segunda-feira, março 21, 2005
As dores de cabeça da indústria farmacêutica
It has all gone horribly wrong for the dozen or so manufacturers that make up "big pharma". The withdrawal of high-profile drugs, growing suspicion among consumers about drug companies' ethics, and arguments with regulators and customers have all dented what until recently was one of the least-tarnished of industries. A string of books has attacked the marketing tactics used by the industry, while lamenting the diminishing returns from its much-touted search for new drugs. Some observers have questioned whether a business model that was once capable of producing huge and reliable profits has been irreparably damaged. The industry is struggling to come to terms with a changing environment in its biggest and most lucrative market, America.
What happens in America is critical to the future of all the biggest drug firms. Prices there are mainly set by the market, not penny-pinching governments as in Europe and much of the rest of the world. It is also where the drug firms have chosen to place much of their research. America is by far the world's biggest spender on health-care in general--a whopping $1.8 trillion, more than 15% of GDP last year alone--and on pharmaceuticals in particular.
Last year, America accounted for more than 40% of the world's $550 billion pharmaceutical market, according to IMS Health, a consultancy (see chart 1). Moreover, the prices of many branded drugs can be significantly higher in America than elsewhere. A recent report fromthe Department of Commerce, looking at international prices of 54leading prescription medicines, concluded that the average pricecharged by manufacturers in Canada, Britain and Australia was roughlyhalf that in America in 2003 (though US discounts narrow this gap).
And it is in America that drug firms are facing the loudest andfiercest criticism. They stand accused of focusing on "me-too" drugswhich confer little clinical benefit over existing medicines; rushingthese to market through cunning clinical trials designed to make themlook better than they are; and suppressing data to the contrary. Theindustry is also lambasted for expensive, aggressive and misleadingdirect-to-consumer advertising, which sometimes creates conditions tofit the drugs, rather than the other way round. Hobnobbing with doctorsmeans giving them "food, flattery, friendship" at best, and outrightbribery at worst. Such flames were fanned by two high-profile eventslast year: Eliot Spitzer's lawsuit against GlaxoSmithKline (GSK) forallegedly suppressing data linking antidepressants to suicide risk inchildren (which later prompted initiatives to disclose clinical trialresults) and the recent scare over the safety of COX-2 inhibitors, aclass of pain-killers, following the withdrawal by Merck of one ofthese called Vioxx.
Indeed, critics argue that society is largely on the losing end of itsdealings with the industry. Drug firms benefit tremendously from publiclargesse, be it basic research from universities and government-fundedlaboratories, or tax breaks on R&D, yet fail to reward this by puttinga brake on pricing. For their part, drug firms argue that in order tokeep innovation moving, they must maintain high prices, and thereforehigh profits. Yet many Americans doubt these arguments. A pollconducted last month by the Kaiser Family Foundation found that only14% of the 1,200 Americans surveyed believe that current drug pricesare justified because of the high cost of R&D, and that 46% favouredgreater government regulation of drug prices, although this might leadto lower profits and therefore less research.
Big drug firms are having a hard time defending the argument thathigher profits mean more innovation. New drug launches have slowed to atrickle in recent years. Companies plough 15-20% of their revenues backinto R&D; global spending on pharmaceutical R&D has doubled over thepast decade, to $56 billion this year according to CMR International, aresearch group. Yet the number of new drugs approved by the FDA--arough measure of productivity--fell to a low of 18 in 2002.
TRIALS AND TRIBULATIONS
Drug development times are lengthening, and 50% of all drugs still failin mid- to late-stage clinical trials. But things are slowly perking upin the laboratory, says Stuart Walker, head of CMR. Last year the FDAapproved 34 new drugs and there are signs that early-stage pipelinesare filling up with new compounds for cancer, diabetes and centralnervous system disorders. Many of these new drugs actually come fromnimble biotech companies. They pass their products--for handsomerewards--to bigger drug firms, which then do clinical trials, registerthe drugs with regulators and market them.
However, this does little to impress many investors, who have hadenough of the industry's talk on breakthrough drugs. Stewart Adkins, ananalyst at Lehman Brothers, reckons investors are simply discountingproducts that have not reached late-stage clinical development;everything else is seen as too risky to put a value on. Yet many firmsare putting their faith in their pipelines and current business modelsto get them out of the current mess, says Richard Balaban, a consultantwith Mercer. This will not be sufficient, he argues, to win back thetrust of their three key customers: patients, payers and physicians.
Changes in sales and marketing might help. Pharma firms spent awhopping $14.7 billion on marketing to health-care professionals lastyear, and at least $3.6 billion on direct-to-consumer advertising,according to Verispan, a market researcher. Drug firms now spend athird of their sales revenue on marketing and administration, on a parwith Coca-Cola and Nestle.
This infuriates critics, who argue that the firms could easily lowerprices and find savings on promotions without touching their preciousR&D budgets. For its part, the industry points to the public-healthbenefits of marketing--doctors are kept up to date with developmentsand the public is informed of lurking medical conditions.
Both forms of marketing are under attack. As John Schaetzl, an analystwith GE Asset Management, points out, the COX-2 mess is a case whereaggressive promotion using mass marketing to create a blockbuster drughas resulted in the inappropriate use and consequent withdrawal of amedicine that undoubtedly benefits some patients. An FDA advisorycommittee recommended last month that the COX-2 inhibitors stay on themarket (and that even Vioxx might make a limited return), but withstricter warnings on their labels about their cardiovascularside-effects. The committee also recommended tighter restrictions onconsumer advertising of the COX-2 medicines and--given the steadystream of warnings the agency now issues to firms about variousclaims--might extend these to other drugs.
As for marketing to doctors, Jerome Kassirer, a former editor of theNEW ENGLAND JOURNAL OF MEDICINE and author of ON THE TAKE, wants to seeit stopped altogether--no more gifts, no more industry-sponsoredtraining courses, no more visits from salesmen and free samples.Various codes of conduct have been promulgated by medical schools,professional bodies and industry associations. Several pharmaceuticalfirms have been investigated by the Department of Justice for dodgydealings with doctors.
Economics, more than ethics, may force the pace of change. There areroughly 102,000 pharmaceutical "detailers", or salesmen, all trying tomeet the top-prescribers among America's 870,000 physicians. They getonly a few minutes with the doctor, not much time to sell the fruits ofmodern science. There is a growing realisation--if not yet dramaticaction--that the industry's marketing model needs to slim down and takea new shape to boost returns. Some firms are turning their drugdevelopment away from mass-market blockbusters to specialist products,which need smaller salesforces to target fewer doctors, who tend tomake more time for such products.
A few bosses, notably Jean-Pierre Garnier of GSK, have questioned thetraditional approach. But all eyes are on Pfizer, which employs morethan 10% of America's sales reps and might announce some changes to itssales and marketing operations next month. "Pfizer ushered in the ratrace," says Viren Mehta of Mehta Partners, a consultancy. "Only it canreverse the industry's direction."
The industry is also struggling with another central element of itsbusiness model: its reliance on patent protection for high-profileblockbuster drugs. Lehman Brothers reckons that, at best, drugs worth$8.8 billion will face generic competition; at worst, $15.5billion-worth of branded drugs will meet their copycat makers inAmerica. As the past few years have shown, the expiry of a patent on ablockbuster drug--such as Prozac--can be a painful experience for adrug firm, wiping billions off its market capitalisation. Alas, many ofthe tactics firms use to tighten their grip on their intellectualproperty are also coming under fire.
This year's patent litigation has special significance for the wholeindustry, not just the individual companies involved. Genericdrugmakers are challenging the big companies in court over threeblockbuster drugs--Zyprexa for schizophrenia, Lipitor for highcholesterol and Plavix for heart attacks and strokes. These lawsuitsquestion the original "composition of matter" patents on theseproducts, not just the industry's efforts to spin out protection for afew more years of profit. If any one of these were to go against thebig companies, it would affect the whole industry.
Then there are the lingering side-effects of the Vioxx withdrawal.There have been drug withdrawals before--nine of them between 1997 and2000. But for all the trouble this episode has brought Merck--includinga federal investigation and hefty lawsuits--the latest controversy isabout more than one drug and one company. While the FDA is likely toaccept its advisory committee's recommendations on COX-2 inhibitors,the affair has highlighted the question mark over the future ofso-called me-too drugs, and is forcing R&D managers to take a hard lookat their pipelines across all therapeutic areas.
The last thing a beleaguered industry needs is a troubled regulator.But the FDA is under pressure too, accused of putting new drugapprovals--funded by the industry--before drug safety. There areseveral bills before Congress to improve drug-safety monitoring and theagency itself will fall under Capitol Hill's spotlight this year. Inrecent months, however, the FDA received a little pain relief. LesterCrawford, its acting head, may be appointed on a permanent basis. He isseen as a safe pair of hands, rather than a revolutionary bent onwholesale reform of the agency.
Last month the government also announced the creation of a newindependent safety board to oversee drugs once they come to market, aswell as the introduction of new ways of communicating safety issues tothe public. Although still short on details, the proposal is said tobring together officials from the FDA's existing offices of new drugapprovals and drug safety--more rivals than colleagues, according tosome observers--along with other experts, to assess and reportregularly on safety issues to the head of the FDA's drugs division.While this does not go far enough for some critics, others are on thelookout for signs that the agency is drifting too far to the side ofcaution, for example by demanding bigger, longer trials and slowingdown the approval of innovative, but potentially riskier, medicines.
As if it did not have enough problems, the industry cannot ignorecomplaints over pricing. Americans pay vastly different amounts for anygiven medicine, depending on who is footing the bill. Not surprisinglybig purchasers, such as state-funded Medicaid programmes for America'spoor or managed-care plans for big employers, get among the best deals.
The clamour for lower prices grows ever louder. One strategy isso-called "reimportation"--bringing in drugs from abroad. An estimated$700m-worth of pharmaceuticals flowed into America from Canada in 2003.The busloads of elderly Americans crossing the border to buy drugs havebeen joined by mayors from several cities and legislators from severalstates, looking to ease the passage of pharmaceuticals fromCanada--especially through internet pharmacies.
DRUGS WITHOUT BORDERS?
The Bush administration (and indeed the drugs industry) takes a dimview of such free trade. Personal importation of most foreignpharmaceuticals is technically illegal, though authorities tend not toenforce the law. A report late last year from America's Department ofHealth and Human Services said that individual Americans buying drugsfrom abroad are running "a significant risk", arguing that the qualityof such products is hard to verify. It did, however, suggest thatsafety might be more easily monitored if the drug traffic was run byauthorised commercial wholesalers, rather than individual patients.
Congress will take up the issue of reimportation this year. But fewexpect it to make much of a dent in pharmaceutical sales in America,nor in American frustration at rising prices. Canada is already workingon ways to restrict sales south of the border, in part from fear thatit will face drug shortages of its own, as drug firms move to restrictsupplies.
Then there is Medicare. Thanks to the Medicare Modernisation Act of2003, the federal government will start covering many of the outpatientdrug costs of America's pill-popping elderly. This means that, by 2006,the government will account for 45% of all drug spending in America.The drugs industry, excited by the prospect of increased volumes, tookfurther comfort when the act stipulated that the government would notnegotiate directly with companies over prices.
But as Rami Armon, a policy analyst with Lehman Brothers, points out,those implementing the programme--pharmacy benefit managers andmanaged-care firms--will be expected to find discounts. Indeed, giventhe drug benefit's ten-year $593 billion price tag and the loominginsolvency of Medicare, firms offering the best prices by driving thehardest bargains with drugmakers are more likely to get thegovernment's custom. In fact, the Centre for Medicare and MedicaidServices, which administers America's two big government-sponsoredhealth-insurance programmes, is quietly getting on with collecting dataand evaluating the effectiveness of various medical interventions itpays for--including drugs. If this data were to be used to decidewhether or not a drug purchase should be reimbursed, it could haveenormous implications.
State legislatures are already familiar with the difficulties ofreining in drug spending. Roughly 15% of their budget goes towardspaying for Medicaid, and with many facing straitened circumstancescutbacks are in order. State governments also cover their own employeesand are equally keen to get a grip on these health-care bills.Pharmaceuticals are the easiest target, says Kevin Outterson, a lawprofessor at the University of West Virginia and adviser to the state'sofficer on drug pricing. The drug companies are multinational, whereashospitals and doctors are staffed by local people who are unlikely tovote for anyone who wants to reduce their funding. In addition topaying their own drug bill, states are worried about losing jobs ifcompanies move away because of high health-care costs.
States are trying a variety of tactics to control central drug costs,from fixed formularies, reimportation (if not from Canada, then fromBritain or Ireland) and pooling their resources to buy in bulk toextending the discounts negotiated through Medicaid to largerpopulations and to even more radical measures, such as compulsorylicensing. Drug companies have made some concessions--for example,offering discount cards to older Americans or those without healthinsurance. On the whole, the drugs industry is not pleased with statestratagems, says Sharon Treat, head of the National LegislativeAssociation on Prescription Drugs Prices, and does its best to lobbyand sue against price controls.
HOW TO NEGOTIATE
But a few states have been successful. The Wisconsin Department ofEmployee Trust Funds, which covers 240,000 public workers, retirees andtheir dependants, managed to reduce its drug bill by 23% last year,while maintaining the same level of prescriptions. The secret, saysEric Stanchfield, head of health-care purchasing, was a strictreimbursement list based on drugs' clinical effectiveness, a pharmacybenefits manager with transparent accounting and a willingness to betough in negotiations with drug firms. The programme is so successfulthat the governor plans to expand it to cover the uninsured, andGeneral Motors has also been taking a look.
Another part of the Fund invests $2.9 billion of pension money in drugshares every year. Mr Stanchfield, who is also a trustee of the pensionfund, believes that price concessions make pharmaceutical firms moreappealing to investors because they put firms on a more sustainablefooting. "If I were big pharma with lots of unhappy people and theprospect of price controls, I would embrace changes such as ours. Whatis the alternative?"
Well, the big drug firms could fight their customers. But that wouldrisk harsher intervention by governments that are already intent oninfluencing drug pricing and marketing mechanisms. Even if they avoidthat, it seems certain that the world's biggest drug firms are going tohave to change in fundamental ways.