Harbingers of Change

For now, the future seems to recede ever further in the media onslaught of the endless presidential campaign. But come November 5, when life as we once knew it resumes, the drug industry will have not only a new administration to do business with but a bunch of new opportunities/challenges to add to its to-do list. Some of them are familiar, such as the "how" and the "how much" of outsourcing, while other issues are still emerging or barely even noticeable. Each year, IMS Health, the healthcare information and consulting king, surveys the pharma landscape for developments likely to drive trends or have major future impact. Here are eight strong harbingers to watch—and watch out for—when planning for '09.

1. CHINA RIPPLE MAY BECOME A TSUNAMI

US OKs First Chinese NDA

For years, oceanographers have relied on the release and recovery of "drift bottles" to model ocean currents and surface drifting. Serendipity has, however, provided them with an additional measurement in the form of 29,000 plastic ducks created in China and lost in the Pacific Ocean 15 years ago. In July 2007, British newspapers warned that a flotilla of 10,000 of these lovable bath toys would begin washing up along Britain's shores. The ducks' remarkable odyssey could be followed by another Chinese product "invasion" that may not be as innocuous.

THE HARBINGER

In July, FDA approved the first Abbreviated New Drug Application (ANDA) for a product fully manufactured in China: nevirapine (known by the brand name Viramune, an HIV med made by Boehringer Ingelheim) from Zhejiang Huahai Pharmaceutical. Coincidentally, in July the US government set up the Interagency Working Group on Import Safety.

THE CHANGE

The importation of a finished pharmaceutical product is almost certainly the beginning of a sustained Chinese assault on the US and other strategic markets. Industry experts forecast that regulators will approve ANDAs for no fewer than 10 Chinese pharmaceutical companies, and the drugs have a good chance of passing FDA reviews. In order to ensure their success, the Chinese manufacturers are likely to undercut all others on price.

THE IMPLICATIONS

Chinese policy will drive generic prices down further—with far-reaching consequences for both R&D players and international generics. R&D is increasingly looking to emerging markets for top-line growth, while generics are seeking top-line growth and profit stabilization.

China's success would also accelerate the transition of the Indian multinational business model to embrace a balanced profile, including serving as third party preferred manufacturers for patent-protected brands, partnering with the global players in drug development, and expanding R&D. The Chinese makers of finished doses that will generate the most generics profits in the US will likely be those that integrate back into the supply chain via Active Pharmaceutical Ingredients (APIs). While Indian suppliers accept that large numbers of APIs will be supplied from China, they maintain that it is more efficient to convert APIs into finished products in India than in China.

How this unfolds may come down to reputation. India is developing an image of excellence in pharmaceutical provision. China has a long way to go to eliminate or minimize risk. The speed and the success they achieve will determine China's importance in the manufacture of pharmaceuticals.

2. OUTSOURCING: SAVE NOW, PAY LATER?

Top Pharmas Withdraw from Manufacturing in a Big Way

Imagine a world where a basic activity—sleeping—becomes outsourced. That's the premise of the short story "Tough Girls Don't Dream" by Jeanette Winterson. In this world, people are too busy to sleep, though dreaming is acknowledged as beneficial. Thus, civil servants are paid to sleep so that others can enjoy their dreams. There was a time when the thought of major pharmas outsourcing a sizeable portion of their manufacturing was nearly as improbable. But times change.

THE HARBINGER

In 2007, three of the top ten pharmas announced plans to outsource manufacturing on an unheard-of scale. AstraZeneca is expanding purchase of semi-manufactured medicines and external manufacturing of APIs over the next five to 10 years. Bristol-Myers Squibb reported that it will use third parties as backup manufacturers, closing more than half of its 27 manufacturing facilities by 2010. GlaxoSmithKline plans to save approximately $1 billion through 2010 with a program likely to include outsourcing. Pfizer, which already outsources 15 percent of its manufacturing to Asia, aims to double that, saving some $2 billion a year.

THE CHANGE

These decisions give rise to three new tenets in pharma. The first is that there's no requirement that R&D be linked to manufacturing; the second is that intellectual property is no longer a key factor in determining business partnerships; and the third is that the technology and skills required to produce branded pharmaceuticals can be found in emerging markets.

In an age of generics, there's ample incentive to outsource production of low-margin goods to lower-cost manufacturers. Outsourcing could also be a way to improve time to market—a manufacturer that can shorten development time by 19 percent can save $100 million. When companies do not need to adjust their own workforce and operational capacity to fluctuating demand, they can concentrate on innovation and brand building.

THE IMPLICATIONS

Of course, relying on partners can be challenging. There's uneasiness, especially in the US, over the quality and safety of pharmaceuticals sourced in emerging markets. As manufacturing processes become more complex, drugmakers will be required to provide impeccable sources and guarantees. Legal liability will be the subject of increased scrutiny in an increasingly risk-averse environment.

The second issue is that contract manufacturers can turn the tables completely. A contract manufacturer for a major pharma could tout its quality and the credibility gained from the outsourcer to eventually put its own brand on packages. And the specter of challenges to intellectual property rights refuses to go away, despite recent progress in countries such as India.

The third issue concerns local market access. Multinational companies have been hindered in their attempts to invest in emerging markets where pharmaceutical consumption is predominantly generics. Since growth is coming increasingly from these markets, it's not surprising that major drugmakers are looking for new avenues to build businesses. Strong partnerships could provide the basis for closer commercial arrangements.

Lastly, there are growing political and economic concerns. For example, the research-based pharmaceutical industry remains one of the best-performing high-technology sectors in Europe. So if the move to outsource pharmaceutical manufacturing takes hold, political intervention may follow. Concern over jobs and trade imbalances may help to renew a dialogue between governments and Big Pharma on a more favorable basis than in recent years.

3. RIDING THE WAVE

Novartis and NICE Team Up

Big wave surfers must be able to predict how a wave will break. In order to stay ahead of the whitewater, they study wave dynamics and consult sophisticated surf forecasts based on data from ocean buoys and space satellites. This meticulous preparation is often what separates thrill from peril. Pharmas that are ready to ride the wave created by Health Technology Assessments (HTAs) must learn to predict how assessors will behave. They must understand what proof points assessors will require and use the science at their disposal to avoid "wiping out" when seeking the HTA's stamp of approval.

THE HARBINGER

In December 2007, Novartis announced a deal with the National Institute for Health and Clinical Excellence (NICE) in the UK whereby the two organizations will be partners in the design of a Phase III clinical trial. NICE will provide advice on evidence requirements in the areas of clinical effectiveness and cost effectiveness prior to Phase III clinical development.

THE CHANGE

NICE has become pivotal to the success of newly launched products on the strength of its guidance on cost effectiveness. Novartis hopes to provide NICE with the evidence necessary for an endorsement, and presumably to speed NICE's decision-making, which normally takes two years following marketing approval.

Impartial observers have asserted for years that relationships between stakeholders in the healthcare sector are inefficient and confrontational. In August 2006, a submission to the UK's Cooksey Review by the American Pharmaceutical Group (APG)—which represents the top ten US-owned pharmas that invest in the UK—recommended that "an earlier dialogue between NICE and clinical researchers could better direct research to ensure a satisfactory and speedy NICE appraisal." Novartis has taken the lead by starting dialogue at the clinical research stage.

THE IMPLICATIONS

Incremental successes in drug development have driven demand over the past 50 years, especially in chronic illnesses, and have generated a cost base that requires payers to carefully manage financial resources. With HTAs becoming more important in drug marketing, pharmas can no longer overvalue the scientific contribution of their innovations or ignore the influence of HTAs. The Novartis initiative may signal the end of Big Pharma's isolationism.

Experiments such as Novartis' may lead to a consensus on targets for R&D. According to the APG's Cooksey Review submission, clinical trials are costing manufacturers in the neighborhood of $500 million; therefore, anything that can direct research in the most promising directions is bound to win support.

4. A SHOT HEARD ROUND THE WORLD

US Research Agency Backs Head-to-Head Trial

Dramatic turning points in history have often begun with a single shot—like the musket shot that began the American Revolutionary War or the assassination of Austria's Archduke Franz Ferdinand, which plunged Europe and its allies into World War I. A large, head-to-head trial sponsored by the US National Eye Institute (NEI) on two marketed products should be seen by manufacturers as such a shot. It signals a new level of activism on the part of other stakeholders, who will fund their own trials when pharmas are unwilling to do so.

THE HARBINGER

NEI, part of the National Institutes of Health (NIH), is pouring about $16 million into a trial that will compare the safety and efficacy of two on-market therapies for wet age-related macular degeneration (AMD): intravitreal injections of the anticancer drug bevacizumab (Avastin) vs. ranibizumab (Lucentis). Both products are anti-VEGF agents, and both have been used to treat wet AMD. But Lucentis is specially formulated for use in the eye and has conducted specific, high-quality AMD clinical trials. By contrast, use of Avastin in AMD has been off-label.

THE CHANGE

This type of clinical trial is normally the purview of the drugmakers. In this case, the originator of both agents, Genentech, will have nothing to do with the trial. The NEI, spurred to action by a Medicare advisory panel, is stepping forward because of the disparity in cost between the two drugs: Lucentis costs around $2,000 per injection, whereas Avastin, when used for this indication, costs only $40 to $75 per dose. With a typical course of eight to 12 injections, the cost of Lucentis would amount to around $24,000, compared to approximately $900 for Avastin.

THE IMPLICATIONS

If the trial, which ends in 2010, finds that Avastin is as effective and as safe as Lucentis, US sales could largely disappear. And there would undoubtedly be a spillover effect in other countries. Avastin sales could benefit, but substantial value would be lost to Genentech forever.

This will also affect the relations that the entire industry has with policy-makers and payers. The NEI-sponsored trial signals a new level of activism in the US by the single-largest payer body: the Centers for Medicare and Medicaid Services (CMS). The US will no longer categorically accept drugmakers' pricing of biologics.

The trial is also a precedent for nonpharmaceutical entities to fund head-to-head clinical trials when pharmas are not willing. Although the costs are high, they're miniscule compared to the potential savings from avoiding widescale use of Lucentis. Until now, the problem for payers, policymakers, and prescribers was that funding head-to-head trials has been prohibitively expensive. However, if real-life data from healthcare utilization databases can be used to make head-to-head comparisons routine, Pandora's box will be opened.

But questions remain. In supporting this trial, the NIH is effectively funding Avastin's off-label use. Should the trial results support Avastin for wet AMD, there is no clarity yet on whether there will be a move to give it a label for this indication—or who would do so. Genentech has emphasized that it undertook intensive, meticulous, and expensive research to develop Lucentis specifically for the eye. The unintended consequences of this trial could lead to a hesitance in Big Pharma to pursue important R&D if payers are unwilling to share the cost of development.

5. STEPPING UP

A Win-Win for Access to Market and Treatment

It's been 133 years since Aaron Montgomery Ward, founder of the world's first dry-goods mail-order business, broke with the tradition of caveat emptor ("let the buyer beware") and offered customers their money back if they weren't satisfied with their purchases. The money back guarantee remains special today because life holds few guarantees. As actor Clint Eastwood once said, "If you want a guarantee, buy a toaster." Now the same may be true for pharmaceuticals.

THE HARBINGER

After the UK's National Health Service (NHS) declined to pay for Johnson & Johnson's leukemia drug Velcade, J&J proposed an arrangement whereby NHS need only pay for the treatment in patients for whom it proves effective, as evidenced by a blood test. In the absence of such proof, the treatment for that patient will be discontinued, and J&J will reimburse the NHS for the entire treatment cost. With proof that the patient is responding sufficiently, the treatment will continue, and NHS will continue to pay. The cost of treating a patient up to the point of the go/no-go blood test is about $24,000.

THE CHANGE

In the past, companies have had to contend with conditional reimbursement on the part of payers based on discount pricing, sliding-scale partial-reimbursement schemes, and temporary price cuts. This is the first time that a pharma has issued a performance-based, money back guarantee. With this pledge, J&J has promised not merely to share the risk, but to bear it completely. J&J has thus become more invested than ever before in the actual practice of medicine.

THE IMPLICATIONS

It's not surprising that the initial case of risk transfer to a pharma manufacturer involves an oncology treatment. Sales of oncology products in the UK increased from $500 million in 2002 to $1.5 billion in 2007, growing at an average compound rate of 18.9 percent (in constant US dollars). Finding a way to afford oncology treatments—and to justify the expense—has become a struggle for payers.

The Velcade deal is likely not the last of its kind. The situation underscores the point that manufacturers must present compelling evidence of the value of their medicines when seeking reimbursement. If payers remain unconvinced by clinical trials and outcomes research, they are ready to deny coverage. This elevates the need to agree on the standard of proof. In the J&J/NHS agreement, the parties ultimately agreed that a 50 percent reduction in a protein produced by the tumor suggests that the drug is working sufficiently for it to be covered.

Agreements such as this suggest that pharmas may seek to be more engaged in what happens with their products after they're shipped. To ensure the optimal outcome for the patient, a medication must be prescribed properly, be taken as prescribed, and be part of a treatment plan that includes the right ancillary support.

If the J&J/NHS agreement plays out as expected, more UK patients will have an opportunity to try Velcade. But some will have to stop their treatment at the therapy midpoint if they do not respond fast enough. In theory, this is easier to explain to a patient than flatly refusing to cover a treatment from the beginning.

6. WALKING AWAY

Pfizer Yanks Exubera From Un-Exuberant Market

The phenomenon of loss aversion is the tendency to prefer avoiding losses over achieving gains. It comes into play when people who have invested in a cause cannot admit that it was a mistake. The dying poker player who gave "life advice" in Kenny Rogers' hit song, "The Gambler," understood this when he said, "You got to know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run." Pharmaceutical companies must know when to "fold 'em," considering not only a product's safety and efficacy, but also its ability to add value in the eyes of payers.

THE HARBINGER

Pfizer's dramatic withdrawal of support for Exubera, the first inhaled insulin on the market, was one of the headline events of 2007. Pfizer took a $2.8 billion charge associated with the write-off. It had paid $1.3 billion to buy Sanofi-Aventis' share of Exubera, and then saw sales of just $31 million from launch to the time of the withdrawal. Yes, that's millions.

THE CHANGE

Pharmas have a history of pulling products in development because of less-than-optimal trial results, or because of unexpected safety issues. But pulling a safe, effective new drug simply because it's not selling is almost unprecedented. In fact, when products get off to a slow start, companies tend to increase promotion.

Based on IMS's Launch Excellence study, we know that only a minority of launches are able to improve their launch trajectory after six months on the market. In the US, the number is less than one in 10. If pharmaceutical companies act on this observation, we would expect them to invest heavily in the first six months of a product's life. However, should the launch show a poor trajectory, the most logical step would be to pull back on the investment.

IMS analyzed 569 launches in the US, from 1997 to 2005, to understand how well the product did at launch, as well as the extent to which companies promoted them. Interestingly, those launches that saw a strong increase in promotional investment from six months to two years after launch were also most likely to show a decline in performance. This clearly suggests that companies do often throw good money after bad.

THE IMPLICATIONS

The quest to develop an insulin that diabetics can inhale, sniff, or even ingest has been long and difficult. The fact that Exubera came to market at all is a considerable technological achievement. What Pfizer could not overcome was the reaction of the audience that has become the dominant decision maker in many countries, including the US—the payer. In the eyes of payers, Exubera was a premium-priced product that provided no improvement to treatment outcome or overall cost benefit, as there was no evidence of compliance improvement.

For the industry, this was a hard (and for Pfizer, painful) lesson on the consequences of failing to address the decision makers who matter most. Health economics studies can demonstrate the benefit of innovative products to payers. But health economics cannot step in at the last moment to save a product. If the fundamental product concept is not payer-friendly at the beginning of Phase III, it's not likely to become so with the application of health economics studies late in the day.

7. D-I-Y PROMO

Marketers Get Personal With DTC Strategies

Today, marketers in every industry are aiming for "extreme personalization," or the ability to take the right action with the right individual through the right channel at the right time. One German department store employs "smart mirrors" in dressing rooms that read RFID tags on apparel and make suggestions for complementary purchases. While there may be no immediate parallel in pharmaceutical marketing, companies are using technology and information sources to improve direct-to-patient communication.

THE HARBINGER

IMS observed a significant change in the promotion strategies of the top 25 pharmaceutical companies in 2007: For the first time, DTC spending reached over 40 percent of promotional expenditures in the US. This strategy was adopted across a broad range of therapeutic areas, including specialist-oriented product classes. This shift in the industry's promotional mix was magnified by a sharp decline in professional spending made possible by sales force reductions. And combined spending on professional journal advertising and detailing efforts declined by 7.4 percent in 2007. Meanwhile, consumer spending remained relatively constant.

THE CHANGE

Brand marketers are beginning to view patients as an audience of equal value to prescribers. As a result, they are shifting from a low-cost, mass media patient-acquisition model to a more expensive customer-management approach that should lead to improved profitability.

Since growth is slowing for major brands, marketers are increasingly turning to more targeted forms of promotion, with the goal of increasing patient compliance and persistence rates. Marketers' interest is being rewarded with a growing number of patient-marketing channels becoming available. This proliferation of choices has made media selection and resource allocation riskier, since these new channels have no long-term history.

THE IMPLICATIONS

Regard for the patient as an equal promotion priority will likely continue at least for the next decade. And given a downturn in the number of product launches, look for a continuing trend toward spending in relationship programs. For the marketer, this has many repercussions:

Spending: Spending per patient will increase, at least initially, on costly relationship-building tactics. Companies will be challenged to select the right consumer mix and allocation levels—a feat more difficult than getting professional promotion right. Companies must identify and implement new patient-based insight sources, analytics, decision-making tools, and tracking systems.

Messaging: Companies will begin to focus on the lifetime value of patients rather than the total number of prescriptions. Consequently, programs will emphasize improved patient adherence. The use of health economics techniques to demonstrate product value may also become an important communication topic. Evidence-based value messages to consumers will be different from the highly scientific presentations to medical and managed care audiences.

Execution: Now that investment in consumer promotion is on equal footing with professional promotion, companies will need expanded commercial capabilities to realize productivity gains. Marketers also face the complex task of integrating patient and professional marketing campaigns to achieve spending synergy and to reinforce brand position. Companies must consider how best to calibrate payer influence on their DTC efforts; commercial organizations need to consider how to move from traditional brand-centric promotion strategies to a "whole patient" approach.

Measurement: Return on investment in consumer promotion is likely to be more variable than with professional promotion. New metrics of promotion and strategy effectiveness are required to assess how brands align with patient needs and behaviors relative to their competitors. Pharma has an opportunity to create more informed consumers, and to demonstrate the value of their products in a personalized format. Whereas personalized medicine may not come as fast as originally believed, "personalized promotion" is already here.

8. AN EYE-OPENER

New Safety Surveillance Poses Analytical Challenge

Stereograms, a kind of eye-teaser, are featured weekly in many newspapers around the world. They test viewers' ability to stare at a two-dimensional pattern until a 3-D image magically appears. The trick to seeing the "prize" is a matter of training the eye to get past the visual intricacy of the pattern. Eventually, with the provisions of the Food and Drug Administration Amendments Act (FDAAA), a wealth of data on drugs' use by and impact on 100 million people will be open to groups beyond manufacturers and regulators.

THE HARBINGER

After three years of exhaustive hearings and debates, President Bush signed the FDAAA into law in September 2007. Dubbed the "drug safety law," the legislation grants additional authority to FDA and strengthens its focus on drug safety and efficacy. It grants FDA $25 million per year through 2012 to develop methods for obtaining observational, post-market patient-level information through public–private collaborations.

THE CHANGE

The goal is to create a surveillance system with access to product usage data on 100 million people in the US. Access to the data is not an issue; sources include claims data, transactional data, and billing data, as well as the government's own sources such as Medicare and the VA.

With this provision, postmarketing data collection and analysis will move into the public domain. The resulting landscape will not only be more regulated but also more transparent as the information becomes more widely available to third parties—including academic researchers, patient advocacy groups, the media, and the general public.

FDA has signaled that it will not control these data sources, but will rely upon a distributed data network. It will also coordinate adverse event reporting with the NIH so that a single submission will serve both agencies.

The real issues would seem to be around managing, rather than acquiring, the data. As stated by Janet Woodcock, director of the Center for Drug Evaluation and Research at FDA, "The science is not developed yet.... We get all this data, but what does it mean?"

THE IMPLICATIONS

There remain valid questions about the potential applications of this patient-level information. Given the goals of FDA, expect the information to be used for:

• Proactively identifying patterns of adverse events and safety issues

• Pharmacovigilance, including detection, evaluation, and prediction of safety issues

• Risk management planning and implementation

• Wider and easier access to information for meta-analysis

• Tying postmarketing data to clinical trials information

• Identifying patterns of disease incidence and treatment outcomes

• Comparing effectiveness of treatment alternatives

In the US, a public–private partnership, the Observational Medical Outcomes Partnership (OMOP), may lead the way in determining the value of using observational data to identify the safety and benefits of prescription drugs. This partnership will be governed by FDA, led by the NIH, and funded by PhRMA.

With the growing involvement of NIH, the pre- and post-regulatory environment has the potential to become more complex. Increased transparency could increase risk for manufacturers, insurers, academic centers, and employers, who will all have access—and different economic motivations and goals. FDA has estimated that just one of 10 adverse events are actually reported. Will this new system lead to a big increase in the number reported? If so, what will that mean in terms of damage to marketed products and pharma's overall image?

Companies will need to scan the data-bases themselves for adverse events so that they can head off negative FDA and public reaction to "false positives." They also will need a plan for working with FDA to respond in a timely and appropriate manner to real safety issues.

With the passage of the FDAAA, active surveillance may become "the future of healthcare," says Woodcock. This could bring forth a new phase of drug regulation, with the focus moving from clinical trials to performance in a real-world setting.

IMS Editorial Board: MURRAY AITKEN, Senior Vice President, Healthcare Insight; DIANA CONMY, Corporate Director, Market Insights; EVA EDERY, Senior Principal, Thought Leadership, Europe; GRAHAM LEWIS, Vice President, Global Pharma Strategy; JOHN MACCARTHY, Vice President, Thought Leadership, Europe; JOHN MORAN, Center of Excellence Leader, Marketing Optimization; SARAH RICKWOOD, Senior Principal, Thought Leadership, Europe