Pharmaceutical Research Expenditures and Industrial Policy

Anyone familiar with pharmaceutical industry restructuring will not be surprised by this prediction from the FT’s John Gapper for 2011:

A drugs company will drop early-stage research. Big Pharma has struggled for a decade with a dearth of potential blockbusters. Companies such as GlaxoSmithKline have restructured and slimmed down their research arms but the sector remains troubled, as the departure of Jeff Kindler, Pfizer’s former chief executive, on the grounds of “exhaustion” indicates.

The obvious course with something that is not working is to drop it. Shire Pharmaceuticals pioneered a strategy of outsourcing early-stage research to smaller companies and focusing on developing and trialling promising drugs. This will be the year when one of the industry’s biggest takes a similar tack.

Gapper seems pretty unworried about this transition, and perhaps from the standpoint of pure economic theory it makes little difference whether research is conducted in-house or purchased from other, smaller firms. But as a matter of public relations and political economy, this is a troubling development.

The Post-R&D PR and Jobs Crises

First, the pharmaceutical industry has long justified its profits by arguing that it invests in research and development. For those who favor a market-based approach to drug research, this is a vindication of laissez-faire. Rather than relying on the heavy hand of government to try to direct the research done at pharmaceutical firms, we can expect the “invisible hand” of the market to spin off solutions for everyone’s problems–from the richest to the poorest. Innovations eventually filter down from the highest-income individuals to those with fewer resources. Spending by the wealthy on health care leads to investment in research infrastructure that ultimately redounds to the benefit of all.

But to the extent that the industry spins off its research and development, shouldn’t policymakers be more concerned about the health of research firms than the continued thriving of Big Pharma? I suppose one could make the argument that big Pharma is evolving toward a Walmart or Google style of value creation via skilled intermediation. Its key role in that scenario is to identify the most promising researchers, CROs, marketers, distributors, and advertisers.

If that evolution occurs, it reminds me of another of Gapper’s predictions for 2011:

As China tries to make itself a hub for environmental [and energy] innovation, the US is retreating. Silicon Valley venture capital groups that identified green energy as a big opportunity are playing it down and turning to social media. China has the market, the cash and the science to stick with it.

In other words, Big Pharma’s moves toward becoming virtual companies, mere hubs of certifications, trademarks, tax dodges, and contractual obligations, mirror a longer-term hollowing out of the US economy. Whereas a nation like China has an industrial policy that encourages production of useful goods and full employment, US capital is migrating toward “platform plays” that merely redistribute bargaining power and information about goods and services. One can imagine all sorts of clever entrepreneurial ploys that fall out from this strategy—think Groupon for cheap pills! What remains unimaginable is how social networking leads to viable occupations for all but the most connected and tech-savvy.

Top US economic strategists used to claim that offshoring didn’t matter, as US citizens’ superior productivity, technological skills, and education would attract high-value jobs to the country. Given America’s massive failures in educational policy, we no longer hear much about the “high value” jobs that a global division of labor was supposed to deliver to us. Instead, we see ever higher unemployment and no plausible plan to keep decent jobs in the country, or to be sure that those that remain are paid decently. Andy Grove has also helpfully demonstrated the necessary connections between ongoing manufacturing capacity and research designed to make production better. As he puts it:

Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter. The scaling process is no longer happening in the U.S.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed? . . . .

Finally, the increased outsourcing of R&D may menace existing cross-subsidization of research for neglected drugs and tropical diseases. To be sure, not much of this is going on presently; of the 1300 compounds tested for safety and effectiveness by major drug companies from 1992-2005, only 1% were directed toward diseases that predominate in the developing world. And a recent conference at BU gave me some hope that humanitarian research efforts could be distributed among small teams of researchers. Still, I worry that the ongoing shrinkage of Big Pharma will have results in the medical field similar to the gradual dissipation of Bell Labs.

Pharma as Part of a Larger Industrial Policy

Are there any solutions to be offered? The key to effective policy here is to recognize the extensive role the US government plays in the pharmaceutical industry. Epic battles over the scope of patent rights in the US are routinely fought in the US Congress. The US Supreme Court has recently opined on a number of fundamental issues in patent law in rapid succession. Legislation like the Hatch-Waxman Act prescribes a regime of protections and obligations for drug manufacturers that is extraordinarily complex, and continually contested. The FDA is involved in every step of a drug’s approval and marketing process. Medicare Part D legislation also significantly increased the US Government’s involvement in the pharmaceutical sector, providing an enormous amount of funding for spending on drugs for the elderly. International treaties like TRIPS also play a very important role in the pharmaceutical sector. In short, if there is one sector where state action is not simply a side constraint on “the market,” but rather serves to constitute it, that is the pharmaceutical sector.

Therefore, the US government needs to be much more involved in shaping both the output and the business practices of the industry to reflect national and humanitarian needs. On the humanitarian side, there are many excellent ideas in the book Incentives for Global Public Health. On the industrial policy side, perhaps there are lessons to be learned from this article on Chinese practice:

Foreign companies have been teaming up with Chinese ones for years to gain access to the giant Chinese market. Now some of the world’s biggest companies are taking a risky but potentially rewarding second step—folding pieces of their world-wide operations into partnerships with Chinese companies to do business around the globe.

Several earlier joint ventures inside China have soured over concerns that Chinese partners, after gaining access to Western technology and know-how, have gone on to become potent new rivals to their partners. “Foreign partners are seeing they will have to sometimes sacrifice or share the benefits of the global market with the Chinese partner,” says Raymond Tsang, a China-based partner at consultancy Bain & Co. “Some of the [multinational corporations] are complaining. But given the changing market conditions, if you don’t do it, your competitors will.”

To the extent that big Pharma is a truly global industry, US policymakers should be just as aggressive as Chinese ones in assuring that present private profits leave behind infrastructure that meets national needs for both quality healthcare and a balanced and highly skilled workforce. To neglect these imperatives is to declare unilateral economic disarmament vis-à-vis a competitor to which we are already massively indebted, and which has shown no qualms about taking US-developed intellectual property. If China wants certain concessions from multinationals for the good of its citizens, the US should demand no less.

Supreme Court to Address Adverse Event Disclosure in Matrixx Initiatives, Inc. v. Siracusano

On January 10, 2011, the Supreme Court will hear oral argument in Matrixx Initiatives, Inc. v. Siracusano, a case involving a pharmaceutical company’s duty under securities law to disclose adverse event reports that is “perhaps the most significant business case in the Supreme Court this term.”

Under the Zicam brand name, petitioner Matrixx manufactured over-the-counter intranasal zinc sprays and gels to treat the common cold.  Because the products at issue were homeopathic preparations sold over-the-counter, they were not subject to the Food & Drug Administration’s rigorous prescription drug approval process or, at the time, the requirement that adverse event reports be submitted to the FDA.  Between the end of 1999 and the beginning of 2004, Matrixx became aware of but did not make public reports of between 12 and 23 (the parties disagree on the exact number) patients who complained that taking Zicam had caused them to experience persistent anosmia (loss of their sense of smell).

The central issue in the case is whether the reports of anosmia ever become material under Section 10(b) of the Securities Exchange Act of 1934, such that Matrixx had a legal duty to disclose them to investors.  (The test for materiality is whether a reasonable investor would consider the information important in deciding to buy or sell the company’s stock.)  Matrixx argues that the reports were not material because they were not statistically significant, while Siracusano contends that it adequately pled materiality “by pointing to facts including, among others, the expert physicians who had concluded … that a causal link existed between intranasal Zicam use and persistent anosmia; the seriousness of persistent anosmia and the threat it posed to Zicam as Matrixx’s principal revenue source; and the actual movements of Matrixx’s stock price after the truth came out[.]“  The Ninth Circuit sided with Siracusano and Matrixx appealed.

The question of whether and when adverse event reports are pharmacoepidemiologically significant is a difficult one, for a number of reasons.  For one, a company will know of a certain number of adverse events but it will not know how many adverse events occurred that were not brought to its attention and it usually will not know how many times the product was used without incident.  Matrixx emphasizes in its briefs that it knew of, at most, 23 adverse events while millions of units of Zicam were sold.  Even if the number of adverse events and the number of times a product was used can be estimated, a company must then determine the “background rate” of the reported adverse event.  In this case, Matrixx had to determine the percentage of people not using an intranasal zinc product who go on to develop anosmia.  Finally, the causation determination can be made more difficult by any number of confounding factors.  In this case, anosmia can be caused by the common cold — the very condition that Zicam was developed to treat — a phenomenon called “confounding by indication.”

The question of when adverse event reports are legally significant is difficult too.  Negative information about a pharmaceutical product can trigger duties across legal and regulatory regimes, but not all negative information is alike in significance.  Companies have to exercise judgment.  For example, a company can be held liable in tort for failing to warn patients and/or doctors of a product’s risks, but it cannot respond to this legal risk by adding any and all adverse event reports to the product label, due to the FDA’s concerns about information overload.  Similar concerns obtain in the context of securities disclosure.  Matrixx argues that “[t]he Ninth Circuit’s rule would effectively compel pharmaceutical companies to disclose all [adverse event reports] (to avoid potential securities fraud liability), flooding the market with trivial or meaningless information that would only obscure genuinely important information and thereby undermine sound investment decisionmaking.”  Siracusano counters that Matrixx ignores the “[l]egions of professional securities analysts and investment advisers” who help the nationwide securities markets assimilate massive volumes of information, including nuanced statistical information, about public companies.

In this case, Matrixx responded to concerns raised about Zicam by announcing that “alleg[ations] that intra-nasal Zicam products cause anosmia (loss of smell) are completely unfounded and misleading” and that the “safety and efficacy of zinc gluconate for the treatment of symptoms related to the common cold have been well established in two double-blind, placebo-controlled, randomized clinical trials.”  This show of confidence seems to have been ill-advised.  As Professor Barbara Evans explained in a recent article, double-blind, placebo-controlled, randomized trials are typically designed to test efficacy hypotheses.  While participant safety is monitored, there are almost never enough participants to produce “even high-quality observational evidence of safety.”  Matrixx eventually acknowledged that it did not know whether there was a causal relationship between Zicam and anosmia and it has since withdrawn the products at issue from the market.

Regardless of the outcome in Matrixx Initiatives, Inc. v. Siracusano, companies will likely continue to be faced with difficult judgment calls about disclosing adverse event reports.  As Siracusano suggests, even if the Supreme Court adopts a statistical significance or broader scientific reliability requirement, it is unlikely to get into specifics, e.g. “to adopt a threshold of p < 0.05.”  Companies will continue to be well-advised to consult expert regulatory counsel.  The advice Jacqueline Wolff and I gave in a 2004 article in the Business Crimes Bulletin still applies:

“[L]egal and regulatory review of promotional materials is an accepted and oftentimes required practice in the pharmaceutical industry. A company may wish to consider expanding the jurisdiction of review committees to cover sections of financial filings, press releases, analysts’ calls and all public statements relating to any matter within the FDA’s jurisdiction. Indeed, the SEC has suggested as much. In a Nov. 25, 2002 cease-and-desist order against the General Counsel of ICN Pharmaceuticals, the SEC found that he should have consulted with regulatory counsel before issuing a press release addressing the status of ICN’s new drug application.”

OIG Excludes K-V Chairman Pursuant to New Guidance

As previously reported, the Department of Health and Human Services Office of Inspector General (OIG) recently issued new Guidance on permissive exclusion of individuals, including owners, officers, and managing employees.  Accordingly, “if the evidence supports a finding that an owner knew or should have known of the conduct, OIG will operate with a presumption in favor of exclusion.”

On November 17, K-V Pharmaceutical (K-V) announced that Marc S. Hermelin, a member of its board of directors and son of K-V founder Victor Hermelin, had resigned and was being excluded from participation in federal health care programs.  He is the first pharmaceutical company official to be excluded who was not also convicted of a crime.

The exclusion by OIG took place within a month of the new Guidance, but follows almost two-years of compliance problems for K-V with the Food & Drug Administration (FDA).  As Larri A. Short of Arent Fox LLP told BNA:

This is an important development since it represents the OIG’s first use of its permissive exclusion authority under 42 U.S.C. 1128(b)(15)(A)(ii) and comes within a very short time after the OIG publicly announced its intention to begin using its discretion to exercise this authority after a company has been sanctioned. … The excluded individual is not just a board member, he was the Chairman of the Board and the majority stockholder with about 48 [percent] of the company’s stock. If he were not selling his stock and resigning, it appears that the OIG was also prepared to exercise its discretion to permissively exclude K-V itself under its authority at 42 USC 1128(b)(8)(A) and (B).

The history of K-V pharmaceuticals indicates under what circumstances OIG may pursue a permissive exclusion.  Also, the actions taken by Mr. Hermelin and K-V Pharmaceutical upon learning of his impending exclusion may be of some value to other organizations and individuals who may find themselves in a similar position.

K-V Pharmaceutical’s History with HHS

A 2008 FDA inspection determined that K-V was (1) not complying with a 2007 FDA enforcement notice requiring pre-market approval for a time-release drugs containing guaifenesin, and (2) manufacturing and distributing unapproved new drugs.  As a result, the FDA filed a civil forfeiture action in the Eastern District of Missouri in July of that year and seized $24.2 million in unapproved new drugs.

In December 2008, Mr. Hermelin left K-V after 35 years with the company.  K-V announced that Mr. Hermelin was being investigated for mismanagement and had been fired for cause.  Mr. Hermelin announced that he had chosen to retire.

In January 2009, K-V voluntarily suspended manufacture and distribution of all products and voluntarily recalled most of its products.  Under a consent decree announced in March 2009, K-V was barred from resuming manufacture and distribution until FDA officials and an independent expert inspected and certified that K-V facilities were in compliance.

In February 2010, Ethex Corp., a wholly-owned subsidiary of K-V, pled guilty to two felony counts for allegedly misbranding and adulterating drugs and not disclosing to the FDA that it had been producing oversized painkiller tablets.  K-V agreed to pay an administrative forfeiture and restitution in the amount of $27.6 million.  K-V received FDA approval to introduce its first drug to market this past September.

K-V Pharmaceutical’s Reaction to Mr. Hermelin’s Exclusion

When the owner of a company participating in federal health care programs is excluded by OIG, it places the entity in a precarious position.  Mr. Hermelin and K-V Pharmaceutical took immediate steps to avoid any adverse impact on the company.

K-V confirmed through counsel that OIG had notified Mr. Hermelin of his impending exclusion.  According to the company’s SEC filings:

If a director of our Company, or a shareholder with an ownership interest of five percent or more, is excluded from participation in federal or state health care programs, then the Department of Health and Human Services, Office of Inspector General (”HHS OIG”) has discretionary authority also to exclude the Company from such participation.

According to a K-V Press Release, in order to prevent the discretionary exclusion of K-V, Mr. Hermelin:

• resigned his position on the board of directors on November 10;
• resigned his position as trustee on all family trusts holding K-V stock; and
• agreed to divest his personal ownership of Class A Common and Class B Common stock pursuant to a divestiture plan and schedule approved by OIG.

Notice of Mr. Hermelin’s exclusion was posted on the OIG website.

Propublica, Pharma Payments to Physicians

Newly compiled data on payments to physicians from pharmaceutical companies has kindled mainstream media conversation on the ethics of such practices. NPR station WNYC ran this feature, showing the top physician earners in New York, and the radio piece, “Physicians on Pharma’s Payroll.” You can hear the radio piece immediately below. It is interesting in that in addition to giving  background, the piece also features interviews of physicians on the receiving end of those payments. One of those doctors describes the process of recruitment– wherein Pharma reps track doctors’ prescription records to see who is using their wares, and then approaching those doctors to see if they’d be interested in being paid presenters– or educators– depending I suppose upon your frame of reference.

Seton Hall University Interim Vice Provost, Law Professor and regular contributor to HRW, Kathleen M. Boozang, appeared in the Star Ledger regarding the ramifications of Pharma payments totaling millions of dollars to physicians in New Jersey. The article was prompted by a Pro Publica database which has compiled information from court documents detailing payments by six pharmaceutical companies to physicians, as well as the voluntary disclosure of two quarters of such payment information by Merck. The database tracks these payments for the period between January, 2009 and June 2010; it is sortable by state and amount.

Within the above named limitations, seven New Jersey doctors received more than $100,000 during the timeframe shown, from the pharmaceutical companies named.

In addition, The Ledger reports:

Overall, seven pharmaceutical companies wrote 1,215 checks totaling $8.3 million to doctors in New Jersey, the 10th highest total in the nation, according to ProPublica.

Doctors nationwide earned $258.7 million for speaking and consulting, according to information culled from court documents involving six companies and records from Whitehouse Station-based Merck, which voluntarily disclosed two quarters of payment information. And that’s just a taste of the $1.2 billion doctors earn on the speaking circuit annually, according to a 2008 article in the Journal of the American Medical Association….

Kathleen M. Boozang, law professor at Seton Hall University’s Center for Health & Pharmaceutical Law and Policy, said new requirements to publicly disclose how much doctors are paid by drug companies aren’t enough to protect patients, noting many won’t look up their doctor on databases.

Boozang said while doctors may be in the best position to teach each other how to make decisions about which drugs or devices should be used, drug companies shouldn’t be paying them.

The Center last year issued a report calling for an end to “commercial support for continuing medical education,” suggesting medical schools and physician associations should take over the role of educating doctors. “We have blurred the line between promotion and education,” Boozang said. “It shouldn’t be the obligation of patients to protect themselves from conflicts of interest.”

Read the Star Ledger article, “Drug companies paid N.J. doctors millions to promote their products”

Shortage of Lethal Injection Drug Opportunity for Manufacturer to Do the Right Thing

Prescription drug shortages are a persistent, difficult-to-solve problem.  Things have not improved since this 2002 South Carolina Law Review article by Professor Lars Noah in which he warned of a growing number of “shortages of antibiotics, vaccines, and other medical technologies.”  In fact, the problem may have worsened in recent years.

This month, a shortage of the drug sodium thiopental has made headlines.  Indicated for a number of uses, most related to anesthesia induction, the drug is largely employed for just one off-label use: execution.  Per the New York Times, sodium thiopental’s manufacturer, Hospira, “has blamed the shortage on ‘raw-material supplier issues’ since last spring, first promising availability in July, then October, then early 2011. The company has refused to elaborate on the problem. But according to a letter obtained by The Associated Press from the Kentucky governor’s office, Hospira told state officials that it lost its sole supplier of the drug’s active ingredient and was trying to find a new one.”

In an NPR story, Richard Dieter, of the Death Penalty Information Center, explains that “[s]tates can’t just change their method of execution without either some legislation — or at least an administrative procedure - that goes before public comment . . . And so to make the change is a six-month or a year process.”  In all likelihood, the new method of execution would then be subjected to constitutional challenge.  And so a number of states have delayed executions in anticipation that the sodium thiopental shortage will ease; there are likely to be more delays in the coming months.

The AP reports that “Jonathan Groner, an Ohio State University surgeon and death penalty opponent who researches the issue, speculated the real reason for the unavailability of sodium thiopental is that its medical uses ‘have shrunk to the point that the company doesn’t want to make a drug that has no use but to kill people.’”  Hospira denies that there is any ulterior motive behind the shortage, although it has stated in the past that “‘[t]he drug is not indicated for capital punishment, and Hospira does not support its use in this procedure.’”  Regardless of the reason or reasons for the shortage, Hospira should use it as an opportunity to do the right thing and exit the market for sodium thiopental.  As Jim Edwards of the Placebo Effect blog put it, by doing so the company would “earn itself kudos from the medical community and burnish its brand as a company that helps people live, not die.”

HHS OIG Notifies Drug Manufacturers of New Enforcement Initiative for Price Reporting Requirements

On September 28, the Office of the Inspector General (”OIG”) released a Special Advisory Bulletin regarding a new enforcement initiative regarding the timely submission of certain pharmaceutical data.  Manufacturers will face civil money penalties (CMP) for failing to comply with reporting requirements.

The Center for Medicare & Medicaid Services (”CMS”) relies on the timely reporting of average manufacturer prices (”AMPs”) and average sales prices (”ASPs”) for the implementation of four different programs: the Medicaid Drug Rebate Program, the 340B Drug Pricing Program (340B Program), the Federal Upper Limit (FUL) Program, and the Medicare Part B outpatient prescription drug benefit.

Under the Medicaid Drug Rebate Program, CMS uses AMPs to calculate the rebates owed to state Medicaid programs.  The 340B Program, which requires manufacturers to sell their prescription drugs to certain safety net health care providers at or below specified prices, also uses AMPs to establish price ceilings.  Medicaid’s FUL Program uses AMPs to act as a prudent buyer of multiple-source drugs.  Finally, the Medicare Part B outpatient drug benefit relies on ASPs to establish Part-B covered drug and biologic payment amounts.

Timely and accurate price reporting is important to the effective and efficient administration of the Medicaid Drug Rebate Program, the 340B Program, the FUL Program, and the Medicare Part B drug benefit.   Manufactures are required to report and certify timely and accurate drug pricing information, including AMPs on a monthly and quarterly basis and ASPs on a quarterly basis.

However, multiple reviews of historical reporting by OIG have demonstrated that voluntary compliance has not been fully effective.  For instance:

• The February 2008 report, “Average Sales Prices: Manufacturer Reporting and CMS Oversight,” found that, “between 41 and 52 percent of manufacturers provided ASPs after the statutorily defined due date.”
• The OIG report, “Drug Manufacturers’ Noncompliance With Average Manufacturer Price Reporting Requirements,” released the same day as the Special Advisory Bulletin, determined that during 2008:
  • 53 percent of the 592 manufacturers that were required to submit quarterly AMP reports failed to provide pricing data by the statutorily defined due date.
  • 78 percent of the 579 manufacturers that were required to submit monthly AMP reports failed to provide pricing data by the statutorily defined due date.

Moving forward, OIG will work with CMS to “identify and penalize noncompliant manufacturers through the CMP process.”  Upon a report from CMS that a manufacturer has not submitted a timely report of product pricing information, OIG will exert its authority to impose CMPs of $10,000 per day upon the manufacturer in an effort to improve compliance.

Podcast: Gibbons Institute Hosts Panel on Pay for Delay in Hatch-Waxman Patent Litigation

Seton Hall Law’s Gibbons Institute of Law, Science & Technology and the New Jersey Intellectual Property Law Association presented a panel discussion entitled, “Pay for Delay: Views from the FTC, Industry and Legal Economists on Reverse Payment Settlements in Hatch-Waxman Patent Litigation.”

The pay for delay debate essentially rests on two competing public interests: scientific innovation and access to medicines.  Reverse settlements, which are sometimes referred to as “pay for delay,” involve the practice of name-brand pharmaceutical companies paying would-be generic competitors to delay the entry into the market of a particular generic drug. The Federal Trade Commission and the Department of Justice decry the practice because they claim it results in higher prices for consumers who do not have access to cheaper generics. Many in the brand-name pharmaceutical industry defend the practice because, they argue, extending the patent exclusivity period of an innovator drug better allows innovator companies to improve their return on investment and thus underwrite further research and innovation.

Panelists included Michael Kades, Attorney Advisor, Federal Trade Commission; Charles A. Gallia, Counsel, Gibbons P.C.; Anastasia Winslow, Assistant General Counsel, Bristol-Myers Squibb; and David Opderbeck, Associate Professor of Law and Director, Gibbons Institute of Law, Science & Technology. You can listen to their discussion here.

Hatch-Waxman “Pay for Delay Audio

Pharmaceutical Outsourcing: Trading Quality for Lower Costs?

With the waning economy, outsourcing has never been a more popular route for businesses to take.  Why pay more when you can get a similar product or service for less overseas?  Traditionally, outsourcing has been limited to low-end, back-office type of work. However, in the recent years, more companies have been outsourcing complex services such as medical diagnostics.

So it should be no surprise that India, a country with an abundance of cost effective labor, has emerged as a hot spot for pharmaceutical companies to outsource their drug manufacturing.  The NY Times reports,

India’s drug industry — on track to grow about 13 percent this year, to just over $24 billion — was once notorious for making cheap knockoffs of Western medicines and selling them in developing countries. But India, seasoned in the basics of medicine making, is now starting to take on a more mainstream role in the global drug industry, as a result of recent strengthening of patent law here and cost pressures on name-brand drug makers in the West.

Not limited to just manufacturing, India is projected to further expand into more sophisticated aspects of drug making such as pharmaceutical research and development. Due to its cheap labor, Indian drug companies are able to “discover new drugs at a tenth of the cost” incurred in the United States, according to Ajay G. Piramal, the chairman of Piramal Healthcare.

This pharmaceutical boom in India has been relatively recent.  Initially, pharmaceutical companies were hesitant to outsource their internal operations.  Sujay Shetty, an associate director with PricewaterhouseCooper in Mumbai, described pharma as  “an incredibly arrogant industry” and predicted that “everything in the value chain will move to different parts of the world that are cheaper.”

But, what risks are these pharmaceuticals companies taking?  Outsourcing, in general, can be riddled with quality problems and pharmaceutical outsourcing to India has been no exception.  According to the NY Times,

Recent growth, though, has been shadowed by quality problems. The F.D.A. cited Ranbaxy [India's largest pharmaceutical manufacturer] for manufacturing violations several times in recent years, and in February ordered a review of the company’s global manufacturing operations.

In May, Sanofi-Aventis recalled vaccines made by Shantha Biotechnics that were distributed to the World Health Organization after users complained about white sediment in the vials. In June, after floating matter was found in some plastic IV bags, Pfizer recalled injectible drugs made by Claris Lifesciences and sold in the United States.

Maybe pharmaceutical companies were justified in being cautious, even to the point of arrogance, in deciding whether to outsource in the past.  Drug manufacturing is a complex process that needs proper review practices to prevent errors.

Fortunately, the Food and Drug Administration (FDA) has taken note of India’s growing influence in the drug industry and has been cracking down to prevent substandard and contaminated drugs from entering the United States.  In the past two years, the FDA has opened two new offices in India, one in Delhi and the other in Mumbai.  And just last month, as reported by The Wall Street Journal, the FDA stated that “it will propose stronger regulation for pharmaceutical companies that outsource manufacturing, putting more responsibility on the companies to ensure the purity and safety of the products…”

Whether or not the FDA’s crackdown improves the quality of the outsourced drugs remains to be seen.  But, with lower costs and regulation avoidance said to be the primary motivation behind pharmaceutical outsourcing, it’s uncertain whether the quality problems mentioned by the NY Times will be the last.

Nurses, Prescriptions and Pharma Influence– Under the Radar?

Very interesting point made over at Gary Schwitzer’s Health News Review Blog regarding Industry funding of Continuing Medical Education (CME) for Nurse Practitioners (if you’ve never visited Mr. Schwitzer’s blog you should, he is informative, well written and generally brief).

Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy issued a White Paper last year, “Drug and Device Promotion: Charting a Course for Policy Reform,” which called for a cessation of industry funding of CME. The Center noted:

Reforming Funding for Continuing Medical Education (CME). Most states require physicians to undertake continuing medical education to maintain their medical license. The drug and device industry currently funds over half of the accredited CME courses available to physicians. The Center recommends that industry funding for continuing medical education should be phased out, and replaced by an educational process driven by physicians.

And that

• Ninety-four percent of physicians have some kind of financial relationship with industry, as reported in a major recent national study.

• Commercial support for accredited CME, nearly all of it from drug and device manufacturers, grew from $302 million in 1998 to $1.2 billion in 2006.

But what about nurse practitioners? Schwitzer, who attended the recent Georgetown Conference, “Prescription for Conflict: Should Industry Fund Continuing Medical Education?” noted that:

There are more nurse practitioners (147,000) than there are family physicians (100,000) in the US.

These advance practice nurse professionals can write prescriptions, and it’s estimated that the average nurse practitioner writes more than 6,000 a year.

And about 70-80% of those nurses who regularly attended lunch or dinner “continuing education” events sponsored by drug companies said they were more likely to prescribe the drugs that were highlighted in the lunch.

The presenter was nurse-researcher Elissa Ladd, PhD, RN, Asst. Clinical Professor, Massachusetts General Hospital Institute of Health Professions, who says the possible pharma influence on nurse-prescribers has largely flown “under the radar.”

A little quick and basic math will give us some inkling of just how much flies under that radar. We’ll use the minimum figure in all estimates. So…

147,000 Nurse Practioners each writing 6,000 prescriptions per year = 882,000,000 prescriptions. Yes, that’s 882 million prescriptions per year– conservatively estimated.

“More likely to prescribe the drugs that were highlighted in the lunch” we can estimate at 51%. We wind up with a potentially influenced 449,820,000 prescriptions. Again, conservatively estimated.

So now the only question is just what percentage or how many Nurse Practitioners “regularly attended lunch or dinner ‘continuing education’ events sponsored by drug companies?”

With a total pool of over 882 million prescriptions per year available– at least 450 million of them potentially swayed over lunch–my guess is that Pharma’s answer would be “As many as possible.”

Ethical Marketing Measures in Access to Medicines Index: An Important First Step

Earlier this week, the Access to Medicine Foundation released its 2010 Access to Medicine Index, “a ranking of the world´s largest pharmaceutical companies on their efforts to increase access to medicine for societies in need.”

In a change from the 2008 Index, which was the first to be issued, the 2010 Index includes measures designed to assess companies’ commitment to, and practice of, ethical marketing behavior.  Per the report accompanying the Index, “[t]he marketing and promotion of drugs can have a significant influence on the type of medicines that patients receive.  Particularly in Index Countries [88 countries with low or medium levels of development] with less robust regulatory enforcement and consumer protection, the marketing behavior of pharmaceutical companies can shape access to both appropriate and affordable medicines.  Unethical marketing can lead to suboptimal clinical decisions, prescription of more expensive drugs and irrational use of medicines by consumers, which can result in reduced treatment efficacy and other complications, such as adverse drug reaction and drug resistance.”

The Index ranks pharmaceutical companies’ marketing behavior along three axes: (1) commitments, (2) transparency, and (3) performance.  In the commitments category, companies are assigned points for the marketing codes and standards they have adopted and that they require their local third party sales agents to adopt.  For example, “originators,” i.e., research-based pharmaceutical companies, receive 5 points on a scale of 1-5 for committing to the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) Code of Pharmaceutical Marketing Practices, the WHO Ethical Criteria for Medicinal Drug Promotion, “or an equivalent industry code.”  Originators that have not committed to any external codes but that have an internal code which covers the same core principles receive 2.5 points.  (The scoring is different for generics on this measure because they do not have a “viable up to date and auditable external code.”)  With regard to third party sales agents, both originator and generic companies can receive all 5 points if they make “specific ethical marketing demands” of their sales agents and then audit the agents’ practices to ensure compliance.

For transparency, the Index gives points to companies that “publicly disclose[] detailed information regarding [their] marketing and promotional programs in the Index Countries, such as payments to physicians or other key opinion leaders and also its promotional activities for other healthcare providers, distributors, etc.”  None of the companies earned any points in this category.  While some have started to disclose payments made in the United States, no company has disclosed payments made in any of the Index Countries.  According to the report, three companies — GlaxoSmithKline, Merck, and Roche — have pledged to disclose payments made in the Index Countries soon.  Companies can also earn disclosure points for revealing breaches of marketing codes and marketing-related litigation in the Index Countries.

For the third category, performance, companies lose points if they breach the IFPMA Code or if they are sued or subjected to fines for marketing behavior.  Companies can earn points for including binding ethical marketing requirements in their agreements with their sales agents and by establishing employee codes of conduct in the Index Countries equivalent to the codes they have in place in other markets.  Despite the fact that issues have been raised “about pharmaceutical marketing practices in the Index Countries, especially regarding clear mention of … adverse side effects,” none of the companies studied lost any points in this category.

As the title of this post suggests, I think that the Index’s attempt to rank companies’ commitment to and practice of ethical marketing practices is important.  Anyone who works in a law school knows how influential rankings can be — for better or for worse.  It is easy to imagine the Access to Medicine rankings providing an additional nudge to companies to begin disclosing payments to healthcare providers around the world not just here in the United States.  At the same time, there is ample room for refinement.  In the performance category, for example, measures, in addition to breaching the IFPMA Code/being sued/ being fined, are needed to expose differences that surely exist in companies’ approaches to marketing in the Index Countries.

Former UN Special Rapporteur Paul Hunt on International Law & Health as a Human Right & the Human Rights Responsibilities of Pharmaceutical Companies

During his week-long visit to Seton Hall Law School, Paul Hunt, Professor of Law, University of Essex School of Law, provided several lectures to students and faculty on international human rights law and health law.  These guest lectures included “Health as a Human Right” in Professor Elizabeth Defeis’ International Law class; “On Human Rights Guidelines for Pharmaceutical Companies” in Professor Kathleen Boozang’s Pharmaceutical and Medical Device Marketing and Compliance Class; a faculty colloquium on “GlaxoSmithKline and the Human Right to Healthcare;” and participation in classroom discussion of human rights issues raised by hospitals’ repatriation of indigent aliens in Professor Lori Nessel’s Immigration & Human Rights Clinic.

In his public presentation, “The Human Rights Responsibilities of Pharmaceutical Companies,” Professor Hunt argued that pharmaceutical companies have certain social/human rights responsibilities, including the duty to take reasonable steps to enhance equitable access to medicines. You can find an audio recording of this presentation below as well as copies of Professor Hunt’s Reports to the UN General Assembly regarding “the right of everyone to the enjoyment of the highest attainable standard of physical and mental health,” and “the responsibilities of pharmaceutical companies, including innovator, generic and biotechnology companies, with regard to the right to health in relation to access to medicines.”

Professor Hunt practiced as a litigation solicitor in London before specializing in international and domestic human rights law.  He has undertaken human rights work in Europe, the Middle East, Africa and the South Pacific.  From 2002-2008, he served as a UN Special Rapporteur on the right to the highest attainable standard of health, and in 2008, was awarded Honorary Doctorate by the Nordic School of Public Health.  He is a member of the Human Rights Centre at Essex University and Adjunct Professor at Waikato University, New Zealand.

Professor Hunt’s lecture can be streamed to your browser by clicking on the link below. Clicking on this link will also provide you with a link to download the mp3. Click here to listen to Paul Hunt’s Lecture

The two UN reports mentioned by Mr. Hunt can be accessed by clicking on the thumbnails or captions below:

UN Report on Right to Health	UN Report on GlaxoSmithKline

A Hat Tip to Pharmalittle

Health Reform Watch wishes to congratulate the folks over at Pharmalittle for being named one of the Top 100 Pharma Blogs. They deserve it–and if you’ve never checked out their site– I highly encourage you to do so. Upon the dissolution of Ed Silverman’s Pharmalot, which was hosted here in Newark by the Star Ledger, a group of contributors and commenters banded together to pick up the mantle. For those of you who have a keen interest in Pharma (and who doesn’t?), you’ll find truly insightful and often witty commentary over at Pharmalittle. As an example, this post of theirs announcing their Top 100 status is classic:

HAT TIP TO OURSELVES….

Pharmalittle to be Honored at White House

OK, so we lied. It’s all part of the same strategy. As the impressive badge on the left (suitable for framing) shows, this blog has been named one of the top 100 pharma blogs. Did anyone know there were that many pharma blogs?

Anyway, a lot of people out there will wonder how we accomplished this. It’s simple. We followed basic marketing principles:

1. We promoted the blog for off-label uses. For example, it makes a great eye chart and may help slow the growth of cataracts.

2. We gave kickbacks to everyone on the internet. Really.

3. We buried studies 34, 57, and 105.

4. We changed the endpoints in study 35 and left out the last six months of data.

5. We delayed the appearance of generic Pharmalittle (liloxazorx) through a bunch of nuisance suits.

6. We intimidated people who read other blogs.

7. We hired Key Opinion Leaders like Anonymous to talk us up.

8. We funded studies showing all the dangers of other pharma blogs.

9. We convinced people that failure to read Pharmalittle will result in the end of innovation in the industry and the complete dissolution of life-saving medications.

10. We avoided being bought by Pfizer.

11. There is no evidence reading Pharmalittle leads to weight gain, morbid obesity, and diabetes. And anyone who thinks differently will never find Study 57 anyway.

12. We don’t believe in morbid obesity. If you’re going to be obese, at least be up-beat about it.

And stuff like that.

Read more from Pharmalittle here.

Medical Science Liaisons: Walking the Line between Scientific Exchange and Promotion

[Ed. note: As noted in the post above, we are very pleased to welcome Kate Greenwood, J.D., to the blog today.]

As the Wall Street Journal recently reported, at a time when the ranks of pharmaceutical sales representatives are thinning, the number of medical science liaisons (MSLs) is (or was until very recently) growing.  MSLs are doctors, pharmacists, or scientists employed by drug companies to disseminate scientific information about the companies’ drugs — including information about off-label uses of those drugs — usually to physicians who are key opinion leaders.  MSLs are, at most companies, part of the medical affairs or research and development departments and, unlike sales reps, they are not typically evaluated or compensated based on increases in market share or prescription volume in their regions.  Still, as suggested by this PharmExec article on permissible metrics for measuring the value to companies of both MSLs and the thought leaders they court, it is not always clear how the work MSLs do differs from that of a sales rep.

FDA regulations ban companies from “represent[ing] in a promotional context that an investigational new drug is safe or effective for the purposes for which it is under investigation” but explicitly allow companies to engage in “the full exchange of scientific information.”  Sales reps cannot take advantage of the scientific exchange safe harbor to discuss off-label uses with physicians, but MSLs can, as long as they do so in response to a physician’s unsolicited request.  Jeff Patrick, who holds a doctorate in pharmacy and is Director of Medical Scientists at the biopharmaceutical company Dyax, explained to the Wall Street Journal that, unlike a sales rep, he could respond to a question like “Were there pediatrics in your trial?” even if the drug being evaluated was not approved for pediatric use.

Because MSLs are out in the field engaging doctors in free-ranging and difficult to police discussions, they present evident compliance challenges for companies attempting to follow the rules regarding off-label promotion.  On the other hand, their scientific expertise and established relationships with thought leaders may also present compliance opportunities.  For example, earlier this year, the FDA approved the use of MSLs in the Risk Evaluation and Mitigation Strategy (REMS) for UCB’s Cimzia, a drug used to treat Crohn’s disease and rheumatoid arthritis which carries with it a risk of serious infection.  The Cimzia REMS requires as part of its communication plan that the company’s MSLs make a presentation about the drug’s risks to all of the nation’s approximately 500 gastroenterology key opinion leaders.

Health Care Reform, Lobbyists and the Importance of “Being There”

“Since it cost such a lot to win,
And even more to lose….”

J. Garcia & R. Hunter, “Deal”

This last week NPR’s All Things Considered ran an interesting story focused on lobbyists in the Health Care reform debate. NPR reports that

Between 1998 and 2008, the number of registered lobbyists on health care more than doubled, to 3,627, according to the Center for Responsive Politics. The statistic doesn’t include players who don’t engage in lobbying as defined by federal law - among them, grass-roots organizers, producers of TV campaigns and former members of Congress who remain in Washington as senior advisers to corporate clients.

And that

Spending on lobbying jumped even higher over the past decade. Organizations lobbying on health care spent $484.4 million in 2008, more than two and a half times the spending in 1998.

There is no reason to think that this year’s figure will not easily surpass that. More than 15% of the nation’s GDP is “on the table” so to speak, and an ox gored now will suffer a long long time. According to an informative, very well charted, but not widely reported (a big thank you to “Blue Bunting” over at Care2), recent report from Common Cause

The major health interests have spent an average of $1.4 million per day to lobby Congress so far this year and are on track to spend more than half a billion dollars by the end 2009. That comes out to about $2,600 per day per member of the House and Senate. The pharmaceutical lobby alone spent $733,000 per day in the first quarter of 2009. Since 2000, the industries have spent over $3 billion on lobbying, with the total increasing every year and rising more than 142 percent over the course of the decade. In each of the past four years health interests have been the number-one lobbying force in Washington, measured in expenditures, and have averaged over $1 million per day.

This Common Cause chart below, which like NPR utilizes data from the Center for Responsive Politics, illustrates these numbers rather well (I highly recommend taking a quick look at the report itself, there are a number of charts showing the amounts received by Congressman, Health Committee, and Party).  $1.4 million per day is a lot of money. And as that was the average expenditure from the first three months of this year, one might think that as the debate heightens, so may have the money– which is to say that the $513 million estimate for 2009 may be conservative. The question of course is why. All Things Considered offers the following:

Why spend so much? Three words: return on investment. While a drug company might spend a few million dollars lobbying, it stands to gain, or lose, billions in the outcome.

One big example: the 2003 Medicare drug legislation, under which Medicare began covering prescription drugs. One provision shifted poor, elderly consumers from Medicaid to Medicare - more bluntly, from a program where the government can negotiate with drug companies over prices, to a program where the new legislation prohibited such negotiations.

Most estimates find that the Medicaid-to-Medicare shift was worth billions of dollars for the drugmakers. Meanwhile, the Center for Responsive Politics puts the pharmaceutical industry’s 2003 lobbying expenditures at $126.1 million.

That would seem to be a bargain.

Of Doughnut Holes and Simple Math, or, “Even if I Pay Half Price For Brand Name Drugs, Won’t That Still Be $4,350 Out of Pocket Until Medicaid Kicks In?”

Forgive me if I sound naïve, or perhaps a wee bit skeptical, but I’m somewhat perplexed as regards the bottom line of PhRMA’s well cheered announcement to offer a 50% discount on name brand prescription drugs to seniors stuck in the money pit known as the Medicare “Doughnut Hole.”  The New York Times has said that the “Federal Saving From Lowering of Drug Prices Is Unclear” and the Washington Post has said that  ”It was not clear how much of the savings would accrue to the government side of the ledger and how much would represent lower out-of-pocket payments for consumers.” Unclear as it may be, it may be worth a look. This is not to say that this move announced by PhRMA is not a step in the right direction, just that a closer gauge of the step, as it appears at present, would seem to be in order.

First things first, in its 2008 fact sheet, “Prescription Drug Trends, September 2008,” Kaiser Family Foundation found (pdf. page 2) that

“The average brand name prescription price in 2007 was over 3 times the average generic price ($119.51 vs. $34.34).

Kaiser also found that “For products with a large number of generics, the average generic price falls to 20% of the branded price and lower.” And that “Approximately three-quarters of FDA-approved drugs have generic counterparts.”

When considering the approximately 25% of FDA-approved drugs which do not have generic counterparts, and which would figure largely in any savings under the new PhRMA discount plan, it is probably important to remember that pharmaceutical companies often  engage in what is known as “pay-for-delay:” the practice of paying generic drug manufacturers not to market generic drugs which would compete with their own branded drugs.

Might I suggest that without a concomitant decrease in the breadth of the lapse in coverage known as the “Doughnut Hole,” or some after purchase rebate scheme which allows the full price of the discounted drug to count towards satisfaction of the Doughnut Hole requirement, the net result for many of the hardest hit  seniors will be fairly limited? That they will still have to pull approximately $4,350 per year out of their pockets?

What’s a Doughnut Hole?

The PhRMA discount goes to the price of brand name prescription drugs after the initial cap is met on the Medicare prescription drug benefit. This initial cap on prescription benefit coverage can result in what CMS refers to as “the coverage gap” or what is often referred to as the Medicare Part D “doughnut hole.”

As we reported in a post back in February,

The Dallas Morning News has offered this explanation of “the doughnut hole”

Seniors with Medicare’s standard drug benefit for 2008 pay the full price once their total drug expenses — both Medicare’s costs and their own out-of-pocket deductibles and co-payments — reach $2,510.

They are then on their own for the next $3,216, until their total drug spending exceeds $5,726. At that point, catastrophic coverage kicks in, and Medicare pays 95 percent of their drug costs.

Some seniors are able to avoid the doughnut hole because they qualify for extra government help or buy extra insurance. But everyone else has to mind the gap, which lawmakers included in Medicare’s drug benefit to hold the line on federal costs.
The WSJ Health Blog reports that in 2009, “The coverage gap will open up after beneficiaries and their drug plans have spent a total of $2,700 on medications…. Seniors are then on the hook for the next $4,350.”

We also noted that “In response to that expense, the Kaiser Foundation has shown that many seniors cease or diminish the use of their medications.”

Some simple, if not rudimentary, math
In order to make a complex matter slightly easier, allow me the liberty of making the numbers even: we’ll use $2,500 for an initial cap, and we’ll use $4,500 for the out of pocket or “on the hook number” — that which one must pay until Medicaid kicks in and pays 95% of the cost. [Because of the wide variation in coverage plans, the actual numbers can vary as well, and there is some fluctuation in the amounts reported.]

Again for even number ease sake, consider someone with a large, constituting catastrophic, $12,000 per year brand name prescription bill. That person, regardless of the discount, will still have to take $4,500 out of his or her own pocket during the Doughnut Hole period of non-coverage-unless the Donut Hole itself is changed or eliminated. Looking at the calendar year, if the Doughnut Hole is not changed or eliminated, with or without the discount, the initial cap ($2500 @ 1000 per month) will be met at around the middle of March. The primary difference with the discount is that instead of making it only to August before Medicaid picks up the tab for the consumer, Medicaid will not kick in until December. Under this scenario, the brand name consumer stands to ultimately save roughly $200 as a result of the 5% Medicaid co-pay,  and Medicaid will have to make a payment for the brand name pharmaceuticals for roughly 3 weeks worth of supply. But the consumer’s out of pocket $4,500 still went to the brand name  pharmaceutical. Read more

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