Healthcare system in the USA is currently experiencing radical and monumental changes that threaten to alter the present state of affairs, especially for pharmaceutical companies. Big pharmaceutical companies have raised enormous revenues for the past several decades through its blockbuster drugs oriented at large amounts of people. Previously, there have been numerous health-related issues to be researched, as well as many illnesses to be cured. The beneficial situation with 20-year patents for branded drugs and little pricing regulation has made the pharmaceutical industry one of the most lucrative and highly developed in the country and in the whole world. However, nowadays there is a real possibility that everything will drastically change for bid pharmaceutical companies as well as small ones due to vats societal and policy alterations. Thus, in order to survive and thrive, the pharmaceutical industry has to find a suitable solution for the current issues, which would allow not only to preserve the existing level of income, but also to significantly increase it as well as improve the healthcare domain through the invention and manufacture of new efficient drugs.
The video “Pharmaceutical industry in transition: Dramatic changes ahead, how will you adapt?” is one of the illustrations with various graphs and statistical data to display the transition state of the industry. The video is aimed at emphasizing the fact that companies have to be aware of their transition status and adopt appropriate measures in order to remain competitive in today’s turbulent market. The situation in the USA is focused on, though it should be noted that similar pharmaceutical crisis is to onset in the majority of developed countries with the long-established pharmaceutical system and respective policy regulations.
Nonetheless, the situation in the USA is somehow different, as it has always been one of the primary markets for research, development, and manufacture of innovative medications that then have been popularized all over the world. Previously, the main rivals of the US companies manufacturing branded drugs have been the ones in Europe and to less extent in Canada, yet nowadays producers of generic medicines have become the most revenue threatening factor for the big pharmaceutical companies. Their threat is becoming increasingly prominent taking into account that “$60 billion of US pharmaceutical industry patent revenue will expire in 2012” (TRiBECA Knowledge, 2011). The existing policies and regulations do not allow extending periods of exclusive patents, thus generic companies can soon legitimately launch the production of the copies of famous and rather expensive branded drugs.
The process of obtaining the U.S. Food and Drug Administration’s (FDA) approval for manufacturing generic medicines is much more simplified than in the case with new units (FDA, 2011). Moreover, the process of manufacturing generic drugs is simpler and cheaper as the core technology is already known, and the manufacturing process itself is not extremely expensive (Galambos & Sturchio, 1998). Therefore, “branded drugs now account for only 1 in 4 pills”, which is proved by the graph from the video explicitly displaying the decline of the branded drugs use and the enormous rise of the generics (TRiBECA Knowledge, 2011).
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Generics are becoming increasingly popular due to their availability and low prices that have been reduced definitely not at the expense of quality. The FDA states on its official website that “a generic drug is the same as a brand-name drug in dosage, safety, strength, quality, the way it works, the way it is taken and the way it should be used” (FDA, 2011). The only explicit difference is the price and the package. Previously, when all the patents for the exclusive distribution of branded drugs in the USA were valid, the Americans did not have much of a choice between choosing a branded drug and its generic version and were almost forced to buy the former in case they needed treatment (Carter, 1999). Although it was not a huge burden for the prevailing part of the Americans who relied on their insurances to co-pay for the treatment bills, they have now gotten a chance to choose between two or even more versions of the same drug.
Prior to the adoption of new healthcare policies, often referred to as the “Obamacare”, there existed a huge discrepancy between the insured and uninsured as the former had to “pay either a flat cop-payment, often based on tiers or a percentage of the prescription cost” (Hooper, 2008). Still, they had to pay more the branded drugs, while generics’ cost was relatively low. It has always been the neediest group of the American population that has been uninsured that had to pay full and extremely high prices for the branded drugs (Hooper, 2008). Naturally, people do not want to spend more money on their treatment than necessary just for the sake of taking medications with well-known names.
Taking into account the factor of significant economy and the ability of the companies to produce generics because of the expiry of the patents that have previously accounted for 75% of specialty medications, generics have become “the best selling drugs in the US market” (TRiBECA Knowledge, 2011). The researchers have predicted that “by 2012 not one drug in the top 15 most prescribed medicines in the US will be branded” (TRiBECA Knowledge, 2011). Though this prophecy has not been fully realized yet, there is a strong tendency towards substituting branded drugs with the generics. The situation is further complicated by the fact that many physicians have a personal interest in promoting certain kinds of medications as the traditional role of “the physician prescriber has shifted to the stakeholder model”, leading to emergence of essential issues in the pharmaceutical industry decision-making process (TRiBECA Knowledge, 2011).
Big pharmaceutical companies face significant challenges not only because of the rise of the generic companies or other competitors. More importantly, the US pharmaceutical industry has to work out the issue emerging out of the current regulations and new policies. The passage of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act has created for both big and small pharmaceutical companies prerequisites that have a potential to affect their long-term prosperity and growth (Milne & Kaitin, 2010). Due to the fact that some provisions come into force not immediately, and due to the existence of other variables influencing the industry, the researchers claim that long-term consequences of Medicaid and Medicare are difficult to predict, thus giving rise for various speculations concerning long-term perspectives of the industry. The video is rather optimistic, as it states that “Large pharma will both survive and thrive” (TRiBECA Knowledge, 2011).
However, not all researches are so optimistic and they all acknowledge that in order to survive and thrive, large and small pharmaceutical companies need to become highly flexible, “leaner, and more agile” and to implement drastic changes into their functioning mechanisms (TRiBECA Knowledge, 2011). In the times when “the era of the blockbuster drug is nearing an end” and when “the pharma companies are feeling pressure from every direction”, the industry has to be radically modified and innovated in order to face the existing challenges and successfully cope with them (Kandybin & Genova, 2012). Researchers offer countless scenarios of coping strategies, most of which are illustrated through a real-life examples. However, all of them come to one of the primary and most efficient solution – cooperation of companies through mergers and alliances.
The prominent increase in spending that in 2003 already reached $33.2 billion and is predicted to increase by 20% by 2020 is another driving force for creating beneficial cooperative alliances within the pharmaceutical market (TRiBECA Knowledge, 2011). The future in the domain of the pharmaceutical research and development is predicted to be provided by small biotech companies and academic laboratories (Galambos & Sturchio, 2005). Since the big pharmaceutical pipelines of the blockbuster drugs and the discovery of innovative small-molecule drugs are proving to be not as profitable as they have once been, large pharmaceutical companies have to seek new ways of remaining competitive in the market. The ideal solution is presented by cooperation and mergers with small biotech companies and academic laboratories that are solely aimed at research and investigation of new medications represented mainly by large molecule and genetic drugs (Galambos & Sturchio, 2005).
Pharmaceutical giants could hence concentrate on what they do best, i.e. marketing and large-scale production, delegating the task of research and invention to smaller scientific laboratories that are more suitable for that under the existing circumstance. Such cooperation would be beneficial for both sides, as the latter would obtain vast investments for their researches and will not have to worry about production and marketing aspects that often become a problem for small laboratories and individual scientists who have genius ideas, but limited resources. Therefore, the R & D shift seems to be the optimal solution for all the parties involved, thus proving a wide-spread supposition that “small venture capital companies will be primary developers of new compounds” (TRiBECA Knowledge, 2011).
One of the greatest challenges faced by pharmaceutical companies comprises the currently existing regulations, especially in terms of the invention and production launch of new compounds. Nowadays, there is a dramatic decline in the rate of the FDA new drugs approval. The highest number of approved drugs was observed in 1996 and has been steadily decreasing since then with a temporary spike in 2005 (TRiBECA Knowledge, 2011). In the year of 2010 has seen the lowest rate of the FDA drug approvals, and the tendency is not going to alter any time soon (TRiBECA Knowledge, 2011). This decline has obviously been partially responsible for a huge decrease of the projects aimed at developing new drugs. Moreover, the cost of getting one new drug approved has been estimated as $802 million (Hooper, 2008). Although not all new compounds have the same cost, it is an average sum of completing the entire approval procedure, yet there is no guarantee that the drug will be allowed to be manufactured. Only one in 50 new drugs successfully complete the approval procedure.
These low results signal an obvious inefficiency of the existing regulations. In the USA, FDA is responsible for the release and patenting of new drugs. In the USA, the first legislation concerning pharmaceuticals was passed in 1906 as the Pure Food and Drug Act (Carter, 1999). The modern era of drug regulation started with passing the Food, Drug and Cosmetic Act of 1938 (FDCA) (Carter, 1999). It laid out the grounds for the currently existing regulation practices exercised by the FDA, like submitting a New Drug Application (NDA). The powers of the FDA were significantly broadened by the Kefauver-Harris Amendments in 1962. Since then, the FDA has obtained virtually an unlimited possibility to hinder the entrance of a new drug into the pharmaceutical market. The FDA’s jurisdiction is based on the constitutional authority, namely the FDCA “rests upon the constitutional power resident in Congress to regulate interstate commerce” (Carter, 1999). Most formidable power of the FDA is its regulatory authority, concerning the approval of new drugs without which no drug can enter the market. There is a wide-spread perception of the USA regulatory system of being adversarial (Carter, 1999).
Pharmaceutical companies have to voluntary follow the FDA’s regulations and prescriptions, if they do not want to be subject to harsh functions. Although the ulterior motif of the FDA is to guarantee safety and efficiency of new drugs, its actually unlimited power to approve or reject new drugs is not overseen by any institution. Pharmaceutical companies consider it to be easier to do everything the FDA says than to complain or file a lawsuit even if they think that they are right. There is a simply little chance of winning a case in the court against the federal institution with very broad powers. Besides, companies claim to be worried that once they displease the FDA, they may never get an approval for another new drug (Carter, 1999).
Besides a high cost of the approval procedure, it is very lengthy. All the stages may last up to several years, which leaves not many years out of the 20-year period of the right for exclusive distribution of a drug after patenting it. As the deputy director of the Office of New Drugs in the CDER says, “It’s the clinical trials that take so long – usually several years. The emphasis on speed for FDA mostly relates to review time and timelines of being able to meet with sponsors during a drug’s development” (FDA, 2012).
However, most pharmaceutical companies claim that the FDA’s functioning mechanism has to be improved, as it takes about 6-9 months minimum of the FDA to review the submitted New Drug Application with the package of all the necessary documents. Roughly, the approval procedure may be divided into 9 major stages: Investigational New Drug Application ( IND Application), 3 phases of clinical testing, review meeting, NDA application, and the final stage of coming to a certain decision (FDA, 2012). The FDA does not conduct the verification of a new drug’s safety and efficiency through its laboratory experiments and researches. It only checks all the documents and makes its decision on the basis of the experiments, trials, and testing presented in the package provided by a drug’s sponsor. Although this procedure is aimed at ensuring public security, it may discourage many pharmaceutical companies from researching and developing new drugs. Furthermore, the fact that the procedure is much simplified for the generic drugs encourages the production of these medications instead of promoting innovations in the pharmacy field.
The biggest opportunity for the pharmaceutical companies lies in the creation of cooperative mutually beneficial alliances between big pharmaceutical industry representatives and R&D laboratories. In terms of management and functioning, companies have to become flexible and agile. One of the most profitable directions of the research seems to be the development and investigation of the large molecule medications created specifically for the needs of separate groups of people or even singular clients. In terms of new markets, developing countries offer enormous opportunities for pharmaceutical companies. According to Andrew Witty, companies should be oriented at helping people in Africa and those organizations that help people in Africa, because “the need in poorly developed countries for affordable medicines and vaccines is also creating a huge opportunity” (TRiBECA Knowledge, 2011). These new markets have to be studied and occupied by pharmaceutical companies that want to expand their influence and increase their profits, as well as help people to improve their health.
Drug prices constitute another essential issue for pharmaceutical companies. Nowadays, drug prices are considered not to be regulated by the government in the USA contrary to many European countries like the UK. Both approaches to drug pricing have their advantages and disadvantages, and are defined by the peculiar interstate geo-political situation. Thus, there are countless claims that drug prices in the USA are too high, especially in comparison with other countries. The researches state that US prices are much higher than the ones in Canada and Mexico, for instance (Danzon, 2000). Moreover, there are accusations of the pharmaceutical companies making money on the American citizens, while selling their drugs at much lower prices to other countries. However, there are as well counterarguments that convincingly prove the lack of necessity to regulate drug prices through the governmental intervention.
At the time, drug prices are regulated by the market and the demand. Branded drugs are naturally more expensive, yet the public has an affordable option of buying the generics. Moreover, the “Obamacare” envisions ensuring the prevailing part of the population, hence making branded drugs available almost to everyone. Another argument is that companies set the prices that can compensate for the spent resources for the R&D process and allow carrying on the R&D of new drugs. One of the researches states that “Studies that claim to find lower drug prices in other countries – lending support to proposals for the regulation of U.S. drug prices – are misleading because those studies are seriously flawed” (Danzon, 2000). Besides, introducing state regulation of drug prices in the country, where the pharmaceutical companies have always had a liberty of defining their own pricing politics, would discourage innovation and development of new drugs. Moreover, it could have detrimental consequences on the competition in the pharmaceutical market.
Another pricing policy is observed in the UK. These two countries seem relevant for comparison as both may be viewed as leaders in the pharmaceutical field in their respective regions. Prior to 2008, the UK pricing policy lied in their indirect control through profit controls. The state policy was regulated by the pharmaceutical price regulation scheme (PPRS). According to the PPRS, companies could set their own prices, while launching new drugs in the market. In return for this freedom of the pricing policy, companies had to keep their intrastate earned profit margins within an agreed limit (Mitchell, 2008). Excess profits were to be refunded to the National Health Service. This system satisfied the pharmaceutical companies, yet the government decided to introduce more rigid control of the drug prices.
Such a decision was evoked by the 2007 report of the Office of Fair Trading that established the failure of the government to restrain drug prices. It also stated that prices of branded medications were much higher than their clinical value, though excess profit repayments came only to 0.01% of industry sales (Mitchell, 2008). The PPRS was much praised by both parties up to that time as it intended “not just to deliver reasonable prices to the UK but to allow sustained investment in drugs for the future” (Office of Fair Trading, 2007). Because of the failure of the PPRS to achieve its proclaimed goals, the UK government decided to adopt “a new scheme of direct price controls based in a drug’s therapeutic value” (Mitchell, 2008). This policy seems to be harshly criticized by the pharmaceutical companies, though they are prohibited to disclose the details of new agreements with the government.
As a pharmaceutical partner at management consultancy Andrew Monro said, “The UK is now set to move from being one of the least regulated pharmaceuticals market in Europe, to one of the most heavily regulated” (Mitchell, 2008). However, the state-regulated drug pricing policy seems to have some advantages for the country as well as for the industry. People can buy branded drugs at affordable prices. Besides, there is virtually no threat for the pharmaceutical companies from the generic medications as there is simply no need for them. Nonetheless, state regulation of the drug pricing may really stifle competition on the market and lead to the decay of the R&D segment of the industry. Besides, if “the United States implemented price controls and negotiations similar to those found in other developed countries, then the U.S. revenues would fall by as much as 20.3 percent” (Sood et al., 2009).
Almost all industries are susceptible to economic crises. The recent one has drastically affected many of the US branches of economy. However, the healthcare sphere has continued to grow despite the lagging economy. There have appeared many new job positions throughout the country that demand a certain level of skills and knowledge. The increase in the necessity of the health care professionals may be explained by the societal tendency towards the aging of the nation, as well as to the worsening of the general population due to obesity, poor environmental conditions, and other health-deteriorating factors. The Missouri’s 2011 report on the health care workforce trends reflects the situation throughout the country. Thus, top 5 occupations with highest total openings and highest average wages are in the long-term projections for 2008-2018 the following: registered nurses; licensed practical and vocational nurses; nursing aides, orderlies, and attendants; home health aides; and pharmacy technicians (Missouri Department of Economic Development, 2011).
The recent study has also revealed the increase in the demand for home care aides, because many people now prefer to receive medical care at home. Thus, there were 40,000 jobs available in October, which is an 11% increase in comparison with the same timeframe in 2011 (Lombardi, 2012). The highest demand for all kinds of healthcare workers was the highest in large metropolitan areas like Los Angeles and New York (Lombardi, 2012). Therefore, the recent trends display the increase in the demand for healthcare positions that require less vocational training, but that still need some special skills and knowledge. From the available statistics, it is obvious that the most economically rewarding careers in the sphere of healthcare are the nursing ones as there is the highest quantity of available openings, as well as the highest offered wages.
There has been a significant decline in the interest in the occupation of medical professionals, specifically doctors. One of the possible reasons is pressures put upon them as well as the insufficiently high wages in comparison with the responsibilities and working stress. Moreover, young people may be significantly discouraged from pursuing this profession by the number of years they have to spend studying and training before having a possibility to work in the chosen field. However, this squalid situation has to be improved due to the increasing importance and value of the professional healthcare in the country. In order to raise the prestige of the profession of a doctor, students of high schools and colleges should be made aware of the social importance of the profession and be encouraged to pursue this career, for instance, through various state scholarships and grants. Moreover, the ages of doctors have to be increased as it seems somehow unjust that nursing openings offer much higher wages than the doctors’ ones.
Undoubtedly, any new legislations or new policies in the healthcare system will affect pharmaceutical companies. The adoption of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act has significantly shaped the long-term perspectives of both large pharmaceutical companies and small and mid-tier pharmaceutical and biotechnology companies. Although it is still early to assess the effects of new policies, as many provisions have not even come into force yet, there already exist many speculations concerning the future of the pharmaceutical industry. It seems to win from new reforms.
Having agreed to contribute up to $105 billion to the new legislation, pharmaceutical industry has signaled its willingness to cooperate with the government (Milne & Kaitin, 2010). In reward for this cooperation, the government agreed not to review in the nearest future such issues as drug reimportation, authority to negotiate drug prices for Medicare Part D, and “prohibition of pay-for-delay deals between manufacturers of brand-name and generic drugs” (Milne & Kaitin, 2010). Moreover, the companies are envisioned to increase their sales thanks to 20 out of 50 provisions of the new law concerning drugs.
Despite the prescribed rebates and discounts, the companies are nonetheless predicted to gain $10-35 billion of profit over the next 10 years (Milne & Kaitin, 2010). However, there are some claims that the government will start playing “a more proactive role in controlling industry profits”, which is a significant drawback. Small companies seem to gain a lot from the new law as they have to pay little up front in comparison to the big companies and their fees are much slower. For instance, companies with total sales less than $5 million do not have to pay fees at all. Moreover, the new law “awards a 12-year period of data exclusivity for new branded biologics, as part of compromise for the implementation of a process for approving biosimilars”, which is a substantial benefit for small and mid-tier pharmaceutical and biotech companies in the long run (Milne & Kaitin, 2010).
Small companies will also win from the new law as they would get the opportunity to be innovative entrepreneurs. Nonetheless, it is too early to speak about the impact of the new legislation on the pharmaceutical industry, as there are many unpredictable variables. However, the fact that large companies have actively supported the adoption and enactment of the “Obamacare” proves that they have strategic plans of getting substantial benefits from it.
The paper has dealt with various issues concerning the current transition period of the pharmaceutical industry. It has reviewed the peculiar aspects pertaining to the big pharmaceutical companies as well as small companies are hypothesized about possible future strategies of their development. Due to the confines of the paper, this question has been dealt with on the surface level. Moreover, the paper reviewed the acute trends of the healthcare system, like the promising careers and recent legislations. It has also given a short outline of the problem of the state drug pricing policy that has become controversial in the USA. This topic is treated on the background of drawing parallels between the USA and the UK. Finally, the paper gives a brief explanation of the potential effect of the new healthcare law on the pharmaceutical influence.
On the basis of all the above mentioned information, the most necessary prerequisite of success for any company, including the ones in the pharmaceutical industry, is adaptation and innovation. The final statement of the reviewed video seems to be exceptionally valid for the companies that now try to adapt to the transitory era and can become a sort of a motto for their leaders: “Your business never stops evolving, why should your learning?” (TRiBECA Knowledge, 2011).
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