Presentation for Ethics in the workplace case competition

1. A Discussion on
Regulations in Pharma
Industry
Honesteam | April 2017
Eli Lilly & Company

2. Eli Lilly & Company
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Overview | Cost Transfer | VBP | New Index | Conclusion
Overview
Broad representation of the pharma industry
Continues to increase business operations
Has experienced setbacks associated with the
current structure of the pharma industry

3. Industry Overview
The Debate: Price VS.R&D
126%
118%
118%
113%
96%
94%
67%
63%
55%
54%
Humira (AbbVie)
Enbrel (Amgen)
Copaxone (Teva)
Crestor (AstraZeneca)
Abilify (Otsuka)
Lantus Solostar (Sanofi SA)
Advair Diskus (GlaxoSmithKline)
Remicade (J&J)
Neulasta (Amgen)
Nexium (AstraZeneca)
Price Growth Over Past 5 Years
Overview | Cost Transfer | VBP | New Index | Conclusion
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4. Our Solutions
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The Debate: Benefit & Costs vs Ethical Decisions
New IndexValue Based PricingCost Transfer
Impacting Business Impacting Customer Impacting Everyone
Overview | Cost Transfer | VBP | New Index | Conclusion

5. Our Solutions
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New IndexValue Based PricingCost Transfer
Impacting Business Impacting Customer Impacting Everyone
Overview | Cost Transfer | VBP | New Index | Conclusion
The Debate: Profits vs Ethical Business Decisions

6. Cost Transfer
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FDA Incentives
Cost benefits
via grants, tax
credits,
exclusive
marketing
1/3 of Orphan
Drugs annual
sales of more
than $1 billion
• Allows for cost covering in
R&D
• Time to differentiate from
future competitors
• Money saved, profits
made can be transferred
to future costs
Overview | Cost Transfer | VBP | New Index | Conclusion

7. Cost Transfer
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Generics & Six Sigma
Prioritizing
funds in
respective
departments
Mylon Case –
Price Increase
vs Brand
Recognition
Procuring or
partnering with
PBMs
Partnership with
ExpressScripts
to reduce full
price of insulin
by 40%
Overview | Cost Transfer | VBP | New Index | Conclusion
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8. Cost Transfer
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Mergers & Acquisitions
Overview | Cost Transfer | VBP | New Index | Conclusion
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Adding 600 products and 40
projects to its portfolio
Cut costs, expand research
pipelines and lengthen geographic
reach
Lily acquisition of Novartis Animal
Health to strengthen Elanco
animal health business
Will propel its animal health unit
to No.2 position in the world
https://revenuesandprofits.com/pharma-industry-merger-and-acquisition-analysis-1995-2015/

9. Our Solutions
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The Debate: Pricing Strategy vs Ethical Price Settings
New IndexValue Based PricingCost Transfer
Impacting Business Impacting Customer Impacting Everyone
Overview | Cost Transfer | VBP | New Index | Conclusion

10. Current
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Discouraged innovation in
existing classes of drugs
33% of consumers with
benefits 59% without
benefits have admitted to
taking action to save
money on prescriptions
Customer/Society
Business/Investor
Reference Pricing and Tiered Cost-Sharing
Plans
Parker-Lue, Sara, Michael Santoro, and Greg Koski. "The Ethics and Economics of Pharmaceutical Pricing.” Havard Medical School, Jan. 2015. Web. 04 Apr. 2017.
Overview | Cost Transfer | VBP | New Index | Conclusion
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11. Issues
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Rising Prices are unaffordable
Some players act unethically when increasing
prices
Not only involved pharmaceutical firms, but also
insurers and physicians
Reference pricing understates the value of new
innovative drugs
Parker-Lue, Sara, Michael Santoro, and Greg Koski. "The Ethics and Economics of Pharmaceutical Pricing.” Havard Medical School, Jan. 2015. Web. 04 Apr. 2017.
Overview | Cost Transfer | VBP | New Index | Conclusion
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12. Value Based Pricing (VBP)
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Key Tips to
Receive Value
Keep it
simple
Focus on
appropriat-
eness of
care
Keep
transaction
costs at a
reasonable
level
Added
Value for
Patient
= Appropriateness x
Outcomes
Costs over the full cycle of care
Overview | Cost Transfer | VBP | New Index | Conclusion
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13. Feasibility
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1. Incompatible pricing structures
2. Restrictive Legislation
Two Main Barriers:
Pre-Conditions:
1. Measurable Outcomes
2. No Generic Alternatives Available
Van Den Heuvel, Roger. "Value-Based Pricing." Pricing Done Right (2016): 11-34. Value-Based Pricing. KPMG, Oct. 2016. Web. 4 Apr. 2017.
Overview | Cost Transfer | VBP | New Index | Conclusion
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14. Benefits of VBP
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Van Den Heuvel, Roger. "Value-Based Pricing." Pricing Done Right (2016): 11-34. Value-Based Pricing. KPMG, Oct. 2016. Web. 4 Apr. 2017.
Potential to
bring value to: patients,
pharmaceutical
companies, payers, and
providers
Yield better
outcomes at
optimal cost and
enhancing value for
the entire
system
Pharmaceutical
companies can become
a more integral part of
the care pathway
Overview | Cost Transfer | VBP | New Index | Conclusion
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15. Our Solutions
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The Debate: Profit & RD vs Ethical Assessment
New IndexValue Based PricingCost Transfer
Impacting Business Impacting Customer Impacting Everyone
Overview | Cost Transfer | VBP | New Index | Conclusion

16. R&D
Fuel of Sustainable Growth
Improve
Existing Drug
Differentiate
Companies
Outcompete
Other
Countries
Develop
New Drugs
R&D
Overview | Cost Transfer | VBP | New Index | Conclusion
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17. 24%
20%
15%
13%
11%
6%
3%
0% 5% 10% 15% 20% 25% 30%
Computing and Electronics
Pharmacutical
Auto
Software and Internet
Industrial Ave
Chemicals and Energy
Arospace and Defense
R&D
Spending Percentage Across Industries
(2016)
Overview | Cost Transfer | VBP | New Index | Conclusion
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18. Current Price Regulation Drawbacks
Demotivate future
investment in R&D
Less available liquidity to
reinvest in R&D
Companies lose competitive
advantage in global settings
Cannibalize future access to
more advanced drugs
All companies being
regulated under same
standards
Customer/Society
Business/Investor
Overview | Cost Transfer | VBP | New Index | Conclusion
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19. New Regulation
Current Year
Profit Margin(PM)
Next Year
Money Reserved for R&D Percentage
<10% No Regulation
10%-15% Equal to Last Year PM
15%-20% Last Year PM + 2%
>20% Last Year PM + 3%
>30% Last Year PM + 5%
Profit Margin=Net Profit / Total Revenue
R&D Percentage=Money Reserved for R&D / Total Revenue
“R&D Savings Account” to park unspent excess R&D funding
Overview | Cost Transfer | VBP | New Index | Conclusion
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20. Profit & R&D Spending
Comparison Within Pharma Industry (2014)
13%
15%
13%
24%
12%
17%
14%
17%
17%
43%
22%
21%
20%
19%
16%
11%
10%
10%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Pfizer (US)
AbbVie (US)
GSK (UK)
Eli Lilly (US)
Johnson & Johnson (US)
Novartis (Swiss)
Sanofi (France)
Merck (US)
AstraZeneca (UK)
Profit Margin R&D Spending
Average Profit Margin: 19%
Average R&D Spending: 16%
Overview | Cost Transfer | VBP | New Index | Conclusion
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21. New Regulation
Why It Is BetterCustomer/Society
Business/Investor
Less profit regulation, more
incentives to invest in R&D
Secured fund to reinvest in
R&D
Sustainable long-term
growth by investing in R&D
Access to more advanced
drugs in the future
More affordable drugs in the
future
Overview | Cost Transfer | VBP | New Index | Conclusion
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22. Risks & Mitigations
Overview | Cost Transfer | VBP | New Index | Conclusion
Risk
Companies won’t take
the high risks to solely
invest in orphan drugs
Mitigation
Risk
- Define and measure
outcome effectively
- Choose appropriate
patients
Mitigation
Risk
SEC oversees R&D
savings account;
Create auditing rules to
regulate this account to
avoid companies
finding leeway
Mitigation
FDA incentives
demotivate
company’s interests
in non-orphan drugs
Uncertainty of
implementing new
pricing strategy
Companies parking
excessive amount of
money in R&D
savings account
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23. Our Solutions
The Debate: Price VS.R&D
New IndexValue Based PricingCost Transfer
Impacting Business Impacting Customer Impacting Everyone
Overview | Cost Transfer | VBP | New Index | Conclusion
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24. Our Solutions
The Debate: Price VS.R&D
Overview | Cost Transfer | VBP | New Index | Conclusion
Business Investor
Consumer Society
Pharma
Industry
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25. Q&A
Overview | Cost Transfer | VBP | New Index | Conclusion

26. Appendix A -
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Mergers & Acquisitions
Overview | Cost Transfer | VBP | New Index | Conclusion
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Mergers & Acquisitions can be unbeneficial & unethical if company hikes up prices
Allergan controls both the branded and a generic manufacturer of the eye drop drug Pred
Forte & hiked prices by 80% due to price change in competitor Sandoz
Reported first-quarter sales increase of 12%
http://jacksonville.com/news/health-and-fitness/2014-07-08/story/prices-generic-drugs-soar-mergers-reduce-competition

27. Appendix B -

28. Appendix C -