Last week, members of the Healthcare Leadership Council (HLC) – which represents a smattering of top pharma companies, academic institutions, hospitals, pharmacies and other health services providers – released a four point plan that would generate $410 billion in savings over ten years. Most of those recommendations, which include the creation of a Medicare exchange for private plans, an increase in the Medicare eligibility age (from 65 to 67) and a cap on damages in medical malpractice cases, are absent from the Obama plan.

The lone recommendation that both plans have in common is a request to raise premiums on higher-income Medicare beneficiaries. The Obama plan would raise premiums under Medicare Parts B and D by 15% for this higher-income group, eventually extending the 15% increase in premiums across a quarter of all Medicare beneficiaries, the 25% with the highest income levels. The HCL plan goes further, and would require all Medicare Parts B and D beneficiaries with annual incomes of $150,000 or above to cover their full premium costs associated with Parts B (physician services) and D (prescription drug benefit). HLC president Mary Grealy noted that beneficiaries making over $150,000 annually represent “less than three percent” of all those covered under Medicare Parts B and D. That particular recommendation would save $19 billion over ten years, while the Obama Parts B and D premium raise would save $20 billion. The HCL plan, however, would also make beneficiary cost-sharing under Medicare Parts A and B uniform, which would save an additional $32.2 billion, Grealy said during a call with reporters.

The Obama plan is more closely aligned with recommendations made by the PCMA, however, a trade group representing the largest PBMs. For its part, the PCMA says PBMs – which administer prescription drug benefits to over 210 million Americans – can save the federal government $100 billion over ten years, by increasing generic drug utilization, reducing the exclusivity on biologic drugs, and allowing price negotiations under Medicare Part D, among other things. The Obama plan embraces all three of these measures, as well as a ban on pay-for-delay drug settlements, a measure the PCMA included in its letter to the Super Committee. The Obama plan, as written, would shorten market exclusivity for biologics from 12 years to seven years, and would require drug rebates for low-income Medicare Part D beneficiaries. It also advocates for an increased use of mail-order pharmacy, a cost efficiency measure favored by the PBMs. The Obama plan’s Part D drug rebate would save $135 billion over 10 years, by far the largest single cost-cutting measure in the $248 billion Medicare savings proposal. The Obama plan also calls for a strengthening of the Independent Payment Advisory Board (IPAB) – which has yet to be appointed – by lowering the target rate of Medicare spending growth from GDP per capita growth rate plue one percent, to GDP plus 0.5 percent. If Medicare expenditures rise above the predetermined target growth rate, IPAB will recommend policies to Congress to reduce spending. Many of the proposals in the Obama plan cite recommendations from the most recent Medicare Payment Advisory Commission, or MedPAC, report. Full text of the Obama plan can be found here.

More proposals are in the works, with cost-cutting suggestions from House and Senate committees due to the Super Committee by mid-October. PhRMA, which has not released a comprehensive savings plan for the Super Committee, has said that it will not support any legislation that tinkers with Medicare Part D. At this point, it seems likely that PhRMA won’t be supporting the Super Committee’s final decision on where exactly to trim a total of $1.5 trillion from the nation’s budget, since the Committee will almost certainly tinker with Medicare Part D. That decision is expected in November.

With the “largest and most significant” mail-order business in the industry, according to Shaun Urban, president of Ogilvy CommonHealth payer marketing, and Ogilvy Healthworld payer marketing, Medco brings a high-margin platform to Express Scripts, a company with expertise in driving generics utilization. Patients using mail-order pharmacies are primarily suffering from chronic conditions, and need maintenance medications; by offering co-pay rebates to patients for a 90-day supply of a medication, the companies incentivize mail order use among certain populations.

That doesn’t sit well with bricks and mortar pharmacies, which sign contracts with PBMs often out of economic necessity, given the breadth of a PBM’s patient base. “The relationship [between PBMs and retail pharmacies] is not a fair relationship,” says John Norton, a spokesperson for the National community Pharmacists Association. “What PBMs generally do is steer patients into their mail-order pharmacies through mandates or incentives,” such as restricting a retail pharmacy’s ability to provide a 90-day supply, or offering a three-month drug quantity for a two-month co-pay price, says Norton. On top of that, PBMs nickel and dime pharmacies through contractual agreements, which establish drug reimbursement rates, and they (PBMS) also plague pharmacies with financial audits, says Norton. “They game the system to their advantage, and that’s the dynamic we’re faced with – this merger will create a bigger monster, who’s able to push the model in a more aggressive fashion.” Walgreen’s announced in June that it would not renew its contract with Express Scripts for 2012, despite an expected $5.3 billion in drug sales the pharmacy expects to realize through the relationship in 2011.

Indeed, a combined Express Scripts/Medco entity would “negotiate downward,” based on its size, for prescription filling fees and reimbursement at the pharmacy level, but also in discounts and rebate contracts with drug manufacturers, says Urban. Despite that kind of pricing leverage, Medco has a history of being “a little more pharma friendly” than Express Scripts or CVS Caremark, the third major PBM player. Medco “engages with pharma in areas like disease management programs, wellness and prevention initiatives, partnering on adherence interventions and programs,” on a fee-for-service basis, says Urban. On the specialty pharmacy side – Medco owns Accredo, the market leader, and Express Scripts owns CuraScript – Medco helps pharma with “injection training through their nurse educator resources,” and that kind of historic relationship with pharma “now may trickle over into the newly-formed Express Scripts/Medco organization,” says Urban.

Although Express Scripts led the industry in brand drug utilization when it introduced its proprietary “bid grid” system, letting drug manufacturers bid on the rebates they will provide to PBMs, the company also demonstrated an ability to drive generic utilization, a side effect of a more restrictive formulary system. The proposed Medco acquisition would potentially increase generic market share against brands, since Express Scripts has “a history among the three big PBMs of being able to most effectively drive generics utilization, and now with that reputation and demonstrated capability, and unequivocally having the largest mail-order piece, the risk of greater generic utilization is quite significant,” says Urban, adding that PBM margins on generic drugs are “much greater” than on brand drugs.

The deal, if it survives FTC scrutiny – Norton’s association, as well as the National Association of Chain Drug stores, will do everything thing they can to stop it – will offer yet another reason for generics manufacturers to raise a toast.

“Today’s decision introduces a critical distinction between brand-name and generic drugs. Consumers of brand-name drugs can sue manufacturers for inadequate warnings; consumers of generic drugs cannot,” writes Sotomayor. “These divergent liability rules threaten to reduce consumer demand for generics, at least among consumers who can afford brand-name drugs.”

In an article published in Pharmaceutical Executive’s May issue, John Brenner, a partner at Pepper Hamilton, suggested that it’s not inconceivable for plaintiffs seeking “failure to warn” protection to take up their grievances with the brand drug manufacturer, the originator of a given drug label. Generics companies must, by law, use a verbatim copy of the original brand drug label, regardless of new risk information or adverse events reports.

Commenting today on the Supreme Court’s decision, Brenner noted that two state courts, an appellate court in California (Conte v. Wyeth, November 2008), and a Vermont District Court (Kellogg v. Wyeth, October 2010), have ruled that brand drug companies could be held liable for the labeling on a generic drug, and therefore be subject to claims. While the California and Vermont decisions don’t necessarily constitute a consensus, Brenner said that “there are 50 states out there, and a lot of them have a great penchant for saying, ‘We really don’t like to leave our injured citizens without a remedy.’”

Writing for the majority, Justice Clarence Thomas acknowledges “the unfortunate hand that federal drug regulation has dealt [the plaintiffs],” leading Brenner to surmise that “there can’t be any question about the fact that the majority knew exactly what it was doing.” In her dissenting opinion, Sotomayor writes that “a drug consumer’s right to compensation for inadequate warnings now turns on the happenstance of whether her pharmacist filled her prescription with a brand-name drug or a generic…if she takes a generic drug, as occurs 75% of the time, she now has no right to sue.” Brenner says Sotomayor may want to check with the plaintiff’s bar about that one. “[Sotomayor] doesn’t know how clever these folks are,” said Brenner.

UPDATE: Brenner points to a statement released yesterday by metoclopramide (the generic form of Wyeth’s Reglan) claimants, including Elizabeth Conte of Conte v. Wyeth, announcing plans to take their cases to the brand manufacturer, in this case, Wyeth (now Pfizer). If generics companies can’t be held liable for what Reglan users consider an insufficient warning label, then Wyeth/Pfizer itself must be liable, according to the statement. “This ruling puts the responsibility back in the lap of brand name manufacturers,” said Michelle Schwartz, a metoclopramide victim who is also a spokesperson for the Reglan Metoclopramide Victims Organization, in the statement.

The deal is expected to skyrocket Teva’s brand drug portfolio to $7 billion in annual sales, making Teva “not only the world’s largest generics company, but also one of the world’s largest specialty pharma companies,” said Shlomo Yanai, Teva’s CEO, on a conference call yesterday. Post-acquisition, the combined entity boasts “more than 30 products in the late stage, and three awaiting filing,” said Yanai.

Trimming in-house R&D to escape the rigors and expenses of bringing a drug to market – investors are less willing to put their money on a horse that takes over a decade to reach the finish line – has become a strategy du jour for some pharma companies. It’s better to let the smaller, scrappier companies assume the risks associated with early stage development; once a compound proves itself in clinical trials and with regulators, then big pharma can pounce on it, the thinking goes. That was earlier suitor Valeant’s rationale for its own abortive bid for Cephalon.

Teva is bucking that trend with its acquisition of Cephalon, trumpeting the latter’s success in “doing what we call search and development: identifying pipeline products in an early stage, and taking them all the way through to commercial success,” said Yanai on the call. Teva has two primary brand drugs on the market, Copaxatone (for MS) and Azilect (for Parkinson’s). Copaxatone (glatiramer acetate) earned $938 million in 2010, representing 18% of the company’s total net sales in 2010, according to an SEC filing. Azilect had sales of $89 million in 2010. Cephalon’s best-selling product, Provigil (indicated for excessive sleepiness associated with narcolepsy), comprised 41% of Cephalon’s consolidated net sales in 2010, but is expected to meet generic competition in April 2012, according to an SEC filing. The combined company will have 20 branded products on the market, according to a statement.

Cephalon will bring new therapeutic classes to Teva, specifically pain management and oncology, and will also extend the company’s footprint in Europe, Asia and Latin America, Yanai said on the call. The deal will also create marketing and sales “synergies,” but Denise Bradley, a US-based spokesperson for Teva, said in an email that it’s too early to elaborate on what those synergies might entail. Cephalon’s own generics business, Mepha, earned $400 million last year.

Last March, Teva forged a deal with packaged goods giant Procter & Gamble, to leverage both companies’ selling networks for their combined portfolio of over-the-counter (OTC) drugs. The partnership covers all markets outside of the US, and is worth an estimated $1 billion, according to a Teva release.

The cries of anguish at Spanish drug-spending squeezes are coming not only from Madrid, but from many of the autonomous regions around the periphery of the country too.

After almost a decade of continual disruption and downward pressure on pricing, the medicines industry there was beginning to think that things couldn’t get any worse. That was before 2010 — which has neatly demonstrated that things could indeed get worse — much worse.

First, the reference pricing system first introduced in 2004 was tightened up, with the prices determined by the least expensive daily treatment cost, based on defined daily dose. Products with prices more than 30% above this level have to bring their prices down or lose reimbursement status. And all older products have to cut their prices by 30% even if there is no generic rival in Spain. Then in May price cuts of up to 30% were imposed on generics. In June, new rebates of 7.5% were imposed on medicines still under patent and not affected by the reference price system, with orphan medicines generously permitted a rebate of only 4%.

And as if these attacks from the country’s central administration were not enough, medicine manufacturers found themselves simultaneously assailed from the regions too. Back in 2002, Spain granted its autonomous regions a range of rights and responsibilities for health care. These did not include issues like marketing authorisations or decisions on pricing and reimbursement for medicines, which remained at national level. But the regions, as desperate for savings as central government, have now taken matters into their own hands and started trying to bring down demand and limit supply.

Some regions are setting up agencies to conduct their own assessment of therapeutic value, and creating their own regional prescribing guidelines. Others are establishing their own regional reference pricing systems. And some are vigorously encouraging – even requiring – generic prescribing. In Galicia, for instance, local officials estimate they will save 300,000 euros a day from the limited list they have instructed doctors in the region to abide by. The Spanish industry association, Farmaindustria, has already initiated legal action against these moves – as has the central government.

The seriousness of the problem can be easily gauged from the unlikely alliance formed last month by branded and generic manufacturers (along with wholesalers and pharmacies) to fight the spending squeezes coming from central government and from the regions. They said the cheaper prescribing campaign “impacts citizens” — which may be true. What is certain is that it also hits the players in the medicines market, with the cuts estimated to total 2.8 billion euros, or 14% of the sector’s turnover, and to threaten 25,000 jobs.

But like the rain, the pain could spread much further still. Regional drug lists are not new, but what makes them a more significant risk nowadays is the fashion for – indeed close to obsession with – health technology assessment. Serious questions have been raised about the quality of the evaluations by Spain’s regional authorities. There are also concerns over how appropriate the resulting guidelines are, and over the fitness of the mechanisms for imposing them.  Right now, the European debate on health technology assessment is starting to take off in a big way, and just at the time when the European Union is beginning a review of its rules on what member states can and cannot do in terms of drug pricing and reimbursement. If the trend towards local assessments of products’ merits gathers pace and goes unchecked, in Spain or elsewhere in the EU, it will destroy any hope of fixing the minimum standards for health technology assessment that the European industry has been seeking as a way of preventing abuse.

One can guess what Eliza Doolittle might have said to encourage the European drug industry to move a little faster in responding to the challenges it faces.

The European Generic Medicines Association, to give it its full name, certainly showed a fine sense of timing in late January with the launch of its five-year plan for boosting the use of generics. It came out with its manifesto just days after the European Commission had announced another round of measures to put the squeeze on innovator drug firms that try to hinder the launch of generic copies.?

The combination of initiatives presents a formidable challenge to the innovative industry at what is already a difficult time. The European Commission, which is the EU’s competition authority, has requested a number of originator and generic companies to submit copies of their patent settlement agreements reached last year.

The scrutiny is a further phase of its bid — conspicuously begun with the pharma sector inquiry it conducted two years ago — to prevent what it sees as anti-competitive deals that delay market entry of generics. The Commission says there are “significant risks” that European consumers are being denied access to cheaper medicines. And it claims that as a result of its actions to date, “potentially problematic agreements have decreased significantly.”

Without question, the effect of the Commission’s interventions, including this latest probe, has been to bring new uncertainties into product life-cycle planning for innovative companies — what the Commission artlessly alludes to as “an increased industry awareness of which settlement agreements may attract competition law scrutiny.”

EGA detects an ally in the Commission, and a soft underbelly in the innovative sector. The EGA five-year plan includes demands for changes to the EU regulatory environment “to deal with the growing demand for generic and biosimilar medicines.” It wants a broader interpretation of the EU concept of the reference product “so as to reduce the unnecessary repetition of clinical studies.” It wants measures to prevent “anti-competitive strategies” aimed at delaying the entry of generics and biosimilars. It wants the EU’s decentralized authorization procedure to be streamlined, with “improved” mutual recognition, and modifications to the centralised procedure to make it easier for generics to access it. And it wants member state medicines agencies to provide information on generic and biosimilar medicines, and to prevent “negative campaigns” against them.

The generics industry is on a roll. Naturally, like many other private enterprise concerns, it wants to increase its market share. But it can argue its case by appealing to a less conspicuously self-interested concept that is now, very conveniently for EGA, all the rage in Europe. The generics industry is arguing that generics “hold the key to healthcare sustainability in the EU.” That sounds like an excellent idea to nearly everyone. Sustainability is a good clean word, and hard to argue with. And healthcare authorities in Europe have been bandying it about for months as if the word itself was a panacea.

Recent debates in the European Parliament and the Council of the EU have repeatedly highlighted its importance and given it almost sacred status.? At the same time, EGA is able to exploit to the full the “Big Pharma bad guys” assumptions that underlie much of the current European debate on healthcare in general and medicines in particular, with more than a following wind from the suspicions so publicly aired by the European Commission’s competition investigations. ?But life is not always simple — and certainly not in the world of European medicines.

The “sustainability” being championed is open to question, because while it may mean “cheaper” (and as far as the EGA argument goes, it certainly does), but over the longer term, if it fails to deliver new medicines too, its sustainability may appear quite different.

Similarly, any assumption that the health of competition (and hence the health of the population) is best promoted by extravagant campaigns focusing on end-of-patent situations should equally be subject to challenge.

EGA is a powerful advocate for its view of the world. The innovative medicines sector deserves equally eloquent representation. All the evidence in the EU at present is that research-based companies are not getting their arguments across. They should.

Reflector, Brussels Correspondent.

The Indian pharmaceutical market is set to grow to $8 billion in 2010—thanks in part to an expanding middle class and the second largest workforce in the world. Generics are dominating the market at a 92 percent share, according to a study conducted by research firm RNCOS. Rather than set up shop and build brands—or even branded generic offerings—from scratch, attempting to squeeze into an already overcrowded space, acquiring an already-established company (like Piramal) is a more cost-efficient step. Abbott anticipates this move will put it at the top of the (very tall) totem pole on the subcontinent.

Piramal doesn’t yet have any proprietary drugs on the market, but it does have several candidates that have either completed or are near completion of Phase II trials. Two oncology targets are being developed with Merck as a partner; Eli Lilly is partner for two in the diabetes/metabolic arena.

Big Pharma’s commercial diversification model now seems to want a little bit of both. But public policy always lags behind business realities, and the old innovator vs. generics contest is now playing out in a volatile new venue—the World Health Organization (WHO)—and influencing its approach to control of counterfeit medicines.

Simply put, key countries in WHO want to leverage the organization’s prestige to sever any connection between use of generics and the rising global trade in bogus drugs. Brazil, India, and Turkey, among others, have a strong industrial policy bias in favor of off-patent generic medicines, and are wary of suggestions that such medicines might be “sub-standard” in terms of safety and quality, when compared to patented innovations.

Their claims were bolstered by recent action of the European Union to sequester shipments of Indian drugs it believed infringed on a patent held by a Dutch company. It was asserted that since the patent holder could not guarantee the quality of goods manufactured outside of its control, the shipped medicines from India were—in essence—unsafe. Brazil has now filed a complaint against the EU at the World Trade Organization (WTO). The case is certain to highlight the commercial implications of being tagged as an unreliable supplier of a product deemed essential to public health.

A decision sponsored by Brazil and endorsed last week by the World Health Assembly (WHA) proposes to investigate ousting the innovative industry from future engagement in the WHO’s counterfeit work on grounds of “conflict of interest.” At present, the pharma industry trade association, IFPMA, is a full member of the WHO International Medical Products Anti-Counterfeiting Task Force (IMPACT), which coordinates activities in this area. Eliminating IMPACT is the goal, in favor of a new group that would leave decision-making on counterfeit trade solely in the hands of member governments. This effectively cedes control to Brazil and its emerging market allies whose interests lie in protecting a sector (generics) it considers strategic. A decision on IMPACT is due by the next meeting of the WHO Executive Board in January.

If Big Pharma is interested in maintaining a level playing field on generics produced in emerging markets, and in international trade in general, then reversing this value shift at the WHO ought to be a priority. It is doubly important as these countries begin to develop approaches to the authorization of biosimilars based on local regulatory standards that might charitably be called “opportunistic.” It won’t help the cause of transparent and non-discriminatory regulation if the innovative industry is shut out in defining the global threat from fake drugs.

The health reform proposal unveiled by the White House on Feb. 22, 2010 retains a number of provisions that directly affect drug coverage and industry revenues. The plan highlights that it will close the Medicare drug benefit “doughnut hole” by 2020 to make drugs more affordable to the elderly. Seniors will get some relief this year through a $250 rebate, and coinsurance will phase down over the next decade.

Because broader insurance coverage and gap closure will expand drug sales and industry revenue, the Obama plan also increases a proposed “assessment” on pharma from $23 billion in the Senate bill to $33 billion, starting in 2011 to avoid tax problems. Medical device makers also would have to pay $20 billion in fees over 10 years, starting in 2013.

Similar to previously approved Senate and House bills, the plan retains a boost in Medicaid drug rebates from 15 to 23 percent and authorizes discounts on drugs sold to community hospitals. Drug companies would have to fully disclose financial arrangements with doctors, and pharmacy benefit managers would report rebates and discounts on drugs, along with success in boosting generic drug use.

The proposal also seeks to curb “pay-for-delay” deals between brand and generic drug manufacturers; stipulates that effectiveness research would not influence coverage decisions; and supports establishing a pathway for follow-on biologics.

For these and most of the provisions in the White House announcement, there are few specifics or proposals for implementation.

Many key provisions in enacted Democratic legislation are featured in the plan: an insurance exchange to provide coverage options to the uninsured; tax credits to help individuals and small business pay premiums; curbs on insurance industry discriminatory practices; aid to state Medicaid programs; an individual coverage mandate (with low penalties); and cuts in rates for Medicare Advantage plans.

Most notable politically, there’s no govern-run coverage option. And the plan significantly scales back a proposed tax on high-cost “Cadillac” health plans, making up the lost revenue with a tax hike on high-income individuals. Most notable politically, there’s no govern-run coverage option.

The number of authorized generics (AG) agreements is likely to grow as pharma continues to converge with generics companies, a new report from Datamonitor claims. AG agreements are considered more ‘potent’ in the US market because market exclusivity is awarded to first-to-file generics companies, but detractors among the generics-producing community consider them an ‘irritant’ and have called the US 180-day market exclusivity ruling as anti-competitive.

Datamonitor analyzed 40 AG launches in the US between 2004 and 2008 and found that nearly half (45%) came from only a third of the 14 branded pharma companies under investigation. Cardiovascular (CVD), infectious disease (ID), and central nervous system (CNS) disorder classes were collectively responsible for most (60%) of the AG launches; these three therapy areas represent the top three classes in terms of pre-generic quarterly sales in the US, with an average peak AG market share ranging from 43 percent for CNS brands to 50 percent for ID brands.

Datamonitor healthcare strategy analyst Pam Narang commented: “Although the issue of AGs has come under scrutiny across the board, there have yet to be any definitive conclusions regarding their anticompetitive nature.”