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Interview

Jens Holmstrup, Managing Director, Pfizer Denmark

19.08.2013 / Pharmaboardroom

Jens HolmstrupHolmstrup discusses the patent cliff and its effect on Pfizer’s business in Denmark, before going on to discuss the government’s attitude towards generic products in the country, and the value of innovation. He also discusses pricing and regulation, and the future for foreign investment in the Danish pharmaceutical industry.

What is Pfizer’s current position in the Danish market?

We are first or second in the market, depending on how you count. There are two unique factors about the Danish Pharmaceutical Market: a high share of generics and parallel imports. When you look at companies’ reported statements they do not include parallel imports, so our position depends on the type of calculation. Also, the way in which alliance/co-promote revenue is accounted for  also varies.  But, as our CEO, Ian Read -points out;, what is really important is not whether you are the biggest, but whether you are the best.  We strive to become the premier pharma company.  With all the LOEs (loss of exclusivity) going on, the rankings based on revenue will vary depending on how successful companies are.

 

As the head of the Danish affiliate for the past four years, what is your assessment of this subsidiary’s strengths and weaknesses?

We have had a very well established position as a leading company in the Danish healthcare space, both historically within primary care and recently in select hospital/specialist areas. Over the last 5 to 10 years we have developed skills and a reputation in areas of cooperation in the public sector, both with our direct customers and with non-prescribing stakeholders, such as regions and municipalities. Pfizer Denmark has established a new level of quality and scientific value for this kind of cooperation.

Over the last couple of years we have really started to see the results of substantial investments inR&D and have launched a new line of innovative products especially in the oncology and hospital sectors.

 

The so-called “patent cliff” of exclusivity losses threatens many Big Pharma companies, but Pfizer stands to suffer more than others with the patent expiration of Lipitor in June 2012. How has the patent cliff affected your operations and what is your positioning today?

Ironically for Denmark, the Lipitor LOE was a double-edged sword. Lipitor was never that big in Denmark to begin with because the reimbursement conditions were not favorable for that class of drugs. Lipitor, at the maximum selling stage, was less than 15% of our revenue – significantly less than other markets.  Thus, we never got to see the true revenue potentialfrom Lipitor because market conditions did not allow for it.  So losing it hurts a little less in Denmark than in markets where Lipitor was more successful in the peak years.

 

It was also not a surprise that Lipitor would go off-patent. Due to the way that the Danish business conditions are, it’s very predictable what happens in Denmark – you basically lose almost everything. The development that we’ve seen in Europe over the past five years where the penetration of generics has rapidly increased and their price has gone was already implemented in Denmark many years ago.  So we were prepared for this to happen.

 

In that way, the hit has not been a dramatic shift.  If anything, the effects of Lipitor have been more indirect for Pfizer Denamrk as the company had to react to the global loss of revenue.  It gives us another occasion to review cost-efficiency measures, which are very relevant for everyone, including us.

 

We don’t hear a lot about generics here in Denmark.  When we met with Boehringer Ingelheim, they assessed that generics are almost a good thing because competition from generics pushes more innovation..  What is your view on that and how does the government value innovation?

In many ways the government and authorities have been very foresighted in how to treat generics by establishing an extremely efficient set of mechanisms – probably the most efficient in the developed world – to ensure competition and low prices for generics.  Prices of generics in Denmark are among the lowest in the world and their penetration rate among the highest. In an ideal world that is a clever and attractive solution because it allows the government to spend its money on rewarding innovation.  But theory is one thing and practice is another.  The first part is easy – saving money on generics.  The second part, to reward innovation, is politically a little more difficult.  Unfortunately that has proven to be the case in Denmark and increasingly over the last 5-8 years it has become more difficult for companies to get reimbursement for innovative products.

 

When you have products within a class that loses exclusivity, you get a comparison between an extremely cheap generic and a fairly priced innovative product, but with a huge price difference.  From a payer perspective, they probably don’t mind paying for innovation, but the gap can become too big to defend politically.  If the government decides that they don’t want to pay such a high premium for innovation then they remove the reimbursement for innovative drugs.  For example, when MSD’s class leading drug for hypertension went off patent, the authorities reviewed the reimbursement for the whole hypertension class and removed reimbursement for all drugs except for generics because suddenly other drugs became very expensive compared to generics.  It’s now a safe bet that with Lipitor off patent they will review the entire class of lipid lowering drugs and perhaps Crestor (AstraZeneca’s patent protected drug previously competing with Lipitor) may end up losing reimbursement. Effectively, you get a class effect of reimbursement reviews: analog substitution or jumbo grouping – not formally in the real set up but an indirect effect.  That’s one of the challenges in the system.  Generics become so cheap that the price for innovation are considered too high for some payers.

 

Is the bi-weekly pricing system a reason for such cheap generics?

That’s part of why generics are so cheap.  Every second week there is a tender on essentially all products, but it’s mainly relevant for generics because you have more than one provider.  Every two weeks you announce the price for the coming two weeks and the winner is the one reimbursed for that period.  It’s almost like a spot market for pharmaceuticals.

 

With healthcare systems under pressure all over the world, pharmaceutical companies are trying to reinvent their models.  How is Pfizer doing it here in Denmark?

Any company, no matter the industry, has to work within the business conditions that it has. You can experiment, you can have dialogue with stakeholders to develop new models of solutions, but in the day-to-day business you have to work with what you have.  In the environment we are in, we try to do our best to inform payers, physicians, and stakeholders about the benefits of our products and why they bring value.  The authorities within the rules and frames will make their assessments, which will define part of our business.  In parallel, we are in dialogue with stakeholders and authorities to investigate how they could change the model, from the one that’s in place with generics and innovative products.  How do we help the politicians make the decision without just being tempted to only go for the easy money?

 

Having said that, in Denmark like much of Europe, pharmaceuticals are basically a state financed business. To change the model requires that authorities in the government are willing to do so. That is often times difficult because from a practical perspective, their way of operating is governed by laws and regulations that you just cannot change. And if you change them you can’t change them for just one company or one drug.  To make any kind of change in any kind of model requires a lot of work to ensure that authorities are not doing something that can be deemed inappropriate or as eroding competition.  So they are quite reluctant to change a model that from their perspective actually works. There are a lot of ideas from different payers that are interesting to experiment with, but when it comes to practical realities it proves difficult.

 

Do you think that finding one total solution is a bit naïve?  Ultimately, everyone wants to push their own agenda – business as much as government. 

One of the interesting discussions that we have when we meet with stakeholders is about how certain industries are viewed by the public society.  For many years in many countries, healthcare has been viewed as a cost and burden to society while education is seen as an investment.  It’s also interesting to see that one of the areas that have been a focus in Denmark is clean technology and wind power.  Within that sector there have been a lot of activities targeted towards providing resources to companies who want to pursue the cleantech agenda.

 

I’m wondering why politicians  aren’t doing the same thing with healthcare.  Denmark is in the  top three in Europe in healthcare R&D expenditures. We have flagship companies and healthcare constitutes a critical part of Danish exports.  So why is it that we don’t see the same kind of effective measures to ensure that we have the most innovative healthcare setup in Denmark – the most innovative and efficient facilities, next generation equipment, state of art  work processes, and the best prost graduate training for staff working in the industry?  Since this is all public sector driven, the public sector has a unique opportunity and responsibility to ensure that they use the physician as a public buyer for innovative products rather than just generics.  When I reflect, I think about a major political agreement made by all major parties in the Danish Parliament last year to expand Denmark’s offshore wind capacity. I have asked some of our political leaders whether they plan to invest in low cost, old technology wind mills which most likely  would be most cost efficient.  But all the politicians were talking about the employment benefits it would create when new manufacturing facilities and cleantech research departments are established in Denmark.  No one was assuming we would buy cheap copy windmills.  Then why is this different for pharma?  If Denmark want to be a world leading country within health care and continue to generate exports from our knowledge incl. intelligent ways of working in pharma we can’t use the cheapest products and outdated treatment guidelines.

 

On one hand we see Denmark with a very well established pharma industry, but it hasn’t taken off to the same degree as a similarly small sized country such as Singapore.  What is missing to lure foreign direct investment here (FDI)?

As Pfizer’s representative on the American Chamber of Commerce sitting on the healthcare committee, that’s one issue we try to address – the increasing gap in FDI.  That’s particularly relevant within pharma because Denmark want to attract health care investments.  Part of it has to do with general business conditions – a general business policy, general cost of living, and corporate taxes.  It’s about making the country more attractive as a business investment place, which is part of a broader agenda.

 

In a healthcare context, you have to do all of that and then some. Denmark is a small country, which is particularly relevant for pharma because there is a definite requirement for scale whether it’s production or R&D (two main investments in our industry). So, Denmark is behind on points before you even start because we are a small country and the cost of business is very high.

 

That does not mean that you cannot attract business to the country.  Fortunately, there is business coming here.  But it means that you have to be exceptionally good in other areas.  That’s what we are working with the government on.  If you are serious about becoming a center for future growth in healthcare, naturally you have to improve the general business conditions, but also you have to think about healthcare as an area of investment focus and work to leverage the opportunities that we have to get the red tape out of the way.

 

Coming back to Pfizer and related to investments, companies are increasingly turning their attention to emerging markets.  What is appeal of being the head of a mature market like Denmark?

That’s the way of the world.  We are all part of the puzzle and we have our own obligations to excel in the role that we have.  When you are in markets that don’t have huge overall growth, it’s even more important that you get the most out of the resources that you do invest, and are able to clearly articulate what investment brings what turnover.  In Pfizer, we have a large portfolio and  are not exposed as much to risk as more narrow/focused companies, but on the other hand you easily spread your resources thin.  Yes we do have LOEs where we lose a lot of revenues fast, but we also have products that are growing rapidly.  That’s part of our obligation – when we have true innovation that payers are willing to pay for, we need to do our part to make sure that it’s used as quickly as possible by as many relevant patients as possible.  We have had quite a few launches within oncology and within certain hospital areas.  Now together with BMS we are launching Eliquis, which is a significant opportunity that we need to make sure to excel in.  In the short run, it may not compensate for the loss of Lipitor, but in the long run it will along with other launches in oncology and other specialist areas ensure a foundation for strong growth in Europe.  Part of that keeps the growth engine going and is funding the investment in the emerging markets.

 

The pharma industry has a more holistic approach today and partnerships are becoming much more important.  Do you believe that partnerships are the cure-all for a better business, and what makes Pfizer partnerships different? 

I don’t know if Pfizer does partnerships differently than the rest. We are maybe moving in a slightly different way.  You have few examples of strong companies merging with strong companies.  But you have some examples in the past of strong pharmaceutical companies partnering with each other to promote their brands.  One example of a successful partnership was Pfizer and Boehringer Ingelheim promoting Spiriva.

 

The foundation for that type of partnership was built at  a time when there was a clear link between the amount of money and manpower you put into the sales and marketing of a product and its return on investment. That was true 5-10 years ago but is a less clear picture now.  Having two companies promote the same brand is not necessarily much more attractive than having one company do it.  Also, access to GPs is becoming more difficult and therefore the foundation for that type of partnership has changed.  What has also changed are the requirements in R&D to get the drugs approved, especially talking about big scale products for big time use in primary care where the requirements for outcomes data and large trial populations means that the cost for bringing products for approval are becoming so high that a lot of companies want to share that risk with someone else.

 

We do see more partnerships being entered into at earlier stages of development and I think we will see more of that.

 

Lately, separating pharma from its different units has made Pfizer a more dynamic organization.  But part of the success is also of course based on the talent and motivation of its work force.  How do you empower your employees?

It’s part of the working culture in Denmark and the Nordic countries to have a high level of empowerment.  Certainly within Pfizer that’s the case.  Part of the challenge but also the opportunity of having a streamlined organization is to require everyone to take a step up and take on new responsibilities and personal leadership of issues. That is always something that has been rewarded in Pfizer Denmark.

 

Some MNC that we have met had expressed that in terms of HR they have the feeling that sometimes they are the training ground for Novo Nordisk.  Do you have the same feeling about Pfizer?

That reflects the general business environment and demands of employees.  But in general, we have quite a lot of applicants for open positions. When we have to restructure, we have a very high success rate of people finding new jobs within a reasonable time frame.  Pfizer has a reputation as a leader in the industry in terms of quality of people.  It’s always the leading companies in the industries that attract talented people.  And at certain times other companies have different, more explicit plans for attracting talent.  On the other hand  sometimes we also recruitfrom other blue chip companies – they do the training and we hire them as experienced staff.  That’s a natural development and that’s okay.

 

Earlier you mentioned Pfizer’s CEO, Ian Read saying that being the best is most important, not the biggest.  How would you classify being the best?

We have to consistently bring new, truely innovative products to the market.  Not only once in a while, but year in and year out.  We are really going to fulfill the purpose of being a leading company that will have a meaningful impact on society; hence we need to be better than our competitors on getting new innovative drugs approved.

 

Further, we need to build on our position and expand ourselves as a trusted partner with stakeholders and patients.  When a product is developed and sold, people need to trust it. At the end of the day, it’s all driven by people, so we have to make sure that we attract the best people.

 

What has been your greatest satisfaction over the past 17 years in this industry?

Before working in pharma I worked in management consulting. All industries have interesting aspects.  That said, it does make a difference to work for a company where the operation brings more meaningful value to people.  Generally speaking, in the companies that I have worked, there have always been opportunities for talented people to show leadership, influence their own working conditions and make a difference in the areas where we work, which is how we interact with our customers and patients.

On a personal level, I have had the pleasure of working with very talented people and watching our engaged employees develop and to be promoted is always a special satisfaction.

What is your final message to our readers?

In terms of what it takes to succeed in Denmark in this industry, the government has taken new initiatives and they have recently presented a pro-growth plan that will shortly be approved by Parliamnet. It points out a number of ways to improve the general business environment.  They have also set up a number of task forces to look at opportunities to generate growth in different industries, including healthcare.  I hope for initiatives that  will pave the way for companies in the healthcare industry to continue to invest. There is also a desire and willingness to develop public private partnerships, but it’s relatively fragmented and we need a more coherent strategy. We really need to single out the 3 to 5 areas where Denmark has a specific strength i.e. top-leve research communities and good access to digital data and focus on them before it’s too late.

Several other countries, including the UK  have recently presented comprehensive initiatives to increase R&D collaboration and attract foreign investment . This means that in Denmark the government, the regions, researchers, industry and other stakeholders need to focus on the need for continuously improving the framework conditions for the pharmaceutical industry; what resulted in Danish pharma success in the past is not likely to be sufficient to win in the future.

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