Top 5 HC Reform Action Steps for Pharmaceuticals

Healthcare Reform has passed (as predicted here in January).  It's time for action.  Wait you say... many aspects of reform won't take place for several years.  While that's true, seizing opportunity in the wake of reform requires immediate attentive action.  Some of what's in the legislation will require careful analysis driving well constructed plans both of which will take some time to do well.  Other opportunities created by the legislation have a distinct first mover advantage.  Those who take action now will win the day.  Other aspects will demand years of hard work to accumulate a winning position.

So let's have a look at my top five action steps pharmaceutical companies can and should take now to  take advantage of opportunities presented by Healthcare Reform.  Here they are in no particular order. 

1) Get ready to add sales representatives in targeted areas in 2014 to capture more than your fair share of incremental volume.  As controversial as this thought might seem, consider this... healthcare reform means 35 million additional people will have coverage in 2014.  Most of them are young (under 65).  Some areas of the country will be adding 20% to the population of covered lives.  Pharmaceutical companies with product lines geared to younger populations should start analysis and plans now to consider adding representatives in geographic specific areas to expand reach.  Companies thinking about adding reps but not wishing to add fixed costs might consider chatting with a favorite CSO about variable cost options.  (more here from an earlier blog!). Consider running pilots now to test promotional response.

2) Ramp up comparative effectiveness studies.  Ever see a comparative effectiveness study from RAND or AHRQ?  Often the winner is the product which has not just favorable evidence but the most evidence. Classic first mover advantage.  These studies take time.  Start planning and investing in studies.  Pick your studies carefully though.  Running additional studies is not without risk.

3) Design and pilot programs to help busy practitioners.  Your customers are overloaded already particularly primary care physicians.  Imagine when their practice volume increases by 10% to 20% in 2014.  Pharmaceutical companies who can help their busy practitioner customers will have enhanced relationship and access (more here from an earlier blog).  One simple idea which can be accomplished immediately, and at low cost, is to make sure marketing and reps understand the impact of healthcare reform on their brands and customers.  In fact, I'm already in discussions regarding this capability with a number of interested companies.

4) Review your R&D pipeline and make sure you have the right portfolio and right clinical trials and endpoints to succeed in the future.  Increasingly products will need to not only show efficacy and safety for market acceptance but also superiority vis-a-vis competition.  This is obviously not without risk.  A smart way to do this is to conduct clinicals in a narrower patient population a where a product is likely to come out on top.  In other words ..segment to win....mass market to lose.  Also make sure you cover off the economic side of the picture.  A product that shows economic benefit and clinical superiority will have a field day within a targeted segment.

5) Conduct pilots with large customers to learn how to win in tomorrow's markets.  Large managed care customers will be under some pressure.  Pressure to not only drive revenue above medical costs but to demonstrate quality outcomes.  Pressure to better service customers.  Some aspects of recent legislation mandate pharmaceutical counseling and treatment plans.  Anything pharmaceutical companies can do to help it's large managed care customers succeed and meet their customers needs will be a win-win. Merck is already experimenting with Junuvia.  Don't be left behind.

Why the Dems did the BIG %$^ Deal

Some of you are still wondering why the Dems proceeded with Healthcare Reform.  Political suicide you might say.  Well... not exactly.  A Monday CNN poll shows that the Dems actually might have voters on their side.  What? .... What?

Have a look at the numbers from this CNN Opinion Poll Release Monday, March 22nd.  Go to the link for the actual questions.

When asked if respondents favored or opposed healthcare reform...

Favor                            39%
Oppose                         59%
No Opinion                     2%

So most oppose healthcare reform... but...

When those opposed where asked why...

Favor                                       39%
Oppose, not liberal enough        13%
Oppose, too liberal                    43%
No opinion                                 5%

So.....

Favor + oppose not liberal enough        52%
Oppose, too liberal                             43%

How many folks who oppose healthcare reform as it is not liberal enough would vote Republican?

That's what I thought.  Dems have the voters on their side.

Healthcare Reform - Pharma's Big Win

Game over.  Dems will enact sweeping healthcare reform.  President Obama to ink the Senate version of the legislation into law today.  The Senate will then go through the reconciliation process to make the tweaks desired by the House.

In part, due to a masterful body of public policy work by Billy Tuazin (PhRMA) and Pfizer's Kindler, the legislation will be beneficial for Pharma over the next few decades.  Beyond that, however the jury is out.  Pharma succeeded in avoiding the big fear of Medicare price negotiation, parallel imports into the US and walked away from the "evil empire" label that pasted insurers through out the debate.  Of very significant impact, the legislation will fill the proverbial Donut Hole and insure more than a few previously uninsured Americans. It's this later point which will be the focus of this blog.

Insurance for the uninsured will kick into play in 2014.   The CBO has projected that Obama's plan will insure 32 million, largely younger individuals,  previously uninsured and further more mandate a pharma benefit.  The key to understanding the lift for pharma that will come from this aspect of the legislation is understanding the "insurance effect", a well known economic phenomena where individuals consume more healthcare when coverage is extended thereby lowering out of pocket costs.  Working the numbers (see earlier post for details, although here I used the higher CBO number for those obtaining insurance) I estimate insuring the uninsured could lift Pharma revenue by $10 billion per year or about a 3% revenue lift for the overall market. 

Call your broker.... while the impact on Pharma's top line seems minor, the impact on the bottom line will be substantial. Upwards of 14% will flow to gross profit and in turn flow to net income as companies take on little additional cost to capture the incremental revenue.  It's a freebie.  

Take Pfizer for example, a 3% lift in revenue to the roughly $50 billion in top line revenue in 2009 will mean a $1.5 billion revenue lift (actual lift will depend upon Pfizer's drug portfolio mix).  Assuming a 20% dost of goods sold, that brings $1.2 to the bottom line (assuming HC Reform simply expands the size of the US market which results in little to no increase in cost structure).  Pfizer reported $8.6 billion in net income.  So adding $1.2 billion increases this to $9.8 billion or a whopping 14% increase in earnings.   (of course this will be offset by the other "contributions" Pharma agreed to... reported to be $90 billion over the next 10 years, although my figures are a bit different, lower, more on this later).

Now be careful.  The impact will vary significantly by company.  Those companies whose portfolio of currently marketed drugs leans toward treating the elderly will have a significantly lower impact. Those companies whose portfolio leans toward the young will have a significantly greater impact. 

Healthcare Reform Likely to Pass

CNN reporting at 4:15 PM on Sunday the 21st that Obama executive order brings Stupak holdouts into fold.  Dem Healthcare reform Likely to pass.

4:21PM on CNN... Stupak says "we are well past the 216 votes we need" (to pass Healthcare Reform).  Believes they had the votes before even bringing the Stupak group into the fold.

10:45PM.  Healthcare Reform Passes as Historic Vote Count Reaches 216 votes.  

More details later this week.

Obma's Bill Update

The CBO today released it's estimate of the latest "reconciliation" version of the sweeping Healthcare Refrom Bill.  My view is that the odds of it's passage have tipped over 50%.  The CBO score has plenty in it for those Dems on the margins.  Strong coverage of the uninsured and more deficit reduction than prior versions. 

As far as Pharma is concerned, fees or taxes have jumped from $23 billion to $28 billion over the ten year tome horizon.  Pharma has appeared to dodge a bullet in the filling of the Donut Hole.  The bill still demands a 50% discount for drugs in the Donut Hole from manufacturers instead of a worried 75% discount.  In fact the discount for seniors will be 75% but the incremental 25% will be paid for by the government.  It also appears the legislation around the prohibition of pay for delay provisions has been dropped.

So it would appear that the $80 billion dollar pact remains largely in place.  Good news indeed as Pharma stands to gain from the expanded coverage of the uninsured and the long-term closure of the Donut Hole.  PhRMA apparently agrees with my assessment.  They are said to be spending $6 million in advertising in support of the legislation.

Check back for more analysis and perspective as things really heat up over the next few days!

In the Wake of the Healthcare Summit

Yesterday's Healthcare Summit held few surprises.  As widely speculated, the 7 and 1/2 hour session largely turned into a Capital Hill version of a TV reality show.  Obama opened laying out an agenda to consider the various objectives of Healthcare Reform.  Alexander for the GOP followed forcefully urging the Democrats to scrap their plans and start anew citing backing of the American people.  He further requested that the Democrats pledge not to take the bills through Congress utilizing the reconciliation process and warned them of the consequences of it.

The opening comments set the stage for the remainder of the meeting.  Sure there were some agreement on various objectives but not on form and substance of how to make it happen.  For example, all agreed that Americans should not be denied coverage due to pre-existing conditions.  The GOP  agreed that some regulation on the insurance industry would make sense.  Coburn (R) put forth an idea to send investigators as fake patients into MDs offices in an attempt to root out Medicare fraud and abuse.  Both sides agreed that this was a good idea.  But that was as far as agreement really got. Agreement on some objectives and some minor points.

Huge positional gaps exist over coverage of the uninsured. Dems want to spend up to 3/4 of a trillion dollars over next 10 years to cover 30 million. The GOP covers about 3 million (Boehner bill as reviewed by the CBO).  In terms of approach, Dems want exchanges, many Repub proposals want to open up state regulations so that insurance companies can more easily enter other state markets (easier said than done due to large market entry barriers).  Some Repub proposals do include exchanges.  Republicans tend not to favor pay or play schemes nor do they want government mandated benefit packages. Repubs also favor establishing high risk pools.  There was also a big discussion on budget impact of the plan.  Dems say it will reduce the budget (due to increased taxes and large cuts in the Medicare Advantage programs).  Repubs point to the huge cost of the current Dem proposals.  Nothing new here.  This posturing has been ongoing ever since the COB released the financials around the House and Senate bills.

An interesting area for the Pharma industry was the filling of the Donut Hole.  Dems want it filled.  The GOP appeared to come out against it due to the additional costs of the benefit.


What happens next?  It will depend on the polls.  The spin machines are already churning with soundbites filling big media channels.  If we see a favorable tick toward approval of comprehensive healthcare reform, the Democrats will be emboldened and pursue reconciliation.  Obama did not mention the R word (reconciliation), but it was pretty clear that he implied that it was an option for the Democrats and hence a threat. Don't be surprised if Obama takes a couple of minor republican ideas and amend his proposal with them for window dressing.  

If public opinion does not tick upward toward the Dems, we still will see movement forward but perhaps less aggressive as the Democrats have little political capital left to lose and can roll the dice hoping that they can spin whatever gets passed as good for the voting public.

Obama's Plan Good News for Pharma

My first take on what's in Obama's plan for Pharma...Looks a lot like merged House and Senate Plans more toward the Senate plan.  Good news for Pharma in the short-run as it appears that a significant number of the uninsured would be covered and in the long-term the Medicare Donut Hole would be closed. 

Healthcare Reform Already Underway

With our politicians stilling sorting through the aftermath of the Massachusetts stunner, I thought I would comment on Healthcare Reform recently enacted and it's impact on pharma and the LifeSciences Industries in general.  Part I, here, will cover what's in some major legislation and Part II, later, will cover the implications for Pharma and the LifeSciences Industry.

Let's start with the American Recovery and Reinvestment Act of 2009

Biosimilars - Part IV - Key Success Factors

This is the last installment of the Biosimilar series.  In Part I, I covered aspects of healthcare reform legislation geared to define and streamline the FDA regulatory approval pathway of Biosimilars.  In Part II, I reviewed the presence of high entry barriers to the emerging Biosimilar market, and in Part III, I discussed the potential size and dynamics of the developing Biosimilar Markets.  Here, in Part IV, I'll list five key success factors for participant success in the emerging marketplace.  So here's my list...

1. Strong Marketing Acumen - Picking the right product opportunities

The Uninsured and Pharma Industry Revenue

The press is finally picking up on why the Massachusetts Brown victory is not a victory for pharma (I blogged here about it in January) at least in the near-term.  The industry will most likely lose the "insurance effect" of the uninsured gaining insurance while still seeing the downsides of the legislation including the commitment to help close the Donut Hole over the next 10 years. Here are the details of my own estimate of what the industry stands to lose, or fails to gain without extension of insurance to the uninsured.

Indeed it's about a $9 billion annual loss to the industry's top line or 3% of the total market sales.  Of course at the bottom line this would have had much more substantial impact, as high as a 10% lift,

Biosimilars - Part III - The Market

With news of Teva's accepted FDA submission for Neutroval, a biosimilar to Amgen's Neupogen, it's high time to dust off the key board and write Part III Biosimilars - The Market.   Part I of my Biosimilar Series covered pending Healthcare Reform legislation to streamline biosimilar approval.  Part II - Biosimilars, High Entry Barriers, discussed the presence of very substantial entry barriers to the registration, manufacturing and marketing of biosimilars. Part III Biosimilars - The Market... will discuss the likely size of the market and the facets of competition which will likely develop.

Data suggests that top selling Biotech drugs will

Fickle Independents and Healthcare Reform

Fickle independents, shifting their votes to Brown, were widely viewed as a key factor in Brown's Massachusetts victory.  Their vote will certainly be very important in the upcoming mid term elections.  So here's the crucial question....Can the Dems on The Hill move forward with Healthcare Reform while maintaining the independent vote, at least on the Healthcare Reform issue?  The answer lies in how independents view specific items within the legislation.

Healthcare Reform.. Aftermath of the Mass Nuke

All of my readers certainly have heard about Brown's stunning victory over Coakley in the Massachusetts special election and the loss of the Dems filibuster proof seat count in the Senate. There has been plenty of speculation on what this means to Healthcare Reform.  Some of you have asked for my opinion.  Well, we are slowing getting a glimpse of what may transpire in the future and at the moment I'm prepared to at least gaze into my crystal ball.  It sure looks like Dems will move forward with bits and pieces of the current legislation but some of the parts left behind, such as the huge subsidies to insure the uninsured, won't be good for Pharma. 

Biosimilars - Part II, High Entry Barriers

Following up on Biosimilars - Part I, where I blogged about what's in the legislation, lets now look at a crucial difference of Biosimilars relative to Generic Drugs. Even with the FDA's streamlined regulation, Biosimilar entry barriers to market are much hgiher than that of their generic, small molecule, counterparts. Here's a list comparing entry barriers faced by Biosimilars in comparison to generics:

Donut Hole Closure by 2014?

Update January 18th ... Donut Hole Closure in Jeopardy

With the Dems' a probable loss of Ted Kennedy's seat in the Massachusetts to Republican Brown in today's special election Dems are strongly considering a political move which would send the Senate version of Healthcare Reform to Obama's pen to avoid another vote in the Senate.  According to very recent polls, Brown has surged past Coakley.  This would mean, at least in this round of the legislation, no real closure of the Donut Hole.  The Senate plan chips off $500 of the Donut Hole but "the buck" stops there.

Update...January 15th to the Blog below, Reuters reports that indeed Pharma has been asked to

CMS Analsyis of Senate Legislation

On January 8th, Richard Foster, the Chief CMS actuary, released CMS' assessment of the savings and costs of the marked up Senate legislation.  It's interesting to see CMS's perspective on how the legislation will impact programs of concern to them.

Here's what's of direct interest to Pharma in terms of the 10 year impact from 2010 to 2019

•  Medicare Pharmaceutical MFG drug discount program - +$1.9 billion.  This Costs Medicare Part D more due to the insurance effect.  Pharma of course will be subsidizing beneficiary out of pockets to the tune of 50% or more costing Pharma up to $45 billion in lost revenue (my most recent estimates).
  
• Biosimilar Biologics provides savings (reduced revenue to Pharma and Bio) to Medicare and Medicaid of -$5.6 billion
• Medicaid Rebates - Increase in Standard Rebate Level for Brands -$8.7 billion and generics -$0.66 billion
  
• Medicaid Rebates - Extension of Rx Drug Discounts to enrollees of Medicaid Managed Care -$8.54 billion
• Medicaid Rebates - Revision of drug formulation rebates -$3.05 billion
  

Biosimilars - Part I

 Update - January 15th

The New York Times Reports that Obama is pressuring legislators to shorten the originator exclusivity period from the 12 years earlier settled upon by both the House and the Senate legislation.  Obama has been on the record in the past favoring a 7 year exclusivity period.

Update - January 16th

Pharma is threatening to withdraw it's support of Healthcare Reform upset over possible shortening of Biotech product market exclusivity period. The question is... Does the Hill still need Pharma's support? Answer... probably not.  The favorable PR impact for the Obama administration of the stunning early deal has already been fully capitalized upon.  Further, with all the bad press regarding recent Pharma price hikes, the voting Public will cheer loudly for politicians who have the industry within their gun sight.
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Original Blog

Healthcare Reform legislation will streamline FDA approval of follow on biologics in an attempt to lower entry barriers to the market. The goal of legislation is to increase competition in order to lower prices of Biotechnology drugs in a manner analogous to what Waxman Hatch did for small molecule generic drugs. 

Rather than to attempt to cover this meaty topic in a single blog I will cover it in a series. Part I, here, will cover what's in the legislation leaving the economic and market dynamic ramifications to subsequent posts.

So let's take a look at what exactly is in the healthcare reform legislation.

Bending The Pharmaceutical Cost Curve

Hot off the press.... Health Affairs published today 2008 CMS national healthcare expenditure data.  Growth in Rx Pharmaceuticals, at least in retail, has slowed to a very tepid 3.2% rate. See chart below.