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.