The Pharmaceutical Industry and Healthcare Reform

Top 5 HC Reform Action Steps for Pharmaceuticals

2010-04-09T07:47:00.002-04:00

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

2010-03-25T17:07:00.003-04:00

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

2010-03-23T08:35:00.006-04:00

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

2010-03-21T16:17:00.004-04:00

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

2010-03-18T21:08:00.006-04:00

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

2010-02-26T08:21:00.007-05:00

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

2010-02-22T12:02:00.007-05:00

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.
Albeit it would seem like Pharma's commitment of $80 billion in concessions over 10 years is still in place although increased taxes of $10 billion could raise this to a $90 billion commitment.

Uninsured will be required to purchase insurance from health exchanges and employers with over 50 employees will need to offer insurance. Subsidies for the uninsured to purchase healthcare seem to be slightly richer than the Senate plan. This is good news for pharma as my calculations show a gain of almost $10 Billion for pharma if 70% of the uninsured who are American citizens are insured with decent pharmaceutical Rx coverage.
Taxes on pharma remain, as well as for device companies. Taxes on pharma will increase by $10 billion over next ten years beyond those in the Senate plan.
Medicaid rebates move from 15.3% to 23.1% and are recaptured from dual eligibles and Medicare Advantage Enrollees as in the Senate's plan
Donut hole closure by 2020 for Medicare starting with a $250 cash payment for beneficiaries reaching the Donut hole in 2010. Suspect Pharma will be asked more than the 50% agreed to earlier. Good news is long-term upside for induced demand after full removal of the Donut Hole after 2020.
Free prevention and personalized care plan for Medicare Beneficiaries should up provide some addition pharma volume.
Streamlined Biosimilar FDA regulations for Biologics (likely what was in the House and Senate plans. Exclusivity period unknown at this point. Obama favored a shorter exclusivity than 12 years).
PBMs and exchanges must report pharma discounts and rebates and use of generic drugs
It would appear the bill seeks to end authorized generics

But don't get too excited... Comprehensive Healthcare Reform still remains a long shot especially the coverage of the uninsured as this certainly makes up the bulk of the reported $950 billion.

Healthcare Reform Already Underway

2010-02-11T09:13:00.001-05:00

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
inked into law by President Obama on February 17th, 2009. You might ask "What does this have to do with Healthcare Reform as this legislation was geared to prop up the staggering economy?" The answer is quite a bit.

The legislation is 407 pages long but no less than 70 pages is devoted to Healthcare Reform. According to Wikipedia, $148 billion was set aside for healthcare with $110 billion going to funds for Medicaid to help states through difficult financial times and COBRA subsidies for recession driven unemployment. In terms of healthcare reform, the most notable topic was $19 million in funding pertaining to healthcare information technology (IT) including electronic health records (EHR) and $1.1 billion relating to Comparative Effectiveness.

Anyone who has been involved with healthcare understands IT infrastructure is woefully lacking in healthcare and it's installment is the key element in reduction of healthcare costs and improvement in outcomes. My own work in Disease Management during the early to mid 90s showed costs of chronic disease could be theoretically reduced by 15% to 30% while improving outcomes. However in order to really conduct disease management one has to have information regarding patients across all elements of the Healthcare System. In order to have information, one needs IT systems in place.

Lack of IT in healthcare therefore is mission critical to HC reform. In general the bill attempts to address critical missing components of Healthcare IT adoption. These are listed below:

Standard Setting - The bill provides for the creation of the Health IT Policy and Standards Committees with both public and private input to standardize among other things information exchange standards between different systems. Without standards particularly for data exchange, Healthcare IT would be rendered useless as silos of information would only show a piece of the total healthcare picture.
Coordination - Makes formal the Office of the National Coordinator for Health Information Technology in HHS to coordinate activities of federal agencies.
Provider Investment - Provision to provide incentive payments to both individual MDs and Hospitals for the installment of IT and EHR. Early movers in 2011 and 2012 would get even higher incentive payments. These can be significant. Up to $18,000. The reluctance and inability for providers to make IT investments, particularly office based MDs has long been the biggest barrier toward broad IT adoption.
Privacy - Expands HIPPAA privacy laws and very significantly bans the sale of patient information without patient approval except for research or public health activities. It also bans the use of patient data for marketing purposes with patient authorization. More on this later.

Comparative Effectiveness Research (CER) is also addressed by the bill. The bill creates the Federal Coordination Council for Comparative Effectiveness Research (FCC-CER). 15 federal agencies will have representation. Role of the FCC-CER will be to coordinate research efforts and to make recommendations to The Hill. The Agency for Healthcare Research and Quality (AHRQ) will receive $700 million for funding CER with some money going to the NIH.

Biosimilars - Part IV - Key Success Factors

2010-02-09T08:30:00.004-05:00

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...

Strong Marketing Acumen - Picking the right product opportunities to pursue is critical. Some Biosimilars will have an easier time receiving regulatory approval and market acceptance than others. Some Biosimilar opportunities will require less of an investment in marketing and sales than others as they will target very focused markets preserving capital and increasing ROI. A smart, informed, target choice will lower the risk of failure and heighten potential market penetration at lower costs. Almost all, except for what will likely be a few Biosimilars deemed interchangeable by regulatory authorities, will require competent marketing and sales execution.
Manufacturing Know How - Biotech products are harder to manufacture than small molecules. Having access to cell lines and the ability to consistently produce a quality product at a reasonable price will be important. The last thing any Biosimilar manufacturer can afford to do is to "Toyota" their end product as customer confidence will be very hard, if not impossible, to gain back.
Strong Product Development and Regulatory Skill - a need to conduct the right clinical trials with the best end points (from both a regulatory and marketing standpoint) and navigate uncertain regulatory pathways dictate competent clinical development and regulatory skill. Time to market will be key as the first product approved will enjoy higher pricing and profits until other follow on products reach the market. I would also include in this success factor the need for proprietary drug delivery technology which can confer clinical benefit and provide a marketing differentiation platform over the originator and other follow on competitors.
Adequate Capitalization - the investment funds to bring not just one product to market but several to develop on ongoing business will be substantial... $100s of millions. With ample risk of failure or regulatory delays, access to sufficient and substantial capital, either from the public market directly or from a well capitalized parent (e.g. Big Pharma Co) will be necessary to emerge as an ongoing competitor in the business.
Partnering Skills- While some companies have all the factors for success, many miss critical pieces. The ability to craft win-win, profitable partnerships will be necessary to successfully play in the emerging Biosimilar marketplace. A great example is the Teva/Lonza partnership were Teva brings the regulatory/marketing/development piece and Lonza brings the expertise in biotechnology manufacturing.

The Uninsured and Pharma Industry Revenue

2010-02-05T13:49:00.005-05:00

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,
as marketing and sales, R&D and administration costs wouldn't have changed and costs of goods for many products are quite small. Further, pharma companies with an unusually high percentage of their portfolio geared to younger patients (the uninsured are largely made up of those under 50 years old) would have seen a much greater jump in their top and bottom lines than the industry average.

So here's I arrived at the almost $9 billion annual figure...

Sources and notes accompany the estimate above are shown below.

Biosimilars - Part III - The Market

2010-02-04T11:36:00.006-05:00

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
represent a $97 billion dollar target for biosimilars with $51 billion in product revenue launched more than 12 years ago (most or which will be off patent by now or soon). See chart below (source Nelson Healthcare Consulting analysis of FTC data).

Biosimilar competition will not look like that of generic pharmaceuticals. Biosimilars will likely only target these larger biotech brands given high investment requirements and presence of large entry barriers. Entry barriers will limit the number of biosimilar competitors to an original Biotech Brand. This in turn will limit price discounting relative to the Biotech brand.

We know from the small molecule generic market that the first entrant prices close to the originator price and it takes an additional 3 to 4 competitors to drive down the price of generic alternatives to levels at or below 20% of the brand price. In fact we can observe a similar pricing pattern with Biosimilars by looking at the European EPO market. As of November 2008, three biosimilar competitors had prices at about a 25% discount and market share of about 22% (Source FTC). We can also look at the US market for human growth hormone (HGH) where there are two biosimilars on the market. Discounts were reported in the range of 10% to 40% and as of November 2008 the biosimilar market share was only 4% (source FTC). Interestingly the US HGH biosimilar product compaines invested in both sales and marketing. I would expect many biosimilar competitors to also invest in marketing and sales to convey to providers and patients that their product offers efficacy and safety and possibility distinguishing characteristics from originators including formulation benefits or other deliverly benefits* (see Teva Tropin's injection system). In general, I do not expect biosimilars to expand markets as they will be too busy selling the fact that they are a valid substitute to the originator and the price discounts will not be substantial and thereby influence demand.

So a quick estimate of the global biosimilar market, say 5 to 10 years out, might be roughly $20 billion or a 20% revenue share of original biotech sales. Increased market penetration by biosimilar competitors will likely depend upon the emerging industry's ability to limit quality issues and legislation promoting more favorable regulatory approval pathways (e.g. granting of interchangeability and substitution for the originating compound which is in both the House and Senate's version of Healthcare reform legislation).

In Part IV of the series I will comment on key success factors for succeeding in the Biosimlar Market place.

* Readers may recognize this type of competition as Multisource Branded competition, which exists in some small molecule pharmaceutical markets. Multisource brands are branded products of the same active compound of an originator but with sales and marketing to differentiate the product from the originator. Often differentiation is focused upon the benefits conferred with novel formulations.

Fickle Independents and Healthcare Reform

2010-01-25T08:11:00.002-05:00

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.

Kaiser Family Foundation has an interesting poll which looked at overall support for the legislation, and the level of support for specific items contained within the legislation. The poll found 42% in support of the legislation and 41% in opposition. With those identifying themselves as independents, 41% supported the legislation and 43% opposed it. But independents opposing the legislation appeared much more entrenched with 35% strongly opposing the legislation compared to only 19% strongly favoring the legislation.

However, Independents were clearly behind specific issues. When asked if a specific proposal will make them more likely to support the bill independents they clearly supported some of the specific line items. Issues viewed favorably included tax credits for small businesses (74% saying it would make them more likely to support the bill), the establishment of healthcare exchanges (69%), Donut Hole closure (65%), taxes on wealthy to help foot the bill (59%), and even covering the uninsured including subsidizes (57%) and Medicaid Expansion (59%) (although when asked about the $871 billion ten year cost of the legislation support almost completely dried up with only 14% supporting the cost figure)

Healthcare Reform.. Aftermath of the Mass Nuke

2010-01-20T15:08:00.116-05:00

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.

Yesterday, Obama signaled that the Dems should not rush through Healthcare reform before they lose their filibuster proof seat count in the Senate. Today Pelosi says she doesn't have the votes in the House to pass an unmodified Senate version of the legislation to avoid another vote in the Senate prior to going to Obama's pen. This to me signals the end of the current legislation as we know it. However, I believe there is no downside to the Dems producing a more watered down version of the legislation and this will take time to emerge from The Hill. In fact, Dems almost have to produce something. They need to save face and to attempt to spin an upside prior to this years mid-term elections.

Indeed, there are elements of the plan that probably would have strong bipartisan support. For example denial of coverage for pre-existing conditions. Turning to Pharma's concerns, there is no apparent reason legislators will not hold the industry to their commitment of $80 billion to healthcare reform coffers. A sizable chunk would be used to help close the Donut Hole providing Seniors with large discounts (50%-70%) of drugs purchased within the Donut Hole.

However, I would speculate that we will see major changes in the legislation with regard to insuring the uninsured. Expect fewer of the uninsured to be covered. Why? Subsidies to the uninsured, will likely evaporate as they represent huge cost items (Over $1 trillion alone of the 10 year cost of the House Legislation is directed at exchange subsidies and new outlays for Medicaid and CHIP). Increased taxes, albeit on more wealthy Americans, or raised upon the backs of "Cadillac" Insurance plans have become a huge firing target for health reform opposition. Given that many of the 35 million uninsured live in households below the median income of $50,000, a lack of subsidies will mean no play or pay to "encourage" the uninsured to sign up for insurance. And no requirement to become insured and no subsidies will leave many of the uninsured still uninsured. Of course this means no revenue jump for Pharma from insuring the uninsured. (I estimate this in the current versions of reform legislation to approach $10 billion per year).

So while all of this is simply a little more than speculation at this point, look for Pharma, at least in the near-term, to still "contribute" the $80 billion to healthcare reform but lose a very significant chunk of incremental revenue from what will certainly be depleted ranks of the newly insured.

Biosimilars - Part II, High Entry Barriers

2010-01-17T12:38:00.006-05:00

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:

Product Development Costs are Orders of Magnitude Higher. Development costs for Biosimilar's can be $100 to $200 million taking 8 to 10 years for completion while small molecule generics can cost $1 to $5 million and take 3 to 5 years. (source FTC). Unlike generics which can rely on simple, specific, pharmacodynamic studies, many Biosimilar's will need to conduct at least small clinical trials in humans, and for ethical reasons many will need to have a comparison arm to the originator rather than placebo.

Higher Regulatory Risk. Biologics are far more complex and far more complex to manufacture. Issues include developing appropriate cell lines, arriving at efficient and effective manufacturing process, batch to batch variability, downstream clean up of end product and formulation approach. These issues in turn can cause differences in the Biosimilar which impact efficacy, safety and immungenicity. Indeed Biosimilars are BioDifferent. At the end of the development process, there is far less of a guarantee that the FDA will approve of a Biosimilar let alone grant interchangeability compared to small molecule generics. Biosimilar's therefore face a ton more approval uncertainty relative to small molecule generics. The EU streamlined Biosimilar legislation several years back (2004) and have turned away at least one insulin product and a interferon alpha product. Finally, the regulatory process itself is fraught with uncertainty. Each Biosimilar will likely require a different burden of proof. This reality will be compounded by every changing rules and regulations due to the newness of a regulatory approach (EU has already experienced this). This will add up to even more regulatory risk for the would be Biosimilar market entrant who must decipher exactly what studies the FDA is interested in reviewing to grant approval.

Higher Manufacturing Costs and Challenges - Biotech product manufacturing, in general, costs a great deal more than that for small molecule generics. Further manufacturing is more complex and harder to scale up and to be able to produce a consistent product many biotech products are produced in a batch process.

Higher Market Risk - Lastly many Biosimilar products approved by the FDA will not likely be granted "Interchangeability" (for all the reasons discussed above). This will mean pharmacists will not be able to substitute the Biosimilar for the originator product without practitioner approval. Approval will not automatically mean market acceptance and widespread usage. Patients, MDs and even payors may not view a Biosimilar as offering the same efficacy and safety as the originator. In fact, Biosimilar uptake in the EU has been far slower that that of a small molecule generic. For example IMS reported in June of 08 that "The introduction of Biosimilar epoeitin alfa in European markets in 2007 has had a negligible impact in the market and biosimilar omnetrop introduced in 2006 has captured less than 1 percent of the somatropic human growth hormome market."

So the path to commercial success for a Biosimilar will be far more costly, difficult and risky than that experienced by the small molecule generic.

Check back often....In the Third Part of my Biosimilar series I will look at what the presence of entry barriers means in terms of the Biosimilar market dynamic, impact upon Biotech product originators and would be Biosimilar competitors.

Donut Hole Closure by 2014?

2010-01-15T07:05:00.013-05:00

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
chip in another $10 billion on top of the $80 billion widely reported in the deal cut last year with the Obama administration. The $10 billion would be used to further help close the Donut Hole. Louse Slaughter, the House Rules Committee Chairwoman apparently said..."I know $80 billion was too low."

Perhaps the Donut Hole will be closed earlier than 2019? The $80 billion figure (or at least part of it) was tied to Donut Hole closure in 2019.

On a side note... It also has been reported that the Medical Device Manufactures may also have to chip in an addition $10 billion to help pay for healthcare reform.

Stay tuned for further updates on this topic!

_____________________________________________________________
Original Blog

With Dem discussions underway to merge the Senate and House legislation, chatter about closure of the Donut Hole is finding it's way to the internet.
Senator Whitehouse from Rhode Island recently indicated that he has heard that there is talk to fully close the Donut Hole by 2014! That would close the Donut Hole 5 years faster than House legislation which does not fully close the Donut Hole until 2019.

Revenue and earning ramifications might be substantial for Pharma has they have pledged the 50% discount for non low income Medicare Part D beneficiaries ending up in the Donut Hole. It would appear the faster the Donut Hole is filled the lower the cost to Pharma.

But... don't get too excited yet. There has been plenty of discussion of making Pharma honor more than their $80 billion dollar cost savings promise (of which about 50% is allocated to subsidizing Donut Hole victims...read more here). Further some believe that the Senate bill is much more generous to Pharma. If the Donut Hole is closed much faster than 2019 look for conference to find other ways to extract more from Pharma starting with adoption of the more costly House language.

CMS Analsyis of Senate Legislation

2010-01-13T08:03:00.001-05:00

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

2010-01-07T06:40:00.020-05:00

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.
I culled this from the Senate version of the bill perhaps ironically titled "The Biologics Price Competition and Innovation Act of 2009".

Provides legislation to streamline the approval process for "Biosimilar or Interchangable follow on Biotechnology products. Yes, there are two classes which will emerge. Biosimilars will not be allowed to be substituted by pharmacists without the Rx Writer's approval. However, where the FDA deems the follow on biotech drug as identical, these will be deemed interchangeable and a pharmacist can substitute the follow on product without approval from the Rx writer of physician.
The Biosimilar will need to have "analytic studies showing a high degree of similarity to the reference drug", animal toxicity studies and some clinical studys (only 1 indication necessary) to demonstrate safety and potency. Submission of the biosimilar dossier to the FDA requires a 4 year waiting period from approval of the first or reference drug. Route of administration, dosing must be identical to the reference biotech product.
The first biosimilar to market, following the reference drug, will enjoy 1 year of exclusivity from the date of marketing in essence protecting it from other biosimilar competition for the first year of launch.
Grants 12 years of market exclusivity to the originating or reference biotech drug from the date of approval. Companies will not be able to gain additional exclusivity, except for 6 months on a pediatric claim, by manipulating drug formulation, dosage strengths or supplemental indications. However, if the company can show improved safety, purity or efficacy to the original drug the exclusivity clock can be reset.
Copious amounts of legalize appear within the legislation to help biosimilar competitors avoid costly and time delaying suits from biotech originator companies.

So there you have it...the biosimilar legislation in a nutshell.

Now the big questions are... How large will the biosimilar market be and how soon? Will providers and the rest of the market decision makers accept biosimilar drugs? Will biosimilars follow the same market dynamic as small molecules when loss of market exclusivity means that 80% to 90% of the originator's business is very quickly substituted away by generic entrants? What will be a biosimilar's price point relative to the originator or reference biotech drug? What is the economic opportunity for biosimilars?

Keep your eye on my blog for Part II where I will start to "peel the onion" and provide my thoughts on the questions above.

Bending The Pharmaceutical Cost Curve

2010-01-05T08:24:00.005-05:00

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.

Overall healthcare expenditure slowed to a 4.4% with some blaming the recession.

With all this talk about the need for reform to "bend the healthcare cost curve" It seems like other factors are bending at least the Pharmaceutical cost curve quite nicely.

Prescription Retail Sales, $ Billions / Growth Rate, %

Next Year's Conference Meeting

2009-12-31T08:57:00.051-05:00

First, let me take this opportunity to wish my readers a Very Happy and Prosperous New Year!

Next, thoughts turn to Conference in January where the details of the final healthcare reform legislation will be ironed out for a vote by both the House and the Senate prior to sending the legislation to President Obama's pen for inking. History should be made by February.

The House, still irked by the deal Reid apparently cut with Pharma, will likely seek further concessions from the industry.
Waxman has already stuck a provision to extract more from Pharma's pilling machines by allowing states to negotiate directly with Pharma on behalf of very low income seniors. Now toss in the fact that the Senate's version of the legislation only closes the Donut Hole by $500. However, Reid has pledged full Donut Hole closure so you have a deal in the making. Close the Donut Hole but include more price concessions by Pharma (prior blog on this topic here ). Also on the table is how fast the Donut Hole will be closed. The House version has it closed 2019. Will conference negotiations speed up the closure of the Donut Hole or slow it down? My guess is the legislation signed by Obama will reflect the House Donut Hole closure time line but perhaps incorporate the previously reported 75% discount in the hole rumored earlier in December.

Watch carefully for what Conference does with new Medicare Beneficiary care requirements associated with wellness, treatment plan requirements and most importantly medication management services. I blogged on the Senate's inclusion of these in the final 358 pages of changes to the original Senate draft here. These requirements could very well represent a nice revenue upside for Pharma in terms of incremental Rxs driven by increased diagnosis rates of various chronic disease states and most importantly help chip away at poor medication compliance, an issue that costs the industry 30% of it's revenue each year.

Lastly, I have my eye upon employer mandates and personal penalties for the uninsured. Final details here could influence the percentage of the uninsured who sign up for insurance and therefore the magnitude of the insurance affect opportunity for Pharma. Massachusetts, which put in place a play or pay approach 3 or so years ago has about a 70% rate of insuring the previously uninsured.

Other "hits" to the Pharma industry seem pretty well intact in both the House and Senate legislation such as the Medicare Advantage and dual eligible claw backs on rebates.

Once again Happy New Year to all and check back often for, news, new takes and detailed analysis of Healthcare Reform's impact on the Pharma Industry.

Pharma... Heal Thy Doctor!

2009-12-24T08:19:00.015-05:00

No one would argue that Doctors, or more aptly put their patient care decisions, play the central roll in the cost and performance of the American healthcare system and it's reform. But in Healthcare Reform's media blitz there is a huge issue that has been largely overlooked. Healthcare reform will drive millions of previously uninsured into their offices. Healthcare reform legislation will ask doctors and their staff to do more for their patients, a lot more, particularly for the Medicare beneficiary.

But today, there is a huge shortage of doctors. Many are already overworked.
The shortage is particularly acute in primary care... targeted as the battle front for healthcare reform. Doctor's are still pharma's primary customer. This presents a huge opportunity for the savvy pharma company to establish a new and long lasting relationship with it's customer which will confer much better Doctor access and better business than the next company knocking at the Doctor's office door.

Observations regarding the Doctor shortage starts with the fact that the US has fewer Doctors per 1000 than many other Western Countries. Although we also don't visit our Doctors nearly as much as other countries. See Table to the left.

The shortage is very acute in primary care. The number of new primary care doctors each year has fallen 50% since 1997. Some estimate the shortfall by 2020 to be close to 200,000 MDs. The problem is widely know to be exacerbated in rural areas.

While healthcare reform legislation is taking steps to remedy the situation, aspects of the legislation are likely to overwhelm currently practicing doctors before the "fixes"are implemented. First, insuring the uninsured will swell average MD patient volume. The uninsured rate is close to 15% of the population. But in some states the increase will be much greater. California's uninsured population is 18.5% and Florida's is over 20%. In addition to insuring the insured there are a number of areas, where the legislation removes co-pays for wellness and prevention visits (Medicare). Insurance companies long ago learned the value of a co-pay to depress "nuisance" MD visits so their removal will increase the number of currently insured into doctor's offices. Lastly, there are provisions in the bill which will force MDs to prepare detailed health assessments. One such provision is the Senate's version of the Legislation Section 4103 titled "Personalized Plan Services" which will ask MDs to prepare a detailed wellness and treatment plan for Medicare beneficiaries. In the final 358 page amendment to the Senate plan also calls out mandatory patient medication plans and services to improve Medicare beneficiary Rx compliance and management. Indeed preparation of these plans will take even more time out of an already MDs overloaded day.

The overloaded physician as an opportunity won't be missed by savvy Pharma Cos. The MD is their customer and what ails their customer is an opportunity to build back eroded relationships and gain enhanced access. What can companies do? Well.... strategies and tactics are only limited by imagination and of course regulation.

Let me provoke a few neurons in the gray matter. One idea would help MDs adopt productivity enhancing IT which will help MDs save time. Smart phone apps might be the way to go as 64% of MDs now have smart phones. Another idea might be to consider the use of nurse educators as an adjunct to Rx therapy helping to improve patient outcomes and preserve MD and staff time. This approach is used very successfully in the MS and Diabetes markets by Pharma. Better yet, it has been strongly endorsed by satisfied doctors and patients alike.

Breaking News - Final Senate Legislation

2009-12-19T10:53:00.007-05:00

Morning all,

Reid's Senate Healthcare Reform changes made public this snowy morning. Here's my first take on a very quick look regarding the implications for Pharma:

Added a medication management requirement to part D. At a minimum plans have to offer compliance enhancing services. Also an annual review with enrollee regarding all meds with a written report to the enrollee. This will cost Part D plans but should prove to be some sort of a gain for enhanced Pharma revenue. (See Page 221 of this link) More thoughts later on the significance of this! (note that these are changes to the so called Medication Therapy Act of 2009)
Establishment of a National Diabetes Prevention Program
"Botax" on Comestic medical procedures replaced by a tanning salon tax
Did not see any changes to the Medicare Part D Donut Hole on first quick run through of the changes. My guess is that this means that The Hill will likely go with the House version of closing the gap in the final legislation given Reid's pledge to close the Donut Hole.

That's it for now! I will try and go through it in a more detialed fashion between snow shoveling!

Expensive Jelly. Who Pays and How Much for Filling the Donut Hole?

2009-12-17T08:35:00.009-05:00

I previously estimated that the closure of the Medicare Part D donut hole was worth close to $8 billion per year in additional revenue to the Pharma industry. This presumed that Pharma's commitment of $80 billion in part to offset costs in the Donut Hole via a drug discount of 50% wouldn't be an opened ended commitment and it would end once the Donut Hole was actually closed. My thinking was that once the Donut hole was closed, and the $80 billion commitment rendered (my estimates of filling the Donut Hole are lower), Pharma would benefit for years to come based upon the "insurance effect" of the closure of the Donut Hole. However this may not be the case. This morning there seems to be some confusion regarding the exact nature of the earlier commitment and the possibility of a "new deal".

Details of the "deals" are very sketchy as I pen this blog (old deal? here). However, here's what I understand. The "new deal" appears to be part of a compromise that occurred in the Senate surrounding Dorgan's Drug Reimportation amendment. Just after the Dorgan amendment was defeated, Senator Reid announced that he would support a full closure of the Donut Hole in the House/Senate Conference Committee following passage of the reform bill in the Senate. Up until Reid's statement, unlike the the House's version of the legislation, the Senate only slightly filled the Donut Hole (eliminating $500 of it). It appears to have been a "Jelly for the Donut Hole in exchange for no drug imports" deal.

Also, late yesterday, there were vague reports that the cost of closing the Donut Hole would now be borne by the Pharmaceutical Industry generating confusion over the duration of it's commitment and if it was strictly for the period over which the Donut Hole was closed. The original deal was supposed to be a 50% discount for drugs in the unclosed Donut Hole. There were also reports that the industry would pony up an additional $20 billion. Some sources said the additional $20 billion would not come from manufactures but from PBMs.

So this morning I am left with one hand on my coffee mug and the other scratching my head. Key questions on the table this morning about the "new deal"

How long will Pharma be contributing to the Donut Hole? Until it's closed as originally thought or for years after it is closed?
Exactly how much will Pharma contribute to the Donut Hole and/or it's closure?
Will other industry players like PBMs be asked to ante up as well?

I'll update this blog as new details come forward.

Updates...

The New Republic suggests the possibility of 75% discounts in the Donut Hole.

Pharmaceutical Marketing's New Role

2009-12-15T08:44:00.002-05:00

The Senate and House's version of healthcare reform legislation seeks to improve the cost and quality of care by establishing and funding Comparative Effectiveness Research Centers. These centers would review options available for treatment for a particular condition to determine which option produces the best clinical and economic outcome.

For many years pharmaceutical marketing focused upon promoting a drug's efficacy and safety based upon controlled clinical trials submitted for regulatory approval by the FDA. Typically, the clinical trials were placebo controlled. Most often, a drug's performance was not assessed against a comparator or competing drug. In a market with greater attention on comparative effectiveness, marketing will need to take a far more active role in both clinical trials and how the drug is actually used once approved.
Without a question, marketing needs to become far more involved in R&D than it is today at many pharma companies. Marketing will need to provide input to R&D on crucial decisions of when to include, or when not to include, comparisons to competing drugs. If a comparative is desired, marketing will need to establish which drug(s) and what endpoints will need to be measured. Comparative clinical trials are risky hence marketing will need to carefully translate market need and hence brand performance to balance the risk of the comparative trial.

Marketing will need to become far more involved in how drugs are actually used in the market place as comparative effectiveness research will certainly measure how a drug performs in the real world clinical setting of MDs offices and not just in carefully controlled clinical trials. Drugs used properly with the right mix of healthcare services (e.g. MD visits at appropriate times, compliance enhancement, etc.) often perform better than if a patient is simply handed a pill in an amber colored vial. Marketers can't afford to leave things to chance. Data will be accumulated and reviewed... good, bad or indifferent.

Smart companies will begin to take action now to change organizational structures and business processes to better integrate marketing in R&D today. Drugs entering the pipeline will likely be reviewed for comparative effectiveness in the future. Smart VPs of marketing will look to begin to experiment now (like the Januvia example) with their upcoming new role. Companies who get down the learning curve faster than competition will have the competitive edge.

Healthcare Reform To Drive Pharma R&D Spend Higher?

2009-12-11T13:11:00.007-05:00

As senior Pharma executives consider steps to improve shareholder value stemming out of Healthcare Reform there is no doubt that one area under scrutiny will be R&D spend. Two questions will be raised. How to change their spending footprint (more on this later)? and how much to spend? In contrast to what some have concluded, I believe that savvy execs may very well increase company R&D spend, at least as a percentage of their revenue dollar.

The fact is that pharma is already increasing their R&D spend irrespective of the tough sledding (e.g. increased pricing pressures) the industry has seen since the turn of the century. Consider the graph below depicting R&D spend as a percentage of revenue
for the very end of the go go 90s and the double goose egg 00s decades. There is a clear and distinct upward trend in R&D spending as a percentage of revenue by both major companies and the the PhRma composite. Only the last data point, 2008, shows some softening of the increase.

One explanation....? Certainly industry execs know that the days of the old model are over. Companies cannot simply invent a me-too drug and out shout the competition by adding 100s of reps (Curiously... the exception, to some extent, maybe in the south). The path to shareholder value will be through more innovative R&D, albeit at a higher risk, and decreased but more efficient marketing and sales spend enabled, at least in part, by new eMarketing approaches.

Medicare Part D Expands as 55+ year Olds Buy In?

2009-12-11T07:13:00.014-05:00

The Senate public compromise includes an option for those Americans who are 55 years old or older to purchase health coverage via Medicare. While much of the details haven't been released yet, and the Senate waits for the cost tab from the CBO, let's take a quick look at what it might mean for Pharma.

First, Medicare enrollment by this new age group is likely to be limited to those who don't already have insurance or those who purchase insurance on an individual basis. Kaiser Family Foundation (KFF) reports that 12% of Americans in the 55 to 64 year old group don't have health insurance. This amounts to 4.3 million people. The number in this age group purchasing individual insurance, according to KFF, is 2.1 million. This brings the total of 55+ year olds likely to have an option to buy-in to Medicare at 6.4 million.

The big question on the table is what percentage of the younger Medicare eligibles will actually enroll in Medicare? But-in premium estimates have been placed at $7,600 to $8,000 per enrollee (this can be compared to the $11,000 or so Medicare currently spends on each enrollee). Interestingly KFF reports the average premium, $5,400, in this age group is a lot less than the reported Medicare buy-in. Undoubtedly there will need to be subsidies extended to the lower income uninsured as there will be in the exchanges.

My guess at the moment is that the sicker might opt for Medicare but the rest will find better plans at lower costs in the exchanges. Either way, the uninsured, either through the exchanges or through Medicare, will have Rx coverage (assuming those opting for Medicare will opt for Rx coverage via Part D). I therefore don't see much of a near-term impact on Pharma at this juncture if the Senate ultimately adopts this provision. If this aspect of the great compromise moves forward, and further details are available, I'll have a closer look.

Dorgan's new Importation Legislation more costly to Pharma?

2009-12-10T13:54:00.000-05:00

If Dorgan's bill, discussed today in the Senate, sees the light of day it might cost Pharma more than earlier versions of drug importation legislation.

Importation of drugs from other countries which have lower pricing than the US is not a new idea. Legislation has floated around The Hill for a number of years. In 2004, CBO Estimates
placed the revenue hit to the Pharmaceutical industry of roughly $4 billion per year. The CBO indicated that estimates would be much higher but the CBO anticipated drug manufactures would take action to limit supply to low priced countries (among other things) and those countries might act to prohibit exports to the US to preserve supply for their own country.

Interesting, the Congressional Research Service Summary of Dorgan's S. 1232 amendment includes language to limit actions Pharma can take to mitigate impact of the legislation on their top line.

In fact a a press release from Senator Dorgan's office indicates that Senator Dorgan's own estimates place the savings, or cost to the pharma industry, at closer to $10 billion a year.

Pharma lobbying is heating up in response to amendment.

Recent Press on Drug Prices May Negatively Impact Pharma in Final Senate Reform Legislation

2009-12-10T08:27:00.010-05:00

Morning all.

I've been following with great interest the recent negative press regarding high drug price increases as well as this week's House hearing on the same topic. The timing couldn't be worse for pharma. The Senate is still in the process of finalizing it's healthcare reform legislation. There appears to be increasing interest to extract more concessions from pharma as the legislation is finalized.

Waxman, in his opening statements to the House's Hearing on recent drug price increases by the Energy and Commerce sub committee said "It is hard to escape the conclusion that the industry is positioning the pricing of its products for enactment of the new health reform legislation." and "we cannot write the pharmaceutical industry a blank check as we reform the health care system". Finally, "To date, the Senate has so far not gone as far as the House with their drug-related provisions. When we do sit down with the Senate, I think the pharmaceutical industry’s recent price increases will be exhibit A"

By the way... the widely quoted AARP number based, upon Schondelmeyer's work , for last year's price hikes of 9% includes strictly a select group of brand name drugs and wholesale level. Vernon in his testimony suggests a broader measure is appropriate and it's closer to 3%.

Importation of Pharmaceuticals to the US?

2009-12-07T10:43:00.012-05:00

An old amendment is rearing it's ugly head. The Washington Post reported yesterday that Senator Dorgan's (democrat from North Dakota) amendment #2973 is in discussion behind closed doors in the Senate. This amendment would allow both pharmacies and drug wholesalers to import drugs from a number of specified countries like Canada.

While I have not sharpened my pencil on this one yet, the Congressional Budget Office (CBO) has estimated savings to the government of almost $20 billion over the next 10 years. Of course the overall cost to the pharma industry would be even greater considering non governmental purchases.

$2 billion per year seems a bit "light" to me...
even just considering the impact from government purchases only. However, a "ball park" estimate, utilizing national healthcare data from CMS (government spending is roughly 36% of total pharmaceutical expenditure), places the total hit to industry revenue in the range of $5 to $6 billion per year. Should this amendment move forward I'll need to have my own look at the impact on industry revenue.

More importantly, if the amendment is embodied with the final reform legislation, Pharma will need to look into their global pricing models and strategies. According to IMS Health, the North American sector(almost all US)represented 40% of the global pharmaceutical market at $312 billion in 2008. With US brand pricing being significantly higher than in most countries, there is quite an arbitrage opportunity for importing pharmaceuticals from beyond the US boarders.

Dec 8th Update - FDA Opposes Dorgan's bill. http://bit.ly/7dKgWZ This will likely be the "kiss of death" for the amendment but will other pharma price reducing proposals gain steam then?

Add Sales Reps Because of Healthcare Reform?

2009-12-04T17:51:00.006-05:00

The answer is yes or at the very least engage your favorite CSO's services on a trial basis (see post below for the significant pharmaceutical revenue gain coming from insuring the uninsured).

Where? In the South. For what products? Products used especially by the younger patient population. Why?
Because the uninsured are primary young and are disproportionally located in the less manage care intensive pharma markets of the South.

More specifically, close to 20% of the population in the South today does not have health insurance compared to only 11% of the population in the North East and 12% of the Mid West. 25 million uninsured are between the ages of 19 and 44 years old which is a large chunk of the 35 to 45 million people who are uninsured.

By the way... The West also has a high uninsured population of 17%. Beefing up managed care organizations might be in order in that region.

Industry Revenue Change... How it All Adds Up

2009-12-04T16:53:00.003-05:00

In my post of December 3rd titled "Healthcare Reform and Revenue Growth", I pointed out the revenue lift of the pending legislation. Now I'd like to share with you my estimates of revenue impact other aspects of the pending legislation that will act to drag down industry revenue. This chart provides the viewer with a sense of the full impact of legislation with direct impact on industry revenue. Please note that some of the specific legislation will take place over a number of years such as the closure of the Medicare Part D Donut hole but they are shown here is if they occurred immediately to provide a better sense of comparison.

At the top you'll see the two revenue enhance aspects of the legislation, coverage of the uninsured and removal of the Medicare Part D donut hole. This add up to an estimated benefit of roughly $17 billion of increased revenue for the industry per year.

Next I start to subract from this revenue lift by adding in

Best Quick Look at Healthcare Reform Legislation

2009-12-04T10:06:00.005-05:00

A number of you have asked for the best sources for an overview of pending healthcare reform legislation.
I have find the Kaiser Family Foundation the best source for a current but comprehensive overview! Here's the link...

www.kff.org/healthreform/upload/housesenatebill_final.pdf

Subscribe to my blog or keep checking back regarding both the near-term and long-term details of the legislation and the ramification for action by the Pharmaceutical Industry.

Healthcare Reform and Revenue Growth

2009-12-03T06:56:00.005-05:00

While there is tremendous concern regarding the negative impact of Healthcare Reform (rightfully so), there are two important aspects of the legislation in the current versions of both the House and Senate legislation that will have a significant favorable impact on industry revenue.

The first is the expansion of coverage to the uninsured. It is widely known in healthcare policy circles that when insurance coverage is provided or increased the use of healthcare services, supplies, etc also increases. This is commonly called the insurance effect. My analysis points to an increase in industry revenue of $9 to $10 billion per year as a large proportion of the uninsured receive coverage.

The second aspect of proposed legislation is the closure of the infamous Medicare Part D "Donut Hole". This also will contribute to an insurance effect. The "Donut Hole" will be closed over time so the full impact won't occur until later in the 2010 decade. But to get a sense of what this might mean if we were to consider the full impact today, my analysis estimates that this would add another $7 or $8 billion in industry revenue.

IMS had US industry revenues of about $290 billion last year so all told these changes would lift industry revenues by about 6% (not accounting yet for the negative revenue items in the legislation. more on these later but scroll down to poll at bottom of web page!).

However the benefit across companies will not be equal. The actions companies take today will dictate whether or not they capture some, all or more than than the 6% lift. Look for a future post on actions I believe companies should consider to take advantage of this windfall.

Welcome

2009-12-03T06:28:00.001-05:00

Hi all!

Disappointed in the coverage of Healthcare Reform and it's impact on the Pharmaceutical Industry, I've decided to look into matters myself and share my thoughts with you, my clients and others concerned about the industry.

Change will come. But like trends buffeting many industries there is both an upside... and a downside. Over the course of the next several months I will continue to provide my thoughts, analysis and observations in a meaningful way to help those working within the industry or those concerned about the industry to adopt, change and make better decisions.

So keep checking back as I will be blogging on a regular basis!