Love it or hate it, the Affordable Care Act (ACA) is poised for implementation in 2014, likely creating winners and losers across the health care landscape. To date, the impact on biotechs and pharmas has been relegated to background noise, but the tenor of those discussions is growing as implications of the law pervade every corner of the delivery system.

“There are a couple of themes that have been playing out for a while that the ACA legislation will accelerate,” observed Todd Davis, founder and managing director at Healthcare Royalty Partners.

A report by PwC’s Health Research Institute (HRI), titled “Top health industry issues of 2014: A new health economy takes shape,” examines some of those areas. Initially, payers, purchasers and providers will face the greatest impact from the new law, according to PwC, with challenges including the exploration of benefits options using private exchanges, the use of social and mobile technologies to reach consumers and the inevitable march toward managed long-term care as baby boomers threaten to overwhelm state Medicaid budgets.

But drug developers also will feel the ACA’s sting. For instance, they will face heightened pressure in 2014 to secure the pharmaceutical supply chain and combat counterfeit drugs. The Drug Quality and Security Act is aimed at eliminating counterfeit medications in the drug supply chain by phasing in a uniform national system for drug tracking and serialization to replace the current patchwork of state regulations. (See BioWorld Today, Nov. 20, 2013.)

The law imposes a tight timetable on implementing the first step toward a nationwide “track and trace” system to document the journey of prescribed medications from manufacturer to patient. By Jan. 1, 2015, drugmakers will be required to have systems in place to investigate and quarantine suspect products and to include transaction documentation with drugs leaving their facilities. In 2017, the industry must begin assigning serial numbers to individual “saleable units” of every prescribed product sold in the U.S. The legislation also calls for a fully interoperable, electronic tracking system, at the package level, within 10 years. (See BioWorld Today, Sept. 27, 2013.)

In its report, PwC estimated the program will cost drugmakers $10 million to $50 million per manufacturer – hardly chump change.

Need to demonstrate value ‘beyond a pill’

Longer term, macro trends affecting drug development loom large. Small changes could have potentially major consequences. For example, PwC pointed out that mobile and remote technologies are muscling in on traditional approaches to managing health and improving outcomes, with doctors sometimes prescribing health and wellness apps in place of prescription drugs. U.S. consumers love their gadgets, and exploiting that technology to keep consumers healthier could represent an opportunity for drugmakers to become more engaged in health outcomes, or get cut out of the loop.

“Demonstrating value sometimes goes beyond just a pill,” said Karla Anderson, pharmaceuticals and life sciences partner in PwC’s HRI advisory group. Drug developers may move beyond their core expertise, she suggested, by developing partnerships with companies that offer monitoring systems for diabetes patients or health and wellness programs in cardiovascular care. “There’s more openness to these programs than there’s been historically,” she said.

Other issues are potentially more problematic for biotechs and pharmas. Out of the gate, one of the biggest challenges is what PwC called a “new lens” on clinical trials. Under the ACA, the industry will come under greater pressure to replenish its product pipeline faster and with fewer dollars. Personalized medicine and the focus on niche populations, such as patients with rare diseases, will give rise to new trial designs, such as nonrandomized studies. Those changes represent challenges for drugmakers in recruiting appropriate patients and ensuring data integrity.

“We need to streamline the drug development process, which at the end will provide drugs that are targeted at smaller, well-defined patient populations, have a better safety profile and have better efficacy within that defined patient population,” said Jim Healy, general partner at Sofinnova Venture Partners.

The challenges go beyond trial design. Searches in Thomson Reuters Cortellis Clinical Trials Intelligence indicate that many U.S. trial results still have not seen the light of day. Lack of data transparency recently prompted calls for policy changes in both the U.S. and European Union. (See BioWorld Today, Sept. 17, 2013.)

A report from Thomson Reuters, titled “Full Developments in Clinical Trials,” also suggested that researchers are moving toward adaptive trial designs to learn more quickly whether a treatment is effective and to modify certain trials so they can apply knowledge gained early in the process to improve overall efficiency. Adaptive design also may address the call for greater transparency in clinical trials. (Download a copy of the report by visiting http://bit.ly/19VEkaQ.)

Me-too drugs a dying breed

The effort to improve clinical trials will be paired with the “new mantra” for health care innovation to fail early and on the cheap, according to PwC. That tactic already is being adopted by some biotechs, using discovery platforms to interrogate hundreds or thousands of molecules in months or weeks and identify the most promising leads to advance to preclinical studies. Converging forces in 2014, including reduced government funding from agencies such as the National Institutes of Health, will move more companies toward such leaner innovation models.

Drugmakers also face growing pricing pressures in the U.S. and around the globe, making product differentiation ever more important.

“Clinical need, efficacy and proof of outcomes improvement will be increasingly important for pharmaceutical life science products,” Davis told BioWorld Insight. With pharmas and biotechs facing a fiscal squeeze from top to bottom, clinical differentiation and clinical outcome margins are more important than ever.

“Being the fifth or sixth statin to market is not going to do it anymore, even though that’s a huge market,” Davis maintained. Although a new drug in an existing therapeutic class may offer incremental benefits for certain patient subpopulations, the pressure by payers to limit costs by using older, cheaper drugs will grow exponentially as ACA takes effect, he said.

Purchasers also are demanding more information about the prices that providers charge, and the government is giving it to them, according to PwC. Cost-conscious employers are making transparency a top factor in negotiations with health plans and providers. With more pricing information in the public eye, momentum to slash drug costs is moving upstream, with the public showdown over prices for the next generation of hepatitis C drugs perhaps the first shot over the bow. (See BioWorld Today, Dec. 10, 2013, and BioWorld Asia, Nov. 27, 2013.)

The conversation about drug pricing “absolutely will expand to other therapeutic categories,” Healy said. “The objective for management teams is to develop drugs that address high unmet medical need but ultimately provide clinical benefit to patients that will decrease the overall cost of care.”

However, delays in implementing some portions of the ACA have created uncertainty for drugmakers in determining the best path forward to address that goal.

“For companies that are now running Phase III trials and may want to include key endpoints that are important from a reimbursement perspective, not knowing what the reimbursement landscape will look like over the next three to five years is challenging,” Healy said.

Prescribers no longer key decision-makers

And drugmakers are quickly discovering they can no longer depend on physicians to drive drug sales – a point that was hammered home last week in Glaxosmithkline plc’s decision to reinvent its global marketing practices. (See BioWorld Today, Dec. 20, 2013.)

“The U.S. marketplace is being transformed in terms of the role the physician plays in drug selection and use,” Anderson said, advising drugmakers to consider, from the outset, who “moves the needle” on those decisions. Approaching physicians one on one to promote a given medication is a lost cause when those doctors are part of large systems that use evidence-based guidelines collected through point-of-care technology.

“If you’re not promoting and detailing as much, there’s going to be a lot more focus on education and other ways to influence the market,” Davis added.

Under the ACA, drugmakers will need to demonstrate clinical and economic value both to the health care system and to patients, PwC’s Anderson said. Some are seeking to broaden their pipelines and offer options in more therapeutic areas, in the mold of a one-stop shop. Others will find that fine-tuning mechanisms of action or delivery vehicles makes better sense in targeting specific patient populations. Either way, savvier consumers will need convincing that a particular drug should be their pill of choice.

“Patients need to feel, ‘It makes sense for me to take this drug, with everything that goes with it – the cost and the side effects as well as the benefits,’” she told BioWorld Insight. “The challenge is more significant than ever to replenish the pipeline, to find innovation and to identify companies with breakthrough clinical development. You have to have a lot of diversity and versatility in your portfolio to compete and grow.”

Drugmakers will feel the pressure to reach critical mass in other ways. Greater dependence on contracting and distribution strength, for instance, could drive big pharma consolidation while boosting innovative biotechs with “game-changing” technology, Davis said.

Opportunities for innovative VC, pharma alliances

All of which will make investing in biotech more adventurous than ever. PwC suggested corporate capital may pick up the slack in 2014 as traditional venture firms pull back on funding life sciences start-ups. Many pharmas are cash rich but remain R&D poor, laying the groundwork for more pharma venture funds and “new and unusual marriages” between corporate cash and traditional venture capital (VC).

For example, Davis suggested, corporate venture funding could help to create “project management deals” that transition assets to proof of concept without the dilutive financings that weaken many VC investments.

“We’re seeing some collaboration between VCs and large pharma companies to put deals together, fund them to a certain point, agree on endpoints as a measure of success and then allow the VCs to exit,” Davis explained. Such a strategy mitigates a VC’s financing risk while providing sufficient capital to complete essential R&D activities.

Sofinnova’s Healy emphasized the need for drugmakers to define patient populations using biomarkers and molecular diagnostics.

“The more clarity a company can provide around the patients who are enrolled [in a trial] and the potential benefit to them, and the stronger the scientific rationale for that patient population, the easier it is to raise capital,” he said.

It’s too early to pick specific winners and losers from the ACA in the biotech world. Suffice to say the law will be a wild ride for drug developers. Companies that don’t keep one eye on the bottom line and the other on the finish line while navigating curves in the road may find themselves driving off a cliff.