Bob Sperber, contributing editor

		Despite the financial risks of dealing with a patchwork of laws, regulatory opposition and political uncertainty, medical marijuana appears poised to grow into a bona fide industry. The question is, will the drug fit into conventional healthcare products distribution, or remain a sketchy, wrong-side-of-the-tracks business?

		At this point in 2015, there’s no question that medical marijuana—and its fellow traveler, recreational marijuana&mdash;are a business. Research commissioned in 2013 by ArcView Group (Oakland, CA; 

), an investment network seeking to capitalize on legal marijuana, estimated the total US “national legal marijuana market” to grow from $1.53 billion to $2.57 billion by 2014 as more states adopt pro-cannabis laws, to $10.2 billion within five years. National polls from Gallup, CBS News and the Pew Research Center have found rising proportions of the public in favor of dispensing medical marijuana to patients that need it.

		Since California’s passage in 1996 of the first US state law allowing some medical marijuana use, however, a steady stream of states have imposed a patchwork of requirements on the cannabis plant and its derivatives. Today, 23 states, the District of Columbia and Guam have laws governing the stuff, with varying limits on the form, amount, usage and source of supply patients or plain-old recreational consumers (in Washington and Colorado) can have.

		Federally, inhaled marijuana remains a Schedule I controlled substance—i.e., an illegal drug&mdash;while other forms of cannabis are not. For instance, orally ingested Dronabinol (marketed as Marinol by AbbVie and as a generic by Par Pharmaceutical) has been FDA-approved since 1985, regulated as a Schedule III controlled substance. Data from IMS Health indicate that the synthetic cannabinoid class (which includes Marinol, generic Dronabinol and Cesamet, a cannabinoid marketed by Meda Pharmaceuticals) had sales of $133 million in 2014; sales volume has declined by about $9 million since 2009.

		States vary in the details. Possession limits range from one ounce (Alaska, Montana, Nevada) to as much as six (Delaware, New Mexico), eight in California and 24 ounces in Washington. Multiple states allow a reasonable quantity of plants to be grown in the home, while a conservative Florida, since last June, has allowed non-smoked cannabis oil with less than 0.8% of the psychoactive compound THC—the part that causes the “high”&mdash;and more than 10% cannabidiol, which has been shown to have benefits.

		More important than their differences are the similarities between the patchwork of state laws allowing medical marijuana. These laws generally:

			Remove criminal sanctions for the medical use of marijuana and allow some means of access (i.e., dispensaries and/or home cultivation).

			Require a physician to certify that the patient has a specific medical condition or symptom listed in the law to qualify. (Less stringent recommendations are allowed in California, Massachusetts and Maryland.)

			Protect recommending physicians, as well as designated caregivers who may assist patients by picking up medicine.

			Provide patients with a state or county ID card (following an application, fee and doctor’s certification)—with the exception of Washington state, where adults over 21 can legally possess up to one ounce of marijuana for any purpose.

		Most state laws ban smoking the stuff in public; 15 allow patients to grow some of their own, at least under some circumstances; and 17 states and Washington DC allow for state-regulated dispensing. (California has local, but not statewide licensing or regulation.)

		Several more states have laws that recognize some form of medical marijuana benefits, but with the exception of Missouri and possibly Florida, according to the pro-legalization Marijuana Policy Project (

), these laws “are ineffective because they rely on federal cooperation” and don’t include “reasonable means” for patients to obtain the substance.

		The cannabis plant and its components, in various forms, have been found to have benefits in treating neuropathic pain, spasms, seizures, nausea and vomiting, loss of appetite and muscle-mass, and more. Findings of this sort led the American Medical Association (AMA; 

) to reverse its opposition to medical cannabis, and reaffirm that stance in 2013. Three main points (truncated here) indicate that the AMA:

			“Calls for further adequate and well-controlled studies of marijuana and related cannabinoids;

			“Urges that marijuana’s status as a federal Schedule I controlled substance be reviewed with the goal of facilitating the conduct of clinical research and development of cannabinoid-based medicines,” and

			“Urges NIH, DEA and FDA to develop a special schedule and implement administrative procedures to facilitate grant applications and the conduct of well-designed clinical research…with the goal of facilitating the conduct of clinical research and development of cannabinoid-based medicines, and alternate delivery methods.”

		The federal government may have listened, and Congress may be doing something about this sea-change, but it’s still too early to tell.

		On December 15, 2014, both houses of Congress approved the $1.1-trillion “CRomnibus” bill—the hybrid Continuing Resolution and omnibus spending bill to keep the federal government afloat while the pols continue fighting. It contained two amendments (or riders) concerning medical marijuana. One appears to have reversed Washington, D.C.’s November Initiative Measure 71 referendum to decriminalize pot. The other amendment seems to have offered some protection to state medical marijuana laws. This rider appears to forbid the Justice Department from interfering&mdash;or at least spending money to interfere&mdash;with the legalized marijuana laws of 23 states (and District of Columbia), as well as 11 more states that have legalized CBD oils.

		The Drug Policy Alliance and the Multidisciplinary Association for Psychedelic Studies noted a regulatory Catch-22 in a report last year, The DEA: Four Decades of Impeding and Rejecting Science. It wrote that while arguing for decades “that there is insufficient evidence to support rescheduling marijuana or the medical use of marijuana,” the DEA and the National Institute on Drug Abuse “acted in a manner intended to systematically impede scientific research.” This includes tightly controlling and limiting the quantities, as well as strains of the plant, made available for effective research.

		GW Pharmaceuticals (Cambridge, UK) has launched its Sativex product for cannabinoid medicine for treating MS spasticity and cancer pain in 15 countries, and has been approved in 12 more. The drug gained Fast Track designation in 2014 from the FDA for the treatment of chronic cancer pain. Additionally, GW’s Epidiolex investigational drug program to treat orphan syndromes gained FDA orphan drug status for forms of epilepsy. Clinical trials are underway.

		No prescription plant-based cannabis is approved in the US currently. “The reason why we’re able to test it in the US is that we go through the FDA and the DEA. It’s onerous, but it’s the proper path to test these medicines,” said Stephen Schultz, VP of investor relations. If approved, these drugs are likely to be regulated as Schedule III, as is AbbVie’s Marinol.

		GW manufactures the medicines at its “undisclosed location” in England and imports to the US under DEA license. The company keeps “very detailed records” under FDA’s requirements, as it does for European regulators, which inspect the plant. Schultz expects the FDA will do the same for medicines developed for US approval, during the approval process and beyond.

		Insys Therapeutics (Chandler, AZ) is another newsmaker, having received DEA approval to synthetically manufacture its pharmaceutical grade cannabidiol (CBD) last fall. The company had also been granted a quota to produce 15 kg of CBD in 2014, and expects a larger quota in 2015 for its continued clinical studies. The company uses a proprietary sublingual spray technology to market two products: Subsys, a fentanyl sublingual spray for cancer pain, and a generic version of Dronabinol (THC) capsules. A liquid Dronabinol oral solution touted to improve upon soft gel capsules is planned. Also in the pipeline are sublingual sprays and pharmaceutical cannabidiol. In September 2014, FDA granted orphan drug designation Insys’ CBD for the treatment of glioma, which comprises approximately 80% of all malignant brain tumors, according to the company.

		Medical Marijuana, Inc. (San Diego, CA), Cannabis Science (Colorado Springs, CO), KannaLife Sciences (Huntington, NY) and AXIM Biotechnologies (New York) are among the publicly-traded companies pursuing refined cannabinoid products, but as OTC rather than prescription products. Some of them, and others, are planning to use compounds derived from hemp (which has been defined as cannabis products that contain less than 0.3% THC).

Pharma approach misses whole-plant synergy

		Hundreds of natural constituents have been identified in the Cannabis plant, including tetrahydrocannabinol (THC), cannabidiol (CBD), cannabigerol (CBG), cannabichromene (CBC) and cannabinol (CBN). While more research is needed, proponents of medical marijuana say the interaction and synergy of the plant’s components—known as the “entourage effect”&mdash;are superior to the typical drug R&D methods seen in traditional pharma and biotech, which tends to isolate single isomers or other components as active ingredients.

		But Marinol is only THC, and only one form of it and its effectiveness is questionable according to David Wright, president and CEO of AltMed (Sarasota, FL; 

), who says “the pharmaceutical industries will try and step into this arena as medical marijuana becomes more accepted.” He and co-founder R. Michael Smullen previously worked at MedImmune, a bio-pharmaceutical company AstraZeneca acquired in 2007 for $15.6 billion. (They formed the company after Smullen learned of the low-THC cannabis cure known as “Charlotte’s Web,” named for a girl who, like his 15-year-old daughter Kayla, suffered from epilepsy.)

		Wright has said that it’s “very unlikely” such products “will ever be as effective as the whole plant,” at least until more research can be done to understand how different plants with their varying levels of THC, CBD, CBN and other substances, affect specific patient conditions.

		While R&D efforts continue in traditional pharma labs, Morgan Fox, spokesman for the Marijuana Policy Project (

), says patients deserve access to whole-plant marijuana in any form they see fit, without further ado: “Rather than try to replace marijuana in the pharmacopeia with other substances or isolated compounds, companies should be considering the prospects of new research into whole-plant marijuana and the potential medications that could be produced.”

Articles

It's still early days in making medical marijuana--and cannabis-based pharmaceuticals--part of normal dispensing

Medical marijuana looks for a place in conventional drug distribution

A PDI study shows that the count of patients on product,

						per physician, increases when the synergistic effect of combined

						rep calls and e-detailing occurs. Credit: PDI

		In the past couple years, the contraction of field sales forces appears to have stopped, and a jump in FDA-approved products during calendar-year 2012 might signal a thawing in sales force recruitment. Along the way, contract sales organizations (CSOs) have both suffered the same lowered emphasis on face-to-face selling, and benefited from companies looking to lower costs by replacing in-house sales with outsourced teams. Now, CSOs are looking at brighter prospects.

		“Three years ago, about 8% of the US sales force was outsourced, but there were also about 100,000 representatives out there. We’ve seen that grow to about 11%, but there are only about 60,000 to 65,000 representatives out there today,” says Paul Mignon, president of inVentiv Selling Solutions (Somerset, NJ, www.inventiv.com). “I think we’re near the bottom of [downsizing], but I do anticipate the outsourcing to increase,” he adds, due to the ability of CSOs to ramp-up and provide a flexible resource to brands, and to do so in an efficient manner to lighten in-house IT loads.

		What caused an end to the so-called “arms race” of the last decade? A rethinking of reach and frequency, says Frank Arena, SVP sales and client services for PDI, Inc. (Parsippany, NJ, www.pdi-inc.com). He maintains that sales strategies are smarter and more effective than they were when personal calls per healthcare provider (HCP) reached 36 times a year or as high as 80 for some of the blockbuster brands. “Those days are part of pharma history as we now move to better integration and different channels to reach physicians,” he says. “Rather than just bombarding physicians with personal calls,” frequency can be reduced while personal calls can gain greater reach, or impact, “by integrating voice/teleservices, e-marketing tools and mobile apps to keep the dialog going with the HCP in between the personal visits of the sales professionals.”

		Globally, pharma CSO revenues grew at a compound annual rate of 12% to 17% for most of the last decade, per IMS Management Consulting, which in 2010 projected present-day growth to be in the area of 16%. The most recent research from Visiongain (London, www.visiongain.com) pegs the global growth rate at 8% from 2011—2017 in its latest study, “World Pharmaceutical Contract Sales Market 2013–2023,” released in November. The firm’s figures are more conservative, showing CSO market growth from $3.2 billion in 2010 to an expected $3.9 billion this year.

		That may be due to research methodology, or something else. Reports put European pharma outsourcing at close to one-third of the sales force, however, the current US level of outsourcing, about one-tenth, is set to grow due “not only to increasing pressure on manufacturer pricing but also increasing drug sales volumes and ensuing compliance requirements,” James Vane-Tempest, equity analyst at Jefferies & Company observed in late 2011. At that time, PDI CEO Nancy Lurker told the financial community that the CSO market had “shrunk over the last, let’s say, three to four quarters” as downsizing and patent losses took their toll on the industry.

		The US will remain the largest market for the next decade, but while more than 75% of CSO revenues came from the US and Europe in 2011, the BRIC nations (Brazil, Russia, India and China) and other emerging markets appear to be driving global growth. Asia is a high-growth market for some, including inVentiv, particularly Japan, where since 2010, the company put 60,000 reps on the street to become the No. 2 CSO.

		Visiongain’s Richard Lang, pharma industry analyst, cites global leaders inVentiv Health, Quintiles (Research Triangle Park, NC, www.quintiles.com) and United Drug (Dublin, Ireland, www.united-drug.com) as key beneficiaries, and reported: “Outsourcing will provide local expertise in market access and sales models. Fast growth is forecast for all four of the BRIC nations, in terms of contract sales, to 2023.” Other findings through 2021:

			Contract field sales teams will continue to be the most in-demand service, accounting for over 70% of the market.

			China will overtake all leading European markets to become the third largest national pharmaceutical contract sales market, behind the US and Japan.

			Key pharma trends affecting CSOs include greater development of specialty medicines, blockbuster patent expiries and biosimilar development.

			Technology will play an increasingly important role, leading to more efficient face-to-face detailing, customer relationship management and new approaches to therapy promotion.

		Over the past few years, greater capabilities in specialty medicine capabilities, broader services, greater integration with personnel in multiple channels or departments, and greater contract flexibility have marked the evolution of the CSO business. The very term “CSO” can only be used as a catch-all in light of the range of outsource solutions offered.

		Most if not all Big Pharma firms are active at least in some way with CSOs, often more than one at a time due to their diverse brand portfolios. Off-record sources summarize some of the action thusly: Merck, a pioneer in outsourcing, is promoting established products in a way that makes it one of the top two in the industry in terms of how they’re maximizing their CSO value. AstraZeneca is paving the way with outsourced cross-channel promotion across various assets in the field as well as non-personal, digital assets, while Pfizer has multiple initiatives underway including some specialty medicine outsourcing.

		CSOs at their core still recruit, train and track sales and marketing operations, performance and compliance of sales teams to meet specific goals for products and markets. Pharma companies tend to outsource less strategic assets marketed to primary caregivers so, for instance, the CSO can wring the last few years of profitability from a mature product approaching patent expiry, but there are exceptions that hint at a growing role for outsourcing.

		“We firmly and truly believe that one size doesn’t fit all,” says Rick Keefer, president of Publicis Touchpoint Solutions (Yardley, PA, www.touchpointsolutions.com). “Every one of our solutions is custom built to meet the client’s objectives.” Reps aren’t interchangeable; once a team is in place, they aren’t “flipped,” he adds, and “more times than not in today’s times, it is a multichannel or cross-channel solution.”

		Today, pharma companies do outsource some specialty work. “Pharmas still want to own their true specialty reps—infectious disease, transplant reps, high-end oncology reps&mdash;and it probably makes sense for them to continue to own those,” Keefer says. “But I think in the not-too-distant future they’re going to look at their outsourcing partners as a virtual company.”

		“More and more clients are coming to us to launch major new brands,” PDI’s Arena adds, citing two 2012 contracts; one a Top Three global pharma company and another an emerging pharma client launching a product in a category in which there had not been a new entry in over a decade. Likewise, inVentiv reports that of the about-100 teams it mobilized in the last five years, 31 were for launches.

		As CSO expertise grows so do their areas of expertise, from physician calls to hospitals and managed care including buying groups as well as private and public payers.

		The diverse menu of services threatens to have pharma execs glazing over with pitches to win their contracts. In response, CSOs have been working to differentiate themselves. They have restructured, acquired (or been acquired); they have partnered with others to expand their services or market reach; they have upgraded their IT capabilities; and they have continued to differentiate themselves.

		While contract sales may be “the heart and soul of who we are and what we’ve done for the last 25 years,” PDI’s Arena says the company will “very often up-skill” in-person calls with services from across its various business units, including inbound and outbound voice/teleservices to support vacancy management and white space coverage; leveraging state-of-the-art digital communications; clinical and nurse educators; and medical science liaisons (MSLs). Among leading firms, these are joined by a range of add-on services such as delivering samples; marketing communications; market research; and analysis.

		Compensation models vary as greatly as levels of service, from a pharma company buying a syndicated, or essentially a part-time slice of a team that may be representing multiple products on one end of the contract services spectrum, to giving a CSO full responsibility for sales and marketing from pricing strategy to management to ongoing pharmacovigilance.

		The simplest contracts for the simplest rep services are based on a fee-for-service structure, with compensation tied to easily discernible actions. Basing compensation on the number of physician details completed is a bit simplistic these days; instead, CSOs will negotiate a fixed fee based on the cost of running a sales force, and this management fee can be adjusted periodically, even monthly. The trend, however, is for the CSO’s compensation to be at least partly “at risk,” or tied to performance results such as growth in sales revenue, market share, increases in filled scripts or other goals that can be measured against established benchmarks. Generally, the more control a CSO has over product sales, marketing and related services, the more of its management fee it will be willing to put at risk.

		“I fundamentally believe that outcomes are becoming a huge driver of this business in the future,” says inVentiv’s Mignon. Diversifying and offering the right menu of integrated services is key to brands and CSOs alike in spending sales investments wisely and achieving the desired result. Not pleading modesty, he adds that his company’s vision is to provide pharma clients with “everything except for coming up with new molecules, owning the NDA and manufacturing.”

		“On the face of it, a CSO would seem to prefer a fixed fee-for-service contract, but in the last couple of years, we’ve been getting a lot more requests for risk-share deals, where we share a significant portion of the cost of commercializing the product, and share the royalties on the back end—and not just from small or emerging firms, but large pharma companies,” says Publicis’ Keefer. But for a CSO to risk it all, it needs to consider factors it hasn’t traditionally been able to control, from the number of samples, the marketing budget and more.

		An all-encompassing outsourcing contract can, however, include giving the CSO full control. For instance, a small firm may have in-house R&D, and gotten as far as FDA-approval for a given drug, but lack the infrastructure for the rest; leading CSOs now offer the ability to handle full commercialization using their own resources, or partnering with others to get the job done.

		PDI, for instance, has its own third-party logistics service. Quintiles, with 27,000 employees in 100 countries, offers CSO services in its diversified therapeutic, scientific and analytics portfolio. So does inVentiv, which is also known for its integrated healthcare communications business...as is Publicis Touchpoint Solutions, whose global ad-agency parent in July announced a $35-billion merger to create an even bigger marketing confab, Publicis Omnicom.

		“If a pharma company is looking for a combination of detail reps and telesales, and there’s a lot of uncertainty about what capacity they need, then they go for CSO,” says Dharmendra Sahay, managing principal at ZS Associates (Evanston, IL, www.zsassociates.com). “But if they’re looking for key account managers, and they don’t know how many, I would advise them to continue to do their due diligence, because traditionally, CSOs don’t have that kind of capability.” Is this capability emerging? he asks. “If you read the press, then for sure it is, but companies need to look very closely at what’s really happening on the street.”

		Information technology plays a role in quick start-ups as well as long-term efficiency.  While in-person selling remains a primary revenue generator, non-personal selling, increasingly driven by IT solutions, is faster growing as multi- or cross-channel teamwork becomes a requirement for reps, nurses, MSLs and others to gain instant access to changes on the brand, CSO and physician side of the selling equation can be updated immediately, “as opposed to waiting for a monthly report. It’s very timely and important to know this information immediately,” says ZS Associates’ Sahay.

		“Everybody’s doing something they call e-detailing. If you ask 10 people, you’re going to get 10 different definitions of what e-detailing is. But it’s become pretty common now,” says Publicis’ Keefer. Early efforts start with computer or mobile apps that provide self-guided detailing and consumer education presentations and questionaires via web and/or mobile apps, in addition to live chats, calls and web video conferences.

		“In the IT industry, it’s more or less winner takes all,” he said, citing SAP’s status as the 800-pound gorilla in the enterprise software space and, in turn, the dominance of Veeva Systems (Pleasanton, CA, www.veeva.com). The software firm gained traction over leader Siebel Systems, acquired in 2005 by Oracle, in large part for its Software as a Service (SAAS) or cloud-based platform for life sciences-targeted customer relationship management (CRM) and easier roll-out and scalability for small to large sales forces. There are others, with general and pharma-specific areas of focus.

While riding the same downturn as overall pharma sales-rep headcount, contract sales organizations (CSOs) have invested in IT competency and marketing services to meet client needs

CSOs broaden their palette of service offerings

On its own, the animal-health business, growing at roughly 5% annually for the past several years, would not be considered a hot investment opportunity. But by comparison with the human-health pharma business—which actually went negative in the US in 2012, according IMS Health—5% growth in a stable, essential business is attractive. Thus, when Pfizer spun out part of its animal health business, now branded as Zoetis, raising $2.2 billion for 20% public ownership (Pfizer retains the rest), Wall Street voiced its approval. Zoetis’ stock continued to rise through early March, and Zoetis is now “the largest standalone company fully devoted to animal health medicines and vaccines,” as Pfizer CEO Ian Read noted.

Other ownership reshufflings have proceeded apace. Bayer put down $145 million ($60 million up front) for Teva Animal Health in January, thereby getting a stronger presence in generics for both the pet (companion) and livestock (production) animal markets. This deal follows Bayer’s 2012 acquisition of KMG Chemicals’ animal health business.

Also in January, Neogen (Lansing, MI) announced the purchase of genotyping pioneer Scidera Genomics (formerly MetaMorphix/MMI Genomics), for an undisclosed sum. Neogen, itself a leader in diagnostic products, pharmaceuticals, veterinary instruments and vaccines, also acquired animal health firm, Macleod Pharmaceuticals (Fort Collins, CO) last October.

One animal-health player that won’t be making any divestiture moves is Eli Lilly, with its Elanco division, which saw 18% growth for the quarter and has been a profitable unit in the face of human-pharma generic competition: “We have no intentions of divesting that business through a sale or public offering,” Derica Rice, Lilly CFO, told Wall Street analysts recently, adding that plans call for doubling company revenue in coming years.

With revenues from the top 20 manufacturers generating by some accounts about 85% industry sales, and generics flattening revenues for once-protected proprietary blockbusters, the current business environment is stable but slow-moving.

Worldwide animal health sales grew roughly 5% in 2012 to top $22.5 billion (excluding nutritional feed additives). North America led with a 38% share, followed by Europe (34%) and Latin America (12%), according to animal-health management consultant Ron Brakke, of Brakke Consulting, Inc. (Dallas).

“For the past five to seven years, almost all the growth in the US market has been in companion animals,” Brakke says, noting small single-digit gains in the pet sector over this period. Today, the US pet and production animal health sectors are tied with a 45% share of market sales, with equine sales accounting for the remaining 10%. The same is likely true of the worldwide market, where the pet/production market share split is 43%–57%, but includes equine business in the latter. Generally speaking, the production-animal-health market, at least in the developed world, cycles up and down based on food-industry trends and animal growing conditions. Companion-animal markets have been rising steadily for years.

In keeping with the creeping gains on the companion side of the market, Americans spent an estimated $12.6 billion on pet supplies and OTC medicines combined, up 6.7% from 2011, per the American Pet Products Assn. (Greenwich, CT; 

). APPA’s growth numbers for veterinary care products including prescription drugs, have remained flat in recent years; growth was 2.9% in 2011 and 1.3% in 2012, ending 2012 with revenues of $13.6 billion. Among the factors contributing to the malaise, live-animal sales went flat in the recession and remain so. On the upside, food sales and pet supplies are both “trending up nicely,” and supplements and alternative health products and services “are going through the roof,” says APPA president Bob Vetere.

2012 was mixed for the US livestock market. Dairy cow and pig inventories rise and fall somewhat erratically. Bovine numbers continue a years-long decline. However the “other white meats” are up with swine numbers on the rise, and poultry broilers continuing a decades-long upswing. A hopeful Brakke believes 2013 “should be an excellent year” if drought ends and grain prices fall in livestock producers’ favor.

Parasiticides, antimicrobials and vaccines are among the top-selling animal health product categories for both companion and production sectors, with the pet space driving analgesic sales and livestock needs driving production enhancing products.

Online retailers, big box retailers and a sluggish economy also hurt revenues for vets and their suppliers. Additionally, traditional mom-and-pop practitioners are facing tough competition with large veterinary chains such as Banfield Pet Hospital with more than 800 locations, and VCA Animal Hospitals with more than 540 locations. Much as Home Depot and Lowe’s put local hardware stores out of business, the rise of these chains “changed the ballgame significantly with their economies of scale,” says Jennifer Landini, practice manager for Heal Veterinary Clinic (Chicago).

As vets face stiff competition from each other, they also face the challenge of a sustained decline in pet owner visits through the latter half of the 2000s. The latest (2011) research finding by Bayer’s Animal Health Division found that 56% of pet owners believe that their vets don’t clearly explain when they should bring their pets in for procedures or tests.

Another threat comes from market dynamics that directly affect manufacturers and their own marketing efforts. Flea and tick treatments are the prime example, led by products including Bayer’s Advantage and K9 Advantix that remain in heated competition with Frontline and a plethora of additional generic-based competitors.

Where there are heated market battles, there are also legal battles and their consequences. For example, a 2011 recall and production stoppage by Sergeant’s Pet Care Products led to shortages of Frontline Plus-type fipronil-methoprene products in the marketplace. (Fipronil kills adult pests; methoprene kills eggs and larva.) Complicated patent infringement litigation ensued between Sergeant’s and Sanofi’s Merial, the latter marketing Frontline Plus through contract manufacturers including Velcera, whose subsidiary FidoPharm produces PetArmor Plus.

Sergeant’s won in its efforts, but by October 2012, OTC drug-maker Perrigo Co. (Allegan, MI; 

), acquired the company for $285 million. Within four months, Perrigo also announced an agreement to acquire Velcera for $160 million cash.

Joining the fight over intellectual property and generics, product diversion is also hotly debated as flea and tick treatments and other hot-selling pet products intended only for sale to veterinarians often find their way to unauthorized online retailers.

When FDA actions caused Novartis to suspend production in December, 2011 at a key OTC facility in Lincoln, NE, it caused nationwide stock-outs for leading animal health brands including Interceptor (milbemycin oxime), Sentinel (milbemycin oxime/lufenuron) and Deramaxx (deracoxib). Despite months of lost production, products seemed nonetheless abundant for Sentinel, Interceptor and perhaps other drugs through non-authorized retailers including Doctors Foster & Smith.

Novartis insisted it did not sell these products to the unauthorized outlets, which would be in violation of its policy to sell them only through the “ethical veterinary channel.” This channel refers to barring sales of specified nonprescription—OTC—drugs to sources other than veterinarians. Similarly, a Merial customer support representative told 

 that while the company won’t knowingly sell Frontline products to the likes of Walmart and Target online or otherwise, “I’ve seen invoices for Frontline products from those retailers,” despite Merial’s policy to the contrary. So where do these retailers get non-authorized products—gray-market product diversions involving veterinarians supplying aggressive brokers or distributors? Manufacturer or distributor personnel who are ignorant of, or in violation of guidelines? The answer is unclear.

In any case, it would seem that “ethical” agreements could become vestigial reminders of a time before the explosion of retail supply channels. For these OTC drugs, the main ethical breech is contractual, since it is not in violation of legal standards for a broader swath of retailers to sell OTC drugs.

A somewhat related issue regarding prescription pet meds is that of prescription portability, which if legislated would require veterinarians to provide prescriptions as well as written disclosure to let pet owners know that the prescription can be filled anywhere, not just the vet’s dispensary. Congress has considered H.R. 1406, the Fairness to Pet Owners Act introduced in April of 2011, and the FTC held a public workshop to address the issue, but neither seems to be producing any imminent action.

Manufacturers would seem to be on the sidelines in the portability fight, evidenced by a lack of advocacy on the issue. APPA has been neutral because its manufacturer members “haven’t expressed a cohesive message,” Vetere says.

The American Veterinary Medical Assn. (Schaumburg, IL; www.avma.org) “actively opposes” any federal portability law, which would be ”unnecessary and redundant,” says Dr. Lynne White-Shim, assistant director for the AVMA’s scientific affairs division. “I have no knowledge of this being a problem,” she adds, indicating that veterinarians already practice portability as a 

 standard in keeping with AVMA’s longstanding guidelines.

AVMA is more eager to see FDA move forward with its Unapproved Drugs Initiative, specifically by approving and making more pet medications available for the animal health market as opposed to allowing extra-label and off-label uses of useful, appropriate human drugs. “Having legal homes for these drugs within FDA could potentially encourage the industry,” White-Shim says, “to spur more manufacturing and marketing of animal health innovations.”

The supply-chain landscape for animal health. 

In addition to treatments, animal health distributors also offer diagnostics, including reference labs, instruments, consumables and test kits. This category grew 6% last year to top $1.8 billion, up more than 250% since 2005. That 6% was driven by Idexx Laboratories (Westbrook, ME), the largest player by orders of magnitude with 2012 revenues of $1.3 billion, offering Wall Street guidance of 8.5% or more growth for 2013.

Brakke says diagnostic areas to watch include investments in IT (from communications to mobile) as well as supply chain alliances with distributors such as MWI (Boise, ID), with 2012 revenues of $2.1 billion, up 32.6% from 2011, partly owing to the pursuit of formal, sometimes exclusive, partnerships with diagnostic suppliers as well as drug-makers.

To avoid product diversions, at least coming form the source, manufacturers police their ethical veterinary channels by integrating their ERP-level customer lists and requirements with distributors using do-not-sell lists. These designate which SKUs can be sold to which customers. Such considerations as well as electronic ordering, inventory and logistics management, and lot/batch tracking follow standards such as XML schemas and EDI standards managed and updated by the ANSI/ASC X12 committee (

Beyond unit-level serialization coming to human pharma, more drugs in the animal health supply chain will see serial numbers at the vial and retail-pack level. While serialization isn’t on the regulatory radar screen for animal health, neither will it be a technical hurdle if that day comes.

“There are no substantial differences between supply chain processes for animal health and human health,” says Steve Epner, founder of Brown Smith Wallace Consulting (St. Louis; 

), which researches and offers software selection consulting to distributors.

Squeezed between Big Pharma manufacturers and retailers that now include animal pharmacy programs by big box stores such as Walmart and Target, and online retailers such as 

, Doctors Foster & Smith and many more, Epner says “distributors have very little power; they have to do whatever their trading partners tell them to,” and therefore seek to gain competitive advantage “with any services they can to make them easier to deal with.”

To that end, distributors are offering online ordering systems, regulatory compliance and other services. Leaders have implemented electronic ordering and inventory control systems. Animal Health International (Greeley, CO; 

), sells automated micro-ingredient machines for livestock feed additives to its production-animal customers.

A broader industry response is underway to create an industry standard repository for all pet industry product data uploaded by manufacturers and shared across 6,000-plus pet industry retailers and distributors. Put forth by the Pet Industry Distributors Association (

), this Pet Industry Database (PIDB) venture would replace the need for manufacturers to transmit data to each individual customer with a single upload to the system, which would integrate ERP, inventory and promotional systems from factory to store shelf.

PIDA says the database so far includes 190,000 products, and will lead to higher fill rates, reduced ordering errors, greater customer satisfaction, increased sales “and a much more effective way for consumers to find and consider your products online,” according to a joint letter from Steve King, PIDA president and APPA’s Vetere.

Future PIDB plans call for retailer point-of-sale system interfacing for electronic ordering, and development of a store-locator portal for consumers to find manufacturers’ products. PIDA promotes the system and 

 to manufacturers as “a single distribution point for all product information, review, pictures, marketing materials, and offers.”

“Ten or 15 years ago it wasn’t uncommon for major pharma companies to bring out three or more new products a year. Today, you might be lucky to get one every year or every other year,” says Kevin Pohlman, president of sales and marketing at Animal Health International (formerly Lextron Animal Health). But he still sees “tons of opportunities... Technology changes every day, and I’m sure things will emerge in the next five to 10 years that we haven’t even begun to think about.”

R&D has dipped and remained flat perhaps due to consolidation: “It can be a challenge for companies dealing with consolidation to stay focused on the marketplace as they work to get their organizational ducks in a row,” Pohlman says. “It’s not necessarily a bad thing, though,” he adds. His own employer, Lextron Animal Health, acquired and took the name of Animal Health International last year, which he says has been “a good thing” for the greater resources it brought.

Between the last two industry surveys in 2008 and 2011 by market research firm Packaged Facts (New Orleans, LA; 

), results showed a paucity of exciting announcements “beyond a couple of new cancer drugs,” says David Lummis, senior pet market analyst. “I haven’t seen a lot of horn blowing about new drugs in the pet space, including the area of lifestyle drugs pharmaceutical manufacturers pinned their hopes on a few years back.” Big brands in recent years failed to capitalize on consumers’ bond with their dogs with products like Pfizer’s Slentrol (weight management) and Cerenia (motion sickness), and Eli Lilly’s Reconcile (fluoxetine/Prozac) for separation anxiety.

Research shows no concrete reason for the failures, but experts don’t deny that despite the brands’ considerable online promotions and consumer education campaigns—including videos moderated by veterinarians—the decline in vet visits and the proliferation of market channels may be factors in a disconnect between pharma brands and consumers. If so, the solutions may come with both tighter partnerships between supply chain partners as well as a more holistic go-to-market strategy.

Leveraging human drugs for the animal market remains a mainstay of opportunity and the “greatest pipeline for innovation,” according to Stephen Rothenberg, consultant with Numerof & Associates, (St. Louis; 

). He reasons that while animal health is a much smaller market, “most R&D has already been done,” he says. “So if your market size is a couple hundred million and you’ve spent $20 million to develop a product, it can go a long way. From an investment standpoint, it’s still a profitable route for pharma companies seeking new product opportunities.” This is especially true in light of Brakke’s estimate that FDA approval for a food animal pharmaceutical can take 10 to 12 years and cost $100 million vs. the typical companion animal drug’s under-six years and $6 million.

More broadly, Brown Smith Wallace’s Epner sees opportunity in serving a fuller continuum of care and market needs “to address therapeutic categories and not just single, discrete interventions.” He points to the bundling of products and services in the livestock market, similar to the market-driven model in human pharma: “Companies can offer a broader portfolio of products, which may include everything from vaccines to solutions for disease-resistant conditions and the ineffectiveness of antibiotics.”

Loss of sales exclusivity to big-box stores and online pet pharmacies add to veterinarians' business woes

Animal-health pharmaceuticals are jumping the 'ethical channel'

		The reelection of Pres. Barack Obama assured that the Patient Protection and Affordable Care Act (PPACA or ACA), signed into law on March 23, 2010, will move forward, and with it, the Physician Payment Sunshine Act provisions.

		It goes by lots of names. Officially named the Transparency Reports and Reporting of Physician Ownership or Investment Interests section, it also goes by the “Sunshine Act,” aggregate spend law or simply “agg spend.” By any name, it will require pharma, device and medical supply manufacturers to submit reports of spending on physicians and teaching hospitals to a database maintained by the Centers for Medicare and Medicaid Services (CMS). Reports must include “payment or other transfers of value” (POTVs) exceeding $10 for everything from small meals to consulting fees, to speaking and research fees, to stock ownership.

		Manufacturers can’t begin collecting data for strict compliance until the final rule is published. The latest news at presstime is that CMS completed the final rule, and on Nov. 27, sent it to the White House Office of Management and Budget for review. Expectations are that within 90 days of OMB’s receipt, CMS rule will be issued as final. If so, manufacturers could be required to begin data gathering on Monday, Feb. 25, 2013, for their 2014 agg spend report submissions.

		Will you be ready when(ever) the law comes? Penalties as proposed range from $1,000 for an unreported item to a maximum $1,000,000 for knowingly failing to submit an annual report. Considering that the price of instituting compliance processes and IT solutions can reach into the hundreds of millions, might some companies find deliberate noncompliance an option? “It sure as heck would be cheaper,” one Big Pharma manager told 

, “but that’s not the approach we believe in.”

		Most manufacturers already have some program in place to meet the reporting requirements of several US states—Minnesota, Colorado and several New England states, among others. Comparable reporting requirements are coming into force in the European Union, and some companies are attempting to build a global reporting database to meet current or future requirements worldwide.

		Not knowing exactly how CMS will incorporate industry comments into the final rule, companies remain fearful over the many yet-unknowns, from dates to data points.

		One big issue: “context.” Under the proposed law, when a manufacturer reports a research grant to a teaching hospital, it includes total dollar amount and other identifiers, including the identity of the principal investigator. Of course, the investigator doesn’t get the money, the institution does, “and that institution has to pay 50 people, run a laboratory, do patient testing, and all kinds of other things with that money to conduct that clinical trial,” says Marjorie Powell, senior assistant and general counsel with the Pharmaceutical Research and Manufacturers of America (PhRMA), which has lobbied to add clear, nontechnical explanations to public spend reports.

		Asked whether they favor a public, searchable database of all physician-industry relationships, a 2012 survey of 110 US-based physicians and 223 executives from life sciences companies, conducted for Deloitte by Forbes Insights, found that 68% were, most of them agreeing “as long as patients understand how to interpret the data” (Fig. 1). The last point speaks directly to the issue of context.

		State regulations add further complexity. The federal law will set the baseline, but states are free to enact further restrictions. Massachusetts and Vermont ban spending on gifts; Vermont bans meals and requires reporting on clinical transactions and disclosure of all free product samples that do not apply under Section 6004 of the ACA. Minnesota maintains spending limits, which the federal proposal does not.

		Massachusetts, Washington, D.C., West Virginia and Colorado also have state agg spend laws. There are signs that some of these and perhaps the rest of the states are looking forward to letting Uncle Sam do the bulk of the heavy lifting. Maine had a law, but repealed it on June 29. Massachusetts eased restrictions a month later and partially repealed its 2008 Pharmaceutical and Medical Device Manufacturer Code of Conduct, then in September, issued an “emergency regulation” to address a legislative change “to allow companies to provide ‘modest meals’ to physicians outside of their offices as part of an educational event, such as a speaker program or conference seminar,” says PhRMA’s Powell.

		Other states, though, backed off on laws that would exceed the proposed federal law, which will preempt state laws only to the extent of “setting the floor,” says Natasha Thoren, attorney with Epstein Becker Green (New York). “States may choose to enact statutes or regulations that require reporting and disclosure of additional information and/or information from individuals or institutions not covered under the federal law,” she adds. “It will be interesting to see what states will do after the ACA regulations are finalized.”

		Another area of ambiguity is the very fundamental identification of physicians. CMS expects healthcare providers (HCPs) to be identified by their National Provider Identification (NPI) number, but not all doctors have one because it’s limited to physicians serving federally funded insurance programs. “So, a plastic surgeon doing cosmetic surgery, for instance, wouldn’t be in the Medicare or Medicaid system,” says Bill Buzzeo, GM of global compliance solutions at Cegedim Relationship Management (Bedminster, NJ).

		Speculative solutions include expanding the NPI to all physicians, or perhaps expanding the DEA ID, which authorizes the prescribing and dispensing of controlled drugs, but the agency has in the past nixed the idea. “Am I 100% confident that there still won’t be gray areas in the final rule? No,” says Buzzeo. But he says regulators have been in contact with industry stakeholders, and that “CMS is listening.”

		For Bristol-Myers Squibb (BMS), the key to a successful compliance solution is “thinking of the project as a business problem in terms of process and not necessarily as an IT or system solution first,” Antionette Brock, director of business projects & planning, told attendees at a June user conference held by IT vendor Pegasystems (Cambridge, MA). The company’s system establishes a single set of processes, common roles/rights workflows and procedures that will ultimately roll out across global operations.

		The company shared its challenges: underestimation of time and cost; the need to navigate competing priorities; team member “swapping”; training and the sheer number of integration points. These included 11 internal systems (e.g., master database of item costs, global product master data, geographic data), as well as five, which were external vendor systems (e.g., the logistics, T&E and other vendors).

		The transparency preparedness efforts to date for Sanoti US have focused on a combination of existing state requirements, as well as the statute and federal proposed rule and PhRMA comments. “Every organization will have its own strategy,” says Gus Papandrikos, director, transparency operations, US medical affairs (Bridgewater, NJ), “but we all have a common theme: We all use multiple source systems that host data, such as enterprise resource planning, financial, sales, procurement, research and others.”

		Regardless of the IT architecture, “all companies will need to capture data out of these systems and ultimately aggregate it into one reporting solution,” he adds. For its system, Sanofi chose a major vendor to remotely host and maintain data and the application. Users access it through secure Internet connections.

		There are many paths to compliance. The most common method, IT-wise, is to minimize the investment with a manual spreadsheet-based system, followed by in-house applications, third-party solutions, and then sheet avoidance or noncompliance, Cegedim research indicates (Fig. 2). Many companies often start with HCP lists from one or more vendors (e.g., Cegedim, MedPro, Health Market Science) to complete their existing databases; 47% of company data come from third parties per Cegedim research. Many such vendors also partner with other firms to offer full compliance reporting, validation and software solutions. For instance, MedPro has partnered with Porzio Life Sciences Services and an allied law firm to offer a full software-and-regulatory solution. In terms of third-party offerings, these can be based in-house or outsourced via SaaS to a provider who will keep data and systems up-to-date as regulations evolve. R-Squared (Princeton, NJ) is an example of a vendor that offers systems both in-house and remote.

		AdvantageMS (Fort Washington, PA) combines its verified HCP databases with a partnership with Concur Technologies (Redmond, WA), whose travel and expense-management solutions are widely used by sales organizations. Compliance Implementation Services (Media, PA) provides consulting on setting up and administering agg spend systems.

		No matter the IT strategy, companies need to follow the same fundamentals—collect, standardize, cleanse and validate data to ensure accurate reporting of the following: physician name, address, specialty, NPI, or perhaps an improved identification scheme, as well as the value, form, date, and name of the drug. “Form” refers to the correct entry of the transaction across 18 categories:

Implementation of the Physicians Sunshine Act may require you to begin data gathering by Feb. 25, but questions remain over the law's details, from data to dollars