As Obamacare dawns, Big Pharma rides into the sunset

by Daniel R. Hoffman, Ph.D.

Pennsylvania Bio is a trade group of biotechnology, medical device, diagnostic, pharmaceutical companies and suppliers in this part of the state. The organization's president, Chris Molineaux, has been diligently holding public forums on the important topics affecting health care in general and these industries in particular.  In August, for example, the PennBio forum covered some implications of the Affordable Care Act (ACA or Obamacare), particularly as it will affect the drug companies.  This month featured a session that explored opportunities at small companies for people with Big Pharma backgrounds.

The ACA meeting included comments and discussion by three policy analysts with persuasions ranging from pragmatic to rightwing ideological. Despite the diversity, the following points of agreement emerged:

  • Obamacare "isn't going away, whoever wins the election." The growth of health care spending represents the single biggest, long-term threat to exploding the national debt. That means the government must devise a way of dampening the cost increases without shifting the heaviest part of the burden onto consumers. The suggestion here, although the two pragmatic analysts let it remain implicit, is that an alternative such as Paul Ryan's voucher plan would increase costs to consumers while reducing access and quality. In other words, penalizing children, the old, the sick and the poor represents the antithesis of "bold, courageous, innovative" and other honorifics that the right uses for Ryan and his plan.
  • "Value-based payment" will expand, meaning private and public payers will compensate providers and manufacturers for successfully helping to create better patient outcomes. Wellness and prevention programs represent key components of this. As part of value-based payment, most providers will earn their revenues by "adhering to quality metrics," that is, following the most cost-effective treatment protocols. In this way, the ACA will accelerate the trend of consolidating practices into Accountable Care Organizations and Integrated Delivery Networks that can "herd the cats" - compel their physicians to follow the most cost-effective treatment approaches.
  • Providers and manufacturers will continue to feel the squeeze of lower Medicare reimbursements, even as the Justice Department moves aggressively against big companies that abuse the system.
  • As part of the ACA, the federal government will fund counter-detailers to present comparative effectiveness results to providers. This will include, for example, brand-versus-brand and brand-versus-generic studies of comparative drug effectiveness.  The Bush ideologue on the panel railed against this part of the ACA with the charge that it will "stifle innovation."  As a pharmacist recently commented on Pharmalot, however, the legislation hastens the end of pharma's me-too business model and the flowery verbiage about innovation just masks a resentment against starving that golden goose.  

Despite the right's preference for such profits over people, the fact remains that health care expenses are moving toward consuming 20 percent of America's GDP. The country can no longer pay premium brand prices for molecular manipulations that fail to appreciably advance the standards of care.

This month PennBio presented panelists who had worked for Big Pharmas over several years in various capacities and then left those positions to start their own companies. Their stories represent a common pattern in recent years. Since January of 2009, approximately 5,000 people in southeastern Pennsylvania have lost jobs at Big Pharmas. During the same time, more than 300 new biopharmaceutical, device/diagnostic companies started operating in this area.

All the panelists at the more recent meeting were laboratory or medical scientists. The satisfaction they expressed with their moves and their enthusiasm about working in small company settings was inspiring.  If companies of this size and nature represent pharma's likely future, there is reason to be optimistic about both the industry's productivity and the quality of work life for employees.

Shankar Musunuri, the C.E.O. of Nuron Biotech, spent over 14 years working in R&D at Wyeth and Pfizer. From the dais he claimed that while he now gets home some evenings as late as eight o'clock, he consistently feels energized, enthused and thoroughly gratified. 

Joseph Kim, the C.E.O. of Inovio Pharmaceuticals, also worked in Big Pharma for a decade and he believes the vastly reduced role of politics at a small company removes a distracting time waster. He pointed out that entrenched individuals and departments at the big companies often impede coordination and progress but, in his current setting, he can choose people in the various functions with whom he wants to work. "Big Pharma functions as our HR department," he claimed. "We see some people there that we think can fit in and we go out and get them."

Rebecca Taub, the CEO of Madrigal Pharmaceuticals, started in academic medicine where she was a Howard Hughes Investigator at Penn and other universities. She maintains that experience was actually closer to running a small biotech. The more difficult transition, in her experience, occurred when she left academia and went to Big Pharma for several years. There she found the constraints of bureaucracy, competing groups and contentious personalities involved "endless meetings" and mounting frustration.

Renold Capocasale, CEO of FlowMetric, a company that provides flow cytometry lab services to sponsors of clinical trials, sounded a cautionary note. Capocasale told the audience that private equity firms offered to provide him with seed capital when he started his company. After some careful consideration, he rejected their help. As a scientist with several years experience at Johnson & Johnson, he knew well the perils of placing oneself under the operating constraints of finance managers. 

Rather than replacing finance people from Big Pharma with their counterparts from venture capital, Capocasale decided to cash out his own 401(k) and get investments from 35 friends and relatives. He joked that his wife, an accountant, strongly opposed that decision, claiming that if the new company fails, "he won't have a job or friends." Fortunately his instincts proved correct. Freedom from the structured formulas and ratios of finance people permitted Capocasale the flexibility to compete successfully against much larger companies.

So the changes in pharma, involving both public and private institutions, grind along. While it remains an open question of what, if anything, Big Pharma can bring to that party now taking shape, it seems that creative small companies will carry forward the industry's necessary work.

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