A day on from AstraZeneca’s announcement of 7,300 job cuts, the company was still keeping the UK in suspense with regard to a breakdown of the numbers. UK staff assembled for a meeting at 10 am on Thursday, but as of lunchtime there was still no confirmation of the  numbers , with the BBC’s Business Editor Robert Peston tweeting that it was “odd” that the drugmaker was giving “no public guidance” on the UK element of the job cuts. The expected UK losses are “not huge” — the general union GMB speculates 250 to 300, all from the R&D site in Alderley Park, Macclesfield — but other sources inform me that it could be considerably more than that. Either way, added to the company’s mooted worldwide R&D cull (2200 jobs), it very much reflects the endemic crisis plaguing pharma innovation in general.

And, globally, this is a major downsizing exercise, the third restructuring effort in five years (AZ is lighter by 21,600 global staff than it was in 2007). It also exacerbates the blow to UK R&D dealt by Pfizer’s announced closure of its Sandwich facility, just over a year ago to the day. And, coming just a day after disgraced former Royal Bank of Scotland boss Sir Fred Goodwin was belatedly stripped of his knighthood for leading RBS into financial collapse, some UK pharma bosses may be feeling a twinge of panic in light of the Royal Society of Chemistry’s Professor David Phillips’ reaction to the news: “There has to be some element of state intervention at this stage.” A few Twitter commentators wondered aloud about the former AZ head Sir Tom McKillop losing his knighthood too. Their tongues were firmly in their cheeks, but there is no getting away from the fact that this was a dark day for UK pharma.

The Conservative arm of the UK’s coalition government flexed its private-sector-friendly muscles again on Monday with the announcement that the National Health Service should be ‘opened up’ to private healthcare firms. In a speech peppered with buzzwords, Prime Minister David Cameron said: “The end-game is for the NHS to be working hand-in-glove with industry as the fastest adopter of new ideas in the world.”

Cameron went on to outline plans for the establishment of a £180 million Biomedical Catalyst Fund to nurture innovative technologies, more NHS support for patients who wish to be involved in clinical research and an early access scheme to give seriously ill patients access to drugs around a year before they are licenced for general use.

The plans, not surprisingly, have been broadly welcomed by UK pharma and biotech. The BioIndustry Association is looking forward to seeing details of the Biocatalyst Fund “and how it will work to support innovative SMEs facing the ‘valley of death’ funding gap”; the Association of the British Pharmaceutical Industry (ABPI) called the proposals “a significant step to opening up the NHS to research,” adding that they will “make the UK a more inviting place to locate research and, therefore, investment.”  ABPI specifically welcomed plans to give companies more freedom to run clinical trials inside hospitals and “better access to health data (with appropriate protection for patient confidentiality)”.

It is that final (shrewdly-parenthesized) point, alluding to the practice of making patients’ medical records available to private companies, where the government’s plans have attracted real controversy. Patient groups and privacy campaigners have seized on the issue as an affront patient confidentiality. One group, Patient Concern, argued that “records should not be passed around by the Department of Health as they see fit, or sold to private companies without our permission.” The Evening Standard’s Sam Leith began his Monday column with the unequivocal headline: ‘I Don’t Want the State to Sell My Medical Records.’

The UK government has emphasized that NHS records would be made anonymous before being made available to private firms, but it seems that this could be the issue that clouds the ‘blue-sky thinking’ that characterizes the rest of the innovation plans.

This announcement came just a couple of weeks after Witty — in his capacity as President of EFPIA — outlined the industry’s “significant concern” to EC Health Commissioner John Dalli over the debt crisis in Europe, particularly in Greece, Italy, Ireland, Portugal and Spain, where, he pointed out, pharma has been obliged to take price cuts and discounts of more than €7 billion ($9.3 billion) during 2010 and 2011. “The pressures on innovation are now immense,” Witty wrote. “I believe it is time to review current pricing and reimbursement practices…” Last month The Telegraph reported that the European price-cut toll has seen GSK’s revenue fall by 4% in the region during the third quarter. Witty predicted that the ongoing crisis (along with the effects of US healthcare reform) will cost GSK about £325m ($507 million) this year.

GSK’s lifeline, of course, is now coming from the emerging markets — outside America and Europe, the company’s Q3 sales grew by 17% — which now represents 38% of its total turnover. But with pharma particularly vulnerable to issues of trust and pricing, Witty’s stance suggests that standing firm and stoically weathering the blows is no longer going to be enough to ride out Europe’s economic storm.

Greek Prime Minister George Papandreou fell on his sword on November 9 after startling the EU by announcing he was pushing for a referendum on whether to accept its latest €100-bn installment of bailout cash. Three days later, Italy’s ‘colorful’ Prime Minister Silvio Berlusconi was effectively removed from office, despite suggesting that he would stay until reforms to calm the Italian economic turmoil were adopted. (Italian government debt stands at nearly 120% of its GDP).

Now, as widely predicted, Spain’s socialist government has fallen, making way for the conservative Popular Party, whose election win is the biggest for the Spanish Right since the end of Franco’ s dictatorship in 1975. The Party’s leader, Mariano Rajoy, will be taking on the Herculean task of, among other things, addressing the rate of unemployment in Spain, which currently stands at a staggering 21.5 per cent.

As for the Spanish healthcare market, the country is saddled with €5.4 billion ($7.1 billion) of unpaid drug bills, equivalent to about 0.5 percent of its entire GDP. Currently, Spain’s regional governments are paying bills an average of 430 days late.

There have been hints that Big Pharma companies such as Roche might do in Spain what they have done in Greece and cut off supplies to hospitals that have failed to pay their drugs bills. The industry has certainly started to show signs of increasing discomfort as far as the most beleaguered European countries are concerned. Sanofi Aventis’s Head of Global Operations, Hanspeter Speck, recently said “I don’t expect anything good in Europe,” while Richard Bergstrom, Director General of the European Federation of Pharmaceutical Industries and Associations, revealed that what worries him most are the debts of “close to €10 billion ($13.8 billion)” just from Portugal, Spain, Italy and Greece.

So will the new government bring hope for the Spanish health system (and, by extension, its global suppliers)? The Popular Party has stated that private sector involvement in the management of the health system, via public-private partnerships (PPPs), will rise sharply under their watch. The British Medical Journal (11 November 2011) reported that a conservative victory will see spending on healthcare PPPs in the community of Madrid increase by a third, from €371m ($505m) this year to €496m in 2012. More hospitals to be run as public finance initiatives are also expected to open in the same time frame.

Needless to say, moves towards partial privatization have long been controversial in a country with strong socialist ties — PPPs were only passed into law in Spain in 1997. The Federation of Associations for the Defence of Public Health (FADSP) is one body that is vehemently opposed to PPPs — it has argued that the building of hospitals under private finance can increase costs by up to seven times.

Whether this unprecedented injection of private money will boost or further derail the Spanish public health system remains to be seen. Either way, pharma will be watching closely as it waits for its bills to be settled.

On Friday Roche confirmed it had come to the end of its tether with state-funded hospitals in Greece. In an interview with the Wall Street Journal, CEO Severin Schwan announced that the company has increased shipments of drugs to pharmacies in the country, while cutting off supply to those Greek hospitals that have failed to pay their drugs bills or have paid them in government bonds. Roche has been stung by Greek bonds before, having had to sell a recent batch at a 26% discount. Further, if Greece defaults on its euro debt its government bonds would be rendered worthless. Bloomberg stated recently that Greece has a 98% chance of defaulting in the next five years (although, as we speak, the EC and the IMF are trying to agree on another bailout).

The move seems yet another international blow for an already beleaguered country, but the decision is pragmatic: Schwan explained that some Greek hospitals haven’t been paying their bills for three or four years. “There comes a point where the business is not sustainable anymore,” he added, not unreasonably. There has been talk across the EU of co-opting the private sector to underwrite a portion of the eurozone losses, but clearly Roche (and others) have already been doing this as far as Greek hospitals are concerned. Even the most philanthropic private sector company is going to have to think hard about dishing out ‘aid’ to a country in Greece’s position.

But as Jeff Harding writes on dailycapitalist.com, it is the eurozone that is in serious trouble; Greece is “just a symptom.” From a creditors’ perspective, following the logic of the ‘domino effect’ that threatens to envelop similarly cash-strapped countries (Italy, Spain, Portugal), Roche, and eventually the rest of Big Pharma, might find itself having to cut off supply to hospitals all over Europe. So far the Swiss drugmaker has countered the ethical implications of its draconian move, saying patients in Greece haven’t been deprived of their medication as a result. (They now have to take their prescriptions to a local pharmacy, and bring them back to the hospital if they need to be administered by a specialist.) Thus, it is considering implicating the same measures in Spain. But just how feasible is this for large and increasingly elderly patient populations? We may find there is more of an outcry when similar cut-offs are imposed on countries that are currently viewed with more sympathy than Greece.

However, 27 percent of the 100 executives interviewed by KPMG for its Industry Pulse Survey suggest that full recovery will not be in pharma’s grasp before the end of 2014, with most expecting ‘just moderate improvements in revenue and hiring’ in the meantime. And, rather disconcertingly, 23 percent “never expect hiring to return to pre-recession levels.”

But if the outlook is cautious for revenue, jobs, and the economy, the KPMG survey results are strongly optimistic on the acquisitions front. A massive 83 percent responded that their company is likely to be involved in a merger or acquisition as a buyer or seller in the next two years, with ’strategic acquisition’ cited as the highest priority investment area by 41 percent of executives surveyed. This was followed by ‘expansion into new markets’, cited by 22 percent.

This mooted “aggressive” growth strategy could suggest that pharma is resorting to its default setting of throwing cash at its problems in an attempt to overcome them.  According to the survey, more than three quarters of executives said their organizations had “significant cash on hand”, with half of them expecting to increase capital spending over the next year.

But KPMG claims mergers and acquisitions will be “exceptional forces over the next two years”, and points to the committed pursuit of geographic expansion as a way to spur organic growth.

Ahead of Pharm Exec’s 30th Anniversary Issue later this year, we are assembling a list of pharma leaders who have made the most impact on the industry.

Which individual(s) or institution(s) do you think has had the most influence of the industry in the last 10–30 years?

Please leave a comment in the box below or drop the editor at line at wlooney@advanstar.com We look forward to receiving your suggestions.

Julian Upton
News and Online Editor

Which individual(s) or institution(s) do you think has had the most influence of the industry in the last 10–30 years?

Please leave a comment in the box below or drop the editor at line at wlooney@advanstar.com We look forward to receiving your suggestions.

Julian Upton
News and Online Editor

Following the loss of patent exclusivity of its best-selling osteoporosis drug Actonel, the company’s President of European and Global Marketing, Hans van Zoonen, announced last week that a strategic review of European operations has resulted in a “restructuring initiative” that will allow Warner-Chilcott to pursue growth opportunities that align with its “key competitive strengths”.

The blunt reality of this in Europe is the axing of 500 jobs — a fifth of the company’s workforce — in Belgium the Netherlands, France, Germany, Italy, Spain, Switzerland and the UK. The only Western European areas to be spared are its facilities in Ireland and Weiterstadt, Germany, and its commercial operations in the UK.

But these European cutbacks signify part of a plan to shift the company’s focus further towards the US market. Already, of Warner-Chilcott’s current 2700 employees, the majority (1700) are the US. This balance will shift even more, of course, when the layoffs take effect, and the company is also placing more eggs in its US basket with the launch, later this year, of its new osteoporosis treatment, Atelvia, and its contraceptive, Loestrin.

As one industry blogger has noted, with the expected dash of cynicism, where else can the company focus on for new revenue but the US, “where we pay far more than the rest of the world for our drugs”? Whether or not this gamble pays off, Warner-Chilcott’s cuts in Europe should keep its US ambitions afloat for a while longer.

In its submission this month to a UK Department of Health consultation, the pro-market Stockholm Network claims that VBP could “counterproductively decrease the amount invested in R&D.”

While conceding that the UK’s current pricing system, the Pharmaceutical Price Regulation Scheme (PPRS), “is not allowing for a greater uptake in new innovative medicines in the NHS,” the Network maintains that PPRS has opened a regular dialogue between the government and industry — “with this discourse now developed to a point where both sides better understand each other’s pressures” — and shown itself to be “predictable and flexible”.

Rather than replacing the existing system with VBP, it argues, “certain merits of the PPRS deserve to be considered, given that this system has existed now for 54 years.” PPRS fixes maximum profits for drug companies, restricting them to a target annual return on capital, but allowing an “upper margin of tolerance” where companies can retain additional profits based on innovation and efficiency. Rather than improving on this system, VBP, according to the Network, is likely “to focus unnecessarily on lowering the price of drugs that the government believes have no value.”

“[A]ccurately determing the “value” of a medicine is likely to be incredibly difficult,” says the group. It is also difficult for value to be appreciated “when it is considered by a common currency, Quality Adjusted Life Years [QALYs], which will only ever be compared with alternative treatments and technologies.” If accurately calculating a medicine’s value is highly problematic, then the price established by such a measurement is unlikely to truly reflect its value.

The Network maintains that arguments in support of VBP pander to “the myth that incremental innovation is not real innovation”. “Breakthrough” medicines are not created out of thin air, it argues; rather, they emerge from a gradual process of discovery. And while it is important of course to reward the most innovative medicines, “it is wrong to treat all other new products as worthless and assume that they offer no value for money…” Distinguishing between “good” and “bad” innovation, then, is just far too simplistic.

Policymakers need to find better ways of encouraging innovation, the Network’s submission concludes. And, for this, the architects of VBP need to “go back to the drawing board.”