an   entrepreneurial enterprise. I was a founding Board member. We were   fortunate to grow beyond that and                       benefited as well from a gradual transition to the   marriage with a big partner. We did it in two stages: first we became   part                       of Medco. That gave us the experience to handle the   still larger merger with Express Scripts. 

In any merger,   communications is critical. But what is even more important is to   approach the integration with the conviction                       that the sum is going to better—not just   bigger—than its parts. You don't want to put the focus on the   organizational fit                       while failing to facilitate changes that will   actually grow the combined business. I had to accept and understand the   fact                       that UBC would benefit from being part of a bigger   platform. For example, I have been surprised to learn how Express   Scripts                       is really a very strong technology company—like   many people, I thought it was a distributor and pharmacy claims   processer.                       UBC is now leveraging that strength. 

How do you define success in your position in three years time? 

I have three items on my list   of performance objectives. The first is growing our talent base. Next, I   intend to demonstrate                       on the basis of clear metrics that the combination   with Express Scripts has contributed to a reduction of waste in the use                       of medications in the health care system. Finally, I   have committed to meet specific revenue growth targets—in the double                       digit range. 

You have been active in this industry for 25 years, moving steadily up the ladder toward the CEO suite. What might you say                          to a younger colleague interested in learning from your experience? 

What has worked for me is   recognizing that you can learn a great deal from other people,   especially if you consider that each                       encounter is unique. One of my early mentors taught   me how to listen. Another showed by example that the benefit of   teamwork                       comes not from striving to be the person in charge   but from learning how to navigate through conflicts, build consensus and                       make everyone else look good first. My predecessor   at UBC gave me a firm financial grounding—metrics and numbers count;   they                       define goals, and serve as a rigorous benchmark of   success. And I would have to cite my own mother for insisting that   everyone                       should be treated with respect, regardless of their   standing in the organization. 

What a striver has   to do is to seek —and in seeking you shall find, not necessarily from   one individual but from the collective                       legacy of all those who pass through your life.   Such encounters take place for a reason because, if you discover   positive                       traits from others that you can make your own, they   will advance your potential as a successful contributor to society.   Appreciation                       for diversity and individual differences helps make   our culture whole. I point to myself as an example: An immigrant, I   came                       to this country as a child, from Jamaica, and I   found education to be the ultimate integrative experience. I have made   education                       my key external commitment and am proud to be a   co-founder of the Reach One Child Foundation, which provides schooling   and                       mentoring support for disadvantaged children in   Jamaica. 

We're in an industry that changes every day--so I do keep an eye on all the players. Today, I believe that un-integrated models                       are not what pharma needs, so we're watching other companies that understand this. 

The word of tomorrow   is "specialty," our competitors will align their services around the   unique needs of specialty therapies,                       just as we've already done. The market will change   as development and niche providers integrate in the name of parallel   evidence                       development. Along with the maturation of   technology offerings, certain providers should be able to grow with   potentially                       less intense capital investment. Market-leading   commercial solutions that influence drug price, delivery, utilization,   administration,                       position, promotional mix, and prescriber loyalty   will grow exponentially. 

Features

For Patrick Lindsay, providing decision support across the full product life cycle is no stretch goal-it's today's fact of life

Executive Profile: United BioSource's Patrick Lindsay

Sarah has been living with her disease for thirteen years now. Her treatment plan involves regular visits to doctors as well as several different drugs. This month, like every other in the recent past, Sarah has held off on committing to events. Whether it is her granddaughter's recital or her husband's alumni lunch, Sarah responds to every invitation with the same answer: "We'll see."  

"We'll see" is code for people like Sarah, patients trying to manage a life in the midst of chronic but erratic pain. It's ironic that Sarah's treatment plan excels at charting the long-term progression of her disease while giving her no way to chart its progress on a day-to-day basis. This leaves patients like Sarah feeling socially isolated with no way of predicting and preparing for daily activities. What if a pharmaceutical company were able to deliver the benefit of consistency to patients like Sarah?  

A few pharma companies have started taking steps in the direction of "patient-centric" health care, and are using patient insights to guide early drug development and clinical trials.  

What is the best way to benefit someone managing a life with Sarah's disease? How do people live and work with this disease? What are their daily concerns?  

The point here is to understand the contextual needs of the patients. It is insight into human behavior, and that requires an anthropological approach: open-ended observations and nonlinear problem solving. Patient-centric health care focuses on a deep understanding of the everyday life and context of patients, prescribers, and payers. How are their perceptions, choices, and behaviors formed? It delves deeply into actual human behavior, often debunking industry norms, assumptions and expectations, to deliver one or two clarifying insights rather than a vast quantity of data points. 

For example, in our work with a number of chronically ill people—administering their own medicines by taking a particular number of tablets, injecting a particular volume, or inhaling a particular number of times —we found that the majority of them had a negative association with taking the max dose. Even when a doctor directed them to use a dose level of 3 tablets, say, many of the patients would find some kind of compromise: I'll use a dosage of 2 because I don't actually "feel" like I'm at 3. This perceived danger of dosages at the "maximum" or "high" end of the spectrum has no correlation with actual medical science and yet it is an insight into human behavior that pharmaceutical companies might consider for innovation opportunities. In fact, the phenomenon exists in all the various disease cases we studied. 

This kind of insight—patients tend to avoid the perceived risks of a maximum dosage by moving onto a new treatment—offers up unexpected innovation opportunities for drug development as well as for secondary services like education. In a marketplace growing ever more crowded, such patient-centric innovations provide genuine points of differentiation with competitors.  

In our experience, the patient-centric approach can be used to: 

» Design success parameters for a new drug in the earliest phases: beyond the core benefit, what other key benefits can the drug deliver on? How might this drug deliver on recognizable points of differentiation from competitor drugs? 

» Guide clinical trial design: How can we structure trials to test the core benefit as well as key benefits that go beyond this core benefit (while still getting the end-points right)? 

» Create a cohesive disease area strategy 'beyond the pill:' what key elements beyond the drug itself are needed to deliver the most value for patients and providers? How can a pharma company be a trusted partner in delivering on these secondary products, services or education? 

When we refer to patient-centric health care, we are really talking about how to create genuine value for the customers we serve. We can never truly understand how to better design products, services and education until we understand how patients perceive the experience of living with their illness. 

is a Partner at ReD Associates. She can be reached at: 

is a Partner at ReD Associates. He can be reached at: 

is Senior Manager at ReD Associates. He can be reached at  

A patient-centric approach to drug development delivers the benefits that actually create value, writes Charlotte Vansgaard and Mikkel Brok-Kristensen.

Develop Drugs for People, Not Just Bodies

The costs of keeping people healthy, or at least alive and out of the hospital, continue to grow. Whether it's another percentage point of GDP, another out-of-pocket catastrophe for a patient, or simply a rise in monthly health insurance premiums, everyone gets stuck with the bill. 

Surely generic utilization is an important element of any cost-saving scheme, since patients get the same medicine for a fraction of the price. Developed nations as a whole – defined by IMS Health as the US, Japan, Germany, France, Italy, Spain, UK, Canada and South Korea – reduced their medicine spending for the first time in 2012, in part due to stronger regulatory rules promoting generic substitution, according to a recent IMS Health report.  

In a separate report published last month, ProPublica authors Charles Ornstein and Tracy Weber wondered why US Medicare is "wasting hundreds of millions of dollars a year by failing to look into doctors who disproportionately prescribe brand-name drugs." To find out why generics sometimes aren't being prescribed when they're available, Ornstein and Weber asked the prescribers themselves. Below is a selection of those responses, published by the authors' permission. 

Why do some doctors prescribe more generic drugs than others?

Brand vs. Generic: Physicians Weigh In

When regulatory officials impose a Consent Decree, biopharmaceutical companies often experience a litany of side effects along with it: tarnished reputations, lost sales, massive fines and remediation expenses, hostile working environments, diminished morale, legal disputes, employee retention problems and product shortages, to name several. No stakeholder or aspect of the business is left untouched. It takes a broad-based effort to effectively address the concerns of regulatory agencies while simultaneously managing a company's current and future business. This effort goes beyond simply developing and executing a remediation plan; executives are tasked with balancing a need to survive the remediation period with an equally important mandate to set the company on a trajectory for future success.  

A Consent Decree (CD) is a three to five year court-approved legal agreement between a company and a US regulatory agency, enforced by the US Department of Justice. By agreeing to the terms of a CD – which is often a result of one or more inspections or investigations by the regulatory agency – a company may be allowed to continue manufacturing and selling products, but with strings attached. Commercial activity is highly scrutinized, with significant limitations on how and when a product may be sold to customers. In some cases, production is halted entirely at the impacted sites until the remediation efforts are concluded. 

CDs don't usually fall out of a clear blue sky. They're typically preceded first by signals like recalls and Warning Letters, and then by a major agency enforcement action like a product seizure or injunction. The volume of FDA's initial signals is trending up across the industry, suggesting serious and widespread compliance breakdowns. As a result, major enforcement actions leading to CDs are on the rise. A related increase in monetary fines imposed through civil and criminal penalties also suggests a more active and intense regulatory agenda at FDA. 

On top of enforcement actions and financial penalties, CDs could lead to other adverse events. The recent manufacturing suspension of an oncology product made it difficult for patients to access adequate supplies of a life-saving drug. Even when the situation is less dire for patients, but popular products still fail to reach the consumer, brand loyalty is negatively impacted. Inside company walls, a CD could shake an organization's cultural foundation for years to come. A hostile environment can impact employee morale and push talent out the door. When a CD is imposed, dozens of contractors and/or new employees may join the organization. Roles and responsibilities rapidly change.  

A prophylactic compliance structure to prevent the onset of a major regulatory action is a strong strategy. But when something does happen, it's equally important to minimize as much as possible the impact to the business. Many companies are reassessing their compliance practices, embracing Quality by Design, improving quality controls, adopting forward-looking compliance metrics and emphasizing a culture that respects and builds quality into everyday business operations. Addressing these areas proactively versus dealing with them after a regulatory action occurs is an important way to prevent the negative financial, cultural and social impacts of a CD. However, being able to continue operations when a major regulatory incident has occurred is equally as important.  

Effectively Managing a Business through a Consent Decree

Whether currently under Consent Decree or on a path toward one, our client engagements have given us an opportunity to see how a wide variety of diverse manufacturers and executive management teams respond to this very difficult environment. Companies commonly use a point solution or functional response approach to addressing the situation. While regulatory and QA experts and leaders are a critical part of the response team, the magnitude of the problem requires a holistic response that coordinates the remediation effort with the ongoing business operations. Senior executives should be involved in the day-to-day decision-making and planning required to address a remediation order while maintaining viable, compliant business operations. While quality and regulatory executives are making time-sensitive, compliance-driven decisions, those decisions should concurrently be sustainable and viable for the business over the long term. Sustainability is a more likely outcome when there is an executive team that represents all aspects of the business dedicated to the remediation efforts, including the allocation of resources between remediation activities and the core business operations, and the development of a compliant and sustainable operating model.  

To create a sustainable model, compliant behavior and actions should be the easy thing to do; complex and cumbersome processes have a high probability of failure. Instead of throwing resources at compliance problems, executives should identify and address root causes, and develop meaningful training and education for employees. Fostering a healthy tension between different stakeholders, business functions and perspectives—enabled by a formalized communication process—can bring about mutually acceptable, long-term outcomes. Employees should be able to raise their hands about potential compliance issues without fear of retribution. 

You are in the Consent Decree business now 

In the normal course of business, a company should recognize warning signs prior to being subject to a CD. Increasingly, some companies are leveraging and enhancing current risk management processes and procedures to monitor activities that are indicative of underlying quality or compliance problems, and raising them to senior management's attention. For example, complaints from employees or human resource activities regarding disagreements with superiors can have their origin in ethical issues associated with manufacturing processes and procedures. By turning a blind eye to the problem, a company makes itself vulnerable to metastasizing compliance and quality issues that could end with a major enforcement action. Identifying an issue is the first step toward corrective action, and should be followed by an assessment of potential safety impacts and an evaluation of different options. The impact of a CD is significant, and companies should keep in mind the collateral damage to the business. 

When a company enters into a CD, its business environment is dramatically changed, virtually overnight. A common reaction by senior executives is to try to manage the CD as a 'project' and keep the rest of the business operating as near to normal as possible. But business as usual isn't likely to work. Remediation efforts under a CD typically last three to five years, even if the "planned" remediation period is shorter. At the beginning of a CD period, it may be tempting to take advantage of opportunities to manufacture product whenever they arise. But leadership should embrace the fact that without meeting a CD's requirements, there may not be a business to run. Manufacturing in a relatively normal fashion may be possible, but selling products is an entirely different matter. The decision to manufacture product at risk is a business decision that involves business unit leaders, manufacturing personnel and QA/RA. Once the risk management aspects of production have been agreed upon, these decisions need to be communicated to employees and contractors in all departments of the company. Management should be clear about the manufacturing go-forward plan and how product disposition will be handled.  

An enforcement action often signifies the need for real change in a company's culture and behaviors. Creating a culture that respects and demands compliance from all functions within the business is crucial to long-term survival. Successfully doing this may require: 

» Establishing unquestionable direction and support for quality and compliance from the CEO level through written communications, sufficient resourcing, and decision-making from product development through distribution. 

» Placing compliance officers and QA executives in senior positions in the company with direct access and reporting authority to the chief executive officer and the audit committee. 

» Clearly defining what compliance means for every role in every function in the organization and communicating new expectations to employees. 

» Holding the entire organization accountable for compliance and quality and reinforcing the desired, compliant behaviors through appropriate incentives. 

» Changing the focus of operations from a product release mindset to a high quality, compliant product release mindset.

» Ensuring that employees at all levels understand the value of compliance and embrace this is as a core attribute of their culture and behavior.  

» Evaluating the impact to compliance and quality when making business and operational decisions. 

As we've noted, a comprehensive approach is needed to manage all aspects of the base business along with the remediation effort. At the core of this is a strong focus on governance that is measureable and accountable for results. The governance structure for the CD effort should bring together the right leaders with an appropriately defined scope of responsibilities. This focus and clarity, along with goals aligned with leadership at all levels of the organization, both at the facility under CD and the organization as a whole, can be crucial for success. Wedding remediation efforts with the base business to effectively steer a company toward calmer waters requires careful coordination; compliance efforts are only as strong as the weakest link in the chain of necessary components: planning; organization and people; communication; risk and sustainability. The integration process and interdependencies between components is often an area where companies fail to place enough emphasis.  

When it comes to managing a company through a CD, a failure to plan is a plan to fail. The "new reality" of a CD requires planning and processes geared toward recognizing this inconvenient truth. Operating a manufacturing plant "full out" to meet production targets, for example, without an equally intensive focus on quality, can make matters worse. Production plans and targets —and the resulting sales and financial forecasts—should be adjusted to reflect this new environment.  

Planning should extend to future quarters and years, not just the coming weeks and months. Extended horizons can lead to better resource planning and capital budget pre-allocations; it doesn't pay to pick up the pieces only after they fall. Anticipate unexpected expenses and build in allowances for the inevitable "gotcha" moments. Unfortunately, production planning and release rates are often the first casualties of the new operating environment. Long-term lower output and longer release cycles can be a difficult pill for executives to swallow, but other employees and stakeholders won't stomach unrealistic expectations. 

Existing quality system processes and procedures, such as corrective and preventive actions (CAPA) or document review, often aren't equipped to deal with the volume and stress of a CD. An increase in traffic can lead to gridlock. Also, breakdowns in legacy quality systems may have played a role in the onset of an enforcement action. It's important to assess and modify these processes to accommodate the increased workload and more stringent requirements.  

Organization & People: Focus on culture and resource management

The origin of corporate culture is leadership. Under a CD, appointed leaders should demonstrate an ability to drive change throughout the organization. But rather than assigning top talent to base business operations, consider deploying leaders on the more complicated and critical portions of CD commitment. An individual's penchant for problem-solving should be prioritized over a history of compliance or quality assessment experience to succeed in a complex, high-pressure and regulatory-constrained environment.  

Once the best talent has been placed, and metrics have been assigned to assess and confirm these roles over time, it's just as important to clearly define responsibilities, interactions and hand-offs with existing governing bodies across the organization. In addition to structural changes—committees and managers who oversee the CD remediation effort should report directly into the C-suite—companies should focus on the importance of knowledge transfer. The volume of external contractors and the constant ebb and flow of project team resources require robust mechanisms for sharing information, resources and insight. Without a combination of clearly defined responsibilities and efficient knowledge transfer, resources are lost in the revolving wheel of project teams and contractors. 

CD commitments can dominate many areas of the organization and dramatically impact the culture. Leadership should proactively monitor cultural changes stemming from the execution of CD commitments, while simultaneously defining and shaping a future-state organizational culture of quality and compliance. 

Communication: Under-commit and over-deliver

Dialoguing with regulatory officials and internal stakeholders about the requirements and outcome of an enforcement action can be a ticklish (and tendentious) affair, but there are good and bad ways to negotiate and then execute the terms of a settlement. Fines and other penalties related to delays can compound an already undesirable position, sending share prices down and damaging a company's credibility with the FDA. Minor delays will inevitably occur, but a well-considered strategy and communication plan can mitigate and sometimes prevent the more costly infractions associated with remediation.  

One of the biggest mistakes that clients make is the submission of a plan with a compressed and aggressive timeline that is unlikely to be met. There is little to no advantage in giving regulatory authorities project timelines that are overly optimistic and that place an unnecessary strain on project teams. In their anxiety around the future and the haste to appear responsive to regulatory agencies, many senior executives task the development of commitment plans and timelines to the regulatory and quality team. While this may appear prudent on the surface, these individuals – though very knowledgeable and skilled in regulatory compliance and quality principles – may not have the operational knowledge or experience when it comes to execution. The right mix of regulatory, quality and operational experience is necessary to develop pragmatic timeframes that recognize the realities of day-to-day operations. We aren't suggesting that senior executives knowingly marginalize the importance of the CD, but many simply don't realize the magnitude of the impact to the base business and the critical need to manage both in an integrated fashion. 

A communication plan for internal stakeholders is also important, since the execution of CD commitments is a long-term journey requiring the participation of all employees. Understanding the specific needs of different stakeholder audiences is key to delivering the appropriate messages—in the right place and at the right time—to keep employees informed and committed.  

Risk & Sustainability: Quality and the core business

Companies sometimes overcompensate for compliance shortcomings at the beginning of a CD: a non-compliant, production-focused operation that over the years swung the pendulum further away from quality and compliance suddenly overnight swings in the direct opposite direction, focusing on quality and compliance while neglecting production. While this may be necessary to deal with short-term issues, over-restrictive procedures leaning heavily on oversight and reactive methodologies can be unsustainable over the long haul. Once these restrictive processes are in place, they can be very difficult to back away from.  

To avoid a quality and compliance function that compromises core business objectives, sustainability should be built into revised standards, procedures and associated documentation. Using a post-facto "inspect quality" mindset across the board can hamper recovery; processes should reside in a system that is both compliant and viable from a business standpoint. Building sustainable processes and systems may take a little longer, but is well worth the wait over the longer term.  

The importance of balancing risk and creating a sustainable model that can outlast the terms of a CD can make or break a company. Organizations that identify and then walk the middle line, which minimizes shortcomings on both the quality/compliance and business objective sides of the equation, position themselves for a successful outcome. 

For Life Sciences companies facing a major regulatory action such as a warning letter, or full Consent Decree, business as usual is about to change significantly. The most visible impact of a CD can be seen on a company's bottom line, and the financial costs span the entire value chain. Adding together the most common financial costs such as surrender of profits, independent oversight fees, recalled/destroyed product, facility and labor overhead due to suspended operations, and lost sales, the price of a CD can easily exceed $1B for larger companies.  

In addition to direct financial impact, other areas of the business may be affected just as significantly, but in less immediate ways. The black cloud of a CD hangs heavily, and can push decision-making toward conservatism, risk avoidance, bureaucracy and micromanagement. Company morale, retention and recruitment can suffer as a result of a CD, leaching talent to competitors.  

It's always challenging to manage a company during a time of extraordinary change and upheaval. But companies that create and follow a strategic plan that anticipates a day when the storm clouds lift have a better chance of getting there. In summary, and in our experience, companies are most successful when they: 

» Create a "Consent Decree First" culture and environment 

» Are thoughtful and deliberate, because the Consent Decree is a marathon, not a sprint; the company is in the Consent Decree business for the long haul and should be managed with that reality in mind 

» Manage regulatory bodies effectively with realistic project plans that can be exceeded without major additional effort; project plans should not be reviewed and approved solely by business owners and compliance experts, but by the most senior leaders in the company ( i.e., they should not be developed in a vacuum by regulatory or quality executives) 

For senior executives, meeting the requirements of a Consent Decree to the satisfaction of regulators is only half of the job.

Prescribed Behavior: Operating Under a Consent Decree

Financial results and trends for any industry are mainly driven by operational business imperatives, but external factors can be significant as well.  

Business issues include ongoing structural challenges in pharma and biotech such as a very different R&D/commercialization dynamic; changing relationships with patients and providers; shifts in patent laws and regulation, reductions in government spending and unpredictable behavior with regard to pricing, market access and IP. External factors include a global economy struggling to resume growth and financial stability; continuing government efforts to prevent a Euro zone economic and financial meltdown; political uncertainties linked to the phase-in of comprehensive health reform in the US; economic slowdown in emerging market economies like India and Brazil; and a positive surge in Western stock market valuations. 

These external factors have had an enormous incremental effect on the financial trends in pharma and biotech this year and will continue to have an impact going forward.  

A recent report "Pharma and Biotech Strategic, M&A, and Financial Trends Report" by Young & Partners covers the first three quarters of 2013 and the outlook for 2014. The report presents a separate view of both the pharma and biotech industries and tracks :  

» The strategic and business environment for both industries

» Stock prices and P/E ratios within proprietary index groups of pharmaceutical and biotech companies

» Completed M&A deals of $25 million and up 

» Issuance of non-bank debt and equity. 

Looking back, pharma merger and acquisition volume in 2012 was fairly soft in terms of the number of deals and dollar volume. The slowdown was partly a function of a reduced number of larger deals across all industries as the uncertainties around the European economic crisis, the US presidential elections and fiscal cliff negotiations, and concerns about a slowdown in China. However, the strategic needs of Big Pharma were sufficiently strong to cause important, but smaller transactions to go forward. 

Through the first three quarters of 2013, there was a further slowdown in dollar activity, but a similar pace in terms of the numbers of deals completed, bolstered by a surge in Asia. As of September 30, only one deal above $1 billion in value has been completed which was the acquisition of Bausch & Lomb by Valeant. Three other billion dollar plus deals had been announced, but not closed.  

The slower pace is driven by a number of factors. As was the case in 2012, Pharma companies have been tentative with regard to larger acquisitions given the host of uncertainties they are facing. In addition, the valuations of publicly traded pharma companies have gone up considerably, making public company acquisitions more expensive. 

Pharma share prices performed well in almost every sector. The Young & Partners ("Y&P") Generic index and the Y&P Ethical Pharma indices in the US and Europe were buoyed by a strong overall stock market. This has resulted in very strong P/E multiple increases from what were previously anemic levels languishing far below their very high levels in the 1990s and earlier.  

Debt issuance by the Pharma industry fell significantly during the first three quarters of 2013 along with the drop in M&A activity. Over the past few years, much of the debt issuance in pharma has been tied heavily to larger M&A transactions. Equity issuance was also relatively modest, including IPO activity. 

On the biotech side, M&A volume has historically been very weak and was at low levels from 2007 to 2011. Acquirers were selective and alternatives to M&A, such as partnering and licensing, played a prominent role. That changed in 2012 as biotech M&A picked up to 2006 levels and higher with the $10.3 billion Pharmasset deal and four other $1 billion plus transactions completed. This proved not to be sustainable. In the first three quarters of 2013, the number of deals has been healthy, but the dollar volume was very weak. A combination of high stock market valuations and the bidding up of prices for late stage biotech companies has dampened big Pharma's pursuit of certain biotech companies. 

The stock market has renewed its ardor for the biotech industry. With relatively low market float, modest to moderate movements of capital into the biotech sector have caused very significant increases in the price of shares as investors have searched for places to invest in growth areas. 

In terms of biotech financing, debt issuance has been at a virtual standstill as debt markets shun the biotech sector. However, the situation has been quite the opposite in terms of equity offerings. The strong IPO market generally, coupled with the equity markets' renewed attraction at least with biotech, resulted in a high level of equity issuance, including IPOs.  

Pharma stocks—strong price performance 

In the first three quarters of 2013, the S&P 500 did well, increasing by 15 percent, while the FTSE Euro Top 100 increased by 7 percent. The pharma industry did slightly better, the Y&P US Pharma index increasing by 18.9 percent over that same time period, while the Y&P European Pharma index rose by 12.4 percent, and the Y&P Generic index by 30.1 percent.  

Valuations have also increased significantly, with the most dramatic increases occurring in the ethical pharma sector. The Y&P US Pharma index P/E ratio increased from 18.6x at the end of 2012 to 23.5x at the end of the third quarter of 2013. The Y&P European Pharma index increased similarly from 15.1x to 21.4 x over that same time period. 

The Y&P Generic index increase was less impressive, increasing by a small amount from 22.9x to 23.6x over the same time period. This was partly driven by earnings increases. 

These multiples have improved, but they are still dramatically down from where they were just a number of years ago, when the pharma industry was viewed very differently. The pharma industry was once viewed as a stable, profitable, high growth industry. The industry is now viewed as far less stable with industry uncertainties everywhere and predictable, profitable growth a distant memory.  

The significant turnaround this year has been welcomed by investors and the industry.  

We will see even more positive changes when the industry regains its footing, which depends in turn on when the market has confidence in the industry's structural stability going forward.  

In the first three quarters of 2013, 29 deals were completed worth $11.6 billion versus 38 deals completed, worth $30.9 billion, during all of 2012.  

This represents a significant slowdown in dollar activity, but a similar pace in terms of the numbers of deals completed, bolstered by a surge in Asia. The one deal above $1 billion in value was the acquisition of Bausch & Lomb by Valeant for $4.6 billion. The next largest deal was only $879 million; the acquisition of Guangzhou Baiyunshan Pharma by Guangzhou Pharma.  

In comparison, there were five deals valued at over $1 billion (equity value) in 2012, primarily strategic deals: Couckinvest NV's acquisition of Omega Pharma NV for $1 billion, Sandoz's acquisition of Fougera for $1.5 billion, TPG Capital's acquisition of Par Pharmaceutical for $1.9 billion, GlaxoSmithKline's acquisition of Human Genome Sciences for $2.8 billion and Bristol Myers Squibb's acquisition of Amylin Pharmaceutical for $5.1 billion.  

However, there are signs that the pace is picking up. As of September 30, 2013, the value of the deals announced but not closed was $29.9 billion (17 deals), the largest of which is Amgen's acquisition of Onyx.  

Pharma debt and equity financing—limited, but readily available

Pharma companies have generally been perceived as strong cash flow generators, so investors have, thus far, felt comfortable lending to the industry in their pursuit of yield. Borrowing levels have been more a function of the issuers' needs. 

In the first three quarters of 2013, non-bank debt issuance was $25.4 billion compared to $50.9 billion for all of 2012, a significant decrease in activity. This is directly related to a slowdown in M&A activity and the related financing that would have been required. 

Equity issuance in the first three quarters of 2013 showed a meaningful increase on a very small base, with $4.6 billion of equity issued compared to just $3.5 billion for all of last year. There were three IPOs in the first three quarters of 2013. 

Although the equity issuance activity has been modest, it has not been due to a weak overall IPO market since the IPO market for life sciences has been strong this year. Instead, it is because Pharma's need for public equity capital has generally been limited. 

Against a backdrop of strong general market performance, the Y&P Large Cap Biotech, Y&P Mid Cap Biotech, and Y&P Small Cap Biotech Indices did exceptionally well in the first three quarters of this year, increasing by 58 percent, 68 percent and 161 percent, respectively. This is a continuation of their strong performance last year. 

Equity markets have fallen in love with the biotech industry again. With relatively low market float, modest to moderate movements of capital into the biotech sector have caused significant increases in the price of shares as investors have searched for growth areas to invest in.  

For some time, market sentiment towards the biotech industry was decidedly mixed, except for established biotech companies and companies with positive late stage data. But the sentiment changed last year and continues this year. 

Big Pharma and biotech continue to need each other. But biotech is feeling slightly more confident as the options for IPOs get better, writes Peter Young.

Pharmaceutical Executive-12-01-2013

The Best Price for the Most Revenue

Executive Profile: United BioSource's Patrick Lindsay

Develop Drugs for People, Not Just Bodies

Brand vs. Generic: Physicians Weigh In

Prescribed Behavior: Operating Under a Consent Decree

2013 Pharma and Biotech Financial Report

Country Report: Canada

Big Stakes in Small Things