FT SPECIAL REPORTS

FT HealthSustainable Healthcare

www.ft.com/reports | @ftreportsTuesday April 7 2015

Inside

Product developmentcosts attract criticismExperts call on thepharma industry toreduce failure ratePage 2

Obamacare bears fruitas waste is cutPolicy is helping reducetests on patientsPage 2

Gene therapy is newdirection for industryBut the high priceof the latestgroundbreaking drugreignites costs debatePage 3

Europe’s policy makersface hard decisions

The financialcrisis, notageingpopulations,is behindrising budgetsPage 4

A t the start of the 20thcentury, the global averagelifespan was 31 years.Today, it is about 70. This isin large part testament to

better healthcare. Diseases such as polioand measles have been tamed byvaccines and, in the case of smallpox,eradicated.

Yet these 20th-century break-throughs mean the world faces a freshchallenge in the 21st. While fewerpeople are dying of infectious diseases,growing numbers are living long enoughto develop chronic conditions such asheart disease, cancer, diabetes and

dementia. This is true not just of richcountries such as the US, where 86 percent of healthcare spending is directedat non-communicable diseases: chronicconditionsaccountforabout60percentof global deaths each year, three-quar-tersof themindevelopingcountries.

This burden will only increase as eco-nomic development exposes more peo-ple in Asia, Africa and Latin America tofactors such as sedentary lifestyles andgreater longevity. The number of peopleon the planet aged over 60 has doubledsince 1980 and this group will accountfor more than one in five of us by 2050,theWorldHealthOrganisationsays.

A growing supply of affluent, ageingpeople susceptible to chronic diseasesmight seem like a recipe for growth forthe healthcare industry. Healthcarespending in China, for example, is fore-cast to rise by 14 per cent a year between2013 and 2017, the Economist Intelli-genceUnitsays.EventhematureUSmar-ket is likely to grow by an annual aver-ageof4.4percentoverthesameperiod.

Yet these rising costs put a strain ongovernments, insurers and patients,and raise doubts over the sustainabilityof existing healthcare models. Fromrationing of cancer drugs in the UK’sNational Health Service to increasing

out-of-pocket expenses for US patients,evidence of this is visible across thedeveloped world. Cost pressures are nolesssevere indevelopingcountries.

Kåre Schultz, chief operating officerof Novo Nordisk, the world’s biggestmaker of insulin for diabetics, saysrising costs are leading to a convergenceof healthcare systems, with all countriessharing the burden between publicspending, private insurance and patientself-funding. “Europe is moving a bittowards the US system and the US ismoving a bit towards the Europeansystem, and China will arrive in themiddle,”hesays.

Increasingwealth willonly add tothe burdenThere has been a shift from fighting infections tocopingwith chronic conditions, saysAndrewWard

Price pressure is nothing new inEurope’s single-payer public health sys-tems, which have long used their negoti-ating power to force a 30-40 per cent discount in the price of medicines com-paredwiththefragmentedUSmarket.

But there are signs that even the UShas become more cost conscious sincePresident Barack Obama’s push towiden access to health insurancethrough the Affordable Care Act. Abacklash by politicians and insurersagainst the high cost of newhepatitisCmedicinesisoneexample.

In China, a clampdown on briberyContinuedonpage2

Cool moves: a tai chi class in China. Doing more exercise can help prevent long-term illnesses—Reuters

2 ★ FINANCIAL TIMES Tuesday 7 April 2015

FT Health Sustainable Healthcare

among drugmakers, which ensnaredthe UK’s GlaxoSmithKline, was in part areflection of Beijing’s desire to tackleinflated costs. So too, India’s aggressiveapproach to challenging drug patentsand increasing the availability of low-costgenericmedicines.

This environment is forcing drugcompaniestoworkhardertoprovetheirproducts and services deliver measura-ble patient benefits at an affordablecost. And efforts are intensifying to cutthe cost of developing a new drug — esti-matedtobe$2.56bnonaverage.

There are hopes that the rise of digitalhealthcare technology and the accom-panying proliferation of patient datacan help provide solutions. Mobile appsand sensors hold the potential not onlyto provide real-time information on anindividual’s health but also to revealpopulation-wide trends that couldincrease the efficiency of medicalresearchandcaredelivery.

Yet there is a big gap between thepromise of this revolution and the real-ity of today’s healthcare infrastructure.Pascale Richetta, vice-president forwestern Europe and Canada at AbbVie,the US drugmaker, says too manyresources are spent on expensive hospi-tals designed for acute, rather thanchronic, care. “We need to move caredelivery away from hospitals to thehomeandcommunity,”shesays.

Ms Richetta adds that there must be agreater focus on disease prevention andearly diagnosis, and cites the example ofoutpatientcentressetupinSpaintopro-vide early intervention against muscu-loskeletal disorders, such as back pain.These are estimated to have saved €11for every €1 invested by reducing long-termcarecostsandworkabsenteeism.

“It is important to view healthcarespending not just as a cost but as aninvestment. The emphasis should be ongetting good value from that invest-ment,”saysAnaNicholls,healthcarespe-cialistattheEconomistIntelligenceUnit.

By that measure, some countries aredoing better than others. The EIU’s

Health Outcomes and Spending Indexlast year ranked Japan and Singaporeamong the best performers for out-comes and value for money. The US, incontrast, had only the 33rd best out-comes, below Lebanon and Costa Rica,despite spending the most per head ofthe166countriesstudied.

The index highlighted the gulf inspending between $9,216 per head forthe US and $96 for bottom-placed SierraLeone — one of the countries worst hitby the Ebola outbreak. Ebola has been areminder that the medical advances ofthe past century are not evenly shared.Life expectancy in Africa has fallensincethe1990sbecauseofAids.

New drugs give normal lifespans topeople with HIV, and promising vac-cines and treatments for Ebola are beingrushed into trials. There have beenbreakthroughs in chronic diseases suchas cancer. But the science may prove theeasy bit compared with the challenge ofmakingthesetreatmentsaffordable.

Continued frompage1

Increasingwealth willonly add tothe burden

How much does it cost to develop a pre-scription drug? Opinion varies. Thehighest — and most publicised — esti-mate is $2.56bn, or $2.87bn if you countpost-marketing research and develop-ment, according to a study released inNovember by the Tufts Center for theStudyofDrugDevelopmentinBoston.

That is a 145 per cent increase in realterms on the estimate of $800m ($1bnadjusted for inflation) the team at TuftsUniversity published in 2003. The fac-tors responsible for driving up costsinclude larger and more complex clini-cal trials, a greater focus on chronic anddegenerative diseases, and includingmore“comparatordrugs”(usedto testadrug’seffectiveness) inclinical testing.

A lower but still striking estimate, bythe Deloitte Centre for Health Solutions

intheUK,putsthecostfor2014at$1.4bn,upfrom$1.35bnthepreviousyear.

Criticsof thepharmaceutical industryattack such figures as a vehicle for cor-porate campaigns to achieve high pricesfor new drugs. For example, RohitMalpani, policy director of the medicalrelief group Médecins Sans Frontières,pouncesontheTufts$2.56bnestimate.

“We know from past studies and theexperience of non-profit drug develop-ers that a new drug can be developed forjust a fraction of the cost the Tuftsreportsuggests,”hesays.

Another critic, James Love, director ofKnowledge Ecology International, theadvocacy group, points out that annualclaimsin2010undertheUSorphandrugtax credit, which covers half the cost ofclinical testing of qualifying drugs,totalled only $650m for a large numberof products. “Hard to get from $650m to$2.6bnforoneapproval,”hesays.

The most important cause of confu-sion is whether the estimates includejust the direct R&D cost of individualdrugs that reach the market or alsocover thecostsof the largernumberthatfailbeforegainingregulatoryapproval.

In a phrase much quoted by pharmacritics, Sir Andrew Witty, chief execu-tive of GlaxoSmithKline, called the $1bnprice tag “one of the great myths of theindustry”ataconference in2013.Buthewas referring to the direct cost of devel-oping an individual drug, which is usu-ally much less than $1bn, and was notchallenging the higher estimates fromTufts, Deloitte and others that attributeallR&Dcosts tosuccessfulproducts.

The Tufts estimate is further inflatedby its inclusion of “time costs”, that is“expected returns that investors forgowhile a drug is in development”. Thiscostofcapitaladdsahefty$1.16bntothe“average out-of-pocket cost” — directspending on R&D — of $1.4bn perapproveddrug.

The latter figure corresponds withDeloitte’s $1.4bn estimate of the cost of

bringing a drug to market in 2014,though the methodology and datasources used by the two studies are dif-ferent. “Their number is remarkablyclose to ours,” says Julian Remnant,Deloitte lifesciencespartner.

Thereare,however, signsthat the longrise in the cost of bringing a drug to mar-ket may be reaching a peak, or at least aplateau. The pharmaceutical industry’stotal R&D expenditure has remainedsteady in real terms (at about $55bn ayear) since 2007, while the number ofnewdrugsapprovedhasbeen increasingover the same period, after fallingalarminglyduringthepreviousdecade.

The US Food and Drug Administra-tion approved 41 new products in 2014,up from 27 the previous year and 39 in2012. The total is the second highest onrecord, beaten only by 53 drugsapproved in 1996 at the peak of a goldenperiodforproduct launches.

Even so, Joe DiMasi, director of eco-nomic analysis at the Tufts Center,warns against premature celebration.“I’mnotreadytopredict lowercosts,”hesays. “The number of approvals doesfluctuate from year to year. What’s

more, many of the R&D expendituresincurred in recent years will be associ-ated with approvals in a number ofyears tocome.”

Deloitte’s Mr Remnant is rather moreoptimistic: “It is a reasonable conjecturethat costs have reached a plateau. A bigcomponent of the figure is the cost offailures, particularly in late clinicaldevelopment. Companies are tryinghardtoaddress that.”

Mr DiMasi has a list of measures theindustry can undertake to improve pro-ductivity and reduce the cost of drugdevelopment. “There is a lot of interestin improving the efficiency of clinicaltrialoperationsanddesigns,”hesays.

“One of the main drivers of theincrease in total cost that we found thistime was a substantial increase in drugdevelopment risk. The clinical approvalsuccess rate — the likelihood that a drugthat enters the clinical testing pipelinewilleventuallygetapprovedformarket-ing—declinedsignificantly.”

Like Mr Remnant, Mr DiMasi urgesthe industry to improve to reduce thedropout rate, with better predictivemodelsofsuccessandfailure.

Studies fuel criticism of product development expensePharmaceuticals

Experts say medicines canbe developed more cheaplythan big companies claim,reports Clive Cookson

A giant spiral staircase dominates theairy atrium of GlaxoSmithKline’s NavyYardoffice inPhiladelphia,coaxingpeo-ple who enter the building to walk up toits upper three floors. The lifts aretucked out of sight to reduce the temp-tationofusingthem.

The company’s move to the carefullydesigned low-rise space two years ago isone of several initiatives by the pharma-ceutical group to encourage healthierworking practices. The building is domi-nated by unassigned “standing” desks,with communal spaces to encouragemovement and sociability. More than 85percentofstaffusethestairs.

Ron Joines, medical director in GSK’senvironmental health and safety group,says: “When we began to examine ourflagship programmes, we found theyoffered good outcomes for health andorganisation culture, leadership,engagement and productivity. It

became a catalyst for even greaterinvestment.”

GSK is among a growing number ofemployers in the private, public andnon-profit sectors that are exploringways to help attract and retain staff andmake them more productive. They viewthe activities as both socially responsi-bleandeconomicallysound.

Derek Yach, head of the Vitality Insti-tute, says: “There is a long-term shiftand a huge opportunity for furthergrowth in attention to the ‘fourth bot-tom line’ of health.” The Institute is partof Discovery, a South Africa-basedhealth insurer that champions preven-tionandwellnessprogrammes.

Yet Discovery’s research warns thatdespite the promotion of workplacehealth programmes, notably in the US,there is limited leadership and advo-cacy, poor alignment of financial incen-tives, regulation that does not supportevidence-based practice and a dearth ofpartnerships that extend programmesbeyond staff to their families, let alonethewidercommunity.

Dr Yach says few employers andconsultants rigorously measure andanalyse initiatives and their benefits.Existing attempts to measure internallyand benchmark external progress are

voluntary and hard to compare. As aresult,hewantsgreaterdisclosure.

In South Africa, there is much discus-sionaboutmandatoryemployeehealth-related reporting for companies quotedon the Johannesburg stock exchange.Elsewhere, research is under way to cat-egorise and guide disclosure more effec-tively and to create incentives thatrewardgoodpractice.

“For so many years, employers haverecognised the value of reporting onenvironmental consequences, but havefailed to address the core drivers of

workplace morale, productivity and thehealth of their own employees,” Dr Yachsays.Headds that,oncecompaniesstartreporting, the discrepancy between thehigh level of spending on treatment andthe modest investments needed for pre-ventionshouldbecomeobvious.

The canteen at the UK office of BP, theenergy company, offers healthy eatingoptions and rewards those who takethem with discounts. Over the past twoyears, consumption of healthy food hasincreased by 7 percentage points.“We’ve taken the opportunity to buildelements into our tender with vendorsthat are health focused,” says RichardHeron,chiefmedicalofficeratBP.

Dr Heron, who is also president of theFaculty of Occupational Medicine, a UKcharity, points out that, as people ofworking age spend most of their time atwork,“there is thepotential to touchthehealth of a significant proportion of thepopulation”.

He thinks more doctors should trainin the specialism of occupational healthand that it should be integrated moreclosely into healthcare systems, such asthe UK’s National Health Service. Healso envisages the need for more rigor-ous evidence reviews and a rebalancingin the focus of programmes to the areas

of greatest need, such as mental healthandmusculo-skeletalconditions.

Dr Joines says GSK’s programmes area logical response in a business thatspends £1.4bn a year on healthcare forits workforce and reports 1.6m work-days lost or impaired through illness —12percentof totalpotentialworkdays.

Thebenefitsof theprogrammes intheUS include lower sickness absence andstabilisationofoverallmedicalcosts.

The experience has pushed the com-pany to implement initiatives such asflu vaccination, smoking cessation andinfection screening, and an “energy forperformance” scheme that trains sed-entary staff to take breaks to stretch,rehydrate,walkor listentomusic.

Dr Joines concedes that in countrieswherethere is lessofacultureofpreven-tive care the programmes can be moredifficult to implement. The cost-benefittrade-off for employers is also differentin locations with stronger mutualised orstatehealthcare, suchastheUK.

InPhiladelphia, somestaffmoanthat,while the Navy Yard office has amplefree parking, it is remote from publictransport and the city centre, whereamenities are within walking distance.Workplace health still has a long way togo,especiallywherethecar isking.

Wellness in the workplace still has a long way to goOccupational health

Financial reporting on theimpact of preventioninitiatives remains sketchy,writes Andrew Jack

Walk fit: GSK’s Philadelphia offices

‘A newdrug can bedeveloped for a fraction ofthe cost Tufts suggests’

I n 1960, when John F Kennedybecame president and Elvis Presleydominated the charts, staying alivein the US was relatively cheap. Thecountry spent $27.4bn, or 5 per cent

ofGDP,onhealthcare.Today, that number is $2.9tn and by

2023 it is expected to climb further to$5.2tn, according to official statistics.Within a decade, healthcare expendi-ture as a share of GDP will be above 19per cent, more than any other countryspendsonitspopulation’shealth.

The introduction in 2009 of theAffordable Care Act (ACA), or “Obama-care” as its detractors call it, has donelittle toeasethefiscalchallenge.

The ACA has been successful in itsaim of extending healthcare to the unin-sured and previously uninsurable.About 11.4m Americans enrolled inhealth insurance programmes in arecent sign-up drive. Yet this increase,along with provisions to expand govern-ment-funded healthcare programmes,willpushspendinghigher.

There have been a few years of rela-tively moderate increases, due in largepart to the recession. Between 2008 and2013, it grew by an average of 3.9 percent a year, but official forecasts put thetypical rate of expansion between 2014

and2023nearer6percentyear,becauseof theACAandanageingpopulation.

That is why the ACA’s second aim is toimprove the efficiency of the US health-care system. While it is easy to quantifythe success of the legislation in expand-ing insurance coverage, assessing theeffectiveness of a series of initiatives toreducewaste ismuchtrickier.

However, some healthcare profes-sionals think the recent moderation inspending growth is partly the result ofthe ACA’s provisions. Were it not forschemes designed to reduce hospitalreadmissions, unnecessary X-rays andblood tests, the forecasts for healthcareexpenditurewouldbehigher, theysay.

Perhaps just as important is the WhiteHouse’s signal there must be a limit toever largerhealthcarebills.

One strategy has been to change theperverse incentives in America’s “fee-for-service” system, under which a pro-vider gets reimbursed for every singletest or procedure. Critics say thisencourages doctors to send patients forpointless tests to boost their incomes,while hospitals earn more by admittingpatientsnot inneedofacutecare.

Hence the introduction of “bundledpayments”, where insurers pay a setamount for procedures such as a hip

replacement regardless of the numberofX-raysandtestsneeded.

Another strategy has been the crea-tion of accountable care organisations(ACO), groups of insurers, hospitals anddoctors who agree to treat a patient pop-ulation for a set fee. “The goal is to keepthe population healthy by spendingmore money on early intervention,”says David Watson, chief executive ofCal Index,aCalifornianACOdatabase.

That might mean hospitals earn lessfrom admissions, but if the ACO man-ages to hit its savings targets, the partici-pantsshareabonuspool.

StephenShivinsky,avice-presidentatBlueShieldofCalifornia,anot-for-profithealth plan provider, says ACOs willproliferate thanks to Obamacare. Hesays: “The act has created a large mar-ketplace that is very price sensitive. Sothe insurer has to be able to offer com-petitive rates, and the only way to dothat is tobemoreefficient.”

A push to reduce unnecessary hospi-talisations also seems to be bearingfruit. The ACA ties hospital reimburse-ments to readmission rates, helping toreduce them for patients on Medicare,the government scheme for retirees, by150,000 between January 2012 andDecember2013.

But it is too early to tell how other ini-tiatives, such as a plan to reduce drugspending, are doing. Drugs account forless than 10 per cent of overall health-carecosts,yet inflation isrampant.

A report by Express Scripts, the larg-est pharmacy benefits manager in theUS, showed prices for branded prescrip-tiondrugsgrew15.4percent in2014.

Part of the problem is that it is impos-sible to produce direct copycat versionsof many of today’s most expensivedrugs, because they are “biologic”,made from biological sources. Tradi-tionally, when a drug loses patent pro-tection, a much cheaper generic versionisproduced,helping lowercosts.

The ACA contained provisions to has-ten the arrival of “biosimilars”, cheapercopycat drugs. This month, the Foodand Drug Administration approved thefirst biosimilar for use in the US, butits launch could be delayed by a courtcase, seen as a test of big pharma’sability to delay the introduction of suchdrugs.

“Biosimilars will provide the sameheadroom that generics have providedover the past decade. The savings arepotentially $250bn over the next 10years,” says Steve Miller, chief medicalofficeratExpressScripts.

Signs indicateObamacareis startingto bear fruitUS Medical professionals say a fall in spending ispartly down to the legislation, reportsDavid Crow

Clear goal:legislation aimsto cut thenumber ofpatient tests,including X-raysGregory Rec/Getty Images

‘The insurerhas to beable to offercompetitiverates, andthe only wayto do that isto bemoreefficient’

ContributorsAndrew WardPharmaceuticals correspondent

Clive CooksonScience editor

David CrowSenior US business correspondent

Kana InagakiTokyo correspondent

Andrew JackHealth writer

Sarah MurrayFreelance writer

Sarah NevillePublic policy editor

Adam JezardCommissioning editor

Steven BirdDesigner

Andy MearsPicture editor

For advertising details, contact:Ian Edwards, +44 (0)20 7873 3272,email: ian.edwards@ft.com.

Our advertisers have no influence over, orprior sight of, the articles in this report.

$2.56bnThe average costof developingand producing anew drug

33rdUS ranking in alist of 166 nationsin terms of healthoutcomes

Tuesday 7 April 2015 ★ FINANCIAL TIMES 3

FT Health Sustainable Healthcare

In the 1966 filmFantasticVoyage, minia-turised doctors in a tiny submarine areimplanted in a patient’s body to cure ablood clot. Today, reality has caught upwith science fiction. Instead of a subma-rine, however, tiny sensors can be swal-lowed that aim to improve the accuracyof clinical trials by monitoring and man-agingparticipants’medication.

The devices — made from ingredientsfound in food — have been developed byProteus Digital Health of the US. Theyare an example of how web-enabledsensors can help health professionals totrack the effectiveness of care at every

stage, from research to aftercare.The internet of things (physical

objects that, when equipped with sen-sors, can collect and transmit informa-tion)will allowallpatients toreceive thekind of real-time monitoring oncereserved only for urgent cases inspecialistwards.

Now, this level of surveillance can beused in other parts of a hospital oroutside it. “Once you have sensors thatare medical-grade and miniaturised,you get a lot of data that wasn’t looked atin the past,” says Thierry Leclercq, pres-ident of GE Healthcare’s Life Care Solu-tionsbusiness.

For those with long-term conditions,this means moving away from sporadichealth checks during hospital or clinicvisits toconstantmonitoring.

C Martin Harris, chief informationofficer at the US’s Cleveland Clinic, citesdiabetes as an example of a condition

where technology can help. “Twentyyears ago, you came into the lab, youhad blood drawn and we looked at thevalueandmadeadecisiononyourtreat-ment plan,” he says. Treatment planscannowbeadjustedmuchmoreswiftly.

Moreover, large volumes of data

should help inform decisions aboutbroaderhealthcarestrategies.

Michael Chui, a partner at the McKin-sey Global Institute, says: “The promiseis to be able to use this information notonly to improve the healthcare out-comes of individuals, but also to dis-

cover things in populations.”The internet of things could also

reduce medication errors and assess theeffectiveness of different drugs. Oneexample is the use of wireless RFID(radio-frequency identification) tagsequipped with near-field communica-tion technology. These keep track ofmedications and medical devices andhowtheyarebeingused.

Once every part of the healthcarechain being used by a patient has aunique identifier, it will be easier forclinicians to cross-reference data, saysStephen Miles, a research affiliate at theCenter for Biomedical Innovation at theMassachusetts Institute forTechnology.

Such cross-referencing will make itpossible to check if a patient has aller-gies to a proposed drug, or if that drugcould be less effective or produce dam-aging side effects if the patient is onothermedication.

Tracking drugs, devices and patientswill become more important as tailor-made treatments evolve. Meanwhile, incountries such as the US, the industry ismoving from the fee-for-service model,under which health providers werereimbursed for each consultation ormedical intervention, to one wherepayment is made for packages of caredeliveredbyteams.

The ability to track medical products,pharmaceuticals and patients — knownas serialisation — will help care provid-ers and insurers manage the expendi-ture associated with each person. “Now,we have to work out how much a patientcosts,” says Prof Miles, who adds theinternet of things will be critical to mak-ingthemodelwork.

Once patients can be regularly moni-tored outside medical centres, forexample, fewer hospital beds anddoctorvisitswillbeneeded.

“Having a more continuous datastream coming from a patient has thepotential [to let clinicians] better man-age a number of chronic diseases, which[drive] a large percentage of healthcarecosts,”saysMrChui.

Given the pressure to do morewith less globally, the potential for theinternet of things to cut costs is likely tocreate powerful incentives for thehealthcaresector toembrace it.

Moreover, because it relies on openstandards such as WiFi, the cloud andGPS tracking, the internet of thingscould overcome other technologicalhurdles facing the sector, such as thelackofconnectionsbetweensystems.

“The communication between sen-sors, mobile devices and the networkwill be easy,” says Mr Leclercq. “Andthat communication will go to a cloud-based application and then it becomes acommonlanguage.”

Internet of things will revolutionise delivery modelsTechnology

Better patient monitoringcould reduce clinical costs,reports Sarah Murray

D rugmakers often like todescribe their medicines asgroundbreaking, but one ofthe few to truly merit thisadjective is Glybera, a treat-

ment forararegeneticdisorder thatwaslaunchedlate lastyear.

Not only was it the first of an impor-tant new category of drugs — known asgene therapies — to be approved inEurope, but it also set a fresh record fortheworld’smostexpensivemedicine.

Glybera, which fights a blood-clogging condition called lipoproteinlipase deficiency (LPLD), costs about€780,000 a patient. It is made byUniQure, a small Dutch biotech com-pany whose chief executive, Jörn Aldag,admits the price tag sounds “enor-mous”.

The sky-high price has made it a testcase in the growing debate over the cost

ofdrugs,asadvances inmedical science,combined with growing demand froman ageing population to place increasingstrain on health systems around theworld(seeopinion,below).

Mr Aldag says the price is justified notjust by the high development costs butalso by the value it offers to patients andhealth systems. Unlike existing treat-ments, which must be taken for a life-time, one course of Glybera provides apermanentcureforLPLD.

“One-time treatments mean you haveto recoup all your investment in one go,”says Mr Aldag. “If you compare it withthe lifetime costs of care that it is saving,the price is very reasonable, you mightevensay low.”

Similar arguments were made byGilead Sciences of the US to defend the$84,000 price of a 12-week course of itsbreakthrough hepatitis-C medicine,

Sovaldi. Gilead said that, by providing acure, the drug would save the greaterlong-term costs of hospitalisation,surgery and liver transplants that some-timesresult fromthedisease.

This failed to convince Gilead’s manycritics, including some US insurers whohave waged a successful campaign todrivedowntheprice.

Such disputes seem certain toincrease as the pharmaceuticals indus-try gradually shifts its focus from one-size-fits-all drugs to more targetedtreatments.

Whereas traditional blockbusterssuch as statins and beta-blockers couldmake big profits at a moderate pricebecause of their wide uptake, manymodern drugs are aimed at muchsmaller patient groups with rarediseases or subtypes of broaderconditions.

In the case of Glybera, there are onlyabout 150-200 patients across Europethought to be eligible for the drug. Thismeans UniQure not only has to make areturn on its investment through a one-off course of treatment, it must also doso from a tiny number of patients. Theresult is a price of €41,000 per vial, withtheaveragepatientneeding19vials.

Many similar gene and cell therapiesare in development, aiming to repair orreplace defective genes, cells or tissue.Mr Aldag acknowledges this poses ahuge economic challenge. “If we getmore one-time treatments priced at thiskind of level, we are going to see a spikein healthcare costs that will be difficultforhealthsystemstosupport.”

The answer, he says, is for annuity-style pricing models that spread the costover longer periods. Payments could belinked to performance, so that compa-nies are only paid if their drugs work.“We will see people become more crea-tive about how to spread cost and sharerisk,” says Mr Aldag. “Some people are

not ready today, but they will be soonbecausetherewillbenochoice.”

Industry executives and many policymakers agree that pricing reformshould be part of a broader change of approach by drugmakers, regulatorsand health systems. The traditionalmodel has involved companies spend-ing hundreds of millions of dollars,pushing drugs through a developmentand clinical trial process that can last adecadeormore.

This leavescompaniesunderpressureto sell the maximum possible volume atthe maximum possible price with littleregard for how effective the medicineprovestobeforpatients.

Experiments are under way on bothsides of the Atlantic with fast-track reg-ulatory approaches that allow earlieraccess to patients once a drug’s safetyhas been proven. Companies can thenwork with regulators, health providersand insurers to gather data demonstrat-ing the effectiveness of their medicines— and identify precisely which patientsbenefit from them. Volker Rönicke, ahealthcare specialist at PwC in Munich,says this should lead to pricing based onoutcomes in real patients rather thanonly on the results of clinical trials.“Pharma is moving from being paid forvolume to being paid for value,” he says.

Deepak Khanna, head of oncology inEurope for Merck & Co, says his com-pany is ready to experiment with newmodels as it rolls out its skin cancer drugpembrolizumab, also known asKeytruda, which is priced at $12,500 perpatient per month in the US. He pointsto early access schemes in the UK andFrance that are allowing pembrolizu-mab to reach patients even before it hasbeenapprovedbyEuropeanregulators.

Mr Khanna says: “Earlier access leadsto earlier dialogue with regulators andgovernments to help them understandthevalueof thedrug.”

High price ofgroundbreakingdrug adds tocosts debateGene therapy Industry shifts focus to targetedtreatments for fewer people, writesAndrewWard

On trial: a scientist at the Institute of Cancer Research tests a drug—Charlie Bibby

Co-operation, not coercion, may be thebest way for developing countries toexpand access to vital affordable drugs.That is the finding of an analysis byUniversity of Ottawa and University ofDenver researchers, including myself,published in Health Affairs.

We examined two strategies thatcountries can use to provide cheapermedicines: compulsory licensing, alegal manoeuvre governments can useto expropriate patent rights forciblythat may block access to less expensivegeneric medicines; and internationalnegotiation, when governments hagglewith medicine suppliers over prices.

Fierce ideological battles — which aresilly because what matters to patients ismedicine — have been fought overwhich is better by those who advocateproperty rights, and hate compulsion,and supporters of health rights, whoembrace it. Neither cares much for thelegitimate arguments of the other.

We trawled through data sets of allHIV/Aids antiretroviral medicinepurchases reported to the WorldHealth Organisation and the GlobalFund to Fight Aids, Tuberculosis andMalaria over roughly a decade, andcompared prices obtained bycompulsory licensing and negotiationby individual countries, groups ofcountries, or global organisations.

Both strategies save money, butcountries that used compulsorylicensing to manufacture or importgeneric antiretroviral medicines paidmore than those who negotiated for thebest branded or generic deal.

Using the prices that existed before

compulsory licensing as a reference, wefound that developing countries thatchanged to a compulsory licence saveda median 71 per cent, while similarcountries which negotiated for betterprices saved 79 per cent.

This pattern persisted in directcomparisons. In the 30 compulsorylicensing cases we tracked, the medianprice was 48 per cent above thatobtained through negotiating globally.

The extra savings also came withoutthe legal manoeuvring that compulsorylicensing requires. Unhappily, the pricegap was largest for the least developednations, which had the least money. Forthem, compulsory licensing meantmedian prices were 83 per cent higher.While exceptions do exist, compulsorylicensing mainly yields poor value.

Our study also found that globaltrade can save money compared withautarchy. Countries that manufacturedmedicines locally under compulsorylicences paid dearly: typically 83 percent more than similar peer countries.

But this comparison is not a clear winfor either strategy, since localmanufacturing is pursued for otherreasons: industrial self-sufficiency atbest, graft at worst. Either way,building a local pharmaceuticalindustry is not cheap.

Our study does not mean there is noplace for compulsory licensing, but itshould not be presumed to be the bestway to save the most money.

It has a place, for two reasons.First,the very threat of compulsory licensingprobably matters. Consider labournegotiations: a union might hold a

strike vote, or an employer mightthreaten a lockout, but if they are notstupid, both should realise theirinterests lie in bargaining to avoideither scenario. Coercion is betterfeigned than implemented. So too forcompulsory licensing: some countriesused it before agreeing voluntary deals.

Second, there are valid policyreasons for worrying about thesustainability of buying the cheapestgeneric medicines. Most of these comefrom Indian companies, but evidence ismounting through criminalprosecutions and regulatory actionsthat even the best-known Indianpharmaceutical companies have safetyor quality control problems. Further, asmedicine patenting in India gains pace,in coming decades, there may be fewergeneric medicines on the internationalmarket. Either phenomenon coulddrive countries to compulsory licensingmore readily.

My view is that ideologicalarguments are distracting. The datashow that patents are not incompatiblewith discounted medicine pricing ifthere is flexibility on both sides.

The temptation should be resisted tospeak of compulsory licensing in epicterms when it means the same tointellectual property as compulsorypurchase does to physical property. It isa safety valve, to be used whennegotiations fail, which is legallylegitimate if rough.

As the world enters an era definedless by HIV/Aids and more by non-communicable diseases of ageing,both patient advocates and thepharmaceutical industry would be wiseto remember, when negotiations gettough, that they need each other.

The writer is Canada research chairman inlaw, population health and globaldevelopment policy and professor in lawandmedicine at the University of Ottawa

Patient advocates and industrywouldbewise to curb licensing argumentsOPINION

Amir Attaran

Amir Attaran:‘For poorer nations,compulsorylicensing meantmedian prices were83 per cent higher’

USJapan

GermanyFrance UK Mexico

Italy S Korea SpainAustralia

BelgiumTurkey

SwitzerlandNetherlands

SwedenCzech Rep

DenmarkAustria

PortugalNorway

325.8

87.4

39.1

34.932.4

24.3

18.8

14.3 14.2

10.77.6 6.8 6.3 5.9 5.2

4.3 3.5 3.4 3.3 3.2

FT graphic. Source: OECD; IMS Health Photo: Dreamstime

Total amount spent on pharmaceutical sales in the top 20 developed nations ($bn, 2012)

The potential to cut costs islikely to create powerfulincentives for thehealthcare sector

4 ★ FINANCIAL TIMES Tuesday 7 April 2015

When a group of clinicians in the west ofEngland was faced by a deepeningfinancial hole, they decided on aradical course of action to balance thebooks.

Smokers or overweight patients wereto be barred from undergoing routinesurgery unless or until they had tackledtheir problems through weight manage-ment regimes and smoking cessationprogrammes.

One of the GP leaders involved, DavidJenner, recently said that there wouldhave been “queues” of other clinicalcommissioners waiting behind them toimplement similarly stringent criteria,if theschemehadworked.

In fact, within days of the decision inDecember 2014, the clinicians, based inDevon, withdrew the blueprint after anoutcryfrompatientsandpoliticians.

Explaining what went wrong at arecent debate, organised by the NuffieldTrust and the Royal College of Surgeons,and chaired by the Financial Times, DrJenner said their fundamental mistakehad been to tie the new measures tooclosely to the need to tackle fundingproblems, rather than making the casesolely on the grounds that slimming orstaying smoke-free would improve theoutcomesofsurgery.

Nor had they conducted sufficientpublic consultation before unveiling theproposals,heconceded.

However, he was in nodoubt that, in a world ofrising demand anddiminishing resources,hardchoices layahead.

Politicians would need“to grasp the nettle ofwhether they are going totake some decisions abouttheavailabilityofresource”.DrJenner suggested this mightmean either raising taxes, “limit-ing what’s on the NHS menu”, orintroducing co-payments, “or acombinationofall three”.

His comments cast a light ondilemmas confronting health systemsall over Europe as they attempt to findefficiencysavings.

The European Observatory on HealthSystems and Policies, in a paper pub-lished last year, suggested the nature ofpolicy makers’ concerns about the sus-tainability of health systems hadchangedafter the2008financialcrisis.

At one time, ageing populations,expensive developments in technologyand changing public expectations hadbeen seen as the main reasons for thegrowthinhealthspending.

Thereal threat,however,hadresultedfrom the financial, economic and sover-eign debt crises that had shifted thefocusofanxieties“fromthefuturetothe

present; from worrying about how topay for healthcare in 30 years, to how topayfor it inthenext threemonths”.

Not all European countries wereaffected by the crisis. The impact onbudgets varied, with some — but by nomeans all — experiencing “substantialandsustainedfalls inpublicspendingonhealth”, saystheObservatory.

While most reductions in spendingper head were small, a handful of coun-tries experienced “large or sustained”reductions, say the researchers, so that

spending in 2012 was lower than it hadbeen in 2007. Croatia, Greece, Ireland,Latvia and Portugal were in this cate-gory.

The academics’ work underlines thedifferences in approach being taken byvarious countries, even as they strugglewithessentially thesameproblems.

Among the ways in which countriessought to cope with fiscal pressureswere cutting ministry of health budgets— a course followed by almost 20 coun-tries, ranging from Bulgaria and CyprustoFranceandtheUK.

Other countries introduced or tight-ened controls on the rate at which pub-lic spending on health was increasing.They included Austria, Belgium,France, Portugal and Spain, accordingtotheObservatory.

However, countries also deployedother strategies to try to sustain publicspending on health. Croatia, France andHungary introduced new taxes ear-markedforhealth, forexample.

Others, meanwhile, have focused onshifting care from hospitals to primaryand community care settings, where itcan be delivered more safely andefficiently.

Almost all the countries surveyed hadmadechangestocoverage inresponsetothecrisis.

The Observatory says that among“the most common direct responses”were to reduce benefits, as 18 countrieshaddone,andincreaseusercharges.

However, another common responsewas to reduce user charges or improveprotectionfromthem.

Mary Harney, a former Irish healthminister who now chairs the EuropeanSteering Group on Sustainable Health,sponsored by AbbVie, a US pharmaceu-

ticals company, argueshealthcare expendi-ture is too often seen

in a narrow contextpurely as an economic

cost.Health expenditure can, in fact,

reduce other welfare costs, speed thereturn to work for patients, “and gener-ally improve productivity”, argues MsHarney.

However, she is in no doubt aboutwhat is at stake unless more emphasis isplaced on prevention, early interven-tion and a redesign of how healthcare isdelivered.

“Intheabsenceofradical change,carerationingmaybeinevitable,”shewarns.

Financial crisis creates freshproblems for care providersEurope

Policy makers across thecontinent face starkdecisions, says Sarah Neville

Under the stethoscope: carerationing may be inevitableSean Gallup/Getty Images

FT Health Sustainable Healthcare

J apanese companies fromHitachi and Toyota to DaiwaSecurities are turning to digitalmedical records to tackle thedilemma of how to sustain one

of the world’s most generous healthcaresystems while trying to cope with arapidlyageingpopulation.

Similar experiments are under way inEurope and the US, but Japan is a closelywatched test case as the nation grappleswith an increasingly older populationandashrinkingpoolofyoungerpeople.

Healthcare is a pillar of Prime Minis-ter Shinzo Abe’s “Abenomics” economicrevival programme, and one that mayprovetobeoneof themostchallenging.

At Uchida Yoko, a Tokyo-based edu-cation and office equipment supplier, itshealth union — an insurance scheme towhich all employees of private-sectorcompanies belong — started storing theresults of workers’ medical examina-tions on a cloud-based database lastyear. Data analysis allows the union tospot those at risk of diabetes and otherillnesses and ensure they see medicsbeforeconditionsbecomeserious.

They also ensure employees followmedical instructions, such as additionalcheck-ups or dietary changes, to pre-ventsymptomsfromworsening.

By promoting such use of digitalisedpatient records, the government hopeshealthcare resources will be allocatedmore efficiently and medical costsreducedthroughpreventivecare.

While Japan does not have cradle-to-grave medical records, large amounts ofdata exist since companies and the state

are responsible for ensuring employeesand citizens undergo yearly healthchecks.

“The problem is the data are not inte-grated,” says Yuji Yamamoto, chiefexecutive of MinaCare, a healthcarestart-up. His company provides health-care consulting services and developedthe medical database system at UchidaYoko and Lawson, a Tokyo-based con-veniencestoreoperator.

Such initiatives are also being pro-moted by large technology companiessuch as Hitachi, Toshiba and NTT Data,which offer services to manage medicaldata. If health data are used moreefficiently by companies and by thestate, Japan should be able to preventmorediseases.

Before the changes at Uchida Yoko’shealth union, one nurse was lookingafter 7,600 employees and their fami-lies. The nurse would notify membersabout upcoming health examinationsbut did not have the time to follow up onwhether or not they went and whetheranyadditional treatmentwasnecessary.

To tackle these problems the com-pany raised insurance premiums andalso received a government subsidy of$125,000, which covered the cost of cre-ating thedatabaseusedtoanalysemedi-calcostsandresultsofhealthcheck-ups.

“It’s an effective system to supportspeedy and precise health services atcontrolled costs,” says Yoshio Nakaie,secretary-general of Uchida Yoko’shealth insurance union. The number ofUchida Yoko’s employees and familiesreceiving medical examinations hit a

high of 92 per cent last year, comparedwith 86 per cent in 2009. Efficiencyimprovedandstaffcostswerereduced.

Japan has one of the most egalitarianhealthcare systems in the world, saythose who compare global systems, andithasaffordablemedicalcosts.

The country introduced universalhealth coverage in 1961, making thesystem especially generous forolder people. In 2000, it introducedmandatory insurance funded bytaxation for long-term care services, asthe country began to worry about itsageingpopulation.

Total health spending accounted for10.3 per cent of GDP in Japan in 2012,compared with 9.3 per cent in the UKand 16.9 per cent in the US, the Organi-sation for Economic Co-operation andDevelopmenthassaid.

“In the US, healthcare is not a rightbut something you have to purchase,”

says John Traphagan, a professor at theUniversity of Texas and an expert onJapan’sageingpopulation.

Prof Traphagan adds: “In Japan, thereisaculturalmindset thatahealthy,well-educated population is a form ofnationalsecurity.”

However, he says Japan’s ageing soci-ety and the smaller number of youngerpeople are disrupting existing struc-tures. Already one in four of Japan’s130m population is aged over 65. Thiswill rise to one in three in 20 years. And,while spending on healthcare per capitahas been among the lowest of advancednations, that isalsostartingtochange.

Dr Yamamoto and others say Japanmust address concerns about patientprivacy and train more health profes-sionals — including people who can ana-lyse the data — so that preventive carecan spread beyond a small number ofJapanesecompanies.

World watcheshow Japanmanages itssilver citizensAgeing Companies and the state are using data toprovidemore preventive care, writesKana Inagaki

Japan (46.5)

3,649

Germany (46.3)

4,811

Greece(43.5)

2,409

Slovenia (43)

2,667

Switzerland (42.3)

6,080

Belgium (41.9)

4,419

Estonia (41.3)1,447

South Korea(40.5)

2,291

Poland (39.4)1,540

France (41)

4,288

Finland (42.6)

3,559

Spain (42.2)

2,987

Denmark (41.5)

4,698

Sweden (41.2)

4,106

UK (40.5)

3,289

Canada (40.5)

4,602

Hungary(41)

1,803

Czech Rep(40.9)

2,077

Italy (45)

3,209

Austria (43.3)

4,896

Numbers in circles show health spending per capita ($). Median age in bracketsTop 20 OECD countries with the highest median population age

FT graphic. Source: OECD; UN

‘In Japan,there is amindsetthat ahealthypopulationis a formofnationalsecurity’

In Mumbai and other Indiancities, a simple technology ishelping combat the effects ofa fragmented, underfundedpublic healthcare system byimproving diagnosis andtreatment of one of theworld’s most lethal diseases.

Private doctors were able touse mobile phones to call aspecialist centre and receivee-vouchers — provided by theBrihanmumbai MunicipalCorporation — for patients.

In recent, months more than3,000 people received free,appropriate medicines to treattuberculosis. Madhukar Paiand Puneet Dewan, healthspecialists, have described thescheme in an issue of theonline journal PLOS Medicine.

They say: “New models areneeded to engage informaland private sector healthcareproviders, who dominate thehealthcare marketplace inhighly privatised healthmarkets. National diseasecontrol programs, focused onpublic sector health services,have left these frontline careproviders severelyunderutilised in TB control.”

This new approach seeks torefocus attention andresources on earlyidentification of infection andits more effectivemanagement, and to identifyproblems with treatmentbefore they become too great.

It attempts to remedy thewidespread underdiagnosisand inconsistent treatment ofthose in India with TB, adisease that kills 1.5m peopleeach year globally.

A third of its victims havedrug-resistant strains, partlydue to inconsistent use — orinappropriate dispensing of —medicines. Much of this is theresult of unsuitableprescriptions by privatepractitioners and drugs thatare too expensive for patients.

The good news is awillingness by politicians in

countries such as SouthAfrica, Nigeria and China toallocate more of their ownresources to fund a publichealth response to TB.However, many donor nationsare also reducing support.

Lucica Ditiu, head of theStop TB Partnership, says:“Sustainable healthcarerequires investment inprevention, detection andresponse. We are in a differentplace for global visibility, withgovernments makingdomestic investments in theright areas. But it’s likewalking on a wire — you aremoving forward but any windwill dislodge you.”

She highlights concernsabout “graduation” fromdonor programmes. As lowerincome countries’ economiesgrow, this makes themineligible for future grants.

And what applies to TB isequally relevant for otherdiseases. As Médecins SansFrontières said last month:“The Ebola outbreak [was] anexceptional event thatexposed the reality ofhow . . . slow health and aidsystems are to respond toemergencies. ‘Business asusual’ was exposed on theworld stage, with the loss ofthousands of lives.”

Andrew Jack

India Simple idea helps combat TB

Medicine time: a womantaking an anti-TB drug

The real threat to healthprovision resulted from thefinancial crisis of 2008