Q&A: Joe Pieroni	January 2009

For the pharmaceutical manufacturer perspective on the major issues of the coming year, Med Ad News spoke with Joe Pieroni, president and CEO of Daiichi Sankyo Inc.

By Steven Niles

Joe Pieroni, president and CEO, Daiichi Sankyo Inc.

Joe Pieroni is president and CEO of Daiichi Sankyo Inc. (dsus.com), the U.S. subsidiary of Japan-based Daiichi Sankyo Co. He leads the U.S. commercial operations and has more than 35 years of experience in the pharmaceutical industry. In a wide-ranging conversation with Med Ad News, Mr. Pieroni discussed his view of the pharmaceutical landscape for 2009 and beyond.

Med Ad News: What impact will changes in Washington have on the pharmaceutical industry?

Joe Pieroni: It’s clear that we’re headed toward universal healthcare coverage, which is a good thing. It’s a good thing for patients, it’s a good thing for the country, it’s a good thing for industry, it’s a good thing for government. The challenge, of course, is what does that look like and who pays for this enormous incremental expense? The signs are that we’ll probably see something move forward. The question is how will it be administered?

Of course, the concern is that we would have a very strong government-run program versus what we have with Medicare now. We now have a Medicare Part D program, which is paid for by the government but administered through private insurance companies. And despite the back and forth about how that would work, it seems to be working very well. Ninety percent of seniors say they like the program and premiums have not been increased significantly over the last two years. The cost of it was actually less than anticipated when the program was put in place, and it seems like it’s working fairly well.

It would be logical to say, why wouldn’t we extend that to other individuals who need to have coverage now? The fear and concern, of course, is that we’d go to a system in which the government has a very heavy hand in setting formulary and is the exclusive setter of price, which we can see in most European countries and Japan. It’s problematic, so I guess we should be concerned about that.

Med Ad News: From a regulatory point of view, what do you see on the horizon?

Joe Pieroni: First of all, we should all be concerned about efficacy and safety of drugs for patients. That’s a joint responsibility for the industry, for FDA, and of course for Congress. What we would like to see is that science prevails, and that we’re able to have a system in which both the pharmaceutical industry and FDA have full awareness and full discipline for being able to measure the benefit/risk of products, to measure adverse events, and if things are not going in the right direction, to take action.

I think we’re all concerned about heavy oversight by Congress directly on the FDA, and I think we’ve seen examples of that model, which are destructive to the system if overplayed.

Med Ad News: With new leadership at FDA likely, what type of FDA commissioner would you like to see?

Joe Pieroni: The FDA commissioner needs to have a very good understanding about the clinical research process and the fair balance between benefit/risk. But, I also think we need to have somebody at the head of FDA who is a very, very good administrator. We’d all like to see FDA move into the modern era by updating their technological capabilities and many of their processes. And I think the new commissioner really needs to be a very good manager and administrator of a very complicated organization, but also someone who is able to make judgments about benefit/risk and understands the realities of what’s important for patients and what’s practical for industry as well. We can’t have a system in which the cost of clinical trials is so high that we simply can’t bring new products to the arena because of the cost of development. There has to be some practical balance there.

Med Ad News: Democrats have tended to be more supportive of generics. How should brand manufacturers prepare for a generics push in the coming years?

Joe Pieroni: Generics obviously have a place in the value chain, and they are very important to balance the cost of healthcare. So, there’s no problem with generics. Problems for our industry would arise though if there’s an attempt to erode intellectual property to the point where the return on investment is not possible. If we see the erosion of the time period or the erosion of the standards by which generics are impinging existing patents, then we have an erosion in the discovery of new products for the world. We would like to preserve the concept of intellectual property in protecting the ability to earn a return on investment during the patent period, and then of course after the patent period, generic versions are a good idea and very useful.

Any product that you think about developing or bringing to market has to have a value proposition compared to products that will be going generic. On the forefront of everybody’s thinking is how do we demonstrate not only clinical but also economic advantage to the products that are coming to the marketplace?

If we’re doing an assessment of a product, we’re trying to anticipate seven to 10 years out who is going to pay for it, what the competition will be and what the value proposition will be, more so than we did in the past.

Med Ad News: A few months ago, it might have been thought that the pharmaceutical industry was relatively insulated from the economic turmoil, but opinions are changing on that. It seems to be impacting all industries. With that in mind, what do leaders of pharmaceutical organizations need to do to work through these difficult economic times?

Joe Pieroni: The economy probably did not affect the pharmaceutical industry in the past to a great degree compared to other industries and I think the thing that has changed is the advent of co-payment by patients. Now that you have tier-two and tier-three co-pays where patients have a fairly significant out-of-pocket expense, there is definitely a reduction in patient compliance and adherence.

This is a problem not so much for the industry but for the public health in general. If patients are not taking the medication as prescribed by their doctor, there’s a real possibility that it may lead to undesirable medical outcomes, which are much more expensive for the healthcare system to manage.

As the economic situation has weakened we are seeing a reduction in prescriptions overall. So we are looking at co-pay mitigation strategies where we’re trying to help reduce the cost burden to the patient either by getting our products on formulary so that it’s less costly for the patient, or actually providing assistance to qualifying patients to help offset the cost of their medication directly.

Med Ad News: We’ve been seeing many organizations cutting staff, particularly in the area of sales force. As sales force sizes are decreasing, how do you maintain sales levels with less people in the field?

Joe Pieroni: We still feel very strongly that the sales force counts, and contacts with physicians and providing important information to them about our drugs is still very important. However, with regard to reduction of sales force size, there’s probably two or three things coming into play here. First is the general state of the economy, no doubt about that. Second is the balance between getting new drugs approved through FDA and the escalating costs associated with successfully navigating that process.

Another phenomenon that is important to recognize is patent expiration. Many of the big products used for diseases managed in the primary care setting require large sales forces to support them. When the patents expire on these products we all know that the size of sales forces will have to be reduced proportionally. So I’d say that the most important element of the sales force reductions we’re seeing is a result of the loss of patent protection for many of the mega products that were on the market.

Med Ad News: With thin pipelines in general, big pharma is turning even more to small, emerging companies to bolster the pipelines. How good a strategy is that in the long term?

Joe Pieroni: I believe I’m right in saying that the number of products in development right now is probably greater now than there were even in the past. There are a lot of products in the pipeline. The problem is that to find products with true and definitive incremental benefits over products that currently exist is a real challenge. But your point is a good one. A lot of companies are looking to supplement their research activities and discovery activities by looking at very interesting technologies. Biotech companies, particularly in this economic environment, have great difficulties in securing the funding required to do clinical research.

So there are very attractive targets out there, and you can see that throughout the industry many companies look to acquire or partner or align with smaller biotech companies. There’s a very good synergy between discovery, at which the biotechs are very good, and full clinical development, where the pharmaceutical companies have the necessary resources to fully develop promising compounds. So, that trend will continue.

Med Ad News: Would you say that from big pharma’s perspective, it’s somewhat of a buyer’s market?

Joe Pieroni: I think it is. We have a couple of examples over the last year where we were able to make strategic acquisitions at a reasonable cost. We made an acquisition of a company, U3 Pharma AG, in Germany with which we picked up some very innovative oncology products. And we just announced recently the acquisition of a product from ArQule Inc., which is an oncology-based company in Massachusetts.

You go back to the cost of clinical research and the tremendous stakes required and it’s very difficult for biotech companies to be able to do that without a partner. So, we’ve done these types of deals, and we’ll continue to do so.

Med Ad News: Reaching out to emerging markets seems to be another way big pharma is going to boost its sales. Do you agree with that, and where are you reaching out?

Joe Pieroni: That is an important aspect, and over the last 10 years most people thought the United States was the key to success in the pharmaceutical business. While it’s still a very important market, it’s impossible to make an exclusive bet on the United States.

Emerging markets are very important, and we have businesses in several of them, specifically in China and Southeast Asia. Daiichi Sankyo recently took a majority stake in a company called Ranbaxy, which is a very large and successful generics company with an extensive presence in the many emerging markets around the world. Bringing Ranbaxy into the Daiichi Sankyo group of companies is part of our hybrid business model, which leverages our strengths in the discovery and development of proprietary drugs, and Ranbaxy’s in producing generics to allow us to extend our global reach with a broad portfolio.

Med Ad News: As companies do more outsourcing of many aspects of their business, does it tie them more closely to the fortunes of the many vendors and suppliers that support them?

Joe Pieroni: The one big outsourcing that the industry relies on heavily is clinical research in the form of CROs. We rely very much on CROs to conduct our clinical studies in more than 30 countries around the world. Working with the CROs and taking advantage of their expertise is a good example of a valuable and a necessary outsourcing model.

But yes, you are susceptible to potential problems that could arise if those CROs have problems of their own.