Executive perspectives: John Castellani

Paul Tunnah interviews John Castellani

Pharmaceutical Research and Manufacturers of America (PhRMA)

With the US remaining the dominant global market for the pharma industry, pharmaphorum spoke with John Castellani, CEO of the public policy group The Pharmaceutical Research and Manufacturers of America (PhRMA) to hear his views on how pharma companies are adapting to a new future.

As one of the most influential figures in pharma it is notable that Castellani is a relative newcomer to the sector, having taken the lead role at The Pharmaceutical Research and Manufacturers of America (PhRMA) in 2010 after previously heading up the Business Round Table, a public policy organisation with C-level representation across multiple industries. However, he sees many similarities between the challenges currently faced by pharma and the broader business environment.

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“…we should be very proud about what the men and women of our industry do for patients and the economy…”

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“One of the things I see as common is you tend to become captive of the practices that are within your industry and may not see what is happening outside as relevant to your business model, thinking and strategy”, says Castellani, before noting that there are “a lot of other highly regulated industries” that pharma can learn from.

As such, an early observation Castellani made of pharma was the conservative nature that high levels of regulation tend to engender. “Pharma can learn from those that are not highly regulated that it needs to be less defensive about describing its own business, its own challenges and its own benefits”, he states, going on to argue that “we should be very proud about what the men and women of our industry do for patients and the economy and be much more forward leading about telling that story, because if we don’t then others define it for us”.

There is an air of optimism though about the current generation of pharma leaders steering things in the right direction and Castellani sees the enthusiasm for telling this story that comes across from pharma Chief Execs such as John Lechleiter (the current PhRMA Chairman), Bob Hugin (the incoming Chairman) and Chris Viehbacher (the immediate past Chairman) as being broadly representative of senior leaders in the industry.

This is not to dismiss some of the past misdemeanours and Castellani acknowledges that the fines handed out for alleged off-label promotion has not helped pharma’s cause. In his view, addressing the reputational issues around the industry needs a two-pronged approach of better articulation of the pharma story combined with carefully reviewing the way in which it can communicate and engage with other stakeholders.

He believes that “part of our issue in terms of image is that people see us through the lens of an insurance company or a payer that says ‘no’ – we are framed in the patient’s mind by a system over which we have very low control”. The solution, he feels, is to find ways to engage more directly, and appropriately, with both patients and those who benefit from the economic ecosystems built up by pharma. On the latter point, Castellani also points out that one of the biggest industrial advocates of pharma is the building trade unions, because of the need to construct “high-quality, high-cost, high-risk facilities” that require really skilled labour and techniques.

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“… everyone else can talk creatively about the use of a medicine except for the pharmaceutical company…”

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Nonetheless, Castellani does see frustration within the pharma industry around regulations restricting constructive dialogue about the use of medicines and it is clear he feels this is an area where there needs to be more discussion around acceptable practice.

“In an ecosystem where everyone else can talk creatively about the use of a medicine except for the pharmaceutical company, you have to ask yourself is that the most effective thing for patients? I think that needs to be redefined.”

But reputation is perhaps not the biggest challenge facing pharma right now. Cost containment is very much a global issue and healthcare reform in the US, dubbed ‘Obamacare’, is clearly a hot potato of a topic, as value becomes the primary driver of decision making over simple cost. Castellani believes that the US can learn from experiences with cost containment measures in Europe, such as the UK’s health technology appraisal (HTA) process, managed by the National Institute for Health and Clinical Excellence (NICE), but does not think these are right models yet.

“If HTA has something wrong, it is that it looks at a very narrow time period of cost as opposed to a broader time period of value”, says Castellani, before elaborating on how the addition of a prescription drug benefit to the Medicare system in the US has actually surprised many with the cost reductions achieved over the longer term.

“Medicare Part D was supposed to cost around $700bn over a 10 year period, but every year (for the past three years) the Congressional Budget Office had to take out another $100 billion from the (10 year) projection because it’s costing much less”, Castellani notes, clarifying that in the first year of the Part D program (2007) “people receiving a prescription medicine benefit for the first time actually cost Medicare $1,200 a year less because they are managing their disease and avoiding more expensive acute and long-term care”.

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“…it turned out that the decentralised model for innovation was much more rapid than the centralised model.”

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As Castellani points out the key question for governments and economies is whether they want to pay a little more for healthcare now or a lot more later on. Weighing up the pros and cons of managing wellness, through prevention and medication, versus dealing with acute episodes of illness comes down to “how you determine the value, over what period of time and what value you assign to a healthy citizen in the population” – something which no-one has the magic formula to just yet.

It is clear that such healthcare cost containment and the balance between short- and long-term investment is changing the way pharma operates, but Castellani sees this as more of an opportunity than a challenge, again drawing parallels with his experience in other sectors.

“I remember when AT&amp,T was resisting being broken up, because many saw it as a centre of innovation, but after it happened it turned out that the decentralised model for innovation was much more rapid than the centralised model”, Castellani reminisces, adding that there are similarities here, and promise for the future, when compared to the open innovation approaches now being adopted by pharma.

“That’s a lesson for us, as we are now seeing the pharmaceutical industry research model changing very rapidly. The old model is being replaced with a more open source, highly collaborative model that allows organisations to work together in the pre-competitive space to solve common problems that have everything to do with science, but nothing to do with their relative positions.”

Looking to the future then, Castellani sees the pace of change for pharma only accelerating, but believes a stronger industry will come out of the other side. “Fundamentally we are still doing clinical trials the same way I learnt them 40 years ago in college. The rest of the world has benefitted tremendously from the use of information technology and big data analysis, but we’re still relatively behind that – we’re now getting access to these huge health databases driven by things like electronic medical records, and we should be able to take advantage of those”, he adds.

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“We need to participate in the discussion on finding a more efficient, effective and innovative healthcare delivery system…”

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Ultimately, Castellani sees one core aspect to pharma moving forwards is for the industry to become “more of a thought leader, more of an active participant with not just patient groups and healthcare delivery systems, but economies and countries that are trying to grapple with very difficult economic issues”. He sees it as critical that the industry is an active player round the table as the future of healthcare is being discussed.

“We need to participate in the discussion on finding a more efficient, effective and innovative healthcare delivery system. We have to share what we know about the scientific discovery process, how it can be made better and be proud to talk about it. We need to raise our standing as a thought leader so that we can help contribute and define the circumstances around our future.”

So is the future for pharma based around thought leadership, collaborative discussion and the industry being an active and open communicator within the debate?

You will certainly find no disagreement on those points from pharmaphorum.

This interview was conducted during the Economist Pharma Summit 2013 and pharmaphorum wishes to acknowledge the support provided by the Economist.

For the full pharmaphorum write-up from the event click here.

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About the interviewee:

John Castellani is the President &amp, Chief Executive Officer of the Pharmaceutical Research and Manufacturers of America (PhRMA), position he has held since August 2010.

Before joining PhRMA, Castellani was President and Chief Executive Officer of the Business Roundtable (BRT), an association of Chief Executive Officers from leading U.S. corporations and cited by the Financial Times as “the most influential chief executive lobbying group in the U.S.”. Prior to the BRT, Castellani was Executive Vice President of Tenneco Inc. and part of the senior management team that led the transformation of the ailing conglomerate into seven strong companies. He started his career at General Electric as an environmental scientist and strategic planner.

Castellani is frequently sought by the news media for his expert insights on business and was named one of the 100 most influential people in corporate governance by Directorship Magazine in 2007. A graduate of Union College in Schenectady, N.Y., Castellani now serves on its board of trustees. He is also an Ethics Resource Center Executive fellow and a member of the Advisory Council of the Business Roundtable Institute for Corporate Ethics, in addition to being a member of The Economic Club of Washington.

PhRMA represents America’s leading pharmaceutical research and biotechnology companies, which collectively employ more than 600,000 men and women nationwide and work to create new medicines that help patients fight disease and live longer, healthier lives. PhRMA members are among the most innovative research-based companies in the world, investing an estimated $49.5 billion in new medical research and development in 2011.

For more information about PhRMA, visit www.phrma.org.

How can pharma become more of a thought leader?