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Are Pharma Business Ethics And Performance Interlinked?

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Way back in the 1960s, many could realize that of upcoming consumer-focused business environment will bring business practices under intense stakeholder scrutiny. This prompted both the business schools, as well as the commercial organizations to bring the concept of ‘business ethics’ under focus.

However, a boom in the ‘Business Ethics’ curriculum, virtually in every business school, globally, alongside numerous training programs, was palpable around the 90’s. This trend continues even today with as much gusto, but with increasing participation of various companies, primarily to showcase their commitment to ethical standards and values as fundamental business requirements.

Like many other industries, the same is visible in the pharma business, as well. Which is why, many pharma CEO’s, such as of Novartis, emphasized even in its 2018 CEO’s letter to the company shareholders that: ‘We have made clear to everyone at Novartis that we must never compromise our ethical standards to meet business objectives.’ The previous CEO of the same company also used similar words. Moreover, one can find a similar commitment to business ethics being displayed in the respective websites of many other drug companies.

I have discussed various different aspects on this subject since 2011. One such article is titled, ‘Business Ethics, Values and Compliance: Walking the Talk,’ published in this blog on December 26, 2011. However, in this article, after a broad outline, I shall endeavor to explore whether or not compliance with pharma business ethics is intimately related to the company’s performance, especially in the medium to longer term. While doing so, let me help recapitulate what exactly does ‘business ethics’ mean to all?

‘Business Ethics’:

As many would know, the ‘business ethics’ or ‘ethical business behavior’, is defined as ‘acting in ways consistent with what society and individuals typically think are good values. Ethical behavior tends to be good for business and involves demonstrating respect for key moral principles that include honesty, fairness, equality, dignity, diversity and individual rights.’

When this definition is applied to the pharma industry, in general, one finds, despite bringing to market top innovative drugs, a pharma player with dubious ethical behavior, may face a great risk of losing its reputation – a key element for business success, if not survival.

What is happening today in this area?

As, stated above, from various statements of pharma head honchos and also as displayed in their respective websites, it seems to be a serious area for them. Intriguingly, despite such laudable intent, the situation on the ground for many of these companies are quite different. According to reports, even in the Indian Pharma Industry, blatant disregard for maintaining basic ethical standards is, reportedly, not uncommon, either. Interestingly, no less than the Prime Minister of India is, apparently, aware of some of these issues in the pharma industry.

Ultimate ethical goals and consumer perceptions of ethical behavior:

Many research papers have been discussing this point, since long. They also flagged some critical areas, across pharma business domains, for corrective action. One such paper is titled, ‘Ethical challenges in the pharmaceutical industry,’ published in the April 2012 issue of Pharmaceuticals Policy and Law.

It clearly articulated, the ultimate ethical goal in the pharmaceutical industry is to discover and develop safe, efficacious and high-quality drugs that allow patients to live longer, healthier and more productive lives, while making a profit to reward shareholders and to invest in research for the next generation of medicines. The essence of it holds good also for generic drugs, too.

While this may be mostly happening, as the article noted, overall consumer perception of pharma business ethics is largely negative. This avoidable stakeholder perception is primarily triggered by, among others, pricing, data disclosure, clinical study design, marketing practices, cost effectiveness of treatments, and often reported ‘pharmaceutical frauds’, as quoted earlier.

Regardless of drug industry claim, consumers generally perceive new drug discovery as a fundamental business necessity for the industry. Whereas, they are more interested in access and affordability to these drugs, besides other related business practices. This brings us to the question – Are alleged breach of ‘business ethics’ systemic in nature for pharma?

Are ‘business ethics’ related issues, systemic in nature?

While many pharma CEOs keep highlighting, how ethical their operating standards and corporate values are, reports keep coming that these issues are not superficial but systemic in nature. One such report was published in Fierce Pharma on October 14, 2019 carrying a headline – “Novartis appears to have a systemic ethics problem. What can it do make amends?” Justifying this caption, the news article elaborated:

‘When a company is repeatedly embroiled in scandals or compliance breaches—from on-the-ground sales activities to decisions made at the very top—an isolated infection isn’t to blame. It’s a systemic illness. And judging by the long list of allegations and infractions at Novartis, that’s what the Swiss drug maker is facing. But is there a cure? Some soul-searching and a closer look at the company’s culture could help.’

Quoting a corporate ethics and compliance expert Hui Chen, the article underscored, for such malpractices ‘don’t just blame everything on a few rogue employees.’ Pharma leadership may wish to accept this reality and make amends wherever necessary, soon. With the above perspective, it will also be worth looking at, how is this toxin invading a corporate system, jeopardizing its business performance, and why?

Even patients expect pharma to demonstrate ethical business practices:

Generating new and more prescriptions for patients’ treatment being the lifeblood of any pharma business, the core strategic focus of the business should naturally be on patients, and the society they belong to. This is a fundamental requirement, not just for making profit in business, but for its survival, too. It is now clear that even patients are becoming increasingly aware of this fact.

Consequently, they expect the pharma players to demonstrate ethical behavior and follow ethical business practices, instead of being on a self-serving mode. Scores of instances, across the globe, suggest that many pharma players are failing again, again and again in this critical area of business. One may say that commercial interests overshadowing consumers’ interests, is not uncommon in business. But wait a minute, we are talking here about an industry that patients look up to, while fighting dreaded diseases to save lives. Thus, the question that follows – why is this virus of non-compliance to business ethics invading a corporate system?

How is this virus invading a corporate system?

Search for an answer to this question isn’t new. It was discussed in the Harvard Business Review - more than 25 years ago, in its May-June 1993 article – ‘What’s the Matter with Business Ethics?’ Even at that time, the author noted: The more entrenched the discipline of business ethics becomes in business schools, the more bewildering it appears to managers. This discussion brought to the fore many interesting points. One such was, the field of business ethics is largely irrelevant for most managers. It’s not because that they are hostile to the idea of business ethics, but ‘real-world competitive and institutional pressures lead even well-intentioned managers astray.’

Presumably, because of this reason, as the Author acknowledged, all managers face “hard issues whose solutions are not obvious,” where the “reconciliation of profit motives and ethical imperatives is an uncertain and highly tricky matter.”

Thus, I reckon, many organizations find achieving organizational expectations, especially for demanding short-term financial goals, while maintaining business ethics, is becoming a real challenge. Similar sense would obviously influence many practicing managers, too. Now, the question that comes is, what happens to the organization, if its managers keep doing so to achieve the set financial objectives of the company?

When achieving end-goals by following business ethics is considered impractical:

If the business strategy is increasing brand prescription generation by any possible manner to outperform competition, the means adopted to meet the goals may find easy acceptance by many in the company. In the pharma industry, such situation may arise while chasing annual and monthly targets or at times closing the month-end sales deficits, too. Such acts may help achieve short-term goals with flying colors, regardless of blatant violation of business ethics or breaking legal norms, such as, bribing prescribers for writing prescriptions.

When remains undetected, such practices continue. But, when repeated compromises on the ethical practices of a company at the cost of patients’ interest, surface and reported by the media, one precious asset of the organization gets seriously damaged – its reputation. Again, one may ask, will it have any impact on the company’s medium to long term financial performance?

How are ethical ‘business practices’ and the company’s performance interlinked?

The fine thread that links these two, is the corporate reputation – an invaluable asset of the organization, having a strong connect with stakeholders, including patients – for a sustainable business growth. The broader aspects of its consumer-connection have been discussed by both academia and individual experts. One such illustration may be drawn from the Charter College of the United States.

It underscores: ‘Not only does it feel good to be part of a company with a great reputation, but it’s great for business. When you have a reputation for consistently being ethical in how you source and build products, and treat employees, customers and the community, more people will want to do business with you. This means you’ll appeal to a variety of people and organizations that will be great for boosting your business…’

This means, compromising with ethical business practices to achieve short-term goals comes at a great risk of jeopardizing the medium and long-term success and sustainability of the organization. This is not a mere theoretical possibility. Research studies also vindicate that ‘reputation is an economic multiplier.’

Reputation is an economic multiplier:

Some may conclude, ethical business practices may help enhance company’s reputation, but don’t create any significant impact on business performance. This point has been well deliberated by the Reputation Institute (RI) in its analysis, titled - ‘The Business Case for Reputation.’

The analysis established ‘a strong reputation yields 2.5 times better stock performance when compared to the overall market.’ This vindicates the point that reputation indeed enhances corporate performance for its stakeholders and is an economic multiplier. Understandably, the paper reiterated: ‘This is not a bold claim — it’s a fact.’

Conclusion:

The drug industry, in general, and research-based pharma players in particular, seem to feel that propagating its focus and efforts on bringing innovative drugs to the market, would help build a good reputation. But it doesn’t really happen that way. Instead, public perception that helps create corporate reputation, is often driven mainly by issues such as drug pricing – access and affordability, besides various widely reported alleged unethical business practices of drug companies.

Many such purported breaches in ethical behavior of a company are recurrent, such as one that was reported on October 22, 2019. It said, Novartis’ Zolgensma launch has been anything but boring: First a record-setting price tag, then a data-manipulation scandal and now the company is facing “manufacturing questions” that will delay Zolgensma’s approval in the EU and Japan.

The impact of these alleged unethical business practices of drug companies also got reflected in the 2018 2018 Gallup Poll where the pharma industry came out as the most poorly regarded industry, ranking last on a list of 25 industries that Gallup tests annually. Interestingly, the Reputation Institute (RI) also reported a 3.7 percent decline in pharma reputation between 2017 and 2018.

Thus, the core point that stands out is, ethical business practices and company performance are interlinked. Ethical business behavior plays a key role to enhance a company’s reputation, which in turn add value to the long-term financial performance of the company and vice-versa.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

Reaping Rich Harvest With Orphan Drugs

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A set of perplexing questions on the drug industry has been haunting many, since long. One such area is intimately associated with the core purpose of this business, as enunciated by each company, often publicly. Just to give a feel of it, let me quote what one of the largest global pharma players – Pfizer articulated in this regard, on April 5, 2019: “Health for All is at the core of our company’s purpose. We advance breakthroughs that change patients’ lives by ensuring they have access to quality health care services and Pfizer’s medicines and vaccines.”

Publicly expressed core purpose of any pharma business being generally similar, it may be construed as the same of the industry, at large. Hence, some baffling questions – not ethical, but purely commercial in nature, float at the top of mind, such as:

  • How the core purpose of business – “Health for All”, gets served when companies bring to the market mostly exorbitantly high-priced drugs, having access only to a minuscule patient population?
  • How are these companies growing at a faster pace and doing better commercially, by focusing more on orphan drugs approved for the treatment of rare diseases, affecting a very small patient population.

At this point, it will be worthwhile to have a quick recap on ‘orphan drug’ and ‘rare disease’. According to MedicineNet, orphan drugs are those which are developed to specifically treat rare medical condition. This rare medical condition is also referred to as an orphan disease. With that preamble, I shall now focus on this knotty area in search of evidence-based answers to – Is it possible to reap a rich harvest in business with orphan drugs for rare disease? And, if so, how?

Is the focus on high priced orphan a strategic business move?

Regardless of an affirmative or negative answer to the above questions, many people are head scratching with anguish while observing this trend in the drug industry. Mainly because, it is possibly the most important industry for most patients, not only while suffering from an ailment, but also before and after it happens, for various reasons.

The anguish increases manifold, when top manufacturers of popular mass-market drugs, such as, the cholesterol blockbuster Crestor, Abilify for psychiatric conditions, cancer drug Herceptin, and rheumatoid arthritis drug Humira, the best-selling medicine in the world, at a later stage seek and receive orphan drug status for these products reaping a rich harvest. The underlying intent being leveraging ‘additional advantages’ for exorbitant pricing and lesser competition. Hence, it is a strategic business move. I shall discuss this point in greater details, as was raised in a Kaiser Health News (KHN) investigation, in this article.

The same feeling gets resonated in several articles and papers, such as the one titled ‘Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t Add Up,’ published in The Atlantic on March 23, 2019. It questioned, ‘How is it that pharmaceutical companies can charge patients $100,000, $200,000, or even $500,000 a year for drugs – many of which are not even curative?’ Nonetheless, the strategy is working well, as we shall find below.

More drugs for rare diseases entering the market at a higher price:

Another article, titled ‘Drug Prices for Rare Diseases Skyrocket While Big Pharma Makes Record Profits,’ published by America’s Health Insurance Plans (AHIP) on September 10, 2019 wrote, drugs for rare diseases are now entering the market at higher prices than ever before, ranging from tens-of-thousands to hundreds-of-thousands of dollars per patient. It further wrote, according to a new report by AHIP, ‘out-of-control drug prices mean too many patients are forced to choose between paying for their prescriptions or paying their mortgage. The prices for drugs to treat rare medical conditions are 25 times more expensive than traditional drugs. That is 26-fold increase in two decades.

The rationale behind so high pricing:

To explore the rationale behind the exorbitant pricing of such drugs, let’s examine what the expert organizations, such as the Tufts Center for the Study of Drug Development (CSSD) said in this regard. Quoting a senior research fellow of CSDD, the article - ‘The High Cost of Rare Disease Drugs,’ published by the Genetic Engineering & Biotechnology News (GEN) on March 04, 2014 reported, although biopharma players generally set higher prices for orphan drugs, there is no causal link between cost of development and pricing. Instead, rare-disease drug prices reflect typical supply and demand situation: ‘Few treatment alternatives allow companies to charge what they can, knowing that payers will often ultimately foot the bill.’

It further explained: “The rarity of the disease means that few people are affected. Generally, the fewer disease sufferers there are, the higher the price of the drug. Companies that invest the same amount of money or more in orphan drugs as they would non-orphan drugs, want to recoup their investment.”

The situation in India for such drugs:

The January 05, 2019 issue of The Pharma Letter captures it all in its headline – ‘India lifts price caps on innovative and orphan drugs; major fillip for Big Pharma.’ It said, with the new legislation announced on January 4, 2019, the Indian government has decided to remove price restrictions on new and innovative drugs developed by foreign pharmaceutical companies for the first five years. In a rider, the government notification also states, the provisions of the Drug Price Control Order (DPCO) 2013 will not apply to drugs for treating orphan diseases (rare diseases).

How will it impact Indian patients?

Consequent to the above government decision, as the report indicated: ‘Orphan drugs to treat rare disease, like Myozyme (alglucosidase alfa) and Fabrazyme (agalsidase beta), both from Genzyme, which are used in the treatment of rare genetic diseases, are among a host of medicines that are to be kept out of price control.’

Quoting officials, the paper pointed out, the most challenging part in the fight against rare diseases is access to affordable treatment. As on date, the prices of these drugs tend to vary, e.g., the cost of treatment with enzyme replacement therapies may reach more than $150,000 per treatment per year. Whereas, in some other areas it may even be as much as $400,000 annually. Moreover, most of these drugs are rarely available in India. As a result, Indian patients suffering from rare diseases have to import these drugs directly. This makes affordability of medicines with an orphan drug regulatory status, a major issue for different stakeholders.

Why patient groups are not generally too vocal about this issue?

An interesting paper of 2008-09 brought to the fore the importance of patient organizations to further patient interest in various areas of health care. With the example of rare diseases and orphan drugs, it aptly expressed: ‘by changing the scale of their organizational efforts, patients’ organizations have managed to integrate themselves into the relays of power through which matters of health are thought about and acted upon. Through their formation into coalitions, patients’ organizations have been able to assume a number of important functions in relation to the government of health.’ The paper further added that the orphan drug problem can be thought of as having changed the scale and organizational form of rare disease patients’ groups.

Regrettably, a recent report of October 09, 2019, raised a big question in this area with a startling headline - ‘Big Pharma’s shelling out big-time to patient organizations. Is there any quid pro quo?’ It said, the Senate Finance Committee of the United States, while looking into the drug pricing decisions, ‘is digging into pharma funding for patient advocacy groups, which have been known to speak in tune that are music to the industry’s ears.’ It added, some Big Pharma constituents together contributed more than $ 680 million to hundreds of patient groups and other nonprofits last year.

It’s worth noting, earlier this year, several patient advocacy groups rallied in objection to a Trump-administration plan that would introduce step therapy requiring patients to try cheaper drugs before moving to more costly ones. ‘A Kaiser Health News analysis found that about half of the groups that objected had received funding from the pharmaceutical industry.’ Be that it may, rallying behind high drug prices by patient groups would help the industry only at the cost of patients’ interest. This is beyond an iota of doubt.

The motivation behind marketing more drugs for rare diseases:

There are several motivating factors to market drugs, which also treat rare disease, attaching startling price tags. The top drivers are generally considered, as follows:

  • The company gets seven years of market exclusive rights with the drug marketing approval for a rare or orphan disease. Interestingly, many drugs that now have an orphan status aren’t entirely new, either. Even if, the product patent runs out, USFDA won’t approve another version to treat that rare disease for seven years. This exclusivity is compensation for developing a drug, designed for a small number of patients whose total sales weren’t expected to be that profitable, otherwise.
  • Market exclusivity rights granted by the ‘Orphan Drug Act’ in the United States, can be a vital part of the protective shield that companies create.
  • Leveraging associated free pricing incentive, the concerned company can attach any price tag of its choice to the orphan drug, sans any competition.
  • Interestingly, more than 80 orphan drugs won USFDA approval for more than one rare disease, and in some cases, multiple rare diseases. For each additional approval, the drug manufacturer is qualified for a fresh batch of incentives. 

The system ‘is being manipulated by many drug makers’:

That this system is being manipulated by many drug makers was also established by the Kaiser Health News (KHN) investigation dated January 17, 2017 titled, ‘Drugmakers Manipulate Orphan Drug Rules To Create Prized Monopolies.’ The analysis brought out that ‘the system intended to help desperate patients, is being manipulated by most drug makers. It reiterated, the key driver is to maximize profits, besides protecting niche markets for even those medicines, which are already being taken by millions. Thus, many orphan drugs, originally developed to treat diseases affecting fewer than 200,000 people, come with astronomical price tags.’

Even some familiar brands were later approved as orphan drugs:

The KHN’s investigation also uncovered that many drugs that now have an orphan status aren’t entirely new. Over 70 were drugs first approved by the USFDA for mass market use. These medicines, some with familiar brand names, were later approved as orphans. ‘In each case, their manufacturers received millions of dollars in government incentives plus seven years of exclusive rights to treat that rare disease, or a monopoly’, the investigation revealed.

The same KHN study also cited the example of AbbVie’s Humira – the best-selling drug in the world. ‘Humira was approved by the USFDA in late 2002 to treat millions of people who suffer from rheumatoid arthritis. Three years later, AbbVie asked the FDA to designate it as an orphan to treat juvenile rheumatoid arthritis, which they told the FDA affects between 30,000 and 50,000 Americans. That pediatric use was approved in 2008, and Humira subsequently was approved for four more rare diseases, including Crohn’s and uveitis, an inflammatory disease affecting the eyes. The ophthalmologic approval would extend the market exclusivity for Humira for that disease until 2023, the report highlighted.

The report also indicated, much touted Gleevec of Novartis, a drug that revolutionized the treatment of chronic myeloid leukemia, has nine orphan approvals. Similarly, Botox, started out as a drug to treat painful muscle spasms of the eye and has three orphan drug approvals. It’s also approved as a drug for mass-market for a variety of ailments, including chronic migraines and wrinkles. Despite humongous pricing, recent reports show that drugs with orphan status are eclipsing many new drugs with outstanding commercial success.

Companies focus on orphan drugs for better financial results:

Many top global companies’ sharp strategic focus on orphan drugs, presumably for the above reasons, is paying a rich dividend. This is evident from a number of recent reports, such as, ‘Orphan Drug Report 2019’ of Evaluate Pharma, released in April. The report says, orphan drugs will make up one-fifth of worldwide prescription sales, amounting to $242bn in spending by 2024 – much of it is going to either big pharma or big biotech players. It also found that the drugs prescribed for the treatment of rare diseases now account for seven of the 10 top-selling drugs of any kind, ranked by annual sales.

Another study of October 2019 by Prime Therapeutics LLC (Prime) shows, with more of ultra-expensive drug treatments coming to market, there is a sharp jump in the number of drug super spenders. While small in number, this group of drug super spenders grew 63 percent, which resulted in $800 million in additional drug costs. In the same period, the number of drug super spenders with drug costs over $750,000 increased 38 percent. This explains, why many companies are focusing on orphan drugs for better financial results.

Conclusion:

As the above quoted report of AHIP articulated, the regulators’ primary intent behind creating lucrative incentives for orphan drugs, was to encourage drug makers to develop treatments for rare diseases by earning a modest profit. ‘Unfortunately, drug makers have responded by building lucrative business models that empower them to achieve a gross profit margin of more than 80 percent – compared to an average gross profit margin of 16 percent for the rest of the pharmaceutical industry,’ the report said.

The AHIP study also finds, from 1998 to 2017, orphan drugs were 25 times more expensive than non-orphan drugs, resulting 26-fold increase in average per-patient annual cost, while the cost of specialty and traditional drugs merely doubled. Today, 88 percent of orphan drugs cost more than $10,000 per year per patient, which will be no different even when Indian patients import the same. The paper also revealed, in 2017, seven out of ten best-selling drugs had orphan indications. And among newly launched drugs, the share of orphan drugs increased more than 4-fold, from 10 percent to 44 percent, over a 20-year period.

Coming back to the core purpose of the pharma and biotech business, as defined by the pharma organizations themselves, one would have expected the situation to be much different. Their stated business purpose – ‘Health for All’, does not seem to recognize: “Every patient deserves to get the medications they need at a cost they can afford,’ as AHIP reiterates. Whereas, “drug makers are gaming well-intentioned legislation to generate outsized profits from drugs intended to treat a small population of patients with rare diseases.” In this scenario, reaping a rich harvest with the orphan drug status seems to have become a new normal.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Pharma’s Perception Management

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An intriguing input-output relationship in the pharma industry has remained baffling, since the last several years, where increasing financial inputs are resulting in diminishing productivity output. More disturbing is, this input-output relationship has now reached a new low, with their individual swings moving in the diametrically opposite directions – as numerous reports of 2019 point out. The deteriorating situation of this magnitude would make many to feel sad, especially those who were or are intimately associated with this industry, for quite a while.

Strikingly, the trend encompasses even the largest – and one of the most influential pharma markets of the world – the United States. Which is why, the subject assumes greater importance. As one can witness today, regardless of the outcome, most American drug companies and their increasingly resourceful trade associations, reportedly, keep unleashing political, non-political and financial capital to influence pharma related policies in different countries. In tandem, they also try to create a favorable public perception in areas of vested interest, in many important markets, including India. These efforts cost money, and tons of it.

This process is not new, though, and was there in the past, as well. It also yielded results at that time, unlike what is happening today. This was mostly because of less public awareness on health-related issues, and a better general perception of the industry. Curiously, despite a sharp diminishing return, the same process is being followed, even today, with a lot more inputs and internal hype. Ironically, the snowballing effect of pharma’s ‘perception challenge’ is now all pervasive. It is visible even in the most market driven and business-friendly countries, like America. They have a requisite talent pool, financial resources and other wherewithal to manage perception – the best possible way. Then why it’s not happening?

To make it happen, I reckon, the core purpose of pharma business should be to delight the patients – more of them – the better. With a similar vision, the drug industry could achieve what it wanted to in the past, also making a good profit, unlike what has been openly expressed in the recent years. This article would, therefore, explore the reasons behind it’s not happening now, through the prism of perception management. However, before examining that, let me give examples of the quantum of financial inputs that the pharma industry constituents are using today to achieve its lobbying goals, vis-a-vis, its declining public perception, as we see in 2019. 

Pharma lobbying expenses are shooting north:

According to the Bloomberg report of January 23, 2019, the main trade group of the pharma industry in America – Pharmaceutical Research and Manufacturers of America (PhRMA), spent a record high amount of USD 27.5 on lobbying in a single year – 2018. This was quoted from the public disclosure reports. Although this was the highest for PhRMA to date, ‘the pharmaceutical industry has upped its spending over the last few years, as it faces immense pressure over high drug prices from the public, Congress and the Trump administration,’ – the news highlighted.

Another article, published in The Guardian also indicated: ‘Pharmaceutical companies spend far more than any other industry to influence politicians.’ It further added, hundreds of millions of dollars flow to shape laws and policies that keep drug company profits growing. One more article highlights, the wide reach of pharma industry money can be traced among people and groups who are in a position to influence drug policy – think tank that has received funding from a major pharmaceutical lobby, and doctors who accepted payments from drug companies.

Moreover, Kaiser Health News (KHN) analysis also found that such money reaches even patient groups for supporting the industry whenever required. The analysis detected ‘about half of the groups representing patients have received funding from the pharmaceutical industry.’

Globally, the general interest of the public on the affordability of quality drug treatment package that pharma companies offer, is fast increasing. Recognizing this fact, the entire approach of pharma lobbying appears blatantly self-serving.

Whereas pharma’s lobbying output is diving south:

The governments in many countries can now make it out, even when this is done covertly – keeping the so called ‘patient groups’ and ‘doctors’, as mentioned above, in the forefront. As many can clearly decipher the core purpose behind such stealth approaches of pharma players, the productivity or output of pharma lobbying is going south in a bottomless pit, as it were. Still, to reduce stakeholder pressure on drug pricing, its apparently getting more intensive, across the world and particularly in America.

The Bloomberg report of January 23, 2019, captures how this situation, on the contrary, is bringing public, government and opposition leaders together on the reduction of drug prices. The news underscores: ‘One of the few issues that unites President Donald Trump and the Democrats newly in charge of the U.S. House of Representatives is reducing the price of prescription medicine. Both sides will be looking for accomplishments to tout at a time when the pharmaceutical industry has become a target of public ire.’

Regardless of these developments, the age-old pharma lobbying approach remains unchanged. There doesn’t seem to be much visible interest, either, for a radical and innovative ‘perception management’ approach to salvage the situation.

Pharma’s ultimate goal has to change to delighting customers – the best possible way, where the quantum of profit earned will be a measure of customer satisfaction. This is what the management guru Peter Drucker said, long ago. Since, this is not happening, both patients’ and public perception on the industry, is getting from bad to worse, which has been captured in the 2019 Gallup poll.

2019 Gallup Poll: Big pharma sinks to the bottom of U.S. industry rankings:

The September 03, 2019 issue of Gallup carried the headline - Big pharma sinks to the bottom of U.S. industry rankings while announcing ‘American’s Views of U.S. Business, Industry Sectors, 2019.’ Being more specific, it said, ‘The pharmaceutical industry is now the most poorly regarded industry in Americans’ eyes, ranking last on a list of 25 industries that Gallup tests annually.’

Elaborating it further, the author stressed, Americans’ net ratings for the pharmaceutical industry have never been lower since Gallup first polled on industries in 2001. Over the past 19 years, few industries have been rated lower than the pharmaceutical industry’s current – 31 net rating. These include the federal government and the oil and gas, real estate, and automobile industries.

The age-old process of pharma lobbying is not working anymore:

‘Lobbying’ is the term that is more frequently used in the United States and the Western countries. In India, similar campaigns are called ‘Advocacy’, by pharma trade associations. These activities are carried out by concerned individuals or companies, industry associations, paid employees – hired for this purpose, or by any other interested groups. But, everybody’s common goal is primarily aimed at influencing government policies, or mold top influencers’ opinion in favor of business – overtly or covertly.

That traditional mindset of pharma lobbying is no longer working, came to the fore some time back. The October 28, 2016 articles, published in the CNBC, cautioned with a headline – ‘A warning for Big Pharma: Lobbying won’t work anymore.’

The article candidly suggested to big pharma players: ‘If you try to use the same old lobbying and crony networks to get your way, it won’t work. Not anymore. And here’s a special warning call just for Big Pharma: You need to change your public relations and marketing strategies now, or die. The good news is, unlike so many other industries, the drug companies have a very effective way out of this mess.’ Making no bones about it the author said, ‘no industry seems more clueless right now than Big Pharma.’

Acknowledging that: ‘Several reports say the Big Pharma lobbying group known as PhRMA is looking to spend as much as $300 million and pull out lots of other stops in order to defend higher prescription drug costs.’ The paper emphasized: ‘this is a battle the drug giants can’t win.’ This is because: ‘Public and political sentiment against expensive medicines and companies that charge those prices is at a fever pitch.’ This, I reckon, is changing the old paradigm of pharma lobbying.

Managing public perception – the new ballgame to influence policies:

Thus, the bottom line to note, today’s public policies are increasingly driven by public sentiments, their needs, aspirations and demand. Thus, the old, and the virtually counterproductive system of lobbying with lawmakers and some key opinion leaders, often including a few media friends, has to change. Even the covert ways of achieving it, under the guise of some trendy events or seminars, hyped by the best communication and PR professionals, are also not yielding commensurate results.

The first task will, therefore, be to come out of this decade old self-created imbroglio, as the pharma’s topmost head honchos will hopefully realize that the name of today’s  game is ‘managing public perception’ of the pharma industry. This would simultaneously necessitate replacing the self-serving goals with the ones that would delight the customers – genuinely – sans façade of any kind.

Pharma’s reputation to be on par with the tobacco industry?

According to ZS: ‘Recent polls and surveys demonstrate that the pharmaceutical industry’s reputation continues to be plagued by negative perceptions.’ It further adds: ‘Many consumers still consider pharma’s reputation to be on par with the tobacco industry, positioning one product category that treats cancer just above a product category that causes it.’ It appeared in the Aug 01, 2017 issue of ZS, titled ‘Reputation Is Paramount, So What’s Holding Pharma Companies Back?’

Is reputation mostly driven by perception?

The reputation or image of a person, an organization or any industry is generally a matter of perception of individuals, formed based on multiple reasons. As Edward de Bono - Physician, author, and originator of the term lateral thinking had put it – ‘Perception is real even when it is not reality.’ Accepting this dictum, even more profound is what he said further - ‘You can analyze the past, but you need to design the future.’

It’s critical to understand the process of ‘perception,’ as out of so much available information, only some are selectively received, organized and interpreted to develop individual perception. More important is the fact that perceptions often become strong inputs to take individual decisions, actions or to express views.

‘Designing the future’ from the pharma industry perspective:

To design an inclusive model of the pharma industry future, the first requirement will be establishing a ‘true connect’ between the industry and the public, based on the latter’s expectations, aspirations, needs and demands, from the industry. This new process being far from self-serving in nature, needs to be steered by ‘perception management’ experts, based on credible data pool – and not by the gut feelings of the hard-core lobbyists or self-styled advocacy experts.

The reformed industry objective – ‘delight the customers while making money’, will form the core of this new ‘perception management’ model. This would entail fleshing out – step by step, the blueprint of its action plan, while pharma should be seen by all to walk the talk.

Creating a positive perception for pharma:

As described in the book ‘Getting Ahead,’ creating a positive perception would prompt taking four basic steps, each of which will help enhance the current view that others have and improve any negative opinion that exists.

Taking a cue from what the author suggests, the first step is to discern how pharma industry is generally perceived by others. Each and every industry practice affecting its stakeholders, particularly patients, is being observed, analyzed and directly affects how others perceive the industry. The author further adds, ‘inaccurate perceptions show you how easy it is for others to incorrectly perceive you.’

The second step is also equally important, as it involves knowing, without any bias, how the industry is ‘actually’ perceived and why – mainly based on consumer feedback, collected and analyzed on a scientific platform.

The third step may involve an intensive internal brainstorming of scale, to zero-in to how the pharma industry would ‘want’ it to be perceived and capture the same in an easy to understand format for all, after pilot testing it.

And the fourth step is most challenging that will help determine how to replace the current perception with the most desirable one.

Conclusion:

As rising drug prices increasingly becoming a major political and public talking point, pharmaceutical groups in America are, reportedly, splurging heavily to influence public opinion and policy. With a spending of roughly USD 280 million, it featured at the top spot among lobbying spenders in 2018 – - with no other industry coming close. However, when one looks at the outcome of such spending either in the American political sphere or within the government, one can find what even President Trump is saying - ‘One of my greatest priorities is to reduce the price of prescription drugs.’ Similarly, when it comes to the public – the Gallup Poll 2019 points out:‘The pharmaceutical industry is now the most poorly regarded industry in Americans’ eyes, ranking last on a list of 25 industries that Gallup tests annually.’

The old industry practices - “from generating the highest drug costs in the world to spending massive amounts on lobbying politicians to the industry’s role in the U.S. Opioid crisis,” are no longer yielding results, due to a radical change in public perception of the drug industry. Even the most powerful current political personality and one of the most business-friendly politician – President Trump, can’t risk ignoring it.

If at all, the drug industry and its trade associations are trying to mold a favorable public opinion with such heavy spending, those efforts are also not working at all. Pharma’s public image crash comes, as the general population strongly dislike, disapprove or remain indifferent on various drug-related issues or methods and processes that the industry follows to earn huge money – even at the cost of patients’ health interests. As a result, a strong negative perception of pharma is created that often indirectly impacts many policy decisions.

So far, pharma hasn’t succeeded in achieving one of its key lobbying goals by managing public perception, effectively. To make it happen, its predominating self-serving interest, that is progressively alienating the public, must be jettisoned, forthwith. The time is ripe to create a new, strong and sustainable public perception for the industry, even in India, by managing customer perception, while making them feel genuinely delighted with company’s products and service offerings. With these contemporary inputs, conducive government policies facilitating a strong business performance, will surely be the most cherished output.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

Spirit Behind Drug Patent Grant: Secondary Patents: Impact on Drug Access

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For more effective treatment against existing diseases, besides combating new or a more complicated form of existing ailments with precision, drug innovation is absolutely necessary and on an ongoing basis. This makes innovative drugs so important for the population, globally.

Besides academia, the pharma industry has remained in the forefront of the search for new drugs, for so long. What makes this process so crucial is, cheaper generic drugs flow from the innovative drugs, post market exclusivity period, which together form the bedrock of the pharma industry’s business model. Consequently, a robust patent protection for the new molecular entities, not only enable the drug innovators to make a reasonably good profit, but also encourage them to keep this virtuous circle moving, faster.

Although, the drug patents are granted for 20 years, after obtaining marketing approval from the respective drug regulators, a time period - ranging between 7 and 12 years, is available to the company to realize its maximum commercial benefits. Thereafter, the patent expires, paving the way of market entry of cheaper generic equivalents to make the drug accessible to a larger population. This is the playbook, which deserves to be accepted and respected by all, both in the letter and spirit.

Currently, the narrative has started changing, apparently, repudiating the spirit behind the grant of new drug patents, especially with the entry of a number of expensive, large molecule biopharmaceutical drugs. After obtaining a fixed-term market exclusivity, more intricate legal measures are being taken to extend the fixed-term market monopoly for an unknown period, delaying market entry of cheaper biosimilar equivalents, post patent expiry, as long as possible.

In this milieu, India appears to be the only country in the world, where the country’s ‘Patents Act’ provides enough safeguard to blunt those legal tools, effectively, to protect patients’ health interest. Quite expectedly, this new narrative of the drug innovators is yielding the best return in the Eldorado of the pharma world – the Unites States. It is also no secret that US vehemently opposes several provisions of the Indian Patents Act 2005, under pressure from the most powerful pharma lobby group, as many believe.

Using the spirit behind drug patent protection as the backdrop, I shall dwell in this article, how this so precious spirit is gradually losing its basic purpose, especially for blockbuster biopharma drugs. Is the key intent behind sacrificing the spirit behind drug patent grant to keep their brands money spinners and big – even after expiry of original patent – as long as possible – at the cost of patients’ health interest?

Despite the original patent expiry, biggest biologic drugs remain big:

The fact that original patent expiries have done little to halt sales of some of the industry’s biggest products – mostly biologic drugs, was clearly elucidated in an  Evaluate Pharma article – “Biopharma’s biggest sellers – the oldies that just keep giving,” published on August 14, 2019. This gets vindicated, as we look at the ‘top ten pharma brands with biggest lifetime sales – from launch to 2018’, in the following Table I:

Product Company Launch year USD Billion
1. Lipitor Pfizer 1997 164.43
2 Humira AbbVie 2003 136.55
3. Rituxan Genentech/Biogen 1997 111.50
4. Enbrel Amgen 1998 108.16
5. Epogen Amgen 1988 107.90
6. Advair GSK 1998 104.20
7. Remicade Janssen 1998   98.00
8. Zantac GSK 1981   97.42
9. Plavix Sanofi/BMS 1998   90.63
10. Herceptin Genentech/Roche 1998   87.97

(Adapted from Evaluate Pharma data of August 14, 2019)

The point to take note of:

The point worth noting here, with the exception of Advair, Zantac, Lipitor and Plavix, all others – among the top ten brands, are biologic drugs. Moreover, what is most striking in the Table I, despite the expiry of the original patents, a large number of biologic brands were able to expand their sales, pretty impressively, for well over two decades. As we shall see later, this situation is expected to continue, at least, till 2024.  As the Evaluate Pharma article states, for various reasons, these multibillion dollar brands have been able to avoid the expected post patent expiry ‘onslaught from biosimilars in the key US market’, which is incidentally the most valuable pharma market in the world.

One of the key reasons that helps delaying cheaper biosimilar drug entry expanding patient access, is a crafty strategic measure adopted by these companies through the creation of a Patent Thicket with secondary patents. As I discussed in this Blog on April 22, 2019, this is a crafty way of ‘evergreening’ patent term beyond 20 years, legally. Whether such measures conform to the spirit of granting 20 years product patent, becomes a moral question, or an issue of probity for the concerned companies, at the most. Be that as it may, a concern over this situation has been raised in many countries, including the United States.

Barrier of secondary patents: 

Biosimilar drug developers continue facing multiple non-financial challenges, such as, scientific, regulatory, pricing. I have already discussed some of these barriers in this blog on July 31, 2017. Instead, I shall focus in this article, with greater detail, on the intricate and a well-woven net of secondary patents. However,before delving into this area, it will be worthwhile to have a quick recap on the basic differences between original patents and secondary patents.

According to WIPO, “Patents on active ingredients are referred to as primary patents. In later phases of the drug development, patents are filed on other aspects of active ingredients such as different dosage forms, formulations, production methods etc. These types of patents are referred to as secondary patents.”

Another excellent paper, authored by two distinguished researchers from Columbia University and LSE, makes some important points on this subject. It says, secondary patents have become increasingly important to the pharma industry, especially in the U.S. and Europe over the past three decades. The basic purpose of ‘taking out multiple patents on different aspects of a drug in order to cordon off competitors is now standard practice in the pharmaceutical industry.’ As the authors further said, this is primarily because: ‘Secondary patents can protect market shares by extending periods of exclusivity beyond the dates in which patent protection would otherwise lapse.’

Interestingly. devising patent strategies to extend periods of market exclusivity is generally considered in the industry, as a key component of ‘product life cycle management,’ – not by the marketing whiz kids, but by astute patent attorneys. Nevertheless, as the paper articulates, critics of this practice often use the more pejorative – evergreening, to describe it.

Examples of impact of secondary patents:

Many research papers suggest, besides scientific complexity in biosimilar drug development being a key reason for their delayed market entry, secondary patents are even tougher barriers for the same. This was brought to light a few years ago in a ‘Review Article’ – ‘The Economics of Biosimilars’, published in the September/October 2013 issue of American Health & Drug Benefits.

Some of the key points made on this issue include,AbbVie plan to defend Humira (adalimumab) with more than 200 secondary patents, Merck’s giving up its biosimilar project on Enbrel when Amgen got its expanded patent life. There are many other such instances.

Its effect would last longer: 

Experts believe, the effect of creating a strong secondary patent shield around blockbuster biologic would last much longer. As the above Evaluate Pharma article underscores: ‘This ability to fend off biosimilar competition is one of the reasons Humira is set to snatch Lipitor’s crown next year as the industry’s most successful drug.’

The Table II below that lists ‘top 10 pharma brands from their respective launch date, including estimated forecast till 2024’, vindicates its long-lasting impact:

Product Company Launch year USD Billion
1. Humira AbbVie 2003 240.05
2 Lipitor Pfizer 1997 180.19
3. Enbrel Amgen 1998 139.83
4. Rituxan Genentech/Biogen 1997 136.07
5. Revlimid Celgene 2008 123.64
6. Remicade Janssen 1998 117.20
7. Epogen Amgen 1988 115.87
8. Herceptin Genentech/Roche 1998 114.89
9. Avastin Genentech/Roche 2004 114.27
10. Advair GSK 1998 113.61

(Adapted from Evaluate Pharma data of August 14, 2019)

Although, Zantac and Plavix no longer feature in this table, one drug that leapfrogged much of the competition to become one of the industry’s biggest future bestsellers is Revlimid. The projected sales of the drug over the next six years will actually outstrip its sales to date. However, much of this is dependent on whether generic competition will arrive ahead of Revlimid’s 2022 patent expiry, the paper indicated.

Concern expressed even in the US for the delay in biosimilar market entry:

Many big spending countries on health care, such as the United States expected that timely biosimilar drug entry will help contain health expenditure significantly. However, the article published in the Fierce Pharma on August 29, 2019, raises an alarm, but with a hope for the future. It says: “It’s no secret biosimilars haven’t made a big dent in U.S. drug spending. Some experts have even said it’s time to give up on copycat biologic.”

This hope gets resonated with what, ‘the former US-FDA commissioner Scott Gottlieb argues’. He feels, ‘It’s too soon for that’, while ‘calling on Congress to bolster the budding market.’ However, in my personal view, this will remain a difficult proposition to implement, as biologic drug players will continue using their relatively new, but powerful weapon of filing a number of complex ‘secondary patents.’ These will help extend the market exclusivity period of their respective brands, much beyond the original patent grant period, unless a counter legal measures are taken by the lawmakers of various countries, including the United States. But, India is an exception in this regard.

Indian patent law doesn’t encourage ‘secondary patents’:

The good news is, Indian Patent Act 2005, doesn’t encourage ‘secondary patent.’ This is because, section 3 (d) of the Indian Patent Act 2005 limits grant of ‘secondary pharmaceutical patents.’ An interesting study reported on February 08, 2018, discussed about 1,700 rejections for pharma patents at the IPO spanning over the last decade. But, there is a huge scope for improvement in this area.

Which is why, the not so good news is under-utilization of the same section 3.d by the Indian Patent Office (IPO), as are being voiced in many reports. One such paper of April 25, 2018 highlighted,72 per cent of pharma patent grants are secondary patents. These were granted for marginal improvements over previously known drugs for which primary patents exist. That said, despite such reported lapses, blocking of some crucial secondary patent grant has benefited a large number of patient population of India.

Blocking secondary patent grant has helped India immensely:

While US recognizes secondary patents, blocking secondary patent grant, especially for biologic drugs has helped Indian patients immensely, with expanded access to those medicines. This was also captured in the above study. Besides the classic case of Novartis losing its secondary patent challenge for Glivec in the Supreme Court of India in 2013, several other examples of secondary patent rejection are also available. This includes, among others, Glivec of Novartis and the world’s top selling drug for several years – Humira of AbbVie.Against a month’s therapy cost of ₹1,6o, ooo for Glivec in the US, its Indian biosimilar version costs for the same period ₹11,100. Similarly, while the treatment cost with Humira in the US is ₹85,000, the same with its biosimilar version in India is ₹ 13,500, as the above study finds.

Conclusion:

The core purpose of drug innovation, as widely touted by the R&D-based drug companies, is meeting the unmet needs of patients in the battles against diseases. Thus, drug innovation of this genre must not just be encouraged, but also be adequately protected and rewarded by granting product monopoly for a 20-year period from the date of the original patent grant. Curiously, piggybacking on this basic spirit behind the drug patent grant, pharma lobby groups are now vocal on their demand for giving similar treatment to secondary patents on various molecules. The tone of demand gets shriller when it comes to section 3. d of the Indian Patents Act, which doesn’t allow such ‘evergreening’ through secondary patents.

Thus, the key question that surfaces, while the original patent grant for innovative drugs help meeting unmet needs of some patients, whose unmet needs would a secondary patent grant meet, except making the concerned company richer? Further, for highly expensive biologic drugs, delayed market entry of cheaper biosimilars in that process, would deny their expanded access – failing to meet the unmet needs of scores of others.

Hopefully, India won’t give in to pressure of multinational pharma lobby groups, channeled through various powerful overseas government entities. At the same time, I hope, the government in power at the Eldorado of the pharma industry, will consider giving a fair chance of market entry to cheaper biosimilars, including those from India, to also grow their business globally, but in a win-win way.

The key objective of all stakeholders involved in this process, should be to uphold the basic spirit behind drug patent grant. It may even call for challenging the core intent behind secondary patent applications, the world over, that deny quicker market entry for cheaper biosimilars, sans heavy litigation expenses. This will help expand access to cheaper biologic medicines to all those who can’t afford those, otherwise.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

 

 

 

The Challenge of Holistic Value Creation With Pharma M&A

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Two mega deals, right at the dawn of 2019 gave a flying start to Merger & Acquisition (M&A) activities, in search of inorganic growth, by some large pharma companies. The two biggest ones are Bristol-Myers Squibb’s (BMS) USD 74 billion buyout of Celgene, and AbbVie’s USD 63 billion purchase of Allergan, as announced on January 03, 2019 and June 25, 2019, respectively. However, overall in the second quarter of 2019, there were, reportedly, only 22 deals – ‘the smallest quarterly deal count for at least a decade.’

As a strategic option for greater value creation to drive growth, M&A is being actively considered over a long period of time. The key focus of such value creation for the company remains primarily on enriching the pipeline of New Chemical or Molecular Entities (NCE/NME) for revenue synergy, besides cost synergy. This is understandable. But, for various reasons, alongside, a key question also comes up for debate – is the core purpose of such value creation to drive companies’ growth, primarily with more number new drugs, sustainable? The query assumes greater relevance in the evolving new paradigm. This is because, a basic shift is taking place in the core organizational purpose of value creation.

Thus, it appears, the nature of value creation through M&A would also matter as much. Can it still remain a drug company’s financial health centric, any longer? Should the M&A initiatives also not take under their wings, the value-offerings expected by patients from a drug company – beyond innovative pills? Would a holistic value creation through M&A would now be the name of the game? If so, how?  The discussion of my today’s article will revolve around these questions. Let me initiate the deliberation by recapitulating the key motivation behind M&A initiatives of the drug industry.

A key motivation behind the M&A initiatives in the drug industry:

While recapitulating one of the key motivations behind pharma M&As, let me refer to some interesting and recent studies, such as, the 2019 paper of McKinsey titled, ‘What’s behind the pharmaceutical sector’s M&A push.’ It also acknowledges, the use of M&A to bolster drug innovation is unlikely to change any time soon.

That many drug companies actively pursue the M&A option as a game changer for inorganic growth, is vindicated by the recent big deals, as quoted above. Since early 2000 and before, the companies that made the biggest deals to create new value synergies with, have been paying heavy deal premium to enrich their new product pipelines. Quite often it includes several new and emerging classes of drugs, as acquisition targets.

This also gets corroborated in the Press Release of the 2019 BMS deal, which says: ‘The transaction will create a leading focused specialty biopharma company well positioned to address the needs of patients with cancer, inflammatory and immunologic disease and cardiovascular disease through high-value innovative medicines and leading scientific capabilities.’

Lesser yield of traditional pharma M&A than the broader market:

This was emphasized in the June 06, 2019 article, published in The Washington Post, titled ‘Big Pharma Has to Bet Big on M&A. Investors Don’t.’ The analysis found, the returns from the big pharma deals ‘don’t look as good compared to the broader market’, although for very patient investors many of these have resulted in longer-term gains. To illustrate this point, the paper pointed out: ‘Of the eight biopharma deals worth more than USD 40 billion that closed in the last 20 years, only one delivered better returns than the S&P 500 five years after it closed.’

Naming Merck & Co..’s USD 47 billion acquisition of Schering-Plough Corp. in 2009, the researcher justified: ‘That deal is arguably something of an accidental winner. Long-term success didn’t come from any of the products that Merck targeted in the merger; instead, an afterthought of an antibody that was initially set to be sold off became Keytruda, a cancer drug that’s projected to generate USD 15 billion in sales in 2021.’

Innovative product launches no longer a holistic value-creation for patients: 

Thus, unlike yesteryears, enriching new and innovative product pipeline through M&A won’t serve the key purpose of value-creation for patients to treat deadly diseases in a holistic way. The primary reason for the same was articulated in the Deloitte Paper titled, ‘Disruptive M&A: Are you ready to define your future?’ The article emphasized: ‘The confluence of technological change, shifting customer preferences, and convergence across sectors is redesigning how products and services are developed, delivered, and consumed.’

Thus, mere acquisitions of innovative product portfolios, intended to provide better treatment choices for patients, may not meet the holistic needs of consumers’ while going through the disease treatment process. In depth understanding of such preferences with all associated nuances, is absolutely essential in today’s complex business scenario. Which is why, it calls for avant-garde type or ‘disruptive M&As’, that can help alter the business growth trajectories, making the disrupted company disrupt the competitive space, being game changers of the industry.

Calls for avant-garde type or disruptive pharma M&As:

Today, it’s crucial for any drug company to create a unique treatment experience for patients. This is emerging as a pivotal factor for the success of a brand.

Even most innovative products will need to be supported by disruptive back-office technology for market success. Thus, acquisition of disruptive technology to effectively augment the brand value delivery process is equally important, in tandem with enrichment of new product pipeline. This is expected to emerge as a critical driver in pharma M&A. Such takeovers, I reckon, may be termed as avant-garde type or disruptive M&As – for holistic value creation for patients.

‘Disruptive M&A’ creates a much broader range of possibilities and targets:

For a holistic value creation through disruptive M&A focus for target selection needs to be significantly different from the standard models of M&As – and not just about the quality of NCE and NME pipeline. The above paper also highlighted: ‘Disruptive M&A opportunities requires evaluating and assessing a much broader range of possibilities and targets than traditional M&A.’

With the right kind of target selection after a thorough analysis of the business model, disruptive M&A may help the acquiring drug companies to go beyond achieving revenue and cost synergies. It can also provide cutting-edge business capabilities, alongside enriching and expanding the talent pool, key business processes, and, of course, the state-of-the-art technology –inorganically.

Initiatives and focus of drug companies of this genre, are expected to be more in the coming years, primarily driven by a new type of value creation to offer a unique disease treatment experience for patients with their respective brands.

A new type of value creation for patients in healthcare space:

It has already started happening in the recent years. For example, Amazon, on January 30, 2018 , announced, it is collaborating with Warren Buffet’s Berkshire Hathaway, and the bank JP Morgan Chase to create an independent, nonprofit health care company ‘with the goal of increasing user satisfaction and reducing costs.’ They also announced the organizational focus on two of the following areas, which are interesting and unconventional:

  • Technology solutions that will provide U.S. employees and their families simplified, high-quality and transparent healthcare at a reasonable cost.
  • Draw on their combined capabilities and resources to take a fresh approach.

As the New York Time (NYT) reported: ‘The alliance was a sign of just how frustrated American businesses are with the state of the nation’s health care system and the rapidly spiraling cost of medical treatment.’ The report further added: ‘It also caused further turmoil in an industry reeling from attempts by new players to attack a notoriously inefficient, intractable web of doctors, hospitals, insurers and pharmaceutical companies.’

Although, this has happened in the United States, it sends a strong signal to the state of things to come sooner than expected in the health care space, dominated, so far, by pure pharma and biotech players, across the world.  New types of value creation for patients of similar nature, especially by tech greenhorns in the pharma space, can be wished away at one’s own peril.

Consumer-focused digital companies redefining healthcare value creation:

‘2019 EY M&A Firepower’ report also highlights the innovative efforts of consumer-focused, digital companies to carve out a solid niche for themselves in the pharma dominated health care space. With ‘effective deployment of their ‘connected devices, data analytics skills and deep consumer relationships, these new entrants are positioned to have access to important real-world data that could, in part or in full, determine future product utilization and payment,’ as the report emphasized.

Such fast-evolving development also prompt pharma players to act fast. And the most practical way of doing so, with a high possibility of success, is through disruptive M&A. Ongoing entry of consumer-focused, digital companies in health care increase the urgency for life sciences companies to act, now.

Conclusion:

Thus far, pharma and biotech companies have been engaged in a massive wealth creation for themselves by using their biological and chemical know-how for novel drugs and devices. This ballgame has to change now, ‘as the lines between health and technology continue to blur’, according to the EY Firepower report.

Capabilities of big data and analytics will increasingly be more essential for success, regardless of having a rich pipeline of NCEs and NMEs, even with the potential to achieve blockbuster status in the market. Thus, the ballgame has to change.

Against this backdrop, the key challenge of pharma players for a brighter tomorrow would undoubtedly be ‘holistic value creation.’ Its core purpose should be to deliver a unique patient experience, encompassing the entire disease treatment process – going beyond innovative drugs. One of the quickest routes to create this virtuous cycle, I reckon, is through ‘disruptive M&As – moving away from the traditional model for the same.

By: Tapan J. Ray   

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Changing – The Key Differentiator To Boost Pharma Market Share

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Health problems, affecting populations of any country, are many. So are the issues related to the delivery of effective health care solution, that most patients would consider satisfying and meaningful. From this perspective, prevention, treatment and effectively managing any disease is basically a problem-solving situation, for all, as we see around.

Interestingly, an ailment, per se, may not necessarily be the only problem that needs to be solved by a doctor, hospital or a pharma company with its drugs. Other associated factors, playing a key role in the process of patients’ search for a meaningful solution – could often post to be tougher barriers in finding the solution. Therefore, patients’ problem during any disease treatment process, is much more than the disease or availability of required drugs.

Consequently, it is very important for all, especially the pharma marketers, to properly understand what these specific influencing factors are, for each patient-groups or types, if not each patient. Obviously, it would call for generation of relevant data to precisely define the problem, or a set of problems, as the patients feel and envisage. Conversely, these problems should not be defined by the company, based mostly on gut feel, just as it’s so difficult to fathom how another person would feel in a distressing situation. Thus, the need to chart a strategic roadmap to provide a solution to those problems will arise only thereafter.

In pharma context, there are several critical elements in this problem-solving process. However, in this article, I shall focus only on two areas. As these could provide a cutting edge, if used in creative ways by drug manufacturers in arresting patients’ and other stakeholders’ attention on this crucial process.

Three critical elements to the problem-solving process:

Among several others, I reckon, the following three elements would play critical roles in the problem-solving process that is specific to the pharma industry:

  • The mindset to follow the problem-solving approach with all sincerity.
  • Communicate the problem-solving process in a creative way to patients and others.
  • Walk the talk, earning patients’ delight and enhancing the corporate reputation.

Since, the third element, although very important, is involved with the strategic roadmap of the organization, let me discuss here the first two elements to justify the need for this stratagem.

The key differentiators are changing:

A clear shift is underway that will influence what drug will be prescribed and the treatment process that individual patients would prefer.

Not so long ago, and to a large extent even today, one of the key differentiators to sell high price patented products used to be the narrative of ‘billions of dollars’ of investments that go behind time-intensive and high-risk R&D. Nevertheless, this age-old recital now finds lesser and lesser number of takers, largely within patient groups.

Alongside, run several other product-centric differentiators, such as claims and counterclaims on technological and clinical superiority, or how a new drug prolongs life of some cancer patients by a few months over other drugs. These are the old workhorse of differentiators, which are just not enough to increase brand market share, in today’s fast-changing environment.

Brand differentiating factors should reach much beyond the product:

As more patients are getting increasingly interested in their personal health interests and rights, the differentiating factors should reach much beyond products. Some drug companies are already sensing that more patients have started looking for a desired and effective solution, whenever they face a health-related problem. Accordingly, the ability of a pharma player to provide a custom-made solution, as it were, to patients, is emerging as a crucial differentiating factor. This has immense potential to boost the brand market share faster.

Let me underscore, yet again, that this change is surfacing due to changing demands of patients in this area. Thus, soon pharma companies would require shifting their focus from product-centric brand differentiation to patient-centric ones, with problem-solving offerings for patients in creative ways.

Communicate the problem-solving offerings in creative ways to patients:

That the core purpose of pharma business is to prevent, cure or effectively manage illness, is known to many. However, that doesn’t explain one critical parameter that patients now value most. This is, how a drug company provides effective solution to specific health problems of individuals – making the company’s product and services most meaningful to him or her.

Encouragingly, some top pharma advertising companies dealing with pharma, healthcare and wellness products, have started advising so, to their respective clients, as reported by Fierce Pharma on June 17, 2019.

One such ad agency honcho said: “The reality is that pharma and health are closer to doing good anyway, that’s just part of what they do.  Looking for opportunities to serve the patient in a creative way is what we need to do in pharma as well, not just, ‘let’s go and sell this drug.’ Admitting the current issues with most pharma players, he further articulated: “But there’s a huge trust gap because people think pharma companies are just out to make money. The more they can do that supports their customer base, which is patients, the more quickly we’ll erode that.”

As reported in the same article, this advice was given to the pharma industry at the Cannes Pharma Lions Awards function on June 17, 2019. It is one of those top award functions, where one gets to know about the best creative communications of pharma and health care companies, designed to facilitate understanding and awareness on various health problem-solving processes for patients.

An interesting platform to know about pharma’s problem-solving offerings:

One of the well-respected platforms where one can witness creative and innovative communications in the pharma industry, is during Cannes Pharma Lions Awards. This ‘is considered the largest gathering of the advertising and thecreative communications industry. The five-day festival, incorporating the awarding of the Lions awards, is held yearly at the Palais des Festivals et des Congrès in Cannes, France.’

New age creative pharma communication, bringing science and innovation to life, compete in the Pharma Lions award functions. These facilitate not only disease awareness – both mitigation or management, diagnosis and patient’s-need-based prescriptions, but also add value while engaging with healthcare professional and patients, more effectively.

Some of the entries vindicate that creativity in pharma communications has started moving ahead and faster than expected, with special focus on patients’ problem-solving. As an illustration, let me cite the example of top Pharma Lions Winner at Cannes 2019.

GlaxoSmithKline GSK) and its ad agency McCann Health picked up this coveted award in pharma advertising with a mobile application called Breath of Life. This is a diagnostic tool for COPD developed for GSKand is aimed at raising awareness and increasing diagnoses of the disease in China. COPD affects an estimated 100m adults in China, but only around 7 percent is properly diagnosed, as the report highlights.

Now, an example from the wellness area:

This specific approach for a Vitamin D fortified dairy product, is also equally innovative, as quoted in the above Fierce Pharma article. Many may be aware that Vitamin D deficiency is not uncommon in India – 80 percent of children in Delhi, reportedly, suffer from this deficiency. The manufacturing company launched its campaign in schools to move the traditional, outdoor morning assembly to noon, when brief sun exposure could have a big effect on vitamin D levels. The campaign invited schools to a launch event, providing a solution to the problem of Vitamin D deficiency in children. The idea clicked with excellent media coverage.

As the ad agency said: “We didn’t make a TV commercial or run print ads. We looked at a problem and how we could solve it and showed that the brand cares about kids.” Nevertheless, he added, make no mistake, it was also an ad, which made parents want to buy the brand.

India and Cannes Lions Awards in health and pharma categories:

The good news is, Indian companies are also participating to showcase their creative communication skills, in problem-solving areas of health, wellness and pharma domain. Although, one doesn’t find the names of any large domestic pharma players in the list,  India had put up a good show by bagging a total of four awards, including a gold, two silvers and a bronze in the health and pharma categories on Day 1 of the Cannes International Festival of Creativity, in 2018.

In the years ahead, one hopes that Indian drug manufacturers will show greater interest in this area, to sharpen their critical differentiating tool in disease awareness, brand marketing focused on problem-solving for patients, who search for an appropriate solution while addressing a disease condition.

Is pharma in search of a different approach?

Instances, such as, Cannes Pharma Lions Award, indicate that an increasing number of pharma players have, at least, started recognizing that old ways of differentiating brands, would no longer fetch desired outcomes, as patients’ mindsets are changing – fast. Patients’ outlook for prevention, treatment and managing chronic ailments are also changing – empowered by a plethora of unlimited free information – as and when they require.

Accordingly, drug companies who are partnering with creative pharma ad agencies are being persuaded more to look for a radically different approach to be on the same page with their customers. It also requires the top management mindset to be in sync with this fundamental change, inviting full commitment from all. The new communication package, then becomes a fine blend of top-class creative inputs and modern technology platforms for delivery. The core purpose is to effectively connect with patients, doctors, hospitals and governments, being an integral part of their problem-solving process in health care.

Conclusion:

The article titled, ‘Solving Problems Is More Important Than Selling Your Differentiators,’ published in Forbes on June 14, 2018, highlighted a very important point. It wrote, if a company keeps zeroing in on its traditional brand differentiator, as discussed above, the business is likely to miss out on potential new customers and the revenue they could bring with them.It then elaborated: ‘The real trick to getting noticed comes down to shifting your focus. It’s not about you. And it’s definitely not about you versus them. It’s all about solving problems and evoking the right emotions.’

The short list of Cannes Pharma Lions Awards, signals that this process has just begun, but yet to gain a critical mass within the industry. In this area, as yet another head honcho puts it: “Given the shortlist for the Innovation Lions, you can already see a trend where agencies have focused on making work that impacts patient lives on a day-to-day basis, through more meaningful use of technology for practical and life-changing purposes.”

Thus, it is important for new age pharma marketers to note that their business environment is changing – faster than ever before. The traditional brand differentiators, however much honed, may not fetch desired increase in the market share, in the future.

The new crucial differentiator in this area, isthe ability of a pharma player to conceive, design, provide and effectively communicate, virtually a custom-made disease treatment solution to patients. Equally important is the skill to communicate this ‘problem-solving process’ to the target audience in creative ways, for top of mind recall, at least, the company’s name. In turn, it would also facilitate the prescriber choosing a company’s brand, that rings a bell to the patient. And that’s the new way for pharma marketers to boost their brand market share, faster.

By: Tapan J. Ray    

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

Continues ‘The Cat And Mouse Game’ In Pharma Business?

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Many are already aware of the critical factors that make generic drugs so important for patients – virtually for all. These don’t just facilitate greater access to health care – offering affordable alternatives to high-priced off-patent innovative drugs. This is as relevant in the largest pharma market in the world – the United States (US), just as in India. Let me illustrate this point with two examples – one from the US and the other from India.

According to US-FDA, ‘9 out of 10 prescriptions filled, are for generic drugs’ in the United states, as off-patent branded generic drugs cost more than their generic equivalents. The US drug regulator explains, ‘Increasing the availability of generic drugs helps to create competition in the marketplace, which then helps to make treatment more affordable and increases access to healthcare for more patients.’

However, unlike the US, there prevails a unique perception difference even within generic drugs – between branded and unbranded generics. The Indian Survey, undertaken to review and analyze various facts on branded and equivalent unbranded generic medicines, found a huge difference in prices between them in the country. Interestingly, as the researchers also noted, although, more consumers want an economical alternative to high priced branded generics, most physicians do not prefer unbranded generic medicines.

There is another important point worth noting regarding India made generic drugs. Although, Indian pharma sector caters to around 40 percent of generic demand in the US, as IBEF reports, many Americans nurture serious apprehensions on the quality of generic drugs manufactured even by India’s top drug companies. 

This is quite similar to apprehension that exists in India between the quality branded and unbranded generic medicines in India. The only difference is – the above perception in India is not based on impartial and credible scientific studies, whereas it is not so in America. The New York Times report, published on May 11, 2019 vindicates this point. It questioned: “Americans Need Generic Drugs. But Can They Trust Them? The fake quality-control data, bird infestations and toxic impurities at the overseas plants that could be making your medication.” Incidentally, there aren’t any such large-scale accusations regarding dubious quality of drugs manufactured by Big Pharma. 

On the other hand, big pharma players have long been accused of drug price gouging or price-fixing of life-saving drugs, primarily to maximize earnings by ‘extending’ product patent-life. Curiously, in recent times, even the generic drug players are being accused of following a similar practice. Thus, in this article, I shall explore how generic drug players are also trying to hoodwink measures to bring down the drug price, either through price control or through the encouragement of intense competition – playing a ‘cat and mouse game’, as it were, whenever an opportunity comes. If it continues and probably it will, what is the way ahead? Let me begin by recapitulating a historic pace-setting move in the global generic market by an Indian drug player.

A historic pace-setting move by an Indian generic drug player:

Being a major exporter of generic drugs in many developed, developing and even poor countries around the world, India is often termed as ‘the pharmacy of the world.’ That apart, a historical move in this space, by a top domestic player – Cipla, earned global accolades, at the turn of this new millennium. In 2001, Cipla slashed the price of its triple-therapy drug ”cocktails” for HIV-AIDS – being sold by MNCs, ranging from USD 10,000/ USD 15,000 a year to USD 350 a year per patient to a doctors’ group working in Africa.With the generic industry’s focus on a deeper bottom line, the scenario has changed now. Finding ways and means for the price increase, evading both competitive pressure and also drug price control, as in India, has turned into a ‘cat and mouse game’, as it were.

Generic drug pricing – ‘a cat and mouse game?’

Pricing pressure, especially for generic drugs, from patients, payers, politicians and governments, is gradually becoming more intense. More the pressure greater is the effort of affected players to come out of it, in any way –akin to a ‘cat and mouse game’, as it were. Although, it has recently started in the USA, the same exists in India, since 1970, when the first drug price control was introduced in the country. Intriguingly, in the midst of this toughest ever drug price control, phenomenal rise of almost all top Indian companies, including the top ranked company in the Indian pharma market commenced – from scratch. Nonetheless, to get a feel of how is this game being played out, let me start with the Indian scenario.

How this game is played in India to evade price control:

Instead of taking a deep dive into the history of drug price control in India, let me give a bird’s eye view of a few mechanisms, out of many, used to evade price control, since it commenced. The idea is to give just a feel of how this ‘cat and mouse game’ game pans out, with a few of such examples in a sequential order, since 1970, as much as possible, by:

  • Including price decontrolled molecule in the FDC formulations.
  • Replacing a price-controlled molecule by a similar decontrolled one, keeping the brand name unchanged, when the number of controlled molecules came down.
  • Making a major shift towards selling more of higher-priced decontrolled molecules, jettisoning low priced controlled molecules.
  • Resorting to vigorous campaigns, when the government started encouraging prescription of low-priced generic molecules, to ensure further shift to branded FDC prescriptions, alongside image enhancement of branded generics over equivalent unbranded ones. Its outcome is visible in the above Indian Survey on the image of branded and unbranded generics.

Has Indian pharma industry succeeded in this game?

It appears so and gets reflected in the CAGR of the industry. According to IBEF, “The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion.” I underscore, this is value growth.

Thus, the point, I reckon, that the government should ponder: How both can happen, at the same time – price control is bringing down drug prices, extending real benefits to patients on the ground, and at the same time the industry is recording an impressive growth rate in value terms?  Whatever it means, let’s now try to explore, how such ‘cat and mouse game’ is being played to increase generic drug prices in the United States.

How similar game is played in the US to increase generic drug price:

On May 10, 2019, international media reported that ‘44 US states announced a lawsuit alleging an anti-competitive conspiracy to artificially inflate prices for more than 100 drugs, some by more than 1,000 percent.’ This lawsuit is based on an investigation involving a number of generic drug companies. The process, which took five-years to complete, accused twenty generic drug players. Teva Pharmaceuticals USA, whose parent company is based in Israel was, reportedly, named as the ringleader of the price-fixing. The company raised prices of around 112 generic formulations.

Other companies, reportedly, named in the complaint, include Pfizer, Novartis subsidiary Sandoz, Mylan, and seven Indian drug companies, including Lupin, Aurobindo, Dr. Reddy’s, Wockhardt, Taro Pharmaceutical Industries (a subsidiary of Sun Pharma) and Glenmark. Some of the 15 senior company executives who were individually named in the lawsuit for their involvementin this alleged “multibillion-dollar fraud ”belong to Teva, Sandoz and Mylan.

The ‘cat and mouse game’ in this case is slightly different. Instead of government price control, the US drug regulator encouraged intense generic competition to bring down the price. When the priced did not come down as expected, the State of Connecticut, reportedly, began investigating select generic drug price increases in July 2014. Subsequently, other states also joined the investigation, and uncovered the reason for prices not coming down.

According to the complaint, between July 2013 and January 2015, Teva significantly raised prices on approximately 112 different generic drugs. Of those 112 different drugs, Teva had colluded with its competitors on at least 86 of them. The complaint noted: “Teva had understandings with its highest quality competitors to lead and follow each other’s price increases, and did so with great frequency and success, resulting in many billions of dollars of harm to the national economy over a period of several years.” In this way, the impact of intense competition on drug prices, was made ineffective.

Not the first time, it was detected:

The 2019 anti-trust lawsuit against the generic drug makers may be ‘the biggest price-fixing scheme in the US history’, but not the first lawsuit of this kind in America. A similar lawsuit for illegal price-fixing against six generic companies, was filed by the states in 2016, as well, which is still being litigated. The 2019 case is a sweeping version of the same and is the result of a much wider investigation. It indicates, instead of taking corrective measures, the ‘cat and mouse game’ still continues. However, almost all the companies have vehemently denied this allegation.

Is this game existential in nature of the business?

One may well argue that such ‘cat and mouse game’ with the government is existential in nature, for the generic drug business. When price control or intense market competition brings down the price to such a level, it becomes a matter of survival of most businesses. There doesn’t seem to remain enough financial interest for them to remain in the market. If and when it happens, causing shortage of cheaper generic drugs, patients’ health interest gets very adversely affected. It also prompts the manufacturers to find a way out for the survival of the business. This is understandable. But it needs to be established, supported by scientific studies.

An off the cuff solution:

A general and off the cuff solution to the above issue would naturally be, there should be a right balance between affordability of most consumers and the business interest of the drug makers. This broad pointer is also right and understandable. But again, no one knows the expected upper limit of the generic drug profit margin for their manufacturers – where hardly any breakthrough and cost-intensive R&D is involved. Equally challenging is to know – below what margin, generic players, by and large, loose interest in this business?

What do some available facts indicate?

According to the year-end report of the Pharmaceutical Export Promotion Council (Pharmexcil) the total pharma exports from India has been pegged at USD 19.14 billion for 2018-19. This represents a growth of 10.72 per cent over USD 17.28 billion in thelast year. It further reported, “The top 25 export destinations contribute 76.52 per cent of the formulation exports amounting to USD 10.38 billion. Among these, the US continues to be the largest export destination with over 38.62 per cent of the total generic exports to that country at USD 5.24 billion.” Does it mean business as usual, despite ‘price-fixing’ law suits in the US, since 2016?

Similar impression one would probably get from the Indian scenario, as well. Notably, despite price control, which is continuing since last five decades, the growth rate of the Indian pharma market, which is dominated by branded generics, remains very impressive.According to the January 2019 report of IBEF: “The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach USD 55 billion.” So also the same game, probably!

Conclusion:

It appears, there is certainly a huge reputation or image crisis for the generic drug industry, as such, due to such alleged delinquencies. However, from the business perspective, the manufacturers are still having enough leeway to move on with similar measures, supported by fresh thinking. At the same time, it seems unlikely to have any form of drug price control in the United States, at least, in the foreseeable future. Nevertheless, price pressure due to cut-throat competition could even be more intensive, as it gets reflected even in the US-FDA statements.

Nearer home, the Indian generic drug business has been hit with a double whammy – allegations for dubious drug quality standards, on the one hand, and price manipulation on the other, besides dented reputation and image – widening trust gap with patients and governments.

Moreover, unlike the best export market even for generic drugs – the United States, India has been following some patchy policy measures for health care, as a whole. The drug price control system is one such. Till a holistic policy on health care is put in place for all, backed by an effective monitoring system, The Indian price control system may remain like a ‘maze’, as it were, with several ways to hoodwink it.

Hence, the ‘cat and mouse game’, albeit in a different format, is likely to continue, until one gets caught, or till all concerned puts their act together – putting patients at the center of the core business strategy.

By: Tapan J. Ray    

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Creating Satisfied Patients Begins With Developing Satisfied Employees

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‘The core issue in health care is the value of health care delivered,’ wrote Michael Porter in a paper titled, ‘Value-Based Health Care Delivery,’ published by the Institute of Strategy & Competitiveness of Harvard Business School (ISC-HBS) on January 15, 2014.

Building on this concept, EY in its 2018 edition of ‘New horizons: Executive insights on the future of health’ articulated: ‘Value-driven care means delivering the best clinical outcomes with optimized costs, while delivering a satisfying experience for patients and providers.’

Creating a ‘satisfying patient experience’ – or ‘satisfied patients’ for its brands, being the ultimate objective of a drug company, I shall add an interesting dimension to it, in this article. And that is: Will it necessitate creating satisfying employees within the organization to achieve this goal? To build a right perspective in this direction, let me begin with the core concept of Michael Porter on this subject. This starts with – what is generally regarded as ultimate ‘value’ to patients, in healthcare delivery?

Defining ultimate ‘value’ in health care delivery:

Porter defined this ‘value’ as ‘patient health outcomes per dollar spent’. He also made some key assertions in this context, which I am summarizing below:

  • Delivering high and improving value is the fundamental purposeof health care.
  • Value is the only goal that can unite the interestsof all system participants.
  • Creating positive-sum competition on value for patients is fundamental to health care reform in every country.

Are these assertions attainable?

To create ‘Value-Based Health Care Delivery (VBH),’ the people would also need a ‘Value-Based Pharma Industry (VBP)’, delivering ‘Value-Based Medicine (VBM)’, for all. The three key principles for any VBM are considered as follows:

  • Thoroughly selected values must be based on the best research evidence available and applied as treatment options. 
  • Values for patients are converted into measurable utility values to facilitate the integration.
  • The cost-utility level expected from selecting a particular treatment option is the basis for decision-making.

In other words, the whole purpose of offering a VBM is to provide cost effective, science-based healthcare that incorporates patient values. Nonetheless, effective implementation of both VBH and VBM would entail a radically different leadership mindset, with quite a different set of success requirements, both globally and locally.

To drive home this point, let me illustrate just the third point of the Porter’s model of VBH, as quoted above. This clearly articulates: ‘Creating positive-sum competition on value for patients is fundamental to health care reform in every country.’ But the current reality of ‘competition’ in the drug industry is far from what it should be, as evident from one of the Brookings studies.

How competitive is the pharma industry to reduce cost of health care?

The Brookings paper titled, ‘Enabling competition in pharmaceutical markets,’ published on May 02, 2017 shares its research findings on the subject, which in a broader context include the following points:

  • Over the years, industry participants have managed to disable many of the competitive mechanisms and create niches in which drugs can be sold with little to no competition.
  • When manufacturers can earn high profits by lobbying for regulations that weaken competition, or by developing mechanisms to sidestep competition – the system no longer incentivizes the invention of valuable drugs – incentivizes firms to locate regulatory niches where they are safe from competition on the merits with rivals.
  • But, health care system performs well when competitive forces are strong, yielding low prices for consumers, as well as innovation that they value.
  • Weak competitive forces often lead to a lack of market discipline with high drug prices and are more damaging to in the pharma consumers than some other sectors.
  • Without strong competitive conditions, healthcare expenditure will continue to grow, inviting public demand for drug price regulation through legislation.

These findings provide enough reasons to ponder how to overcome the barrier of ‘Creating positive-sum competition on value for patients’ to move towards VBH.

The good news is, VBH concept was soon put to use:

The good news is, soon after publication of Michael Porter’s paper – ‘Value-Based Health Care Delivery’ by (ISC-HBS) on January 15, 2014, it was put to practice by the American College of Cardiology (ACC).The article titled, ‘A New Era of Value-Driven Pharmaceuticals’, published by Health Standards on May 21, 2014, reported it.

The article wrote, at the end of March, the American College of Cardiology (ACC) and the American Heart Association (AHA) issued a joint statement saying they “will begin to include value assessments when developing guidelines and performance measures (for pharmaceuticals), in recognition of accelerating health care costs and the need for care to be of value to patients.”

The authors pondered, ‘are we entering a new era of value-based medications or value-driven pharma?’ There are several such reports. For example, another article titled, ‘Value-based healthcare’, published by the ‘Centre for Evidence-Based Medicine (CEBM)’ observed, value-based healthcare has emerged as a field of its own – feet firmly founded in ‘Evidence-based Medicine’ or ‘Value-Based-Medicine.

VBH concept is slowly gaining acceptance:

EY in its 2018 edition of ‘New horizons: Executive insights on the future of health’ also reiterated this point. The paper mentioned, ‘the trends of reducing costs and improving outcomes show no sign of receding, and new models for delivering health care are only adding pressure to traditional brick and mortar facilities.’ It further highlighted, some pharma companies have started systematically reviewing the business processes, procedure and patient interface within the organization to identify and eliminate waste and inefficiency.

But, still a lot of ground to cover:

In this regard, EY Health Advisory Survey 2017 came out with several interesting findings based on the responses of 700 qualified healthcare professionals. One such finding is, although high importance is attributed to creating both – a good ‘patient experience’ and a meaningful ‘patient engagement’, but a lot less is done on the ground. This was supported by the following data:

  • 93 percent of respondents reported, they are undertaking ‘patient experience’ initiative that year, but only 26 percent of them selected patient access or satisfaction as one of the top three for the same.
  • Although 81 percent of the professionals said ‘patient engagement’ is considerably important to them, but most of the top initiatives undertaken by their organizations don’t directly involve soliciting and analyzing patients’ needs and wants.

‘Employees satisfaction’ a prerequisite for ‘patient satisfaction’:

The same EY Health Advisory Survey 2017, found many respondents articulating that ‘employee satisfaction’ is a prerequisite to ‘patient satisfaction’. However, its importance gets diluted whiling translating the same into reality, as vindicated by the following finding:

  • 51 percent of respondents believe that employee satisfaction in health care drives patient satisfaction, but only 35 percent said that their organizations have already initiatives underway to create more positive work and environment. Interestingly, only 10 percent of them have undertaken any employee satisfaction survey soliciting employee input.

It is quite apparent from this situation that leaders of respective organizations don’t walk the talk, especially in this critical area. Harmonization of ‘patient satisfaction’ as a critical success factor for delivering VBH, with the core business value of the company, is not taking place. A deep-rooted belief that success in developing mostly transactional and partly emotional relationship with the heavy prescribers is the only ‘magic wand’ for business success in pharma. Thus, the old habits die hard, even today.

Conclusion:

Despite several barriers in its way, for a long-term survival in business, hopefully, many pharma companies would willy-nilly move towards delivering ‘value-based health care’ through ‘value-based medicine.’ This would necessitate having a clear goal to create an increasing number of satisfied patients for the brands. There are ample evidences today that ‘employee satisfaction’ is a basic prerequisite to ‘patient satisfaction’, where many drug companies are lagging behind, significantly.

Only the movers and shakers in the senior leadership of pharma industry can break this status-quo. It may be initiated with – example-setting activities, which should enable giving shape to developing a set of standard operating procedure – culminating into the culture and value for the organization.

Nurturing humane approach to employee commitment for creating satisfied employees is the primary step of this important initiative. Then, encouraging their active participation – willingly, to bring patients at the center stage of pharma business, should be the ongoing process.  It’s, therefore, imperative to note - the goal of creating ‘satisfied patients’, should always begin with developing ‘satisfied employees.’

By: Tapan J. Ray   

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.