Blue Cross/Blue Shield Testing Generic Drug Ad Themes For 2003

The Blue Cross/Blue Shield Association is developing an ad campaign with the message that expanded use of generic drugs will free up resources to spend on future medical innovations.

The premise of the ads would be to reverse one of the brand name industry's themes in the debate over Waxman/Hatch reform: that any unfavorable changes to intellectual property standards would jeopardize the future of research and development.

BCBSA says it has not made any decisions about when or if to run the campaign.

However, the association has been conducting market research to vet the ads in several cities, including a session conducted by D.C.-based Shugoll Research for Capitol Hill staff and health care reporters.

Participants were invited to participate in a one-hour "market research" discussion, and were offered $150 as a "token of appreciation." Congressional staffers were encouraged to donate the fee to charity, BCBSA said.

Draft ads tested by the Blues are understood to include images like a pharmaceutical researcher and a neonate in an incubator with text suggesting that the savings from wider use of generic drugs will allow insurance companies to devote more resources to higher cost products for the smaller group of patients who need them.

The association is also understood to be testing an "advertorial," showing a brand and generic drug with prices underneath, and explaining that the products are therapeutically identical.

The association is testing ads on other themes, including spots that would promote walking as a simple exercise regimen to improve health, and ads encouraging support for medical malpractice liability reform.

The Blues' approach to malpractice reform may emerge as another source of tension with the brand name pharmaceutical industry.

The Pharmaceutical Research & Manufacturers of America is making tort reform a higher priority issue; association Chairman Robert Essner (Wyeth) highlighted it during his inaugural address in March (¹ (Also see "PhRMA Agenda Includes Tort Reform; Common Ground With HMOs?" - Pink Sheet, 7 Apr, 2003.), p. 5).

Essner noted the issue as one where PhRMA could attract allies in other health care sectors, including doctors and insurers.

However, from PhRMA's point of view, the focus of the Blues on medical malpractice reform - rather than on broader tort reform - is an important difference. PhRMA members are concerned that passage of a stand-alone medical malpractice bill would end the chance for broader liability protections for the foreseeable future.

The Blues' top priority issue is unrelated to any of the potential advertising topics. The group is focusing primarily on lobbying for association health plans.

BCBSA's decision to commission market research on generic drug ads for 2003 suggests that the association is still considering how to approach the issue this year. During the 2002 Waxman/Hatch reform debate, the Blues took a lead role in organizing coalitions to support legislation sponsored by Sens. John McCain (R-Ariz.) and Charles Schumer (D-N.Y.) (² 'The Pink Sheet' May 13, 2002, In Brief).

However, there is concern on the payor side about recent aggressive price increases for some older generic products.

Brand name companies may see an opportunity to undercut the generally positive image of generic firms on Capitol Hill and in the media, in part by using the negative associations of highly-profitable medicines to their advantage.

GlaxoSmithKline CEO J.P. Garnier, for example, maintained in a recent editorial board meeting with a news weekly that generic companies are now more profitable than brands (³ 'The Pink Sheet' May 12, In Brief).

GSK is highlighting the recent strong growth reported by some generic companies in contrast to lackluster earnings reports by most of the large brand name firms. While there remains no comparison in terms of profit dollars generated by generic companies and large brand companies, there are some examples of generic companies that have better-than-brand margins. Mylan, for example, reported $454 mil. in earnings from its generic business in fiscal 2003 (ended March 31), for an operating margin of 45%.

The company's net margin (reflecting branded product sales as well as the generic business) was approximately 21% for the year.

GSK press materials also include a profitability comparison across industries: "Net profits 2001 - GSK - 12%, Microsoft - 39%, General Electric - 21%, Weight Watchers - 11%, Coca-Cola - 23%."

The figures presented by GSK are difficult to interpret. The 12% number cited for the company apparently refers to its earnings growth rate for the year (net margins were considerably higher, especially excluding one-time merger related charges).

Pfizer is also trying to undermine the generally positive image that generic drug companies had in the legislative debate. CEO Henry McKinnell is using investor conference calls and interviews to paint a portrait of generic companies as little more than off-shore patent pirates.

The increase in patent challenges, McKinnell told investors during the company's first quarter, reflects the experience of companies "based in India where they are free to steal our technology." Generic firms "are now taking that business model here to the U.S. and they are taking free shots at out patent portfolio."

Pfizer General Counsel Jeffrey Kindler suggested that most challenges are specious, and cited recent press reports quoting companies explaining the importance of patent challenges to their business model.

"We're seeing...cases in which generic companies are simply reviving arguments that were already rejected by the patent office," Kindler said. "You are seeing quotes in the newspaper...in which generic companies have acknowledged that they feel that they have nothing to lose by bringing a lawsuit except the legal fees and therefore it is very much a part of their business strategy to hire lawyers rather than scientists in order to advance their business."

"That really was an outrageous statement," McKinnell added. "It clearly was bad public policy. These people are stealing from us, from our investors and most importantly from patients who need the cures of the future, so I think it is outrageous behavior."

The brand name sector is also claiming that the effective patent life on pharmaceuticals is shorter than for other inventions.

"Pharmaceuticals have the same patent life as other innovations - 20 years," GSK press materials note. "However, on average, the effective patent life is less. Pharmaceutical effective patent life is only 11 years; for other innovations, it is 18.5 years."

McKinnell made the same argument to investors. "I'm still befuddled by the fact that if you invent a cure for cancer you get 10-12 years of patent protection; if you invent a little device that turns on your windshield wipers automatically when it rains, you get 20 years."

FDA is finalizing a proposed rule on Waxman/Hatch reform that addresses many of the issues raised in the legislative debate (⁴ (Also see "Waxman/Hatch Reinterpretation Underpins Change In 30-Month Stay Policy" - Pink Sheet, 28 Oct, 2002.), p. 6). However, it appears certain that Waxman/Hatch will be revisited on Capitol Hill this year.

"Once the rule is finalized and published, we need to examine it and see what, if any, gaps remain and develop any legislation that needs to be enacted," Senate Health Committee counsel Steve Irizarry said at the Banc of America Securities Washington Healthcare Conference May 7.

"What we would likely do is build upon the FDA regulation in terms of codifying it and providing some additional provisions that would complement the regulation, not replace it," Irizarry said.

Sens. McCain and Schumer have been urging a reform bill to go beyond the proposals in the pending rule (⁵ (Also see "Waxman/Hatch Reform Bill Needed Despite FDA’s Rule – McCain, Schumer" - Pink Sheet, 31 Mar, 2003.), p. 10). The Generic Pharmaceutical Association also wants to see legislation.

GPhA President Kathleen Jaeger told the Banc of America conference that legislation will still be necessary to ensure that there is a "timely resolution of patent disputes."

"Right now, the way the proposed rule is drafted, there is no measure to ensure that subsequent, appropriately listed patents be litigated in a timely fashion. So that is an issue that we are looking for to be resolved. Whether it's resolved in the final rule or whether it's resolved on the Hill, we take a position that perhaps it's outside the construct of the agency's authority and that probably needs to be addressed by the Hill."