the next President of the United States has the potential to reshape the landscape of health care in this country. Accordingly, the primary debates have featured discussions ranging from how to fix Medicare to whether to adopt “HillaryCare”, and almost everything in between.

As the campaigns head
into the potentially decisive March 4th Texas and Ohio primaries, we examine
the leading candidates’ stances on issues of relevance to the pharma industry,
and examine how these policies could impact Global Pharma, Mature Biotech and Generic
players. With John McCain, the presumptive GOP nominee, describing himself as
“one of the greatest enemies of the pharmaceutical companies,” there may be no
candidate that would be an advocate for our industry. Nonetheless, we think it
necessary to explore the candidates’ records on key issues including Medicare,
biosimilars, drug reimportation, and DTC advertising (see link above to
candidate overview matrix). While these hot topics dominate the health care
discussion, no candidate is yet thinking deeply about how to address the
shortcomings of the FDA, how to fund new technologies, or provide cogent long
term strategies that incentivize improvement in quality of care and reduction
of drug costs. Our review indicates that while the next administration has the
potential to initiate sweeping change, the red tape realities of Washington and
the outcome of the upcoming congressional elections may prevent any fast or
sudden changes for another four years.

What would “ObamaCare”
look like? – Despite impassioned
debate suggesting major differences in policy, Obama and Clinton hold virtually
identical health care platforms. The notable difference is that where Clinton
would mandate insurance coverage for all citizens, Obama would only require
children to be insured. Both advocate expansion of national coverage, but stop
short of advocating a single-payer health care system. Both plans would be
expensive ($110b for Clinton vs. $50-65b for Obama) and necessitate a partial
roll back of tax cuts as well as significant cost containment.

The Democratic
candidates aim to expand the number patients receiving health care insurance,
but squeeze costs. Both candidates have been involved in promoting the use of
generic drugs, and would legalize importation of drugs from Canada and/or
Europe, and allow Medicare to negotiate drug pricing. The net effect of these
reforms would be to increase the profits of generic players while squeezing the
profits of Global Pharma companies. Both candidates are in favor of creating a
pathway for approval of follow-on biologics and Senator Clinton has
co-sponsored a bill in this regard (BPCIA). While any follow-on biologics will
likely hurt the Mature Biotech companies, the candidates appear willing to
negotiate a mutually agreeable path to approval that guarantees 12 year
exclusivity for branded biologics.

While both candidates
speak of major reforms on the stump, their actions in office may be less bold.
Obama speaks of reaching across the aisle and building consensus, which could
limit his ability to enact sweeping change. Given Clinton’s experience as First
Lady, she may choose a more measured approached to pursuing health care reform.

Further, Democrats
lead the Republicans by a large margin in accepting contributions from
pharmaceutical companies, HMOS and insurance companies. Any significant policy
shift by a President Obama or Clinton could thus leave at least one major
constituency out in the cold.

• Amongst the minor differences between the Obama and Clinton
  plans is that Obama aims to reduce costs for care through federal subsidies to
  individuals and employers, first pursuing mandatory coverage for children.
  Clinton would require broader universal coverage, expanding the Medicaid and
  SCHIP safety net to capture those most vulnerable, and providing refundable tax
  credits to working families that ensure insurance premiums do not exceed a
  fixed percentage of family income. Clinton also aims to reduce DTC advertising,
  which could reduce both revenues as well as costs at Global Pharma companies.
• Both candidates aim to squeeze payers and providers to reduce
  wasted costs. One innovative example of this in Clinton’s plan is a potential
  savings of $77b annually (RAND estimate, www.hillaryclinton.com) through the
  adoption of electronic medical records.

Will the Republicans
“stay the course?” – The Republican Party, traditionally a
supporter of the free-enterprise framework which currently drives US health
care, is now trying to balance this ideological commitment to business with the
pragmatic need to reduce health care costs. McCain has needed to alter his
rhetoric to fit the audience – in the Senate he originally favored Medicare
Part D, saying no one should have to “choose between life-sustaining medication
and other vital necessities” but ultimately voted against it, citing financial
insolvency. On other issues impacting drug price and health care costs, the
Arizona senator remains conspicuously inconspicuous, opting not to vote on the
aforementioned topics in the current Congress. On the campaign trail he
described himself as an enemy of pharma then later clarified that he was “not
an enemy of the pharmaceutical industries” or “anti-business” but rather “an
enemy of any legislation that would harm the American consumer.”

• McCain is likely the preferred choice for Big Pharma and Mature
  Biotech. His health care strategy hinges upon the use of competition to drive
  down costs, including allowing insurance to be sold across state lines. He also
  aims to reduce costs by hastening tort reform and supporting more selective
  decisions on how health care dollars are spent.
• McCain’s plan overlaps with those of the Democrats on many
  issues – he has supported legalization of drug importation, “a lost opportunity
  for cost containment” and has suggested Medicare should be allowed to negotiate
  prices. He has stated support for follow-on biologics, although is likely to be
  more sympathetic to the industry on this and other issues.

More inconvenient
truths – While the Democratic candidates’ healthcare agendas focus on
expanding access to healthcare plans and McCain encourages more
competition-driven cost reduction, there are broader healthcare issues worthy
of debate. The troubles of the pharma industry and the FDA woes have persisted
through eight years of the current Republican administration (and one year with
a Democratic congress), limiting expectations for any new president. The new
administration will need to engage in a measured debate to balance the high
costs of drug discovery with the realities of payers concerned about paying for
“me too” drugs and new formulations. In addition to the pricing battle faced by
branded biopharma, major industry players also face increased competition
coupled with dwindling growth rates. The industry needs successful R&D investments
to develop differentiated drugs that add value – a challenging endeavor.
However, a lot can be achieved over the next few years. As the political
environment remains a self-serving quagmire, the industry will need to catalyze
key changes that can propel its own future along a positive trajectory.
Opportunities persist in pockets of R&D productivity, especially in smaller
biology-driven Rising Star companies, which may catalyze Global Pharma. In
addition, rapidly growing emerging market companies are increasingly led by
street-smart managers with ambitious plans. Amidst these cross-currents, what
are the real opportunities to fundamentally change the fortunes of the
biopharma industry

• Industry managers need to accept that “me-too drugs” cannot be
  priced aggressively. These follow-on drugs, while inevitable as there can only
  be one first-to-market and perhaps only a few with unique advantages in any
  given therapy area, will accelerate therapeutic substitution and rapid price
  erosion.
• Patent reforms are increasingly the focus of debate,
  significantly spurred by the industry’s ill-advised attempts to create
  perpetual monopolies. It behooves common sense to accept the letter and the
  spirit of patents and recognize the ultimate futility of creating short term obstacles
  to generic competition.
• Evidence-based reimbursement should become a mandatory anchor
  for evaluating a fair price for most new therapies. The industry must embrace a
  risky but critical framework of comparative clinical studies directed by an
  independent body (though funded and conducted at least partially by the
  industry) to generate the data. While the potentially painful removal of many
  less useful drugs in the near term would give industry managers pause in
  accepting such a revolutionary (some would say self-destructive) approach, this
  is perhaps one of the more effective and rational ways to expand the use of
  true innovations at high prices.
• The industry must find a way to share the savings from generic
  drugs more fairly, as opposed to the current apportionment wherein middlemen,
  especially the drug stores and pharmacy benefit managers, seem to keep the
  lion’s share.

These and a number of other issues deserve
fresh debate and a balanced and proactive action plan. Present-day Washington
needs to overcome its inertia and only the most prescient initiative from large
cohorts of stakeholders are likely to enable a productive and meaningful debate
during the general election campaigns – now that the primary election phase is
nearly behind us. We will continue to monitor the health care debate and keep
you apprised of significant developments.