Pharmaceutical Commerce - May/June 2013 - (Page 6)

Op-Ed The downside of pricing specialty pharmaceuticals too high By Kim Slocum, KDS Consulting, LLC Most product managers in the biopharmaceutical industry lack background in health policy. That is unfortunate because it means that sometimes they lose sight of the forest for the trees. One such circumstance, unfortunately becoming more common by the month, is the pricing of newly launched specialty products. It almost seems as though there is a race to break records for the most expensive drug ever sold. It is helpful to take a quick look back at how the industry got into this particular situation. It was only a bit more than thirty years ago that managed care began including coverage for prescription drugs as part of standard policies sold in the commercial market. At the time, insurers hoped that generous coverage of drugs would be an important tool to help them offset their major concern, the ever escalating cost of hospital care. Instead of understanding the true nature of the situation and rising to the challenge, industry instead developed the “megabrands and mergers” model in which modestly differentiated treatments for chronic conditions like acid reflux, hypertension, and hyperlipidemia were launched with gigantic sales forces and big direct-to-consumer campaigns. This worked until the beginning of the century when payers realized they were still facing high hospital costs, but now also had unsustainable prescription drug costs as well. The result was the three-tier formulary which within a few years essentially destroyed all the previously profitable chronic disease categories and left the industry scrambling for new sources of revenue. Biotech rode to the rescue like the cavalry in a Western movie, and many companies quickly reconfigured their portfolios to participate in the new scientific bonanza. Unfortunately, patient populations for these products were far smaller, and even with the significant costcutting of the century’s first decade, biopharmaceutical firms need extremely high unit prices to permit these products to match the revenue streams of the older “megabrands” they were replacing. Why ‘recall readiness’ should be top-of-mind for every pharma exec By Mike Rozembajgier, ExpertRECALL Given the heightened awareness of patient safety that FDA and industry managers have exerted in recent years, product recalls are a growing factor in operational performance. Yet, many industry leaders I speak to have adopted a “that would never happen to me” mentality about recalls, despite evidence that recalls are on the rise. With this in mind, how prepared is your company for a recall? According to a quarterly index of recall activity maintained by my company,* pharmaceutical and medical device recalls continue to steadily increase. In fact, the number of pharmaceutical events jumped 140% in the third quarter of 2012 alone. In the fourth quarter, 42 pharmaceutical companies faced recalls and more alarming, nearly half (19) of these companies faced more than one recall. The message is clear – it’s not whether your company will face a recall, it’s when. Importantly, in many cases the first recall is not the last recall for a company. Complacency is the enemy of recall readiness. This is especially true in the pharmaceutical industry, where the ever-changing regulatory landscape and threat of litigation are making recalls more complex and, if mismanaged, more costly every day. A lack of preparedness only slows recovery and further *The ExpertRecall index can be found at: To the health policy community, this looks a lot like déjà vu with the industry on the brink of repeating its mistakes of the late 1990s. Perhaps the best example is oncology. Last year, FDA approved 13 new anti-cancer drugs, but only one may extend life by more than a median of six months. Two extended life for only four to six weeks. All cost at least $70,000 for a year of treatment. This represents a classic value gap, not unlike the conditions of 2000–2001, but with several more zeros to the left of the decimal point. Managed care, the employer community, the Federal government, and even providers are becoming concerned and are preparing responses. Everything from dramatic increases in patient cost-sharing, to preferred drug lists, to mandatory comparative effectiveness research is under consideration. How should brand teams respond to these impending challenges? First, they need to do a much better job of involving the payer community much earlier in the development process. Most companies don’t even start talking to payers until Phase III or later—which is a major source of irritation for the health plans. The markets for these products are entirely supported by third party reimbursement, so it is critical to understand what this community wants while product profiles are still malleable. Next, products need to be priced to the actual value they deliver to the health care system, rather than what the market will bear or (worse yet) an arbitrary corporate ROI target. Finally, as the US healthcare system continues to change its payment mechanisms to reward clinical outcomes, companies need to be ready to put their own money at risk with novel contracting strategies. Albert Einstein defined insanity as doing the same thing over and over again and expecting different results. Let us hope that the biopharmaceutical industry will do a better job of learning from its past and paying more attention to the broader health-policy environment into which its new products are launched. ABOUT THE AUTHOR Kim D. Slocum is president of KDS Consulting, LLC ( He works with life sciences companies, health plans, and healthcare information technology firms. Before founding his company in 2006, he worked for more than 33 years in a variety of pharmaceutical, biotechnology, and healthcare consulting firms. He is a frequent speaker and writer on the future of healthcare. diminishes a brand. It compounds across multiple recalls leaving companies—and the industry—crippled by a muddied reputation, distracted employees, and mounting legal risks. Pharmaceutical manufacturers need to start preparing today. The financial impact of any recall, from notification to destruction or disposal, can be devastating. Not only due to revenue lost from unsaleable products, but also from the potential financial impact of litigation and fines. Making things worse, a mismanaged recall can decrease customer confidence in a brand and have a heavy impact on revenues for years to come—adding significantly to the true cost of a recall in the long-term. Turning to best practices and leveraging available resources can help ensure a recall is managed efficiently and effectively—thereby reducing the cost of an event and resolving incidents quickly. Develop a recall plan and test it regularly. A recall plan should provide the critical information needed to manage a recall from corporate organizational structure to instructions for regulatory agency notification to communication guidelines. Test this plan regularly through a mock recall simulation which tests every step in your recall plan to ensure your team is ready to respond quickly when an actual event occurs. Constantly evaluate and update the plan and simulation to address changes in regulations, technology, and products. The basic elements of a recall plan are: • Your corporate organizational structure, which maps out all supply chain operations, distribution centers, wholesalers, retailers, users and consumer consignees • A designated recall coordinator and outlined responsibilities of the recall management team • Details about recall fact-gathering to define the parameters of the recall including root cause, inventory and health significance • Responsibilities, timing and processes for regulatory 6 Visit our website at May | June 2013 agency notification • Recall communication guidelines for when and how to inform affected parties and answer questions • Clearly defined policy and procedures for recall closing out. Companies should also look at their current processes for ways to reduce recall risk. A large component of effective recall management revolves around a company’s ability to accurately identify, locate and withdraw all affected products. The ability to pinpoint affected units down to a batch or item level using track-and-trace technology can save a great deal of time, limit the scope of a recall, and reduce liability. For instance, by only recalling specific quantities affected by the recall, a pharmaceutical manufacturer can limit exposure and prevent lawsuits being filed by consumers who never purchased the recalled product. Key to future success is learning from each event. Conduct an assessment of previous recall actions so you are better prepared for the next one. Examine your current recall capacity and determine where improvements are needed and make changes to better implement effective recall events. It is sometimes difficult to imagine how your company would be impacted by a recall. If you haven’t done so already, you should move recall preparation to the top of your agenda. ABOUT THE AUTHOR Mike Rozembajgier is vice president of recalls for Stericycle ExpertRECALL™. Rozembajgier is responsible for all aspects of recall service offerings, including development of strategic recall business initiatives and product enhancements. He has more than 10 years of experience in the healthcare industry. Prior to joining ExpertRECALL, Rozembajgier held various management positions at Guidant Corp. (now Boston Scientific) and at Deloitte in the Strategic Consulting practice.

Table of Contents for the Digital Edition of Pharmaceutical Commerce - May/June 2013

Pharmaceutical Commerce - May/June 2013
Table of Contents
Top News
Brand Marketing & Communications
Supply Chain/ Logistics
Information Technology
Manufacturing & Packaging
Legal & Regulatory
Meetings and Editorial Index

Pharmaceutical Commerce - May/June 2013