One common thread has been running through pharma’s latest round of earnings reports: costs associated with healthcare reform. Every pharma analyst worthy of the label has trotted out various theories about how much the legislation will hit pharma results over the next couple of years–and long term, too.

Where some analysts are emphasizing the long-term benefits of reform–namely, the 31 million or so potential new customers–and how they’ll tend to outweigh these upfront costs, others aren’t so sure. Take Scott Gottlieb, a former chief of the Centers for Medicare and Medicaid Services. He’s zeroing in on some of reform’s potential pitfalls.

In a commentary for Forbes, Gottlieb outlines one way the higher Medicaid rebates instituted by healthcare reform could take a bigger bite out of drugmakers: the “inflation adjustment” that comes along in some cases. When a drug’s price is on the rise, Medicaid will lop an additional penalty off of a drug’s net Medicaid sales, on top of the regular Medicaid rebates.

Another potential problem: Private payers will get to pick up on Medicaid’s pricing. Plans that participate in state insurance exchanges could be allowed to price their drugs off the Medicaid price schedules, Gottlieb says.

But as Investor’s Business Daily points out–based on interviews with several analysts–the cost of healthcare reform over the next five years will be dwarfed by the patent expirations hitting the industry over the same time period. An annual revenue loss of $8 billion to $10 billion to subsidize the health plan over 10 years is a lot of money, but hardly a disaster, says Damien Conover, senior medical stock analyst at rating firm Morningstar (as quoted by IBD). “It’s really rather small compared to the offsetting positives that will help the industry,” he said. What do you think?

Source: FiercePharma

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Seniors will be beneficiaries from the new $80 billion agreement of the drug industry to provide discounts for branded medicines to those in the Medicare doughnut hole, but there are a lot of unknowns about who will else will benefit from the deal. One question is how much will the government get from the deal to pay for covering the uninsured, the WSJ and the NY Times note this morning.

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Further, pharmaceutical companies actually benefit from the agreement if more seniors decide to switch to or stay on brand-name drugs because of the discount coming from the industry. Scott Gottlieb, a former FDA official and adviser at the Centers for Medicaid and Medicare, told the WSJ that the proposal won’t affect the bottom line of drug companies because it “will ultimately discourage patients in the donut hole from switching to generics” because of decreased out-of-pocket costs for branded drugs.

Most consumers are price sensitive when it comes to medicine. A fraction will always choose to remain on branded medicines regardless of cost, but the vast majority eventually switch to cheaper generics once they are available. But as the deal announced yesterday will reduce seniors’ out-of-pocket costs for branded medicines closer to those of generics, many may stick with branded medicines rather than switch to generics.

And the deal could induce seniors to keep taking those branded meds. “Because of the discounts, Medicare beneficiaries are likely to continue filling prescriptions in the doughnut hole, whereas in the past many stopped taking their medications because the drugs were unaffordable to them,” Barclays analyst C. Anthony Butler told the Times.

Source: The Wall Street Journal

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When costly new drugs come to market, it’s often hard to know how much better, or not, they are than existing medicines. To crack that nut, Tom Daschle, nominated to head Health and Human Services, has advocated for a Health Fed or sorts that would assess drugs’ and other treatments’ costs and effectiveness.

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Scott Gottlieb, who served in the FDA and CMS under the last president, lands on the op-ed pages of today’s WSJ arguing against President Obama and House Democrats’ efforts to go down this road. “They claim that they don’t want this to morph into a British-style agency that restricts access to medical products based on narrow cost criteria, but provisions tucked into the fiscal stimulus bill betray their real intentions,” Gottlieb writes.

Gottlieb, now a fellow at the conservative American Enterprise Institute, zeroes in on language in the stimulus package that provides funding for comparative-effectiveness studies to “save money and lives.” He says report language accompanying the House stimulus bill says that “more expensive” medical products “will no longer be prescribed.” The House bill also suggests that the new research should be used to create “guidelines” to direct doctors’ treatment of difficult, high-cost medical problems, according to Gottlieb.

He doesn’t like the direction he sees the Dems taking things. For one, he says people in Britain have to complain to politicians when they can’t get access to the drugs they want, including cancer drugs that are currently widely available in the U.S. Plus, he adds, many of the tough decisions about health spending hinge on whether to escalate sick patients’ care — not just a choice between two competing products.

In his book, Daschle makes a case that comparative effectiveness studies will help determine what treatments “deliver the best bang for the buck.” He writes: “Clearly, choosing the right medical procedure is not the same as buying the right television. But if we want to get health-care costs under control, we’re going to have to pay attention to whether we are getting our money’s worth.”

Source: The Wall Street Journal

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Powerhouses of the pharmaceutical industry are abandoning research and development in areas that have brought them blockbuster profits over the past decade to tackle more lucrative diseases and avoid regulators who, the companies say, have become averse to risk.

Eli Lilly and Co., Abbott Laboratories, Wyeth Pharmaceuticals Inc. and Pfizer Inc. all have recently announced cuts in “primary care drugs” – drugs that treat ailments ranging from coughs and colds to heart disease and high cholesterol – in favor of drugs that treat more deadly diseases, are more likely to be approved, and require specialized care.

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The companies are hoping to tap markets – notably cancer and Alzheimer’s— that are relatively free of competition, compared to say, cholesterol, said Damien Conover, a senior analyst at Morningstar Inc. Previously, drugs to treat cancer and Alzheimer’s had been considered too costly to develop due to a relatively small patient population, Conover said. But an aging population will likely increase the number of patients afflicted with the diseases.

Another factor in the shift to new areas is that drugs in formerly lucrative areas such as heart disease are becoming much more difficult to get approved because the Food and Drug Administration has become much more conscious of possible drug risks, Conover said.

The FDA became wary of approving new drugs after a few recent drug debacles in which the side effects of drugs far outweighed their benefits, Conover said. The arthritis pain reliever Vioxx, for example, was recalled by Merck after studies showed it caused heart attacks. Similarly, GlaxoSmithKline attached a warning to Avandia, a diabetes drug, after studies showed an increase in the incidence of heart attack.

“The FDA is starting to be a little more cautious,” Conover said. There’s little need to approve yet another cholesterol drug when Lippitor, for example, already treats high cholesterol and is relatively safe, he said.

The FDA has become so cautious, in fact, that the division responsible for reviewing new heart medicines didn’t approve a new heart drug for over four years on its “first pass through the agency,” according to a report by Scott Gottlieb, a scholar and fellow at the American Enterprise Institute for Public Policy Research. The heart medicine division has the toughest record of the FDA’s drug review groups, Gottlieb said.

But the FDA seems willing to make more tradeoffs in cancer and Alzheimer’s treatments because fewer drugs exist to treat the diseases, and the diseases are much more deadly.

“It is one thing when a cancer drug causes some uncommon but devastating side effect,” Gottlieb said, “quite another when a common cold pill is at question, or a routine pain medicine like Merck’s Vioxx.”

Another advantage for drug makers: the deadly nature of cancer and Alzheimer’s allows companies to charge much more.

“You can still get a blockbuster drug with a smaller patient population,” said Conover.

The drugs for Alzheimer’s and cancer also tend to be drugs that patients will have “to take every day for the rest of their life,” which makes them all the more profitable, said John Flavin, director and president of Advanced Life Sciences Inc., a small biotechnology company in Illinois.

Large drug makers will also benefit by switching to specialized drugs because it costs less to market a drug to the relatively small number of oncologists and Alzheimer’s specialists compared to the much greater number of primary care physicians that must be reached to market primary care drugs, said Linda Bannister, an analyst at Edward Jones & Co.

The companies are all but sure to reap profits from the strategy, according to IMS Health Inc., a pharmaceutical market research firm. Global sales of cancer drugs will grow at a compounded annual rate of 12 to 15 percent through 2012 – nearly double the forecasted growth rate of the pharmaceutical market at large, according to IMS Health.  The cancer market is expected to exceed $48 billion this year, so the projection indicates a leap to $75 billion to $80 billion by 2012.

But there is a societal danger in the switch toward developing medicines for deadly but exotic diseases: while the small number of people afflicted by deadly diseases will be helped, the health of the general population might suffer as research into primary care drugs is abandoned, according to Gottlieb.

“Even small improvements offered by slightly better medicines like new generations of drugs for pain or blood pressure can yield big benefits when aggregated over large populations,” Gottlieb said. If big pharmaceuticals abandon research in to these drugs, “patients will lose the chance to gain relief from more of life’s daily medical problems.”

But drug companies offer another possibility. They say that while big pharmaceutical companies may shift focus from primary care drugs to specialty drugs, the slack in primary care research will be taken up by smaller biotechnology companies.

That’s just what happened with Abbott Laboratories and Advanced Life Sciences Inc. Abbott sold the rights to a promising new antibiotic, cethromycin, to Advanced Life Sciences to pursue drugs in new areas. After years of development, Advanced Life Sciences has submitted a new drug approval request to the FDA and hopes to start marketing cethromycin for the treatment of pneumonia in late 2009.

In the end, both patients and shareholders are likely to benefit as the big companies give up research and development in certain areas, even potentially deadly ones like heart disease, Bannister contends.

Drug makers have “made so much progress in the cardiovascular arena already,” she said. Relatively few drugs exist, however, for the treatment of cancer.

“It’s better for patients, it’s better for pharmaceuticals because they get a better return on investment,” she said. “It’s a win-win.”

But Gottlieb has a different take: “The days of expensive research into ordinary problems is ending, and with it the population-wide public health gains that we may have taken for granted.”

Source: Medill Reports – Chicago

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