Just a tickler update about a process that I’ve reported on enough and which has been rolling for a while, a bi-partisan group of Senators who’s staffers can read opinion polls have introduced a bill to allow Canadian imports. Meanwhile, despite some hysteria from the right in Canada, prodded by their fellow-travelers south of the border, the Canadian government has denied that there’s a shortage of product at home.

David Mackay, executive director of the Canadian International Pharmacy Association, said Canadians are “not at all losing drug supplies needed for Canadian residents. Those who say so are fear-mongering.”

Fear-mongering? About a health care issue? Well, just imagine that!

The trial of TAP officials accused of defrauding Medicare over the sale of the cancer drug Lupron starts today in Boston. Matt Quinn isn’t sure that the blame is falling entirely where it should:

Although “two health plans, 26 group practices, and 25 individual doctors from Massachusetts to California were offered or took bribes, including cash, free drugs, Red Sox and Yankees tickets, and trips to swanky resorts, according to a list of “kickback transactions” filed in US District Court in Boston…None of the medical professionals face charges in this trial.”

It appears that federal prosecutors are using tactics from that other drug war in their efforts to root out corruption and fraud in Big Pharma: get the minor criminals to “turn” in order to land the “big fish”. But there is a fundamental difference between the two scenarios. Big Pharma sinks to these lows BECAUSE medical “professionals” demand it of them (for example…):

“In documents supporting those charges, prosecutors asserted that Lahey Clinic officials agreed to continue prescribing Lupron only if TAP offset the clinic’s cost by about $100,000 by paying for a Christmas party, golf tournaments, and seminars and for providing free drug samples.”

“At Yale-New Haven Hospital, the documents say, the urology department in 1999 asked for and received $10,000 from TAP to fund a seminar after threatening to switch patients from TAP’s prostate cancer drug Lupron, to a less expensive competitor.”

“A urology practice affiliated with the former New England Deaconess Hospital in Boston also played TAP against its competitor and from 1995 to 1998 received 111 free doses of Lupron, worth at least $400 each, according to the indictment and kickback records. The doctors prescribed the samples to patients and billed Medicare for the full cost of the drug, turning the samples into a cash kickback…”

Oh, and street drug dealers don’t agree to the Hypocratic Oath…

Of course, this kind of kickback / fraud is largely a moot point if the government/payers quit paying for injectable drugs…

The Republican retreat on the re-importation bill continues. All stuff I’ve posted on before, including leading communist Chuck Grassley (R-Nebraska) introducing a bill to get the FDA to certify certain Canadian pharmacies and Tommy Thompson running his mock show trials explaining why despite everything they’ve said the Administration is going to back don on this. I don’t like linking to the WSJ too much as many of you aren’t subscribers, but in this case the BCBS Association has a pretty good summary:

According to the Journal, the drug industry “can’t even be sure of continued opposition to drug imports from the Bush administration,” which has appointed a task force to study how to reimport drugs safely as part of the new Medicare law (Wall Street Journal, 4/13) . . . According to the Journal, the early deadline for the results of the study “has the industry braced for the possibility that the administration might propose a limited experiment with imports before the election.” An unnamed lobbyist for the drug industry said, “There’s this huge tidal wave. I think it’s just getting harder and harder even for people that have some sense to hold off this terrible crashing wave.”

This is pretty upsetting for the industry given that, as the Center for Public Integrity (a great resource that both political parties hate equally) reports, it gave over $11m to the Republican National Committee in the 2000 and 2002 election cycles, and spent more than $1 billion on lobbying in the past decade.

That’s not of course going to stop the industry’s shills, in this case the Galen Institute, telling you that Canadian imports will kill you and everyone in your town. Who are the Galen folks (apart from being on the nutty end of the Libertarian spectrum, and believing that government intervention is always a bad idea unless it involves enforcing dubious patent extensions)? Well their fellow travelers are noted in this document, and they include people from Heritage, the AEI, the Pacific Research Institute, Cato and of course everyone’s favorite academic Mark Pauly–he of the belief that the individual insurance market works well for the 80% of the people who don’t need it. I bet you a nickel that the pharma industry is a healthy contributor to Galen. And as I’ve posted before, this is all so unnecessary. The amount of political heat the industry is taking and will take far exceeds the small amount–around $1 billion out of a more than $200 billion market–they are losing to imports.

From the THCB’s Sacramento bureau, Matt Quinn has been following the changes in reimbursement for oncologists. He notes that although last week Genentech’s income rose 17%, not all is well at the onco-pharma shop. Matt writes:

Change monetary incentives and utilization changes… how unexpected (!). Rituxan and Herceptin represent a big piece of Genentech’s revenue. Avastin (and other drugs that choke off blood vessels from tumors) haven’t proven to be the "silver bullet" that they were once thought to be. Genentech’s future is heavily reliant on them as well…as the WSJ notes:

"At the same time, however, sales of another Genentech cancer drug (Rituxan) appeared to fall short, a situation company executives attributed in part to "initial caution" by physicians following a change in Medicare reimbursement practices for cancer drugs."

"Officials of Genentech, South San Francisco, Calif., acknowledged some weakness in Rituxan sales. Ms. Potter blamed lower inventory levels at drug distributors, while also noting changes in Medicare-reimbursement practices. Under the new rules, doctors aren’t any longer able to profit by prescribing cancer drugs."

Surely big pharma can put together an organized retreat on this re-import issue. All they have to do is allow the FDA to announce that they will allow imports, have them promise to report back on how some time after November, and take this issue off the table. As I’ve said before, it’s just not a big financial deal for them right now, and probably won’t be for a while. But instead they insist on trotting out a case that no one other than they and the Surgeon-General believes. Did they not read these polls showing 79% of seniors disapproving of their position? I’m sure my friends at Harris will be happy to share more results with them for a small fee!

Regular THCB readers will know that I’ve been forecasting that the Republican administration will have the FDA back down from its stance banning re-importation of drugs from Canada (and elsewhere) mostly because over 80% of the public think that they ought to, and it’s by far the most disliked part of the recent Medicare bill. AARP has thrown its weight behind the change and HHS secretary Tommy Thompson has set up a commission to come up with that ruling, but of course there are still massive objections from the pharma industry. An organization called the Partnership for Safe Medicines is so keen on keeping the status quo that it even had a PR firm contact yours truly to ask me to cover a press conference it had yesterday, which included Peter Neupert, President of Drugstore.com speaking out against imports. Here’s the press release which quotes Neupert as saying:

A little background. There are three types of internet pharmacy. 1) US based mail-order operations that are legitimate parts of US pharmacies and PBMs or are similar–Drugstore is in this number with Medco, Walgreens etc. They request that you send in a genuine prescription and are just another delivery vehicle like the corner pharmacy or the mail order that’s been used for years with no problems. 2) Then there are the ones who send you spam offering access to Viagra or Cialis and allow you to go online and buy with a prescription “their doctor” gives you. These guys are clearly cowboys and they are being dealt with by the proper authorities here, although some bloggers with a libertarian bent don’t believe that type of dispensing should be illegal. (By the way Trent, I somewhat agree, but it’ll never happen!).

3) What the SafeMedicine folk fail to point out is that there is a third group, which is composed of legitimate pharmacies already certified by the Canadian government which are simply mailing across the border as opposed to across the country. These look far more like the first group than the second. If you go to their site they demand a prescription, and their drugs come from reputable suppliers and are handled in as reputable a way as in the US. So is SafeMedicine advocating that these pharmacies receive the VIPPS certification so that US consumers can tell them from the cowboys? Of course not. They’re holding press conferences like yesterdays and peddling propaganda like this from a Pfizer sponsored doctor-journalist. That’s because the members of Safe Medicine are PhRMA and various associations of American pharmacists, who’s economic interests are hurt by imports, and by restricting the supplies available in Canada they are actually making it harder for those legitimate Canadian pharmacies to get drugs to send to the US and so are opening up the opportunity for the cowboys to step in. If the industry really cared primarily about patient safety they would support the FDA or VIPPS certifying Canadian based online/mail-order pharmacies. This was suggested on 60 Minutes a couple of weeks back by the mayor of Springfield, MA:

Mayor Albano concedes that casually buying drugs on the Internet could be risky, but says it was quite simple for him to check out his Canadian supplier, and challenges the FDA to do the same thing. “The FDA has become a pawn of the pharmaceutical industry, that they are protecting those high profit margins. If the FDA wanted to put a plan together similar to what we’re doing in Springfield, that would be good for all Americans, they can do it in 15 minutes, relative to safety,” says Albano. “We get all our medications from certified, regulated pharmacies in Canada. It’s no different than going to your neighborhood pharmacy. And it’s the exact same medication.”

So beyond the ridiculous credibility problem that the industry is facing here, and the fact that they seem to have even lost the Republicans they bought and paid for in 2002, how much would it really cost them to retreat on this issue? My guess is not that much. Harris reports this week that only 4% of Americans have bought a drug online when prompted by email (which may of course be spam or a legitimate reminder email from drugstore.com or a competitor). That number is itself a problem for Drugstore.com, because it really means that only a small proportion of the drugs consumed in America come via mail order or online.

One number I found was that mail order counted for around 14% of all drugs in 1999–that was back in the days when PlanetRX and Drugstore.com could actually afford advertising! The vast majority of that 14% comes from the big PBMs mail-order operations. There don’t appear to be any good numbers on the amount of imports (at least the AMA News couldn’t find any) Quick update IMS reports that imports from Canada totalled about $1 billion in 2003 which is less than 0.5% of all drugs sold. The fundamental question is, why would you bother going to the trouble of importing from Canada if someone else is picking up the tab? Most Americans have pretty decent drug coverage and aren’t getting their drugs from Canada. The ones that do are the small share of Medicare folks who don’t have any drug coverage, and a few leading edge employers (like the city of Springfield). I suspect that the cost of losing that revenue is less than the hit the pharmas are taking in bad publicity right now. Let alone how bad it might be for them if this issue is enough to lose Bush Pennsylvania and Florida, which it well might be. In 1992-4 the pharmas kept pricing in check in what we called the “heads down for Hillary” effect. In the end the outrage against their pricing then wasn’t enough to prompt price controls, and they had a bonanza for the rest of the 1990s. Those tactics might be just as advisable now.

THCB readers will recall that last year Abbott radically increased the price of its HIV drug Norvir mostly in order to make competitors drugs taken with it more expensive than a combo pill it was launching. Well apparently NY state attorney-general Eliot Spitzer has already opened an inquiry into the issue and several New York state agencies and HIV pressure groups are piling in. In the most recent exchange, the New York Department of Health, which of course runs the biggest and most expensive Medicaid program in the US (yes, more than California’s!) wrote in a letter to an HIV group:

"We have requested representatives from Abbott to present their documentation regarding this claim [that the price hike would not harm Medicaid programs], however we are not yet convinced that this is the case."

You may love the bureaucratic understatement, but the intent is clear and Spitzer has proved his ability to go after corporate "bad guys" enough that Abbott may have to tread carefully here.

If you go down a couple of pages in this edition of Pharma Marketing News you’ll find an interesting article written about a speech Jane Sarasohn Kahn gave to a pharma conference about scenario planning. Once you’ve taken a look at that, read this article by Robert Mittman on forecasting technology change. If you can steal the components of these two pieces and make a powerpoint chart, you can now officially call yourself a futurist.

Hey, it’s worked for me for years…..

Investment magazine Barron’s claims that the pharma sector’s stocks have slid because of fears that Kerry will win the election and presumably institute price controls. Quite how he’ll do that with a Republican house and Senate is a good question, unless of course Barron’s thinks that the Democrats will sweep those races too. And further to this question if you look at the 6 month chart of Astra-Zeneca, BMS and Pfizer versus the S&P, you notice that over time only BMS has really hit the skids–and that has far more to do with Pravachol’s impending patent expiration.

And of course if you want to compare stock prices, note that as shown in the chart below Pfizer’s stock price tripled in the second Clinton administration, and has gone down under Bush.

So I suspect that no matter who’s in power, you’re better off being a pharma with a great pipeline than one with great clout in DC!

The Motley Fool, which is a site for individual investors, has noticed that over the long hauldrug costs are likely to be compressed over time.

If current trends continue, it’s not hard to imagine some form of caps. Of course, the U.S. could try to convince Canada, Japan, and Europe to eliminate price controls by arguing that unfettered markets will lower costs for everyone. Europe is currently wrestling with its own drug importation issues, because, although most governments employ controls, prices vary widely from country to country. Given European governments’ lack of progress in reforming their welfare states, though, a total rollback seems highly unlikely. A more probable outcome is that the U.S. would adopt a compromise position between its current system and those of other developed countries. Still, any governmental reform would probably involve some erosion in profit margins.

In other words we’re eventually going to end up with lower pricing relative to Europe over time. But from the investors perspective they also believe that:

The pharmaceutical industry almost certainly will never turn into a low-margin business like consumer electronics.

This is pretty obvious and is another rebuttal to the argument that any attempt to prevent pharma companies price gouging will of necessity stop all pharma R&D. I think their opinion is about right, but then I’ve said that at length before.