Pharmaceutical Industry

Regulatory Environment
By: Jenny Menacher
July 2014

Eli Lilly & Co. and Pharmaceutical Industrys

Influence on Legal Structure and Economy

Eli Lilly and Company is in the pharmaceutical industry and focuses on

innovation, manufacturing, and sales and marketing of medicine

Pharma influences many economical and legal debates including some of the
following topics:3

Intellectual Property protection

Access to safe and effective medicines

Free Trade Agreements

Healthcare Reform

Global Pharma market is expected to be worth $400B in three

years
Companies spend 33% of sales revenue on marketing (twice
the amount spent on R&D)1
Industry sales are reduced by ~$40B annually through rebates 2

Medicare Part D competitive private market

Ethical Interactions with healthcare providers and patient information

Sunshine Act

Transparency to guard against corruption and unethical practices

U.S. Tax Reform

www.who.int/trade/glossary/story073/en/
www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/
3
lilly.com/ABouT
1
2

Pharmaceutical Industry Regulatory

Environment Overview
FDA: U.S. Food and Drug Administration under U.S. Department of Health and Human
Services (HHS)

Mission:

Assures safety, efficacy, and security of human and veterinary drugs, medical devices, food supply, and cosmetics.

Responsible for advancing public health by approving innovations that create more effective, affordable, and safer
medicines

Each country has an agency similar to the FDA that any company selling products there must comply with that local
agencys laws

Regulated Laws:

Federal Food, Drug, and Cosmetic Act of 1938 (FFDCA) gives FDA authority to oversee safety of food, drugs, and
cosmetics

Medical Device Amendments of 1976 sets guidelines for classifying devices based on comparative risk

Quality Systems regulation manufacturers must meet Good Manufacturing Practices to ensure products meet
specifications

Impact

Source: FDA.GOV

to Pharma Industry:

Speeds along innovations and serves as a quality enforcer for consumers

Pharmaceutical Industry Regulatory

Environment Overview
OCR: Office of Civil Rights under HHS

Mission:

Assure nondiscrimination and privacy

Regulated Laws:

HIPPA - Health Insurance Portability and Accountability Act regulates use of health
information, protects workers coverage when job situation changes

Affordable Care Act expand public and private insurance

Impact

Source: IN.GOV/isdh

to Pharma Industry:

Enforces privacy and security policies of individually identifiable health information

across health care providers, insurance companies, and manufacturers

Pharmaceutical Industry Regulatory

Environment Overview
SEC: Securities and Exchange Commission

Mission:

Protect investors, maintain fair and efficient markets, and facilitate capital formation

Requires disclosure of significant financial and other information by public companies to

the public

Regulated Laws:

Securities Act of 1933 any security sales using interstate commerce must register with
SEC

Sarbanes Oxley Act of 2002 management is accountable for accuracy of financial

information

Impact to Pharma Industry:

Source: SEC.GOV/about

Industry must implement controls to properly capture and disclose relevant information

Pharmaceutical Industry Regulatory

Environment Overview
DEA: Drug Enforcement Administration

Mission:

Regulated Laws:

Controlled Substances Act regulation of manufacture, importation,

possession, use and distribution of certain substances

Impact to Pharma Industry:

Source: DEA.GOV

Oversees manufacture, distribution, and dispensing of legally produced

controlled substances

Works with industry to fight counterfeit and illegal drug use in the
market through use of registration

Pharmaceutical Industry Regulatory

Environment Overview
U.S. Department of Labor

Mission:

Regulated Laws:

OSH Act (Occupational Safety and Health Act) regulates employers

safety environment

FMLA protect employees for qualified medical and family leaves

FLSA regulates hours worked and pay

Impact to Pharma Industry:

Source: osha.GOV/law-regs

Governs OSHA which enforces standards and provides education to

assure a safe work environment

Incents industry to create safe work environment, track injuries, and be

inspection ready at all times

Pharmaceutical Industry Regulatory

Environment Overview
HRSA: Health Resources and Services Administrationunder HHS

Mission:

Govern healthcare access through quality services, improving skilled

health workforce, and building health equity across communities

Regulated

Public Health Service Act (including Section 340B) consolidates public

health service laws

Veterans Health Care Act of 1992 improve health care and costs for
veterans

Impact

Source: HRSA.GOV/ABOUT

Laws:

to Pharma Industry:

Significant effort spent by pharma industry ensuring adherence to

these programs

Section 340B Public Health Service

Act
Mission Drug pricing program designed to offer outpatient drugs to covered entities at

significantly reduced prices, increasing drug access to patients

Requirements:

Eligible Organizations: Federally Qualified Health Centers, Ryan White HIV/AIDS Programs, Childrens
Hospitals, Critical Access Hospitals, Rural Referral Centers, Sole Community Hospitals, Black Lung
Clinics, Disproportionate Share Hospitals, Free Standing Cancer Hospitals

Eligible Patients: patients must receive health care services other than drugs from the 340B covered
entity

Eligible Drugs: FDA-approved prescription drugs; Over-the-counter (OTC) drugs written on a

prescription; Biological products that can be dispensed only by a prescription (other than vaccines); or
FDA-approved insulin

Orphan Drug Exclusion: manufacturer does not have to give deep discount for a drug with a rare
disease or condition indication per section 526 of FFDCA

Source: hrsa.gov/opa/faqs/index.html

Exclusion does not apply to certain covered entities such as childrens hospitals

May 23, 2014, the U.S. District Court for the District of Columbia issued a ruling in Pharmaceutical
Research and Manufacturers of America v. US Department of HHS that vacated the orphan drug
regulation on the grounds that HHS lacks the statutory authority to engage in such rulemaking but
did not rule on interpretation of orphan drug exclusion

340B Pricing and Impact to Industry

Eli Lilly chooses to participate in Medicaid, meaning it is accountable to the 340B

statute

The 1994 guideline (59 Fed. Reg. 25110 (May 13, 1994)) states that manufacturers
cannot discriminate against 340B providers in any way (i.e. minimum ordering
quantities and special distribution) that would undermine this statutory objective
and discourage entities from participating in the discount program

Lilly invests significant resources to:

Ensure prices are in compliance with 340B pricing calculation

Monitor and audit 340B entities for:

Duplicate discounts between 340B and Medicaid

Diversion of 340B discounted drugs to inpatient settings or non-eligible entities

Eli Lilly must consider the 340B implications when considering the pricing of a drug

Lilly uses 340B implication to influence a decision to develop an orphan drug that
may not have a large market or sales potential