WOW…….Required Reading For All Pharmaceutical Marketing People……..

I have just had a startling experience.

I received an email with the article, “SIXTH ANNUAL REPORT: GENERICS” attached (published by MedAd News, November 2009, Volume 5, Number 11).

As I was preparing to read the article I expected to see the usual report complaining about how generic drugs are affecting drug company investments in R&D, or the concept of intellectual property and how it related to the pharmaceutical industry or similar types of content that we have all read before many times.

To my surprise, the article outlined in very crisp detail the expected impact to branded companies that the coming patent expirations on leading products will have. Their term was “top selling prescription medicines will fall off the patent cliff”. Specific trade names (branded product) discussed included: Lamictal®, Avandia®, Topamax®, Xalatan®, Flomax®, Valtrex®, Plavix®, Advair®, Diovan®. Nexium®,Impax®, Lipitor®, Seroquel® XR and Crestor®.

The article stated,” The global arena for generic drugs was worth $80 billion in 2008, expected to reach $86 billion in 2009 and according to analysts with BCC Research (bccresearch.com). In 2014, the market is expected to reach $129.3 billion, for a compound annual growth rate of 9% during the five year period”.

The article reveals how much revenue is at risk for the makers of the brands listed above, whose patents are expiring soon. The thrust of the article is that the sales curves for the brand companies seem to be heading for a cliff and the sales curve for the generic companies are in for a major explosion upward. The article also gives a warning that for the generic companies their rate of growth in sales numbers will diminish in a few years, reflecting the slow down in new product development that we have seen on the brand side over the past decade.

One of the surprises, to me, in the report is the news that Liptor® (by Pfizer) sales, whose USA patent expires in 2011 have already started to decline, on a world wide basis. This sales decline is largely due to generics already being marketed in some countries and some new forms of “atorvastatin magnesium” (generic name) are being manufactured and shipped in places like Spain, thereby skirting around the original Pfizer patents that are in effect in places like Spain.

In the USA, Watson Pharmaceuticals (through their acquisition of the Arrow Group) holds the exclusive right to launch an authorized generic atorvastatin (Lipitor) in November 2011.  

The list of patent expirations and their sales value in jeopardy makes for a very interesting read for all of us who are involved in the pharmaceutical industry directly or indirectly or those of us who are invested in the pharmaceutical industry. For marketers, it highlights, again, the importance of developing a strategy and tactical plan of how to work in the new reality of today’s prescription drug market. All the companies affected by these expiring patent and possible all the other companies who have products that will be competing head to head with new generic version of the leading brands being used to treat a variety of conditions will have to develop new game plans. Remember the concept of therapeutic substitution is alive and well in parts of Canada and Europe.

Think you are immune to an impact because your molecule is a bit different?

Think again.

My Opinion:

In Canada, all the provincial formularies are probably or will be reviewing their policies, rules and procedures looking at ways to encourage physicians to use the older, safe, well established therapies. Companies (funders of health care plans) will also start looking at their health plan costs, seeking ways to motivate their employees to choose generic drugs over the newer brands that may be launched to treat various conditions.

In the USA, the HMO’s and all the other health management/group plan/ benefit organizations will be looking for ways to control or minimize costs while not encouraging the perception that they are holding back on treatments of any kind. Politically, they are just starting to get to implementation of President Obama’s health care coverage plans. The perception cannot be that the companies are holding back to the detriment of the millions of Americans who cannot afford healthcare costs.

The investment community will expect the Pharma companies to develop plans to guarantee above average returns to their investors. Besides the development of new biological drugs (which FDA is still struggling to determine how to create bio similar rules to permit generics of these drugs to appear after their patents expire?) the way to maintain previous years returns seems to be quite clouded, hence the push to merge into bigger leaner organizations (Merck + Schering Plough / Pfizer & Wyeth / Abbott & Solvay).

The solution?

It seems to me that the brand companies will need to develop new skills in how to market their non exclusive drugs as compared to their considerable skills in marketing new drugs to physicians and regulators and reimbursement directorates of all kind.

Earlier in a previous blog I described a strategy that Pfizer has recently deployed in Saskatchewan, Canada for Norvasc®. I would not be surprised to see a similar approach taken across Canada and the USA by Pfizer and then by other brand companies.

What do you think?

I’d love to hear your opinion at kwinter_blue@rogers.com .

A New Dawn at Pfizer Canada…….

On Tuesday October 13^th, 2009 Tom Blackwell from the National Post reported that Pfizer Canada had successfully negotiated a contract with the Government of Saskatchewan’s Drug Plan and Extended Benefits Branch (i.e. their drug benefit plan) to supply Norvasc®, the Pfizer brand of amlodapine besylate on an exclusive basis within the Province of Saskatchewan.

What this means is that all other suppliers of amlodapine besylate are effectively shut out of the Saskatchewan marketplace and cannot supply their versions of the drug.

This by itself is not that remarkable as the Saskatchewan Drug Benefit program has frequently made this kind of contractual arrangement with the industry, usually with a generic company. One can think of this as a competitive bid process, somewhat “all or nothing” in scope for the supply of one chemical entity. It is important to disclose that Saskatchewan pays for all prescription drug products that are purchased and consumed by its citizens. This is very different that what occurs in provinces like Ontario, for example where the province pays for many of the drugs consumed by its citizens over the age of 65. Ontario often lists multiple brands of the same chemical as interchangeable. The reimbursed price for all these identical brands is set, by mutual agreement, at the same price level.   

What does make this news noteworthy is that it a “brand” drug company, in this case Pfizer, that has made this deal and at a price which undercuts the price that generic companies currently sell or rather have listed as the “Best Available Price” in the provincial formularies of drug reimbursement such as Ontario and Quebec.

The price quoted in the article for the Pfizer brand of Norvasc® is $0.85 per 10 mg tablet. The generic prices for an equivalent 10 mg amlodapine tablet bid quoted in the article is  $0.98.

The conclusion: Given the actions of Pfizer and even some of the other examples mentioned by Mr. Blackwell of “pricing deals” that brand name pharmaceutical companies have made with large payor groups i.e. government drug reimbursement departments or even private insurance companies (i.e. Greenshield) can we conclude that the brand name companies have finally realized that the only way to fight the generic companies is to compete on price, their until now exclusive battlefield?

But is it now?

If we consider the following, how will our business minds change direction if at all? The Province of Saskatchewan has a population of 968,000 people (according to the 2006 Census). The Government of Saskatchewan will be covering the cost of Norvasc for all of its people at the negotiated price of $0.85 per 10 mg tablet. Meanwhile in Ontario, the Drug Benefit Program is paying $0.9880 per 10 mg generic amlodapine tablet and for any cash customers i.e. people who are not covered by public or private insurance plans, they will pay $1.9760 per 10 mg tablet dispensed at the pharmacy (plus the usual other fees associated with a prescription) for the Norvasc® brand of amlodapine besylate.

In Ontario (same 2006 Canada census) there are > 1.6 million people over the age of 65 who are covered by the Ontario Drug Benefit Program for their prescriptions of amlodapine. This means that there is slightly less than double the potential population within Ontario that could take amlodapine as compared to Saskatchewan yet Saskatchewan has a much better price for the “brand” version as compared to Ontario that pays more for the generic version (a 14% saving). Let’s not even consider the differential between the Norvasc brand price in Ontario compared to the Norvasc price in Saskatchewan.

If we look at the same situation in Quebec, we see that the Drug Benefit program in Quebec lists the pricing for the generic amlodapine besylate 10 mg at $0.9744 per tablet and the  the brand at $1.8471 per tablet. In the past the administrators of the Régie de l’assurance maladie du Québec (RAMQ) have taken a dim view to other provinces securing a better price for a listed product than the price they were able to secure.

One has to wonder if the Regie will question Pfizer about this change in pricing policy and some updates may be mandated soon.

Why all the fuss?

All the provincial governments are trying to deal with escalating health care costs.  Prescription pharmaceuticals, according to the Canadian Health Information Institute,  while not being the primary driver of these escalating costs are an easy target for consumer groups, government groups etc to assign the blame. Drug companies do not vote. They have been blamed for excessive costs on drugs and have done a poor job of convincing people of the investments required and the costs incurred to satisfy society’s needs for new more effective drugs to treat disease.

The world’s largest selling prescription drug comes off patent very soon…Lipitor® also by Pfizer. It is likely that the Pfizer is using Norvasc® (amlodapine besylate) as a test to see how the market responds to its strategy and tactics to preserve its top line sales numbers and take the air out of the sails of the generic companies that have all worked out their product development strategies to launch their generic version of Lipitor (atorvastatin calcium) as close to the patent expiry date as feasible.

I find it quite ironic that the Canadian Generic Drug Association finds that the process of tendering hurts the generic drug industry while for the past 30-40 years, these tenders or competitive bidding processes often helped the generic industry grow to the powerhouse status that this industry segment currently enjoy.

Pfizer is to be congratulated for having the willingness to play by the rule book that was largely developed and perfected by the generic drug industry. All the other provinces in Canada should take note and utilize the precedent set by Saskatchewan to lower the costs of an important cardiovascular drug such as Norvasc® (amlodapine besylate). Through its actions, consumers and taxpayers will finally get a major break on a drug which will fill almost 9 million Canadian prescriptions this year growing at around 14%.

The traditional rule book is being challenged in preparation for the patent expiry for Lipitor® and the other major drugs coming off patent in the next few years.

Those who find ways to adapt will do well. Others will likely not.

Introduction to this blog

Introduction:

Hi. My name is Christopher Neuman and I am very interested in the ongoing developments and changes in the business of pharmaceuticals and how they are marketed to North American society as well as the challenges facing Biotech companies as they work towards developing new medicines and medical devices to improve our overall healthcare. I am equally interested in all segments within this industry: Prescription Products, OTC Products, Natural Health Products and Medical Devices, Branded and Generic Products both fall into my vision stream. I try not to silo products in my own mind. There is a place for all these classes or types of products within our market.

I will attempt to post comments and observations based on the news that I see published and provide you the reader with some commentary on the impact of the news on our healthcare world.

My hope is that I can help stimulate creative thought and discussion so I welcome your comments and inputs. Please feel free to send topic suggestions or feedback to me via my email address at kwinter_blue@rogers.com I will attempt to address your comments or suggestions as soon as possible.

I’d be happy to converse with you about any business related challenges you may be having. Perhaps I can help you create solutions. I am happy to try.

The Brands are Coming, The Brands are Coming!…The Rules Are Changing

July 2009:   

On June 15, 2009, Green Shield Canada, one of Canada’s benefit management companies sent out a letter to members of the pharmaceutical industry and healthcare industry members announcing a change to the established rules.

 Their announcement stated that effective July 2, 2009, for a defined list of pharmaceutical prescription products dispensed to members of the drug benefit group plans for General Motors Canada Limited and Chrysler Canada Inc., only the brand name products would in fact be covered as a healthcare benefit. Additionally, for one other brand product the effective date of this policy is September 1, 2009 (about 7 months before the patent for the brand is thought to expire).

 The change in policy specifically states, “If a pharmacy submits a claim for a generic of one of the above brand products, the claim will be rejected” and the response “ineligible due to preferred benefit agreement by plan sponsor; alternate brand is eligible” will be given.

 Most of the products covered on the agreement have expired patents and have or will shortly have multiple generic equivalents available on the market, offered at typical generic product price levels.

 This change of the rules could have some important implications to the drug industry, the provincial formulary listing processes and the current legislation affecting generic substitution.

 The questions that came to mind are:

• What is the part of the arrangement that we do not see published?
• How does this arrangement impact provincial drug formulary listings in Ontario, in Quebec or in any other province?
• What will be the response of the generic companies?
• Is this the ultimate in counter generic strategies that brand companies can implement?
• How will this affect you, the pharmaceutical executive, and the marketing decisions you are currently making with respect to your product line?
• How does this change the definition of Best Available Price or Acquisition Price for some jurisdictions?
• What happens if this becomes pervasive across more private payer plans?

 Let’s speculate about the potential answers to these questions.

 What is the part of the arrangement that we do not see published?

To speculate about the answer to this question we have to first understand where the participants are coming from.

1. Green Shield Canada is thought to be a passive participant. This means they get paid a percentage or a handling fee for each claim processed. If they manage the claims for General Motors and Chrysler anyway, their fees should not change significantly. Even if the face value of the claims are higher than they would be had the prescription been filled by a generic product it would be expected that there is a negotiated  rebate back to the employer – sponsors of a part of the fee.
2. For the brand drug companies involved, there is a major benefit in that when the brand goes generic, typically most of the sales are recorded by the generic equivalents being dispensed, due to the mandatory substitution rules in effect in most provinces of Canada and the attractive savings to consumers and payors. Generally these rules extend to even the patients whose prescriptions are not covered by a formulary and where coverage is offered by a private insurance coverage plan like Green Shields or other similar organizations.

Therefore the positive for the drug company is increased sales dollars and units.

 As we know that “deals” have been cut by pharmaceutical companies in achieving listing at the formulary (in some provinces), It is likely that a rebate of some form is in place between the drug company and the employer – sponsor. As the generic price of drugs is typically 50-70% of the brand price, a rebate of 30-50% (or quite possibly more) is conceivable. The brand drug company may also believe that some other benefits may accrue to its product’s usage patterns by creating this new segment of consumer, in all provinces in Canada.

 For the employer-sponsors, GM or Chrysler, the potential of achieving some savings in healthcare costs is the major driver for them to consider entering this type of arrangement. Both of these companies are in financial distress. Increasing costs is not on their agenda. Therefore any cost reduction would be welcomed.

How does this arrangement impact provincial drug formulary listings in Ontario, in Quebec or in any other province?

This is a very difficult question to speculate upon. Quebec has rules in place which guarantee their listed product prices (on their drug formulary), are the lowest retail prices in Canada.  Other provinces offer plans which have a universality built into the plan and

“Acquisition Cost” is the basis for reimbursement.  Historically, unpublished rebates have not triggered price reductions in Quebec.

Although the agreement between the drug companies and GM and Chrysler do not directly impact the drug benefit programs in every province, the nuance that the “brand” product has rebates associated with it, for selected patient groups, coupled with the concept that the formulary-listed price for the brand and the derived price for the generic equivalents are all drawn into question because of this deal. It would be interesting to speculate what would happen if the provinces insist on finding out the terms and conditions for this deal and impose them on the formulary listings following the principles of BAP (best available price).

An additional consideration for the companies is related to their future formulary listing for any new products coming to market. No brand company will be willing to embark upon any pathway which could create barriers to formulary acceptance of new and expensive products such as biologicals, as an example.

Will the Ministry of Health in Ontario change all the rules and force companies to end the current rebate systems? It seems that the July 10^th meeting discussed later has responded to this question.

What will the response be of the generic companies?

There can be 2 streams of response, one immediate and reactionary. The other strategic and longer to implement:

The immediate response is likely to be:

•  Patient goes to pharmacy to fill an eligible prescription.
• Pharmacist fills the prescription with a generic product and files claim
• The claim is rejected as it was filled with the generic brand.
• The generic company pays for the prescription.

 Rumor has it that 3 of the major pharmacy chains have already started using this system.

 The strategic responses will likely attempt to change/enforce policy and prevent the migration of these types of programs across to other employers and plans.  The generic industry will likely use their association to attack this plan on behalf of their biggest client, the retail pharmacist, who aside from the generic company, faces the largest potential loss in this game.  The attack will likely be directed  at the formulary level using PR.  Their position would likely be that the intent of this agreement compromises existing legislation and rules.

 Is this the ultimate in counter generic strategy that brand companies can implement?

 In a sense, that’s what the game plan is/was. It is certainly a novel approach. Are there other ways to achieve the same level of commercial success, possibly?

 How will this affect you, the pharmaceutical executive, and the marketing decisions you are currently making with respect to your product line?

 It is clear that the rules are changing. It is also clear that brand companies are re-visiting their product strategies, their product life cycle strategies and are considering plans which until today have been left to the side.  The door is open to creative, business retention strategies that can be executed by the brand name companies in protecting their brands sales generation potential. While they likely still recognize that some sales revenue will be lost to generics and that as always, this is normal – They appear to be moving towards to executing plans that preserve some piece of their business. 

 How does this change the definition of Best Available Price or Acquisition Price for some jurisdictions?

 This remains to be seen.  Rebates on price have been a tool to obtain reimbursement for products on the public formularies and while there have been efforts to curtail them; they are an important cost-savings lever for branded products operating under the auspices of the PMPRB.  With less pricing regulation for post-patent products and the decreased need for promotion or product development following the patent-protected period, rebate driven strategies may well thrive and find their way back across to the public plans as a result.  There are already instances of brand companies discounting prices in return for significant public business

 What happens if this becomes pervasive across more private payer plans?

If this type of arrangement spreads to other large employers, and expands the product list being covered, this could:

• Affect the prices of goods and services we all pay (the additional cost has to be picked up somewhere)
• Cause a multi-priced system covering drugs and medical supplies across Canada which would be inflationary for those who pay for the products used via private insurance or on a cash basis.

Given the potential for significant disparity in pricing from one plan, employee, employer or retailer, who knows, we may be on the cusp of the perfect storm that helps drive a National Drug Formulary Or the emergence of regulation over post-patent products.

 At the end of the day, this could be the perfect storm in which a National Drug Formulary for public and private patients could emerge.

 Conclusion:

 Ultimately and understandably, the drug companies are looking for ways to preserve revenues especially given the imminent threat of significant numbers of substantial patents already or about to expire.  Will this single deal achieve any positive results for them? It will be interesting to witness whether this type of arrangement will become pervasive, and especially whether it will transfer over to the public sector as the formularies look for opportunities to cut costs.  This becomes the latest in a series of strategies that attempt to retain some level of brand revenue following patent expiry.  We expect significant exploration of post-patent opportunities going forward.

 What does this all mean? We see the start of a major re-alignment of the prescription drug business in Ontario, which could lead or influence greatly, the rest of the country. The “brand” drug companies are looking for ways to preserve the revenue generation ability of the brands whose patents have expired or are about to expire. Will the deal described above achieve any positive results for them? How will this deal withstand review by the change process just announced by the Minister and his team? We believe that the pressure from the provincial formulary bureaus will eventually force the cancellation of this deal.

 How will the generic companies respond to the latest challenges being poised to their current business model and operations. How will their competitiveness be maintained? How will they differentiate themselves from one another? These are all very important questions to consider?

 Another important question is,” how will the business of pharmacy change?” and “how will patient care be impacted by changes to health care delivery with respect to drugs?”

 A friend shared an expression which is well known in her company, “we must stop breathing our own air.”

 Postscript:

 On Friday July 10, 2009 Minister Caplan and Deputy Minister Sapsford announced at a “By Invitation Only” Drug System Renewal Forum meeting held at the MaRS Centre, their plans for an engagement and consultation on a renewal process for the drug system in Ontario.  Present were members of the drug manufacturers both brand and generic, representatives of many of the private payor organizations/service providers, special interest groups such as the MS Society, the Mental Health of Canada group and many others. It could be that members of other provincial formulary bodies were there as well as pharmacist, chain store and wholesalers /distributor association executives.

 The objective of the meeting was to announce that over the next few months, the government will be consulting with all stakeholders involved in the drug system to get better value for the dollar while providing access and choice for patients. The over-riding emphasis was that the current system is not producing the required results. Recall that utilization is going up and drug costs have not declined as anticipated based on an artificial pricing mechanism supporting higher than required generic drug prices.

 It seems that the winds of change are starting to blow in another new direction.

 More on this initiative to come later.

MAKES YOU WONDER

On Friday October 2, 2009, the headline in PharmaLive.com [dailyadvantage@Pharmalive.com] was

“Allergan Suing Government Over Off-Label Policy”

The article summary as published below the headline described the situation in a cursory manner. They said the following:

Allergan filed a lawsuit yesterday challenging the government’s ban on off-label drug marketing to doctors, saying it violates the company’s right to freedom of speech. The company contends that it should be able to “educate” doctors about the risks and benefits of using treatments for unapproved uses. “Our reason for seeking action now relates to the fact that we have recently been required by FDA to initiate a REMS (Risk and Mitigation) program for Botox to ensure that physicians are equipped to evaluate the risks and benefits of treatment,” said an Allergan spokeswoman in a statement.

So what are we to think? Is it possible that people in our industry actually believe that a successful challenge to the FDA’s refusal to consider to allow off label promotion or education based on the American constitution’s Free Speech article is possible? I think this type of myopic self serving thought pattern is very dangerous to our industry and can invite whole new possibilities of control on marketing, education and any other communication style or technique, as they relate to healthcare or possibly any other product or service class that is somewhat controlled. Extend the example to documents prepared for IPOs. Can levels of disclosure also be affected by rulings in the Pharma industry?

I would love to be a fly on the wall at Allergan’s headquarters over the next few months where these actions, as reported above, get analyzed and re-analyzed.

At the end of the day, I suspect Allergan will regret this action.