From the Editor: Can Healthcare Reform Cure a Risk-Averse Pharma?

May 6, 2010
Pressures to boost output, with lower short-term profits, will drive name-brand and generic companies alike to new technologies, and tools such as PAT. Or will they?

Ever since Hillary Clinton first proposed healthcare reform during her husband’s administration, there has been rancorous debate about the impact that such legislation would have on the consumer, the healthcare industry and pharmaceutical manufacturers.

Now that a bill has actually taken shape and passed, the debate continues. Call it “Obamacare,” as right-wing commentators routinely do, or, as some on the other side do, the best thing to happen to the American citizen in decades, the new bill will bring with it some inescapable realities for the industry, particularly in the short term. Patient fees and taxes are expected to reduce industry profits by at least $90 billion over the life of the bill, and many of these will kick in next year. There are also requirements for comparable effectiveness testing that will increase the cost of clinical trials.

However, the bill’s passage also means that, in four years, millions more people in the U.S. will be insured, boosting demand. The bill also has provisions for tax credits, for smaller companies, which may lead to more partnerships for innovation, especially in biopharma R&D.

The pharmaceutical industry supported this bill, and most commentators agree that the net impact of the compromise bill will be neutral to positive for pharmaceutical manufacturers, in the long term. 

But, in a business whose managers often appear to focus on more pragmatic short-term goals, one wonders about the consequences, particularly on innovation and employment, over the next four years. 

Right after the bill was passed, Eli Lilly projected a $400-million drop in revenue this year, and a $700-million fall next year. GSK, Abbott, Amgen and Allergan all had similar stories.

The question is: How will lower U.S. prices affect a global market soon to be hit by tighter price controls in Europe, especially since drug makers will lose $142 billion from expiring blockbuster patents over the next five years. Overall, IMS Health analysts project global market growth to slow to 3-5% next year, a far cry from the double-digit figures during the blockbuster’s heyday.

A few years ago, University of Connecticut business professor John Vernon correlated the impact of price controls on R&D investment and innovation (Table). (See page 13 of the PDF accessible from this link for a more-detailed article from the Cato Institute website  ) Will U.S. operations lose their edge?

Real Drug Prices R&D Investment



-20% -11.7%
-30% -17.5%
-40% -23.3%
-50% -29.2%

Source: John A. Vernon, Decline in Pharmaceutical R&D from Price Controls

For years, thought leaders have discussed the perfect storm of developments that would propel pharma to the “desired state,” driving innovative manufacturing practices and a more efficient approach to R&D. 

Has that storm arrived? 

Will companies whose top managers have been waiting to see how smart R&D, risk management and manufacturing work out for the other guy before trying it themselves, move quickly enough to stay in business?

Like the complaining sea-sick cabin boy in the old tale, risk-averse companies are about to be cured by being thrown overboard, into icy waters. Will their managers grab the life raft of regulatory flexibility, and establish a culture based on process knowledge and risk triage?

More than ever, this question applies to generics manufacturers, who are expected to see huge increases in demand for their products—and some of whom will enter a whole new market for follow on biologics. 

We’ll likely see most of the small fly-by-night generics companies fold. Good riddance! But are the larger, better-run generics companies going to embrace PAT and more modern quality systems, so that we don’t see the disastrous problems we’ve seen recently—inadequate raw material testing, reprocessing out-of-spec material, or, worse yet, doubling the dose of API in a pill?

Or will we just see the same old approaches taken—ill-conceived layoffs and outsourcing, or innovation through acquisition? By the time U.S. healthcare reform’s benefits come through, the industry that remains will no longer be the same.

In these interesting times, perhaps it’s best to be optimistic. Over the next few months, we’ll bring you more opinion from people who have devoted years to driving the move to smarter manufacturing. This month, Ali Afnan, member of the original PAT team at FDA, starts Step Change, the first in a series of columns examining the industry and drivers of change. In his first column, he asks:  Are  pharmaceutical companies using the right terms to define what is critical to product quality, or are they still relying on the old compendial standards?

We’ll also hear from former CEO John Avellanet, who argues compellingly in a new book (click here to read his chapter on the new quality systems paradigm) about the competitive, bottom-line advantages of change, and embracing FDA’s risk- and science-based compliance paradigm.

Waiting in the wings is a new book by ASQ chapter leader Bikash Chatterjee. 

We’ve also relaunched our site, PharmaQbD (, in which Tefen’s life sciences leader Suraj Matthew asks whether the industry needs to redefine the metrics by which it judges R&D. As he says, operational metrics alone won’t work anymore.  What’s needed, instead, he argues in a recent article, are process metrics.

We’ll also offer insights from your peers and regulators in a number of new webcasts and other programs. As always, we ask for your comments, criticisms and suggestions.  You are the ones who will change your industry, and better the lives of more patients around the world, during these challenging times.

About the Author

Agnes Shanley | Editor in Chief