The latest Harris Interactive/WSJ poll compares various ratings of the trust of the public in institutions and professions "to do the right thing" versus their trust in specific people, products and companies "to do the right thing for you". They then lay out the difference between the trust in the profession/the individual etc. The results make rough reading for many groups (including health plans) but the worse is for the pharmaceutical industry which has been losing the public over the re-importation issue for a couple of years. There’s a 34% difference between those who don’t trust the Rx they take versus those who don’t trust the pharmaceutical companies (and yes more people trust the drug rather than the companies). So in general we’re OK with the product but hate the producer, or perhaps we love the sin but hate the sinner!
Just worth noting that another round of consolidation in big pharma is underway asSanofi Bids 48 Billion Euros for Aventis. While this is an all French deal, as if you hadn’t noticed by now, pharma companies make all their money in the US, so this will likely spur some consolidation here–Schering, Merck and maybe GlaxoSmithKline might be players on either side.
Although drug prices are generally set by the government in Europe, there is significant price variation between different countries. Savvy European entrepreneurs have therefore gone to wholesalers in the cheapers countries (like Greece) and imported drugs to be resold to pharmacists. As you might expect the drug companies are not happy about this importing of cheaper drugs (sound familiar to my North American readers?) and have successfully gone to court to enable themselves to limit their sales to wholesalers in any country to enough for that country only. Now the EU is calling on national licensing associations to make it easier for these traders that exploit price differences to buy and sell in new markets. To American pharmas and patients dismayed (for different reasons) at the overall lower prices outside the US, this might all seem like a storm in a teacup, but it does go to show that these days maintaining high prices for drugs is not easy.
Just a quick post as I’m traveling all day today. Yesterday I heard a new Medicare term to do with NAIM ("New and Improved Medicare"). The word is TROOP, which stands for "True Out of Pocket"costs. Those are the costs that will actually be recorded against your deductible and the donut hole for your yet-to-come Medicare drug coverage, and as you might suspect, it may not included everything you might think!
CBS marketwatch has an interesting list of new blockbuster drugs to watch for in ’04. One of the blockbusters is Caduet, an interesting combo pill from Pfizer that combines Novarsc and Lipitor for both hypertension and high cholesterol. This helps patients by making it easier for those with multiple conditions to remain compliant. But as was noted by the Industry Veteran last Friday, the development of the combo pill also gives pharma companies a chance to raise prices. You can expect that the payers may not be so interested in improving the ease of patients, but will use three tier formularies and other tools to increasingly push the decision over spending extra for an easier to use product down to the consumer.
Two of my favorite contributors both have found me interesting stories about pharma company tactics today. Jane Sarasohn Kahn sent me an article about the ongoing US-Australia talks on drug pricing. Recall that the Aussies joined us in invading Iraq because they were promised in a nudge-nudge wink-wink way a free trade deal which would allow their agricultural products into the US market. However, fresh from victory in the Medicare drug coverage arena, the US pharmas a going after price "discounting" by governments abroad. (For background info look at this latest edition of the Pfizer sponsored Health Politics which basically trots out Mark Pauly’s not entirely untrue line that Canadian drugs aren’t any cheaper than US drugs overall when you factor in that fact that they don’t use so many generics and don’t allow access to the some of the newest and most expensive drugs). As part of the Australian negotiations things are getting a little heated. The Australian (which is the pretty unsuccessful result of Murdoch’s attempt to create a highbrow national paper there) wrote that
US drug lobbyists were peddling misinformation about Australia’s medicine subsidy scheme to secure a better deal under a free trade agreement, federal Health Minister Tony Abbott warned a delegation from Washington yesterday.
During a meeting with a powerful US congressional delegation yesterday morning, Mr Abbott also said the Australian Government would not change the "basic architecture" of the $5.8 billion-a-year Pharmaceutical Benefits Scheme to secure a trade deal. But he left open the prospect of other concessions to multinational drug companies, saying he would be happy to talk with them about demands for greater transparency. After the talks with Acting Prime Minister John Anderson and eight influential Republican congressmen in Sydney yesterday, Mr Abbott accused drug lobbyists of waging a dishonest campaign against the scheme. "Misleading information is being peddled in Washington," he said in a statement. "The PBS is not a rationing system but a subsidy system. The PBS does not deny access to US drugs but treats them exactly the same as drugs made in Australia or elsewhere."
Now despite the party name (which harks back to the old European meaning of liberal not its American derviation) the Aussies have a very right wing government in power by all but US standards. (Randomly enough I’m a friend of Tony Abbot’s sister who’s political views are somewhat pinkish and despite the fact her brother is the rising star of the Aussie Liberal party and a likely future Prime Minister, she basically thinks he’s a right wing nut!) So if the Aussies feel that they can’t sacrifice their drug pricing system despite the huge carrot of free-trade in agriculture that the US is dangling, there’s no chance of the Europeans doing so.
Meanwhile, the Industry Veteran sends me this story about Abbot’s huge price increase in Novir, its protease inhibitor which is used as a component of many anti-viral HIV regimen. Basically Abbot has increased the price of a drug five-fold that is used in combination with its competitors anti-virals, but if you take Novir in a combo form with Abbot’s new protease inhibitor Kaletra, it’s now cheaper than taking it separately with the competitors’ drugs. The Seattle Times reports
Abbott is pricing Norvir as though it is a "full component" in the drug cocktail, complained Shalit. "But it’s not being used for its activity against the virus — it’s used as a booster for the other drugs." While Abbott vigorously denies it, Shalit and others believe the Norvir price increase was aimed at Abbott’s competition. In essence, Shalit said, increasing Norvir’s price raises the cost of taking Abbott’s competitors’ drugs used in combination therapy. That could push patients toward Abbott’s newer drug, Kaletra, a combination drug with Norvir built in. With the Norvir price increase, Kaletra’s competition has become more expensive than Kaletra, approved by the Food and Drug Administration in 2000.
In their letter to Abbott, the local doctors also expressed worry that the increased cost of Norvir would have a chilling effect on development of other drugs designed to work with its boosting power; at least one such drug is now being tested in Germany.
The Industry Veteran comments
Here’s an ominous trend that I see as more pervasive than just the HIV area. Big Pharma will seek to extend patent protection and up-sell patients by exorbitantly raising the price of single-compound products, thereby coercing people onto fixed-dose combinations (one pill containing two or more compounds) that contain the unconscionably priced compound. Watch for this trend in (y)our favorite category: the statins.
In any event both these stories prove that big pharma, conscious of its potential problems with future drying pipelines, is going to fight hard to maintain its profits and protect its turf. That’s to be expected and it is also part of their fiduciary duty which, lest we forget is not to Canadians, Australians or AIDS patients, but to their shareholders. The question is will this type of behavior cross the line and cause sufficient resentment that politicians bring a backlash against them. That may yet happen in their incredibly unpopular opposition to Canadian imports.
Then again there is the other question that Jane posed in her post here a month or two back. She wrote
Pharmas are looking to biotech for new formulations, but they’re also looking to smaller pharmas too for licensing deals. This will be important over the next few years. Obviously, biotech will be important in the longer term, but the juries are still out on so many very expensive drugs. We will be hitting the wall on who is going to pay for those expensive bio drugs, and I anticipate that will be a big area of contention. It’s not clear really who will be willing to pay for innovation.
Jane’s follow up goes to the heart of the "how much will who pay, and be able to pay?" question.
In today’s news, I see that the small pharma Trimeris based in NC which produces the $20K/year drug, Fuzeon, for HIV/AIDS, is now laying off and looking like it could close shop…for a few weeks, literally, a few payers last year said they’d be willing to pay for such an expensive HIV drug. However, as I recently told one of my clients who is big in HIV, that’s one disease state where that high cost just won’t get rationalized….now an expensive prostate cancer drug used by rich old white (mostly) men, sure…but even $20K a year for that wouldn’t be chronically taken virtually ‘forever.’ Some discussions are afoot about whether we have "enough" innovation for now.
Just in case you thought you had tax troubles, the IRS thinks that GlaxoSmithKline owes it $5.2 billion. GSK has about $2bn in reserves to pay this, but obviously will be in tax court for a few years whittling this number down. Given the way the stock market works the relative certainty of this upper limit may end up being a positive thing for GSK, and I doubt that rest of us will be passing the collection hat for them any time soon!
The AP reported on New Year’s Eve that the rough consensus of analysts is that 2004 will be a reasonable but not great year for the pharma stocks. Those stocks have of course underperformed the S&P over the last year but actually haven’t done too badly over the last 2 years compared to the S&P after their plunge 18 months ago. One potential major problem has been dodged, with a Medicare bill that’s as friendly to the pharmas as possible. The longer term problem is the paucity of the pipelines, so I’d look for more deals in the biotech sector like the one Pfizer did with Esperion Therapeutics. But of course some time after 2006 when the Medicare coverage comes in, the likelihood of more governenment interference is a risk in the much longer term.
In the shorter term the most interesting stock remains Astra-Zeneca. Since its beautiful technical double bottom in February and March last year A-Z has rallied over 65%. THCB has reported at length about the potential problems with both Crestor and its struggles with Lipitor. This past weekend the influential finance magazine Barrons essentially came out warning that A-Z’s rally was overdone, but if you’d shorted A-Z a few months ago when this discussion started, you would be under water. Is it any different now?
This won’t be much new news for those of you who’ve been following the various commentators here on THCB about the war between Lipitor and Crestor, but The Motley Fool website has a good summary of the statin market called The Cholesterol Wars.
The NEJM reports a 5 year study that shows that a combo therapy of Finasteride (Proscar) and Doxazosin works better than either alone on improving the lives of men with an enlarged prostate. Here’s the news from the AP if you don’t like boring academic abstracts.