Clayton Christensen

A keynote speaker at the 9^thAnnual SaS Health Care & Life Sciences Executive Conference on May 10, ‘disruptive’ author of The Innovator’s Dilemma and Harvard business professor Clayton Christensen sat down with PharmExec to discuss the future of the pharmaceutical industry, and what Mitt Romney could bring to the White House.

Ben Comer: Like tech companies a decade ago, many pharmaceutical companies are now outsourcing more and more of their core competencies in the name of efficiency, often short-term efficiency. Do they risk losing their core in the process?

Clayton Christensen: We absolutely worry that that’s exactly what is happening. I wrote a book called The Innovator’s Prescription, about the future of healthcare, and chapter nine is our view of where the pharmaceutical industry is headed. But the genesis is that, when we thought that diseases were defined by their symptoms rather than their causes, there were big blockbusters out there that were very attractive for [treatment]. And now we realize that a disease should not be defined by the symptom, but rather by the cause. It used to be that the FDA clinical trials process was like a final exam. If 30 to 35 percent of the patients responded to a drug, it was judged as a passing grade. And if your percentage was less than that, then you failed the test. But now we realize that if only 20 percent of the patients responded, then there must be something different about those 20 percent. They must have a different disease than all the rest. Rather than just project it, now we understand that managing clinical trials is an indispensable element of drug discovery. And so if you outsource that, then you’re outsourcing the activities that in the future will be the critical capabilities.

BC: How can big pharma companies foster a culture of innovation in the context of a large, lumbering bureaucracy?

CC: Rarely is the development or the absence of a product the problem in a company. Almost all companies are awash in ideas for new products. What they don’t do – and they could but they choose not to – is to create new business models that are tailor-made to the characteristics of the new product. You come up with this great idea, and you can’t do anything with it unless you get funded. To get funded, you have to, little by little, morph and shape and modify your business plan so that it fits the current business model. If it doesn’t fit the business model, they don’t perceive that it will be successful. So what comes out of the process is incremental innovation after me-too innovation. It’s not that the original idea wasn’t innovative, but in order to get it funded, you have to change your strategy so that it ultimately conforms to your company, rather than to the problem or unmet need in the market.

BC: Is it a viable strategy for pharma companies to spin out a separate entity, away from headquarters, to facilitate new kinds of development?

CC: It doesn’t have to be totally thrown outside of the corporation, but it needs to be a different business unit underneath the corporate umbrella. And you have to manage it at the level of the CEO, differently, than the mainstream. Almost never do you need to accomplish or accept lower profits when you set up this new business. But the formula by which you make acceptable money will be different.

BC: Is current US public policy harming or helping innovation in this country?

CC: I think that it facilitates a particular type of innovation. But I don’t think government is the core problem. I think finance and hedge funds and private equity funds are the big bad actors in the system. Investors like hedge funds and private equity funds and venture capitalists have a measure of performance called internal rate of return. And internal rate of return is a ratio; the way you get internal rate of return up is that you only invest in things that have a very short time horizon. If you just invest more and more for faster and faster quick wins, IRR goes way up. And you think that you’re innovating, because of the quick returns you’re getting. But what that means is that you can’t invest for the long term, because the truly disruptive business units don’t pay off for five to eight years. So then because the government says, ‘Well if you keep your money in the investment for 366 days, we’ll count it as long-term capital gain.’ There isn’t anything about 366 days that is long term. So the government should re-frame that, so that if you keep your money in for five years, there’s no tax, and if you keep it in for eight years, it’s a negative tax. All of these massive amounts of capital that are in private equity funds and so on, you re-purpose it through the tax code, and it would behave very differently, and invest in very different kinds of things.

BC: What is your message to the pharmaceutical industry, and is there a solution to the productivity gap?

CC: I think I know the right question, but I don’t know the answer. I would love to get together with deep thinkers in the industry to sort it through. As a general rule, when other industries are at this kind of an intersection, what has happened is that, at one stage in the value-adding stack in an industry, at one stage if it’s becoming commoditized and modular, you cannot make money at that level in the stack. But the whole industry doesn’t become unprofitable, rather its activities above and below that original [product or service], that’s where the money is made. And that has to be happening in the pharmaceutical industry, but I can’t see what it is yet. By example, the auto industry is becoming commoditized; cars are being assembled by sub-assemblies from tier-one suppliers. Anybody can get these modules and snap together a car. So it’s really hard to differentiate your car from anybody else’s car, so where the money is being made is in the subsystems that define the performance of the car, and by activities that sit on top of that, like OnStar. That’s where the money is made. Somehow, I have a sense that selling the pill, in the future, is not where the money will be made. It will be the attachments on top or underneath it. I haven’t heard anybody articulate what those look like, but I think they’re emerging, and we need to identify them.

BC: I read in The New Yorker that you’ve lived near the Romneys, and both you and Mitt are active in the Mormon church. Do you have any thoughts about a President Romney?

CC: He’s really a good man. He’s very smart, but it’s true that he was raised in a wealthy home, in a prominent home, and then accrued even more wealth, and his kids have been raised in an even more prominent family. And that’s actually about the toughest environment in the world to be raised in, and have your head be screwed on straight. It truly is. And so people think of that, that he’s not connected with the real world. But he has raised his family to create unbelievably good kids. But more important than that, in the Mormon church, we don’t pay professional ministers to teach us and to take care of us, but we help other people and teach each other the gospel of Jesus Christ. What that means is – because the members have to take care of one another – you meet everybody. And so Mitt was the bishop of our church, and bishop just means that he had responsibility for about 500 members of the church. And he had a family, he was trying to build Bain at the same time, and to be the bishop meant that he spent, on top of all that, 30 hours a week. And I don’t know if you ever saw the first Star Wars movie, but Luke Skywalker came in to meet Han Solo at some kind of a café, and the band that was playing, there was one of every conceivable form of life in the band, that’s what a Mormon church looks like; one of every conceivable type of person. If you’re the bishop, you’ve got to help all of those people. Under his leadership we built three significant new congregations in the inner city, in three different languages. So he really has seen a lot. I don’t think journalists have really realized, when he left [Bain & Company], the consulting firm, to create Bain Capital, that was going great. And the original owners of Bain & Company decided to sell their ownership stake to the next generation of partners. In order to pay the selling founders off, they had to take all of the profits the consulting activity made, and then some, to pay off [the owners]. And these people were just sitting at the side, rolling it in. As a result, Bain & Company would have gone bankrupt in two weeks. So they said, ‘Mr. Romney, could you please leave [Bain Capital] and come here and take presidency of Bain & Company, and somehow you have to prevent bankruptcy.’ So Mitt sat down with the six selling partners, and essentially convinced them to agree to take one-sixth of the amount of money that they thought they were owed, and got them to feel good about it. Just the way that he got these people, instead of knocking their heads together, he led them to agree on something that was very counterintuitive to all of them, and that is the idea that we are all best served if we try to help the other side win. I just think that someone with that instinct in the White House, in the climate of Washington, that would be a good skill.

Christensen’s new book – How Will You Measure Your Life? – takes his experience and thinking in business and applies it to personal decision-making. He has been the subject of lengthy profiles this month in both Bloomberg Businessweek and The New Yorker.

“Traditional market research about advertising is often wrong,” said Yadav, noting that his experience as an ethnographer put the fundamental tool of social science – self-reporting – into question. “I’d spend a lot of time with someone, and then give them a survey, and [on the survey] they were not the same person,” said Yadav. “People don’t have the ability to express emotion…if I ask how you feel, the response is how you think you feel.”

To bypass the speech/articulation process, Australia-based Neuro Insight uses steady-state topography (SST), which records electrical impulses in the scalp via a sensor-bedecked visor worn by test subjects. Put in front of a television and shown advertisements, subjects’ brain waves register their levels of “approach” or “withdrawal” from a given ad, which lets marketers predict the ad’s effectiveness, or adjust the content to prevent a dive into withdrawal. Neuro Insight has pharma clients – GSK is listed on the company website – but the case studies were limited to consumer brands, an unfortunate but familiar trend at digital pharma gatherings.

Moving from brain waves to search results, Steve Rotter, VP marketing at Brightcove, a web video hosting and service provider, cited data from Forrester proclaiming that “videos are 53 times more likely than text pages to appear on the first page of search results.” But the written word isn’t completely dead; Rotter said adding a transcript of a video to a webpage dramatically improves SEO and helps visitors find what they’re looking for more quickly. Brightcove has clients including AstraZeneca, Abbott, Genzyme, Roche and GSK, and is currently working on a platform for videos that senses which specific device is being used by the target consumer or patient, and optimizes or renders the video based on that device, said Rotter.

Doug Seifert, president and CEO at Syandus, an “experiential learning” company, demoed a COPD simulation game targeted to physicians. Created for Pfizer and Boehringer Ingelheim (the companies co-market the blockbuster COPD drug Spiriva), the demo was one of the most impressive displays at the conference. The game allows physicians to adjust variables and see how patients with different levels of severity or disease-state would respond. A doctor can make a patient smoke cigarettes and climb stairs, and then watch what happens in the body, for example. Seifert said simulations work because “humans are pattern recognition machines,” and “pattern recognition creates behavior change.” Besides, “endorphins are released” when people play games, a word Seifert defined as “a series of interesting choices.”

The conference ended on a somewhat hypocritical note, in that Facebook – “a distribution platform that promotes authentic sharing” – struck all sharing of its presentation from the record. Conference emcee Ritesh Patel, Chandler Chicco’s digital and social media lead, asked that all remarks from Facebook’s John Patten be kept within the walls of the Alexandria Center’s conference room, given the company’s upcoming IPO. As a result, the tweeters in the room (conference tweets can be found at #CCCDigital) were silenced for the duration.

As the US Department of Health and Human Services (HHS) circles around the elements of health care that will actually be included in our new “Essential Health Benefits” (EHB), one aspect of the EHB offering has caused a tremendous stir among dozens of health groups.  Their collective concern is focused on the pharmaceutical care that will be provided under EHB.  In particular, the groups have expressed dissatisfaction over the number of drugs that will be covered in each class.  How many drugs per class you ask?  Based on current HHS information, it appears that the number is one drug per class.

Where, specifically, did this minimalist Rx concept come from?  It first appeared in HHS guidance offered to the public on December 16, 2011.  Here’s a brief discussion of the number of pharmaceuticals to be covered under EHB appeared on p. 13.  It stated:

“If a benchmark plan offers a drug in a certain category or class, all plans must offer at least one drug in that same category or class, even though the specific drugs on the formulary may vary.”

How to decipher that phrase?  Admittedly, I found it a bit hard to understand.  However, 104 disparate patient and health advocacy groups, representing 133 million patients and caregivers, had no trouble at all.   They read it to mean that only one drug per class would be required under the new EHB Rx offerings that will go into effect on January 1, 2014.  Based on this interpretation, a deluge of public letters to HHS was released by these organizations, all voicing strong opposition to this idea.  Here’s an example, released on April 11, 2012, signed by all 104 groups:

“The bulletin (12/16/11) states that EHB plans must only cover one drug per therapeutic category or class covered by a selected state benchmark plan to meet the EHB standard. This is wholly inadequate to meet the complex needs of patients with chronic diseases and disabilities, and runs counter to the government’s existing minimum prescription drug coverage standards, including under the Medicare Part D program.”

In their letter, the groups all pointed to a recent study released by Avalere, and funded by Pfizer, which revealed that the largest federal employees health benefit plans and major small-group plans in California, Colorado, Maryland and New York (similar to those that HHS is supposed to use in modeling EHB drug benefits) are all covering many more drugs in each class (an average of 70% of drugs available in a class) than the one drug concept proposed in the 12/16/11 HHS bulletin.

And to be fair, it is true that under Part D Medicare drug rules only two drugs are required to be provided per class (p. 395).  However, due to the private competition between the insurers in the Part D prescription drug offerings, many more products per class are regularly included.

So, how will all this be reconciled?  It’s hard to say, but there are several considerations to think about, should this one-drug-per-class mandate be implemented for HCR’s EHB. Let’s say, for example, you’re a patient who’s been dealing with hypertension.  Getting hypertension under control often entails trying many prescription drugs and often includes very careful titrating of the one drug that seems to be working.  What happens to you if you lose that one drug that controls your disease?  The lack of Rx options for these patients will only lead to major medical episodes down the road.

Or what if you are a physician dealing with rheumatoid arthritis in hundreds of Medicaid patients?  It’s a tough disease to manage because frequently, one anti-inflammatory may work on a patient for a while, and then inexplicably, it stops working for no logical reason.  Utilizing other anti-inflammatories is the only course of action the doctor has to find new relief from the disease.  Limited to just one drug in the anti-inflammatory category, I really don’t know what doctors will do to manage the 30-40 million new Medicaid patients HCR will bring into their offices, many of whom will have rheumatoid arthritis.

And what if you are the CEO of a prescription pharmaceutical company?  What is your response to this mandate for one drug per class?  If each of the single drugs chosen in each EHB Rx class is likely to be the cheapest generic, where does this leave brand drug makers?   Will branded drugs ever be reimbursed under HCR’s EHB Rx program?  Answer:  No.   And if this 100% generic program is likely to impact 40% to 50% of your total American market, what do you do about future R&D?  Put more succinctly, who will your future customers be?  Who will buy brand name drugs after this EHB Rx rule is put in place?

But all is not gloom and doom in this “one drug per class” EHB scenario.  First of all, by restricting the EHB Rx segment, there will be an obvious decrease in overall medical spending across the county.  As an example, consider hospital formularies and pharmacies.  Huge inventory savings will be realized, since every drug chosen for every category will be a low cost generic.  Also, in the important area of medical errors, the reduction in the actual numbers of available drugs used for each disease will insure the proper use of the proper drug in almost every case.  As a result, the billions of dollars wasted on medical errors and unintended deaths will be virtually eliminated.  And then there is the incredible free enterprise competition that will be unleashed among the generic manufacturers that will compete for the opportunity to provide the one drug for any class.  No doubt, low prices such as we have never seen before, will be realized by HHS.  All and all, then, there is a tremendous national health savings benefit, a very real upside, to be realized when this concept of one drug per class is adopted by the EHB.

Nevertheless, despite all this health savings evidence, it is curious to see that several of the fervent supporters of HCR, groups such as Families USA, NORD, The American Academy of Physician Assistants, and many others listed in the group of 104, have now decided that this “one drug per class” policy is just plain wrong.   As noted earlier, they submit that the EHB one drug concept is unfair and medically unsound policy for their members.

This response by these groups is interesting. By now, over two years into this HCR exercise, you would think that these organizations, and all others who strongly supported HCR, would clearly understand that this is where HCR is headed:  “Less is more, don’t you see?”  That’s because by reducing access, denying options, and limiting medical services, millions of people will now have the opportunity to have one drug per class, rather than none at all.

And so, as this HCR concept continues to take shape, and the nation gradually awakens to this new reality across the broad array of medical services, it truly is amazing just how much more — “less” — really can be. That’s my point of view on HCR’s one-drug-per-class EHB concept.  I’d be interested in your thoughts on this matter.

Tom Norton is principal at NHD Smart Communications. He can be reached at tnorton@nhdcomm.com

I’ve been doing this digital thing for some time now. I’ve been part of and witnessed many changes in our digital world. However, I have never seen such a swift pace of change and digital adoption of late. It’s stunning how quickly things spread and how fast things scale and get adopted.

Look at the gathering known as South by South West, or SXSW this year. A record number of people attended with the largest turnout of startups. SXSW has now become the place for the next new startup to make it. Last year was all about location based services, with Foursquare being the favorite, this year was the year of Ambient Social with companies like Highlight, and Glancee creating a buzz.

I never imagined that people would be lining up to buy that new iPhone or iPad, overnight in some cases. The speed of adoption of a new Apple product and the global reach of the company has been interesting to watch. They have created massive new markets and completely changed our view of technology and our habits and expectations.
And now we have the social networking phenomena? Five years ago people never shared any private information with anyone unless they were their closest friends. It was unthinkable to go up to a total stranger and tell them what you had for lunch or broadcast to them what you are doing during your day. However, millions of people, and in the case of Facebook, 850 million of you, do it as a matter of habit and don’t think about it. The likes of Facebook, Twitter, LinkedIn and YouTube have forever changed how we live, work and share our lives with our friends and colleagues.

In the healthcare industry, a highly-regulated, predictable and conservative environment, this change is unnerving and potentially harmful.

Do you remember in 2009/2010 how our industry was struggling to figure out what do to about social networks and their impact on our business? Many thought the answer would appear magically after the infamous FDA hearings were over in November of 2009. Alas it was not to be. So while we have mostly understood what can and cannot be done on social networks, a lot of people are erring to “cannot”… but the change goes on.

In 2011, we saw a maturation of understanding of social media within many major pharmaceutical companies. Even with this understanding, engagement was nonexistent.

As we continued to try to keep up, we completely underestimated the growth of mobile and in particular the impact that new thing called the iPad would have on our business. I suspect that e-detailing laptop/tablet that corporate IT issues to the sales rep days are numbered. The pace of adoption of the iPad and iPhone both by us and also by HCPs and patients is forcing us to rethink our business. A recent study suggests that by 2014, access via a mobile device will finally outpace access via a desktop PC.

So what’s in store for 2012? I predict it will be more of the same. Ambient Social will be the buzz word of the year. Frictionless sharing is another phenomenon that Facebook will force upon us. Video will become very big and finally, with the advent of the Electronic Health Record, Big Data will become part of our daily vernacular.
How does one keep up with all this?

Well, we thought we would do our part and help by creating a one-day forum called Pioneers in Digital Health. We thought we would bring together folks who are doing incredible things in digital marketing and communications that we could learn from and hopefully stay informed and potentially stay ahead of the curve a bit.

Try to attend if you can. I promise it will be a day well spent.

No two patients are alike, but drug-makers may not consider how different a single patient’s perspective can be when viewed over time. A patient’s progress through disease management is a journey, and perceptions change over time. Changes in perceptions influence the meaning of “usability” and can have tremendous implications for how a drug delivery system supports the patient. To understand this concept better, consider two different points during the patient journey – a newly diagnosed patient and a patient further along with their condition – as examples of how different usage must influence the design of a drug’s delivery system.

The New Patient: Struggling to Adapt and Learn
Early on, patients who use delivery systems in their medical therapy struggle to cope with significant life disruptions. They often do not feel very well physically. Emotionally, they may be fluctuating between fear, anger and deep concern or depression. At the start of their disease management journey, these patients are asked to take on new responsibilities for their condition, learn new and sometimes difficult tasks, and become experts in managing parts of their disease, such as administering their own medication.

What does this mean for a drug company? Ease of use is a critical consideration; pharma should ensure that drug delivery requires as few steps as possible, guaranteeing that users can learn, remember and quickly master the process. Especially for the newly diagnosed, drug delivery devices need to provide clear, absolute confirmation that they were used properly, and that the medicine was successfully delivered. Any ambiguity heightens patient anxiety and will leave them questioning whether they received the proper dose. Such anxiety can lead to overdosing and create doubt that the device – and the drug – is trustworthy or effective, which quickly erodes adherence.

For a patient in an early stage, “ease of use” should translate to “ease of training.” With the rise of biologic therapies, patients rely on the support of healthcare practitioners and family to learn how to self-inject, for example, as they acclimate. Optimizing a drug for both self-administration and demonstration means manufacturers need to carefully consider how humans learn, and the differences between processing information by watching others, versus doing things ourselves. Failing to support these early stage requirements can lead patients to abandon therapies before they even have a chance to take hold.

Further Along: Staying Faithful
Later in the disease management journey, patients return to a more stable condition and reasonable quality of life. They have mastered their drug regimen and delivery system – but now the patient is more demanding of how the device supports quality of life. Reduced anxiety makes room for motivations based on convenience and the confidence that “I have this disease under control – at least for today.” As patients settle into this “new normal,” such attitudes can lead to skipped doses and lapses in adherence, often throttling the patient back to a state where the disease manifests itself more seriously.

At this point, the delivery system needs to not only continue to support efficiency with minimal steps, but also, and for different reasons, it must be designed based on convenience and lifestyle enhancement. Patient feedback must be considered differently and used to select a delivery design that encourages and incentivizes patients to remain adherent. For instance, compliance metrics, goal-oriented achievements or physiological measures might be tracked in order to encourage adherence, helping patients control their disease and improve their condition.

The Journey Determines Everything
Realizing that patients are on an ongoing journey is an important step in understanding the complexities behind how user-centered design can support adherence. Armed with this awareness, pharmaceutical companies are better enabled to select and develop safe, reliable and desirable drug delivery solutions.  These considerations can help to address the shifting nature of what usability means for any type of patient we may become, while traveling on our individual disease management journey.

Drug Usage by Demographic in 2011

Provisions in the Affordable Care Act (ACA) drove out-of-pocket costs down, while increasing drug spending among 19 to 25-year-olds in 2011, according to research published on Wednesday.

The decline observed in overall out-of-pocket spending last year was the “first on record,” and was “largely related to the introduction of the ‘donut-hole’ subsidy for Medicare Part D beneficiaries,” a highly-touted element of the ACA, according to the IMS Institute for Healthcare Informatics. While copays for commercial providers and Medicaid were flat (average commercial plan copays increased by $1.14, to $26.10 in 2011), seniors covered by Medicare Part D got the largest break, with average copays decreasing by $2.66 – from $25.97 in 2010, to $23.31 in 2011 – according to the report.

The dip in copay costs for seniors didn’t translate into an increase in volume for chronic or acute medications, however; in fact, patients 65-years and older reduced their drug usage by 3.1%. Prescription use among the same group declined in 2010 as well, by 2.7%, but the last two years represent an inflection from prior years, when “seniors’ usage of medicines grew on average at 4%,” the report found. College-aged patients (19-24 years old), on the other hand, were the only age group to increase their drug usage, by a modest 2%. That increase “coincides with the first full year of implementation of the provision of the ACA allowing under-26-year-olds to stay on their parents’ health insurance,” according to the report.

Michael Kleinrock, director of research development at the institute, said on a call with reporters that patients over 65 years old are foregoing the medications they use the most. Drug usage for hypertension, the most common disease among this population, decreased more than any other class of drugs. “This correlates strongly with the economy…seniors are on a fixed income, and costs [of living] are rising,” said Kleinrock on the call. Kleinrock called the development a “tipping point,” adding that seniors are resetting their expectations around how often, and under what circumstances, they will visit a doctor.

Per capita figures adjusted for currency changes showed a 0.5% growth in total drug spending in 2011 – to $320 billion. Other fun facts from the report include:

• New York state had far and away the largest growth in per capita retail prescription usage at 5.6%, bucking the national trend. Volume rates fell in 41 states.
• Visits to the ER increased by 7.4%, while doctor’s office visits decreased by 4.7%, from 2010 to 2011, a “possible result of continued high levels of uninsured patients associated with long-term unemployment,” according to the report.
• Copay card usage increased in 2011, but only by 1.4%. Still, patients used copay cards or vouchers for only 3.8% of dispensed brand prescriptions last year. The average copay card subsidy provided by drug manufacturers grew by 20%, from $19.34 in 2010, to $24.28 in 2011.
• Spending on new brand drugs – products approved in the last 24 months – was $12.2 billion, up from $8.5 billion in 2010.
• 34 new molecular entities (NMEs) launched in 2011, the most in “at least 10 years,” according to the report
• Key blockbusters that expired in 2011: Pfizer’s Lipitor, GSK’s Advair Diskus, Lilly’s Zyprexa, and J&J’s Levaquin and Concerta.
• Hydrocodone, an opioid for pain, was once again the most dispensed drug last year, at 136.7 million prescriptions.
• Among therapeutic classes, anti-depressants were dispensed most often, at 264 million prescriptions in 2011.

If the Supreme Court decides in favor of the Affordable Care Act, particularly the mandate to buy insurance, the spate of newly insured patients would likely curb the rise in emergency room admissions, and could also turn around the decrease in office visits, which are “the lowest-cost medical interventions,” according to the report.

This June, Californians will be asked whether cigarette smokers should subsidize research to treat diseases related to smoking cigarettes.

California’s Proposition 29, if passed, would levy an additional tax of $1 on every pack of smokes sold in the state beginning in October 2012. The tax would generate an estimated $615 million in 2012/2013, and $735 million in 2013/2014. Funds would be expected to decrease annually, in relation to declining cigarette consumption, but would remain substantial. Is this a good idea?

How is the money spent?

Revenues would be deposited into the California Cancer Research Life Sciences Innovation Trust Fund, and dedicated to “the support of research on cancer and tobacco-related diseases,” according to California’s Legislative Analyst’s Office (LAO). Money would be further divvied as follows:

• 60% would be used for research grants and loans around prevention, diagnosis, treatment, and potential cures for cancer and other tobacco-related diseases.
• 15% would be used for grants and loans for equipment and facilities
• 20% would be used for tobacco prevention and cessation programs
• 3% would be given to state agencies for law enforcement efforts to reduce illegal tobacco sales, cigarette smuggling and tobacco tax evasion
• 2% would be used to administer the plan, most of which would go to the Board of Equalization for tax collection costs

The proposition would also create a nine-member governing board – the Cancer Research Citizen’s Oversight Committee – empowered to distribute the funds.

UPDATE 5/14/12: The Altria Group (Philip Morris, US Smokeless Tobacco, and John Middleton) has more than doubled its opposition funding since this article was first published in February, to nearly $27 million, according to MapLight.org. For its part, the Reynolds American Corp. (R.J. Reynolds Tobacco Company, American Snuff Company, Santa Fe Natural Tobacco Company) has upped its contribution to over $12 billion in an effort to sway voters against the law. Proponents of Prop 29 have contributed roughly $5.5 million to date, of which the American Cancer Society and the Lance Armstrong Foundation together have contributed almost $4 million. With a total spend to date of $39.9 million, the opposition parties are outspending proponents of Prop 29 by nearly eight to one.

For and Against

It’s not a huge surprise that Big Tobacco is against this tax. As of February 29, the Altria Group (Philip Morris, US Smokeless Tobacco, and John Middleton) had contributed $10.8 million to oppose Proposition 29, and Reynolds American had added another $4 million. The California Taxpayers Assocation (CalTax) also opposes Proposition 29, arguing that additional cigarette taxes will cause an increase in tax evasion, an increase in “national security and public safety threats” related primarily to smuggling cigarettes. Cigarette smuggling is a key source of funding for active terrorist groups operating in the U.S., CalTax claims, citing the State Department. CalTax also argues that cigarettes disproportionately impact low-income families, who shouldn’t be made to shoulder an additional tax burden.

So far, the opposition is outspending proponents of the measure by roughly $10 million. Top proponents as of February 29, in terms of contributions, are the Lance Armstrong Foundation, at 1.5 million; The American Cancer Society, American Lung Association and the American Heart Association, at a combined $1.3 million, and the Voters Organized For Community Empowerment (VOICE), at $152,188.

Yesterday, Steven Burrill, CEO at Burrill & Company, and Duane Roth, CEO at Connect, sent a letter to colleagues asking for industry to support Proposition 29, which would make “all California-based research institutes as well as California-based companies eligible to apply for funding, which could provide much needed research funding as well as support for early product development.” With respect to intellectual property, Propostion 29 “follows the National Institute of Health process…there are no required direct paybacks to the state,” according to the letter. “We can think of no greater return on investment to California and our leading edge research institutes and industry than investing in winning this ballot initiative,” the letter says. Given the prevalence of life science companies in California, should industry trade associations pony up to equalize the campaign spending mismatch? As Burrill and Roth argue, a “one-time $10 million investment can return more than $500 million a year indefinitely to fund life saving research.”

Jill Wechsler

Scientists optimistic new combination regimens will improve TB treatment and reduce drug resistance, writes Jill Wechsler, Pharm Exec’s Washington Editor.

In honor of World TB Day March 24, research organizations and international health agencies announced important advances in the development of new therapies for stemming the spread of increasingly lethal tuberculosis strains. Each year, nearly 9 million people around the world are infected by the disease, and 1.4 million people die. While TB has practically disappeared in the US, co-infection in AIDS patients makes it a serious health concern.

Most of the drugs used today to treat TB were discovered more than 40 years ago and have lost their effectiveness. Poor compliance with lengthy treatment regimens, moreover, has fueled a plague of multi-drug-resistant (MDR) TB strains. In addition, TB diagnostics are antiquated, insensitive and slow, and we have a very limited understanding of TB pathogenesis, says Anthony Fauci, director of the National Institute for  Allergy and Infectious Diseases (NIAID) at the National Institutes of Health (NIH).

Industry support for TB research is limited, Fauci added, because it doesn’t promise blockbuster returns. Within the drug development world, he noted, “TB is not cancer, diabetes or heart disease,” and broad partnerships are needed.
Yet, Fauci expressed optimism for advancing TB research at a recent briefing in Washington, D.C. sponsored by the TB Alliance. Increased investment in TB research by NIAID and NIH has advanced the understanding of treatment effects and the development of molecular markers of drug resistance. Drug pipelines are more robust now than in recent decades, and strong partnerships are tackling translational research projects and building capacity for conducting clinical trials on new TB treatments.

Fauci also highlighted advances in developing a new vaccine to prevent TB in the next decade, noting that existing vaccines are highly ineffective. About 14 vaccine candidates are in development, and more advances may be spurred by the recent publication of a “strategic blueprint” on TB vaccine development by a group of scientists from the public and private sectors.

TB Alliance president Mel Spigelman echoed Fauci’s enthusiasm in announcing the launch of a clinical trial for a novel combination drug regimen that promises shorter, more effective treatment for TB patients, including those experiencing drug resistance. As part of the broader Global Alliance for TB Drug Development, the TB Alliance is sponsoring the NC-002 study to test the PaMZ combination of long-used antibiotic pyrazinamide with Bayer’s Moxifloxacin (not yet approved for TB treatment) and the experimental PA-824. The combination performed well in a limited phase 2A study, and is now expanding to a 2B trial that will test 250 patients at eight sites in South Africa, Tanzania and Brazil. Three other related studies will test additional drug combinations. The Alliance funds these activities through grants from the Bill & Melinda Gates Foundation, NIH, the US Agency for International Development and others.  Scientists also are conducting preclinical tests on a number of new and old drugs to identify other combination regimens suitable for clinical testing. The goal, said Spigelman, is to develop an oral product that reduces treatment to 2-4 months, and ultimately to a simple 10-day regime.

Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, agreed that “the TB pipeline finally is showing some promise.” FDA is supporting these efforts with new guidance on developing combination therapies that recognizes the need to get away from evaluating one drug at a time. The agency also recently proposed a policy to permit faster approval of new TB diagnostics — another way, said Woodcock,  to capitalize on new efforts for realizing real and significant advances in combating TB.

Pharm Exec is no fortune teller, but our guest author Mason Tenaglia was positively clairvoyant in his January feature on the tussle between pharmacy benefit managers [PBMs] and brand name drug manufacturers over the use of co-pay and discount cards to limit out-of-pocket costs for patients. As predicted, the issue has caught fire, moving from rhetoric to preemptive action and now to litigation.  It is fast becoming the topic du jour for the US industry, overshadowing Obamacare in terms of its potential to disrupt the once staid relationship between manufacturers, service providers and payers.

The conflict is a simple one:  drug manufacturers, anxious to limit damage from the patent cliff, are aggressively using cards and other discount incentives to persuade patients to stay with the familiar brand and avoid pressure to move to cheaper generic alternatives.  PBMs tend to see the incentives as less of an option for the patient than as a challenge to their flexibility in adjusting drug formularies to control costs and keep plan administrators happy. Both parties recognize the significant competitive stakes, with manufacturers better able to slow the erosion of market share from loss of exclusivity – Pfizer’s discount co-pay offer card for Lipitor patients being the latest and most prominent example – while PBMs that fail to respond face a more confusing picture around customer engagement and the drug budgeting cycle. While it is clearly an exaggeration, no PBM is comfortable tackling the pregnant question posed by the proliferation of unilateral manufacturer discounts:  who’s really in charge of your drug formulary?

The latest escalations in the game took place last week.  The first was a preemptive strike by Blue Cross Blue Shield of Rhode Island asking participating pharmacists to limit the acceptance of discount cards on certain high volume brand name prescriptions for patients enrolled in its plans.

The second was a lawsuit filed by a coalition of consumer and labor groups against eight drug companies [Abbott, Amgen, AZ, BMS, GSK, Merck, Novartis, and Pfizer] accusing them of offering what the group says are essentially “kickbacks” to patients, with the aim of preventing health plans and patients from saving money through transitioning to cheaper generic drugs once patents expire.  The lawsuit relies heavily on estimates from a report prepared late last year by the PBM trade group, Pharmaceutical Care Management Association [PCMA], that use of discount cards by brand name manufacturers will raise formulary costs for providers by $32 billion over the next 10 years.

Analysts say making this case on legal grounds will be a hard sell, and it is worth noting that none of the big PBMs have joined in. Nevertheless, the lawsuit could cast more light around the murky — and increasingly ruthless — ways that drug makers are vying to preserve market share in a post patent expiry world. Lawyers being lawyers, it may also help stretch the already porous boundaries of what the federal compliance bureaucracy defines as anti-competitive behavior.  As precedents in other countries will show, isn’t competition law just the latest innovation in cost control?