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

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.

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.

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.

By now, you’ve likely heard the news that the number of new molecular entities (NMEs) approved by the FDA has fallen over the past decade. But a new study by global management consulting firm Oliver Wyman sheds some new light on the data, claiming that not just the number of NMEs, but in fact the overall productivity of R&D in general, is what’s really suffering.

The study, “Beyond the Shadow of a Drought: The Need for a New Mindset in Pharma R&D,” looked at 450 NMEs approved by the FDA between 1996 and 2010. According to the data, two eras, roughly separated by the Vioxx withdrawal in September 2004, emerge: the Era of Abundance from 1996 to 2004, and the Era of Scarcity from 2005 to 2010. The drop in number of NMEs between the two eras is 40 percent—quite a massive divide.

But perhaps more alarming than the decrease in actual NMEs alone is the decrease in value of those that do make it to market. According to the study, sales for a single drug in it’s fifth year on the market dropped from an average of $515 million to $430 million between the two eras—a more than 15 percent decline. “The R&D productivity problem isn’t limited to the decline in the number of new drugs. We are also challenged because the value of new drugs produced is less,” says Jeff Hewitt, a partner in Oliver Wyman’s Health and Life Sciences practice and one of the authors of the study. “Not only do we have fewer blockbusters, but the smaller products are not making up the difference.”

Even as quantity of NMEs and profit from NMEs continues to fall, the cost of R&D continues to rise. According to the study, “R&D expenditures almost doubled over the study period—from an average of $65 billion per year in the Era of Abundance to $125 billion per year in the Era of Scarcity. But those dollars produced significantly less. In the Era of Abundance, drug companies produced an average of $275 million in fifth-year sales for every $1 billion they spent on R&D. In the Era of Scarcity, the [dollars produced] figure was $75 million.”

In light of these numbers, what should pharma do going forward? The study highlights a new mindset in which not just the number of NMEs, but the ROI and quality of each NME, is factored in. As Jerry Cacciotti, a partner at Oliver Wyman and one of the study’s authors, notes: “Drugs will remain rare. Strategy will be set differently. The bar on innovation is higher; drugs must be used to reduce overall cost in the healthcare system; and companies will further increase their focus in disease areas.”

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

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

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

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

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

At first blush, a system whereby countries or geographic areas are carved out along socioeconomic lines maximizes profit: prices are set according to consumers’ “willingness or ability to pay,” which can bring previously unaffordable treatments into use. However, a tiered price can work against local competition in a given area, which tends to deliver a lower sustainable price over the long term, according to a critical analysis of tiered pricing done by authors from Medecins Sans Frontieres and Harvard School of Public Health.

Of the case studies examined in the report, Abbott’s price for the HIV treatment lopinavir and ritonavir (LPV/r) remained at $500 in African countries and other “least developed countries” from 2002 to 2007, or until the Clinton HIV/AIDS Initiative announced a generic LPV/r for $470. Abbott then reduced its price to $440, suggesting that manufacturers “do not have strong incentives to reduce tiered prices in the absence of competition, nor are tiered prices immune to competition when it does arise,” according to the report.

In the case of Bristol-Myers Squibb’s antiretroviral (ARV) treatment for HIV, the company created a Category 1 tier including 57 primarily low-income and African countries, but excluding southern African countries, which were lumped into a higher income Category 2. Southern Africa has the highest HIV-prevalence rates in the world, and the impact of a Category 2 placement means that BMS “prices its important second-line drug atazanavir 25% higher, at $547, in southern Africa, compared with $412 in other [Category 1] countries where HIV prevalence is lower, and in a few cases, income is higher,” the report found.

In the case of Lilly’s drug-resistant TB products capreomycin and cycloserine, however, tiered pricing did work to create lower prices than competitive production, but there were special circumstances. For example, TB endemic countries participating in the “preferential price” scheme facilitated by the WHO Green Light Committee beginning in 2002 – a program that also transferred technology to local generics manufacturers in support of local production – did not see a cheaper generic reach the market. In the case of capreomycin, no generic products were WHO pre-qualified for use as of September 2011, and cycloserine had gone up in price by a multiple of four, after Lilly stopped producing the drug. Lilly’s tiered pricing did in fact keep prices at the lowest rates, although demand was low and production capacity was limited.

“Tiered pricing does not necessarily result in the lowest sustainable prices, nor does it reliably lead to price reductions over time,” the report’s authors conclude. “In comparison, when markets are sufficiently large and multiple sources of production exist, robust competition has consistently proven across different therapeutic areas to result in lower prices.” Tiered pricing also leaves “too little decision-making power to governments, which are accountable to their populations under international law for insuring access to medicines.”

Countries that aren’t strong negotiators, and can’t convincingly threaten compulsory licensing, for example, get the short end of the stick with tiered pricing. In 2006, Honduras purchased LPV/r for about six times more than Brazil paid, despite the fact that HIV rates are equivalent in both countries, and Honduras per capita gross national income is roughly 25% of Brazil’s. To create a truly “win-win” situation for manufacturers and patients, governments and manufacturers will need to consider new models that “de-link” medicine prices from R&D costs. How countries contribute to R&D financing as a global public good will influence the new models that help to bring new medicines to the most needy.

If there is one message that big pharma has applied consistently over the years, it is that drug development is very expensive. Big bucks and long-term investment in the institutional know-how and capacity built exclusively through private enterprise are what count in delivering new therapies to patients.  But like everything else in a dog-eared play book written in what might as well be the technological equivalent of the quill pen, that consensus is now being “goosed” — and from within the industry’s own ranks at that.

In a September 27 speech to the Indian pharma association that attracted little notice here in the US, GSK CEO Andrew Witty plucked some of the substance out of that linear defensive policy wall built by the industry over the past two decades, namely, that the high risk of compound failure leads inevitably to high costs and that this in turn justifies big margins on new launch therapies, across the board.  In his remarks, Witty literally turned the argument on its head, declaring that the industry-backed estimate of more than a billion dollars on average to bring a compound forward from discovery to market authorization was “unacceptable.”  The only “evidence”  it provides is for the perpetuation of a 25 year old model of commercialization, one that frames the debate around larger issues of pricing, IP  and access in a manner that serves the interest of neither the patient, society — or the industry.

What Witty was alluding too is the folly of a message that relates high costs and high prices to what is in essence the burden of low R&D productivity — and the honest way to call that is an “industry failure,”  which he did in his talk.  “We need to fail less, and deliver more,” he said, and directly linked success in restructuring the R&D enterprise to lower development costs in making the best new innovations more affordable, at all income levels, within and across markets.

As usual, Witty raises important and provocative issues that all stakeholders in health ought to take into account.  Just one that comes to mind:  If high prices that lower access are attributable to a flawed R&D development model, is there a readily applicable formula that industry can embrace in delivering better results at lower costs?

From an industry-wide perspective, Witty has accentuated the need for a consensus to promote those “lean management” business tools that can boost productivity and dramatically lower the cost of failure.  Yet to date almost all the evidence accumulated and backed by industry focuses on the inevitability of escalating commitments, whether it be the opportunity cost of sinking scarce funds into early discovery ventures, or the inability to predict with any certainty the response of payers to pricing post-launch.  Overall, the numbers paint a scenario of gloom:  a survey released by the consultant group KPMG last month finds that ROI from in-house investment in R&D among the 30 top drug makers is today half of what it was in 1990.

And while pressure for more affordable pricing is gaining momentum everywhere, due to a demographic and income transition in many emerging markets and the fiscal meltdown in mature countries, new costing commitments placed on the industry are rising too.  How many CEOs are really aware of the multi-million dollar price tag for post-marketing safety studies required by regulators over a time period that often extends beyond the life of the product’s patent?  Funding the demand for post marketing information about how well innovations work in practice is beginning to exceed what is spent to obtain a license to sell in the first place.   Or the endless, “write another check” implications of expanded access programs for yet to be approved drugs, where for ethical reasons there is no end point for giving drugs for free to patients with no other treatment options.

Hard data drives policy — it makes industry positioning credible.  Fresh arguments with verifiable metrics to show the industry actually has a strategy to make its own technology cheaper — and thus suitable for a global market of radically diverse price points — will be vital to the repositioning that Witty seeks.   In other words, the challenge is that while the problem is now defined by the industry itself as an industry responsibility, can industry deliver on the solution?

William Looney, Editor-in-Chief

Thirty years is a long time in any industry. The coalmining industry, the market for air travel, or telecommunications and computing technologies each offer compelling demonstrations of how much can change in such a short period. Few market leaders in those sectors have survived.

Against that background, the pharmaceutical industry has done pretty well over the last thirty years — and so have many of its players. Eli Lilly, Pfizer, Boehringer Ingelheim, Hoffman-La Roche, Merck Sharpe and Dohme — all were big beasts, and they still are. The industry was one of the darlings of the investment community back then, and still today it is seen as one of the safer counter-cyclical havens. And the industry’s enduring qualities as a powerhouse of scientific advance and a generator of high-quality jobs and exports continue to assure drug firms of sympathetic ears in many of the corridors of power.

Survival has, however, been very much the prize of the fittest. In a world grown harshly competitive, many firms have fallen by the wayside, been trampled underfoot, or have simply been lost without trace. Three decades of successive concentrations have thinned the ranks of the industry to a mere shadow of its former self. The roll-call of once-illustrious names has been abbreviated by bankruptcy, mergers and acquisitions. Who now recalls Richardson, which merged with Merrell before being taken over by Dow? There are many working in the industry today who are unaware that a proudly independent Beecham – with its breakthrough work on antibiotics – merged with SmithKline and French before its name was obliterated altogher from the marquee when Glaxo took over the entire operation. The French industry was dominated by Rhône Poulenc and Rousel Uclaf when Sanofi was still a struggling adolescent.

The relentless search for efficiencies, for leaner management, for shareholder value, and for  market share has hit the pharma sector hard. Gone are many of the notorious extravagances of the past. Product launches on the Orient Express or on yachts in the Mediterranean attracted hostility and accusations of a greater focus on marketing than on research. Armies of highly organised sales forces provoked questions among the sceptical about how much success had come to depend on science, and how much on subversion. The rise of a new and assertive form of consumer activism in the 1980s found ample fuel here, and prompted deeper soul-searching among the organisations that were paying for medicines — the consequences of which are still being played out today.

Major advances in diagnosis and treatment (AIDS was an ill-understood but fatal condition in the 1980s) tend to obscure the fact that it is some thirty years since the first blockbuster medicines emerged. Huge optimism was created by the revenues from innovations like cimetidine and ranitidine. But the resulting search for world-beating products not only led to some revolutionary earnings by revolutionary products. It also imposed new economic strains that took their toll of the sector. For many, the development costs and high risk were more than they could comfortably sustain.

In parallel, the operating context was changing rapidly. High-profile cases of big new products with big adverse effects led to some conspicuous withdrawals from the market — and to constantly-rising requirements from regulators who had burnt their fingers through injudicious authorisations. Extensive demands for greater preclinical and clinical testing tightened the screws still further on the industry’s business model, just as the opportunities opened up by biotechnology applications were also making research more expensive and unpredictable. And alongside the strains on innovation, challenges multiplied in the marketplace, from increasingly adventurous generic producers, and the still-sharper elbows of the burgeoning parallel trade sector.

The spectacular increase in international products and international marketing exposed as never before the fundamental weakness confronting the industry in Europe: the divergent national requirements, which split a potentially large market into a patchwork of distinct fragments and hindered the continent-wide launch of innovations. This was the background to the development, throughout the 1980s, of the first attempts at a pan-European system of obtaining marketing authorisations. It was, at times, a painful experience, handicapped (and occasionally even sabotaged) by resistance from national authorities to what they saw as an erosion of their prerogatives, and boycotted by some major firms fearful of concentration of power at European level.

The deficiencies of those initial procedures led to the construction of the more robust mechanisms of the European Medicines Agency. This has, over the fifteen or so years of its existence, brought a new degree of harmonization to product authorization — and extended its authority to a wide range of related issues that have arisen, from advanced therapies to the promotion of smaller biopharm companies.

Over the same period, the industry in Europe managed to persuade the European Union to take action to compensate firms for the growing delays in bringing new products through the ever-lengthening development periods. Patent term restoration legislation and subsequently data protection rules provided some relief for innovators against the depredations of generic competitors.

But if the industry had some success in winning arguments about the merits of innovation, it was conspicuously less successful in convincing national or European authorities to put their money where their mouth was. Attempts by brandname companies to contain the rampant growth in parallel trade  failed repeatedly — and on more than one occasion, spectacularly. European court rulings consistently upheld the EU doctrine of free movement of goods within the EU, and when one European Commissioner acceded to industry urgings to raise the question of overturning this sacrosanct principle, he was left high and dry because industry failed to deliver on its promise to provide him with the supporting evidence. It took years for the industry’s credibility to recover.

More significantly, European countries, even within the EU, retained absolute sovereignty in their decisions on pricing and reimbursement. So the best that the industry was able to obtain was an EU directive requiring national authorities to operate in a transparent fashion about their reasoning for decisions – but the decisions nonetheless remained entirely autonomous, and increasingly parsimonious, so industry gained little or nothing.

This divergence in economic decision-making continues to bedevil the operating climate for the industry — and all the more so as the winds of economic crisis whistle more threateningly. The assumptions that had prevailed for so long, that healthcare spending should continue to rise, are now subject to open challenge. The pressures on drug budgets — which have in any case been an easy target in healthcare financing over recent years — are inevitably increasing as a consequence.

The industry in Europe has been engaged for more than two decades in a protracted  lobster quadrille of round tables, forums and high-level groups with politicians, payers and patients, ostensibly to build a European policy for pharmaceuticals that can guarantee access to medicines while promoting research. But the overall effect has been to blunten rather than sharpen industry arguments for better treatment in terms of market access and adequate pricing and reimbursement.

The recent emphasis on ensuring the sustainability of healthcare systems — a constant theme now in European political debate — is not helpful to industry’s renewed bid for recognition of the importance of innovation.  There is plenty of talk on all sides about the need to promote innovation — in Europe this type of rhetoric has attained epidemic proportions — but the talk is yet to produce any real shift in attitude among healthcare payers. The debates are complicated by new uncertainties over the prospects and perils from advances in areas such as personalised medicine or e-health, or the challenges of providing care for increasing numbers of old people. But it will be unwise of Europe to spend another thirty years looking for solutions. The game has been changed out of all recognition, and the schedule dramatically abbreviated, by the rise of the new economies. No longer will the debate focus on the decline in Europe’s performance compared to the US and Japan. Now the industry lives under the shadow of China and India’s might — and they will not stand patiently aside while Europe reflects on how to maintain industrial competitiveness.

Reflector is Pharmaceutical Executive’s EU correspondent.

Robert Epstein, chief clinical research and development officer at Medco, said too often pharmaceutical companies “show up in the middle of Phase III with a half-baked cake,” which inevitably raises questions. “What about sub-populations with side effects? What about an additional endpoint, an observational study or comparative information?” asked Epstein.

In response, panel moderator Richard Pasternak, an associate professor at Harvard Medical School and a former Merck VP, said “payers aren’t interested in early stage research, and pharma isn’t set up to listen to them.” Barry Gertz, SVP and head of clinical research and regulatory affairs at Merck, suggested that despite regulations and other challenges, “We have to force that dialogue to occur. The mechanisms haven’t evolved to include the needed communications, and the structure for payer/pharma communications.”

Epstein said R&D departments – not marketing departments – should be in direct contact with payers at the very earliest stages of development. Researchers, after all, are “more candid,” and they “ask the right questions.” Roger Longman, founder of Windhover Information and CEO at Real Endpoints, said Medco may be interested in early stage communications with pharmaceutical researchers, but “other payers aren’t, and R&D [researchers] aren’t.” R&D departments “are marketing-driven,” and health insurance payers have “very little incentive to dialogue with pharma early on,” said Longman. “Insurance companies wait and then say you don’t have the right data, we’re going to screw down the price, and government is banned from using cost effectiveness to determine how much it will pay” for a drug. Longman cited Italy as the “most aggressive” geography for value-based agreements involving payers in the drug development process. In Italy, “you have a drug, you bring it to a payer, an endpoint is identified, and if you meet the endpoint, you get paid,” he said.

Peter Pitts, president of the Center for Medicine in the Public Interest, wondered which R&D groups would be available for speaking with payers. “Are we talking about the Quintiles of the world? Who, inside pharmaceutical organizations, is left to think about clinical trial designs?” asked Pitts, somewhat rhetorically.

Regardless of what endpoints are pursued in clinical trials, Epstein said comparing a drug to placebo, as opposed to a comparable therapeutic product, “doesn’t work for us.” He cited a JAMA article published last May, finding that over “50% of all new drugs” approved by FDA come with comparative effectiveness data. The study also found that more than two-thirds of new molecular entities recently approved in therapeutic categories where alternative treatment options exist contain comparative effectiveness data.

The panel, titled “What is ‘Value’ and How Can it be Measured and Demonstrated in Therapeutic Innovations,” was part of a forum associated with the Galien Foundation’s Prix Galien ceremony, held last night in New York City. Prix Galien winners this year included Janssen’s (J&J) Stelara and Amgen’s Prolia, for best biotechnology products, and Pfizer’s Prevnar 13, for best medical agent.