Pharma Law and Business – A Monthly Roundup for January 2013

Since we last stopped by, there was a holiday break. But not surprisingly, 2013 began with a predictable rush of interesting news. So here are some of the most recent highlights, from court rulings and medical study findings to FDA doings and steps taken to developed new parameters for prescribing and clinical trials in various places.

For some, the year began on a disappointing note. That’s because the Obama administration again missed a deadline for releasing much-anticipated Sunshine guidelines for industry transparency. Late last year, the Centers for Medicare & Medicaid Services sent a final version to the White House for approval. But despite anticipation that guidelines would soon become public, the new year passed without a peep. Once again, all bets were off.

The guidelines, which became law as part of the Affordable Care Act, are supposed to set ways for gathering and publishing data that contain financial ties between physicians and drug and device makers. This would include ownership or investment interests held by a doctor or family member. Penalties for violations can range from $1,000 to $100,000. The CMS estimates it will cost industry and providers about $224 million in the first year and $163 million annually thereafter to comply.

Continual delays have upset not only drug and device makers, but also consumer advocates. Originally, industry was to have begun collecting data last January, but that was postponed a full year. Meanwhile, CMS repeatedly postponed its deadline for presenting a final version. As a result, industry continues to complain that it will be difficult to meet timing requirements. In response, CMS agreed not to require data collection until after the final rule is published, and retroactive reporting will not be required. But there is still no word when the final version will be released. This means compliance will likely become more problematic.


“There is a significant consequence for health care system costs associated with the ongoing delay in implementation because of the practice by some physicians of over-prescribing certain drugs, or by otherwise prescribing medically unnecessary and expensive treatments,” nearly 20 non-profit groups, including AARP, AFL-CIO and Families USA, wrote in a letter this week to the White House Office of Management and Budget to urge the release of the final rules.

“The drug and medical device industries invest significant dollars to influence a physician’s choice of products, and the influence of this marketing is well established. A major Institute of Medicine report emphasized that some financial relationships between physicians and industry raise concerns about the risk of bias in clinical decisions. The IOM concluded that conflicts of interest may present the risk of undue influence on professional judgments and the quality of patient care.”

One winner, though, are the consultants.

For others, the year began with the usual anticipation surrounding the annual JP Morgan Healthcare conference. However, the gathering was not inaugurated with a big pharma merger or acquisition, which one consulting firm attributed to a waning lack of firepower among the 16 large global drug makers. Instead, big biotechs are increasingly seen as being better equipped to tackle big deals, according to Ernst & Young.

Why? These big drug makers have less cash for deals for a few obvious reasons – the patent cliff and pricing pressures have combined to squeeze cash flows and money is being spent on stock buybacks and dividends. For some, there was also the cost of huge deals over the past several years, which has caused the industry debt-to-equity ratio to grow to 18 percent from 9 percent to 18 percent over the past five years. At the same time, stock prices have dropped over the past several years. All of this makes it harder to be nimble and opportunistic.

Consequently, E&Y figures that big pharma firepower declined by 23 percent between 2006 and 2012. Conversely, big biotechs and specialty pharma with 2012 revenues between $1 billion and $20 billion boosted their firepower. Last year, big biotech firepower jumped 61 percent relative to 2006, thanks to premium pricing and a lack of generic competition, and specialty pharma firepower rose 20 percent, thanks to increased use of generics. This means that big pharma share of M&A firepower fell from 85 percent in 2006 to 75 percent last year. In fact, big pharma share of big deals has dropped in recent years to 59 percent, from 86 percent between 2007 and 2009.

The upshot? This should be obvious. The largest drug makers are unlikely to pursue the sort of large deals that characterized – and contributed to – industry consolidation over the past decade-plus. Instead of the mega-merger – Merck buying Schering-Plough is one fairly recent example – the biggest drug makers are going to have to be more content to pursue smaller deals, such as those that carry price tags under $20 billion, or even under $10 billion.

In fact, Novartis ceo Joe Jimenez was quoted by Bloomberg News as saying that his team is most interested in deals around $5 billion or so. Of course, there may be a wrinkle or three here. Since biotechs and specialty pharma have more proportionate firepower, they are more likely to provide competition when it comes time to bid for assets. And this could push up acquisition prices, of course, placing still further pressure on large drug makers to make the most of their resources.

Meanwhile, the American Psychiatric Association added a spot of controversy. The APA voted to include bereavement in the definition of major depressive disorder, or MDD, that will be contained in the upcoming version of the Diagnostic and Statistical Manual of Mental Disorders, which will be known as the DSM-5. The move caused a flap because the manual is almost a revered reference tool. By eliminating the bereavement exclusion – which appeared in the last DSM that was published in 1994 – the APA may generate what some experts contend could be inappropriate diagnoses and treatment.

How so? Well, someone who loses a loved one can be expected to experience sadness, crying, sleeplessness, an inability to concentrate or a loss of appetite. Not unusual behaviors, certainly, and these sorts of reactions can continue for an extended period. But to some, these could also be confused with depression, rather than normal grief. And such a diagnosis could boost the sale of antidepressants, which would be a boon for the pharmaceutical industry.

And guess what? Most of the experts on the APA committee that drafted the new guideline have ties to drug makers. Eight of 11 members reported financial connections in the form of speaking or consulting fees, research grants or stock holdings, according to the disclosures filed with the APA. Six reported financial ties during the time that the committee met, and two more reported financial ties in the five years leading up to the committee assignment.

In its defense, the APA has argued that steps were taken to reduce conflicts, such as requiring committee members to regularly file disclosures and placing limits on financial connections. The limits allow each committee member to receive up to a $10,000 in annual income from pharma, hold as much as $50,000 in stock and receive unlimited amounts of money to conduct research.

The APA maintains that if no financial ties were permitted, many qualified psychiatrists would be excluded because many university studies are funded by the pharmaceutical industry. However, academics who study conflict-of-interest issues have previously noted that many experts do not have such ties to industry and institutions – including the FDA – must be willing to look farther afield for specialists who can be appointed to commitees.

Meanwhile, a research letter in JAMA Internal Medicine caused a stir after finding that 43 percent of doctors in practice more than 30 years acknowledged they sometimes or often acquiesce to patients who pester them for – or even demand – brand-name drugs. By comparison, 31 percent of physicians in practice for 10 years or less gave cave to such nagging. Overall, 37 percent of docs give in.

The implications are, of course, rather serious. For one, this revelation occurs amid a dramatic debate over rising healthcare costs – brand-name drugs are, generally, higher-priced than generics. Moreover, the finding suggests an upsetting scenario in which some doctors are willing to forego their own better judgment when confronted with patients who may walk out if they are not appeased

Among the various specialties, pediatrics, anesthesiologists, cardiologists and general surgeons were significantly less likely to acquiesce relative to internal medicine doctors. And those working primarily in solo or two-person practices were significantly more likely to give in to patient demands than those working in a hospital or medical school setting – 46 percent versus 35 percent.

Another interesting finding: 39 percent of doctors who received free food or beverages in the workplace honored patient requests sometimes or often compared with 33 percent who did not. Among those given drug samples, the contrast was 40 percent versus 31 percent. And doctors who sometimes or often met with sales reps to remain up to date were more likely to comply with patient demands than those who did not – 40 percent versus 34 percent.

There is no easy answer to the problem, although the findings suggest that, as the older physicians continue to age, they will eventually retire and such behavior may be less commonplace. Meanwhile, hospitals and medical schools are encouraged to ban samples and insurers are encouraged to institutes rules that would ban food in the workplace. Whether such notions are workable, however, is another matter. Most likely, these practices will remain in some fashion indefinitely.

Another development that generated some buzz involved a medical journal that refused to retract a study that was cited by federal prosecutors in a $3 billion settlement with GlaxoSmithKline for bad behavior. The drug maker, you may recall, pleaded guilty to criminal and civil charges in connection with off-label promotion of several drugs, failing to report safety data and reporting false prices.

One infraction, in particular, concerned a controversial study that was conducted for the Paxil antidepressant. Specifically, the feds say Glaxo participated in preparing, publishing and distributing what was called a “misleading medical journal article.” The results misreported that a Paxil clinical trial known as Study 329 demonstrated efficacy in treating depression, when endpoints were never met.

The allegations concerning the study had, in fact, been known for some time thanks to product liability litigation and a lawsuit filed by former New York Attorney General Eliot Spitzer in which Glaxo was charged with “repeated and persistent fraud” for allegedly promoting positive findings, but did not disclose unfavorable data.

Despite this history, the Journal of the American Academy of Child and Adolescent Psychiatry, which published the study in 2001, refused to issue a retraction, even after the recent settlement. And as recently as last month, the journal again rebuffed some academics who had regularly pushed the journal to recant publication.

The refusal caused disbelief among some industry and academic experts, who noted the abysmal circumstances surrounding the study. However, the journal editor maintained that “a comprehensive and extensive review” was undertaken and the editorial team determined there was no basis for a retraction. The editor never spoke publicly about the decision.

Interestingly, the refusal came after the Medical Publishing Insights and Practices initiative, which was formed last year by more than two dozen medical journal editors and industry executives, published a list of 10 recommendations to “elevate trust, transparency and integrity.” The decision by the journal, in this case, seemed to undermine such an effort.

And in an interesting ruling that is of concern to the brand-name pharmaceutical industry, the Alabama Supreme Court decided that Pfizer can be sued  by a man who claimed he was injured by a generic version of the Reglan heartburn medication, because the brand-name drug maker failed to warn his physician about the risks.

The decision is actually one of a very few instances in which a court has found that a brand-name drug maker can be sued, even though a consumer had taken a generic. The ruling is likely to prompt still more such lawsuits, especially since the 2011 ruling by the US Supreme Court in Pliva v. Mesing that limited claims against generic drug makers.

In that ruling, the US Supreme Court found that generic drug makers are not required to strengthen product labeling if alerted to side effects, even when the same change has not been made to the labeling for the branded medicine. As a result, generic drug makers cannot be sued for failing to alert patients to risks.

In the most recent case, a consumer took only generic Reglan and developed a disease that causes incurable and involuntary muscle movements. But he charged Pfizer, and two generic drug makers, of failing to warn of the risks. The Alabama court decided that he could press his lawsuit against Pfizer, because state law allows a third-party fraud claim.

In this instance, the consumer did not have a product liability claim, but was allowed to exploit the learned intermediary concept that drug makers, ironically, often use as a defense against such claims. In the court’s view, Pfizer suppressed risk information about its medicine that, if had been known, might have prompted the prescribing physician to act differently. In other words, Pfizer had a duty to the prescribing doctor and its failure to warn allowed the consumer to proceed with a fraud claim.

Where this goes from here is uncertain. As Pfizer has noted, the ruling applies only to Alabama, which is one of just three states in which such a ruling has been made. Meanwhile, all four US Courts of Appeals to address the issue have rejected the assertion that brand-name drug makers can be held liable for injuries caused by a consumer who took a generic version of Reglan.


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