With a 38% drop in profits, the Seroquel defeat, the upcoming loss of Nexium’s patent protection, and slim pickings from 2007’s $15 billion MedImmune acquisition, there is no shortage of reasons for Brennan’s six-year tenure to come to an abrupt end, although the news was positioned by AZ more as a selfless bowing out to make room for new blood and new strategies. Chief Financial Officer Simon Lowth takes the leadership reins for the time being (and incoming Chairman Leif Johansson’s start date has been expedited to June 1) but whoever is appointed Brennan’s permanent successor will need to hit the ground running.

The best prospects in AZ’s weak pipeline, says the Economist Intelligence Unit’s Ana Nicholls, lie with blood-thinner Brilinta, “but we won’t get a clear view of how that will perform until later this year.” Others analysts have suggested that more belt tightening is what’s needed, with Gbola Amusa telling The Telegraph earlier this week that a cut in AZ’s R&D budget of 25 percent “would generate enough funds to make an acquisition worth $13bn.

Speculation on AZ’s first post-Brennan moves will continue to mount, but given its strong cash position it is believed that mid-sized acquisitions are likely to be at the top of the agenda.

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.

The chief target for those who contest the cost figures cited by industry is the work conducted over three decades by the Tufts Center for the Study of Drug Development.  Its most recent in a series of profiles – based on its own interpretation of data drawn from the leading US-based “big pharma” companies – tagged the average cost of bringing a new compound to market at more than $800 million. Last year, two prominent industry critics, Donald Light and Rebecca Warburton, published a harsh critique of the Tufts study methodology, or, as the authors put it, “mythology.”   Specifically, their paper contends that a key element in the Tufts work – which apportions the expense of investing funds in research against alternative uses of that capital to obtain an equal or higher return – is poor grounds for fixing costs; eliminating this “opportunity cost” pushes down the average cost virtually in half, to only $403 million. Their own anecdotal calculations render that figure even lower. In addition, the 11 per cent interest rate figure used by Tufts in estimating the value derived from that alternative use of funds against the investment in R&D is deemed excessively high; Light and Warburton claimed that three per cent would be more appropriate.

So who is right here?  Tufts is criticized for relying too much on company data without broad options for disclosure, while Light and Warburton are well-known for their adversarial stance on virtually every policy issue relevant to biopharmaceuticals.  Enter an objective third party, in the form of a new study just published by F. M. Scherer, emeritus Professor at the Kennedy School of Government at Harvard.  Scherer is well-known for his earlier work on drug innovation and pricing which was balanced – if sometimes skeptical – in supporting industry claims.

In R&D Costs and Productivity in Biopharmaceuticals, Scherer makes the following points:

•    There has been over the past 30 years a substantial growth in average R&D costs.  Spending by the industry on R&D rose by an average 7.4 per cent annually between 1970 and 2007, whereas the number of approved new drugs increased by only 2.1 per cent annually over the same period – in other words, with more money spent to obtain a much lower rate of increase in new drug approvals, it is inevitable that the average cost of bringing those medicines to market has tended to rise.

•    Pre-clinical costs for industry have been fairly steady over the period reviewed, largely because of the higher profile and resources of the National Institutes of Health [NIH] in subsidizing basic research.  Industry progress in creating tools for “rational drug design” is another positive factor.  The real growth in costs has taken place at the clinical stage, where industry obligations have soared due to tighter regulatory controls and the complexity of trials.   Trials are bigger, testing requirements on enrollees have become more extensive and complex, while teaching hospitals and other trial sites are charging more to sponsor and participate, seeing their development support work as “profit centers.”

•    The opportunity foregone to invest R&D funds elsewhere is a legitimate calculation in estimating average drug development costs due to the long time lag to secure market access and profits, which is more prominent than in other sectors.  Scherer says the US government evaluated the merits of this approach and endorsed it as far back as 1993, when a federal Office of Technology Assessment report stated that “the practice of capitalizing costs to their present value in the year of market approval is a valid approach to measuring R&D costs.”

•    The argument that estimates of cost should incorporate the implicit value derived by companies from the tax deductibility of R&D outlays is overridden by the difficulty of singling out qualifying activity on both a functional and geographic basis,  a calculation that the corporate tax regime is not set up to do.

•    Scherer also dismisses the Light and Warburton contention that three per cent is a more valid rate of interest in estimating the investment potential of alternative uses of R&D outlays. He calls it “clearly wrong.”   The Tufts study’s 11 per cent rate is well in line with the private sector’s underlying cost of capital over the study period, and is actually “quite conservative” given that the cost of capital in R&D itself is fairly three or more percentage points higher, given the inherent risks of investing in unproven science over a long period of time.

There are also some implicit recommendations on industry positioning worth gleaning from the Scherer paper.  First, he admits that methodologies for calculating the cost of drug development pose inherent challenges.  More progress could be made, with support from industry, in overcoming them.  Stakeholders should work together with Tufts to address misconceptions and enhance public confidence in the survey.  To that end, industry associations like PhRMA might well expand and improve methods of collecting member R&D data, particularly for R&D activity outside the US; while BIO, PhRMA’s biotech partner, might also upgrade its commitment to quantify member R&D spending to support the work of Tufts and other academic institutions – big pharma must not be the sole source.

Second, companies that currently provide the data to these institutions might consider reevaluating the confidentiality standards that bar efforts to openly evaluate and communicate that data to other stakeholders.

Third, journalists and other communicators need as a “matter of good practice” to highlight the opportunity cost element as a factor when reporting the numbers from the Tufts studies. This should no longer be allowed to be treated as a “surprise” wielded by activists to discredit the body of evidence as a whole.

Finally, the regulatory community must better understand how its practices are driving development costs.  It is advised to work more closely with industry in agreeing basic standards for defining,  monitoring and, where appropriate, ameliorating such costs.

The stakes here are high, as it can arguably be said that the three decades of Tufts surveys are the most important body of policy research to bear on the cost of supporting good science.  If there is no agreed line of defense around the basic issue of costs incurred in bringing a medicine to market, then industry is the ultimate loser when it comes to obtaining access and defining a price for that medicine, especially now that payer expectations around “evidence” are becoming more insistent and precise.

The Tufts Center is undeterred by the criticism and regards the Scherer paper as a welcome addition to the debate. Center Director Ken Kaitin told PE that a new, equally robust iteration of its research is underway. “We are presently collecting fresh data from companies.  The interpretation of this data is exclusively our own, as has always been the case,” Kaitin told PE.  He noted that the Center is committed to communicating with any interested party on ways to extend the integrity and relevance of this important line of research.

This year’s list has attracted criticism for its inclusion of controversial characters such as Paul Ruddock — whose hedge fund management company Landsdowne Associates made £100 million ($156 million) betting on the collapse of Northern Rock — and Gerald Ronson, who was sent to jail for six months and fined £5 million in 1990 for his part in the Guinness share-trading scandal (but has since redeemed himself with much philanthropic fundraising). There was also a measure of hostile reaction to the knighting of Paul Bazalgette, a TV executive responsible for bringing the egregious Big Brother to British TV screens.

Still, none of this is bad for pharma’s reputation — in such company Witty really does seem something of the ‘knight in shining armour’, rewarded as he is for services to the economy rather than donating vast amounts to the Conservative Party (which some would suggest is the reason for Ruddock’s recognition). And Witty is not the only pharma industry representative to be honored. Richard Barker, former Director-General of the Association of the British Pharmaceutical Industry, was also handed an OBE (Order of the British Empire).

More interesting than the numbers themselves are the implications of this growth. The addition of another billion people over slightly more than a decade requires a 40 percent expansion in the global food chain, another 40 percent spurt in the availability of fresh water, and 50 percent more energy—all just to keep pace with the status quo.  Equally important is the skewed distribution of this new population profile. The sub-Saharan Africa and South Asia regions account for most of the increase, while in the northern climes population totals are set to decline, with key economies like Germany, Italy, Japan, and Russia slated to actually have fewer people in 2025 than today. And many of them will be elderly and female—not additive to the resource mix.  The rise is also disproportionately more urban than rural.  Whereas today there are 10 cities around the globe with a population of 10 million plus people, the UNPF projects that there will be upwards of 21 such cities by 2025.

What do the new numbers really mean for the business model and strategic focus in health care and pharma? Several points come to mind.

First, more people has a hidden upside—it’s called human capital. Leveraging the energy of more young people and women can yield rich dividends in economic growth. Good health is a pre-condition for achieving compensating gains in productivity to alleviate the burden of population on resources.  The health dividend also works in addressing the claims of aging populations, a cohort no longer limited to the “mature” industrialized markets. Poor countries are growing older too.

Second, that “bottom billion” of the customer base that underpins Big Pharma’s new commercial model for developing and emerging markets is going to get larger.  Cracking the “reverse innovation” nut for products and processes in a way that addresses their needs will add significantly to the industry’s success ratio in regions with the most substantial prospects for long-term revenue growth.

Third, accelerated urbanization will create new opportunities for more efficient drug distribution and to link drug therapy more closely to the provision of basic health services. The trend offers the ability to demonstrate how access to essential medicines can drive improvements in primary care and overall health outcomes. This is particularly true in maternal and child health as well as the prevention and management of chronic disease.

Fourth, it follows that drug-makers should devote time and attention to contributing to health system reform, focused on understanding how medicines can more efficiently find their way to all patients who need them, not just the affluent 10 percent at the top.  Applying “cheapening technologies” at the root of the supply chain and learning more about basic consumer preferences is central to this.

Fifth, the relationship between health, disease and the degradation of resources and the environment is likely to see more scrutiny. Interventions, tools, and technologies that help mitigate these effects represent a strong potential growth area for companies active in the health space. Quite simply, it argues for a widening of the product franchise for pharma in the years ahead. Cancer prevention and diagnostics along with nutrition management, food supplements, and control of obesity are research targets that come immediately to mind.

Finally, consider the reputational assets to be found here. One of the most prominent statistics cited by the UNPF in recording Monday’s transition to the seven billion society:  a baby born in the US today has a 50 percent chance of living to the age of 100. It’s the best argument I have heard for awhile of the value from investing in medicines innovation.

William Looney, Editor-in-Chief

Drink up, even if it’s  only old wine in new bottles…

Yesterday’s mid-term congressional poll barely changes the stakes for pharma in its pursuit of its US legislative and regulatory agenda. The key message coming out of the results is stalemate on the big issues like health reform rollback and deficit reduction combined with modest progress — perhaps — in clearing some of the ideological brush that has barred progress on trade agreements, taxation of foreign-held assets, patent reform and  approval of follow-on biologics.

Looking ahead, what matters most for pharma is whether the new political alignment away from the Democrats will boost business confidence, restore productivity growth and improve US global competitiveness:  the industry depends on exports and its returns are heavily impacted by dollar currency fluctuations.  And the value of the dollar is itself a function of international confidence in US economic leadership.

On the personality side, the GOP sweep brings some old friends back into the mix, including newly elected senators Dan Coats [who previously served in the Senate and has spent much of the past decade as a lobbyist for PhRMA, Pfizer and other companies] and Rob Portman, a former USTR.  Senator Harry Reid’s win in Nevada is a net plus  because it prevents two key industry antagonists – Senators Chuck Schumer and Dick Durbin – from moving up to the post of Majority Leader.  More important, mainstay critics like Representative Henry Waxman lose their subpoena power to conduct embarrassing investigations in key areas of industry vulnerability like regulatory compliance, off label prescribing, transparency disclosure and pricing kickbacks.

The new GOP majority in the House will use the same powers on appropriations to pose difficult questions to the Obama Administration as it seeks to implement the hundreds of discretionary rule-making requirements ordained in the health reform legislation enacted in March.  The election of 10 new Republican governors is equally significant, as responsibilities for executing the reforms will be shifting to the states over the next few years.

But prospects for rollback — let alone repeal — of the health bill are remote:   PhRMA itself remains supportive of the overall objectives of the package and continuing Democratic control of the Senate combined with President Obama’s veto power means that sheer numbers are against it.  In addition, the new GOP leadership is mindful that adding jobs to the economy, not tinkering with a legislative monster like the reform bill, is the task the electorate has assigned them going forward.

One area of low hanging fruit is the potential for obtaining pharma’s long sought goal of ratification of three pending free trade agreements with Latin America and South Korea.  The latter is the big one due to Korea’s market potential and the precedent it sets on IP protection.  The new House leadership may be more willing to push this through, and in so doing the opportunity exists to positively reposition the industry as a job creator – and a driver of income growth,  given that average pay scales in US pharma remain the highest of any of the major business sectors.   PhRMA President John Castellani will be making a major pitch for the Korea treaty at a joint meeting with the Korean health industry and trade bureau in New York on Thursday.

On the regulatory front, expect renewed interest in FDA efforts to strike a better balance between tolerance for risk and the importance of encouraging additional innovation in drug discovery.  GOP control of the House will also have an ameliorative impact on more aggressive tactics by agencies like the Federal Trade Commission to expose anti-competitive practices in pharmaceutlcals.

Nevertheless, industry image has suffered significantly due to a wave of promotional and product safety scandals. It can be said that negative perceptions of the industry can no longer be divided strictly along party lines:  “pharma bashing” is emerging as bipartisan sport.  The industry has a fresh opportunity to change that — if the commitment to think differently is there.

I recently attended my first Healthcare Businesswomen’s Association (HBA) event—the 2010 HBA Leadership Conference, held October 27 – 29 in Philadelphia.

The Leadership Conference brought together women in all levels and all facets of the healthcare industry, from sales reps to CEOs, from Biotech to Big Pharma. I attended the conference for several reasons: to network and learn as a newbie to the pharma industry, to cover the seminars and speeches as a journalist, and to pick up some leadership and career development skills as a woman in the corporate world. I fulfilled all of these goals with the help of warm, welcoming volunteers and attendees who were eager to share their knowledge and their contacts with me.

The theme of this year’s conference was “Impact Delivered: Innovate, Orchestrate, Perform.” This theme was carried throughout the three days of workshops, seminars, networking events, and panels using the metaphor of an orchestra and a conductor to explain the relationship between a leader and his or her team members. The event that started the first full day of the conference was “The Music Paradigm,” presented by conductor Roger Nierenberg. This immersive, interactive experience had us, the attendees, sitting in the audience right alongside members of a symphony orchestra: the violinists and percussionists sitting alongside the physicians and CEOs and saleswomen of Big Pharma.

The conductor lead from the stage, and all of us got to see and here the fruits of the conductor and the orchestra working together all around us. In between beautiful moments of music, Nierenberg stopped to explain the trust, leadership, confidence, flexibility, creativity, selflessness, and honesty that comprises the relationship between the conductor and the orchestra, and between the individual musicians that make up this “team.” It was easy to infer how these skills and attitudes could be attributed to corporate teams, whether you’re talking about a major pharmaceutical manufacturing company, a small sales and marketing team, or the humble publication that aims to capture and convey the nuances of the industry (yours truly).

Every workshop, panel, and discussion after The Music Paradigm utilized this metaphor to teach the attendees something about being an effective leader/member of her corporate team or about using those skills to manage some aspect of her personal or professional life.

Three days surrounded by women who devote their lives and their careers to sharing their knowledge left me refreshed and hopeful—for my own professional endeavors, for the state of the industry, and for a future paved with understanding and collaboration. I remember calling my husband on the third day of the conference, trying to put into words why I was moved nearly to tears by the attitudes and aspirations of the women around me. We live in a world where, especially in today’s job market, most people are operating on a sheer “survival of the fittest” mentality when it comes to moving up in the corporate world, and where many jobs have become just another rat race to pay the bills. What an inspiration it was to wake up and share a breakfast table with a woman who has dedicated her life to curing cancer—and to spend three days with hundreds of women like this, who, together, can accomplish something so much bigger than any one of us ever could on our own.

Thanks to the HBA for being a practical, progressive venue to help all of us contribute to the greater good, and thanks to Pharm Exec’s Editor in Chief William Looney and Group Publisher Jay Berfas for introducing me to the inspirational side of the industry.

Call it an amuse bouche in anticipation of the banquet to come for consultants, lawyers and economists.

1. Healthcare is now not only a business, but a social good. With passage of the act, the US finally joins all the other OECD industrialized democracies—save for Mexico and Turkey—in declaring comprehensive, universal coverage an objective of government policy. Evidence from abroad shows that this commitment results inevitably in a rise in regulatory oversight as governments assume the difficult task of making equity concerns an element of market practice. In Europe and Japan, decisions are usually made by small elites, but in the US context this means a proliferation of new commissions, panels, and advisory groups, each with conflicting mandates and subject to influence by a range of interest affiliations. In both cases, “equity” eventually emerges as an empty rhetorical construct because where the public interest—let alone the patient—factors in is very unclear.

2. The consolidation “wave” becomes a tsunami. A simple rule of economics is that when demand—bringing more people into the healthcare system—is not balanced by increased supply—through more physicians and providers—prices and costs will rise. This in turn puts more pressure on margins for all players, and the predictable coping response is to try to control these market forces by becoming the dominant player. Hence what were once defining features of US healthcare—diversity, flexibility, and choice, especially among providers—will yield to the imperatives of size and scale. The trend is already evident in the networking of physician practices, multisite and geographically dominant hospital consortia, and the transformation of Big Pharma from product-niche innovators to service-oriented distribution platforms. And in a near majority of the 50 states today, the market for individual health insurance is effectively controlled by a single provider. While attention has been focused on increased payer clout, provider consolidation is growing too and will set the stage for major conflicts in the next few years over who gets paid, how much, and for what service. Renegotiation of reimbursement codes under CMS will serve as the politicized backdrop for the debate.

3. Reform is framed only as legislative intent—responsibility for execution lies elsewhere. Thousands of pages of implementing regulations must be drafted in a process that is likely to run through 2014, when key elements of the bill are slated to take effect; many of the most significant initiatives in the bill are being tested in the form of HHS waivers or pilot projects. These latter can take as long as a decade to furnish the evidence that can drive real policy changes, by which time technology or market realities will have made their findings obsolete. In addition, the 50 state governments are expected to assume responsibility for many provisions, from enrolling new Medicaid eligibles (to meet the law’s goal of adding 32 million new insured by 2019) to organizing the local insurance market exchanges that will allow consumers to obtain coverage at affordable prices.

More important, the confident predictions of the Democratic leadership in Congress that industry will toe the line based on how politicians interpret the law are misplaced—“gaming the system” to wrest competitive advantage will be firmly established as a tradable currency in reform. It is hard to conclude that the new law creates an environment where change is predictable.

4. Like all reforms, the new law has a domestic focus that fails to address healthcare as a driver of future US competitiveness in a global economy. There was little pushback on this score from the R&D industry, which chose to play the myopic “Washington insider card” to limit exposure to Medicare Part D price negotiation. This may have been a good short-term defense, but it ceded a larger opportunity to recast its image around a more positive agenda, focused on sustaining medical innovation as a driver of global competitiveness. The emphasis was on how drugs alone cannot bend the cost curve given their modest 10 percent share of overall health expenditures. Little mention was made of the more than 150,000 high-paying jobs lost in the R&D segment since 2007—a signal that US status as the global engine of new medicines may not endure.

5. No one—other than Big Pharma—thinks reform should preserve the industry’s high margins and profits. Failure to achieve a broader political realignment around support for the industry as part of an enlightened industrial policy agenda sets the stage for a new round of discussions about industry commitments beyond the $85 billion already pledged, as costs from additions to the insured population begin to mount over the next several years. More important, few observers have explored the policy precedent implied by the very notion of a drug industry “contribution” to defray the cost of expanded access. In a practical sense, how different is this from the punitive approaches taken by state systems like France, with its accord cadres that force the industry to bear the burden of compensating the government for annual overruns in budgeted drug spending, or the “one time” rebates in Germany that are now institutionalized through a consolidated network of sick funds?

6. Projected increases in volume sales of medicines do not guarantee higher profitability—the key metric that counts on Wall Street. A “race to the bottom” trend toward the commoditization of medicines through DIN-tagged generics will gather pace, while the service obligations and costs attached to gaining a good price for real innovations will continue to soar. To win access to reimbursement, high-priced biologics and specialty medicines will need to prove value through extensive testing in diverse, hard-to-recruit populations; against direct comparators rather than placebo; and after registration as well as before it. Investment in supplementary diagnostics will also be required, with the likely result of reducing the size of the treated population. All told, the impact could erode the innovator’s potential period of exclusivity and hence the advantages of a higher price point.

7. Reliance on comparative-effectiveness tools to determine access to medicines may be seen as “un-American,” but pressures to rely on an independent third party to render tough judgments on what health services to forgo suggest that barriers to doing so will eventually fall. Ironically, the driver of this change is likely to be the drug industry itself, as some companies seek to gain competitive advantage through more proactive engagement with the “value police.” This has been the experience in the UK, where many initial guarantees agreed to by industry in the operation of the National Institute for Health and Clinical Excellence [NICE] have been effectively removed as a consequence of efforts by individual companies to mitigate the impact of a negative technology appraisal on access to the NHS.