The passage of the Inflation Reduction Act (IRA) sent shock waves rippling through biopharma companies in the U.S. But across the world, legislative and regulatory developments that threaten to constrict pharma’s operations and future planning have been brewing for some time. Now it’s time for pharma to look at the big picture, understand the implications of regulatory changes and develop a game plan for how it can respond—strategically and operationally. Five ZS pharmaceutical industry experts take a look at recent changes in the global landscape and talk about what companies should do next.
Two recommendations for pharma companies emerged:
- Operations: Reassess pipelines and development and commercialization plans to adjust to new market realities.
- Strategy: Dramatically improve how pharma tells the story of the industry to educate the public and policymakers about the value the industry provides.
Maria Whitman: Do we all agree that we have hit an inflection point in the global policy landscape that should be causing pharma to step up and act now?
Barry Farrimond: The shift has been really aggressive but almost instantaneous. Pharma felt that the relationship was actually softening and becoming more industry friendly post COVID. And the doors just slammed shut.
Howard Deutsch: You have this moment where it seemed like as a society, much of the world had reason to be thankful for the blessings of a vibrant pharma sector. If we couldn’t come out of COVID with a more positive association in some sense and with a bit of a halo, we’re in a tough spot.
Bill Coyle: Especially during COVID, all the ills of healthcare around the world have been exposed. The disparities and inequities—within and across market. The high cost of healthcare. The complexity of healthcare. The pressures on the healthcare workforce. It’s all really hard to fix. So the easiest thing to do is cut drug prices. It will have relatively minor impact on the costs of global healthcare, but it’s the only politically expedient thing to do. There’s no other healthcare reform that will show instant results. It’s all hard work, it’s all complicated, it’s all confusing. And that doesn’t matter if you’re in the U.S., Germany, U.K., Japan, anywhere.
Stefan Kloss: We are dealing with two issues here—first, austerity measures driven by an aging population and government budget pressures and second, the fact that pharma is an easy target for austerity measures. The first issues require deeper policy changes, which are hard to influence and sadly unlikely to come in time. On the second issue, pharma could be doing a much more effective job about changing their public image to the positive.
Maria Whitman: Now through 2026, do we see this trend getting more aggressive or do we think we’re done for now in terms of the big hits?
Bill Coyle: There is some pending European Union legislation on laws related to medicines that were supposed to be out in December. The draft’s been pushed to late April, after already having been pushed to late March. It won’t be pricing, of course, because the EU doesn’t set pricing. But it could be around intellectual property rights and other things, so there’s still probably more to come. On the pricing front, France, Germany, Japan and the U.S. have all taken action in the past two years. That’s probably enough of the global market to have an effect. I don’t think you’re going to see another AMNOG reform next year, but you already see the $35 insulin cap trying to be expanded in the U.S. You could imagine incremental pushes in the U.S.
Stefan Kloss: These policies tend to come in waves and the big markets—like the U.S. and Germany—have already made their moves. We are likely on to the next wave markets that will implement new policies. The underlying drivers—an aging demographic and governments with budgetary pressures—remain, and we should expect to see more changes, usually at the beginning of an electoral cycle when reforms are initiated.
Howard Deutsch: In the U.S. context, I expect various things to happen on the margins or on the periphery. The Centers for Medicare & Medicaid Services (CMS), for example, just put out a paper about a few new demonstration projects that their innovation center’s going to go after. And they want to pay less for drugs that have gotten accelerated approval until their confirmatory trials have been completed, specifics TBD. But this is something that’s been floating around in U.S. policy for years. There are things like that floating around that won’t have the same kind of headline splash as IRA, but that can still influence opportunities and strategy for the industry.
Maria Whitman: Let’s talk about areas where the impact of regulatory change may have influence on pharma strategy.
Bill Coyle: We’re seeing things like action to push harder on confirmatory trials. There’s aggressiveness in the evidence required and a little bit of harping on the shortcomings of the past to set up that context.
Howard Deutsch: The concept of accelerated approval has already taken a hit with IRA. Because all of that is just getting into the market as fast as possible with the highest unmet need per patient and de-risk your asset by doing more sequential clinical development instead of stacked clinical development. And so IRA already takes a bite out of that and now we have CMS coming in and saying, “We think we’re paying too much for this stuff early on before that data comes out.”
Policy and regulatory changes should push pharma to think about how they invest in development and how much of that risk they should take on earlier in clinical development. In the big picture, the changes are pushing in the direction of needing to take on more of that risk. How should we think about the underlying risks that we’re going to take in development, the business case for it? How do we think about funding trials and disrupting the processes that exist for those funding decisions, especially in high life cycle management categories, most primarily oncology? Those are the places where the industry needs to act and to respond, opinions about whether this is good or bad notwithstanding.
Barry Farrimond: One of the problems with accelerated approvals is that they’ve actually lowered the bar for innovation in many cases, so much that virtually everything is finding a way through those pathways, one way or another. Actual step changes in therapy will continue to stand out and find faster way to market, but we need to take steps to prevent the continued dilution of true innovation. There is no reason for actual innovation to be delayed as the pathways already exist for them.
The bigger issue is how do we deal with uncertainty in trials in a much better way using all of the natural history and every other data source that we have available to find better ways to predict real-world outcomes, so that we can augment trials, use decentralized approaches, bring disease pathway, scenario and risk modelling into our decisions. Perhaps even value of information analysis. These are the bigger, more macro-level problems we should be focusing on.
Bill Coyle: It feels like a drawing closer of regulatory and pricing and reimbursement bodies in some respects. The regulator’s job is to make sure a benefit outweighs risk. And even in these accelerated approval cases where the confirmatory trials weren’t completed, it’s not necessarily clear that benefits did not outweigh risks. It’s just that there weren’t confirmatory trials completed. Did the regulator do something wrong? Did the pharma company do something wrong? And then the pricing and reimbursement agency’s job is a different job. The second piece is related to evidence-driven healthcare systems. Is it right to put all this pressure on evidence solely with the pharma industry? It would be hard to argue that the countless healthcare decisions made every day by doctors and care teams are evidence-driven. Do they really use the best available evidence in practice, even if more and more evidence is generated? That’s not to say they are ignoring evidence; there is a vast amount of new information coming at them all the time.
Barry Farrimond: There has to be an optimal way to manage healthcare from value assessment to funding to delivery. Of course it’s all influenced by the specific context within a country. But it does seem that there is a very real convergence, at least around the value assessments, how they’re being done, even how those systems are being set up, with early advice all of the way through to real-world evidence and innovative value contracting going on behind it.
Maria Whitman: Is there one global market that is doing this well?
Barry Farrimond: Australia, for a positive example. They’re certainly the most advanced along that road of bringing the whole thing together into one cohesion system. They are brutal from a cost-effectiveness perspective. But once you’re on that system, there’s no problem getting prescriptions and things are all connected, from the regulatory approval from the Therapeutic Assessment Group, to pricing and reimbursement through the Pharmaceutical Benefits Advisory Committee and finally to the patient. There are other cases of countries breaking conventional models and disrupting industry. Look at Estonia, which has established indication-based pricing years before anyone else.
Bill Coyle: One of the other challenges is that health systems don’t have money to do real-world evidence analysis. They don’t have the funding to put a ton of really smart people in a room with all the data and the data network to actually analyze what’s happening in their healthcare system to drive evidence-based medicine in their health systems. The pharma companies have more firepower when it comes to analytics teams. That’s not to say there aren’t amazingly smart people in the health systems, it’s just that they have significant resource constraints.
Maria Whitman: How might recent regulatory developments change the way companies think about their pipelines?
Howard Deutsch: If you believe that your average commercial opportunity for an asset has just taken a fairly sizable hit, how many of your programs actually clear the new bar? Obviously far fewer of them do. There’s something of a healthy debate about the scale of the elasticity here, but obviously it’s quite meaningful. If you don’t want to decline as an industry, what are pathways for addressing it?
A potential pathway to solving this for the industry is if you can figure out a way to dramatically de-risk your clinical development. If the bar is higher, of course you probably invest in fewer things, but you may need to invest in fundamentally altering some of your development stage probabilities. And if you don’t do this, then you’re basically counting on getting really lucky. At a sector level, if you’re not increasing the probability of technical success, then presumably you should expect significant declines in R&D, innovation, investment and so on.
Bill Coyle: Even before that, when you think about altering the up-front science so we’re actually getting more wins through the pipeline. These less-exciting products that come to market and generate revenue, do they fund the ones that are absolutely amazing? Do we actually create a R&D context where the amazing ones are able to come through? Because I don’t think anyone is able to figure out the amazing ones until they’re getting near the end of the pipeline. And if we fundamentally think there is serendipity in having a lot of bets and some of them are amazing breakthroughs, we are reducing the chances of serendipity saving lives by taking money out of the system. Now the reaction will have to be what you’re describing with platforms. They’ll have to get better at making sure great assets are getting through and mediocre ones aren’t. Until that is true, a lot of the reforms we’re seeing are probably going to result in some really good things dying in the pipeline.
Maria Whitman: Let’s talk about global pharma entities. What should they be doing differently as a result of all this?
Bill Coyle: You already see many of them doing this and touting it in their Q4 results calls: cull the pipeline. I doubt a ton of assets died through this culling that probably shouldn’t have died anyway, but that was one. In addition, the industry has done a poor job of defending its value in the recent years. The America Cancer Society (ACS) report shows amazing 20-year declines in cancer mortality in the U.S. A lot of that came from amazing therapeutics … as well as great advances in prevention and diagnostics.
Stefan Kloss: There is more to be done. Culling the pipeline and being more disciplined in opportunity assessments and where to launch a therapy are the most visible items. Others include portfolio development strategies that are more focused on a set of assets rather than on the indications for the same assets and more rigorous life cycle planning to avoid issues down the road.
Maria Whitman: What about the public image piece that we talked about earlier?
Howard Deutsch: It’s worth asking: why is pharma such an easy target? Because the public and policymakers don’t appreciate the value of what the industry provides. It’s important that the industry figure out a way to better tell its story and to build some degree of resonance and appreciation somewhere within the system.
Maria Whitman: How does pharma get the public on their side?
Bill Coyle: Pharma needs to demonstrably show the life year impact and the humanistic impact of their therapies at a macro level. It’s really not that hard, extrapolating clinical trials to patients served to how many seizures they saved, how many chronic obstructive pulmonary disease exacerbations, how many multiple sclerosis relapses or some of the statistics that the ACS just reported. The lives they’re helping and saving every day—that’s what they just can’t get out there clearly enough.
Howard Deutsch: And the patients that pharma treats and the impact on those lives, those people are highly sympathetic. It’s not that hard to find people whose lives have been improved, enhanced, saved, created through the developments of the industry. And those people are out there and they can tell your story really well.
Stefan Kloss: All of that and communicating their impact to all relevant decision-makers. A healthy biopharma industry is a driver for employment, tax revenue and local competitiveness. Healthcare innovation is a critical good; policymakers have a choice whether they would like to build a local industrial base or import these goods and services from abroad.
Maria Whitman: We’ll put it further that your value story is not in the efficacy, your value story is in the outcome. And that’s a big mental shift for pharma overall in everything they do.
Howard Deutsch: If they don’t do this now, by the time the actual implications of these things come through, it’s going to be too late. The European Health Technology Assessment regulation isn’t going to hit until 2025. And the bigger price negotiations for IRA don’t hit until 2025 or 2026. But the impact of lower innovation and so many fewer molecules coming to market—that’s going to take five years or 10 years to actually feel those effects and by that time it’s going to be too late. This value story that we’re talking about needs to happen now. We have reached an inflection point.
Maria Whitman: What else do we want to say to pharma companies right now?
Bill Coyle: Engage health systems in understanding their problems and figuring out how to solve them together. At the core, they are a large business selling to a large business, the healthcare system. They don’t have discussions of mutual value. They don’t really talk about solving problems together. They don’t leverage one another to maximum effect.
Howard Deutsch: There’s actually a surprising degree of complacency in organizations about the environment that they’re entering into. And it comes back to this whole inflection thing that up until fairly recently, the environment has always been sufficiently hospitable. You didn’t have to do anything terribly different. The companies that don’t shock the right parts of their organization out of that complacency are going to find themselves in trouble in several years. Because the headwinds the industry is facing at the moment won’t magically solve themselves in the way that they have in the past.
Barry Farrimond: And the business model and the pressures are not going to allow pharma to be more profitable, so we’re launching more stuff with less resource for less return. And that is the fact of what’s going to happen.
Stefan Kloss: Be careful about future investments, in particular acquisitions. What might have been a reasonable deal a few years ago could be a negative return once these drugs come to market in a few years. There tends to be a time lag until external realities are internalized in business case planning. Make sure that this adjustment period is short.
Bill Coyle: One other point we should reinforce is: Every major market is going through this demographic challenge that was highlighted at the beginning, that they’re going to have fewer people pumping money into the healthcare system via taxes. It’s just a fact of demography in nearly every single developed market that’s not the U.S. There’s not more money coming; there’s nowhere for it to come from.
In addition, they should show where all the money goes, i.e., middlemen, pharmacy benefit managers. Even this $35 insulin co-pay cap, if they just disclosed what is the net price of insulin in the U.S., I bet you it’s lower than people think, to the manufacturer. Disclose things like that to show “here’s how it actually works.”
Howard Deutsch: It’s a very complicated story to tell. You have to decide in some sense who your targets are for different kinds of communication. It comes back again to being much more sophisticated about your external communications. Because the story to the public about list prices and rebates and middlemen, that’s a hard story to tell.
But how much easier is it to take a look at what the pharmacist says your co-pay is? I don’t think that you’re going to be able to overcome or push that story. But there’s certainly a subset more in the policy world where the industry does have to be better at telling the story in a compelling way. Meanwhile, publicly there’s a different set of stories to be telling, probably geared more toward patients, the impact and so on.
Bill Coyle: Multiple audiences, multiple stories.
Howard Deutsch: And getting way more thoughtful about it.