Joe Panetta, president and CEO of BIOCOM, discusses an emerging model of M&As in which human and IP assets are valued and biotech brings expertise to Big Pharma as venture capitalist funding dwindles and patent cliffs loom large.

Pharm Exec: Can you tell me about how small biotech and specialty companies have started switching from relying on venture capitalist (VC) funds to M&As, and when that shift came about?

Joe Panetta: I wouldn’t say they’re switching from relying on VC. I think the fact is that VC investment has taken on a different approach than it had traditionally; so we’re seeing a different, let’s say more conservative, shorter-term VC investment model. That’s combined with the fact that we’ve seen for a couple of years now that VC firms have been much more engaged in investing in their current portfolio companies, and there’s been less of an appetite for investment in new companies than there was five years ago.

Part of that is the fact that we’ve got economic challenges; part of it is the fact that we have a tremendously challenging environment at FDA; and part of it is the fact that we have uncertainty from a political standpoint. So those kinds of things have created a much more conservative approach to VC investing than we’ve seen in the past, and that’s had an impact in terms of the ability of our companies to be able to raise the kind of funding that they still need to raise to move their products through the pipeline.

What that means is that companies need to turn toward alternative sources of funding beyond VC. VC is also taking a much shorter timeframe perspective in terms of the investments that they’re making now. But that leads us to the need that large pharma companies see for innovative technology to fill their pipelines; the ability of biotech companies to attract large biotech and large pharma partners much more successfully than they have in the past; and the dynamic that we’re beginning to see—biotech companies becoming much more focused on management of the products that they’re developing, and on partnering to gain the expertise that is needed to move through development and clinical testing and commercialization.

So that creates the opportunity for companies to focus on innovation and to team up and partner with the experts on product development, commercialization, and manufacturing. And that’s where pharma comes in and plays an enormous role. Obviously pharma’s pipelines have become more depleted in terms of new innovative products over time, so there’s a greater appetite from the pharma side to engage in real partnerships with biotech companies. It’s not outright acquisition; rather, what I’m hearing more and more from a number of different pharma companies, is that the partnering model is more attractive than the outright acquisition model. And if the outright acquisition takes place, then the ability to allow a biotech company to continue to function as a satellite entity is much more attractive than simply acquiring the assets and letting the people go.

PE: What has changed in the industry or the economy that has larger pharma realizing that partnerships where both organizations work together on a level playing field may be more valuable than the straight acquisition model?

JP: There isn’t so much of an appetite any more in biotech, from the investor side or even from the management side, for creating fully integrated future large biotech companies that look like pharmaceutical companies. That used to be much more the direction that the companies were headed in, and for the most part that model has gone by the wayside. Now there’s a more virtual model, a leaner model, and that makes it much more attractive for partnering. The larger partner doesn’t have to worry about what to do with an entity that is duplicating—or at least attempting to duplicate—what they already have the ability to do.

The other thing that’s changing is the fact that we’re seeing generics come on the scene. Now there’s a future road map for biosimilars that is being developed. We see that way forward, and larger companies are beginning to plan for the world of biosimilars. Also, Big Pharma is beginning to plan more for the world of generics and of patents expiring, and I think they’re beginning to realize that they need to go into fast forward to begin to fill the pipeline, and to develop more innovative products. That’s not coming out of the merger of pharmaceutical companies. Those mergers are actually resulting in the large pharma companies having to deal with duplicate organizations and integrating existing products together, so that isn’t providing for innovation.

PE: So the mergers with smaller or more specialized biotech companies are where you believe the more specialized knowledge can come from?

JP: Absolutely—the more specialized knowledge, and the ability to do early-stage research and development much more nimbly and more quickly, resulting in more candidate products that can be developed through partnerships.

PE: How is this working so far as an economic strategy? Is this helping to bridge the financial gap that’s left from VC funding?

JP: I think it’s more than bridging the gap. Last year we did our first pharma/biotech partnering conference here in San Diego, but the relationship between large pharma and biotech has been evolving slowly over time. There was a time when the attitude on the pharma side was, ‘don’t call us, we’ll call you.’ But what we saw at out partnering conference last year and we are continuing to see now is a real appetite for equal partnership on both sides.

Everything we hear and everything we see points to a greater desire for there to be a real partnership between the two. And I think that can sustain smaller biotech companies. Pharma needs biotech as a partner, and biotech needs pharma, but pharma especially needs to continue to appreciate the value of biotech as a partner in terms of the people assets, and not just the intellectual property assets.

PE: Can you tell me more about the dynamic? How is this model of partnering different in terms of what both sides might be gaining, compared to the traditional acquisition model?

JP: The major difference is that by utilizing the resources of smaller biotech companies and by creating partnerships with various smaller biotech companies, a larger pharma can take advantage of the diversity of technologies that these small biotech companies are working in; they can take advantage of the creative environments that exist within these companies; they can harness all of that energy. Just as the biotech model is evolving away from creating a fully integrated pharmaceutical company, the pharma model is evolving away from creating these enormous R&D organizations; if we look at the performance over the last few years for the investment that’s been made, it’s pretty clear that that model isn’t as successful as it was years ago.

PE: What are some factors that result in VCs not being as willing to invest as they were in the past?

JP: I think FDA is overwhelmingly the concern right now. I don’t think a day goes by where I don’t hear or read something about how the FDA is negatively impacting the ability of the industry to be competitive in terms of developing and introducing new drugs. The climate has changed. Because of the risk-averseness at FDA, the lack of ability to accept innovation at FDA, the investor community—particularly the VC community—has been encouraging its members to obtain their approvals outside of the US, in Europe in particular. And that’s because the review process at the European Medicines Agency (EMA) is much more predictable and much more innovation-focused than the FDA is here.

If we look at what has happened with a number of drugs that have been reviewed by the FDA in the last year or two, in the obesity arena in particular and in diabetes drugs, the FDA has shown a real reluctance to approve new products and new technologies. So why invest in a process that’s unpredictable and has demonstrated that the ability to get all the way through the process to commercialization is pretty slim? That wasn’t the case years ago with FDA, especially when the Prescription Drug User Fee Act (PDUFA) came into play 15 years ago. There was a real desire on the part of the FDA to move products through the pipeline more efficiently, to take advantage of the user fees and the deadlines that were agreed upon. But now we’ve got an FDA that’s just mired in bureaucracy and risk-averseness.

Part of that is fear of making a mistake. We’ve got examples like Vioxx where, post-approval, there have been issues that have come up, and FDA is taken to task by Congress for having made a mistake. There’s a lack of understanding of the fact that there are risks associated with all products that are approved; from a media standpoint, from the Congress standpoint, from the public’s standpoint. So that all makes for a very risk-averse climate and VCs won’t invest in a process that isn’t predictable. That’s why we’re seeing a lot of VC investment moving more towards early-stage product development with an investment period of maybe three years. This way, they can be more focused on the part of the process that doesn’t involve FDA review, and can let pharma or other partners deal with the later stages of review at FDA.

I think FDA is beginning to appreciate the fact that this is an issue, and is beginning to talk more about the need to focus more on innovation. But making good on that is a long-term process, and it’s going to take years for it to happen.

PE: How do you see all of this panning out in the next five to ten years? Will M&As continue to spread, and will VCs come around if they see certain changes occurring within industry?

JP: I think pharma will continue to need to engage in M&A over the next five years. I think biotech is becoming more sophisticated in terms of its ability to rely on outside expertise and predictive tools.

Two weeks ago I talked to a VC firm that actually has an FDA expert within the firm, who now goes in and looks at all of the relationships that the biotech company might have had with the FDA before making a decision on investing. I think that’s good; I think it helps to focus in on the companies that are doing it right, and it helps to drive other companies to understand that they need to bring in the expertise to help them to create greater predictability for the investors.

But I think in the next five years, if we see an FDA that truly responds to this call that’s coming from the industry and from Congress to focus more on innovation, and we begin to see some results, then I don’t think there’s any doubt that we will see the VC community engaging in later-stage investing. But I don’t think that changes anything in terms of the need for Big Pharma to create more partnerships across the board with biotech companies. And I think we’ll continue to see that happening as there’s a need to fill pipelines and as the patents expire on products, and as we move more towards the implementation of the biosimilars legislation. VC funding and healthy, dynamic M&A deals do not have to be mutually exclusive.

As the country struggles with the current economic malaise, and the pharmaceutical industry enters into yet another difficult quarter of “trying to make the numbers,” one matter that I doubt many Rx execs are thinking about today is the HCR Taxman.  That’s too bad.  They probably should.  That’s because he’s coming for the entire industry on September 30^th.

Now that I have your attention, what in the world am I talking about?  It’s a long story, but let’s just say that the HCR chit that the industry signed in Washington, D.C. during the summer of 2009 has come due, and it’s time to begin paying up.  If your company does more than $5 million a year in sales to various federal government entities, you should read on.

On August 22^nd, the IRS issued temporary rules on the matter that direct the following:

“Drug manufacturers that sell $5 million or more annually through the federal government’s Medicare Parts B and D, Medicaid, Veterans Affairs, the Department of Defense and TriCare programs, are required to make combined total fee payments of $2.5 billion by Sept. 30, 2011.”

The Obama Administration, in the push for HCR in 2008, understood that it needed to bring the Rx industry “into the fold.” The subsequent deal – $80 billion over 10 years – struck between the Administration and PhRMA required the Rx industry to “fill the donut hole in Part D,” offer up other payments to ameliorate the costs of Medicare Part B, and to “contribute” to various military health services. In exchange, the Administration would back off demands for additional HCR taxes on the Rx industry, going forward.  Clearly, the industry’s theory was that the Rx volume to be generated by 35 million newly covered HCR patients would more than offset the costs of the deal. But now, two years later, PhRMA is back in protective mode, as the same fee proposals have begun to resurface. So much for the Administration’s 2009 deal with industry.

Back to the impending September tax obligation. According to the preliminary rules the IRS released on August 22^nd, the aggregate fee amount due from the Rx industry for each year of the HCR funding is:

• $2.5 billion for fee year 2011;
• $2.8 billion for fee years 2012 and 2013;
• $3 billion for fee years 2014 through 2016;
• $4 billion for fee year 2017;
• $4.1 billion  for fee year 2018;
• $2.8 billion for fee year 2019 and thereafter.

The fees for each year will be allocated:

• Using a specified formula, among covered entities (i.e., manufacturers & importers) with aggregate branded prescription drug sales of over $5 million to specified government programs (Medicare Part B program, the Medicare Part D program, the Medicaid program, any program under which branded prescription drugs are procured by the Department of Veterans Affairs, any program under which branded prescription drugs are procured by the Department of Defense, and the TRICARE retail pharmacy program).

Provides that the annual fee for each covered entity is calculated by determining the ratio of:

• The covered entity’s branded prescription drug sales taken into account during the preceding calendar year to…
• The aggregate branded prescription drug sales taken into account for all covered entities during the same year, and applying this ratio to the applicable amount.

So what is the Rx industry’s tax liability?  Here’s a 2010 estimated look at how this lays out, courtesy of Foley-Hoag, LLC:

The table that follows illustrates the graduated structure of the fee for a (hypothetical) covered entity, “ Q Pharmaceuticals,” with $1 billion in total branded prescription branded drug sales in 2010 (under specified programs):

To calculate a covered entity’s share of the statutorily determined aggregate fee, the IRS would multiply the fee by the ratio of the covered entity’s total sales taken into account to the aggregate of all covered entities branded drug sales taken into account.

Under the above scenario, where Q Pharmaceuticals total sales taken into account is $783 million in 2010, and where the aggregate sales taken into account for all covered entities is $10 billion, Q Pharmaceuticals fee would be:

If you’re an Rx firm doing an aggregate one billion dollars of business with the federal entities listed above, you’re on the hook for nearly $200 million by September 30, according to the IRS and the 2010 Foley-Hoag formula. This is a hypothetical, but the above formula is pretty straightforward.  You should be able to load in your federal sales numbers, as appropriate, and figure out where you will actually stand on September 30th.  It could be a very interesting number.

For brand managers who are sweating out sales every quarter, trying to make quota, the idea that the profitability of their product may be adversely impacted by this new HCR “fee” is no small matter. Will these fees have an impact on 2011 bottom line, year-end bonuses, for example? As HCR continues to roll out, keep an eye on the activities happening beneath the surface of the law. Rx industry CFOs and industry tax departments are well aware of this development, but I’m guessing that the September 30^th tax obligation might come as a surprise to many in the C-suite. I would be interested in your thoughts on this latest development in HCR.

Jennifer Ringler: How do you motivate staff in an environment that’s focused on doing more with less?

Steven Blum: First, I’d like to mention that any statements I make are my personal views and opinions, and do not represent the view or position of my employer, Forest Research Institute or its parent company, Forest Laboratories. That being said, as far as motivating staff in an environment where you need to do more with less, I think the key is really to have a good plan, a good team, and good leadership. I think you need to effectively communicate what your strategy is and what some of the key objectives are. That way, each person knows what their role is and how it fits into the overall objective of the organization. It’s important to build a culture of accountability—I think that you need to lay out expectations. It’s important for a leader to show commitment early on, and there needs to be accountability on all levels—management really needs to serve as a role model for accountability.

Each person in the organization that’s involved in any particular project really needs to understand what their roles and responsibilities are. In doing so, they need to own that role—they need to be responsible for keeping pace with the organization; they have to be able to anticipate and overcome challenges; and most importantly, they need to be enabled and they need to be empowered. Which is something that we need to do as managers—we need to empower them, and give them the latitude to be effective in their positions.

You also need to eliminate distractions and any negative forces. If there’s somebody within the organization that doesn’t have the same commitment or has an opposing position, then it’s important to determine whether they’re going to be a distraction or not—they may not be the right person to be serving in that capacity. It’s fine to have different ideas, but you really need to maintain positive energy and eliminate those distractions.

I think it’s also important that you need to have a good measuring stick—one of my favorite sayings is that you can’t manage what you can’t measure, so it’s really critical to establish expectations, set timelines, and set benchmarks that progress can be measured against. Having that type of transparency really lets everyone know where you are versus where you should be and helps keep you on that path going forward. Having transparency is also important in communicating business decisions. When resources are limited and you have to do more with less, proactively keeping people informed about decisions really helps to eliminate some of the second guessing and keeps the team focused—it’s really important to continually engage and maintain momentum. Reach out to the team, keep them involved, let them know what’s going on, and try to keep them motivated and excited.

Communication is key, but it also has to go in both directions. So I think a lot of companies are pretty good about sending messages downstream, but you really have to work harder in making sure that communication can also flow upstream. To do that, you really need to build a culture of trust, where people know that their opinion counts and they’re not afraid to come forward if they see a problem or if they have an idea that they think may result in some sort of improvements. You really need to encourage that type of open and honest communication. It’s also important to give the people the tools they need to do their jobs effectively—whether that’s appropriate resources, training, or the type of supervision that they need. A lot of times you deal with shared resources, so it’s critical to be clear on prioritization when you have competing tasks.

So I think if you do all those things—you keep people engaged with their jobs, and they know how important their role is and how it fits within the big picture, you can keep them focused on the task at hand and you can focus on achieving those shared objectives. And if they’re emotionally engaged in a positive way, they’ll certainly be motivated. And as a company, if you’re able to align incentives or performance reviews along with those goals, then the employees will also have some skin in the game. So I think a lot of these are things you can do to keep the team focused, even when you’re dealing with a smaller team or smaller resources.

JR: It’s interesting that you mentioned the phrase, ‘You can’t manage what you can’t measure.’ That brings to mind the question, as more and more functions are outsourced in the industry, what is required to maintain that essential oversight and control? Is there any risk of dilution of quality and integrity in the drive for increased efficiency and lower costs?

SB: Certainly. If you’re not effectively managing your partners and the vendors that you work with, there certainly can be a gap, and you do have to have good communication channels between you and the partner. You don’t want to just drop something in their lap and not continue to monitor, to make sure that you’re getting the same level of quality that you would expect from an internal team.

The first step in deciding whether or not to outsource something is making a strategic decision in terms of what you want to keep in house versus what you want to outsource. And there’s really a number of different factors you need to evaluate in determining which functions to outsource—beyond the obvious factor, which is cost. From a strategic standpoint, you need to get a sense of which capabilities you want to own. A lot of the decision-making and core planning elements are things you’re naturally going to want to keep, but it’s when you start to look at some of the more functional areas where you can start to make some decisions.

Certain functions, from a risk perspective, are things that you’re going to want to keep in-house. So for a lot of organizations that are going through a transformation or evolving their business model, outsourcing might be a good way to address current needs while you start to build that capability in-house. For more established firms, that’s where you might be looking for some more operational efficiency. So you really need to know what it is you want to outsource—you need to understand what the capabilities are of the various firms that are out there. It’s a relationship. There are a lot of great vendors and companies that are out there.

You have to have a good team on your side that can integrate with them, that can work with them, to ensure that you’re getting the same quality that you would expect from your in-house team. And if you don’t think that you’re going to be able to get that same baseline of quality that you would expect, then it probably doesn’t make a whole lot of sense.

The other thing to think about is capacity, in terms of how many resources you’re going to need. One of the nice things about outsourcing is that you can use it to add capacity. So you can have an internal team, but at times when you have a higher demand, you can add some capacity from the outside without to increase your overhead or your full-time employees and so forth. Regardless of what you do, measuring performance and measuring the quality of work, ensuring that you’re getting the types of efficiencies that you expected when you started to engage in an outsourcing venture, is going to be critical to continue to monitor as you’re working with a partner.

JR:  Is the ‘middle manager’ an endangered species in tomorrow’s pharma?

SB: As our organizations start to move towards flatter hierarchies or more non-traditional organizational structures like a matrix, there is less of a need to have as many layers of traditional command-line supervision. So you can certainly flatten the hierarchy by eliminating some of the more traditional supervision, if you think you have some redundancies. I think the biggest thing to understand is what your organization is going to look like, how you envision it, and then getting a sense of what types of people and resources you think you’ll need to fill out that organizational structure and be successful.

A lot of middle managers are folks that have been promoted into those positions, they’ve come up through the ranks, the have a lot of industry knowledge and institutional know-how that they’ve built up over the years, so it’s important to get a sense of which individuals can play a key role in helping the organization to transition to a new structure. Some of those middle managers may be people who are able fulfill some of those roles, even if the job is not the same exact job that they’re doing now. It’s very likely that they do have relevant skills and abilities, and a good base of knowledge from moving up through the organization.

I think when you move towards a leaner organization, you move away from traditional supervisory tasks. The people that you’re going to want to have at hand are the people that can be effective project leaders—people who are willing to get their hands a little bit dirty. You need to establish the resources that you have and the resources that you think you need, and determine who is going to get you through that transition and lead you into the future.

Organizations really need to be able to challenge themselves, to look beyond current roles and responsibilities when assessing the organization, because you don’t want to discard talent that might be misplaced or misused. You’re going to want to identify who your top people are and find them roles where they can be effective, while at the same time ensure that they are professionally fulfilled. The bottom line is, as the company transitions to leaner times, you don’t want to throw the baby out with the bathwater.

JR: In addition to the strong management skills you’re discussing, it seems that stable partnerships will be an integral part of success for pharma companies going forward. What are the key elements of productive partnerships with external groups, given that lean management practice puts companies on a more outward-looking trajectory?

SB: You need to have good partners. You’re likely to have a number of different partners or vendors that you work with, and they’re all going to want to have a piece of your business. So your really have to manage that vendor selection process and the relationships with the vendors. Internally, you need to have good project managers that are able to manage the vendors. It’s important to remember that it’s a relationship—there’s going to be a learning curve between the organizations as they start to learn how to work with one another and what the dynamics of that relationship is going to be.

You really need to have good processes and systems in place. You need to figure out how your organizations are going to be integrated, or at least how their work stream is going to be integrated into yours. You need to figure out how to best work together, and how information is going to be shared. Again, it’s a relationship, so it’s going to need to be managed over time.

If you’ve had success working with a partner, then you’re certainly going to want to continue to leverage those efficiencies and work with that partner. Maybe they’ll move from being strictly a vendor to more of a strategic partner over time. In working with the vendors you need to know their capabilities, but you also need to know who on the team is going to be working with you—whether you’re getting their A-Team or not. And if you are getting the A-Team, I think it’s really important to know whether they’re going to have the time and ability to focus on your project.

A lot of times you look for big names or people that have a lot of recognition, but are they really going to be engaged in your project or not? Or are they the person who shows up at the capabilities presentation and kickoff meeting, but then you don’t see them visibly involved in the project? So it’s really important to know from an organizational standpoint, not only who the manager is, but who the people are who you’re partnering with, and if they’re really the people you wanted. Whether you’re really getting their expert people or getting their junior staff, is going to make a difference.

If you set expectations, continue to monitor progress, continue to monitor your success, and continue to make changes as necessary, it’s possible to have a good partnership.

JR: Back to the topic of internal best practices, is your company doing enough right now in leaner times to foster talent development, mentoring, and other HR functions that help to retain top performers? Where do you see the ‘people-planning’ gaps?

SB: I think you can always try to do more. I’m a big fan of developing human capital—I’ve always been an advocate of constant improvement and continual learning, whether that means me continuing to learn the business, or sharing my knowledge with others in the organization or in the industry. As a manager, it’s vital to incorporate time for training. It’s really easy to get caught up in managing the day-to-day tasks, so taking time out from your schedule to train or mentor people is going to compete with time that would otherwise be spent on certain projects and tasks. So on a personal level you really need to make that commitment toward your people.

It’s a lot easier to make that commitment at an organizational level, because then you’re really demonstrating the importance of training, and you’re likely to get a greater commitment from people. You get more consistency when you do things at an organizational level than if you leave it up to an individual manager to train his or her people, but you have to have good people and good resources. There’s a lot of efficiencies that you can gain with formal training and development programs.

Mentoring isn’t going to cost you a lot in terms of money, but it’s certainly going to cost you in terms of time for both the mentor and the mentee. That time can be well-spent because you have that knowledge transfer, and often that’s something that you can’t bottle any other way. If an organization encourages mentoring, either formally or informally, it can really help with team members coming up on the learning curve.

At Forest, we have a process for onboarding new hires that is really focused on trying to get them acclimated to our culture as quickly as possible. In a lean organization, training and development are really critical for a number of reasons. First, you’re dealing with less resources, so you really need to ensure that your team has the tools they need to do their job—especially if more is going to be expected from them. You also want to provide them with ongoing training so they continue to grow within the organization, so that they’re able to take on new or additional responsibilities.

It’s also critical from a succession-planning standpoint. You’re going to want to be able to plug any holes that you have quickly, so that you don’t lose any momentum or have an impact on your timeline. So having people that are able to quickly step into a role is really ideal. They may still need some additional training, but at least you’re not stuck having to go all the way back through the whole recruitment process, trying to identify somebody from the outside, then worrying about whether they’re going to fit within your organization.

But ideally, with a lot of your top performers, you want to do what you can to keep your best people from leaving in the first place. You want to identify who the rockstars are within the organization and do what you can to keep them. You want to really leverage the organization to identify those people. Things such as peer reviews or 360-assessments can often present different perspectives than the traditional review process.

I’m a big fan of meritocracy—I don’t have a problem treating people differently. You want to reward the people that can do the most, so from my standpoint, people that prove themselves and demonstrate that they can provide value to an organization—I’m more inclined to give those people more of my time at the end of the day. It’s great to have a commitment to training and development. Your employees also need to see it as being beneficial. If they don’t see the training and development as a valuable use of their time, then you’re not going to get the type of response that you expected—for training and development to be effective, it really needs to work for everyone.

At Forest, we’ve always had solid training and development for our field-based folks. Over the last few years I’ve really seem a strong commitment from the organization to ensure that our internal staff were also receiving great training and development. I’ve had the opportunity to attend a number of different courses, and I think they’ve been great—I’d love to attend more of them. Especially because this way, you have the opportunity to interact with some folks from other groups within the organization, and you quickly find out that the organization has a lot of really smart people. I think it’s key to identify who those people are and how they can grow and adapt in the organization.

JR: If you take a step back and look at the bigger picture, what do you think the prevalent organizational model for pharma will be in five years’ time? Will it be a return to innovation and science, or a distribution platform to commercially execute the inventions of others?

SB: I think there’s room for both—a company that’s focused on the science and developing the compounds themselves, as well as leveraging the inventions of others. Licensing products from others does take out some of the risk from a development standpoint, in that you’re dealing with a product that has been proven up to a certain point, depending on where it is in the development cycle. So that may minimize risk, but ultimately you’re not going to know a lot about the product until you get some experience in patients.

The downside of licensing is that you’re really limited in what products are available for licensing, so you’re going to have to pay a premium for that product in terms of things like royalties and fees. You also have to compete with other firms for that product, and the rights may be limited to certain territories, or may not be available in the terms that you may be interested in. Often with the licensing model, you may have a partner that you need to collaborate with during either development or commercialization, and that’s not always easy—it’s another relationship that needs to be managed, and some partners are going to want to be more active partners than others.

I think Forest in particular has done a really great job in this area. They have a really strong structure in place for managing collaborations, and many of the partners that we’ve had have often wanted to collaborate with us for multiple programs.

In contrast to licensing, though, if you look at in-house development, you can really remove a lot of those constraints. You own the molecule, you own the rights, and you can even out-license the rights to certain territories if you wanted to. You can develop the molecule when you want, how you want, without really having to be in alignment with a partner. But there is more risk involved, and there is more overhead in having to maintain all the different discovery infrastructure and capabilities. You’re also likely to be a bit more focused towards specific targets and therapeutic areas, whereas with in licensing, you really can be open to any and all opportunities.

I think there are also probably some options that are in between. You can have some research collaborations where maybe you’re not fully at risk, or maybe you have first dibs on a candidate. So I think in-licensing, or in-house development, or something in between, that can all work—it really depends on the organization and what they determine they need in order to be successful. It’s also about the culture of the organization—some research-based organizations may have a little bit of that ‘not invented here’ mentality, and you really want to make sure that you’re giving the appropriate commitment to whatever the product is, whether you discovered it or somebody else did.

Either way, I think innovation still fuels this industry—there’s always going to be a need for better and new treatments. I think companies can be successful using either route, whether through in-house discovery or in licensing other people’s inventions. In the near-term of the next five years or so, fundamentally I don’t think you’ll see that big of a shift. But maybe moving a little bit further out, things will change a bit.

As the cancer therapeutics space grows more crowded, the task of identifying and building productive relationships with “key influencers” has become vital to a successful launch strategy.  Like everything else in oncology, performing that task is harder today. What was once an inbred club of clinical practitioners has morphed into a complex array of interests that, like an orchestra, has to be managed to filter out the discordant notes that depreciates the distinctive value of the asset.

How to address this challenge was one of the more interesting sidebars to this week’s annual meeting of the American Society of Clinical Oncology [ASCO] in Chicago.  In an exchange hosted by the data analytics vendor Cegedim Relationship Management, three prominent physicians – Peter Harper of St. Guys Hospital in London, Paris-based clinician Alain Hererra, and William Gradishar of Northwestern University – reviewed the climate for shaping opinions of the clinician community active in the treatment of cancers.

The consensus view is that simple peer group awareness remains the best way to determine key players in driving decisions on prescribing.  Documenting influence in the physician community is challenging because the acknowledged experts are often self-nominated.  There is no real metric that can certify such influence; it tends to wax and wane around the clinician’s level of engagement in clinical trials, development of practice guidelines, on line education and other activities that bear directly on treatment.   Organizational affiliation is important as well, with the larger academic/teaching hospital groups reinforcing the ranks of those who are deemed most influential.

In a follow-on discussion led by Cegedim subsidiary SK&A, the three physicians reviewed a data evaluation tool – Physician Connect – that contains information on some 24,000 physicians who as a result of detailed peer survey work have been identified by the profession as being “leadership influencers” in their respective areas of practice.   The survey pool incorporates input from more than 100,000 practicing professionals active in treating seven cancers/tumor types and eight malignancies in nine countries, including the US, Canada, the big five EU and Belgium and the Netherlands.  This exhaustive survey data is ranked, verified and standardized into protocols by a dedicated team of Cegedim staff at a network of research centers.

“Physician Connect is able to shed new light for the industry in determining how physicians are treating and managing cancer patients; documenting the dense web of connections that help in selecting nominees for external scientific advisory committees; and – ultimately – who the profession actually relies on in setting new paradigms for practice,” Cegedim vice-president Marcus Bergler told Pharm Exec.  The company has plans to build the data base further into the hematology area and extend survey capabilities to additional country markets, including Japan and ultimately China.  Bergler said interest in Physician Connect is strongest today in Europe, where information on physician influencers is sketchy, disaggregated and under-resourced, despite the growing need of the local industry for better outside sources of support to counter payer pressures on access to oncology meds.

It is also important to filter this data in conjunction with the strong anecdotal input built through ongoing company-specific outreach initiatives.  Leadership status is often a consequence of simple name recognition. Successful leveraging of the Physician Connect tool depends on being able to make it synch with evidence that leaders in the field can spark a genuine change in the treatment paradigm. Determining that depends on supplementing data with practical market savvy and good judgment – horse sense, so to speak.

On a call with reporters yesterday, Murray Aitken, executive director of the IMS Institute for Healthcare Informatics, said adoption rates for biosimilars are challenged by manufacturing complexity, patent exclusivity periods and an untested regulatory pathway in the U.S., plus a reticence “of providers and patients to accept biosimilars in place of original brands.” Current U.S. law allows for 12 years of patent exclusivity for new biologic drugs, although the Obama Administration’s proposed budget for 2012 would shorten that period to seven years, and prohibit the practice of “evergreening,” or making minor changes to a drug in order to extend patent exclusivity.

“We’re not expecting the U.S. regulatory pathway to be cleared, such that biosimilars can enter the U.S. market until 2014,” said Aitken. “We’ve been watching this in the European market, and we’ve seen a pattern where for the first two or three years, the penetration was relatively low, but it’s begun to take off, especially in Germany,” although not all European markets have been keen to adopt biosimilars. “I think it’s fair to say that we expect in the 2015 to 2020 period, biosimilars will see a high rate of growth and share of the market,” said Aitken on the call.

Total spending, globally, on all medicines is expected to cross the trillion dollar threshold by 2015. That figure represents a slowdown, from 6.2% growth over the last five years, to between 3%-6% estimated growth between 2010 and 2015, according to the forecast. By 2015, emerging markets will represent 28% of worldwide spending, up from 18% in 2010. IMS’s designated emerging markets include China, Brazil, India, Russia, Mexico, Turkey, Poland,Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. Spending rates in China are expected to grow by 19-22%, more than any other country. Spending in China increased by 23.9%, to $41.1 billion, between 2005 and 2010.

The top three therapeutic classes in 2015, according to the forecast, are likely to be oncology ($75-80 billion), antidiabetics ($43-48 billion) and respiratory products ($41-46 billion).

Aitken noted on the call that off-invoice drug discounts,increasingly offered to payers in the U.S., France and Germany, were not reflected in IMS’ forecast. The estimated amount of such discounts in 2010 is $60-65 billion, he said.

The full report is available as a free download here.

Recent studies by the National Comprehensive Cancer Network [NCCN] and the American Society of Clinical Oncology (ASCO) predict a large workforce shortage among oncology physicians.  According to ASCO, while the number of oncologists is expected to increase 20 percent by 2020, patient demand is expected to grow by 48 percent. According to Practical Clinical Exchange, an organization that provides educational opportunities to meet the needs of nurse practitioners (NPs) and physician assistants (PAs), NPs and PAs may be the answer to this upcoming shortage.

The ASCO study results showed that physicians who work with NPs or PAs in their practice saw 10 percent more patients per week. This was true with NPs or PAs who performed advanced patient care activities—defined as assisting with new patient consults, ordering routine chemotherapy, or performing invasive procedures. With only 56 percent of clinical oncologists working with NPs and PAs, the potential to expand capacity simply by adding an NP or PA to the mix is great.

According to Practical Clinical Exchange, the roles of NPs and PAs may be underutilized in oncology practice. Researcher Maura Polansky, MS, PA-C, and colleagues write in the November issue of the Journal of Oncology Practice that ASCO may be understating the current roles of these clinicians. Polansky found that PAs were writing chemotherapy orders and prescriptions, as well as performing invasive procedures at a much higher rate than reported by ASCO. Additionally, they found that oncology PAs participated in clinical trials at a rate four times as high as reported by ASCO.

Polansky also pointed out that to effectively increase the use of NPs and PAs in oncology, more of these clinicians should be attracted to work in oncology. Considering the limited exposure to oncology in their formal training, oncology continuing education and training opportunities tailored to these clinicians is essential for NPs and PAs to perform advanced patient care activities, fully practice to their potential, and best improve the efficiency of oncology practices.

The survey is also useful in documenting the importance of physician assistance in enhancing the role of drug therapy and assuring appropriate use.  Incorporating this emerging stakeholder in advocacy work linked to oncology product launches is important but must be handled with discretion – oncologists remain the essential front line in what can only be described as an increasingly complex treatment environment, where the choices facing clinicians and patients are many.

For more information on this survey, please visit the American Society of Clinical Oncology.

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The International Serious Adverse Events Consortium (iSAEC) came together in 2007 to research the cause of certain drug-induced serious adverse reactions, posing the question, “What if the identification of risk for adverse events were not a random development, but instead something that is linked to a genetic factor?” If genetic factors are determined to contribute to these events, the Consortium contends, “those at risk could be identified and exposure to the adverse event avoided.”

What this leads to, “if we’re incredibly lucky and the science works out,” says iSAEC founder, chairman, and CEO Arthur Holden, is the idea that there will be certain markers by which patients can be characterized before they ever take a drug. Ideally, this will minimize risk to patients by preventing many SAE reactions from occurring, and minimize risk to Big Pharma by ensuring that drugs don’t get pulled off the market for SAEs that are caused by genetic factors. In this way, the continuing work of the iSAEC could lead to a win-win situation.

The founding members of this Consortium include Abbot Laboratories, GlaxoSmithKline, Johnson & Johnson Pharmaceutical Research and Development, Pfizer, Roche, Sanofi-Aventis, and Wyeth. When some of the biggest names in Big Pharma put aside their differences and forego their natural competitive relationships to work together, the initial cause—and the eventual results—of such collaboration must be something special.

When Holden first brought the group together to study serious adverse events—many of which are related to the immune system and can cause hypersensitivity, serious skin rashes, and drug-induced liver injury—his idea was to form a privately funded, non-government-run group to get the research done quickly and effectively with no cost to the public. “We have not—nor do we intend to—take any taxpayer funding,” says Holden. “Particularly in these times of enormous government spending and deficit concerns in the developing market, some way, some how, we’re going to have to get past the idea that everything can be funded just by throwing taxes on people.”

And so in order to generate funds, ideas, research, and data for such a large project, Holden approached Big Pharma for help and had to answer a vital question—what’s in it for them? “I decided to go right to the head of R&D at most of the major pharmaceutical companies—I had one-on-one discussions with them about what they felt were the most pressing needs that, together as an industry, we would want to pool some resources to work on,” recalls Holden. The pitch, he said, was an easy one, driven from a common frustration. “All of us within the industry have experienced the failure of a product in development—or worse, the failure of a product once it gets out on the market—as a result of these drug-induced, very serious adverse events,” he explains. And so, if the iSAEC could prove that these events were not solely the result of some property of the drug itself, but of “a certain genetic heritage that puts the patients at risk,” then certain patients could simply avoid the drug in question, and these drugs would not be stopped in trials or taken off the market—potentially saving Big Pharma big money.

From the very beginning, however, gathering the data on SAEs had some inherent problems that needed to be solved. According to a recent White Paper from the iSAEC titled “Harnessing the Power of the Genome To Address Drug Safety in Pharmaceutical Development and Delivery”:

• SAEs are quite rare, making the number of well-phenotyped cases (obvious clinical cases that could not be mistaken for other adverse events) available for research very small;

• Often, even the largest of pharmaceutical clinical development trials are not large enough to experience enough cases of an SAE to support genomic exploration of the event;

• SAEs will likely vary in both incidence and frequency across ethnic groups; and

• Genome research undertaken by groups with appropriate data analysis capabilities is still a rarity

Collaboration, Holden discovered, was largely the solution to these problems. “The only way to do all this—and it’s a big bridge to cross—is to develop new research channels,” says Holden. “We need to move past the traditional one-institution mentality. The only way to do this is as a team sport.” Big Pharma has been willing to be a part of Holden’s team, he says, because “people will collaborate if it’s compellingly in their own interest to do so. The more we understand about these types of events and the better our capability to understand and to hopefully predict SAEs, the more we improve new product development productivity in the industry.”

The role that Big Pharma plays in the iSAEC is threefold, says Holden. First is a governance role—“They help shape and decide on the execution of the strategy,” he says. Second, each Big Pharma member contributes relatively small amounts of funds, providing the financial underpinning for the consortium. Lastly, it’s a matter of reputation; “It gives us a certain amount of credibility by having as much of the industry as we’ve been able to have involved,” says Holden.

Branching out beyond Big Pharma, Holden recognizes that academic and regulatory support are also essential pieces of the SAE puzzle. Holden calls Wellcome Trust, a funding member, essential to the consortium. “They’re a strategic member,” he says. “We’ve been doing this together a long time. They’re also certainly very heavily involved in the governance.”

The FDA, though they aren’t providing any funding for the Consortium’s research, also plays an integral role, and Holden calls their support unwavering. “They’ve been at literally every single meeting we’ve had,” he says. FDA is there to provide regulatory perspective and council and to share ideas. Similar to one of the roles Big Pharma plays, knowing that FDA backs and takes part in the Consortium’s research goes a long way in establishing credibility. “Their endorsement, saying that our research is vital, certainly helps us in bringing the membership together, too,” explains Holden.

Phase 1 of the Consortium’s research aimed to find out whether or not there were, in fact, common genetic mutations—across multiple drugs and ethnicities—that tend to predispose patients to certain Serious Adverse Events. Before this research, Holden says, “There were a lot of people who believed that you needed thousands of cases in order to characterize a genetic effect. What we proved—definitively—is that if there’s a genetic effect that’s strong enough to be clinically significant, you’re going to see it in as few as 50 cases.” This means that, if the Consortium can get access to a relatively small number of well-characterized cases (which is where the collaborative nature of the research comes in), accurate results can easily be determined.

Phase 2 will, according to the iSAEC White Paper, “focus on achieving a more integrated biological understanding of the genetics associated with drug-induced immunological SAEs.” In phase two, the iSAEC aims to:

• Complete an SAE Phenotype Standardization Project (PSP) on the target SAEs, with the Wellcome Trust and the FDA;

• Partner with large-scale HMO and government healthcare systems to enhance SAE case recruitment and better establish long-term SAE research channels for individual pharmaceutical safety research;

• Complete two genome-wide genotyping studies to investigate the role of low-frequency variants in SAE risk; and

• Continue the development of optimal genotyping and sequencing approaches for SAE genetic research

The ultimate goal of the Consortium, says Holden, is to “get whole genome-wide studies done across multiple drugs on most of the major conditions that involve the immune system and cause adverse safety reactions.” The practical upshot of all this research comes in the form of data that is publicly available “to all companies, all researchers, with no intellectual property … so the composition could never be patented.”

Holden believes that only a highly collaborative organization such as the iSAEC can achieve these goals quickly, effectively, and relatively inexpensively. “Here, you can set up a situation where you have a relatively small amount of money from multiple parties—so your investment is low, and the risk is diversified across a number of different members. No one entity can do this alone,” he says.

According to a forecast released last week by IMS Health, the value of the global pharmaceutical market is expected to grow five percent to seven percent next year, reaching $880 billion.

The IMS forecast takes into account macroeconomic conditions, changing levels of patient access, availability of drug treatment options, and pricing factors.

As countries recover from the global economic crisis at different rates, there is growing divergence in the pace of pharmaceutical growth among major markets, says the report. The 17 pharmerging countries are forecast to grow at a 15 percent to 17 percent rate in 2011, to $170-180 billion. Many of these markets are benefiting from greater government spending on healthcare and broader public and private healthcare funding, which is driving greater demand and access to medicines. China, which is predicted to grow 25 percent to 27 percent to more than $50 billion next year, is now the world’s third-largest pharmaceutical market.

Among major developed countries, Japan is forecast to grow 5 percent to 7 percent in 2011. The five major European markets (Germany, France, Italy, Spain, and the U.K.) collectively will grow at a 1 percent to 3 percent pace, as will Canada.

The US will remain the single largest pharmaceutical market, with 3 percent to 5 percent growth expected next year. Pharmaceutical sales in the US will reach $320- $330 billion, up from $310 billion forecast for this year, not including the impact of off-invoice discounts or rebates.

The survey also predicts that as many patents reach expiration, generic drugs will dominate the landscape. In 2011, products with sales of more than $30 billion are expected to face the prospect of generic competition in the major developed markets. In the US, Lipitor, Plavix, Zyprexa, and Levaquin—which together accounted for more than 93 million prescriptions dispensed in the past 12 months and generated over $17 billion in total sales—likely will lose market exclusivity. The full impact of patients shifting to lower-cost generic alternatives for these products, says the report, mostly will be felt in 2012.

However, as some drugs disappear in their branded forms, the introduction and uptake of new drugs—a third of which are specialty pharmaceutical products—are poised to fulfill patients’ unmet needs and significantly alter treatment paradigms in several key therapy areas. These include innovative treatment options for stroke prevention, melanoma, multiple sclerosis, breast cancer, and hepatitis C. As these new drugs are brought to market, patient access is expected to expand and funding redirected from other areas where lower-cost generics are available. According to the report, five potential blockbuster products—defined as those exceeding $1 billion annually in peak sales—are expected to be approved and launched globally by the end of next year.

LyonHeart decided to refurbish its old computers, and sold 65 Macs and PCs for a small donation—but enough to support a significant portion of i.HUG’s costs to provide education, medical care, and other relief to 85 orphans and underprivileged children living in complete poverty in Kabalagala, Uganda.

The check was presented to Joanna Breitstein by LyonHeart’s CEO Anne Devereux at a ceremony to kick off the company’s annual fundraising drive for the United Way.