Defense-to-Offense: PhRMA Readies to Protect Government Markets

White House budget targeting biopharma with new cuts hits just as the Pharmaceutical Research & Manufacturers of America’s annual meeting gets under way.

“We have to ensure that the 340B program is administered effectively and appropriately,” Celgene Corp. CEO Robert Hugin proclaimed at the Pharmaceutical Research & Manufacturers of America annual meeting in San Diego April 11-12.

“340B” may not serve as the most inspirational rallying cry for the drug industry. Just a few years ago, in fact, only a handful of people in the audience would even have known what Hugin was talking about.

However, the drug discount program for safety net hospitals and others symbolizes the next challenge for manufacturers and the underlying theme of the meeting in 2013: playing defense in government markets.

But, Hugin believes, the best defense is a good offense.

“A lot of this is defense,” Hugin acknowledged. “We have to have good defense. We have to play that part of the game.” But “we have to begin to go on the offense.”

PhRMA 2013 vs. Past Years

The PhRMA annual meeting typically represents the mood of the industry and general theme for the coming year.

The 2009 meeting in San Antonio was about drawing a line against insurers in the run up to health reform and coalition building in the coming fight over health care reform. (Also see "PhRMA Has Labor Support For Extended Biologics Exclusivity" - Pink Sheet, 13 Apr, 2009.) The 2010 meeting in Washington was a more muted meeting after the deal was sealed and the Affordable Care Act was about to be enacted. That meeting featured a warning from Republican leaders that the pharmaceutical industry brokered a deal it would soon regret. (Also see "How Should Pharma Feel About Reform? It Depends Who You Ask" - Pink Sheet, 1 Apr, 2010.)

The 2011 meeting in Jersey City was about the importance of the states in pushing the ACA and featured three current governors and two former governors (including Bill Clinton). The 2012 meeting in Boston was about patient advocacy and outreach. (Also see "For PhRMA in 2011, Government Relations Relies on Governor Relations" - Pink Sheet, 1 Jun, 2011.)

That brings us to 2013. The stated theme of the meeting was research, and San Diego is the home of Lilly Biotech (it is the prerogative of the PhRMA Chairman, Eli Lilly & Co. CEO John Lechleiter, to choose the meeting site). The meeting featured panels on how biotech companies start up in the region and a medical technology disruptors session highlighting new ways for companies to track clinical trials (goBalto), interact with patients (Treato and Sproxil) and reach doctors (Medikly).

Lechleiter called it “a different approach” compared to the past, and the meeting certainly had a different feel given the focus of most of the sessions.

Until Day Two. Celgene’s Hugin, PhRMA’s incoming chairman, used his keynote address to lay out the industry’s list of priorities under his chairmanship:

• “Protect” Medicare Part D.
• “Defend” Part B.
• Ensure the integrity of the 340B program.
• Maintain 12 years of market exclusivity for biologics in the US and abroad.
• Support the state and federal exchanges and Medicaid expansion.
• Fight “inappropriate copayments that restrict access” to drugs.
• Repeal the Independent Payment Advisory Board (IPAB).
• Fund FDA.
• Defend intellectual property “all across the globe.”

PhRMA’s Castellani: “We’re Very Disappointed.”

There’s not a lot about research on that list. Nevertheless, Hugin’s keynote served as a counter-punch to a shot-across-the-bow from the administration.

Just as the pharmaceutical industry was getting set to kick off its meeting and company executives were literally in the air on their way to the West Coast, the White House was releasing its FY2014 budget targeting the drug industry with new proposed cuts to programs that were considered off the table not long ago.

With all of the powerbrokers who negotiated the “pharma deal” gone, the budget was the final reminder that any truce between the White House and the industry is officially over (“Big Pharma’s Health Reform Transition” The RPM Report, April 26, 2012).

The total in pharma-related savings in the budget is $168 billion; with the majority coming from a Medicare Part D dual-eligible rebates proposal that saves $123 billion over 10 years. The Congressional Budget Office more recently scored a Part D bill—the Medicare Drug Savings Act—introduced by senior Democrats in both chambers of Congress as saving $141.2 billion over the same period.

In addition to Part D rebates, the budget includes several other issues that have been part of the Obama budget process: a decrease in biologics exclusivity from 12 to 7 years, an end to “pay-for-delay” patent settlements, and cuts in reimbursement for Part B drugs.

However, there was a new proposal to accelerate closing the Part D donut hole that served to drive home the realities of the post-ACA world, and will only further sour the relationship between the White House and drug developers.

The budget item would close the coverage gap immediately rather than over the next five years by increasing the current mandatory 50% donut hole discount to 75% in 2015. The change would replace the planned federal contribution to phase out the donut hole with pharma funds and directly undo one of the key provisions of the deal between the industry and the White House in 2009.

There are plenty of people in industry who already feel that the deal was betrayed by Obama’s repeated calls for shorter biologics exclusivity and buy the renewed push for Part D rebates. However, the Administration could always claim to have lived up to the letter of the bargain: industry got credit for the “savings” from biosimilars (there was no deal on exclusivity), and the Administration did oppose Part D rebates in the legislative battle over the ACA itself.

However, the proposal to replace Treasury funds with more pharma dollars completely rewrites the terms of the “Dollars for Donuts” plan that was the centerpiece of the 2009 deal. (Also see "The New Part D: "Dollars for Donuts" Becomes Discounts For Data" - Pink Sheet, 1 Jul, 2010.)

Death By a Thousand Cuts?

There were also a number of proposals in the CMS budget that scored as zero dollar savings that would likely antagonize the industry further: require manufacturers that improperly report items for Medicaid drug coverage to fully repay states, enforce manufacturer compliance with drug rebate requirements, increase penalties for fraudulent noncompliance on rebate agreements, and ensure retroactive Part D coverage of newly eligible low-income beneficiaries.

“We’re very disappointed in it,” PhRMA CEO John Castellani says of the White House budget. “If you look at the heart of what the President is proposing, it goes counter to some of the things that have been demonstrated [as working] over the last several years. First and foremost, cutting back on the marketplace to bring medicines to Medicare Part D program runs counter to how well the Medicare Part D program has been operating.”

Castellani says the administration has been taking a contradictory approach when it comes to what it says in public and the proposals it puts on paper.

“On one hand the President has been very vocal in supporting the innovation process but on the other hand, policies have consequences,” Castellani says. “And when you take this amount of money out of the system that is able to support research and development, it will have consequences.”

Castellani emphasizes that the drug industry is the most research intensive industry in the US and the world, citing the National Science Foundation statistic that shows the industry accounts for 20% of all the industry funded R&D in the country and drug companies R&D spending averages 20% of revenues even as companies reduce their research budgets.

“While some of them are new this year, these are ones we’ve seen in the past,” Castellani pointed out. “They weren’t included in the Senate budget, they weren’t included in the House budget and we will do everything we can to make sure that as the debate goes forward that members of congress understand how negative the impact of what the president is proposing will be on patients.”

“Educate and Inform”

And that’s where Hugin’s call for playing defense with an eye toward offense likely comes into play.

“We must ensure that policymakers look at the ecosystem of healthcare and healthcare innovation in its totality,” Hugin said. “To not look at the policies of one sector that happens to have good cash flow and go after winners, when in fact they don’t look at the totality of the system.”

Hugin’s mantra is “we have to educate and inform policymakers” about the real impact of the biopharma sector: the success of medicines in turning back diseases like AIDS, and their potential to “prevent that tsunami from Alzheimer’s that will overtake the economics of healthcare.”

Hugin acknowledged, PhRMA must remain “a very defense-oriented team because we have to be as that is the world we live in.” But he urged the association to “become more proactive and find constructive, long-term solutions so we can stop talking about protecting and defending innovation, and we can start talking about accelerating innovation and expanding innovation.”

According to national media reports, the industry has been spent over a hundred million dollars to support healthcare reform. The industry will likely get more aggressive as the mid-term elections approach in 2014, which coincides with the rollout of the exchanges and expansion of Medicaid eligibility across the country.

Presidents’ budgets serve as the administration’s philosophy in the form of scored talking points for government programs. This administration believes there are a lot more savings to be had from the biopharmaceutical manufacturers. PhRMA’s job will be convincing Congress otherwise—one way or the other.