I promised yesterday to look at the NY Times article about the Australian free trade act which may undercut importation of inexpensive drugs, including those from Canada. I’ve written about this many times at TCHB but it looks like it’s coming down to the wire in both countries.

UPDATE: OK, this expanded piece didn’t make it in Monday’s blog but it’s worth looking at this a little more. The free trade pact is an attempt by the Aussies to get access for their agricultural goods to the US, and in return they are reducing tariffs on American manufactured goods. This article from The Melbourne Age in February gives a few more details. Of course the whole deal is payback from the Bush administration for the support that John Howard’s Liberal government (Liberals are right wingers in Australia BTW) gave to the Americans in Iraq–including a couple of thousand troops. While the Aussies were happy to get access to markets that they’ve been shut out of for a while, they were not particularly amused about the insistence by the US trade negotiators that they bascially dismantle their domestic prescription drug policy–the Pharmaceutical Benefits Scheme. For more about that look at this piece from January which quotes University of Newcastle (NSW) professor David Henry, an opponent of the pact. The article says:

The 50-year-old PBS subsidy scheme guarantees drug companies access to a larger market — mostly poorer consumers — while allowing the government to negotiate ‘price-for-volume’ discounts on approved drugs. However, to the annoyance of the major U.S. drug companies, new drugs are only included in the subsidy scheme if they are found to deliver health advantages and are cost-effective compared to already listed drugs.

In a December 2003 report on foreign trade barriers, the Pharmaceutical Research and Manufacturers of America (PhRMA), the peak U.S. drug industry association, complained that Australia’s requirement for a cost effectiveness analysis before a drug is listed on the PBS is part of a ”draconian regulatory and budgetary cost control” scheme.

But in a long interview back in November 2003 Tony Abbot the health minister (who’s sister is randomly a friend of mine) said to this question:

INTERVIEWER”A quick final issue. The proposed free trade agreement with the US, which John Howard discussed with George Bush. Are you insisting that we tell the Americans hands-off the Pharmaceutical Benefits Scheme?” TONY ABBOTT: Indeed we are. The Pharmaceutical Benefits Scheme will not be a bargaining chip in these negotiations, and frankly, it shouldn’t be, because the Pharmaceutical Benefits Scheme does not discriminate between overseas and locally produced drugs. It is not a trade instrument. It is an instrument for ensuring that Australians get reasonable access to affordable drugs.

As you might imagine the left in Australia is not exactly trusting of the Howard government, and is virulent inoppositionn to changing the PBS–for example take a look at this speech from the President of the Australian Publichealthh Association. The Australian government is though swearing blind that there has been no change to the PBS. However, they do say that that there will be changes to the review process and that “the details of how the review process will operate are yet to be worked out, but stakeholders will be consulted as part of the process”. In other words there will continue to be subsidies for poor Australians and price controls on drugs, but the current demand that a drug be innovative while showing improved cost-benefit performance before it gets on the list probably goes away.

Of course, this is all wrapped up in Australian domestic politics, which is heading into an election sometime very soon–possibly as soon as August. And the Liberals fear being exposed by Labour as being opposed to national health care and favoring increasing drug prices by gutting the PBS, or it will have to see a lot more articles like this one suggesting that it favors the interest of American drug companies over poor Australians. Lahos and Henry in an opinion piece in the BMJ last month claim that the PBS will come under pressure as Australia tries to enforce other parts of the free-trade pact with the US.

Which brings us to yesterday’s NY Times article.which essentially says that not only will prices rise in Australia, but that stronger IP protection in the agreement will essentially ban drugs imported from Australia by protecting “the right of patent owners, like drug companies, to ‘prevent importation’ of products on which they own the patents”. The clear hint is that the Bush adminstration is going to pursue similar IP agreements with Canada and the EU, in the process squelching the ability to import cheaper drugs.

Realistically, I don’t think this will have much impact. Politically the Australians are not going to back down on price controls at home, especially if Labour wins the next election, and probably a Kerry Administration won’t pursue the matter with too much vigor. Furthermore, if they are to be a big deal, which right now they are not, far more imports are likely to come from Canada and southern Europe (where drugs are cheaper) than from the smaller Australian market. However, it’s all an interesting study in how much influence pharma companies are having in the current Adminstration and really how far they have averted their gaze from the real world of their unpopularity with the American public.

For far more, see here

Yesterday I had a long post which touched on the malevolence of some pharma marketing, the alleged incompetence (or at least unoriginality) of other pharma marketing, and the possibility that efficiency in sales will be improved by better user of CRM and business intelligence. In theory that greater efficiency will in turn lead to sales force manpower reductions, cost-cutting and improved margins even as the overall pricing strategy of big pharma comes under more pressure. Needless to say The Industry Veteran is not swayed by the arguments presented….

I don’t believe that substantial reductions to salesforce sizes will appreciably reduce the unconscionable prices of drugs. Several sources are prompting greater scrutiny of promotions to physicians and the federal government is set to play a somewhat larger role in prescription drug benefits. Both trends mean that Big Pharma is begrudgingly accepting a wee bit of pricing constraint in return for more customers and the resulting cost-benefit of ever more sales people has approached its limit. Remember, the arms race in salesforce sizes really started in earnest during the mid-1990s. That’s when Pfizer showed the industry that two or three babes in short skirts, bending into the trunks of their cars to retrieve samples, can outsell one Health Science Associate or Medical Science Liaison with a Pharm.D. Prior to that time, when the salesforces were considerably smaller, Big Pharma had the highest ratios of earnings-to-equity, earnings-to-sales and earnings-to-assets of any industry in existence. Once again, deciding on what is to be done involves fundamentally changing the system.I understand and sympathize with the frustrations Brian Towell expresses as a marketing communications supplier. Big Pharma’s state of the art in marketing and marketing-support services remains decades behind consumer packaged goods and many other industries. Memo to Brian: get over it, understand that it’s intentionally that way, then either accept it or get into something else.Contrary to what some people believe (including my friend who teaches marketing and sends me daily missives of Big Pharma’s outrages that include the subject line, "new stupidity"), the Hank McKinnell’s and his malevolent cohorts are not dumb. Their economic model of patent protection, a gatekeeper system, long product development durations and the rest work for them. They don’t have to be nimble because they can’t sweeten the cola on Saturday and get it onto store shelves the following Thursday. They don’t have to target ever changing, ever more complex consumer segments (left-handed, unmarried women with small breasts who disdain mass merchandisers and prefer vegetables in aspic) because the universe of their US market consists of a share of 600,000 doc-whores. Big Pharma doesn’t need to spend $2 million for 30-second Superbowl ads in outmoded media such as network television to reach the lower-middle class. (TCHB editors note: But they do!) Nor do they need to send people into bars or use communication techniques that Brian may consider innovative to reach Gen Y’ers. Frankly, I’m happy that Big Pharma is stodgy in this area and I’d prefer to see a rollback of the 1997 legislation that expanded DTC promotions so that Pharma promotions become even stodgier. Brian, go peddle your promotions for discretionary bullshit to other industries. Healthcare is too important for asshole ad men.

In an article picking up on the Harris data TCHB shared with its stellar, avid readers (that’s you BTW) last week, the NY Times this morning places Pfizer’s decision to give cheap drugs to the uninsured next to the polling data about pharma’s unpopularity next to several examples of egregious price rises. They also quote extensively Roy Vagelos, scientist CEO of Merck in its 80s and 90s heyday, as basically saying that the industry has blown it.

It’s well worth reading the article because it shows that the mainstreaming of the anti-pharma opinion will have a political impact on the industry, and by extension on the election. (Need I remind you again that the two states with the oldest populations are Florida and Pennsylvania, both extremely close at the moment).

However, the Times lumps several reasons together as to why pharma is so profitable in the US:

The pharmaceutical industry earns nearly two-thirds of its profits in the United States since drug prices in the rest of the industrialized world are largely government controlled. Those profits rely almost entirely on laws that protect the industry from cheap imports, delay home-grown knockoffs, give away government medical discoveries, allow steep tax breaks for research expenditures and forbid government officials from demanding discounts while requiring them to buy certain drugs.

It is not the case that each of these "privileges" has equal weighting for the industry. The fact is that allowing personal imports would not have that big an impact on the overall market. Allowing Medicare to bargain as aggressively as say the VA (or worse, the Spanish or Australian governments) would bring what are called "price controls" by Americans talking about the EU or "discounts" by PBMs to a large section of the market.

That would certainly have a big impact on the industry’s margins. But the pharma industry can take note that, under a similar environment of strict price controls from Medicare and Medicaid, its colleagues on the inpatient, outpatient and ambulatory care side have seen their share of the overall economy grow dramatically in the past 40 years. So, if forced to, pharma companies could manage the potential change in their environment. As a potentially relevant example which also works under monopsony purchasing, the defense industry seems to struggle by OK.

Not that the industry would want to go there, and it will continue to do what it can to fight what is increasingly looking like a rearguard action. Of course in a rearguard action a strategic retreat can often work wonders. I stick by my guns and think that big pharma, looking out strictly for its own self-interest, should cave on the Canadian imports but try to continue to muddy the waters on discounts and price controls. After all 15 years of allegedly aggressive discount seeking by the PBMs hasn’t exactly reminded observers of the way Wal-mart treats its suppliers!

And in continuing rumblings from the pharma marketing corruption story THCB reported on a week or so back — Schering was mailing physicians checks to get them to prescribe their drug — a couple more missives have crossed my desk. They concern how pharma companies market both in terms of how they deal with physicians, and in terms of how they choose their sales force and marketing strategies. It appears that there is room for major change in the latter. And as I mentioned in passing in a previous article about margins in the drug business, this whole sales and marketing arena is ripe for cost reduction and efficiency enhancement.

The first piece was sent to THCB is from Random Contributor who writes in a somewhat scurrilous vein:

In short, pharma companies bribe physicians because it works, physicians expect it, and it doesn’t take much imagination. In a world in which there are many clinically similar drugs packed into each of a few high-return clinical categories – and a bunch of drug companies whose future rests on their performance in those clinical categories – docs can safely make prescribing decisions on things other than clinical performance. Prescribing Zocor instead of Lipitor won’t kill a patient,but it could enrich the doctor prescribing it…

It’s hard to argue that drugs aren’t "overpriced" if payoffs are built into their pricing schema. So how much would this drug cost if you didn’t pay docs millions to prescribe it?

As a quick aside, I was talking to my uncle (72 years old) who lives in Florida. His doc (internal med) recently gave up hospital privileges and malpractice insurance, but continues to practice primary care. He told me that his doc "plans to make up the difference through seeing more patients and prescribing more drugs." Don (my uncle) listed several of the drugs that he is taking (Plavix, Provachol, etc.) and I noticed that they were primarily from BMS… I wonder if there is a connection (or if his BMS rep is just really hot)?

While the Contributor is probably overstating the case–after all physicians don’t actually make money from prescribing drugs (unless they’re oncologists or in Japan), but it’s no secret that some doctors and some reps have particularly close relationships and that much pharma detailing is made very effective by leaning on those personal relationships. Meanwhile, the whole concept that pharma does it one way because it always has is also probably true. That’s partly why detailing and professional marketing only works effectively on less than half of physicians. The rest of all the reps in the sharp suits/push-up bras hanging out in the waiting room to get 30 seconds with the doctor is mostly waste motion.

But that might all be changing. Pfizer, which won the pharma arms race of the 1990s by building up its sales force when others were cutting back and trying to ingratiate themselves with managed care companies, or buying PBMs, is now looking to cut its global sales force, use CRM software to more accurately support its physician "customers" and eliminate the "significant number of calls where product market messages are not delivered and where there’s little to no value to the physician." In other words the Bludgeon needs to be replaced by the Rapier.

This new way of thinking might even extend to advertising and PR-type promotions. I am on a list-serv from Pharmaceutical Marketing Network, and recently this somewhat bitter screed about the sloth in thinking and consequent incompetence of pharma marketing was posted by Brian Towell from Doghouse, an online marketing agency. I repost it here because although I don’t agree with it all, it certainly puts the marketing strategies of pharma into sharp focus:

The operational procedures of the large drug companies never cease to amaze me, particularly at the level of procurement of medical communications (which includes vanity publishing aka MedEd, Advertising, Branding, Congress & Scientific Meeting Event management, Professional Relations and Public Relations, along with some other City/Stockholder targeted communications that none of us ever see or hear about.) All of these served by agencies with global and/or local expertise, and often with ridiculous levels of duplication, isolation and total lack of connection with the brand.

The procurement process is flawed for all, however you look at it. In America, ‘Global’ means everywhere else, whereas in Europe, ‘Global’ means everywhere, so US sited businesses are strangely infatuated by their own agencies, who are collectively useless at almost everything, but manage to hoodwink their clients into accepting dull and sub-standard creative work because that’s what everyone does in the US. In Europe, despite the rise and rise of the European community, the cultural and regulatory differences that exist on a country to country basis make it impossible to engage at head office level with a Novartis or a Roche on a ‘Global’ basis without some kind of network that allows differing cultures and medical legal systems to be managed profitably, and with due diligence.

Unfortunately, the problems of both major markets (US & Euro) conspire to produce an industry of communications service providers inadequate in creativity and strategic bravado (largely serving tactical briefs) who somehow manage to continue to exist and grow alongside a healthcare industry that is rotten with stagnant process, and trapped by its own strategic immobility.

The world is leaving Big Pharma behind. Agencies need to become smaller, more responsive, and more strategically driven, to help the industries that support them to make more responsive, dynamic choices and decisions, and to to open a portfolio of strategies that provide a meaningful escape route from the conventional, stagnant practice that all involved seek comfort in.

The idea that these companies set up rosters of ‘preferred providers’ is obscene, and simply appalling business. Even the Schering Plough reverse auction idea was only open to their cute list of favorites, who they get along with really well, who never surprise or challenge them, and allow the same stuff to keep rolling along like an endless roll of Magnolia tinted wallpaper. Sameness is a real issue for the industry that needs to be challenged, instead of propagated ad nauseam.

Thought innovators within the industry are now pointing to the reality of a ‘here and now’ strategic inflection point for big Pharma, where yesterday’s choices (strategic traps) and ‘already thought’ behaviors become not just redundant but unsustainable. Whatever the Big Companies continue to do in that vein are simply expressions of improved effectiveness at inefficiency.

It is a self-propagating world of publications and activities that is, under the sharpest magnifying glass, difficult to justify and difficult to benchmark in terms of any contribution to the business. Its poor quality, and it costs. But no-one measures that cost.

Novartis ask questions of providers that they must answer in a 10 slide powerpoint presentation, to get to 2nd base. But they don’t ask the right questions. What can you meaningfully contribute to our business? Show us. 2 questions. Tough call. That’s how it should be. Not a 45 minute display of last year’s work that fits our neat idea of how we have always done things here.

That’s all it should be. Then maybe the people who work in Healthcare Communications Services would wake up to some home truths about what they’re actually doing for their clients, instead of churning out the same ‘already thought’, safe, and largely generic tripe that no other industry would tolerate.