How will pharma fare in 2013? It's complicated

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The hazard for journalists at this time of year is obvious: Everyone's reflecting on the year that's coming to an end. Everyone's looking ahead to what comes next. And the associated analysis and prognostication becomes so ubiquitous that readers turn to the crossword puzzle--or YouTube--instead. But we at FiercePharma won't shy from the challenge of holding your attention.

As in years past, we're using our last newsletter issue of the year to dissect the 5 trends we expect to prove important, fascinating and perhaps both, over the next 12 months. If you'd like to suggest other lines of thought, feel free to email Tracy Staton or Eric Palmer. Our discussion of 2013's industry trends is obviously just beginning.

1. For a couple of years now, we've cited pricing and budget pressures as one of the 5 most important trends going into the new year. We'd like to leave it off the list this year. But the pressure continues--and it's spreading. With the euro crisis dragging on like a bad production of Wagner's "Götterdämmerung," that wave of price and budget cuts continues with increasing incentives for generics use--such as France's new utilization goals--as well as the pricing squeeze we've all grown so familiar with. And the U.K.'s cost-effectiveness watchdogs continue their tough stance on costs, inspiring many a drugmaker to offer significant discounts.

In the U.S., with the Affordable Care Act upheld by the Supreme Court and President Obama re-elected, those Medicare rebates remain. Private payers seem to ratchet up their co-pays every year, pushing patients toward cheaper products. And though drugmakers have had some success at keeping patients on pricier branded drugs by using co-pay cards, payers don't like it--so that practice may have a shorter shelf life than companies would like.

But it's pricing pushback from another quarter that could be a harbinger of trouble. Doctors at the prestigious Memorial Sloan-Kettering Cancer Center looked at Sanofi's ($SNY) new cancer drug Zaltrap--and concluded that it was too expensive for what extra benefit it might offer patients. So they decided not to prescribe it. Sanofi has since cut the procurement cost, hoping to convince physicians that it has a place in their treatment arsenals. And that sequence of events--providers balking at prices, triggering discounts--could have a profound effect on drugmakers if it becomes commonplace. After all, drugmakers are counting on specialty drugs and their premium prices for growth in a post-patent cliff world.

2. Intellectual property is to the pharma business as tires are to an automobile: Necessary for forward movement, but certain to wear out over time. The industry operates on a rhythm of patent filings and patent challenges and patent defense and patent settlements and patent expirations. But that rhythm has gone herky-jerky, threatening the usual and customary quest for exclusivity--and throwing some industry strategies into question.

We're talking, of course, about India, but not only about India. One of the world's fastest-growing drug markets, with its own burgeoning pharma industry, India was hot for foreign investment in the 1990s. The country was so eager to do business with international drugmakers that it reformed its patent laws, making Big Pharma comfortable with taking their brands into the market. But now that multinational drugmakers have bought up some key domestic pharma companies and rolled out a lineup of branded products, Indian leaders are having some second thoughts. Patent officials have denied or revoked several key patents over the past year, including Roche's ($RHHBY) hepatitis drug Pegasys and Pfizer's ($PFE) cancer treatment Sutent. The government forced Bayer to license its Nexavar cancer treatment to locally based Natco Pharma for launch at a fraction of the price. And Novartis' ($NVS) yearslong fight for patent protection on its leukemia drug Glivec is still dragging on, with a decision expected in the coming months.

Meanwhile, Europe's industry-wide probe into generics delays has spawned accusations against some drugmakers who are accused of colluding to keep cheaper copies off the market, forcing governments and patients to pay branded prices when generics might have been available instead. The European Commission's antitrust group has filed citations against Denmark's Lundbeck and France's Servier. And though officials dropped one probe of AstraZeneca ($AZN), Europe's top court recently upheld an antitrust fine against the company, endorsing the idea that some common patent strategies cross the line.

The U.S. Federal Trade Commission's ongoing campaign against "pay-for-delay" patent settlements is gaining some traction, too. Lawmakers have proposed measures that would clearly outlaw some types of patent settlements. Cash and other types of payment in return for generics delays would be a no-no. And once again, the private sector is moving into antitrust territory; several pharma antitrust lawsuits filed by wholesalers, drugstore chains and even patients are making their way through the courts. GlaxoSmithKline ($GSK) just settled one case--in which wholesalers accused it of abusing the FDA's citizen petition process to improperly delay generic versions of Flonase--for $150 million. Pfizer is fighting two antitrust battles against pharmacies, one in tandem with Teva Pharmaceutical Industries ($TEVA) over generic versions of Effexor XR; and another with Ranbaxy Laboratories over copycat Lipitor.

At the other end of the business--R&D--there's a movement toward open development, where companies cooperate on drug research rather than tackling the same problems separately. Some drugmakers have opened up their products--and research--for treating serious diseases in poor countries. Some public health advocates argue that drug patents are unnecessarily restrictive and outmoded. Now, whether a new drug-development paradigm could prove superior to--and eventually eclipse--the patent-dependent business model is a discussion on its own. But in the meantime, it's clear that pharma's intellectual property strategies are in for some changes.

3. In drug marketing these days, the big question is whether the rule book is due for a rewrite. A recent court ruling suggests that marketing drugs for unapproved uses may be protected under the First Amendment, so long as sales reps aren't telling lies. That decision was too narrow to undermine the FDA's entire off-label enforcement approach. But other free speech challenges are percolating in the courts. The door to off-label promotion could open officially, if not fully, depending on future court decisions. In the meantime, the FDA is expected to shift focus, at least somewhat. And companies accused of off-label shenanigans may now have more weight on their side.

The case to watch for now is U.S. vs. Caronia, which involves a sales rep who'd been convicted on a misbranding charge that, basically, derived from his off-label promotion of a drug. There's plenty of legal fine print involved, but the Second Circuit's ruling did state outright that "the government cannot prosecute pharmaceutical manufacturers and their representatives under the [Food, Drug and Cosmetic Act] for speech promoting the lawful, off-label use of an FDA-approved drug."

That's not the kind of statement the FDA or government prosecutors would have liked to hear. After all, the government has spent lots of time, resources and money on investigating drugmakers for off-label marketing violations. And drugmakers, of course, have paid dearly to settle those investigations, including some record-breaking criminal fines.

Law firms have been careful to warn drugmakers that the Caronia decision doesn't let them off the off-label hook. And we don't expect a whole bunch of investigators at the U.S. Department of Justice to start looking for other targets (though they might address their current targets with greater care). The FDA and the Justice Department could use the opportunity to develop new, clearer policies for off-label promotion, some legal experts suggest. But the pharma industry may be in for a guessing game based on government action and case-by-case rulings, rather than clear-and-present prescriptions for conduct. One thing is sure: Plenty of ink will be spilled on this issue in the coming year.

4. Drug shortages remain an ongoing issue. Efforts by the industry and the FDA to give and get an earlier heads up about potential problems has resulted in half as many drug shortages reported this year compared with the 221 peak last year. Still, there are more than 120 drugs on the FDA's shortage list and the University of Utah watch group says it is tracking about 280 hard-to-get drugs.

Patients remain legitimately angry about shortages when they can't get a cancer drug, for example. Their response often is to call their congressman. That means the potential for new regulation, legislation, as well as litigation, hangs over the issue. Some companies are defending suits now brought by patients or their families where health was affected by a shortage. Many, if not most, drug shortages are tied to companies shutting down lines to make plant improvements after the FDA criticized them for poor quality. And that leads us to our final observation, so to speak.

5. The FDA in recent years has cracked down on what it perceives as manufacturing shortcomings. A U.S. House report this year was highly critical of the FDA. It said "field staff zealousness" led to the four largest generic drugmakers--Hospira ($HSP), Teva, Sandoz (the generics division of Novartis) and Boehringer Ingelheim's Bedford Laboratories--losing 30% of their capacity when the FDA expected them to upgrade their manufacturing. The closures, it said, were tied to nearly 60% of the drugs on the shortage list. The FDA said it was not being overzealous, just responsible. With the current administration in place another four years, there is no reason to think it will be any more lenient.

Still, the FDA says it focuses first on the most serious situations. If those get remedied by significant plant upgrades, such as the $375 million that Hospira is putting into plants, then it would follow that the number of production interruptions should abate. At least in the U.S. With new funds from the generic drug user fees, and new powers, the FDA promises to go gangbusters on inspecting foreign plants, looking at them more frequently, and more critically. It will be interesting to see if that results in a bunch of plant closures in India and China where the vast majority of active pharmaceutical ingredients originate.

Those are our 5 picks. Let us know yours. We'll be back with a daily newsletter beginning Jan. 2. Till then, check our website and follow us on Twitter for any breaking news or updates. And have a safe and happy season. -- Tracy Staton (email | Twitter)