stakeholder perspectives on the pharmaceutical industry in transition ian morrison
TRANSCRIPT
Stakeholder Perspectives on The Pharmaceutical Industry in Transition
Ian Morrison
Outline
Key Issues for the Pharmaceutical Industry Perceptions and Attitudes Medicare Reform: Wholly Inadequate
Prescription Drug Benefit for Seniors (WIPDBS)
Consumer-Deflected Healthcare Implications for Pharmaceutical companies
The Ten Big Issues for the Pharmaceutical Industry
Costs for everyone globally, focus on Prices in the U.S(and therefore importation)
Losing the Value argument in the US and elsewhere Big Ugly Buyers and Tiering Coverage for the Elderly in the U.S. and Elsewhere AIDS in the Third World: Capitalism run Amok R&D productivity:
– Is bigger better or is it all a lottery– $ 4 Billion Blockbusters or 40x $100 million
Intellectual Property under assault Marketing practices as asset or liability: DTC, detailing, rebates and
sales force productivity Losing Friends and gaining enemies Leadership finally coming out from the bunker of self-righteous,
myopic, isolationism
Percentage of consumers who say each industry does a good job serving their customers
1997
% 1998
% 1999
% 2000
% 2001
% 2002
% 2003
% Change
since ‘97 Change
since ‘02
Hospitals 77 73 71 72 67 73 73 -4 -
Banks 75 72 68 73 71 74 72 -3 -2
Computer hardware companies 80* 78 80 76 78 59 71 -9 +12
Computer software companies 80* 77 80 78 80 60 70 -10 +10
Car manufacturers 70 69 70 67 67 64 64 -6 -
Airlines N/A 78 71 66 51 63 64 -14 +1
Telephone companies 80 76 67 64 61 58 57 -23 -1
Life insurance 64 63 61 62 60 55 56 -8 +1
Pharmaceutical and drug companies
79 73 66 59 57 59 49 -30 -10
Oil companies 59 64 55 39 27 38 42 -17 +4
Health insurance companies 55 48 41 39 38 51 40 -15 -11
Managed care companies 51 45 34 29 29 33 30 -21 -3
Tobacco companies 34 32 31 28 28 25 30 -4 +5
How Consumers Rate Industries
* In 1997 “computer companies” were rated together (I.e. hardware and software companies were not measured separately
** Because airlines were not included in 1997, the trend for airlines is from 1998 - 2002
Health Care Tops List of Industries Public Wants to See More Regulated
20%
8%
10%
11%
21%
24%
26%
30%
31%
35%
35%
44%
52%
57%
59%
60%
None of these
Computer hardware companies
Supermarkets
Computer Software Companies
Banks
Car manufacturers
Packaged Food Companies
Telephone Companies
Airlines
Life Insurance Companies
Tobacco Companies
Oil Companies
37%
27%
40%
22%
35%
14%
23%
12%
20%
34%
11%
3%
4%
13%
7%
4%
Should Be More Regulated Generally Honest & Trustworthy
Hospitals
Managed Care Companies
Health Insurance Companies
Pharmaceutical Companies
Medicare Drug Benefit
Catastrophic Coverage
No coverage
Partial Coverage up
to Limit
Deductible
5%
$2850 Gap
25%
$5100*
$2250
$250
Equivalent to $3,600 in out-of-pocket spending: $250 deductible + $500 (20% cost-sharing on $2000) + $2850 (100% cost sharing in the “gap”)
Source: Kaiser Family Foundation
Out-of-Pocket Spending
Medicare Part D Benefit+ ~$420 in annual premium
18% 15%
30% 39%
52% 46%
0%
20%
40%
60%
80%
100%
Total 65+
Favor
Oppose
No opinion
A Slight Majority Favor the New Medicare Plan…
Source: CNN/USA Today/Gallup, Dec 5 - 7, 2003.
Do you favor or oppose the new prescription drug benefit for Medicare recipients?
54%44%
33%
25%33% 51%
20% 23% 16%
0%
20%
40%
60%
80%
100%
Total 50-64 65+
Pleased
Dissapointed
Not sure/Don't enough tohave opinion
…But Most Elderly are Disappointed with the Specifics
Source: Wall Street Journal/Harris Interactive, Dec 3 - 5, 2003.
Congress has passed a new Medicare Bill that includes a new prescription drug benefit. Which of the following best describes how you feel about the new Medicare Bill?
Disappointment over Expanded Private Sector Involvement and a Lack of a Reimportation
Provision
Total 50-64 65+ % that “Approve” % % %
Prescription drug benefit for people on Medicare starting 2006
55 57 48
A drug discount card which will allow seniors to get a modest discount on their prescription drugs
65 68 44
A plan to help insurance and managed care plans to compete with traditional Medicare
47 47 30
A law which prohibits importing less expensive drugs from Canada
17 14 12
How do you feel about the four following pieces of the bill?
(Asked of those who “know enough to have an opinion” (58% of all adults)
Most Consumers Think the Medicare Bill will Benefit the Rx industry More than
the Elderly
36%
50%
14%
28%
59%
13%
Medicarerecipients
Drug companies No opinion
All65+
Source: CNN/USA Today/Gallup, Dec 5 - 7, 2003.
Based on what you have heard or read about the new Medicare plan, do you think it will do more to benefit people who receive Medicare or do more to benefit prescription
drug companies?
Medicare Bill as Three MoviesAs Good as it Gets
Prohibition on Price Controls on drugs Medicare cannot use its raw naked purchasing power Prohibition on reimportation of pharmaceuticals from Canada Private Sector Handouts for corporations, health plans, PBMs (and
doctors and hospitals) MSAs and HSAs enabled and encouraged for the elderly (The Warren
Buffet PPO) No new Taxes for the rich And some fresh new coverage for the poor uncovered elderly who
are not in states with rich PACE or Medicaid programs
Medicare Bill as Three MoviesThe World is Not Enough
Wholly Inadequate Coverage when it finally arrives because most people will be paying for at least half their medications
Price Transparency now and in the future (discount cards in the short run and donut holes in the long run)
Drug industry will experience the coverage kicking in when many of the big blockbusters are off patent and when huge classes of drugs like statins will be both generic and OTC
Huge incentive for corporate America to phase out retiree health benefits or make them Medicare Compatible (a euphemism for shitty)
HMOs and HSAs will have to find a way to make money on anybody but the rich well elderly (all four of them)
When it comes to healthcare for the elderly we are all poor Is this bill a platform for future Democrats to go after the drug industry when RX
industry is at a low ebb, lacking innovation and subject to five years of public outrage about prices
What would Hillary do with it in 2008?
Medicare Bill as Three Movies The Ten Commandments
There shall be competition (Even if it is unpopular, doesn’t work and there are no willing HMOs or congressional districts willing to participate in it)
There shall be liberty for seniors to be confused by a myriad of private health plan and drug coverage offerings
There shall be skin in the game (consumer responsibility for payment through co-payments, deductibles and premium sharing) because it is good for consumers to pay at the point of care (it will stop them overusing the Medicare system for recreational purposes and it teaches seniors that they should look after themselves in their forties and fifties)
There shall be no supplementary coverage because supplementary coverage nullifies skin in the game
There shall be no new taxes for rich people, only raised premiums for all There shall be privatization because private is better than public (don’t argue,
this is a commandment) There shall be unrestricted free choice of plans each of which has a restricted
choice of doctors because choice is good There shall be no Canadian drugs in the veins of Americans even if the drugs are
made in America and purchased by Americans There shall be big differences in coverage among seniors but thou shall not covet
thy neighbor’s coverage There shall be no senior left behind……….. in traditional Medicare
The Argument For Consumer Responsibility for Payment
Consumers have been progressively insulated from the cost of care for the last 40 years
If they only knew how much healthcare cost and had to pay they would use it less
If they were responsible for paying they would also take more responsibility to become healthy and cost the system less
Consumers should have the right to choose and to trade up to better quality with their own money
When they are make rational consumer choices the market will be working and whatever is spent will be appropriate like any other market or sector of the economy
The Argument Against Consumer Responsibility for Payment
The 5/50 Problem: Most consumers that are heavy users have significant co-morbidity or serious illness like cancer, they didn’t choose this health status
One day in an American hospital and they are over their maximum deductible, so……
Catastrophic coverage is a green light for excessive care by hospitals and procedure-oriented specialists
While skin in the game can clearly move people around does it save money overall?
The equity problems:– A de facto reallocation of resources from poor to rich (my access to the
collective social capital of health insurance is better because I can come up with the economic down payment for physician visits and tests)
– Poor people with chronic illnesses will be disproportionately affected by consumer responsibility for payment
Consumer Exposure to Health Care Costs is About to Increase
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1980 1988 1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030%
5%
10%
15%
20%
25%
30%
Percentage of total personal health care expenditures paid out-of-pocket
Source: Centers for Medicare and Medicaid Services Projected
Per capita amount of personal health care expenditures paid out-of-pocket
Who Pays for Drugs?
48.2%
42.7%
39.5%
34.9%33.4%
32.0%
32.1%
37.1%40.0%
44.0%45.3% 46.2%
17.3% 18.0% 18.8%20.1% 20.6% 20.8% 21.2% 21.3% 21.8%
36.8%
54.7%56.2%
52.7%
59.1%
42.4%
27.3%26.5%28.5%
24.4%
16.6%
19.8%
10%
20%
30%
40%
50%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: Kaiser Family Foundation and Sonderegger Research Center analysis of CMS data
Percent of Total National Prescription Drug Expenditures by Type of Payer
Private insurance
Out-of-pocket
Government programs
The Five-Tier Formulary
Old Generic
New Generic
Rebated Brands
Non-Rebated Brands
Look Good / Feel Good
Lowest Copay
Highest Copay and/or
Coinsurance
James Brown and Fernando Lamas Effect
Mortality
Morbidity
Mobility
Feel Good
Look Good
Quality of Life
Affluence of the Individual or Society
End-Point
“Skin in the Game” Matters
Trading down twice as often as trading up Rapid increase in generic and therapeutic
substitution Poor, chronically ill most effected Starting to lead to adverse health outcomes like the
uninsured Simple cost shifting without sophisticated disease
management is not the right answer in the long-term
Big Increase in Trading Down on Drugs
17%
34%
51%
11%
20%
37%
Not fill aprescription
Asked doctorto prescribe
less expensivedrug
Asked doctoror pharmacistfor a generic
drug
2003 2002
Base: Total cost of prescription drugs increased last year (53%)
Rx co-pay increase: More bargain-hunting since 2002. Low- and middle-income
equally likely to “trade-down”
Percentage of consumers who did the following in response to an increase in prescription drugs cost sharing
2003 by Income
2002
% 2003
% <$35k $35-
75k $75k+
Ask doctor or pharmacist for generic 37 51 56 61 40
Ask doctor for less expensive alternative 20 34 44 39 23
Use mail order service to fill Rx 16 20 18 18 22
Not get a prescription filled 11 17 31 21 7
Take medication less often than you should N/A 13 32 12 5
Base: Copays for prescription drugs increased a lot or a little in past year
The Coming Challenges
Price– Reimportation– Cost-effectiveness in formulary design– Reference pricing– World pricing
Innovation– Show me the molecules!
Value– The Cutler Defense: “Your Money or Your Life”– The Danzon/Fujikawa Defense
The Value of Prescription Drugs
14%
21%
24%
32%
35%
36%
43%
63%
Health insurance companies
Brand name prescription drugs
Hospitals
Pharmacies
Doctors
OTC (non-prescription) drugs
Medical devices
Generic prescription drugs
Percentage of consumers rating each of the following a very good or fairly good value
Source: Harris Interactive/Wall Street Journal. Aug 19, 2003
The Danzon/Fujikawa Defense
The structure of the entire pharmaceutical market
Brand, Branded Generic, Generic and OTC Prices
Purchasing Power Parity Deflators Innovation: Novel large molecules Costs of distribution
Unit Volume for Branded vs. Generic drugs Varies by Country
28%19%
36%15%
33%16%
29%
14%22%
36%
24%
33%
35%31%
14%30%
21%
43%
32%
12%
32%44%29%
7%18%
2%
37%
8%
US
Cana
da
Fran
ce
Ger
man
y
Ital
yUK
Japa
n
Single source originatorMulti-source originatorBranded generic Unbranded generic
Source, Prices and Availability of Pharmaceuticals: Evidence From Nine Countries, Danzon, Fujikawa, Health Affairs, October 2003
Outside US Prices for Generics are Comparable or Higher than US prices
0
0.5
1
1.5
2
2.5
Canada France Germany Italy UK Japan
Originator single source drugs Generic drugsSource, Prices and Availability of Pharmaceuticals: Evidence From Nine Countries, Danzon, Fujikawa, Health Affairs,
October 2003
Based on Health PPPs, All countries Except France appear to have Higher Drug Prices
than US
0
0.5
1
1.5
2
Canada France Germany Italy UK Japan
Current exchange rates GDP PPP Health PPPSource, Prices and Availability of Pharmaceuticals: Evidence From Nine Countries, Danzon, Fujikawa, Health Affairs,
October 2003
Per Capita Use of Newer Drugs is Lower in Other Countries Compared to
US
94
100
58
25
125
57
26
44
82
62
32
1
Canada
France
Germany
Italy
UK
Japan
121 months or more 24 months or lessSource, Prices and Availability of Pharmaceuticals: Evidence From Nine Countries, Danzon, Fujikawa, Health Affairs,
October 2003
US=100
The Missing One-Liners
Hey you elderly, stop bitching that Lipitor is cheaper in Canada and learn how to use the proper purchasing power parity deflators
Sure you pay more for brand name drugs but you’re getting young, long molecules
OK, Brand name drugs are more expensive here but at least we aren’t screwing you on generics and aspirin like the Germans
Who would you rather have the money, American drug companies or French pharmacists?
The Transformation of Pharmaceuticals
Discover a unique white powder
Search for a therapeutic action Establish safety and efficacy Make sure it’s better than
available alternatives Promote to the profession Get a passive payer to pay for
it
Design a white powder with a predictable therapeutic action
Establish safety, efficacy and cost-effectiveness
Make sure it meets a previously unmet medical need or has an effect that is detectable to human beings
Promote to all the Ps (patient, physician, PBM, payer, pharmacist, politician, press)
Get an active payer to pay for it
Past Future
% o
f P
atie
nts
Do nothing
Chronic pill popping
(Rolaids for Yuppies)
Me-too Fast Followers
& Generics
Higher PriceHigher Efficacy
InnovativeTechnology
Big Pharma Success
Heavy-duty traditional therapy
Evidence-based medicine
Consumer payment
Marketing
Demonstration of clinical efficacy
Traditional Pharmaceuticals vs. Advanced Therapeutics
Cost
Happy Biotechnologist Scenario
We have the best stuff Sure it’s expensive, but it works Because it works there are savings elsewhere This is complex – do not try this stuff at home As generic competition makes costs go down for
some technologies, there will be more gross margin left for us
Catastrophic drug coverage insulates consumers from caring about price
Biotechnologist’s Nightmare Scenario
Public, physicians, policymakers could care less about large molecules; we don’t buy drugs by the atom
It’s complex brewing not chemistry, but how hard could it be? Big ugly buyers and providers incensed about price of technology High efficacy focused on small sliver of needy, desperate patients Payers/purchasers
– Medicare inpatients – the stent effect– Medicare hospital outpatient – the value case– Administering Physicians e.g. oncologists
zero-sum game on incomes “Plop, plop” vs clinical efficacy
– Consumers Co-insurance on top tier All drugs in CDHP
Can you pass the NICE/Kaiser Test?
Meeting the Business Challenge
Marketing– Increased consumerism: reaching the patient– Sales force Productivity– Doctors as economic gatekeepers for patients– Tiering will continue: positioning products in tiers– Coverage and contracting: PBM negotiations become more complex
Development– Global role of payers in the development process e.g. NICE– Embedding market understandings in go/no go decisions– Regulatory and reimbursement hurdles become more complex
Research– New science versus traditional R&D– R & D Productivity and the only 2 problem
Innovation Imperatives
Consumers love new technology Innovation is you ace in price control debates But if you don’t truly innovate in a way consumers appreciate and
pay for……. The new environment shifts responsibility for payment increasingly
and transparency of pricing to consumers Delivering innovation to an end user consumer that has value they
are willing to pay their own money for Do not overestimate (even) Americans willingness to trade up Are we comfortable with overt tiering?
Little R, Big D, Enormous M
PBMs
Pharmacists
Payers
Patients
Physicians
Marketing
R
R
R
R
R
R
R
R
R
Development
Big Pharma
Selected Partnerships
Five Industry Giants 2014
The Initial Company GSKBMSJ&J
The Latin Root Company AstraAventiNovarticus
The Mother of All PBMs Advanced MedcoExpress Care-Scripts
AmgenaMerck Biotech Baby eats an Adult
Pfizer