Thursday, April 24, 2014
Inquirer Daily News

Daniel Hoffman

POSTED: Thursday, April 10, 2014, 10:44 AM
Filed Under: Daniel Hoffman

Last year the authorities in China exposed a pattern of systematic corruption by GlaxoSmithKline (GSK) and other pharma companies.  Labeled as "Chinagate" in the media, it involved senior pharma managers in China that routinely bribed physicians, hospital administrators and government officials to favor the selection and use of specified drugs.  As an interesting wrinkle to the scheme, the pharmas laundered their bribe payments through travel agencies to make the payoffs appear on the books as travel expenses.

Now it appears that the industry regards Chinagate as "just a blip that it has resolved" (see here) to the point where it is "nothing more than a temporary setback."  For this reason the pharma companies feel they can continue pouring resources into growing foreign countries such as China and India.  Asked whether the China scandals have chastened the pharmas and led them to substantially revamp their operations in the emerging countries, one CEO revealed that any reforms will likely be limited because, "We don't want to do anything that puts us at a competitive disadvantage." (See here.)  Another CEO shrugged and stated that even the strictest compliances programs won't necessarily work if savvy employees in those countries seek to evade them.

Then this week, amidst the claims that overseas bribery is a thing of the past, comes word that GSK is under investigation for corrupt practices in, of all places, Iraq.  This controversy involves "claims that the company hired government-employed physicians and pharmacists in Iraq as paid sales representatives to improperly boost use of its products."  (See here and here.)  The Wall Street Journal's report on the matter cites sources that claim GSK's actions may violate the U.S.'s Foreign Corrupt Practices Act (FCPA) and the U.K.'s Bribery Act.

POSTED: Monday, March 31, 2014, 6:00 AM
Filed Under: Daniel Hoffman

Last week Merck and GlaxoSmithKline (GSK) announced they will suspend co-pay cards because, under the Affordable Care Act, these cards could constitute a possible kickback and expose the pharma companies to legal liability (see here).  Therein hangs a tale.

First, here's a bit of background on these co-pay cards.  For most prescription drug plans, insurers and other payers charge consumers co-payments that generally range from five to fifty dollars per prescription.  With many of the expensive specialty drugs, however, payers with growing frequency are charging consumers somewhere between 20% and 40% of the prescription's total cost.  Given that specialty drugs can cost upwards of $50,000 per patient per year, the co-payments can pose an enormous financial burden on most people.

Pharmas believe they can continue to charge exorbitant prices and preempt public outrage by relieving consumers of that co-payment burden with cards that patients receive from their physician and present to the pharmacy.  Instead of a patient failing to fill a prescription for a medication costing $100,000 a year because it would take between $20,000 and $40,000 out of his pocket, he can fill the scrip and the pharmaceutical company gets to pocket between $60,000 and $80,000.

POSTED: Monday, March 17, 2014, 9:34 AM
Filed Under: Daniel Hoffman

A survey of 595 employers, each with 1,000 or more employees, by consultancy Towers-Watson (see here) showed that: (1) employers are shifting more costs to workers in the form of higher premiums and more out-of-pocket payments, (2) fewer and fewer employer plans will cover spouses/families, (3) subsidized health insurance to retired workers is ending and, (3) most employers (76%) say they won’t even cover their workers by 2024.

Even as the employment basis for health insurance in the United States is eroding, the costs for health care services, medications and devices keep rising substantially.  The sectors most responsible for these escalating prices are providers (e.g., physicians, hospitals, diagnostic and therapeutic centers) and manufacturers.

Take pharmaceutical manufacturers as an example. In April 2012 the pharmacy benefits management company, Express Scrips, showed that $55.8 billion was spent unnecessarily on higher-priced medications when more affordable, similar drugs could have been used. 

POSTED: Thursday, March 6, 2014, 9:13 AM
Filed Under: Daniel Hoffman

Recently there's been some discussion in pharma's higher circles that biosimilars may not offer the road to riches along the lines touted by the industry's C-suite officers.  It is becoming increasingly clear that only a few companies may make substantial profits in that area and, in fact, biosimilars may actually represent a "fool's gold" for most pharmas.

Even as biosimilars aren't likely to be pharma's road to enormous profits, the recent events concerning Russia's incursion in the Ukraine open a light of reality into another of the industry’s illusions, this one involving the golden mountain of Emerging Markets.

It now appears that none of the BRIC countries that supposedly are the spearhead of pharma’s Emerging Markets strategy are meeting expectations.  China’s growth is slowing, the government is exercising price controls on drugs and they intend to grow their domestic pharma companies at the expense of foreign multinationals.  India and Brazil are even more aggressive at controlling prices, with India declaring compulsory licensing (i.e., breaking the patents) on several brands.  

POSTED: Wednesday, February 26, 2014, 6:00 AM
Filed Under: Daniel Hoffman

Last week the health care policy consultancy, Avalere Health, predicted that within a couple of years, most of the insurance plans obtained through the exchanges established by the Affordable Care Act will require consumers to pay a percentage of the costs—rather than fixed co-payments—for specialty medications (see here).  Termed “co-insurance,” these costs can amount to 50% of the costs for a drug to treat a rare or complex condition.

Given that these specialty drugs cost between $50,000 and $200,000 per patient per year, the amounts contemplated are well above the affordability level of most Americans.

In trying to assess what pharma companies plan to do as this situation develops, I spoke with a seasoned consultant who tries to coax his pharma clients into acknowledging the realities of the larger health care world in the belief that his listeners are rational and not obsessed with profit-making to the exclusion of all other motives.  He claimed, “Companies will need a two-step solution to address this challenge.”

POSTED: Tuesday, February 18, 2014, 6:00 AM
Filed Under: Daniel Hoffman

Over the last several years some widely discernible trends of the pharmaceutical industry's drug development process have emerged.  Much of this is driven by three factors.  The first is that a declining percentage of the drugs produced by research constitute genuine breakthroughs capable of substantially advancing the respective standards of care.  At the same time, both public and private payers have grown increasingly reluctant to pay constantly higher prices for the marginal, incremental improvements that characterize most of the new drugs coming to market.  Given the ceaseless demands of finance-driven pharma companies to maintain the profitability levels they enjoyed during the 1980s and '90s glory days, these factors have combined to shape the R&D pattern.

One prominent feature in the new R&D landscape is that many pharmas have withdrawn from therapeutic categories where clinical development is lengthy, expensive and fraught with regulatory hurdles.  So for example, some companies have reduced or entirely quit cardiovascular research where trials often need to enroll 20,000 or more patients in order to show a statistically meaningful improvement over existing medications.  Instead research budgets have flowed into oncology where regulators will often accept registration trials with only a few hundred test subjects. 

At the same time, favorable early results for an oncology compound can shorten the usual time needed to file because regulators know that the earlier availability of some new products will immediately save lives.  In such cases they will permit filing on the basis of Phase 2 results.  Moreover, the specter of imminent mortality in that area will generally make regulatory bodies more tolerant of debilitating side effects there than in other categories.

POSTED: Thursday, January 30, 2014, 11:59 AM
Filed Under: Daniel Hoffman

In an effort save money on continually rising drug costs, the Germans passed the Reform of the Market for Medicinal Products act in 2010 to assess whether newly approved brands in that country justify their higher prices with greater benefits than older products.  Germany's Federal Joint Committee, composed of physicians, hospital administrators and health insurers was charged with assessing the comparative benefits of new products.  Their findings then form the basis for price negotiations between the manufacturers and the statutory health insurance funds.  New brands that offer no added benefits cannot receive prices higher than what existing products charge.

The Federal Joint Committee started its work in 2012 and, to date, 60% of the new drugs they analyzed failed to show additional therapeutic benefits beyond those of older medications.  Despite this cost saving to payers and consumers, the German government of Conservative Chancellor Angela Merkel, in a bow to pharma pressure, is set to scrap the Reform system.

Interestingly, physicians in Germany do not fall into the typical pattern of their American counterparts.  In most cases, American practitioners remain eager to prescribe pharma's newest offerings, even though their only knowledge of the costs and benefits of new medications is generally limited to what sales reps spoon feed them.  German physicians and their organizations, by contrast, are now urging the country's new coalition government not to discontinue the drug review process.  For example, the chairman of the German Medical Association's Drug Commission publicly stated that scrapping the review will make it more difficult for physicians and others to obtain independent information about new drugs (see here).

POSTED: Monday, January 20, 2014, 10:35 AM
Filed Under: Daniel Hoffman

Citigroup recently issued its 2014 outlook for European and US pharmaceutical companies.  While their outlook is generally bullish, the positive signs they emphasize for the industry are more notable for what they omit than for what they tout. 

For example, some of their up-indicators include a more permissive reimbursement environment in the U.S. due to Obamacare, the FDA's increasing laxity and speed of approval, the eagerness of pharmas to prop up stock prices by share buybacks and high dividends, wildly increasing biotech valuations and, that moldy evergreen, the growth of emerging markets.

These reasons behind Citigroup's optimism are at least debatable.  For example, equity prices in biopharma are indeed approaching bubble status, but certainly part of that high valuation comes from investors in a no-inflation environment who are desperately seeking any sort of positive return.  This desperation plus a perception of pharma's "stability" (a favorable spin on the industry's snailpaced mobility) has led investors to bid up stock prices.  The relatively high dividends pharmas pay, together with their ambitious share buyback programs, make their equities the functional equivalent of bonds.  Of course, when inflation and interest rates return to historic levels, bond values tend to sink accordingly. 

About this blog

Check Up covers major health events in our region and offers everything from personal health advice to an expert look at health reform. Read about some of our bloggers here.

For Portions of this blog may also be found in the Inquirer's Sunday Health Section

Michael Cohen id the president of the Institute for Safe Medication Practices in Horsham.

Daniel Hoffman is the president of Pharmaceutical Business Research Associates (PBRA) in Glenmoore, Pennsylvania, a healthcare research and consulting company specializing in key account positioning and messaging.

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