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PHARMA: What will it really take for big Pharma to go Hollywood? by The Industry Veteran

The Industry Veteran, who’s opening the year on quite the tear, has been pondering the latest “trend” in the pharma marketing chatter — the idea that Pharma needs to follow the Hollywood model. Here are his thoughts:

Here’s an interesting article from John Mack’s Pharma Marketing Blog that appeared last summer. In drawing an analogy between Big Pharma and  Hollywood, Mack claimed the drug industry should learn from the Hollywood studios and substantially alter their distribution strategy. According to Mack and a few other industry strategists, the studios understood that their largest revenue segment doesn’t come from movie theaters, but instead from DVDs.  In response they started pushing movies onto DVDs within a matter of weeks after the open in theaters. More important than the revenue from theater distribution, movie appearance in those outlets, and the supporting TV ads, function to build word-of-mouth for DVD sales.

 

Mack and others in the industry develop some useful insights, although John is actually a bit outdated in his description of movie industry dynamics. The share growth of home sales/DVDs has slowed in favor of view-on-demand.  Both Comcast and the dish-satellite companies have tried to sign deals with the studios to show movies in their view-on-demand services within a few weeks after theater openings. The studios want to make these deals but they have hesitated for fear of antagonizing Wal-Mart. Nevertheless, Mack argues that just as Hollywood creates greater revenue through an alternative distribution strategy, Big Pharma could do the same by pushing its drugs to move more quickly into generic and OTC status while the Pharmas acquire ownership of the generic and OTC companies.

 

This altered distribution scheme is another approach to a demand sensitivity argument by which higher volume and lower prices will net out at a larger total revenue for the industry. The idea of enhanced compliance is the New Year’s buzz in Big Pharma. Brad Sheares, the president of Merck’s US Human Health division, told his reps that he would ask them to support DTC promotions stressing the importance of filling prescriptions and finishing the entire package. In the current era of fewer new molecular entities, Pharma finds that too many written scripts fail to generate revenue because uninsured and underinsured patients can’t afford the high cost. In this scheme of things, Big Pharma’s push for generics won’t compete with the high-priced, branded products that will make their generous returns on investment within their first several years after launch. Instead the older, unconscionably priced brandeds that scream for price controls will give way to affordable generic versions.

 

Mack’s use of the Hollywood model for distribution dovetails neatly with Larry Ellison’s notion of a Hollywood analogy for product development. Ellison is the CEO of Oracle and he claims that Hollywood provided a precedent for Big Pharma decades ago when it decimated the big studio approach to producing movies that it used from the 1920s through the 50s. The studios since that time have become the financing, marketing and distribution infrastructures for independent producers. Ellison suggests that Big Pharma should learn from its elders. 

 

I suppose the Big Pharma company that has most definitively gone Hollywood in both product development and distribution is Novartis, which is now the largest generic company in the world. Of course all the Big Pharmas have signed scores of drug development deals in the past few years with the counterparts of independent movie producers: biotechs and startups. It’s probably no accident that Novartis, a Swiss company, has adopted a banker’s/financier’s model for Pharma. Its crosstown rival in Basel, Hoffmann-LaRoche, has even truncated the marketing portion of this financing-marketing-distribution model by decimating the marketing function. Unwilling to sustain the fixed SG&A expenses of other Big Pharmas that employ tens of thousand of reps, Roche partners out the marketing-selling activity for any primary care product that falls its way.

 

If Big Pharma does go Hollywood and contracts out most of its present functions, a new type of personality would have to prevail in the industry. The sort of imperious, arrogant ignoramus who now runs the Big Pharmas (McKinnell at Pfizer, Hassan at Schering-Plough, Miles White at Abbott, J.P. Garnier at GlaxoSmithKline) would have to be replaced by far more anonymous, benign bean counters, much the way that Hollywood’s Louis B. Mayers and Harry Cohens yielded in favor of their forgettable successors. The mid-level managers in Big Pharma are currently small, politics-playing, risk reducing, follow-the-leader types who can barely do their jobs and seek to avoid any original thoughts for the duration of their careers. That would have to change and they would need to be replaced by fast-moving sharks along the lines of the Ari Gold character on HBO’s Entourage.

 

Yes, I can see it now, on the bottles of blood pressure medication…Eli Lilly and The Ligand Company, in Association with Amgen and American Pharmaceutical Partners, bring you an Anadys discovery of a Cleveland Clinic renin inhibitor: Epericel…”and the vasculature was renewed.”

 

Coming soon to a drugstore near you, or call your MCO’s mail order house.

TECH: Outlook “update” is a backtrack

One of the regular system updates Windows automatically downloaded to me the other day was an “enhancement” to the junk mail filter on Outlook. Until this “enhancement” my junk mail was doing farily well, with only a few false positives being missed. Now all manner of lottery winnings, offers of mortgages and longer personal appendages are once again turning up in my main in-box. Anyone else noticed the same problem?

OFF-TOPIC: Study–7 Percent of Workers Drink on Job

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Apparently according to this study “just over 7 percent of American workers drink during the workday — mostly at lunch — and even more, 9 percent, have nursed a hangover in the workplace, according to a study.” This tells me two things that I already know. People lie to survey takers, and Americans can’t drink worth shit!

POLICY/PHARMA/PBMs: Health spending collapses–all the PBMs doing! (No, not really).

So the numbers on national health expenditure are out, and health spending plummeted by 50% in 2004!! Oops, what I meant to say was that health spending only went up by 7.9% — barely enough to trouble the scorers (as they say in cricket). But wait — you all think that health spending went down in the 1990s and up by 15% in the early 2000s.  That’s not true. That’s what happened to private sector insurance premiums.  The overall news (as can be seen in the NY Times chart) is that spending growth in the whole health care sector never went up much over 9% even in the worst years of 2001–2 but it hasn’t slowed down to the mid 1990s when it came down to 5%, which was near the same growth as the rest of the (nominal) economy.

Health.184Of course where there has been slowing in costs in the last year has been in pharmaceuticals.  Some of you might think that’s because lots of drugs went off patent and relieved consumers switched to generics, but you’d apparently be wrong.

“Mark Merritt, president of the Pharmaceutical Care Management Association, said the new data vindicated the techniques used by members of his organization to manage drug spending”

In other words, it’s another great triumph of the PBMs. Funny, I don’t remember Mr Merritt being quoted in this type of article in the late 1990s when drug costs were going up much faster than the rest of health care spending. Were there no PBMs back then? Oh well, he might as well claim credit as apparently the rest of the health care system is now out to undermine his brave members in their feverish attempts to lower drug costs.

But, Mr. Merritt said, at the federal and state levels, "lobbyists for brand-name drug makers, chain drugstores, trial lawyers and others are working to undermine many of the tools we have used to reduce the rate of growth in drug spending." For example, he said, brand-name drug companies have resisted state laws that encourage the substitution of generic drugs.

It takes a slightly cooler head to respond to what’s really going on. Paul Ginsburg from HSC noted that:

"The rate of growth in health spending slowed in 2004, but it’s still substantially higher than trends in earnings, which are the key to being able to afford health care," Mr. Ginsburg said. "Health insurance is becoming less affordable to more people." As usual, health spending grew faster than the economy or consumer prices. The Consumer Price Index, a widely used measure of inflation, increased 3.3 percent in 2004.

For those of you keeping score at home the count is now $1.9 trillion spent on health care in the US — an average of $6,280 a person, and 16 percent of GDP. Another area in which America proudly leads the world!

POLICY/PHARMA/PHYSICIANS/POLITICS: Some more publicity about the awful state of pain medication

Finally there is some word getting out about the reign of terror the DEA has been running against pain doctors and its awful impact. This article, called Let’s Get Serious About Relieving Chronic Pain picks up from the NEJM article I wrote about last week. We have known at least since the HHS report in the early 1990s that pain medication is massively under-prescribed. In this article, Jane Brody notes that :

"Pain is a common symptom in patients nearing the end of life," with up to "77 percent of patients suffering unrelieved, pronounced pain during the last year of life," Dr. Timothy J. Moynihan wrote in The Mayo Clinic Proceedings in 2003.

But the news is that the DEA, on its messianic quest to prevent us all going to hell or whatever the theocratic fascists think they’re doing, is not only wasting our time and money, and condemning innocent doctors and patients to prison.  They are also helping most people to suffer in their last year of life. Well I’m sure the DEA think it’s a deal worth taking, but I can’t believe any rational person does. If there’s one government agency that ought to be abolished and have all its employees sent to fill in prairie dog-holes in Nebraska (or wherever), it’s surely the DEA.

PHYSICIANS/POLICY/POLITICS: What else are they going to do?

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THCB contributor, radio talk show host and occasional orthopedic surgeon Eric Novack (just kidding, Eric!) sent me this story about the problems that Medicare recipients will  be having getting access to doctors in California if the projected cuts in Medicare reimbursement for Part B actually materialize. So far the cuts for this year have been rescinded by the Senate and the arguing is still going on in the House. Eric has written on THCB recently about the possible bad effects on patient access from cutting physicians fees, and I do agree with him that it’s unjust that only physician fees get cut when hospitals and managed care companies get an increase.

But the problem physicians face is that they don’t really have an alternative. Sure some will retire early, some will move to cash only practices. But given that Medicare is about a third of the money in the system, realistically they can grumble all they like but they’ll end up taking it, and of course doing more things to those patients to make it up on volume.  And that’s not just my opinion, it’s the findings of this five year study by the HSC folks. After all, they went to medical school and residency for all those years, what else are they going to do? There’s only so much room on the poker circuit and only so many of them can run health plans.

That’s why I say that physicians should be figuring out how they collude with government to reduce overall spending while maintaining as good a position as they can. That’s what’s happened in other countries, and one day it’ll happen here. Of course there’s lots of time for gnashing of teeth and entrepreneurial end-arounds before then.

POLICY: Hmmm….Docs are always docs

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So Krugman writes about Cleaning Up the Health Care Mess and the NY Times publishes a bunch of  letters. Krugman basically said that we’d eventually need some kind of government-regulated health care system, and that limits would have to be put on what’s done. Despite the fact that the crisis in our health care system is to the point that even General Motors has noticed and wants out, 5 out of 7 letters are from doctors, and almost all of them are going on and on about government interfering with patients choice, their autonomy, etc, etc, etc.

Perhaps we are just back in 1936 after all. But isn’t it about time the collective physicians of America moved on and realized that they’d better start positioning for a world in which they have to cut a better deal?

Otherwise they’ll be moaning about how it all went wrong when they took on the hospitals, as does this guy. Unlucky for him that he bought at the top, and not on the way up like his colleague in North Dakota.

POLICY/POLITICS/PHARMA: Is Part D the begining of the end for Big Pharma? by The Industry Veteran

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THCB’s favorite vituperative contributor, The Industry Veteran, is back with some New Year thoughts. He got what I was up to on NY Eve a little wrong, but may have a closer idea about what the long term effects of the New Year will bring to Big Pharma. The Veteran writes:

A healthy and prosperous New Year to you!! For some reason I have a picture in my mind’s eye of you sitting in a pub, raising many pints to toast in the New Year. At 2:00 a.m. I see you wearing a thick turtleneck sweater beneath a Harris Tweed sport-coat as the proprietor gives his inevitable call, “glasses, gentlemen.”

 

The following article from Tuesday’s Financial Times says some interesting things about plausible effects of Medicare Part D. The author maintains it will push the US closer to the rest of the world in terms of a national payer system, greater transparency in drug pricing and cost constraints. To advance that last objective, he sees the feds pushing IT and more rational provider management patterns, a sort of revenge-of-the-nerds that should delight you and a segment of your readership. I suppose since neither a Republican or a Democratic administration is likely to enact the sort of changes I would prefer (e.g., tumbrels, guillotines and iron maidens for the Hank McKinnells of the world), the sort of temporized-neuterized change from the back office is better than nothing.

 

The thing that strikes me as amusingly ironic about Medicare Part D is that it shows the folly of leaving economic planning to the monopolistic corporations.  The US throughout its history has disdained strategic economic planning by government because of the secular faith in the market among the country’s business leaders. So here we have the Medicare Modernization Act as developed by Big Pharma’s Pfizers, Mercks and their PhRMA lobby. They fashioned the MMA, with its confusing, competing PDPs, specifically to prevent Medicare from acting as a single payer that could make volume discount purchases. After all, if they could elect George by manipulating an electoral system to create the illusion that 3,000 elderly Jews in Florida voted for Pat Buchanan, a Rube Goldberg MMA could certainly boost their earnings at taxpayers’ expense. Now here we have consultants, journalists and equity analysts forecasting that by decade’s end, the MMA will do precisely what the CEO malefactors wanted to avoid. I dread to think what would happen if Big Pharma’s CEOs were half as bright as their sycophants in Pharmaceutical Executive and the other vanity rags claim.

 

Although as the Veteran has pointed out before, the crew running big Pharma in 2003 will be long gone counting their millions by the time those chickens come home to their successors’ roosts.

BLOGS: Vote trawling at excessive levels

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Last year there was a “Best of the Medical Bloggers” over at  Echo Journal. This year it’s at Medgaget.

These awards are fine so long as they are a way of listing out great blogs for people to read. But I think the competitive aspect of it is ridiculous.

Last year the “policy” section — the one that THCB was entered into was won by a blog called Symtym which got a massive 33% of 151 total votes. And symtym only links to other blogs and stories. It doesn’t have any original writing on it at all. Those of you who look at the sitemeters at the bottom of various health care blogs might think (correctly) that 151 votes is probably not a great sample. And you’d be right. Even the “medical blogs” category only racked up 287 votes. At that time THCB was getting about 400 daily readers. Now it gets around 700–1000.

But rather than realize that this is not a presitigous award, there are certain bloggers who shall remain nameless even if they are two of my favorite IT bloggers who are trawling for votes for the 2005 award.

So if they can trawl for votes, so can I. But I don’t want your vote for me, I just want to see if we can sway the overall tallies a little. So here’s what I’m asking you to do.

Go to the best new weblog and vote for The HealthcareITGuy http://www.medgadget.com/2005bestnew.php

Go to the best health policy weblog and vote for Healthy Policy http://medgadget.com/2005bestpolicy.php

Go to the best informatics weblog and vote for HISTalk http://medgadget.com/2005besttechnology.php

I’m just interested in seeing if I can pull a Katherine Harris….

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