Stakeholder Perspectives on The Pharmaceutical Industry in Transition

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Stakeholder Perspectives on The Pharmaceutical
Industry in Transition

• Ian Morrison

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Outline

• Key Issues for the Pharmaceutical Industry
• Perceptions and Attitudes
• Medicare Reform Wholly Inadequate Prescription
  Drug Benefit for Seniors (WIPDBS)
• Consumer-Deflected Healthcare
• Implications for Pharmaceutical companies

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The Ten Big Issues for the Pharmaceutical Industry

• Costs for everyone globally, focus on Prices in
  the U.S(and therefore importation)
• Losing the Value argument in the US and elsewhere
  
• Big Ugly Buyers and Tiering
• Coverage for the Elderly in the U.S. and
  Elsewhere
• AIDS in the Third World Capitalism run Amok
• RD productivity
• Is bigger better or is it all a lottery
• 4 Billion Blockbusters or 40x 100 million
• Intellectual Property under assault
• Marketing practices as asset or liability DTC,
  detailing, rebates and sales force productivity
• Losing Friends and gaining enemies
• Leadership finally coming out from the bunker of
  self-righteous, myopic, isolationism

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How Consumers Rate Industries
In 1997 computer companies were rated
together (I.e. hardware and software companies
were not measured separately Because airlines
were not included in 1997, the trend for airlines
is from 1998 - 2002
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Health Care Tops List of Industries Public Wants
to See More Regulated
Should Be More Regulated
Generally Honest Trustworthy
Managed Care Companies
Health Insurance Companies
Pharmaceutical Companies
Hospitals
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Medicare Drug Benefit
5
Catastrophic Coverage
5100
Out-of-Pocket Spending
2850 Gap
No coverage
Medicare Part D Benefit
420 in annual premium
2250
Partial Coverage up to Limit
25
250
Deductible
Equivalent to 3,600 in out-of-pocket spending
250 deductible 500 (20 cost-sharing on
2000) 2850 (100 cost sharing in the
gap) Source Kaiser Family Foundation
7
A Slight Majority Favor the New Medicare Plan
Do you favor or oppose the new prescription drug
benefit for Medicare recipients?
Source CNN/USA Today/Gallup, Dec 5 - 7, 2003.
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But Most Elderly are Disappointed with the
Specifics
Congress has passed a new Medicare Bill that
includes a new prescription drug benefit. Which
of the following best describes how you feel
about the new Medicare Bill?
Source Wall Street Journal/Harris Interactive,
Dec 3 - 5, 2003.
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Disappointment over Expanded Private Sector
Involvement and a Lack of a Reimportation
Provision
How do you feel about the four following pieces
of the bill? (Asked of those who know enough to
have an opinion (58 of all adults)
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Most Consumers Think the Medicare Bill will
Benefit the Rx industry More than the Elderly
Based on what you have heard or read about the
new Medicare plan, do you think it will do more
to benefit people who receive Medicare or do more
to benefit prescription drug companies?
Source CNN/USA Today/Gallup, Dec 5 - 7, 2003.
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Medicare Bill as Three MoviesAs Good as it Gets

• Prohibition on Price Controls on drugs
• Medicare cannot use its raw naked purchasing
  power
• Prohibition on reimportation of pharmaceuticals
  from Canada
• Private Sector Handouts for corporations, health
  plans, PBMs (and doctors and hospitals)
• MSAs and HSAs enabled and encouraged for the
  elderly (The Warren Buffet PPO)
• No new Taxes for the rich
• And some fresh new coverage for the poor
  uncovered elderly who are not in states with rich
  PACE or Medicaid programs

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Medicare Bill as Three MoviesThe World is Not
Enough

• Wholly Inadequate Coverage when it finally
  arrives because most people will be paying for at
  least half their medications
• Price Transparency now and in the future
  (discount cards in the short run and donut holes
  in the long run)
• Drug industry will experience the coverage
  kicking in when many of the big blockbusters are
  off patent and when huge classes of drugs like
  statins will be both generic and OTC
• Huge incentive for corporate America to phase out
  retiree health benefits or make them Medicare
  Compatible (a euphemism for shitty)
• HMOs and HSAs will have to find a way to make
  money on anybody but the rich well elderly (all
  four of them)
• When it comes to healthcare for the elderly we
  are all poor
• Is this bill a platform for future Democrats to
  go after the drug industry when RX industry is at
  a low ebb, lacking innovation and subject to five
  years of public outrage about prices
• What would Hillary do with it in 2008?

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Medicare Bill as Three Movies The Ten
Commandments

• There shall be competition (Even if it is
  unpopular, doesnt work and there are no willing
  HMOs or congressional districts willing to
  participate in it)
• There shall be liberty for seniors to be confused
  by a myriad of private health plan and drug
  coverage offerings
• There shall be skin in the game (consumer
  responsibility for payment through co-payments,
  deductibles and premium sharing) because it is
  good for consumers to pay at the point of care
  (it will stop them overusing the Medicare system
  for recreational purposes and it teaches seniors
  that they should look after themselves in their
  forties and fifties)
• There shall be no supplementary coverage because
  supplementary coverage nullifies skin in the game
  
• There shall be no new taxes for rich people, only
  raised premiums for all
• There shall be privatization because private is
  better than public (dont argue, this is a
  commandment)
• There shall be unrestricted free choice of plans
  each of which has a restricted choice of doctors
  because choice is good
• There shall be no Canadian drugs in the veins of
  Americans even if the drugs are made in America
  and purchased by Americans
• There shall be big differences in coverage among
  seniors but thou shall not covet thy neighbors
  coverage
• There shall be no senior left behind.. in
  traditional Medicare

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The Argument For Consumer Responsibility for
Payment

• Consumers have been progressively insulated from
  the cost of care for the last 40 years
• If they only knew how much healthcare cost and
  had to pay they would use it less
• If they were responsible for paying they would
  also take more responsibility to become healthy
  and cost the system less
• Consumers should have the right to choose and to
  trade up to better quality with their own money
• When they are make rational consumer choices the
  market will be working and whatever is spent will
  be appropriate like any other market or sector of
  the economy

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The Argument Against Consumer Responsibility for
Payment

• The 5/50 Problem Most consumers that are heavy
  users have significant co-morbidity or serious
  illness like cancer, they didnt choose this
  health status
• One day in an American hospital and they are over
  their maximum deductible, so
• Catastrophic coverage is a green light for
  excessive care by hospitals and
  procedure-oriented specialists
• While skin in the game can clearly move people
  around does it save money overall?
• The equity problems
• A de facto reallocation of resources from poor to
  rich (my access to the collective social capital
  of health insurance is better because I can come
  up with the economic down payment for physician
  visits and tests)
• Poor people with chronic illnesses will be
  disproportionately affected by consumer
  responsibility for payment

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Consumer Exposure to Health Care Costs is About
to Increase
Per capita amount of personal health care
expenditures paid out-of-pocket
Percentage of total personal health care
expenditures paid out-of-pocket
Projected
Source Centers for Medicare and Medicaid Services
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Who Pays for Drugs?
Percent of Total National Prescription Drug
Expenditures by Type of Payer
Private insurance
Out-of-pocket
Government programs
Source Kaiser Family Foundation and Sonderegger
Research Center analysis of CMS data
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The Five-Tier Formulary
Highest Copay and/or Coinsurance
Lowest Copay
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James Brown and Fernando Lamas Effect
End-Point
Look Good
Feel Good
Quality of Life
Mobility
Morbidity
Mortality
Affluence of the Individual or Society
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Skin in the Game Matters

• Trading down twice as often as trading up
• Rapid increase in generic and therapeutic
  substitution
• Poor, chronically ill most effected
• Starting to lead to adverse health outcomes like
  the uninsured
• Simple cost shifting without sophisticated
  disease management is not the right answer in the
  long-term

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Big Increase in Trading Down on Drugs
Base Total cost of prescription drugs increased
last year (53)
22
Rx co-pay increase More bargain-hunting since
2002. Low- and middle-income equally likely to
trade-down
Percentage of consumers who did the following in
response to an increase in prescription drugs
cost sharing
Base Copays for prescription drugs increased a
lot or a little in past year
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The Coming Challenges

• Price
• Reimportation
• Cost-effectiveness in formulary design
• Reference pricing
• World pricing
• Innovation
• Show me the molecules!
• Value
• The Cutler Defense Your Money or Your Life
• The Danzon/Fujikawa Defense

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The Value of Prescription Drugs
Percentage of consumers rating each of the
following a very good or fairly good value
63
Generic prescription drugs
Medical devices
43
36
OTC (non-prescription) drugs
Doctors
35
32
Pharmacies
Hospitals
24
21
Brand name prescription drugs
Health insurance companies
14
Source Harris Interactive/Wall Street Journal.
Aug 19, 2003
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The Danzon/Fujikawa Defense

• The structure of the entire pharmaceutical market
• Brand, Branded Generic, Generic and OTC Prices
• Purchasing Power Parity Deflators
• Innovation Novel large molecules
• Costs of distribution

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Unit Volume for Branded vs. Generic drugs Varies
by Country
Source, Prices and Availability of
Pharmaceuticals Evidence From Nine Countries,
Danzon, Fujikawa, Health Affairs, October 2003
27
Outside US Prices for Generics are Comparable or
Higher than US prices
Source, Prices and Availability of
Pharmaceuticals Evidence From Nine Countries,
Danzon, Fujikawa, Health Affairs, October 2003
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Based on Health PPPs, All countries Except France
appear to have Higher Drug Prices than US
Source, Prices and Availability of
Pharmaceuticals Evidence From Nine Countries,
Danzon, Fujikawa, Health Affairs, October 2003
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Per Capita Use of Newer Drugs is Lower in Other
Countries Compared to US
US100
Source, Prices and Availability of
Pharmaceuticals Evidence From Nine Countries,
Danzon, Fujikawa, Health Affairs, October 2003
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The Missing One-Liners

• Hey you elderly, stop bitching that Lipitor is
  cheaper in Canada and learn how to use the proper
  purchasing power parity deflators
• Sure you pay more for brand name drugs but youre
  getting young, long molecules
• OK, Brand name drugs are more expensive here but
  at least we arent screwing you on generics and
  aspirin like the Germans
• Who would you rather have the money, American
  drug companies or French pharmacists?

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The Transformation of Pharmaceuticals
Future
Past

• Design a white powder with a predictable
  therapeutic action
• Establish safety, efficacy and cost-effectiveness
• Make sure it meets a previously unmet medical
  need or has an effect that is detectable to human
  beings
• Promote to all the Ps (patient, physician, PBM,
  payer, pharmacist, politician, press)
• Get an active payer to pay for it

• Discover a unique white powder
• Search for a therapeutic action
• Establish safety and efficacy
• Make sure its better than available alternatives
• Promote to the profession
• Get a passive payer to pay for it

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Traditional Pharmaceuticals vs. Advanced
Therapeutics
Big Pharma Success
Higher Price Higher Efficacy Innovative Technolog
y
Do nothing
of Patients
Me-too Fast Followers Generics
Chronic pill popping (Rolaids for Yuppies)
Heavy-duty traditional therapy
Cost
Evidence-based medicine
Marketing
Consumer payment
Demonstration of clinical efficacy
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Happy Biotechnologist Scenario

• We have the best stuff
• Sure its expensive, but it works
• Because it works there are savings elsewhere
• This is complex do not try this stuff at home
• As generic competition makes costs go down for
  some technologies, there will be more gross
  margin left for us
• Catastrophic drug coverage insulates consumers
  from caring about price

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Biotechnologists Nightmare Scenario

• Public, physicians, policymakers could care less
  about large molecules we dont buy drugs by the
  atom
• Its complex brewing not chemistry, but how hard
  could it be?
• Big ugly buyers and providers incensed about
  price of technology
• High efficacy focused on small sliver of needy,
  desperate patients
• Payers/purchasers
• Medicare inpatients the stent effect
• Medicare hospital outpatient the value case
• Administering Physicians e.g. oncologists
• zero-sum game on incomes
• Plop, plop vs clinical efficacy
• Consumers
• Co-insurance on top tier
• All drugs in CDHP
• Can you pass the NICE/Kaiser Test?

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Meeting the Business Challenge

• Marketing
• Increased consumerism reaching the patient
• Sales force Productivity
• Doctors as economic gatekeepers for patients
• Tiering will continue positioning products in
  tiers
• Coverage and contracting PBM negotiations
  become more complex
• Development
• Global role of payers in the development process
  e.g. NICE
• Embedding market understandings in go/no go
  decisions
• Regulatory and reimbursement hurdles become more
  complex
• Research
• New science versus traditional RD
• R D Productivity and the only 2 problem

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Innovation Imperatives

• Consumers love new technology
• Innovation is you ace in price control debates
• But if you dont truly innovate in a way
  consumers appreciate and pay for.
• The new environment shifts responsibility for
  payment increasingly and transparency of pricing
  to consumers
• Delivering innovation to an end user consumer
  that has value they are willing to pay their own
  money for
• Do not overestimate (even) Americans willingness
  to trade up
• Are we comfortable with overt tiering?

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Little R, Big D, Enormous M
Physicians
R
Big Pharma
R
Patients
R
Marketing
R
Development
Payers
R
R
PBMs
Selected Partnerships
R
R
Pharmacists
R
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Five Industry Giants 2014

• The Initial Company
• GSKBMSJJ
• The Latin Root Company
• AstraAventiNovarticus
• The Mother of All PBMs
• Advanced MedcoExpress Care-Scripts
• AmgenaMerck
• Biotech Baby eats an Adult
• Pfizer