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The populist-driven shifts trumpeted from the US to the EU leaves plenty of question marks when trying to size up the trajectory of the global pharma industry. One certainty, however, will be change.
The populist-driven shifts sweeping the US and EU have triggered plenty of questions when trying to assess the outlook for the global life sciences industry. One certainty, however, amid post-Trump victory and pro-Brexit mandates, will be change, as Pharm Exec’s annual industry forecast explores.
Perhaps more than ever this year, there is no escaping that ubiquitous word “uncertainty” in our annual look at what’s ahead for the biopharma industry. Donald Trump’s victory in the US elections and the UK’s vote to leave the European Union in 2016 were political earthquakes with aftershocks for pharma that could alter the landscape all the way from the already unsteady terrain of drug pricing and trade deals with emerging market countries to the labyrinthine administrative headaches generated by Brexit. In practice, whether the doomsayers or the optimists will see their visions realized will be dependent on how this shift to populism is ultimately strained through political filters, but for 2017, as Pharm Exec Editorial Advisory Board (EAB) member Cliff Kalb points out, pharma should expect that the major environmental constant will be change.
As Kalb reminds us, policymakers in both the UK and US are expected to reflect the will of the voter through their pro-Brexit and Trump victory mandates. Elections in France, German, and Italy may reinforce the trend as 2017 progresses. In the US, pharma is anticipating the demise of Obamacare, repatriation of overseas profits, and reduced regulation and taxes, freeing up cash. In Europe, the environment may change more gradually, but populist/nationalist attitudes place the Euro at risk and could see the potential rise of individual country level policy and regulatory regimes and a return to local currencies.
And there are still industry issues that will cause headwinds to growth, adds Kalb. “New therapies, such as combinations in cancer, a proliferation of orphan drug approvals, and the continuing shift in care from volume to value will offer up ongoing controversies around pricing, market access, and the industry’s public perception,” he says. “In the US, the end of the ‘free money’ Federal Reserve era may stimulate increased M&A, which ultimately results in employee uncertainty and redundancy.”
For Al Topin, president, HCB Health Chicago, 2017 is going to be “a maximum VUCA year.” First used at the US Army War College in the 1990s, “VUCA” was a framework to describe the volatility, uncertainty, complexity, and ambiguity of general conditions and situations of the Cold War. Topin comments: “Even before the election process began, the processes of development, commercialization, and marketing a new molecule was fraught with ever increasing risks. Add a new, unpredictable administration driving a shift in the legislative, regulatory, and financial environments - and VUCA clearly describes circumstances.”
We begin 2017 with more questions than answers, says Topin, among which are:
Clearly, adds Topin, we are entering the world of “unknown unknowns.”
Trump caused another upset after the election when he bluntly and, for some, unexpectedly announced that he was going to bring down drug pricing. For ZS Associates’ Ed Schoonveld, however, the pricing trends that were already under way-the shift to value and affordability-will continue irrespective of the US election outcome: “I don’t think anybody believes Trump is going to do things in total isolation,” he says.
Ipsos Healthcare’s Steve Girling, also a Pharm Exec EAB member, notes that “payers will continue to demand evidence cost savings as manufacturers invest significantly in real-world evidence generation strategies to provide the proof points to match the costs-versus-value arguments.” He points to established, chronic care markets like diabetes, which “will continue to feel the pressure from extensive competition in an ongoing price versus outcomes-driven payer paradigm.”
In oncology, though advances are leading to increased competition for immunotherapy treatments, different pricing dynamics seem to contribute to an escalating and unsustainable trajectory. “Will the new Republican administration’s action(s) regarding possible reforms to (or repeal of) the Affordable Care Act (ACA) and Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) impact the overall cancer care of Americans and the cost of it?” Girling asks. Big science, with complex delivery solutions, and hopefully cures, seem like opportunities for “Trumpcare” to win “bigly,” if they can reach patients without bankrupting patients.
As for rare disease, another area where the industry can’t help but make big headlines with dollar signs and lots of zeros, Biogen and Ionis Pharmaceuticals showed no sign of reversing the trend by pricing newly-approved Spinraza for spinal muscular atrophy at $125,000 per injection, a price point that comes to $750,000 in year one of treatment, and $375,000 per year in perpetuity. Op-Ed sections seem to have been relatively tame in response to Spinraza’s sticker shock, so far hinting at the fact that high science and the pursuit of curative treatments for devastating areas of high need will be rewarded.
But the fact that the news hit during the holiday season might also explain some of the quiet. Except for a mention in the President elect’s profile in Time’s Person of the Year issue, drug prices as a topic seem to be low on the list of priorities. But a well timed article, followed by even a slight comment or retweet, say during early January’s JP Morgan investor congregation in San Francisco, could have a chilling effect.
“The market has become significantly more difficult in terms of getting payers to cover new drugs, and one of the implications is that value communication needs to be much broader,” explains Schoonveld. “A lot of the PBMs (pharmacy benefit managers) and other payers have taken control; they’ve been empowered to make tough decisions.” The 21st Century Cures Act could facilitate easier communication of economic data to payers, but it will also be necessary “to communicate more broadly to provider organizations and medical associations, because the debate around affordability and value of drugs has clearly expanded,” says Schoonveld.
This pushback by payers “is not personal,” says Girling, however. “It’s global. Japan recently announced it would have annual price reviews rather than every two years, and for all products not just a selection. That’s another example of the need for the industry to demonstrate value.”
In Europe, all drug companies are faced with tougher pricing negotiations that are driven by ever-tighter controls on national health system funding across Europe. For Schoonveld, however,
most payers in Europe do not acknowledge that the need for pharmaceuticals is growing as the population is aging: “This is a side effect of the aging population, but payers are sticking their heads collectively in the sand.”
In 2017, things will get even tougher, as individual European countries combine their strength to negotiate jointly with drug firms on prices for new medicines. Pharm Exec’s Brussels correspondent Reflector explains: “Ireland is set to join with Austria, Belgium, the Netherlands, and Luxembourg in a new coalition to boost their collective bargaining power, and similar schemes are gathering impetus in the Nordic countries, the Balkans, and in Central and Eastern Europe.” (Click on sidebar above to read more about 2017's overall healthcare picture in Europe).
Looking toward the emerging markets, questions surround the impending fortunes of the BRIC nations. “There are two schools of thought on BRIC,” Marc Yates, director, Asia-Pacific and Emerging Markets, The Research Partnership, tells Pharm Exec. “One is ‘been there, done that, BRIC is old news.’ But the other is that you can’t isolate BRIC and say it is finished. The number one driver is the global economy and how it impacts those markets.”
China remains a major force. In 2015, it overtook Japan to become the second largest pharmaceutical market. With annual growth rates, as reported by Frost & Sullivan, of more than 18%, the country will reach the top position by 2020. China is seeing growth in the medical device, contract research, and API manufacturing sectors. The relaxation of the one-child policy for the urban middle-class may see a slight increase in the number of children born in China, with a potential impact on pediatric vaccines and private health uptake, says Yates.
But, as Reenita Das, partner at Frost & Sullivan, points out, market changes and currency devaluation are having a negative impact on “most of the segments related to pharma and life sciences,” especially some of the government initiatives. “Therefore, even 2020 care program is progressing slowly and might get delayed by few years,” Das says. There is also the delicate matter of Donald Trump’s resistance to the “One China” principal, and how trade relations will fare if he upsets China’s sensibilities by using Taiwan as a bargaining chip.
In Russia, however, there is “potentially a big upside” if Trump fosters a positive relationship with the country and sanctions are eased, observes Yates. But the country still falls behind western European nations in terms of research innovation and technology development, says Das, primarily due to lack of investment. Even so, the Russian pharmaceutical industry is still one of the fastest-growing across the world.
Brazil’s budget deficit was 10.1% of its GDP in 2015. Stimulating the country’s economy is going to be “a tough ask” if there are curbs on the amount of credit available, says Yates. In the pharma market, Das points out, the generics sector is anticipated to be the main factor for growth. Innovation and improvements in the medical equipment sector have also been consistent, she reports, and Brazil has the largest medical device market in Latin America. Medical imaging also has a large market.
Further, Das adds: “Brazilian hospitals are expanding and modernizing their existing infrastructures in order to improve their services. This is gradually leading to the significant penetration of IT solutions, such as hospital information systems (HIS), electronic medical records (EMR), and picture archiving and communication systems (PACS), especially in private healthcare providers. Technologies such as cloud computing and big data are expected to change the way healthcare is provided in the country.”
In India, the government continues to look at developing the country as a global healthcare hub. Says Yates, “India is looking outwards. If you look at companies like Ranbaxy, they’re looking to be global players, not just value commodity generics companies, so it is interesting to look at India not just as a domestic market but as an exporter of quality medicines.”
And despite its challenges, “India at present ranks amongst the fastest growing countries of the world in terms of GDP growth, a trend which is expected to continue for the next 10 years,” says Das. “The last couple of years have witnessed a large number of multispecialty hospitals coming up in all parts of the country. Driven by the increased domestic demand for high-end services as well as medical tourism, the healthcare sector has attracted high investments focused at making the existing facilities on par with developed nations.”
While technological innovation has an impact on all markets, many patients and providers in the emerging markets are embracing it at a faster pace, observes Yates. There are companies looking to “disrupt the whole model” in emerging markets with e-detailing and telemarketing, facilitating e-consultations or video consultations with doctors, and filing scripts through e-pharmacies. “The growing, urban-elite middle classes are online, comfortable with mobile technologies to a degree, and more willing to pay,” adds Yates. “There is a huge appetite for this in the emerging markets; they are quite open to change, whereas the rest of us may still be a little conservative.”
Further afield, Frost & Sullivan reported last year that Asia-Pac was the fastest growing region globally. In Asia and Southeast Asia nations such as Malaysia, primary care chains are expected to expand integrated services spanning across diagnostic and preventive care, strengthening primary care as the first point for healthcare services. Asia-Pac will also see a growth in private health insurance due to awareness of rising healthcare costs, awareness campaigns by insurance companies, and the push by governments for shared spending.
For Yates, the Association of Southeast Asian Nations (ASEAN) is interesting as it comprises countries such as Myanmar, Cambodia, and Laos alongside medical hubs with centers of excellence such as Hong Kong and Singapore. Thus, medical tourism among the better off in the ASEAN region is still seeing Singapore, for example, “punching above its weight.” Das points out that local manufacturing is gaining importance across the ASEAN environment due to the strengthening US dollar and high percentage of healthcare imports and the increasing presence of Japanese healthcare products and services. And the ASEAN Economic Community’s (AEC) efforts to create an open market place for medical devices, goods, and services across the region is expected to benefit both local and multinational corporation players in the next few years.
Vietnam, for example, is “definitely fulfilling its promise,” says Yates, despite a challenging environment. Many Japanese and Korean pharmaceutical and device companies have invested in the country and it is “one of the most preferred manufacturing destination in the region.” For Yates, however, Vietnam’s promise as “the next big thing” is still compromised by the fact it has a very young population, and has ongoing issues with red tape and corruption.
“Despite the difficulties, Asia [and Latin America] cannot be overlooked if companies desire to grow faster than their competition,” says Frost & Sullivan’s Transformational Health research analyst Siddharth Shah regarding the company’s recent Vision 2025: Future of Healthcare analysis. “To gain the edge, healthcare players must take the plunge, invest in these regions, find the right local partners, design custom strategies for each country, test them in pilots, and go large-scale.”
At pharmexec.com in December, John S. Linehan, an attorney in the Health Care and Life Sciences practice group of Epstein Becker Green, wrote: “In 2016, the populist trend in American politics was an undeniable factor behind Trump’s election victory as well as the ascendancy of Bernie Sanders and Elizabeth Warren within the Democratic Party. During upcoming months, industry observers will be looking for signs as to whether drug pricing is an area in which both parties can agree on instituting significant legislative action at the state and federal levels. The nature and shape of any such reforms will be highly consequential for the US pharmaceutical industry, which has served as a prime source of innovation in medicine. The question going forward is whether cool-headed reform that facilitates patient access to drugs without stymying pharmaceutical R&D investment can be achieved in an era of fervent populism and discontent over rising healthcare costs.”
On reflection, Linehan stipulated that populist mentality can take on forms perhaps more extreme than demanding pricing controls. “People want action, and I think we’ll see, in fact we’re already seeing it, reform by enforcement,” Linehan wrote. Where in the past, civil action was being taken against companies, we may see a trend toward greater accountability demanded by charging individual corporate executives. Generics price fixing, kickbacks, illegal and unethical specialty
pharmacy buyer relationships, the opioid epidemic, these are all areas where we might see serious charges brought against individuals in 2017.
If 2016 was characterized by one perp walk (Martin Shkreli) and multiple executives being paraded on Capitol Hill for meandering, and rather silly and embarrassing interrogations, perhaps in 2017 we’ll see more politicians attempting to take off the kid gloves.
Government reform can be long and complex, where politicians are tripping over each other to get something accomplished. Underscoring the changes on the national scale were also state-level attempts to strike the industry. Notably, California’s Prop 61 failed, but it received significant attention and resistance from the industry. Other state mandates like Vermont’s “transparency” requirements will make headlines, but results will likely just be more confusing than the laws themselves. Executives in cuffs, perp walks, real criminal enforcement will, that’s a more direct and crowd-pleasing.
An interesting factor to consider could be a halo effect of population questioning “truth in media” (arising from the election cycle) to questioning “trust of the healthcare/pharma industry,” notes Girling. Well known to this audience, survey data places the industry’s approval/reputation numbers near that of the tobacco industry. So could consumer “trust” be an issue? And what form could the empowering of a populist mindset take? Certainly, strikes directly against the industry could be a result. But as terms like “coastal elite” and “drain the swamp” are in the zeitgeist, don’t expect the FDA to escape upheaval. Last time we checked, the FDA would easily be considered “establishment,” and is pretty close to a coast.
It’s hard to imagine how the industry would react to major FDA changes. And so it’s not surprising that the industry collectively gasped at the mention of a Peter Thiel-associated FDA appointee-managing director of Mithril Capital, Jim O’Neill. Giving a lofty FDA seat to a relatively libertarian mindset, like venture capitalists with a passion for seasteading, could be an industry shocker.
With such a change in FDA’s mandate a possibility, the phrase snake oil salesman surrounds Trump for more reasons than one. Could the fallout, Girling wonders, be an industry in which “pay for performance” would suddenly become a huge question and insurers would be rubbing their hands as the arbiters of efficacy and, therefore, access?
The accelerating pace of technical and scientific change will inevitably drive the industry in 2017 and beyond. “The internet of things (IoT) will spawn the IoMT (internet of medical things),” says Kalb. “We are morphing to a system where patient, pharmacy, doctor, hospital, medical device, payer, and pharma firm are all connected in real time.”
Kalb points to “mega-medical supercomputers” like IBM’s Watson, which “will enable growing virtual interactions, remote care, ongoing database expansion and record keeping, and patient monitoring, and provide pharma with new opportunities well ‘beyond the pill’ for R&D, marketing, and for new revenue sources as well as cost control.”
Pfizer announced in late 2016 that it will be deploying IBM’s Watson for Drug Discovery cloud-based, cognitive tool to accelerate its immuno-oncology research, analyzing “massive volumes of disparate data sources, including licensed and publicly available data to unearth insights at a scale and speed beyond what is manually possible.” Lauren O’ Donnell, global vice president of life sciences for IBM Watson Health, tells Pharm Exec: “We’ve been thinking and talking about digital disruption for years and now it’s here. Watson for Drug Discovery is able to do in months and even weeks what it has traditionally taken researchers years to do-that is, sift through large volumes of journals, data, patents, and other information to generate new hypotheses.” The platform has reportedly “ingested 25 million Medline abstracts, more than one million full-text medical journal articles, four million patents, and is regularly updated.”
IBM’s Watson Health business unit has launched or is preparing to launch cognitive tools across the healthcare spectrum-from oncology and clinical trial matching to compliance and value-based pricing-aimed at tackling the problem of what to do with the reams of data that organizations have been busily amassing. Wearables, for example, can generate many terabytes of data, says O’ Donnell, “but then what do you do with it? How do you get to what is relevant? Cognitive technology can sift through all that and bring out the most relevant pieces.”
She explains: “All the homogenous data, the unstructured data that is not sitting in an electronic medical record, this is the data that’s going to come from the Fitbits, the Apple watches, the diagnostic devices. Add the cognitive capability to that technology and we are going to have wearables that, for example, provide instantaneous data on how a patient is doing based on when they just took their insulin or their activity levels, and can predict a hypoglycemic event hours before it happens.”
Pharma companies may as yet be proceeding with characteristic caution into the cognitive computing arena, but O’ Donnell says, “There are those who are leading, like Novartis, who already has a pilot program doing these types of things. Others, while they know they have to do something, they don’t know where to start. But I don’t think companies are going to have a choice. In drug discovery, for example, nobody can afford to spend billion-plus dollars and 10 years to develop a drug. There’s a better way.”
For all the uncertainty ahead, continuous innovation will remain the lifeblood of the life sciences industry. However, says Kalb, “to remain a leader, pharma will need to expand its myopic view of competition, and routinely broaden partnering activity to actively participate in a wider segment of the overall healthcare space.”
For Topin, in a year of “maximum VUCA,” the industry’s first and most impactful tasks are to reduce uncertainty and minimize complexity so it can effectively reduce its risks. “We could sit out the year and see what happens, but that’s not in the playbook. Now is the time to invest aggressively in learning more about the areas that we can identify for change.”
Julian Upton is Pharm Exec’s European and Online Editor. He can be reached at email@example.com. Casey McDonald is Pharm Exec’s Senior Editor. He can be reached at firstname.lastname@example.org