Pharmaspective

Will the “New Normal” Affect the Life Sciences Industry?

The recent economic downturn impacted everyone from Wall Street to Main Street, including your local, state, and federal government.  It’s in the news on a daily basis – every level of government has budget concerns.  Elected officials are trying to close billion dollar budget gaps without raising taxes by making painful cuts.  This week, New Jersey Governor Chris Christie described the result of this process as the “new normal.”  How could this “new normal” affect the life sciences industry across the country?

One would assume that public officials are looking not only at cuts that can be made, but also at new ways to generate revenue.  This might allow them to save jobs, boost their approval ratings – and help improve their budgets’ bottom lines.  As members of a deep-pocketed industry, life sciences companies should be prepared to subsidize these efforts – or, perhaps more accurately put, continue to subsidize these efforts.

The government’s regulation and oversight of the life sciences industry generates a lot of money for governments.  Investigations and lawsuits often result in very high settlements.  Just over the past two years, Pfizer settled a suit for $2.3 billion; Eli Lilly received a $1.4 billion fine; Allergan settled a suit for $600 million; AstraZeneca received a penalty of $520 million; Novartis settled a suit for $422.5 million; Glaxo was ordered to pay $400 million; Forest Labs settled a suit for $313 million; Elan settled for approximately $203.5 million; and Johnson & Johnson received a penalty of $81 million, and the list goes on.  Additionally, PDUFA fees can run in the millions.  Licensing requirements force companies to pay annual fees.  Companies face possible penalties for failing to report or under-reporting their aggregate spend data in various states.  Violations of countless other laws and regulations at the national, state and even local level also trigger potential monetary penalties.

If there is continued pressure to balance budgets without raising taxes, how will government bridge the gap?  Will government decide to raise these fees and monetary penalties?  Will there be more inspections at the state and federal level?  Will there be more vigilant oversight of companies’ advertising and promotional activities?  Stay tuned.

Should Sales Representatives Be Entitled to Overtime Pay?

On February 14, 2011, the United States Court of Appeals for the Ninth Circuit ruled that pharmaceutical sales representatives are not entitled to overtime pay under the Fair Labor Standards Act of 1938 (“FLSA”).  Christopher v. SmithKlineBeecham Corp., No. 10-15257 D.C. No. 2:08-cv-01498-FJM (9th Cir. Feb. 14, 2011).  The plaintiffs, two sales representatives, argued that their employer required them to work overtime hours without providing them with overtime compensation as required by the FLSA.  The defendant, GlaxoSmithKline, asserted in part that a sales representative is not subject to the FLSA’s overtime-pay requirements because he or she falls under the “outside salesman” exemption.  The Ninth Circuit agreed with GlaxoSmithKline and found that sales representatives are exempt from the FLSA.  The Court concluded that “[t]he pharmaceutical industry’s representatives – detail men and women – share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.”  Id. at slip. op. 2331, 2363.  In making this decision, the Court noted that “[sales reps] are driven by their own ambition and rewarded with commissions when their efforts generate new sales.  They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside the office.”  Id.

Contrary to the decision in Christopher, on  July 6, 2010, the United States Court of Appeals for the Second Circuit found that sales representatives were not exempt from the FLSA overtime-pay requirements.  In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010).  The Second Circuit stated, “[t]o the extent that the pharmaceuticals industry wishes to have the concept of ‘sales’ expanded to include the promotional activities at issue here, it should direct its efforts to Congress, not the courts…we conclude that the district court should have ruled that the Reps are not outside salesmen within the meaning of the FLSA and the regulations.”  Id. at 154-155.

This issue could be headed to the United States Supreme Court.  How would you decide the case?  Is a sales rep actually selling a product or just promoting it?  Should a sales rep receive overtime benefits, or does their compensation adequately reward them for the time they spend working?  If the Supreme Court determines that sales reps are entitled to overtime pay, what impact might that decision have on the industry’s current selling model and companies' organizational structures?  How would sales reps track their time?

The Power of an Outlier

Undoubtedly, the life sciences industry is one of the most heavily regulated industries in the nation.  When viewing the detailed regulatory landscape impacting the industry, it is interesting to note the power that our system of government bestows on each state, no matter the size or prominence.  One outlier state can pass legislation that impacts an entire multi-billion dollar, global industry.  Millions of dollars transfer from one account to another, whole departments are created, and jobs are lost or gained based upon the “aye” or “nay” of a state representative in Sacramento, Montpelier, or Augusta.

Take California’s electronic pedigree requirements, which will become effective in 2015.  Because of this unique law, the industry must figure out electronic track and trace technology issues – no doubt an expensive and time-consuming process.  Similarly, Vermont’s sample disclosure law is the only one of its kind in the nation at present.  In addition, Maine’s clinical trial disclosure requirements impose unique requirements on companies marketing product in Maine.  Compliance with these laws can impact the way business is done and cost companies a lot of money.

Keep an eye on electronic pedigree requirements, sample disclosure, and clinical trial reporting laws in the near future.  Will other states pass similar or even more stringent laws since companies have to adjust to comply with California, Vermont and Maine’s laws already?  The power of those outlier states can be great.  One state can change the game.

Drug Supply Chain Participants Take Note: Track and Trace Discussions Back on the Radar Screen

Earlier this week, the FDA held a public workshop titled, “Determination of System Attributes for the Tracking and Tracing of Prescription Drugs.”  Consistent with the Food and Drug Administration Amendments Act of 2007, the FDA seeks to protect consumers from dangerous counterfeit and adulterated drug products by implementing track and trace technology that will increase the transparency of the supply chain and hold supply chain participants accountable.  To that end, the FDA organized the workshop to create a forum in which various industry stakeholders could discuss possible track and trace technologies, and the related interoperability, authentication and data management issues.

There are many questions the FDA must answer before it can efficiently implement track and trace technology.  For instance, what is the best technology – bar codes, RFID, or something else entirely?  Will the technology impact the composition of products, such as delicate biologics?  Will it be applied across the entire industry?  If it is not applied consistently, what impact will this have on pharmacies and their distribution activities?  Who will absorb the cost associated with implementing this technology along the entire supply chain?

The FDA’s renewed industry interest in track and trace technology may, in part, be due to California’s stringent electronic pedigree requirements.  Effective in 2015, California will mandate electronic pedigree at the smallest saleable unit.

It will be interesting to see how the federal track and trace requirements compare to California’s requirements.  The industry could be facing immense – and expensive – changes.  Companies may have to alter their packaging, implement new technology across product lines, and develop new processes and procedures for distributing products.

It's a Buyer's Market

Facing imminent patent cliffs, fierce competition, and a challenging market, several large life sciences companies have been acquiring smaller niche companies  or partnering with other large companies at a rapid pace.  Such strategic acquisitions or partnerships can immediately strengthen a product pipeline, bolster market share, or create a presence in a new market.

Already in 2011, Pfizer, Roche, Sanofi-Aventis, Amgen, Teva, Valeant, Alexion, Ligand, and Novartis, just to name a few, have completed deals or may be considering deals to acquire or partner with other life sciences companies.  These deals reflect an immense amount of capital and a consolidation of the industry.  While the acquisition culture of the life sciences industry might be good for today’s balance sheet, time will tell whether it will be good for the industry’s growth moving forward.

Has your company recently been affected by a merger or acquisition?  How did it impact your job?  What were the benefits or challenges?  What was the integration process like – were there struggles with competing ideologies and corporate philosophies?

If You're Subject to a Federal Investigation, It's Probably Going to Cost You

Jeanne Whalen recently reported in The Wall Street Journal that GlaxoSmithKline PLC took a $3.49 billion charge in the fourth quarter of 2010 to pay for expenses associated with, in part, federal government investigations into its marketing practices for various products.  Reportedly, it also included litigation costs related to Avandia.  That number is a powerful deterrent to the life sciences industry.  Along with the recent costly settlements by large life sciences companies in response to federal investigations, Glaxo's most recent billion dollar charge screams a warning to companies to avoid doing anything that might subject them to a government investigation.

The government, which cannot monitor everything (though not from a lack of effort), certainly appreciates the effect that such headlines have on the industry.  It is free advertising of their authority.

Given that government investigations are often dependent upon individual investigators’ interpretations of laws in particular situations, it is often impossible to predict the outcome of an investigation.  Thus, companies should make an extra effort to achieve compliance.  Not doing so can be quite costly at year end.

Going, Going, Gone - Global

A quick scan of recent industry-related headlines suggests that life sciences companies have increased their sales forces in emerging markets, such as China, Brazil and Russia; opened up subsidiaries in emerging markets, like India; and investigated forming partnerships with emerging market-based life sciences companies.  Obviously, the life sciences industry is becoming increasingly more global and focusing vast resources on developing emerging markets.

Though there is much to gain in these efforts, there is also much to lose.  Companies’ forays into emerging markets will create compliance concerns, technology challenges, and business development issues.  For example, US-based life sciences companies must often consider their global affiliates when attempting to comply with US law.  The Patient Protection and Affordability Act, should it survive recent Congressional attacks in its present form, leaves some compliance questions open to interpretation.  Industry anticipates that those questions will be addressed by the implementing regulations that the FDA will soon promulgate.  What will these regulations require US-based companies to do on behalf of their global affiliates?

What has your company recently done to increase its global presence?  What challenges have arisen as a result?

How Can The Life Sciences Industry Best Use The Internet And Social Media?

Do you remember the first time you used the Internet?  I do – and I’m not sure how I survived before that glorious day.  Needless to say, the Internet is now an integral part of our personal and professional lives.  Social media is a large part of why that has occurred.  It has increased the usefulness of the Internet and our dependence on it by connecting people in an efficient and effective way. Businesses have long used this connective force to reach consumers.  Companies utilize blogs, Facebook pages, Twitter, Google search optimization, YouTube and many other mediums to connect electronically with current and potential buyers and to market their products. The Life Sciences Industry, however, has been hesitant to dive fully into these waters without clear guidance from the FDA.