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How Pharmas Are Preparing for Changes to U.S. Health Care System

Pharmas have changed business and marketing under the Affordable Care Act

By

Obama signature

President Barack Obama's signature on the health insurance reform bill at the White House, March 23, 2010.

Official White House Photo by Chuck Kennedy
The Pharmaceutical Research and Manufacturers of America, PhARMA, the major trade association for prescription drug companies, was brought to the table for the Affordable Care Act negotiations. In return for certain protections important to the industry, big pharma publicly supported the measure and made a commitment to provide $80 billion over the next 10 years to help pay for the costs of reform.

The health reform act included greater market protections for the biopharmaceutical sector and greatly expanded health care access to more Americans -- 32 million previously uninsured Americans will be enrolled and up to 16 million people could be added to the Medicaid rolls, depending on state legislatures. A half dozen states have vowed to reject implementation of the law's Medicaid provisions.

Cost Savings vs. Innovation

The timing of reform couldn't be worse for large brand manufacturers as their blockbuster drugs like Viagra, Seroquel and Lipitor go off patent. Government gatekeepers, from the Centers for Medicare and Medicaid Services (CMS) to the Department of Health and Human Services and state health officials are mandated to save costs. Cost savings, not innovation, are the governing principles for improving health care.

Big pharmas are expected to invest much less in new drug discovery. Many established market leaders are forming alliances with smaller biotechs that will absorb the financial risks of drug R&D but will also enjoy expanded market exclusivity under the reform law.

Restructuring the Workforce

Big pharma has cut tens of thousands of sales representative positions, and many R&D jobs have also been targeted for reduction. Previously, lay-offs were attributed to the economic downturn and the loss of sales as blockbuster branded drugs go off patent. But some of the new cuts are in anticipation of health care reform and reduced physician access. Pharmaceutical companies planned to lay-off 37,010 workers in 2010, according to a report issued by Challenger, Gray & Christmas, a consulting group that tracks lay-off announcements.

New Audiences, New Pitches

While the most significant changes to the industry don't take effect until 2014, pharmaceutical companies have begun to change their sales models.

Pharmas will be negotiating with more cost-conscious public and private buyers. The reform necessitates that pharmaceutical companies change their marketing techniques in order to survive. There will be less emphasis on marketing to physicians and key decision makers, and more emphasis on reaching other decision-makers, such as insurance companies, formulary gatekeepers, pharmacy chains, and physician extenders such as physician assistants and nurse practitioners.

Investments and Mergers

With reduced revenues, many large pharmas are acquiring smaller biotech companies to enhance their own pipelines. Examples of the numerous mergers include GlaxoSmithKline's acquisition of Sirtris Pharmaceuticals, Inc.; Roche Holding AG's merger with Genentech; and Bristol-Myers Squibb's negotiations with ImClone Systems.

Some major drug companies, including GlaxoSmithKline, have developed partnerships with their strongest competitors -- generic manufacturers. In GSK's case it is a licensing agreement with Dr. Reddy's Laboratories, India's second largest generic manufacturer.

Sources:

"Implementing Health Care Reform: Key Provisions Affecting the Pharmaceutical Industry."
September 15, 2010. Foley Hoag LLP Health Law Reporter
Accessed: September 28, 2010. http://www.jdsupra.com/post/documentViewer.aspx?fid=c278f007-936b-4b84-b78f-394a7caf247e

"Healthcare Reform Law: Impact on Pharmaceutical Manufacturers."
Morgan Lewis. April 15, 2010. Accessed: September 28, 2010.
http://www.morganlewis.com/pubs/WashGRPP_ImpactOnPharmaManufacturers_LF_15apr10.pdf

"July Sees Third Consecutive Increase in Job Cuts." Challenger Gray and Christmas, Inc.
August 4, 2010. Accessed: September 28, 2010.
http://www.challengergray.com/press/PressRelease.aspx?PressUid=141

PhRMA Statement on Health Care Reform, March 21, 2010
Accessed: September 28, 2010.
http://www.phrma.org/news/news/phrma_statement_health_care_reform

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