Transcript morrison - Global Health Care, LLC

The Future of the Global Pharmaceutical Industry:
The Quest for Value
Ian Morrison
www.ianmorrison.com
Outline
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Good News/Bad News
The Quest for Value
Long Term Scenarios for the Global Pharmaceutical
Industry
Page 2
Good News: The Top Ten
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Healthcare is a superior good
Innovation makes a difference in human health
Powerful New Science
Stem Cell Research Everywhere
Global infatuation with technology
The Obesity epidemic and the aging of the planet will
drive raw demand for drugs, devices, and healthcare
services
The elderly now have coverage in the US
Consumers and providers are swayed by sales and
marketing
The marginal cost of the next pill is small
Bush is in the White House
Page 3
The Bad News: Top Ten
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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:
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Is bigger better or is it all a lottery
$ 4 Billion Blockbusters or 40x $100 million
Are these new drugs safe anyway?
How many hoops do we have to jump through?
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
Page 4
How U.S. Consumers Rate Industries
Percentage of consumers who say each industry does a good job serving their customers
1997 1998 1999 2000 2001 2002 2003 Change
Change
%
%
%
%
%
%
%
since ‘97 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
* 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
Page 5
Health Care Tops List of Industries Public
Wants to See More Regulated
Should Be More Regulated
Generally Honest & Trustworthy
60%
Managed Care Companies
Health Insurance Companies
59%
Pharmaceutical Companies
52%
44%
Tobacco Companies
35%
Life Insurance Companies
Airlines
31%
Telephone Companies
30%
4%
3%
11%
34%
20%
12%
23%
26%
Packaged Food Companies
24%
Car manufacturers
14%
35%
21%
Banks
Computer Software Companies
11%
Supermarkets
10%
Page 6
13%
35%
Hospitals
None of these
7%
57%
Oil Companies
Computer hardware companies
4%
22%
40%
27%
8%
20%
37%
Medicare Drug Benefit
5%
Catastrophic
Coverage
$5100*
Out-of-Pocket Spending
$2850 Gap
No coverage
Medicare Part D Benefit
+ ~$420 in annual premium
$2250
Partial
Coverage up
to Limit
25%
Deductible
$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”)
7
Source:Page
Kaiser
Family Foundation
100
90
80
70
60
50
40
30
20
10
0
21%
19%
17%
14%
40
15%
42
15%
77
70
25%
20%
61
15%
53
46
10%
5%
0%
2001
2005
2010
Source: HCFA, 2000; Census Bureau 2001
Page 8
22%
2015
2020
2025
2030
Percent of US Population
Number of Beneficiaries (Millions)
Number of Medicare Beneficiaries Soars
Beginning in 2010
Who Pays for Drugs?
Percent of Total National Prescription Drug Expenditures by Type of Payer
60%
59.1%
56.2%
54.7%
52.7%
Private
insurance
48.2%
50%
42.7%
39.5%
40%
40.0%
42.4%
36.8%
44.0%
34.9%
37.1%
30%
33.4%
46.2%
32.0%
32.1%
26.5%
20%
45.3%
27.3%
Out-ofpocket
28.5%
24.4%
17.3%
18.0%
18.8%
16.6%
1990
1991
1992
1993
19.8%
20.1%
20.6%
1994
1995
1996
20.8%
21.2%
21.3%
21.8%
Government
programs
10%
1997
Source: Kaiser Family Foundation and Sonderegger Research Center analysis of CMS data
Page 9
1998
1999
2000
The Five-Tier Formulary
Highest Copay
and/or
Coinsurance
Look Good / Feel Good
Non-Rebated Brands
Rebated Brands
New Generic
Old Generic
Lowest Copay
Page 10
James Brown and Fernando Lamas Effect
End-Point
Look Good
Feel Good
Quality of Life
Mobility
Morbidity
Mortality
Affluence of the Individual or Society
Page 11
“Skin in the Game” Matters
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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
Page 12
Out-of-Pocket Medical Costs in the Past Year
Percent
75
57
50
26
22
25
10
0
7
AUS CAN NZ
11
UK US
No out-of-pocket cost
2004 Commonwealth Fund International Health Policy Survey
Page 13
14 12
5
4
AUS CAN NZ UK US
More than US $1,000
Cost-Related Access Problems
Percent in the past year
who due to cost:
AUS
CAN
NZ
UK
US
Did not fill prescription
or skipped doses
12
9
11
4
22
Had a medical problem
but did not visit doctor
17
6
28
4
29
Skipped test, treatment or
follow-up
18
8
20
2
27
Percent who said yes to
at least one of the above
29
17
34
9
40
2004 Commonwealth Fund International Health Policy Survey
Page 14
Across the board, HDHP consumers have more
compliance problems
Treatment compliance problems
All Privately
Insured*
%
All
HDHP**
%
Had a specific medical problem but
did not visit a doctor
17
33
Took a medication less often than I
should have
14
29
Did not fill a prescription
15
28
Did not receive a medical treatment
or follow up recommended by a
doctor
17
28
Did not get a physical or annual
check-up
19
25
Took a lower dose of a prescription
than my doctor recommended
15
19
* Currently insured in employer-sponsored or self-purchased plan
** Currently enrolled in high deductible health plan
Page 15
Formularies: Who Makes What Decision?
Sophisticated Formulary Decision-Making involves:
1. How severe is the underlying disease, or is it self-limiting?
2. What is the cost of treatment, comparing drug and non-drug alternatives?
3. What is compliance with therapy? This is important, because if patients do not
comply with certain therapies, the benefit of treatment falls off dramatically.
4. Is the treatment curative or is it palliative? First funding priority is for products which
cure disease.
5. What is the complications profile?
6. What percentage of patients do well on therapy?
Use these criteria for reimbursement coverage and sophisticated benefit architecture
A Hypothetical Example: Statins
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Crestor: 50% coinsurance
Lipitor: $40 Allowance
Generic Mevacor: $15 co-payment
Porridge: $5 coupon from CMS and the Scottish Parliament
Page 16
The Key Challenges for Bio Pharma
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Price
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Re-importation is a symptom
Cost-effectiveness in formulary design
Reference pricing
World pricing
Innovation
 Show me the molecules!
 Show me the safe molecules!
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Value
 “Saving Lives and Stamping out Disease”
 Demonstrating Benefits that payers can detect and are willing to
pay for
 Value In use (in real life) not just in the idealized circumstances of
clinical trials
Page 17
Health Care Products & Services Rated on
“Value For Money”
63%
Generic prescription drugs
Medical devices and equipment such as pacemakers
and stents
43%
36%
45%
Vitamins and mineral supplements
36%
47%
Doctors
35%
Hospitals
Brand name prescription drugs
32%
24%
21%
Health insurance companies
14%
Nursing homes
12%
Very Good or Fairly Good Value
9%
44%
Over-the-counter (non-prescription) drugs
Pharmacies
Page 18
28%
38%
35%
31%
44%
Not Sure/Average Value
13%
18%
17%
39%
26%
44%
24%
38%
45%
55%
45%
Somewhat or Very Poor Value
Global Pharmaceutical Prices, 2001
International Price Comparisons, Australia =100, Fisher index
US Pharmacy
US HMO
Switzerland
Japan
US Fed Hosp
Canada
UK
Denmark
Italy
Sweden
Germany
France
Singapore
Spain
Australia
New Zealand
Shanghai
0
Page 19
50
100
Source: Center for Strategic Economic Studies, Victoria
University, Working Paper 19, Kim Sweeny, April 2004
150
200
250
300
350
The Transformation of Pharmaceuticals
Future
Past
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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
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Page 20
Design a white powder with a predictable
therapeutic action
Establish safety, efficacy and costeffectiveness
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
% of Patients
Traditional Pharmaceuticals vs.
Advanced Therapeutics
Big
Pharma
Success
Do
nothing
Chronic pill
popping
(Celebrex)
Heavy-duty
traditional
therapy
Me-too Fast
Followers
&
Generics
Higher Price
Higher Efficacy
Innovative
Technology
$
Evidence-based medicine
Marketing
Consumer payment
Demonstration of clinical efficacy
Page 21
Happy Biotechnologist Scenario
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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
Page 22
Biotechnologist’s Nightmare Scenario
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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
Can you pass the NICE/Kaiser Test?
True Innovation will always be rewarded but payers
see innovation differently from pharmaceutical
companies
Page 23
Scenarios for the Global Pharmaceutical Industry
High Innovation
Harmonization
Division
Page 24
High Technology
for Human
Health
Consumer
Empowerment
Low Innovation
Global
Harmonization
Long Division
High Technology for Human Health:
Scenario Summary
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Global acceptance of medical technology as the key to
longevity and quality of life for the global baby-boom
Accepted definition of human health and well being
extends to quality of life issues such as appearance,
sexual function, and sense of well-being
The New Millennium belongs to molecular biology not
silicon
The fruits of R & D creates new, innovative and costeffective technologies
Page 25
High Technology for Human Health:
How the Scenario Happens
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Medical breakthroughs receive broad public acclaim
Public opinion favors science and technology in creating
clinically superior outcomes that matter to individuals
Proportion of population using and valuing health care
technology increases sharply
Public health weaknesses exposed by bio-terrorism threats
Growing understanding that pharmaceuticals, technology
and public health are the key
Therefore, Aging baby-boom values both individual patient
interventions and broader population based societal
responses such as public health (the selfish and the
selfless) not just in the U.S. but around the world
Page 26
High Technology for Human Health:
Industry Responses
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R&D Intensive Pharmaceutical industry commits to using science,
technology, and educational capacities to enhance human health and
well being on a global basis
 Global Research Consortia (Sematech Model) established on basic
science, orphan drugs, AIDS and vaccines for the Third World
 Partnerships developed with public health stakeholders to measure,
monitor and manage chronic diseases (such as asthma and diabetes) and
eliminate preventable diseases (such as tuberculosis)
 R&D engine embraces new tools to create drugs faster, better, cheaper
and works with global regulators to bring drugs to market faster
 Promotion is based on science and clinical acceptance (pull model) not
push model
 The Public wants ScienceCare
 The Public wants science that is safe, effective and Green
Page 27
High Technology for Human Health:
Industry Responses (continued)
 Industry focuses DTC ads on compliance and public health issues
as well as product marketing
 Disease State Management reframed as a public health and
compliance issue: optimal chronic care
 Industry works with media, public opinion surveys and
spokespersons to reinforce extended definition of health and well
being to include end-points of well-being and quality of life. Focus
on issues such as pain and cancer; appearance, anxiety and
depression; mobility and active lifestyle enhancers, and sexual
dysfunction.
 Promote “Clinical Patient Bill of Rights”: pain free, optimal
medication,compliance with prescribed treatment,and responsibility
for healthy lifestyle
Page 28
Global Harmonization:
Scenario Summary
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20 year Global convergence of health systems: around
universal tiered coverage with consumer payment
Healthcare R&D processes are globalized as regulators
are harmonized and plug compatible in Europe, Japan, and
U.S.
Pricing and costs more harmonized as global budgets in
Europe and Canada are supplemented by consumer
willingness to pay
In U.S. universal tiered coverage, and reference pricing by
private payers leads to lessening of cost and price
differentials with the rest of the world
Page 29
Global Harmonization:
How the Scenario Happens
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European Community harmonization of currency and
regulation including pharmaceuticals leads to further
globalization of R&D, pricing and finance
U.S. begins to adopt technology assessment and budget
controls as inevitable components in the base programs of
Medicare, Medicaid and basic private coverage
Europe, Canada and Japan accepts limits to
social/mandatory insurance and embraces (reluctantly)a
greater role for consumer payment and supplementary
insurance
Page 30
Global Harmonization:
Industry Responses
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Pharmaceutical industry becomes a globally integrated
business with global scale and cost structure
 Consolidation of the industry into four or five major companies
 R&D economies of scale particularly on development and
commercial market launches
 Global outsourcing to achieve economies of scale and scope
 U.S based experience with DTC, tiering, and pluralism pays huge
dividends in the emerging tiered markets of Europe and Japan
 The industry responds to a global healthcare business
Page 31
Five Industry Giants 2014
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The Initial Company
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The Latin Root Company
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Advanced MedcoExpress Care-Scripts
AmgenaMerck
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AstraAventiNovarticus
The Mother of All PBMs
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GSKBMSJ&J
Pfizer
Page 32
Biotech Baby eats an Adult
Global Harmonization:
Industry Responses (Continued)
 Industry pushes for DTC ability in other
countries
 Industry leads and supports efforts to
standardize and harmonize global regulatory
processes
 Industry supports tiering and public policy
initiatives globally that make markets similar
 Industry focuses on global efficiency and scale
in all key areas finance, marketing, DTC,
regulatory affairs, and R&D
Page 33
Long Division:
Scenario Summary
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Healthcare systems globally are caught between an
unwillingness to raise taxes and consumer resistance to
paying out of pocket for care or for supplementary
healthcare insurance
Growing division between countries and within countries
based on individuals ability to pay
Technology is very unevenly distributed based on the
specifics of coverage and income
Desperate stakeholders such as poor countries, payers or
patients use desperate measures such as electronic
smuggling, ignoring IP rights, and rigid price controls or
reference pricing to limit exposure to rising costs of drugs
Page 34
Long Division:
How the Scenario Happens
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Ability to pay for pharmaceuticals becomes a key issue for
government, business and households around the globe in
tough economic times
Consumers unwilling to pay much out of pocket for
supplementary insurance or co-payments
When pushed to pay more, consumers trade down more
often than they trade up
A cascade of “best pricing” responses take place: Large
payers in U.S. want VA prices, governments like Canada
want Indian prices
Many countries simply ignore patent and intellectual
property claims
Page 35
Long Division:Industry Response
The Pollyanna Alternative
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The Pharmaceutical industry commits to making necessary
drugs available to the neediest and to promoting the value
of pharmaceuticals
 Industry supported drug coverage for the neediest groups particularly the
low-income elderly in the U.S.
 Free medicines for certain low income patients with chronic diseases
 DTC and marketing efforts concentrated on segmenting the population
based on need and ability to pay
 Industry unites to make the value of pharmaceuticals case and forestall
states, private payers, and nations who want to usurp intellectual property
rights and pricing freedom
 Global effort by industry and humanitarian groups to focus on providing
AIDS drugs to the global community
Page 36
Long Division:Industry Response
The Tough it Out Alternative
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The Pharmaceutical industry fiercely defends their
intellectual property rights using legal and macro-economic
defenses
 Industry strongly supports intellectual property rights globally and
finds common cause with other high technology industries such as
software and semi-conductors
 Appeals to governments (particularly in Europe) that pharmaceuticals
is a key element of the economic base for the 21st century
 Industry defends right to set prices for new products
 Industry makes the value case, that R&D yields off-setting health
benefits
Page 37
Consumer Empowerment:
Scenario Summary
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Consumer Empowerment means the consumer has to pay more out of
pocket
Globally consumers embrace the principle you get what you pay for in
healthcare
But, drugs have become insurable events and consumers prefer implicit
and explicit subsidies for their drug insurance coverage by employers
and government
While some healthcare systems remain more socialized than others,
healthcare consumerism grows globally
Consumers recognize the value of and demand access to specific
healthcare technologies and brands
Consumers are willing to pay for care that they see as valuable (both as
taxpayers, premium payers, and patients) provided the costs are shared
among stakeholders
Page 38
Consumer Empowerment:
Industry Responses
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The Pharmaceutical industry commits to supporting the
empowerment of consumers including consumers being
asked to pay more (albeit with significant subsidies) for
better health care technology, information and service
 Industry works with consumer advocacy groups to encourage a
larger patient voice and better insurance coverage for the care of
chronic diseases
 Industry supports supplementary coverage initiatives
 Industry comes to terms with open-access tiered formularies
 Industry supports efforts to increase the information available to
consumers e.g. multi-company disease-specific websites
Page 39
Consumer Empowerment:
Industry Responses
 Individual companies compete fiercely for hearts and
minds of segments and individual patients
 Disease State Management retooled for either genomicbased mass customization or public health improvement
 Industry encourages market-based, consumer pay models
globally
 Industry accepts continued movement of potent
medications to OTC? If not why not?
Page 40
Meeting the Business Challenge
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Marketing
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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 and reference pricing
 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
Page 41
Little R, Big D, Enormous M
R
R
Big Pharma
Physicians
R
R
Patients
Development
R
R
R
R
Page 42
Marketing
Payers
PBMs
Selected
Partnerships
Pharmacists
Innovation Imperatives
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Consumers love new technology
Innovation is your 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?
Page 43
Implications

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Value needs to be demonstrated everywhere but increasingly in
the US
Cost-effectiveness in end use will be a hurdle that payers will use
to decide on reimbursement
Patients will be engaged through benefit design and incentives
The Coming Development Paradox
 Even though we are all moving in the same direction the
development process will become more complex and pluralistic
because payers are demanding more and more sophisticated
information


None of this will make drug development any cheaper
The Industry will need to radically redesign its own strategy and
business processes
Page 44
The New Business Model:
Some Final Thoughts
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
Demonstrated Scientific Innovation will always win
Payer sensitive innovation
 Novel Clinical pay-off compared to all available therapies
 Payer’s dream: reduction in PMPM cost for therapy

Radical restructuring of the sales and marketing function
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Focus on evidence and guidelines
Consultative selling
Reduction in traditional channels
Making the value case to end user consumers
Focus sales effort on compliance, adherence and persistence
among chronically ill not just new Rx
Conditional Approval to Market Entry
 Monitoring in real clinical use
 Reference Pricing
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Global Scale, Global Pricing, Global Product Launches
It is still a great business
Page 45