On November 4, Zevacor announced that it selected a firm to supply their new cyclotron. This updates the story I wrote for Pharmaceutical Commerce under the headline, “New higher-capacity cyclotron to stabilize isotope supply.” In that story I cited IBA Group and Best Medical International and Best Cyclotron Systems as possible sources; IBA was chosen.
For this outside the company’s biopharma orbit, Zevacor Molecular based in Fishers, In
d., the company’s 70-MeV (as in million electron volts) commercial cyclotron is reportedly to be the first and only 70-MeV unit dedicated to medical use in the United States. Upon startup, which is planned for the fall of 2016, it’ll primarily produce Strontium 82 (Sr-82), which in turn produces Rubidium (Rb-82) injected into patients for cardiac imaging. Start-up is planned by the fall of 2016.
The big deal, John Zehner, COO of Zevacor told me, is that national labs from Brookhaven and Los Alamos to those in Canada, South Africa, Russia and elsewhere produce much of the needed supplies only “when they have time” leading to an impossible situation by healthcare providers to “keep the supply even so the product is available day in and day out.”
Until the fall of 2016, here’s wishing the patients in your life a stable supply of isotopes.
Ever see one of those red boxes with blinking LEDs offering cents-off coupons for Oreos in the cookie aisle, or Tide in the detergent aisle? Ever see a video display that springs to life when you pass by?
In the prescription drug business, where drug-makers are looking to compete with OTC (over-the-counter) remedies that treat similar ailments, the same kind of promotional gizmos are NOT coming to a retail pharmacy aisle near you. Why not?
Because they’re already here.
A brand selling prescription Restasis eye drops can now buy promo space and locate one of the point-of-sale (POS) boxes next to OTC Visene, in the process, lifting branded prescription sales an average 10-percent for mature products (vs. much higher for new-drug launches), with ROI of $6 for each dollar spent.
These kinds of promos are common across consumer goods, with companies like Valassis and News Corp’s News America Marketing going head to head hawking soap, cookies and in cases, OTC remedies. Another firm, Rx Edge Pharmacy Networks, East Dundee, Ill., specializes in the prescription stuff, which is “much, much more complicated” to promote in terms of regulatory due diligence, Jim O’Dea, CEO, told me, adding that the need for black-box warnings, patient information and other requirements appears to be on a trajectory to keep ballooning as leaflects (shown here) turn into whole booklets.
To state the obvious, contract packaging is rapidly evolving. The core outsourced-packaging function is easily understood, but the form and function of the contract packaging organization is a moving target. Decades ago, a co-packer was defined by the machines the company had on the floor.
Packaging-specific services remain a much needed, much in-demand core competency. Consumers want the benefits of the latest primary containers, pouches, blisters, pillows, stick packs, and/or the latest secondary innovations in POP, club packs, multi-packs and the like.
It’s why, to cite one of innumerable examples, Salt Lake City-based Northstar Labs has steadily upgraded its injection molding, liquid filling and four-color digital label printing capabilities. And it’s why Fairport, NY-based LiDestri Food & Beverage, for instance, leveraged its contract manufacturing and packaging smarts to develop a new multi-compartment flexible pouch format and expand into pharmaceuticals.
Brands, too, find themselves in the co-packing game. Toad-Ally Snax, Bristol-PA, which markets its own brand of chocolate-covered goodies, nets new business through additional contract and private label work—something even the largest brand marketer-manufacturers do whenever company-owned production assets sit idle for so much as a shift a week—just to keep capacity at 100% and feed the bottom line.
Those for whom co-packing is the core focus are doing much more these days to give a brand anything it can, from upstream package development and manufacturing to downstream warehousing, fulfillment and logistics.
Fave Juice, for example, outsourced just about everything but product development and marketing to The Scoular Company, which manages everything from ingredient and material procurement to manufacturing, logistics and contract packaging—even finding and managing day-to-day operations and growing a nationwide network of co-packers.
One day, it’ll be hard to define the very term “contract packager,” because the overarching industry trend isn’t on four-walls production, but on the supply chain. Whereas co-packers were once seen as a “stop-gap” solution, tomorrow’s contract packagers are “sophisticated logistical specialists,” says Chris Nutley, president of MSW Packaging Services and Contract Packaging Association president.
This reality is reinforced by Industry consolidation, notes Lisa Shambro, executive director of the Foundation for Strategic Sourcing, in her latest column. She points to private equity firm Wind Point Partners’ merger of Hearthside Food Solutions and co-packer Ryt-way Industries, which has created a $1-billion contract food and consumer goods manufacturer-packager with 19 facilities across seven states.
Likewise, Coregistics, itself a merger of co-pack and supply chain firms, just acquired Chicago’s Cano Packaging to offer food brands “increasing operational efficiency while significantly reducing their total supply chain costs,” according to CEO Eric Wilhelm.
As contract manufacturers and packagers broaden their horizons, large logistics firms are also deepening their packaging capabilities. GENCO, for instance, has formalized its contract packaging operations into a new, dedicated business unit. Dave Mabon, president of the business, says that brands are seeing savings into the millions of dollars due to tight partnerships aided by data visibility, or integration, across the “functional silos” present in large organizations.
The savings in purchasing, packaging, logistics and other “silos” need to be seen in cumulative form. Managers who ask, “What’s in it for my department?” need to recalibrate their attitudes and put on their cross-functional thinking caps.
Contractors need to maintain tight communication but also remember that big brands will continue to outsource as well as take work back in-house as the spreadsheet dictates. What should they do? “Enjoy the ride while you have it—and build other business for when you don’t,” advises Tom Bacon of Aaron Thomas Co., in the latest Personal Best profile.
Perhaps the hardest job in any co-pack relationship is finding the right fit in the first place. Online tools can help, from “Find a Contract Packager” link on the CPA’s homepage (www.contractpackaging.org) to Sealed Air’s Co-Packer Connection (www.copackerconnection.com), a matchmaking database service that now boasts more than 1,000 facilities indexed down to their machinery, financials, certifications, and more—as we’ve covered in the news.
Come to think of it, everyone and everything I’ve mentioned here, and more, is detailed in this July/August Contract Packaging, in print and online. Read on!
On its own, the animal-health business, growing at roughly 5% annually for the past several years, would not be considered a hot investment opportunity. But by comparison with the human-health pharma business—which actually went negative in the US in 2012, according IMS Health—5% growth in a stable, essential business is attractive. Thus, when Pfizer spun out part of its animal health business, now branded as Zoetis, raising $2.2 billion for 20% public ownership (Pfizer retains the rest), Wall Street voiced its approval. Zoetis’ stock continued to rise through early March, and Zoetis is now “the largest standalone company fully devoted to animal health medicines and vaccines,” as Pfizer CEO Ian Read noted.
Other ownership reshufflings have proceeded apace. Bayer put down $145 million ($60 million up front) for Teva Animal Health in January, thereby getting a stronger presence in generics for both the pet (companion) and livestock (production) animal markets. This deal follows Bayer’s 2012 acquisition of KMG Chemicals’ animal health business.
Also in January, Neogen (Lansing, MI) announced the purchase of genotyping pioneer Scidera Genomics (formerly MetaMorphix/MMI Genomics), for an undisclosed sum. Neogen, itself a leader in diagnostic products, pharmaceuticals, veterinary instruments and vaccines, also acquired animal health firm, Macleod Pharmaceuticals (Fort Collins, CO) last October.
One animal-health player that won’t be making any divestiture moves is Eli Lilly, with its Elanco division, which saw 18% growth for the quarter and has been a profitable unit in the face of human-pharma generic competition: “We have no intentions of divesting that business through a sale or public offering,” Derica Rice, Lilly CFO, told Wall Street analysts recently, adding that plans call for doubling company revenue in coming years.
Industry overview
With revenues from the top 20 manufacturers generating by some accounts about 85% industry sales, and generics flattening revenues for once-protected proprietary blockbusters, the current business environment is stable but slow-moving.
Worldwide animal health sales grew roughly 5% in 2012 to top $22.5 billion (excluding nutritional feed additives). North America led with a 38% share, followed by Europe (34%) and Latin America (12%), according to animal-health management consultant Ron Brakke, of Brakke Consulting, Inc. (Dallas).
“For the past five to seven years, almost all the growth in the US market has been in companion animals,” Brakke says, noting small single-digit gains in the pet sector over this period. Today, the US pet and production animal health sectors are tied with a 45% share of market sales, with equine sales accounting for the remaining 10%. The same is likely true of the worldwide market, where the pet/production market share split is 43%–57%, but includes equine business in the latter. Generally speaking, the production-animal-health market, at least in the developed world, cycles up and down based on food-industry trends and animal growing conditions. Companion-animal markets have been rising steadily for years.
In keeping with the creeping gains on the companion side of the market, Americans spent an estimated $12.6 billion on pet supplies and OTC medicines combined, up 6.7% from 2011, per the American Pet Products Assn. (Greenwich, CT; www.americanpetproducts.org). APPA’s growth numbers for veterinary care products including prescription drugs, have remained flat in recent years; growth was 2.9% in 2011 and 1.3% in 2012, ending 2012 with revenues of $13.6 billion. Among the factors contributing to the malaise, live-animal sales went flat in the recession and remain so. On the upside, food sales and pet supplies are both “trending up nicely,” and supplements and alternative health products and services “are going through the roof,” says APPA president Bob Vetere.
2012 was mixed for the US livestock market. Dairy cow and pig inventories rise and fall somewhat erratically. Bovine numbers continue a years-long decline. However the “other white meats” are up with swine numbers on the rise, and poultry broilers continuing a decades-long upswing. A hopeful Brakke believes 2013 “should be an excellent year” if drought ends and grain prices fall in livestock producers’ favor.
Parasiticides, antimicrobials and vaccines are among the top-selling animal health product categories for both companion and production sectors, with the pet space driving analgesic sales and livestock needs driving production enhancing products.
Ticked-off vets
Online retailers, big box retailers and a sluggish economy also hurt revenues for vets and their suppliers. Additionally, traditional mom-and-pop practitioners are facing tough competition with large veterinary chains such as Banfield Pet Hospital with more than 800 locations, and VCA Animal Hospitals with more than 540 locations. Much as Home Depot and Lowe’s put local hardware stores out of business, the rise of these chains “changed the ballgame significantly with their economies of scale,” says Jennifer Landini, practice manager for Heal Veterinary Clinic (Chicago).
As vets face stiff competition from each other, they also face the challenge of a sustained decline in pet owner visits through the latter half of the 2000s. The latest (2011) research finding by Bayer’s Animal Health Division found that 56% of pet owners believe that their vets don’t clearly explain when they should bring their pets in for procedures or tests.
Another threat comes from market dynamics that directly affect manufacturers and their own marketing efforts. Flea and tick treatments are the prime example, led by products including Bayer’s Advantage and K9 Advantix that remain in heated competition with Frontline and a plethora of additional generic-based competitors.
Where there are heated market battles, there are also legal
battles and their consequences. For example, a 2011 recall and production stoppage by Sergeant’s Pet Care Products led to shortages of Frontline Plus-type fipronil-methoprene products in the marketplace. (Fipronil kills adult pests; methoprene kills eggs and larva.) Complicated patent infringement litigation ensued between Sergeant’s and Sanofi’s Merial, the latter marketing Frontline Plus through contract manufacturers including Velcera, whose subsidiary FidoPharm produces PetArmor Plus.
Sergeant’s won in its efforts, but by October 2012, OTC drug-maker Perrigo Co. (Allegan, MI), acquired the company for $285 million. Within four months, Perrigo also announced an agreement to acquire Velcera for $160 million cash.
Joining the fight over intellectual property and generics, product diversion is also hotly debated as flea and tick treatments and other hot-selling pet products intended only for sale to veterinarians often find their way to unauthorized online retailers.
When FDA actions caused Novartis to suspend production in December, 2011 at a key OTC facility in Lincoln, NE, it caused nationwide stock-outs for leading animal health brands including Interceptor (milbemycin oxime), Sentinel (milbemycin oxime/lufenuron) and Deramaxx (deracoxib). Despite months of lost production, products seemed nonetheless abundant for Sentinel, Interceptor and perhaps other drugs through non-authorized retailers including Doctors Foster & Smith.
Novartis insisted it did not sell these products to the unauthorized outlets, which would be in violation of its policy to sell them only through the “ethical veterinary channel.” This channel refers to barring sales of specified nonprescription—OTC—drugs to sources other than veterinarians. Similarly, a Merial customer support representative told Pharmaceutical Commerce that while the company won’t knowingly sell Frontline products to the likes of Walmart and Target online or otherwise, “I’ve seen invoices for Frontline products from those retailers,” despite Merial’s policy to the contrary. So where do these retailers get non-authorized products—gray-market product diversions involving veterinarians supplying aggressive brokers or distributors? Manufacturer or distributor personnel who are ignorant of, or in violation of guidelines? The answer is unclear.
In any case, it would seem that “ethical” agreements could become vestigial reminders of a time before the explosion of retail supply channels. For these OTC drugs, the main ethical breech is contractual, since it is not in violation of legal standards for a broader swath of retailers to sell OTC drugs.
A somewhat related issue regarding prescription pet meds is that of prescription portability, which if legislated would require veterinarians to provide prescriptions as well as written disclosure to let pet owners know that the prescription can be filled anywhere, not just the vet’s dispensary. Congress has considered H.R. 1406, the Fairness to Pet Owners Act introduced in April of 2011, and the FTC held a public workshop to address the issue, but neither seems to be producing any imminent action.
Manufacturers would seem to be on the sidelines in the portability fight, evidenced by a lack of advocacy on the issue. APPA has been neutral because its manufacturer members “haven’t expressed a cohesive message,” Vetere says.
The American Veterinary Medical Assn. (Schaumburg, IL; www.avma.org) “actively opposes” any federal portability law, which would be ”unnecessary and redundant,” says Dr. Lynne White-Shim, assistant director for the AVMA’s scientific affairs division. “I have no knowledge of this being a problem,” she adds, indicating that veterinarians already practice portability as a de facto standard in keeping with AVMA’s longstanding guidelines.
AVMA is more eager to see FDA move forward with its Unapproved Drugs Initiative, specifically by approving and making more pet medications available for the animal health market as opposed to allowing extra-label and off-label uses of useful, appropriate human drugs. “Having legal homes for these drugs within FDA could potentially encourage the industry,” White-Shim says, “to spur more manufacturing and marketing of animal health innovations.”
Tighter supply chain integration
In addition to treatments, animal health distributors also offer diagnostics, including reference labs, instruments, consumables and test kits. This category grew 6% last year to top $1.8 billion, up more than 250% since 2005. That 6% was driven by Idexx Laboratories (Westbrook, ME), the largest player by orders of magnitude with 2012 revenues of $1.3 billion, offering Wall Street guidance of 8.5% or more growth for 2013.
Brakke says diagnostic areas to watch include investments in IT (from communications to mobile) as well as supply chain alliances with distributors such as MWI (Boise, ID), with 2012 revenues of $2.1 billion, up 32.6% from 2011, partly owing to the pursuit of formal, sometimes exclusive, partnerships with diagnostic suppliers as well as drug-makers.
To avoid product diversions, at least coming form the source, manufacturers police their ethical veterinary channels by integrating their ERP-level customer lists and requirements with distributors using do-not-sell lists. These designate which SKUs can be sold to which customers. Such considerations as well as electronic ordering, inventory and logistics management, and lot/batch tracking follow standards such as XML schemas and EDI standards managed and updated by the ANSI/ASC X12 committee (www.x12.org).
Beyond unit-level serialization coming to human pharma, more drugs in the animal health supply chain will see serial numbers at the vial and retail-pack level. While serialization isn’t on the regulatory radar screen for animal health, neither will it be a technical hurdle if that day comes.
“There are no substantial differences between supply chain processes for animal health and human health,” says Steve Epner, founder of Brown Smith Wallace Consulting (St. Louis; www.bswllc.com), which researches and offers software selection consulting to distributors.
Squeezed between Big Pharma manufacturers and retailers that now include animal pharmacy programs by big box stores such as Walmart and Target, and online retailers such as www.1800petmeds.com, Doctors Foster & Smith and many more, Epner says “distributors have very little power; they have to do whatever their trading partners tell them to,” and therefore seek to gain competitive advantage “with any services they can to make them easier to deal with.”
To that end, distributors are offering online ordering systems, regulatory compliance and other services. Leaders have implemented electronic ordering and inventory control systems. Animal Health International (Greeley, CO; www.animalhealthinternational.com), sells automated micro-ingredient machines for livestock feed additives to its production-animal customers.
A broader industry response is underway to create an industry standard repository for all pet industry product data uploaded by manufacturers and shared across 6,000-plus pet industry retailers and distributors. Put forth by the Pet Industry Distributors Association (www.pida.org), this Pet Industry Database (PIDB) venture would replace the need for manufacturers to transmit data to each individual customer with a single upload to the system, which would integrate ERP, inventory and promotional systems from factory to store shelf.
PIDA says the database so far includes 190,000 products, and will lead to higher fill rates, reduced ordering errors, greater customer satisfaction, increased sales “and a much more effective way for consumers to find and consider your products online,” according to a joint letter from Steve King, PIDA president and APPA’s Vetere.
Future PIDB plans call for retailer point-of-sale system interfacing for electronic ordering, and development of a store-locator portal for consumers to find manufacturers’ products. PIDA promotes the system and www.PIDB.com to manufacturers as “a single distribution point for all product information, review, pictures, marketing materials, and offers.”
Spurring product development
“Ten or 15 years ago it wasn’t uncommon for major pharma companies to bring out three or more new products a year. Today, you might be lucky to get one every year or every other year,” says Kevin Pohlman, president of sales and marketing at Animal Health International (formerly Lextron Animal Health). But he still sees “tons of opportunities… Technology changes every day, and I’m sure things will emerge in the next five to 10 years that we haven’t even begun to think about.”
R&D has dipped and remained flat perhaps due to consolidation: “It can be a challenge for companies dealing with consolidation to stay focused on the marketplace as they work to get their organizational ducks in a row,” Pohlman says. “It’s not necessarily a bad thing, though,” he adds. His own employer, Lextron Animal Health, acquired and took the name of Animal Health International last year, which he says has been “a good thing” for the greater resources it brought.
Between the last two industry surveys in 2008 and 2011 by market research firm Packaged Facts (New Orleans, LA; www.packagedfacts.com), results showed a paucity of exciting announcements “beyond a couple of new cancer drugs,” says David Lummis, senior pet market analyst. “I haven’t seen a lot of horn blowing about new drugs in the pet space, including the area of lifestyle drugs pharmaceutical manufacturers pinned their hopes on a few years back.” Big brands in recent years failed to capitalize on consumers’ bond with their dogs with products like Pfizer’s Slentrol (weight management) and Cerenia (motion sickness), and Eli Lilly’s Reconcile (fluoxetine/Prozac) for separation anxiety.
Research shows no concrete reason for the failures, but experts don’t deny that despite the brands’ considerable online promotions and consumer education campaigns—including videos moderated by veterinarians—the decline in vet visits and the proliferation of market channels may be factors in a disconnect between pharma brands and consumers. If so, the solutions may come with both tighter partnerships between supply chain partners as well as a more holistic go-to-market strategy.
Charting a path for growth
Leveraging human drugs for the animal market remains a mainstay of opportunity and the “greatest pipeline for innovation,” according to Stephen Rothenberg, consultant with Numerof & Associates, (St. Louis; www.nai-consulting.com). He reasons that while animal health is a much smaller market, “most R&D has already been done,” he says. “So if your market size is a couple hundred million and you’ve spent $20 million to develop a product, it can go a long way. From an investment standpoint, it’s still a profitable route for pharma companies seeking new product opportunities.” This is especially true in light of Brakke’s estimate that FDA approval for a food animal pharmaceutical can take 10 to 12 years and cost $100 million vs. the typical companion animal drug’s under-six years and $6 million.
More broadly, Brown Smith Wallace’s Epner sees opportunity in serving a fuller continuum of care and market needs “to address therapeutic categories and not just single, discrete interventions.” He points to the bundling of products and services in the livestock market, similar to the market-driven model in human pharma: “Companies can offer a broader portfolio of products, which may include everything from vaccines to solutions for disease-resistant conditions and the ineffectiveness of antibiotics.”
In January, a Wall Street Journal story, “P&G Needs to Convince Thrifty to Splurge” said that the “real challenge” for Procter & Gamble in combatting poor sales and disappointing new-product launches was to get consumers “to spend more again on the company’s premium-priced products.”
Happy consumer Antonia with easy-to-use (and tasty-looking) Tide Pods.
In January, a Wall Street Journal story, “P&G Needs to Convince Thrifty to Splurge” said that the “real challenge” for Procter & Gamble in combatting poor sales and disappointing new-product launches was to get consumers “to spend more again on the company’s premium-priced products.” But the reporter “missed the point,” Robert Hogan of Zip-Pak told attendees at the CPA 2013 Annual Meeting in late February because there’s no difference in product quality between private-labeled store brands and traditional, national brands. The real challenge, then, is coming-up with innovations that will resonate, like the next iPod… or Tide Pod, in the case of P&G.
Nielsen research cited 21% dollar growth in private label from the onset of recession until 2011, while in the same period, national brands logged only 3% growth. Brand loyalty and consumer satisfaction varies across categories, and NPD Group research partly refutes Nielsen’s findings, but everyone agrees that innovation is key. Will consumers care if the R&D behind that innovation comes from a manufacturer-owned brand or is the result of a retailer who decided to partner with an enterprising contract manufacturer/packer?
Today, I’m hearing that traditional co-pack growth is in the middling single-digit range at best. In contrast, Hogan presented research indicating that store brands account for 22% of all U.S. retailer goods, a number greater than 50% in the UK and Switzerland. As with other market trends, North America is likely to follow Europe’s lead.
If so, traditional brands’ power may well erode in the supply chain and at the outsourcing contract negotiating table. If you believe the co-pack industry will mature and consolidate (as I do), tomorrow’s larger outsource service providers will have more leverage to invest in their own capital equipment and innovate with their own R&D efforts. This in turn could mean that traditional brands have less power to negotiate non-compete terms, and co-packers have more power to work directly for retailers.
Implementation of the Physicians Sunshine Act may require you to begin data gathering by Feb. 25, but questions remain over the law’s details, from data to dollars
The reelection of Pres. Barack Obama assured that the Patient Protection and Affordable Care Act (PPACA or ACA), signed into law on March 23, 2010, will move forward, and with it, the Physician Payment Sunshine Act provisions.
It goes by lots of names. Officially named the Transparency Reports and Reporting of Physician Ownership or Investment Interests section, it also goes by the “Sunshine Act,” aggregate spend law or simply “agg spend.” By any name, it will require pharma, device and medical supply manufacturers to submit reports of spending on physicians and teaching hospitals to a database maintained by the Centers for Medicare and Medicaid Services (CMS). Reports must include “payment or other transfers of value” (POTVs) exceeding $10 for everything from small meals to consulting fees, to speaking and research fees, to stock ownership.
Manufacturers can’t begin collecting data for strict compliance until the final rule is published. The latest news at presstime is that CMS completed the final rule, and on Nov. 27, sent it to the White House Office of Management and Budget for review. Expectations are that within 90 days of OMB’s receipt, CMS rule will be issued as final. If so, manufacturers could be required to begin data gathering on Monday, Feb. 25, 2013, for their 2014 agg spend report submissions.
Will you be ready when(ever) the law comes? Penalties as proposed range from $1,000 for an unreported item to a maximum $1,000,000 for knowingly failing to submit an annual report. Considering that the price of instituting compliance processes and IT solutions can reach into the hundreds of millions, might some companies find deliberate noncompliance an option? “It sure as heck would be cheaper,” one Big Pharma manager told Pharmaceutical Commerce, “but that’s not the approach we believe in.”
Most manufacturers already have some program in place to meet the reporting requirements of several US states—Minnesota, Colorado and several New England states, among others. Comparable reporting requirements are coming into force in the European Union, and some companies are attempting to build a global reporting database to meet current or future requirements worldwide.
Fear and uncertainty
Not knowing exactly how CMS will incorporate industry comments into the final rule, companies remain fearful over the many yet-unknowns, from dates to data points.
One big issue: “context.” Under the proposed law, when a manufacturer reports a research grant to a teaching hospital, it includes total dollar amount and other identifiers, including the identity of the principal investigator. Of course, the investigator doesn’t get the money, the institution does, “and that institution has to pay 50 people, run a laboratory, do patient testing, and all kinds of other things with that money to conduct that clinical trial,” says Marjorie Powell, senior assistant and general counsel with the Pharmaceutical Research and Manufacturers of America (PhRMA), which has lobbied to add clear, nontechnical explanations to public spend reports.
Asked whether they favor a public, searchable database of all physician-industry relationships, a 2012 survey of 110 US-based physicians and 223 executives from life sciences companies, conducted for Deloitte by Forbes Insights, found that 68% were, most of them agreeing “as long as patients understand how to interpret the data” (Fig. 1). The last point speaks directly to the issue of context.
State regulations add further complexity. The federal law will set the baseline, but states are free to enact further restrictions. Massachusetts and Vermont ban spending on gifts; Vermont bans meals and requires reporting on clinical transactions and disclosure of all free product samples that do not apply under Section 6004 of the ACA. Minnesota maintains spending limits, which the federal proposal does not.
Massachusetts, Washington, D.C., West Virginia and Colorado also have state agg spend laws. There are signs that some of these and perhaps the rest of the states are looking forward to letting Uncle Sam do the bulk of the heavy lifting. Maine had a law, but repealed it on June 29. Massachusetts eased restrictions a month later and partially repealed its 2008 Pharmaceutical and Medical Device Manufacturer Code of Conduct, then in September, issued an “emergency regulation” to address a legislative change “to allow companies to provide ‘modest meals’ to physicians outside of their offices as part of an educational event, such as a speaker program or conference seminar,” says PhRMA’s Powell.
Other states, though, backed off on laws that would exceed the proposed federal law, which will preempt state laws only to the extent of “setting the floor,” says Natasha Thoren, attorney with Epstein Becker Green (New York). “States may choose to enact statutes or regulations that require reporting and disclosure of additional information and/or information from individuals or institutions not covered under the federal law,” she adds. “It will be interesting to see what states will do after the ACA regulations are finalized.”
Another area of ambiguity is the very fundamental identification of physicians. CMS expects healthcare providers (HCPs) to be identified by their National Provider Identification (NPI) number, but not all doctors have one because it’s limited to physicians serving federally funded insurance programs. “So, a plastic surgeon doing cosmetic surgery, for instance, wouldn’t be in the Medicare or Medicaid system,” says Bill Buzzeo, GM of global compliance solutions at Cegedim Relationship Management (Bedminster, NJ).
Speculative solutions include expanding the NPI to all physicians, or perhaps expanding the DEA ID, which authorizes the prescribing and dispensing of controlled drugs, but the agency has in the past nixed the idea. “Am I 100% confident that there still won’t be gray areas in the final rule? No,” says Buzzeo. But he says regulators have been in contact with industry stakeholders, and that “CMS is listening.”
It’s about process, not technology
For Bristol-Myers Squibb (BMS), the key to a successful compliance solution is “thinking of the project as a business problem in terms of process and not necessarily as an IT or system solution first,” Antionette Brock, director of business projects & planning, told attendees at a June user conference held by IT vendor Pegasystems (Cambridge, MA). The company’s system establishes a single set of processes, common roles/rights workflows and procedures that will ultimately roll out across global operations.
The company shared its challenges: underestimation of time and cost; the need to navigate competing priorities; team member “swapping”; training and the sheer number of integration points. These included 11 internal systems (e.g., master database of item costs, global product master data, geographic data), as well as five, which were external vendor systems (e.g., the logistics, T&E and other vendors).
The transparency preparedness efforts to date for Sanoti US have focused on a combination of existing state requirements, as well as the statute and federal proposed rule and PhRMA comments. “Every organization will have its own strategy,” says Gus Papandrikos, director, transparency operations, US medical affairs (Bridgewater, NJ), “but we all have a common theme: We all use multiple source systems that host data, such as enterprise resource planning, financial, sales, procurement, research and others.”
Regardless of the IT architecture, “all companies will need to capture data out of these systems and ultimately aggregate it into one reporting solution,” he adds. For its system, Sanofi chose a major vendor to remotely host and maintain data and the application. Users access it through secure Internet connections.
There are many paths to compliance. The most common method, IT-wise, is to minimize the investment with a manual spreadsheet-based system, followed by in-house applications, third-party solutions, and then sheet avoidance or noncompliance, Cegedim research indicates (Fig. 2). Many companies often start with HCP lists from one or more vendors (e.g., Cegedim, MedPro, Health Market Science) to complete their existing databases; 47% of company data come from third parties per Cegedim research. Many such vendors also partner with other firms to offer full compliance reporting, validation and software solutions. For instance, MedPro has partnered with Porzio Life Sciences Services and an allied law firm to offer a full software-and-regulatory solution. In terms of third-party offerings, these can be based in-house or outsourced via SaaS to a provider who will keep data and systems up-to-date as regulations evolve. R-Squared (Princeton, NJ) is an example of a vendor that offers systems both in-house and remote.
AdvantageMS (Fort Washington, PA) combines its verified HCP databases with a partnership with Concur Technologies (Redmond, WA), whose travel and expense-management solutions are widely used by sales organizations. Compliance Implementation Services (Media, PA) provides consulting on setting up and administering agg spend systems.
No matter the IT strategy, companies need to follow the same fundamentals—collect, standardize, cleanse and validate data to ensure accurate reporting of the following: physician name, address, specialty, NPI, or perhaps an improved identification scheme, as well as the value, form, date, and name of the drug. “Form” refers to the correct entry of the transaction across 18 categories:
1. Gift
2. Food
3. Entertainment
4. Travel
5. Honoraria
6. Research funding
7. Education
8. Research
9. Profit distribution
According to Acquis Consulting Group (New York), roughly 80% of HCP transactions are recorded in the expense system, but these comprise only 20% of the total HCP spend. This underscores the need to integrate many systems from many departments, including finance, compliance, legal, IT, sales and marketing meetings and events, and travel departments. Not only do systems from these departments need to be integrated into a single reporting database, companies need to have a clear road map for doing so, from the top down. A steering committee must identify a project leader, who must assemble a cross-functional team, which must develop clear departmental business processes, all the while working with IT to ensure that standard terminology, codes and other details are used. The right data from the right systems in the right departments must be mapped into a unified whole.
Companies, department by department, may need to budget more time and resources than initially expected for data cleansing, augmentation and validation processes. “Because the more they start getting into data cleansing, as they ‘overturn more stones,’ companies often find that not all of the data is being collected, or being collected properly,” says David Kaufman, managing partner at Acquis. “In some cases, they’ve been aware that there were some inconsistencies, but now that they will be reporting under a federal law, the effort takes on a new urgency.”
Once a system is in place, a system should let users link a transaction directly to one or more physician records by selecting the appropriate attendees when planning an event, for instance, as well as inputting details needed to list expenses and exporting the relevant data to a unified agg spend data warehouse.
The business case for compliance
Besides giving manufacturers a better view of their own spending limits, public reporting of data will allow them to track others’ spend data. In fact, they should do this, “because that’s exactly what journalists are going to be doing, and the government’s going to be doing,” says Mandy Klosterman, COO for Regulatory Clinical Research Inc. (Minneapolis), a clinical research organization (CRO) that also provides agg-spend consulting for medical device development.
If, for example, Big Pharma Company A is spending $5,000 a year per physician, Company B is spending $50,000, and Company C is spending $500,000—and you’re with Company C—you can expect to get some attention in the media and by the government, and not the kind you want.
Such benchmarking will take time to become entrenched. In the Deloitte-Forbes Insights survey, 49% of respondents said they were considering or planning to use public data from other companies for strategic purposes, while only 13% had developed significant plans to do so, and 25% “didn’t know.”
Aside from sizing up the competition, there are additional areas where the cost of compliance can be at least partially mitigated, however, there are limits to expense-targeting.
“In general, people have thought about ways to use their information in addition to reporting,” says Sanofi’s Papandrikos, himself having started in sales and marketing. “But in terms of making allocation decisions based on their business impact? That’s something we steer very, very clear of, as does every other pharmaceutical company.” Rather, agg spend compliance systems are for compliance and “to limit overspending on any one individual based on a set of rules that you establish within your organization, sometimes based on limitations set by statute or state regulation, such as in Minnesota.”
Still, the data can be used elsewhere for predictive analytics, promotional analysis, marketing analysis, strategic planning—and to provide “great ROI down the road,” says Eric Newmark, program director of IDC Health Insights’ Life Sciences practice. So far, discovery and due diligence efforts have “led to many companies uncovering huge inefficiencies in their organizations that they didn’t even know about.” He cites one that uncovered nearly 40 different third-party speakers bureaus across divisions, “then consolidated to roughly five and instantly saved millions.”
Physician relations
“Physicians need to know what’s coming at them…like a freight train,” says Klosterman of RCRI. Without the chance to review spend data before it goes public, she adds, “You can imagine what kind of impact that’s going to have on the manufacturer’s relationship with physicians, if you don’t prepare them for the public reporting.”
Physician Ford Vox, MD, called the agg spend proposal “good legislation overall,” in a recent column for The Atlantic (“The Devil’s in the Details used for Doctor Transparency”), but still admits he backed out of tentative plans to attend a manufacturer’s educational event, “when I realized my attendance would be reported as a gift from the company.” His prescription to docs and hospitals is to create their own websites to “proactively tell the world…before ProPublica starts calling you.”
The American Medical Assn. voiced concerns at and since a Sept. 12, 2012, Senate roundtable discussion, chiefly that the public will mistake the agg spend law for a regulation on ethical conduct rather than simply an accounting of industry practices, and also that the proposed rule “would deny physicians due process to review, dispute and correct inaccurate reporting,” wrote James Madara, AMA CEO, to CMS Administrator Marilyn Tavenner on Oct. 10.
As it stands, manufacturers have a 45-day window to make corrections after submitting reports. CMS suggests—but doesn’t require—that they allow physicians access during this period or perhaps earlier in a “pre-submission review.” But how? The options generally focus on some type of secure Web portal that lets physicians log in to verify what goes into reports. A single portal would be ideal for the manufacturer.
BMS designed such a portal into its system as early as 2010, when one source at a company presentation noted how the effort “takes a lot of manpower,” including setting up a call center, a mechanism for sending letters inviting the doctor to come online and review reports, and hiring a staff of case managers.
If companies face challenges with single-country databases and systems, that’s not stopping leading companies planning regional solutions for the Americas, EMEA (Europe, Middle East and Africa) and Asia-Pacific. A “few true, groundbreaking leaders,” Cegedim’s Buzzeo says, have committed to global transparency projects. Cegedim’s 2012 industry survey on agg spend found that 87% consider global capabilities when choosing an aggregate spend solution. Success will hinge on a single global, corporate instance for systems, such as enterprise resource planning, travel and entertainment, customer master, and disclosure.
Beyond corporate global standards, some hope for globalization of transparency standards. In turn, the European Federation of Pharmaceutical Industries and Associations has begun a multinational initiative that targets spend reporting as early as 2016. If it succeeds, it could pave the way for global standards harmonization, which “may prove more elusive than the lost city of Atlantis,” says IDC’s Newmark.
Such utopian standards are worthy of support; however, for the time being, the US industry is still preoccupied with investing in systems to comply with a law that has yet to be published.
