PDMSN - June 19, 2007 Full Issue

Vol. 1 No. 1

Device DTC — Can It Work?

The Centers for Medicare & Medicaid Services (CMS) earlier this year issued a preliminary decision that it would not provide reimbursement for Cyberonics’ anti-depression VNS implant, citing “sufficient evidence to conclude that vagus nerve stimulation is not reasonable and necessary for treatment of resistant depression.” With reported efficacy rates of 30 percent and a total cost of $25,000 per patient, it is no surprise that the agency decided not to take on this particular financial burden — many private insurers have done the same thing. A simultaneous announcement that, due to concerns over blood clots, CMS is considering restricting Medicare coverage in the $14.7 billion drug-eluting stent market created even more negative reimbursement news and may indicate that payers are becoming more resistant to subsidizing new technologies. 

Reimbursement issues are nothing new in the medical device category, of course, but with payers pushing back harder than ever, marketers should explore new options for getting patients to pull products through the channel. As pharmaceutical companies learned a long time ago, direct-to-consumer advertising is an excellent tool for sustaining demand in the face of an adverse payer environment.

There is considerable room for increased device DTC, but there is evidence that devicemakers are cutting rather than increasing spending. Based on data from TNS Media Intelligence, the sector invested $443 million in DTC during 2006 — down 13 percent from the year before and essentially back to 2003 levels. Aside from the decline, it’s interesting to note that devicemakers simply haven’t embraced DTC at anywhere near the levels of their pharma-side colleagues. With device sales totaling $86 billion in 2006, the $443 million of DTC activity means that devicemakers spent only 0.5 percent of total revenue on DTC. By comparison, pharma’s $4.7 billion DTC budget represents 1.7 percent of the industry’s total $275 billion sales. It should also be noted that some devices are purchased directly by consumers while most pharmaceutical products require a physician’s prescription. The lack of an intermediary decisionmaker argues for more rather than less consumer promotion.

Challenges for Devicemakers

For a variety of reasons, DTC won’t work for every device. Smaller and less-involved patient populations, more complicated purchase decisions, the one-time nature of many devices and the required investment level are among the factors that should cause all devicemakers to tread carefully — and some to steer clear of DTC altogether. The underdeveloped state of this promotional channel indicates that there is still a substantial first-mover advantage available to devicemakers who pursue DTC options in an intelligent manner.

When does DTC make sense for devices? As with pharma, ideal candidates are those that are frequently purchased for chronic conditions — diabetes supplies probably fit this mold best. There is also a very strong case for using DTC to support products that don’t require surgery and products that can be readily upgraded when new versions become available. Glucose monitors certainly qualify, as do externally situated pain management devices and many of the aesthetic devices that are being launched for home use. In these cases, developing a relationship with consumers can help ensure repeat purchases, thereby turning the short product life cycle typical of devices to the manufacturer’s advantage.

Even if the above conditions don’t hold, however, properly targeted DTC can still be used effectively provided that patients have some input in selecting the type of product — and preferably the actual brand — that will be used. The same principle applies in pharma, for example, where there aren’t too many consumer ads for general anesthetics. In situations where patients prefer to trust their treatment to experts, targeting them with promotional efforts would be pointless. 

Efficient target selection and communication is important in any marketing initiative. This is another area where the device sector can benefit from pharma’s efforts. In many cases, drug manufacturers have moved from the mass communications of DTC to the relationship marketing of direct-to-patient or DTP. To assist these DTP efforts, a number of independent companies have developed extensive customer databases that could just as easily be used by devicemakers. Since there is substantial overlap between the disease states treated by pharmaceuticals and devices (arthritis, diabetes and depression are only three examples), drug databases are filled with the names and addresses of potential customers device manufacturers can use for direct mail and other personalized communications rather than relying on expensive and often wasteful traditional advertising media. As an additional bonus, the leading database companies are permission-based marketers who ensure that privacy concerns are handled legally and ethically. DTP efforts can also be used to direct patients towards physicians who are likely to be receptive to the devicemaker’s product — an important factor since the pool of physicians who are trained in and comfortable prescribing devices is usually much smaller than would be the case for a major drug therapy.

Type of Ad Matters

Another consideration in marketing to consumers is how to best construct the message. Broadly speaking, all manufacturers will have to choose between product-specific or disease awareness (or “help seeking” as the FDA calls it) approaches. Although disease awareness campaigns are subject to a lower degree of regulatory scrutiny, they have fallen out of favor to some degree on the pharma side because most of the treatment categories that receive funding for consumer outreach (erectile dysfunction, insomnia and allergies) are fiercely competitive. Driving new patients to the physician doesn’t pay off when the physician may write a prescription for a competitor’s product. 

There are a number of reasons that disease awareness may be a better option for devices. The device market is far less competitive in terms of consumer advertising, and patients are typically not well-informed about device options. Therefore, disease awareness represents a market growth strategy that may ultimately be more effective than product-focused promotions. Sleep apnea, for example, is an under-diagnosed, device-treatable area in which manufacturers could partner with an easily identifiable set of clinics to successfully employ disease awareness campaigns. It should be noted, however, that the possibility of a physician prescribing a competitor’s product still exists, so marketers should not use disease awareness to create category demand unless they are the category leader by a significant margin. 

If consumer outreach makes sense for your product, it is probably a good idea to partner with one of the marketing communication firms that have helped pharmaceutical DTC become such a highly visible presence on the American marketing landscape. The outlook and skill sets required for successfully communicating with potential patients are substantially different from what is required for targeting healthcare professionals. These companies also represent another opportunity to piggyback on the knowledge gained through billions of dollars and more than a decade of pharmaceutical consumer advertising experience. — Todd Clark

Resources:
Draft Guidance for Industry and FDA: Consumer-Directed Broadcast Advertising of Restricted Devices www.fda.gov/cdrh/comp/guidance/1513.pdf

 

Medicare Part D: Working in the Present, Future Uncertain

It has been over a year since the Medicare Drug Benefit (Part D) came into full force, and it is now possible to judge the program’s initial performance and how it is likely to affect the pharmaceutical industry in coming years. As expected, the program has had an enormous impact on the prescription drug market. 

Consider that:

  • Part D accounted for 17 percent of all U.S. retail prescriptions during 2006;
  • By June 2006, six months into its full implementation, Part D accounted for approximately 51 percent of all prescriptions filled by persons over 65;
  • Combined government contributions (i.e., Medicaid plus Medicare) increased from 16.1 percent to 23.9 percent of retail sales during the first half of 2006. By 2010, the government is expected to contribute 37 percent of total drug spending;
  • Medicare’s share of total public drug spending grew from 7 percent in 2005 to 55 percent in 2006;
  • As of January, 34.2 million seniors had outpatient drug coverage from Medicare Part D or an employer-based plan and another 4.9 million were covered by the Department of Veterans Affairs or other programs. Among the eligible population, only 4.1 million people lacked coverage in 2006 compared with approximately 17 million in 2002; and
  • According to a PhRMA-sponsored study, the percentage of Medicare beneficiaries with comprehensive drug coverage increased from 59 percent in 2005 to 90 percent in 2006.

Based on early results, Part D appears to be a rare instance of healthcare costs declining. Rather than being directly administered by the federal government, the program is subcontracted to private insurance companies who are responsible for developing plans, enrolling members and otherwise handling logistics as they would with private sector beneficiaries. Many have criticized the program as a giveaway to insurance companies, but the ensuing competition among plans has resulted in lower monthly premiums. Initially forecast at $37 per beneficiary, the average monthly premium for 2006 was only $23 and is $1 in 2007. Reliance on private insurers and the sophisticated pharmacy cost control mechanisms they have developed over the last decade has also kept costs low due to high rates of generic usage. Part D beneficiaries averaged 59.6 percent generic market penetration during the first nine months of 2006 compared with 52.5 percent in the overall U.S. market.

Market Impact

Despite high generic utilization, there is no evidence that Part D has harmed the brand drug sector. Plans were required to maintain a broad list of popular brand drugs on their formularies. Additionally, more than six million people (the so-called dual eligibles) were moved from Medicaid coverage to privately managed Part D plans, freeing brand companies from the mandatory Medicaid rebates in this segment of the market. Largely as a result of this change, Medicaid’s share of retail prescription payments fell from 16 percent in 2005 to 9 percent during the first half of 2006. Pfizer, for example, reported that its rebate payments would be approximately $110 million lower in 2006 than would have been the case under the previous system.

Over the next few years, however, Part D’s greatest impact on innovative drugmakers is likely to be a reduction in negative press. Since the beginning of 2006, there have been fewer news stories about seniors forced to choose between paying the power bill or purchasing prescription drugs. One reason, no doubt, was identified by a PhRMA study which found that average out-of-pocket spending declined from $59 to $29 per month from 2005 to 2006 — a change that has had the added benefit of reducing imports of Canadian drugs. Beneficiaries in this group of reliable voters are also happy with the plan — an October 2006 Wall Street Journal / Harris Interactive poll found a satisfaction rate of 83 percent. 

During the lead-up to the November 2006 elections, Democrats campaigned heavily on the promise to eliminate the restriction on direct government-manufacturer price negotiations for Medicare-covered drugs. However, some say tampering with the drug benefit now that it seems to be working could run the risk of a major political backlash. Even the editorial pages of major newspapers — not usually a source of comfort for pharma — have generally opposed any major legislative changes to Part D. Barring some major crisis, therefore, the probability of a requirement for direct negotiations being passed into law prior to the end of President Bush’s tenure is essentially zero. 

Several related legislative initiatives were introduced during the first half of 2007 but stalled out in the Senate. Even if they had been signed into law they would have had little impact. For example, the bill that passed the House called for negotiations but provided no mechanism that would have penalized manufacturers who refused to engage in the process.

2008 Elections Could Bring Change

The most likely change to Part D over the next few years would be a provision authorizing some form of coverage for the gap that occurs when an individual’s annual drug costs reach $2,250. If this “doughnut hole” is eliminated it would reduce one of the plan’s cost containment structures, probably leading to marginally higher utilization accompanied by a corresponding increase in pricing pressure as plan managers look to make up the increased expenditure through tougher negotiations.

In the midterm, what happens with Plan D will depend on the political environment and whether Part D continues to run below budget. If Democrats take control of the White House in 2008 and maintain their majority in Congress, implementation of direct price negotiations will be much harder to resist. The loss of patent protection on major branded drugs (forecast to total $13.5 billion in 2007, $12.2 billion in 2008 and $5.8 billion in 2009) should continue to generate savings from increased generic utilization. 

Despite the encouraging early signs that Part D is a success for all concerned and the probability that it will retain its current form for the time being, the long-term outlook remains unclear. The demographics of an aging population, the inevitable growth in government entitlement programs and the shaky financial standing of the overall Social Security-Medicare system indicate that price controls will not be kept at bay forever. The one factor that pharmaceutical companies can control directly is the rate of price inflation — the more moderate the growth rate, the longer the price controls will be postponed. Unfortunately, pharma’s track record of price increases — more than double the rate of general inflation — does not suggest that restraint will become the norm. — Todd Clark

Resources:
Centers for Medicare & Medicaid www.cms.hhs.gov/PrescriptionDrugCovGenIn

 

Report: Pharmaceutical Industry Must Focus Less on Marketing, More on Developing New Drugs

While the pharmaceutical industry is growing rapidly, companies must shift their focus from sales and marketing to developing new products to avoid collapsing, according to a report from PricewaterhouseCoopers.

The global pharmaceutical market will more than double in value by 2020 with sales reaching $1.3 trillion, the report said. Demand for medications will drive the increase as the world population grows, ages and becomes more obese. In addition, chronic conditions and diseases tied to global warming will become more common, the report said.

However, the industry’s current business model is “economically unsustainable and operationally incapable” of bringing necessary innovative treatments to the global market, the report said. The industry is at a “pivotal point” and needs to change how it operates, the report added.

R&D spending by leading companies rose from 15 percent to 17.1 percent from 1995–2005, but sales and administration spending rose from 28.7 percent to 33.1 percent, according to PricewaterhouseCoopers.

“The industry is investing twice as much in R&D as it was a decade ago to produce two-fifths of the new medicines it then produced,” the report’s primary author Steve Arlington said.

The industry’s strategy of creating drugs and marketing them to become blockbusters will not suffice in the future, Arlington added. Instead, companies will have to prove that their products work and fill unmet needs to be successful. Overall, drug prices will be more closely linked to efficacy, the report said.

New products will focus more on preventing diseases than treating them, and the vaccine market could reach $42 billion by 2015, PricewaterhouseCoopers added. Pharmaceutical companies will create wellness programs, more vaccinations and compliance monitoring, the report predicted.

Solutions that ensure patients comply with medications could generate more than $30 billion in new sales each year, according to PricewaterhouseCoopers. Patient compliance will help clinical studies and reduce risk for pharmaceutical companies.

For clinical trials, the current model will be replaced with collaborative in-life testing and “live licenses” issued based on a drug’s life cycle performance. Clinical trials will be more focused and smaller, while investigators will continuously share results with regulators, the report predicted. If testing shows a drug is safe and effective, the company will receive a live license to market the drug on a restricted basis. In-life testing will extend the license to cover more patients, PricewaterhouseCoopers said.

In addition, the report said new technologies will drive R&D, international regulatory agencies will have more sharing and collaboration and new direct-to-consumer distribution channels will reduce the role of wholesalers.

PricewaterhouseCoopers’ report “Pharma 2020: The Vision” can be seen at www.pwc.com/extweb/pwcpublications.nsf/docid/91BF330647FFA402852572F2005ECC22. — Emily Ethridge

 

Authorized Generics Becoming a Common Strategy for Protecting Market Share

Authorized generics are becoming increasingly important, as companies more often find themselves competing with generic drug sales, according to a credit rating agency.

The number of authorized generics that enter market has increased significantly in the past few years, from just two in fiscal 2002 to 11 in fiscal 2005, Fitch Ratings said in a recent report. Authorized generics, which are manufactured by the brand company, do not rely on abbreviated new drug applications, and are therefore allowed to enter the market during generic companies’ 180-day exclusivity period.

When the first generic version of Prozac (fluoxetine HCl) was launched in 2001, Prozac manufacturer Eli Lilly’s market share dropped 80 percent in four weeks, Fitch Ratings said. Brand drug prescriptions can drop as much as 90 percent within the first year after generic drug entry, the firm added, leading companies to launch authorized generics. Novartis made such a move Teva Pharmaceutical prevailed in generic Lotrel patent litigation.

Novartis’ plan to market generic Lotrel (amlodipine besylate/benazepril HCl) through its Sandoz division “is not a surprising defensive action,” Britta Holt, director of the Fitch Ratings corporate team, said. “Furthermore, because Novartis owns Sandoz, one of the top two global generic drugs companies, it does not have to share the profit margin for a generic version of Lotrel with a third-party generics company.”

AstraZeneca took a similar approach with Toprol-XL (metoprolol succinate). When Eon Labs launched its generic version of the heart drug last November, the brand drugmaker introduced its own generic version under an agreement with Par Pharmaceutical.

Fitch Ratings noted several other major authorized generic agreements, including when Par launched an authorized generic version of Paxil (paroxetine HCl) at the behest of GlaxoSmithKline (GSK), as well as the agreement between GSK and Watson Pharmaceuticals for an authorized generic version of Wellbutrin SR (bupropion HCl). — Breda Lund

 

House Subcommittee Postpones PDUFA Markup

The House Subcommittee on Health last week postponed its markup of draft bills to renew the Prescription Drug User Fee Act (PDUFA) until today.

Opening statements on Subcommittee Chairman Frank Pallone’s (D-N.J.) discussion drafts of the bill were scheduled for the evening of June 13, with the markup continuing June 14. The subcommittee held a hearing on the discussion drafts June 12.

A reason for the delay could be controversy over language in the drafts that would eliminate the FDA’s preemption authority on drug labeling, Coalition for Healthcare Communication Executive Director John Kamp said. The language was put in the bill too soon before to the hearing, and several Republican lawmakers said they did not have enough time to review it.

Chairman of the House Committee on Energy and Commerce John Dingell (D-Mich.) addressed Republicans on the subcommittee at the hearing, saying pressure on the committee to pass legislation meant, “We’re not able to proceed in the way that I would ordinarily like to.”

Dingell added that he wanted to assure Republicans that he would personally see that “every possible procedural fairness and opportunity is given to them,” so that once the legislation was completed it would meet with “the high standards this committee has always had.” 

“Dingell is very much the master of fair play, fair dealings, good procedures,” Kamp said. He added that Dingell may have delayed the markup so that Republicans could have more time to review the bill’s language.

In addition, Pallone may not have had enough votes to pass his preemption language and his provisions on direct-to-consumer (DTC) advertising. The draft bill would allow the HHS secretary to put a temporary waiting period of up to three years on DTC advertisements for new drugs, a move some lawmakers claim would violate companies’ First Amendment rights.

Reps. Edolphus Towns (D-N.Y.) and Steve Buyer (R-Ind.) will introduce an amendment on DTC advertising to make it more reliable and accurate, a spokeswoman for Towns said.

“Pallone’s advertising provisions are in trouble,” Kamp said, adding, “You can’t move a bill like this without consensus.” — Emily Ethridge

 

Vermont Passes Bill to Restrict Marketing Use of Prescribing Information

Pharmaceutical companies’ efforts to use physician prescribing information for marketing purposes suffered a setback when Vermont Gov. Jim Douglas signed a bill that would prevent the practice.

Under the bill, S. 115, physicians could agree to have their identifying information be used for marketing purposes. However, unless the physicians specify that they want to opt into the program, their information cannot be used in promotional programs. In addition, pharmaceutical company marketers will have to provide physicians with fact-based information about the health benefits and risks of their products and alternative products.

“The goals of marketing programs are often in conflict with the goals of the state,” the bill says, adding that increasing profits often can come at the expense of lowering costs and improving health for patients.

Lawmakers revised the restriction section of the bill after a federal judge ruled against a New Hampshire bill that would have banned the transmission of physician prescribing information for commercial purposes.

“We spent a lot of time studying the New Hampshire decision,” and tailored the bill to address it, Vermont Rep. Harry Chen said. The lawmakers “beefed up our legislative testimony and findings to clarify there is substantial state interest” in letting physicians opt out of sharing their information, he added.

IMS Health, which challenged the New Hampshire law in court, said blocking companies’ access to prescribing information would harm patient health and take healthcare “in the wrong direction.” Companies need more patient information to improve healthcare quality and patient safety, not less, IMS Health added.

However, Chen said the bill does not prohibit companies from collecting prescribing data, but only prohibits marketers from using the data. “We did a very good job with the bill, trying to address the concerns. I think it would stand up well in court,” he said.

In addition, the bill expands an educational program for patients and healthcare providers on information about generic drugs and creates transparency rules for pharmacy benefit managers. The bill also creates a sample program for generic medications, which could save Vermont patients $10 million to $11 million each year, according to a Vermont Legislative Joint Fiscal Office analysis.

“This comprehensive legislation is truly pathbreaking,” National Legislative Association on Prescription Drug Prices Executive Director Sharon Treat said. “These provisions will cut down on the prevalence of misleading information which deluges doctors, patients and the public.”

“I’m delighted that the governor signed the bill,” Chen added. “This bill will really protect consumers.” — Emily Ethridge

 

GSK's Alli on Public Citizen’s ‘Worst Pills' List

GlaxoSmithKline’s (GSK) diet pill alli landed in drugstores last Friday, but one consumer interest group maintains the drug — an OTC version of Roche’s Xenical — is linked to colon cancer.

Public Citizen has placed alli (orlistat) on its list of “worst pills,” saying that the drug “clearly causes precancerous lesions of the colon,” and called the FDA’s decision in February to approve orlistat for OTC use “reckless.”

According to the June issue of Public Citizen’s Worst Pills, Best Pills News, the FDA found 37 cases of gallstones in patients between 1999 and 2006 while conducting a postmarket review of Xenical.

On the same day it approved alli, the FDA rejected a citizen petition the group had filed in April 2006 asking the agency to remove Xenical from the market.

Public Citizen’s April 2006 petition referred to seven studies included in Roche’s Xenical application that suggested the drug caused an increase in aberrant crypt foci, which could be a precursor to colon cancer. OTC availability of the drug will likely lead to an increase in the incidence of colon cancer, the group said.

The launch of alli is being accompanied by an “unprecedented” educational campaign, according to GSK. Consumers can purchase kits that include 60, 90 or 150 60-mg alli capsules, informational brochures, a daily journal, a calorie counter and a carrying case for the capsules. Patients can also purchase a book, Are you losing it? Losing weight without losing your mind, and sign up for in individualized, online weight-management program.

In April, 400 overweight patients were enrolled in the alli weight-loss program, and their experiences are posted on www.myalli.com for new patients to access.

“We strongly urge people not to use this potentially dangerous drug, and we predict that, like the rapidly declining sales of the prescription version, the over-the-counter version will turn out to be a loser after enough people have a bad experience with it,” Sidney Wolfe, director of Public Citizen’s Health Research Group, said when the drug was approved earlier this year. — Breda Lund

 

Tips of the Week

Devices:

  • The FDA has yet to release its guidance on the use of coronary drug-eluting stents (DES). As a result of recent data suggesting a small but significant increase in the rate of death and heart attacks associated with stent thrombosis, it is expected that the agency will require longer and larger postmarketing studies as a condition of approval. Some believe that the scope of premarket trials will also be extended. The initial wave of bad publicity severely hurt the market as the share of stent procedures using DES fell from 88 percent to 72 percent between May and December 2006.
  • Investment analysts at WR Hambrecht predict that the U.S. market for energy-based aesthetic devices (EAD) will grow by 22.5 percent annually between 2006 and 2009, resulting in a market worth $1.85 billion. Hair removal has traditionally been the largest application for EADs, but dermatological uses such as skin resurfacing, skin tightening and removal of dispigmented skin or unsightly veins are expected to see the fastest growth. Palomar and Syneron are working to develop home versions of EADs for hair removal and acne treatment.

Pharma:

  • In light of several recent studies that  raised questions about the safety of erythropoiesis stimulating agents (ESAs), the Centers for Medicare & Medicaid Services (CMS) is reviewing reimbursement policies with a decision expected in August. There is a high possibility that the CMS will no longer fund key oncology uses. Amgen’s Aranesp and Johnson & Johnson’s Procrit are the ESAs currently marketed in the U.S. (Roche’s Micera received an approvable letter from the FDA in May and is expected to launch in the fourth quarter of 2007 or the first quarter of 2008.) Of the available products, Aranesp occupies the stronger position in cancer, meaning it has the most to lose if the CMS restricts coverage. Analysts at Credit Suisse believe that Aranesp stands to lose half of its $2.1 billion oncology-related sales. There may be a lesson here of growing relevance for all pharmaceutical companies that a high level of government funding leads to more —rather than less — business-side volatility.
  • A study from Thomson Medstat found a strong correlation between increased drug copayments and declining compliance. Based on data from the statin category, the study found that a $10 higher copay led to an 8.9 percent decrease in the number of patients adhering to therapy over the short-term and 11.9 percent decrease in long-term compliance. Given the risks and expense associated with non-compliance, which includes hospitalization, short-term disability and absenteeism, the marginal savings from higher copayments is likely to result in higher overall health costs.

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Reporters: Martin Gidron, Emily Ethridge, April Astor, Breda Lund, Christopher Hollis

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