Pharm Exec's Annual Industry Outlook 2014

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As big Pharma ponders options to address a seemingly endless cycle of market churn, the merits of strategic focus and operational discipline are more important than ever. It's time to be decisive — muddling through is so yesterday.

Will 2014 be a year of compromise and collaboration or a retreat into the trenches? In the world's largest markets, regulators and payers are making it increasingly clear that a retreat – from pay-for-performance, from quality over quantity, from cost as a critical component of health outcomes – means defeat, the difference between a blue ocean opportunity and a mud puddle. Pharma's successful pivot toward orphan drugs and pulse-pounding prices for innovative specialty products as a way to offset patent losses is proof that an old dog can indeed learn new tricks. But sweeping reforms necessitate more than a pivot: the bones won't come from begging.

"In 2014, I think we will see a few breakout pharmas that will say, 'We want a seat at the table in solving the larger issue of healthcare,'" versus a shoegazing focus on drug delivery and therapy alone, Anurag Gupta, leader of Booz & Company's digital health practice tells Pharm Exec. Companies in the latter camp may find themselves crowding the boardroom window as payers and providers compile real-world evidence and establish treatment protocols without their input – or their drugs.

Obamacare: Less is More

The silent guest at this table is the quixotic effort of the US – still by far the largest single market play for pharma – to get the menu straight on health reform. With uncertainties continuing as to what provisions of the Affordable Care Act [ACA] will or won't be functioning in 2014, companies are going to be tested in unexpected ways as they attempt to conduct business around the new law. Overall, says NHD Smart Communications' Tom Norton, "Rx managers will need to pay careful attention to a new, Obamacare 'medical culture' that will present itself as the new insurance plans comes on line."

For Norton, there are several issues to watch. What are the chances, he asks, that the 30-plus new FDA-approved prescription drugs expected to arrive on the market in 2014 will be accessible to all those new patients enrolled in the health insurance exchanges? Given that the majority of these products will be high cost specialty drugs, the prospect is relatively low, even though some may address important unmet needs in areas like rheumatoid arthritis and hepatitis C. Norton adds, "it's also very likely that the only way to access these new products will be with prior authorization approvals and high copays." Pharma will need to offer patients a lift to jump through these hoops, putting more attention and pressure on Patient Assistance Programs.

The ACA's emphasis on "preventive" medicine is another sticking point. Traditionally, Norton points out, preventive care/compliance schemes for managing chronic Rx regimes have generally not ended up with satisfactory results. That's due to the often narrow and transparently commercial voice of pharma to patients: Non-adherence hurts our bottom line, so take your medicine. New strategies are needed to make this key aspect of the law work as intended, particularly since 2014 marks the beginning of a formalized effort by the new Patient-Centered Outcomes Research Institute [PCORI] and other agencies to collect data on comparative effectiveness of drug therapies in specified disease areas. These results, embellished by the efforts already underway by insurers and payers, will have a huge bearing on the future success of every chronic care prescription medicine on the US market.

Another implication is how the reform law's emphasis on preventive care will work to lower healthcare costs. 2014 will establish a metric for proving whether this approach has any value in promoting system efficiencies. Moreover, in order to lower medical costs, the health care exchange insurance plans aim to reduce the number of physicians practicing in the networks by utilizing more community hospitals and smaller, local health centers. Many patients will thus have to switch to new doctors located outside of their home neighborhoods and experience a new type of lower cost medicine, with a limited number of prescription drugs listed on highly restricted formularies.

Why is this important to the Rx industry? Because, says Norton, many of the brand name industry's "high prescriber/early adopter" physicians practice in urban, specialty hospitals. On the assumption that the ACA delivery and financing structure discriminates against these higher cost physicians, the use of newer, more expensive brand name drugs could drop substantially.

The net result, some argue, will be a clearly defined two-tiered system of Rx care in the US. Many of the people who buy health plans through the ACA will have access to fewer, cheaper drugs, while those who continue to be covered through their private employers will enjoy much more robust Rx coverage. The fly in that ointment is the actions by private sector PBMs to cut access to dozens of prescription drugs offered through private employer programs. For the first time, PBM behemoth Express Scripts late last year published a list of over 40 products that it would not cover; many observers agree that this trend is attributable to the onset of Obamacare. Therefore, as with patients enrolled in ACA subsidized plans, it's possible that prescription drug options for private insurance patients could also be reduced in 2014.

So as the new "less is more" medical culture begins to take hold, says Norton, the 85% of Americans currently enjoying some level of private medical care and have access to the latest Rx prescriptions, may start getting less prescription drug care in 2014 than they had in the past. But for those 15% of Americans who will be getting access to many older, lower cost Rx products for the first time, it will feel like more – a lot more.

Europe: Integration takes a hit

Europe also is punctuated by a question mark. The EU Parliament is due to hold its five-yearly elections in May and the results are likely to produce a more populist, "eurosceptic" and unpredictable approach to policy-making. This is a potential problem for big Pharma, which has been a key beneficiary of the market-opening trade and regulatory processes coordinated by the European Commission over the years. The current Commission's term also expires late in 2014. "All 28 Commissioners will likely have to make room for a new generation of leaders whose views on the industry are unknown," notes Reflector,

Pharm Exec'

s Brussels correspondent. This may or may not mean some let-up for the industry on the patent pay-for-delay cases that the present Competition Commissioner, Joaquín Almunia of Spain, has been pursuing so relentlessly. Almunia will not be retaining the competition portfolio, but this means he may press all the harder for action on outstanding cases as the new year unfolds.

The EU's legislative calendar for 2014 will also bring new rules on clinical trials, in a belated bid to maintain Europe's status as an attractive location for clinical research; an update to the EU rules on medical devices that will yield new opportunities for investments in personalized medicine; a proposal to charge fees to companies to pay for expanded European Medicines Agency [EMA] authority over pharmacovigilance; and new rules on countering serious cross-border threats to health that allows for joint procurement of medicines and vaccines. Timing is short, however, and failure to secure the full agreement of member states and European Parliament on clinical trials and medical devices before the end of the parliamentary term in April 2014 could consign the proposals to the legislative trash can, delaying any new EC proposals to 2015 at the earliest.

As the EU's legislation on combating falsified medicines comes more fully into force, the industry will have to put in place measures for identifying and verifying individual packs. The opportunity to combat the relatively limited level of counterfeiting in Europe risks being seriously outweighed by the costs of the new system.

Austerity economics and the demographic decline will focus thinking around the latest political slogan – sustainable health systems, which in many quarters is seen as a euphemism for budget cuts. It is also linked to a move toward the systematic health technology assessment of medicines, on which the EU will move forward this year to implement collaboration mechanisms involving most of the 28 member states. Calls for more equitable access to healthcare could offer some opportunities for redressing imbalances in availability of medicines across Europe. Implementation of the rules on rights for cross-border patients could expose wide discrepancies in many aspects of healthcare provision.

Further, the widening demands for accountability, transparency, and good governance will tighten monitoring on both the drug industry and on regulators, with calls for stronger provisions to prevent conflict-of-interest cases multiplying in the context of persistent public distrust. But, warns Reflector, "even the pro-active publication of clinical trial data foreseen by the EMA for 2014 is unlikely to satisfy the gathering chorus seeking more open access to information."

Specific changes in the administrative arrangements confronting the industry in Europe will also present challenges as well as opportunities. There will be new opportunities for research funding from the EU's $100 billion program to support innovation, which comes into effect at the start of 2014 and runs through to 2020. As much as a tenth of this funding will be for life-sciences research, channelled through IMI2, the successor public-private partnership to the Innovative Medicines Initiative. Favored areas include chronic diseases such as diabetes and dementia, as well as filling the antibiotics gap.

In broader terms, there will be greater focus in Europe on value-for-money for innovative medicines. Pressure will mount for closer links between marketing authorization procedures and health technology assessment [HTA]. "Even drug companies, long resistant to any notion of a 'fourth criterion' of comparative benefit contaminating the sacred trio of safety, quality and efficacy, are starting to recognize the possible efficiencies in avoiding duplicative data collection exercises, as HTA becomes the norm for pricing and reimbursement discussions," says Reflector.

UK: Global nexus for the "value" debate

Issues surrounding value are particularly controversial in the UK. The government's much touted value-based pricing (VBP) initiative has been hotly debated since at least 2010, when the new Coalition government announced a commitment to VBP and established the Cancer Drug Fund as a "bridge" to the new scheme. Where the drug price-setting body the National Institute for Health and Care Excellence [NICE] had so far based its decisions on drug affordability on a cost-to-benefit ratio, VBP, it was announced, would also consider a drug's wider social benefits, how it addresses an unmet medical need, and, not least, how innovative it is.

But the January 1, 2014 deadline for launch of VBP appeared increasingly ambitious, given the government's reticence to provide guidance on how VBP would actually operate, and whether it would replace or co-exist with the long-established Pharmaceutical Price Regulation Scheme (PPRS), which currently applies to branded in-patent drugs (accounting for about 70% of NHS drug spending). In June 2013, the Department of Health handed responsibility for VBP to the NICE, leaving less than six months for the Institute to finalize a program of implementation. Complicating the issue further, the government announced in November 2013 a new PPRS, which took effect this month and is to run for five years.

NICE had been tasked with setting the price for new products under the initial VBP plans, but the new PPRS has reclaimed that responsibility. The announcement instead confirmed that NICE will "undertake all elements of assessment for a broader definition of value," adding, with further vagueness, that the "assumption is that prices at launch will be set at a level that is close to their expected value as assessed by NICE."

Many commentators see this as proof of a government retreat from VBP. While companies do have the option to request a value-based appraisal of a treatment, a wider scheme for this process will not be introduced until late this year. There was also little industry enthusiasm for the confirmation that NHS spending on branded medicines will stay flat for two years — followed by increases of 1.8% in 2016 and 2017, and 1.9% in 2018 — and that the NICE cost-effectiveness threshold will remain at its current level for new drugs for the next five years. Pfizer complained that the new PPRS is symptomatic of the government's "growing disconnect" between its ambitions and its actions, and displays its bias toward "managing NHS costs rather than valuing the long-term benefits of medicine innovation".

To BRIC and Beyond

Further afield, in the BRIC markets, questions of value are more concerned with the value that multinational companies are bringing to the table. The tide has been turning in BRIC, and few companies are heading into 2014 under any illusions that these countries and other emerging markets present the easier path to success. BRIC lost the glow of its early promise some time ago, thanks to relentless price capping, fierce competition and fervent local protectionism, especially in India and China. The position now is not one of the BRIC's proving their value to western pharma, but of western pharma proving its value to BRIC. New investigations into corrupt business practices, particularly in China, negatively affect the value proposition.

But the BRICs continue to be important and from a short-term perspective there may be wins to be had in Brazil, says Reenita Das, Partner at Frost & Sullivan. That, however, will generally come down to a "false acceleration" of the economy resulting from the country's hosting of the 2014 soccer World Cup. And while the Brazilian government has been busy granting concessions to strengthen the infrastructure, things are progressing very slowly. "Unless there's a lot more investment into the private sector, I don't think we're going to see the 10–15% growth that the country has been promising," says Das. But the pressure to keep healthcare costs low is creating a big opportunity for generics and biosimilars, and there's a growing focus on healthcare IT, as hospital efficiency becomes a top priority.

On the back of its 2020 pharma care program, China is on a race to modernization and still "has potential if you play the game right", says Das. There's a lot of investment in building infrastructure like hospitals. The private hospitals sector is aiming to gain 20% of beds share in the next five years, compared with 10% currently. And the in-vitro diagnostics segment is set to grow to $5.7 billion by 2015. But, Das reminds us, it's vital to forge alliances with decision makers, to work with the government and, especially, to establish public-private partnerships in China. Multinational companies have seen some success where they have acquired local companies. But the country remains a hard one to call, not least because of the volatility of the last couple of years.

Compared with the other BRICs, India is underperforming in GDP spend on healthcare, but it's the transparency, IP and investment control issues that are causing the biggest headaches. The urban/rural divide is high, with most private healthcare projects being carried out only in tier 1 cities and metros, while government funding remains inadequate. On the plus side, Frost & Sullivan estimates that 90% of retail pharma and 80% of the diagnostic services business is still unorganized in India, leaving a huge opportunity for new players.

It's therefore more vital than ever to work beyond the pill and "more within the fabric of each country," says Das. Lessons learned in the BRIC are ones that the industry can take forward to the next generation of emerging countries — Mexico, Turkey, Vietnam and Saudi Arabia.

Silver Lining

Despite pressure associated with cost around the world – more companies opted to withhold medicines from the German market this year over pricing disagreements, exemplified by the latest move by BMS/AstraZeneca to pull the diabetes drug Forxiga – global spending on medicines will cross the $1 trillion mark for the first time in 2014, according to estimates from the IMS Institute for Healthcare Informatics. Interestingly, drug spending in the US is expected to grow – for the first time in two years – due largely to a decrease in exposure to patent expiry. Japan, which now ranks third in global sales after China, is also looking more positive due to a promised boost in support for vaccines and the continuing demand for medicines among a rapidly aging population. This will dilute some of the effect of the government's very aggressive goal to raise generic volume as a percentage of total listed drug sales to 60 per cent by 2018.

The Triple Win

Companies that succeed in 2014 will have to accomplish three things, simultaneously: increase revenues from drug sales while demonstrating a reduction in cost to the overall health system, and an improvement – over the standard of care – in health outcomes for patients. That's a tall order, requiring open collaboration between stakeholders and the identification of common ground, plus a heavy dose of new technology and creative thinking to help patients become more accountable for their own, costly decisions.

Laying the blame on patients for non-adherence, or unnecessary hospitalizations, is just blaming the victim, says Guptag. It has always been true that only a small percentage of a total patient population ever gets diagnosed, and another smaller percentage of those diagnosed patients get access to therapy, of which a still smaller percentage is adherent and compliant. The make or break question in 2014 is what will pharma do about it?

Ben Comer is Pharm Exec's Senior Editor. He can be reached at [email protected]
. Julian Upton is European Editor. He can be reached at [email protected]
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