Pharma Reform

How well will your product forecasts for US market revenues withstand the pressures of healthcare reform?  One  way to pressure test your pipeline portfolio and current product revenue forecasts is to begin with a “worst case” scenario to establish a baseline upon which to build.  This is difficult for most Big Pharma companies because they have established historically validated forecasting models. Unfortunately, these models often have incorporated legacy assumptions that are almost certain to be irrelevant or will change dramatically with healthcare reform.  The following approach can help you be much more objective as you reassess the impact of healthcare reform on your product revenues.

Do a product by product (or research project by research project) review and build a “worst case” scenario as your base case revenue forecast.  Here are some general market assumptions to consider:

1. Healthcare delivery and prescription drug coverage will be even more “managed” with an intense focus on cost containment
2. There will be a strong preference for generic drugs
3. Increasing prescription drug coverage will increase the use of restricted formularies
4. Proprietary branded products will require more “comparative” clinical and cost benefit data to gain formulary acceptance
5. Traditional marketing and sales tactics will have limited impact on prescribing practices

Take your current product revenues and product by product apply assumptions that have the biggest potential negative impact on revenue. Here are some situations to consider.  What happens to your product revenue if…

1. There is a national restricted formulary (or a recommended standardized formulary) based on a strong preference for generic drugs, including recommendations for therapeutic substitutions
2. All drug coverage plans can purchase at “best price” which includes pricing given for government contracts (military, VA, etc.) or “public plan” contracts
3. a “public plan” is legally permitted to negotiate pricing for “expensive” branded products where it feels it is needed
4. Foreign market pricing can be used as “reference pricing” and importation is allowed and used as purchasing leverage in pricing negotiations
5. no therapeutic class “best practice treatment” is identified and price drives formulary selection and product usage
6. when no generic drugs are available in a therapeutic class, formularies are limited to no more than two proprietary branded products for that therapeutic class
7. Except for therapeutic substitutions, “off-label” prescribing is discouraged, will have challenging reimbursement hurdles, and is closely monitored for value of clinical benefit
8. e-prescribing controls formulary and prescribing compliance
9. to manage costs and encourage formulary compliance, patients are required to pay full price (cost of drug plus dispensing fee) for non-formulary products.

Depending upon the strength of  product profiles and the data to support assumptions for clinical efficacy and safety and cost benefit you can mitigate the impact of negative assumptions and add revenue to your baseline forecast because:

1. Healthcare reform will make the availability of affordable prescription drug coverage for more patients
2. The market has an aging population and there will be an increased need for long-term treatment of chronic diseases of the elderly
3. Products with proven clinical superiority (safety or efficacy) or demonstrated cost benefit over other products will be preferred with prescribing and and use being encouraged
4. Healthcare plans will develop and support programs that encourage patient compliance and adherence for formulary approved products
5. Healthcare plans will encourage the use of branded products with proven ability to reduce other healthcare costs
6. Unique, innovative new products that demonstrate a clear clinical, therapeutic benefit will become “best practice treatments” with widespread use for that indication.
7. Proprietary branded products recommended as “best practice treatments” will experience widespread use for their corresponding therapeutic indications
8. Documented clinical data that helps establish “best practice treatments” will make it difficult for subsequent innovative new branded products to displace them before patent expiration and generic drug availability.

What does your revenue stream look like now? Which products are most vulnerable to healthcare reform?  Which pipeline projects no longer make sense financially to continue?  Which ones have bigger market opportunities than they might otherwise have?

Companies depending on historical revenue forecasts to support their ongoing business will find it more challenging than those who take an objective new look now, develop transformational plans accordingly, and have flexibility to make adjustments to the evolving new healthcare market. One of the important variables that must be considered is timing for the impact of your assumptions.  Aggressive timelines (impact comes sooner) may be too conservative but will add clarity through exaggeration of financial impact.   Artificially delayed impact, on the other hand,  may give a false sense of near-term security and help rationalize “no need for action”.  Forecasts have always been challenging in the pharmaceutical industry but they will become increasingly difficult to model with fewer historically valid data points as we look to healthcare reform becoming a reality.

mike@pharmareform.com