Last week, the Gates Foundation, several government aid agencies, the World Health Organization [WHO], and a host of  biopharm companies including GSK, Merck, Eisai, J&J, Sanofi, Novartis, Bayer and Abbott, committed to control and eradicate a number of neglected and tropical diseases (NTDs).  Together, the group approved a “London Declaration on Neglected Tropical Diseases.”  This new framework protocol speaks volumes about a signal change taking place in the way big pharma manages R&D:   when it comes to tackling difficult diseases and conditions, cast a wide net.

NTDs are diseases for which there is no significant market in developed nations and that disproportionately affect poor and marginalized populations, often in low and middle income countries.  The WHO estimates that one billion people are afflicted by these diseases.

Despite the scale of the problem, relatively small amounts of biopharmaceutical R&D have gone into the development of new drugs and treatments for NTDs.  One of the most frequently cited studies found that out of a total of 1,393 new chemical entities marketed in the period 1975-1999 only 16 were for NTDs.

Findings like this prompted a number of new initiatives and international programs aimed at increasing drug development and available medicines. Scholars, researchers, international organizations, drug companies and policymakers have all tried to understand how to best incentivize new R&D into NTDs and a host of new R&D models have all been put forward including patent pools, research prizes, advanced purchase commitments, R&D tax credits and product development partnerships (PDPs).

A new R&D model?
Since 2000 R&D in NTDs has increased substantially. Research by the Tufts Center for the Study of Drug Development shows that between 2000 and May 2009, 26 products for neglected diseases
were marketed with a total of 26 indications. Out of these almost half of approvals occurred in malaria with 11 new drugs being marketed. New partnerships between industry, governments and philanthropic groups have increased the funding for neglected diseases substantially. The Global Funding of Innovation for Neglected Diseases (GFINDER) survey finds that in 2009 $3.2billion was allocated for research relating to neglected diseases – a significant increase from a decade or two before.

While many of these new R&D initiatives are yet unproven, there is growing evidence that many PDPs are having some success in developing new drugs and treatments for NTDs and other diseases which disproportionately affect poor populations, including HIV/AIDS, malaria and tuberculosis. For example, the percentage of approved NTD products sponsored by public-private partnerships increased from 15% in the time period 1975-1999 to 46% in the decade 2000-2009. Significantly, one of the largest PDPs is the Drugs for Neglected Diseases initiative (DNDi), once a fringe group but now a key partner to industry – and a signatory of the London Declaration.

London Declaration: A Bold Group Consensus
The stated purpose of the Declaration is to mobilize and coordinate the development and dissemination of drugs and treatments for a number of NTDs. Specifically, the declaration seeks to eliminate five NTDs (Guinea worm, Leprosy, Lymphatic filariasis, Blinding trachoma and Sleeping sickness) and control 5 others (Schistosomiasis, River blindness, Soil-Transmitted Helminthes, Chagas and Visceral Leishmaniasis) by 2020. There are three main measures or methods that will be used to achieve these goals:

• Greater quantities of drugs donated by international manufacturers – examples include Eisai’s donation of 2.2 billion DEC tablets for the treatment of Lymphatic Filariasis and Merck’s commitment to continue unlimited supplies of ivermectin for the treatment of river blindness for an unlimited period.
• Research partnerships between DNDi and manufacturers – examples include partnerships with Eisai to develop ravuconazole for the treatment of Visceral Leishmaniasis; agreement with 11 companies to allow DNDi access to their compound libraries, including data and knowledge about the compounds; and clinical and preclinical partnerships with Abbott, Johnson & Johnson and Pfizer to repurpose flubendazole as a potential macrofilaricide used in the treatment of Lymphatic Filariasis and River Blindness.
• Technical support and implementation – examples include the World Bank continuing to play a crucial role in funding and overseeing local health systems’ efforts against NTDs; also USAID will continue to support integrated NTD programs in low and middle income countries.

The London Declaration in many ways confirms that the partnership route between industry, public sector, nonprofits and philanthropic organizations is a key component in the future arsenal of R&D.  It also joins like never before the art of discovery and development with the crucial issue of building access to existing treatments targeting NTDs.  Progress of the pact clearly bears watching over the next few years, with the key question yet to be answered: can cooperation on a large scale produce lasting gains in global public health?

davidt@pugatch-consilium.com

Last week, FDA Commissioner Margaret A. Hamburg testified before the House Committee on Energy and Commerce, Subcommittee on Health to outline the agency’s case for supporting the fifth authorization of the Prescription Drug User Fee Act (PDUFA), also known as PDUFA V. In addition to offering her support for PDUFA V, Hamburg also discussed renewal of legislation for promoting pediatric drug testing, the need of FDA to invest in science and innovation, and the agency’s efforts in confronting the continual challenges of globalization. In tackling globalization, a basic question arises: does the United States face a pharmaceutical manufacturing disconnect?

In her testimony, Hamburg offered numbers to show the FDA’s record in reviewing applications for new drugs. In fiscal year 2011, FDA approved 35 new drugs, and almost 70% of these drugs were approved by FDA before any other regulatory agency, including the European Medicines Agency. Of 57 novel drugs approved by both FDA and the European Union between 2006 and 2010, 43, or 75%, were approved first in the United States. Preliminary data show that in 2011, over half of all new active drug substances were first launched in the US.

Although Hamburg offered these numbers to show the agency’s record in approving new drugs, they offer another important insight: namely, the US is an important source and market for drug innovation and pharmaceuticals. The US is the largest national market for pharmaceuticals, accounting for 36%, or $310.6 billion, of the $856 billion global pharmaceutical market in 2010, according to data from the IMS Institute for Healthcare Informatics. The top five EU markets (United Kingdom, France, Germany, Italy, and Spain) accounted for 17%, or $147.4 billion, in 2010. Emerging pharmaceutical markets, which include the BRIC countries (Brazil, Russia, India, and China) and 13 other emerging markets collectively accounted for $150.5 billion, or nearly 18%, of the global pharmaceutical market in 2010, according to IMS.

The data reveal the attractiveness of the US for launching new drugs and marketing existing drugs, but when it comes to manufacturing drug products or active ingredients, the US falls short. Approximately 40% of the drugs consumed in the US are manufactured outside the US, and up to 80% of the APIs in those drugs come from foreign sources, noted Hamburg in her testimony.

In her testimony, Hamburg outlined FDA’s efforts to deal with this increased globalization. In July 2011, FDA published a special report, “Pathway to Global Product Safety and Quality,”  a global strategy and action plan for the agency to more effectively oversee the safety of all products that reach US consumers. As detailed in the plan, over the next decade, FDA will focus on strengthened collaboration, improved information- sharing and gathering, data-driven risk analytics, and better allocation of resources through partnerships with counterpart regulatory agencies, other government entities, international organizations, and other key stakeholders, including industry.

Although these efforts by FDA are important and necessary from a public health and safety perspective, the underlying fundamentals engender a larger public policy question beyond the scope of FDA’s regulatory strategy. In a competitive global economy, what should the US be doing to encourage, cultivate, and retain domestic manufacturing of drug products and APIs? In this election year, debates over how to stimulate economic and employment growth are center stage, but what is noticeably absent is a focused plan to stimulate growth in the bio/pharmaceutical industry, a coveted source of high-technology, science-based innovation. That is one debate that is certainly worth having and one that hopefully will be had.

By Lisa Henderson, Editor-in-Chief, Applied Clinical Trials.

In December 2011, the President’s Bioethics Commission released its “Moral Science: Protecting Participants in Human Subjects Research“. The report was ordered by President Obama following an October 2010 revelation that the US Public Health Service supported unethical research in Guatemala from 1946 to 1948 that involved intentionally exposing thousands of Guatemalans to sexually transmitted diseases without their consent.

The Bioethics Commission was then tasked to oversee a thorough fact-finding investigation into the specifics of the studies, as well as assure that current rules for research participants protect people from harm or unethical treatment, domestically as well as internationally.

The final report, available at this link and specifies 14 changes to current practice to better protect research subjects, as well as how the government should improve the tracking its over 18 federal agencies that follow the common rule for research programs with taxpayer dollars.

So again, this is specifically for government-funded studies and you can read all the different arms that receive funds, including the CIA, but of course the largest is the NIH. One of the Commission recommendations is:

“…. each federal department or agency supporting research with human subjects maintain a core set of data for their research programs that includes the title and lead investigator of each project, the location of each study, and the amount appropriated for the research. Each office should aid the public in learning more about the government’s research efforts by developing or improving publicly available electronic systems or releasing information through a government-wide system. To support these efforts, the Commission suggested that the Office for Human Research Protections or another office should administer a central web-based portal that links to each individual department or agency system. In addition, the government should consider developing a unified federal research database, which may ultimately be more cost-effective and efficient.”

Is it me or does it not sound like the “central web-based portal” or the “unified federal research database” be clinicaltrials.gov?

While the Commission could not easily identify how many research participants were enrolled in federal research (and not all of this is drug/interventional studies), they rounded it off to about 50,000 people.

So in doing the math, I’m assuming there are well over 18 biopharmaceutical companies that are conducting privately-funded research and are required by law to input this information into the clinicaltrials.gov online web database. And when these many biopharma companies fail to comply with this rule, as many critics will publicly announce as often as possible, the biopharma industry suffers another public perception setback and a trust issue.

In the meantime, wouldn’t managing 18 separate departments be akin to managing 18 privately-funded entitites? Each with their own culture, set of employees and roles, data and technology practices, and require that it happen within a certain timeframe?

I think so. I don’t think there need be separate rules for protecting human subjects in research. Nor should there be separate ways to educate the public on how to better serve their health or medical understanding. It’s everybody’s problem, private and public.

Personalized medicine, which targets individualized treatment and care based on personal and genetic variations, holds much promise for the pharmaceutical industry. Several pharmaceutical majors continue to invest in this emerging field as evident by Roche’s $5.7-billion bid last week for Illumina, a provider of gene-sequencing tools and related analytics.

Roche, perhaps, more than any other pharmaceutical company, is banking heavily on the combination of diagnostics and drug development to drive pharmaceutical innovation. In reporting its 2010 results in February 2011, Roche reported that it had 12 new molecular entities in late-stage development, of which six were potential personalized healthcare medicines with planned companion diagnostic tests, which included Zelboraf (vemurafenib) and its companion diagnostic for BRAF mutation-positive metastatic melanoma. FDA approved Zelboraf for treating BRAF V600E mutation-positive, inoperable, or metastatic melanoma and the cobas 4800 BRAF V600 Mutation Test, a diagnostic test developed by Roche, in August 2011.

Earlier this month, the European Medicines Agency’s Committee for Medicinal Products for Human Use recommended that Zelboraf be granted full marketing authorization as a monotherapy for treating adult patients with BRAF V600 mutation-positive unresectable or metastatic melanom. The corresponding European Commission decision on the marketing authorization of Zelboraf is expected in February 2012. Marketing authorization submissions for Zelboraf also are under review by health authorities in Australia, New Zealand, Brazil, India, Mexico, Canada, and other countries worldwide.

Roche also is using its diagnostic strategy to support new indications for existing drugs. Last month, it reported that the cobas EGFR Mutation Test was CE-marked, an indicator of a product’s conformity with EU requirements, and is now commercially availabile in Europe and other countries that recognize the CE mark. The cobas EGFR Mutation Test is a companion diagnostic to identify patients with non-small-cell lung cancer (NSCLC) who harbor mutations in the EGFR (epidermal growth factor receptor) gene and who may benefit from treatment with anti-EGFR tyrosine kinase inhibitors, such as Roche’ Tarceva (erlotinib). Tarceva, an oral EGFR inhibitor, was first approved in September 2004 to treat locally advanced or metastatic NSCLC after failure of at least one other chemotherapy treatment. It later was approved by the European Commission in September 2011 as a first-line monotherapy in people with locally advanced or metastatic NSCLC with EGFR-activating mutations.

Other companies also are reporting success with certain personalized medicines. In August 2011, FDA approved Pfizer’s Xalkori (crizotinib) for treating locally advanced or metastatic NSCLC that expresses the abnormal anaplastic lymphoma kinase (ALK) as detected by an FDA-approved test. The agency approved the drug along with a diagnostic test for the ALK gene abnormality, Abbott Molecular’s Vysis ALK Break Apart FISH Probe Kit. Up to 7% of those patients with NSCLC, typically patients without a history of smoking, have the gene abnormality.

Although personalized medicines will likely hold only a small part of the overall pharmaceutical market by value and volume in the near term, these successes portend of a changing paradigm in drug development.

Julian Mosquera

The pharmaceuticals industry is undergoing major disruption and every comparative benchmark indicates that the sector needs to make a step change in asset performance, with working capital targeted for direct improvement. All players are planning major reconfigurations of their supply and distribution operations, from end to end, in a bid to improve cost and service efficiency. This challenge is all the more prescient with a large number of blockbusters coming off patent over the next five years, opening the door to generic producers, who are actively “forging strategic alliances” to secure the rights to produce cheaper copies, according to researchers at Frost & Sullivan. While expenditure on new medicine has risen dramatically over the past decade, regulatory approval for new drugs has declined. Where big pharma could turn to blockbusters in the past, they are now looking to smarter portfolio management for competitive advantage.

Historical margins meant pharma paid little attention to their supply chains. However, over the last decade such complacency has become unacceptable to boards. Directors in the current environment are looking to their COOs and supply chain directors to build resilience into supply chain networks, to protect against market volatility and to drive real cost reduction.

The industry’s manufacturing footprint is increasingly challenged by significant overcapacity. Efficiency, agility and flexibility are priorities, with slow moving/low volume production calling for a different supply approach. Now, more than ever, companies should look to increase product speed through the supply chain, challenging inventory touch and holding points in every market in which they operate.
Managing the chill chain is producing real challenges for the sector. As part of a much wider traceability issue, the sector has been slow to adopt the necessary technology and levels of control that may be expected of such a high-value, sensitive product line. Reliance on third parties to introduce such capabilities has had limited success. It is time for the sector to upgrade its capabilities as the new pharma supply chains emerge over the next decade, where chill control and traceability challenges will be far more critical.

There is an opportunity for companies to better leverage scale through structural change, working towards best practices, and most notably by improving and integrating sales and operations planning — something that is commonplace in other industries such as FMCG. Competition is becoming fierce, putting emphasis onto accurate forecasting and supply chain visibility.

Supply chain cost management is now a priority. Having leveraged scale and rationalised productive capacity businesses are looking for further cost-savings. The global nature of distribution has given rise to over-complex and under-managed supply chains, which are now recognised as a source of major cost reductions. Without a clear framework for delivering these savings, businesses are at risk of compromising service and the integrity of supply.

In this context, it is alarming how few pharma businesses know with any accuracy their ‘Cost to Serve’. Which products, distribution channels, customers or regions need more attention, and which need less? How should stock holding policies be tuned to these different groups? Where can lead times or touch points be reduced? Cost to Serve allows companies to calculate the true cost of servicing any combination of customer, product or market and takes a truly end-to-end approach (materials sourcing, manufacturing, logistics, distribution and consumption). By establishing clear policies for customer-product groupings, alongside disciplined, systematic control, it is possible to realise dramatic and permanent cost reductions.

Julian Mosquera is a Director at LCP Consulting, a specialist in customer-driven supply chain management.

Audrey S. Erbes, Principal, Erbes & Associates, outlines the highlights of this week’s event in San Francisco.

One of the few positive notes struck in this week’s 30th Annual J.P. Morgan Healthcare Conference (held in San Francisco) was the announcement by Kevin Willsey, J.P. Morgan’s co-head of investment banking for North America, that the U.S. economy would grow 2.5 percent in 2012. Despite this encouraging note and media reports of a strengthening economy, however, an air of uncertainty permeated the conference halls as attendees moved from session to session.

Willsey conceded that “the elephant in the room remains Europe”, and this imagery reappeared in the opening remarks of Jamie Dimon, J.P.Morgan’s Chairman and CEO. In a Q&A with Maria Bartiromo, Anchor of CNBC’s “Closing Bell,” Dimon referred to a COPD TV commercial and feeling like the patient with an elephant sitting on his chest: concerns of uncertainty, regulation, and the European and U.S. economy weighed on his mind. His remarks provided much needed levity and a feeling of hope that we’d all live to see another day despite the sobering challenges faced by the country and industry.

The major breaking news of an otherwise uninspiring event was Bristol-Myers Squibb’s $2.5 billion purchase of Inhibitex. Apart from that, a welcome surprise among Big Pharma presenters was the newcomer from Roche Holdings AG, CFO Alan Hippe, whose unexpected energy was truly engaging, especially, when he noted there was something wrong when R&D returns had decreased to the cost of capital. Hippe apologetically warned the audience his presentation would be boring with its focus on financials. It was no surprise that “operational excellence” continues to be a key goal at Roche. Against this backdrop Hippe shared a 14% and 8% decline in 2011 sales versus 2010 for the pharmaceutical and diagnostic companies, respectively. But he softened this bad news with reminder that Roche provided an attractive dividend payment with an average yearly growth of 22% between 2004 and 2010.

Other presentations from Big Pharma and Big Biotech, however, were often lackluster — downright boring in some cases — as speakers made stock statements and provided financial data intended to comfort investors that the interest of shareholders was a top priority. Several members of the audience mentioned they could have obtained this information from company websites and noted the similarity in phrases and financial slogans heard repeatedly across presentations.

Pfizer’s Chairman and CEO, Ian Read, stated that the company’s animal health and nutrition businesses were better off outside Pfizer, and that the potential of large revenues from emerging markets to counter lost revenues from blockbuster patent expirations — so key to remarks just two years previously — was no longer a major strategic element. Abbott CFO Thomas Freyman provided lots of details, which he dutifully read, about the planned split of the company into two — pharmaceutical and medical products companies — but failed to answer the obvious question on the minds of listeners: “What was the compelling argument for this decision?” And GSK’s CFO Simon Dingemanns strongly asserted the need that finance drive decisions and become embedded in decision making at his company, a comment both unexpected and somewhat unnerving to some in the audience.

AstraZeneca’s CFO Simon Lowth provided a change of themes as he placed the importance of partnering as a primary plank of his pitch. He portrayed AZ as a “focused, innovation-driven, integrated global biopharmaceutical company.” Lowth’s presentation was engaging as well as refreshing as he addressed the strategic solutions selected by AZ to meet the challenge of a changing macro and industry environment. These included early payor and regulatory involvement in drug development to secure reimbursement and market access, the implementation of new marketing and sales technologies as well as new channels of communication with customers.

NIH Director Francis Collins was perhaps the conference’s “inspirational speaker”, however. He provided some of the passion of past years’ biotech entrepreneur presentations as he shared his excitement for the profusion of new science and described objectives of new NIH Institutes and a $140 million dollar partnership between NIH and DARPA to develop a chip-based approach to drug toxicity. Unexpectedly, former FDA Commissioner Mark McClelland, in a luncheon presentation on Wednesday, also gave hope for some good coming from the Affordable Health Act. He stated strongly that “the law was very unlikely to go away.” He foresaw 2012 as a very important year for financial discussions focused much more on the “value” of health care, regulatory reforms and more effective health care.

The Chinese track offered registrants the chance to hear presentations by new Chinese companies and ask questions of top managers from key companies like Simcere, Biogene and Wuxi. There were inquiries about company business plans and hurdles management faced in China, but whether or not the founders were concerned that the government might take possession of their products and technologies as they have in other industries and whether or not the lack of the rule of law in China was a major worry to them were questions left unasked.

The lack of sufficient funding for new start-ups, perhaps the largest “elephant in the room” and a major cause of feelings of uncertainty among entrepreneurs, also went unaddressed. Yet it was the focus of many quiet conversations in the hallways. Start-up company founders and supporters shared experiences of finding the “VC wells dry,” greater difficulty in winning NIH grants and scrambling to line up alternative funding sources. Some looked to other conferences in town for answers to these important questions.

In little more than two years, the main elements of the HCR will take hold across the nation.  As implementation continues to ramp up, one of the more intriguing questions surrounding its activation is, is the “S” word being realized?…That is, “S” as in “savings.” Are the much publicized “savings” that were projected in early 2010 actually occurring as we head towards January 1, 2014?

The savings, according to the final 2010 CBO estimate, would provide a “net reduction in federal deficits of $143 billion…over the 2010–2019 period as result of changes in direct spending and revenues.”

Further, in August 2010, an NEJM article co-authored by Peter Orzag and Ezekiel Emanuel, MD, estimated that by 2030, total HCR savings would be up to $1 trillion.

Now, however, as various HCR elements meet the real world, many of the “savings” have proved illusory, if not completely unachievable.

To illustrate these difficulties, let’s take a look at the current status of “savings” in three key programs — Medicare Advantage, the CLASS Act, and ACOs.

Medicare Advantage

Most of us know the story of Medicare Advantage (MA).  Initially designed in the ‘90’s to provide managed care services in rural areas, the program was tapped by the Bush Administration to be dramatically expanded in 2003 under the Medicare Modernization Act.

However, because of higher premiums paid under the “new” MA, the program became a target of Congressional Democrats during the HCR debate. In the end, $136 billion of the $500 billion needed to start HCR’s expanded Medicaid program was sliced out of MA and credited as a “savings” in the final law.

All was well until last January when the first real “extractions” from MA services were scheduled to take hold.  Interestingly, the designated cuts didn’t occur.  In April, USA Today reported that rather than cutting MA premiums, HHS was actually “enhancing” them. Further, as pointed out by Kaiser Health News, more patients were signing up:

Despite predictions that last year’s healthcare law would doom Medicare’s private insurance plans, it’s not happening – at least not yet.  Enrollment in Medicare Advantage plans continues to grow at a brisk pace…

So, MA certainly doesn’t seem like a program scheduled for significant cuts by January of 2014.  And the projected CBO “savings” for HCR?  The “S” word for MA isn’t being discussed by HHS.

ACOs

The concept of the accountable care organizations (ACOs), from the start, was predicated on projected “savings” that were to be driven by this new concept.  As Families USA stated in September of 2010:

If the accountable care organization delivers high-quality care at lower costs…This new payment approach will create an estimated $5 billion in savings for the Medicare program (by 2019).

Sounds pretty good.  However, problems with the ACO concept surfaced soon after HHS issued the first rules in April of this year.  The pushback from providers was intense and focused on three key points of contention:

First, what was an ACO?  An HMO, a PPO, or some other new medical delivery variant?

Secondly, what about liability for losses under ACOs?  According to HHS, providers would be responsible for any losses that might occur under the program.  Insurers and hospitals plans rejected this as they saw ACOs as “experimental” and as such, very risky business propositions.

Thirdly, how would ACOs save money?  Of particular concern was one section of the concept that stated ACO patients were free to be seen by any doctor.  The providers said if ACOs were going to save money, they would need to control patient access to medical care.

After a lot of discussion, HHS withdrew the initial rules and issued a new set in October. The new rules addressed the questions about liability (there is none); and to a degree, further defined an ACO.

But on the question of direct “savings”, nothing was settled.  That’s because it appears HHS is still not willing to impose HMO-like closed panels on patients, so patients can get care wherever they wish. How do you control medical costs, and generate “savings”, if you have no access control over your patients?

So will ACOs and their projected “savings” start as scheduled on January 1, 2012?  Not clear.  Realistically, though, the “S” word in ACOs is very much in question.

CLASS ACT

The final HCR “savings” question is cut and dried…Of all the aspects of the law that has missed on projected “savings”, the CLASS Act is clearly at the top of the list.  Why?  Because the prospective long-term care program for seniors went kaput in October when HHS designated the plan as “unsustainable”.  So, for the CLASS ACT, the “S” word is not an issue.  A cool $86 billion in savings is off the table. If you’re counting, that’s nearly 10% of the total 20 year “savings” projected in the noted NEJM article.

Vanishing “Savings”

We can all wonder why the CBO-certified HCR “savings” asserted in 2010 have begun to vanish. Some of these occurrences, however, do seem explainable:

First, let’s take the most obvious case: The CLASS Act

From the beginning, the actuarial theory that drove the alleged “savings” in the program was flawed: in 2009, Rick Foster, the Medicare Actuary, said the “savings” projected in the CLASS Act were illusory. It took HHS until this fall to finally agree.  In the meantime, $86 billion in “savings” has evaporated. The worrisome question is, will we find out other parts of HCR are equally “unsustainable?”

Second, we need to acknowledge that politics has entered into this “savings” picture. In the case of Medicare Advantage, someone at HHS apparently awakened to the fact that on January 1, 2011 the Administration was scheduled to take MA benefits away from nearly 10 million senior citizens.  Not a wise thing to do with a national election coming in 2012.  Solution? Don’t reduce MA in 2011.  To my point on politics in the “savings” equation, do we expect the 2011 MA enhancements to continue after November 2012?  I’ll leave that to you to ponder.

As for ACOs, I think it’s a similar case.  The only way to realize savings in the new ACO concept is to lock people into a single physician, under a closed panel of services.  Why hasn’t HHS done this?  Because a lot of people really don’t like a closed panel approach to care. My guess is the $5 billion in “savings” scheduled to begin accruing in January 2012 will remain a mirage until after November of 2012.

So where do things stand with the “S” word in HCR as we close out 2011?  Right now, the evidence of actual “savings” is rather murky.  Taking just these three important programs (MA, CLASS, ACOs), and the approximate $225 billion of the projected 10 year “savings” they are designated to drive, we find their “savings” are either off the table completely, or, at best, appear to be suspended until we get by the November 2012 elections.  Given that, the Administration’s anticipated overall savings of $143 billion for the period 2010–2019 would have to be charitably labeled as “behind schedule.”

That’s my point of view.  I would like to have your thoughts on the “S” word in HCR.

Pharmaceutical manufacturing in the US is in rapid decline. Higher regulatory standards for efficacy and safety, among other reasons, have led to a significant level of difficulty in replacing “blockbusters” developed in the 1980s and 1990s that are now coming off patent. The rapid growth in biological understanding remains a source for current and future drugs, but has also raised the bar on selectivity and toxicology expectations. Industry is also grappling with issues of quality and compliance in manufacturing. There are also fundamental reasons why pharmaceutical manufacturing has lagged behind other high-tech industries. Every product is a different molecule, with different characteristics, method of manufacture, analytical methodology, stability characteristics, and so forth. Most pharmaceutical products involve powder processing, which is—at best—a partially understood field. As a result, for every product, the entire product-development process is developed from scratch.

In contrast, other large-scale manufacturing industries such as petrochemicals, automobile, and microelectronics, deal with a much smaller number of materials and use processes that are better understood. The products and manufacturing methods evolve and improve with time because one can build on what was done before.

New divisions of players
Industry faces a pressing conundrum: how to manage the quality and compliance of pharmaceutical manufacturing, which has lagged behind other industries even in the best of times, during a period of cost-cutting and fragmentation, with a myriad of manufacturers of various degrees of sophistication in a variety of countries and cultures. At the same time, our country seeks to increase manufacturing as a percentage of the US economy as a means of remaining competitive as a nation. We propose here that these two imperatives are related and can be managed in an integrated fashion.

It is useful to separate pharmaceutical manufacturing, both primary and secondary, into two groups: those operations that have become conventional and essentially commoditized, which are now being executed around the globe, and which are unlikely to return to the US; and those operations which relate to novel, “smart” products and processes that are knowledge-intensive, have IP protections, and are less sensitive to labor costs.

In the case of the first group, commoditized manufacturing, quality and regulatory compliance remain crucial. Indeed, quality compliance has become more challenging in the outsourced-manufacturing environment because it now must be managed across many more intercompany barriers. Fortunately, a solution has been demonstrated in the chemical industry. The answer is to make manufacturing technology mature, transparent, and portable. The operations involved must be categorized and described in detail, making it possible to harmonize methods, approaches, operations, control algorithms, and quality tests, such that the operations can be understood fundamentally, modeled mathematically, and then executed under predictive-model controls as is done by other high-tech industries.
The later group of “smart” products and processes involve targeted drugs and delivery systems, personalized medicine, medicines prepared locally on demand, complex hybrid biologics, sensors, and new diagnostics. These technologies are enormously promising, but they require long-term fundamental research to create new products, new manufacturing methods, and new technologies.

A plan forward

Given this environment, re-energizing pharmaceutical manufacturing in the US is likely to take place only if a coherent plan is implemented. Such a plan must address four crucial elements: strong long-term technology development, a nurturing ecosystem where collaborations among innovation players are facilitated while transactional costs between them are minimized, science-based compliance with high quality standards, and a concerted effort to create and maintain a highly skilled labor pool capable of supplying the needs of industry, government, and academia. Thus, we propose a strategy involving the following components:
1. Create a long-term, strategically driven research center, bringing industry, academia, and government together.

2. Develop a well-funded, agile innovation ecosystem where technology customers (i.e., finished goods commercialization companies) and technology suppliers (e.g., NME suppliers, equipment and instrumentation companies, CROs, CMOs, commercial integrators, and universities) can work together effectively, with access to funding, and with minimal transactional overhead.

3. Establish a regulatory science center that can provide scientific support to the FDA and to ensure that regulations are updated, transparent, and promote higher quality standards while decreasing regulatory risk.

4. Enable training and educational programs that ensure a supply of properly skilled labor for all of the noted parties. To rejuvenate pharmaceutical product and process development and manufacturing in the US, an entire generation of pharmaceutical scientists (and their management) must be educated, or in some cases, re-educated on modern product and process engineering methodologies.

This approach is entirely feasible. One of the few silver linings of the recent massive restructuring in US-based branded pharma is that there is a ready supply of available scientists eagerly awaiting the opportunity to upgrade their technical skills. It is hard to conceive a better use of educational resources than to devote them to this purpose.

A plan such as the one proposed here will not happen spontaneously. It will take time and effort. It will take leadership and aggressive advocacy. However, if we consider the alternative, which is to let yet another great American industry leave our shores, the path forward appears self-evident.

To advance these goals, the authors plan to organize a Summit Meeting at Rutgers University in Spring 2012 to gather input from all sectors and to develop concrete plans. We call all leaders in the pharmaceutical industry, government, and academia to join us in an effort to bring these ideas to Washington.

For the full version of this article, click here.

About the authors
Fernando Muzzio, PhD, is director of NSF Engineering Research Center at Rutgers University. Mauricio Futran, PhD, is professor and chair of the Department of Chemical and Biochemical Engineering at Rutgers University (mauricio.futran@rutgers.edu)

Consider this: In 2011, IMS projects US Rx market growth to be 2.7 percent. The top 10 pharma companies account for 50 percent of the entire market’s revenue, but will deliver only 10 percent of the growth. In fact, the growth rate of the top 10 is estimated at 0.9 percent.

And it’s even worse than that: Take out the non-organic growth, i.e., the ‘growth’ padded on purely by gobbling up acquisitions, and growth among the top 10 companies is, in fact, negative.

So Pfizer, Merck, GSK … the largest companies keep getting fatter. And slower. And more dysfunctional. And people inside these companies know this. But very few are willing to say it out loud.

If the industry is going to prosper, C-suiters need to do two things: liposuction down their companies to their essential, vital cores; and change the reward system to truly—finally!—value innovation inside and beyond the labs.

There are only a few things a pharma company needs to be good at: 1) developing products and services of true, differentiating value for patients, doctors, and payers; and 2) figuring out how to market and service those products and services powerfully, ethically and efficiently. That’s it.

The ability to deal with information with great speed and agility (what I call ‘knowlagility’) is a critical source of competitive advantage in myriad ways: it provides deep customer insights, it enables more efficient delivery of high value across the healthcare delivery continuum, and, critically, it empowers companies to make credible arguments about the true economic impact of their therapies to the healthcare system.

Yet little of this capability—which is extraordinary in its importance now, and even more extraordinary in the rate its importance will increase—has been built into pharma IT as it is currently configured. The layers in a super-pharma organization actually cover the company in folds of bloat, threatening the vital organs.

Let the Sucking Begin

That’s why it’s essential to cut out any non-essential IT process. Stop obsessing about the trivial—that means please stop talking about social media! Instead implement programs that deliver the ability to see farther and move faster.

The idea is to get smaller, yes. Spin off those divisions that aren’t crucial, sure. But more than that, cleave the processes that are more about ‘control’ than value.

A ridiculous example: We have clients who can’t run basic software or access popular websites. Why? Either because IT plays the ’security’ card and so access to—and insight about—much of the world gets cut off. Or else Finance cries ‘efficiency’ and suggests that if only we could get people off Facebook, then we’d be more profitable.

If you are a CEO and hear these things from your managers, you can do more for your profitability by firing them.

In the Speed of Change era, IT has one of the most important jobs in the entire organization. But it’s not about control; it’s about the discovery and release of value. Sure, you have to do the basics of control: secure your (cloud-based, I hope) networks and endure the Sarbanes-Oxley torture, etc. Just understand that this is a distraction from the real work.

The real work then is in applying knowlagility to unlock potential; by uncovering patterns in the data about your customers, and patterns in the data about potential products and services. In a post-blockbuster world, the winners will be those companies (of whatever size) that are better at identifying the highest-value opportunities and delivering them to customers with greatest possible speed and satisfaction.

Smaller companies, or large companies with ‘federated’ structures (e.g. Johnson & Johnson), stand a better chance of combining the advantages of size and agility. But whatever the size or structure, the organizing principle remains the same: In a Speed of Change world, victory belongs to the swift.

For the full version of this article, click here.

Bill Drummy is the CEO of Heartbeat Ideas. He can be reached at billd@heartbeatideas.com

FDA approved 35 innovative drugs in fiscal 2011, including treatments for hepatitis C, prostate cancer, Hodgkin’s lymphoma, and lupus. This number of approvals is among the highest in the past 10 years, and it reflects the agency’s efforts to hasten patients’ access to new drugs. In the past two years, the agency’s lower levels of approvals—21 drugs in 2010 and 25 in 2009—caused concern throughout the industry and in Congress. We may feel grateful to FDA, but we also should ask how the agency achieved this high number of approvals.

One technique was accelerated approval for drugs to treat serious diseases. This authority allows the agency to approve a drug based on clinical data showing that it is reasonably likely to have a clinical benefit, even if data do not demonstrate that the drug has this benefit. Almost half of the newly approved drugs received Priority Review because they had the potential to offer major advances in treatment, or because no adequate therapy existed. FDA sets a six-month target date to review such drugs.

Although these changes in procedure are well-intentioned, we may legitimately ask how they will affect patients’ safety. After all, GSK’s diabetes drug Avandia received fast-track approval, but an article published in The New England Journal of Medicine later linked the drug to an increased risk of heart attacks. The Wall Street Journal notes that a Senate Finance Committee report last year accused the company of hiding data showing Avandia’s cardiovascular risks, and GSK has just agreed to pay the US government $3 billion to settle this and other claims.

Creating a short timeline for drug approval could hurt the agency’s reviews of clinical data. FDA approved Pfizer’s smoking-cessation drug Chantix after an accelerated priority-review process. The agency concluded that the drug did not increase the risk of psychiatric problems such as depression. But researchers from Wake Forest Baptist Medical Center found that Chantix was eight times more likely to result in suicidal behavior or depression than nicotine-replacement products. One reason for the discrepancy could be that, unlike FDA, the researchers performed disproportionality analysis on the data—a technique that is increasingly being used to find links in side-effect data that normally escape detection in clinical trials.

FDA’s staff includes well-vetted and experienced scientists, but they need sufficient time to work thoughtfully and thoroughly. Even though the agency’s initiative has increased the number of new-drug approvals, it may also be increasing the risk that a company can hide negative data from regulators, or that the agency’s own analyses will not be as complete as they could be. In light of the problems with Avandia and the conflicting studies about Chantix, I think FDA should review its efforts to promote innovation to be sure that the agency maintains high standards for drug safety.

Erik Greb