PhRMA Chart Pack 2012

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2

TABLE OF CONTENTS

Introduction 1

Chapter 1 Advances in Treatment 3

Chapter 2 Research and Development 15

Chapter 3 Spending and Costs 33

Chapter 4 Appropriate Use of Medicines 49

Chapter 5 Marketing and Promotion 67

Chapter 6 Economic Impact 77

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INTRODUCTION

This chart pack provides facts and figures about prescription medicines and their role in the health care system. Topics include medicines’ impact on health and quality of life, the drug discovery and development process, biopharmaceutical spending and costs, the challenge of treatment gaps and lack of adherence to prescribed therapies, the marketing and promotion of medicines, and the role of the biopharmaceutical sector in the U.S. economy.

Data and information found in this publication were drawn from a wide range of sources, including government-agency reports, peer-reviewed journals, and the Pharmaceutical Research and Manufacturers of America’s (PhRMA’s) own research and analysis. PhRMA hopes this publication provides useful context for discussions about the role of medicines in the U.S. health care system.

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6

1 • Advances in Treatment

1 ADVANCES IN TREATMENT Medicines’ Impact on Health and Quality of Life

Prescription medicines play a large role in saving and improving lives. Over the last 25 years, prescription medicines have significantly reduced deaths from major diseases such as heart disease, several cancers, and HIV/AIDS. They have also improved the quality of life for people suffering from conditions such as arthritis and Alzheimer’s disease. Recent advances have included, for example, entirely new classes of treatments for diabetes, hypertension, and HIV/AIDS; a new generation of personalized medicines; and the very first treatments for a number of rare diseases, such as Pompe disease and Hunter syndrome. As our population ages and faces increased rates of disease, medical advances will be key to alleviating suffering.

3


U.S. Life Expectancy 1950–20091

“New drugs are no small part of this medical miracle.” —Mark McClellan, FDA2

Source: CDC3

4

71.1

73.1

74.7

77.4 78.8 79.3

80.6

65.6 66.6 67.1

70

71.8

74.1

75.7

60

65

70

75

80

85

1950 1960 1970 1980 1990 2000 2009

At

Bir

th (i

n Y

ear

s)

Women

Men


8.4%

19.5%

4.8% 4.6%

11.0%

2.0% 0%

5%

10%

15%

20%

In-Hospital Heart Attack Deaths In-Hospital Congestive Heart Failure orPulmonary Edema

Heart Attack within 6 Months of HospitalDischarge

Rat

e o

f O

ccu

rren

ce a

mo

ng

P

atie

nts

wit

h C

oro

nar

y D

isea

se 1999

2005

Cardiovascular Disease: Declining Rates of Death and Heart Failure

Medicines and interventional treatments contributed to a 45% decline in heart attack deaths and heart failure from 1999 to 2005.

Adverse Events Among Patients with Coronary Disease4 in a Study of 14 countries

5

Source: K. Fox, et al.5


HIV/AIDS: Decline in Death Rates

The number of U.S. AIDS deaths decreased dramatically following the introduction of highly active antiretroviral treatment (HAART) and has continued to decline.

Annual Number of AIDS Deaths in the U.S.

6

Source: CDC6

16.2

6.0 5.3 5.0 4.7

4.2 3.7

0

2

4

6

8

10

12

14

16

18

1995 1997 1999 2001 2003 2005 2007

……

……

……

……

……

……

……

……

1996: HAART becomes widely available

Dea

ths

Pe

r 10

0,00

0 P

op

ula

tio

n


Cancers: Decline in Death Rates

A major study concludes that improvements in treatment have helped cut cancer death rates in half.7

Annual Change in U.S. Death Rate from Cancer8

7

0.5%

-0.3%

-1.1%

-1.6%

-2%

-1%

0%

1%

1975-1990 1990-1993 1993-2001 2001-2006

Sources: D.K. Epsey, et. al.7; B.K. Edwards, et al.8


Alzheimer’s Disease: Delayed Nursing Home Placement

Medicines help delay costly care for Alzheimer’s patients.

Nursing-Home Admission of Patients Treated with Alzheimer’s Medicine Compared to Untreated Patients9

8

Source: O.L. Lopez, et al.10

16%

50%

1%

11%

0%

10%

20%

30%

40%

50%

60%

After 2 Years After 3 Years

Pe

rcen

t o

f P

atie

nts

Pla

ced

in a

Nu

rsin

g H

om

e

Untreated Patients

Treated Patients


Rare Diseases: Drug Approvals for Rare Diseases Have Increased

Rare diseases are those that affect 200,000 or fewer people in the U.S. There are between 6,000 and 7,000 rare diseases affecting 25 million Americans.

Number of Drug Approvals for Rare Diseases11

9

Source: FDA12

* Comprehensive record keeping on drug approvals for rare diseases began in 1983, when the Orphan Drug Act was passed. Data for 1970s is approximate. Data for 2010 is partial, January through June.

10

145

202

0

50

100

150

200

250

1970s 1983-1996 1997-2010

Dru

g A

pp

rova

l*

~


Future Impact: Need for New Treatments for Alzheimer’s Disease

The development of a new treatment that delays the onset of Alzheimer’s could reduce Medicare and Medicaid spending on patients with Alzheimer’s by more than $100 billion annually by 2030.*

Projected Annual Medicare & Medicaid Spending, With and Without New Treatment Advances (billions)13

10

Source: Alzheimer’s Association14 * Assumes research breakthroughs that delay the average age of onset of Alzheimer’s disease by five years beginning in 2010.

$122 $174

$297

$529

$805

$122 $140 $157

$276

$443

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2020 2030 2040 2050

Pro

ject

ed M

edic

are

and

Med

icai

d S

pen

din

g (i

n

Bill

ion

s)

Current Trajectory Projection with Delayed Onset Treatment Advance


Need for Treatments: Parkinson’s Disease

Parkinson’s costs society $27 billion per year in medical bills and lost wages; worldwide, projected cases of Parkinson’s will more than double by 2030.

Projected Worldwide Increase in Prevalence of Parkinson’s Disease

11

4.1

8.7

0

2

4

6

8

10

2005 2030

Nu

mb

er o

f P

atie

nts

(in

Mill

ion

s)

Source: E.R. Dorsey, et al.15


Notes and Sources

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1. Life expectancies prior to 1997 were calculated using a slightly different methodology than for those post-1997.

2. M.B. McClellan, Speech Before the First International Colloquium on Generic Medicine (Cancun, Mexico), 2003.

3. U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics, Health, United States, 2008 With Chartbook (Hyattsville, MD: HHS, 2009); 1950-2006 data from M. Heron, et al., “Deaths: Final Data for 2006,” National Vital Statistics Reports 57, no.14, (Hyattsville, MD: National Center for Health Statistics, August 2009): 5, http://www.cdc.gov/nchs/data/nvsr/nvsr57/nvsr57_14.pdf [accessed June 2010]; 2007 data from J. Xu, et al., “Deaths: Final Data for 2007,” National Vital Statistics Reports 58, no.19, (Hyattsville, MD: National Center for Health Statistics, May 2010): 13, http://www.cdc.gov/nchs/data/nvsr/nvsr58/nvsr58_19.pdf [accessed June 2010]. 2008-2009 data from K. Kochanek, et al., “Deaths: Preliminary Data for 2009,” National Vital Statistics Reports 59, no.4, (Hyattsville, MD: National Center for Health Statistics, March 2011): 28, http://www.cdc.gov/nchs/data/nvsr/nvsr59/nvsr59_04.pdf [accessed August 2011].

4. Patients with ST-segment elevation acute coronary syndromes (STEMI). Reduced adverse events also observed among non-STEMI patients.

5. K.A. Fox, et al., “Decline in Rates of Death and Heart Failure in Acute Coronary Syndromes, 1999-2006,” Journal of the American Medical Association 297, no. 17 (2007): 1892–2000.

6. U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics, Health, United States, 2003 With Chartbook on Trends in the Health of Americans (Hyattsville, MD: HHS, 2003) and Health, United States, 2009 With Chartbook on Medical Technology (Hyattsville, MD: HHS, 2010); 2007 data from J. Xu, et al. “Deaths: Preliminary Data for 2007,” National Vital Statistics Reports 58, no.1, (Hyattsville, MD: National Center for Health Statistics, August 2009): 5, http://www.cdc.gov/nchs/data/nvsr/nvsr58/nvsr58_01.pdf [accessed 4 December 2009].

7. D.K. Epsey, et al. “Annual Report to the Nation on the Status of Cancer, 1975–2004, Featuring Cancer in American Indians and Alaska Natives,” Cancer 110, no. 10 (2007): 2119–52.

8. B.K. Edwards, et al., “Annual Report to the Nation on the Status of Cancer, 1975-2006, Featuring Colorectal Cancer Trends and Impact of Interventions (Risk Factors, Screening, and Treatment) to Reduce Future Rates,” Cancer 116, no. 3 (2010): 544–73.


Notes and Sources

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9. Groups were matched by age, education level, duration of the symptoms before treatment initiation, and baseline Mini-Mental State Examination (MMSE) score.

10. O.L. Lopez, et al., “Alteration of a Clinically Meaningful Outcome in the Natural History of Alzheimer’s Disease by Cholinesterase Inhibition,” Journal of the American Geriatric Society 53, no. 1 (2005): 83–7.

11. Approvals for rare diseases include initial approvals of new medicines and subsequent approvals of existing medicines for rare disease areas.

12. Food and Drug Administration, Office of Orphan Product Development, Orphan Drug Designations and Approvals Database, at http://www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm [accessed August 2010] (for data from 1983–2010). Food and Drug Administration, “Developing Products for Rare Diseases & Conditions,” http://www.fda.gov/ForIndustry/DevelopingProductsforRareDiseasesConditions/default.htm, [accessed August 2010] (for data for 1970s).

13. Projected savings to Medicare and Medicaid assume research breakthroughs that slow the progression of Alzheimer’s disease. This would dramatically reduce spending for co-morbid conditions and expensive nursing-home care.

14. Alzheimer’s Association, “Changing the Trajectory of Alzheimer’s Disease: A National Imperative,” (2010).

15. E.R. Dorsey, et al., “Projected Number of People with Parkinson Disease in the Most Populous Nations, 2005 through 2030,” Neurology 68, no. 5 (2007): 384–6.

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2 • Research and Development

2 RESEARCH AND DEVELOPMENT The Process of Drug Discovery and Development

More than 3,000 molecules were in development or awaiting Food and Drug Administration approval for use by U.S. patients in 2011. PhRMA member companies invested $49.5 billion in biopharmaceutical research and development in 2011, accounting for the majority of private biopharmaceutical R&D spending. Development of new medicines is a long and high-risk process, and it has become more costly and complex over the last decade. Even among the new drug candidates reaching Phase III trials, about one-third fail. Companies “race” to bring the first medicine in a class to market, and just two in ten approved drugs are ultimately a commercial success. Recent biopharmaceutical advances — driven by scientific research and creative genius — would have been impossible without a system of laws that provide the structure, stability, and opportunity for the needed investment.

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2 • Research and Development 16

More than 3,000 Medicines were in Development in 2011

Alzheimer’s and Other Dementias 98

Arthritis and Related Conditions 198

Cancer 932

Breast Cancer 129

Colorectal Cancer 84

Lung Cancer 140

Leukemia 119

Skin Cancer 82

Source: PhRMA2

Cardiovascular Disorders 245

Diabetes Mellitus 200

HIV/AIDS and Related Conditions 88

Mental and Behavioral Disorders 250

Parkinson’s and Related Conditions 36

Respiratory Disorders 383

Rare Diseases1 460

Medicines in Development in 2011 for Selected Conditions*

*Reflects number of compounds in clinical trials or under review by the FDA for approval through New Drug Application (NDA) or Biologic License Application (BLA) pathways. Medicines with multiple indications may appear in more than one category but are counted only once for total (3,091).


More than 900 Biotechnology Medicines were in Development in 2011

Biotechnology Medicines in Development in 2011 by Therapeutic Category*

Source: Adis R&D Insight Database and PhRMA3

HIV Infection 39

Infectious Diseases 188

Musculoskeletal Disorders 22

Neurologic Disorders 44

Respiratory Disorders 40

Skin Disorders 27

Transplantation 18

Other Diseases 36

Autoimmune Disorders 69

Blood Disorders 32

Cancer/Related Conditions 352

Cardiovascular Disease 59

Diabetes/Related Conditions 24

Digestive Disorders 27

Eye Conditions 20

Genetic Disorders 19

Growth Disorders 5

*Biotechnology medicines are defined here as those products that involve recombinant DNA, monoclonal antibody/hybridoma, continuous cell lines, cellular therapy, gene therapy and vaccines technology. Medicines with multiple indications may appear in more than one category but are counted only once for total (901).


Source: Adis R&D Insight Database5

U.S. Market Drives Global Development of Medicines

Number of Compounds in Development, by Geographic Region4, 1997–2011

U.S. 3091

All Other 2465

EU 1449

Japan 556

0

500

1000

1500

2000

2500

3000

3500

1997 1999 2001 2003 2005 2007 2009 2011


The Research and Development Process

Developing a new medicine takes an average of 10–15 years.

19

Source: PhRMA6

INDEFINITE

Drug Discovery Preclinical Clinical Trials FDA Review Scale-Up to Mfg. Post-Marketing

Surveillance

ONE FDA-APPROVED

DRUG

0.5 – 2 YEARS 6 – 7 YEARS 3 – 6 YEARS

NUMBER OF VOLUNTEERS

PHASE 1 PHASE 2 PHASE 3

5 250 5,000 – 10,000 COMPOUNDS

PR

E-D

ISC

OV

ERY

20–100 100–500 1,000–5,000

IND

SU

BM

ITTE

D

ND

A S

UB

MIT

TED


Government and Industry Roles in Research & Development

Government and biopharmaceutical industry research complement one another.

20

Sources: PhRMA7; NIH Office of Budget8; adapted from E. Zerhouni9

Clinical Research

Translational Research

Basic Research

Clinical Research

Translational Research

Basic Research

National Institutes of Health: $30.9B8

PhRMA Member Companies: $49.5B*7

*NIH spending is for FY 2011. PhRMA member companies’ spending is for CY 2011. PhRMA member companies account for the majority of private biopharmaceutical R&D spending. Non-member company data are not included.


PhRMA Member Company and Public R&D Spending

PhRMA Member Company R&D and NIH Operating Budget: 1995–2011

Source: PhRMA, NIH Office of Budget10

$15.2 $16.9

$19.0 $21.0

$22.7

$26.0

$29.8 $31.0

$34.5 $37.0

$39.9

$43.4

$47.9 $47.4 $45.8

$50.7 $49.5*

$11.3 $11.9 $12.7 $13.7 $15.6

$17.8

$20.5

$23.3

$27.1 $27.9 $28.5 $28.5 $29.0 $29.3 $30.6 $31.2 $30.9

$0

$10

$20

$30

$40

$50

$60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Exp

end

itu

res

(Bill

ion

s o

f D

olla

rs)

PhRMA Member Companies’ R&D Expenditures

Total NIH Budget

*Estimated for CY 2011.


Drug Development Costs Have Increased

The average cost to develop one new approved drug - including the cost of failures - increased approximately 50% between the late 1990s and the early 2000s.

Source: J. DiMasi, et al. and J. DiMasi and H. Grabowski11

$140M

$320M

$800M

$1.2B

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

mid-1970s mid-1980s late-1990s early 2000s

Bill

ion

s (C

on

stan

t D

olla

rs, Y

ear

20

00

)


Complexity of Clinical Trials Has Increased

During the last decade clinical trial designs and procedures have become much more complex, demanding more staff time and effort, and discouraging patient enrollment and retention.

Changes in Clinical Trials: Resources, Length and Participation

23

1999 2005 Percentage

Change

Procedures per Trial Protocol (Median) (e.g., bloodwork, routine exams, x-rays, etc.)

96 158 65%

Clinical Trial Staff Work Burden (Measured in Work-effort Units)

21 35 67%

Length of Clinical Trial (Days) 460 780 70%

Clinical Trial-Participant Enrollment Rate (% of volunteers meeting trial criteria)

75% 59% -21%

Clinical Trial-Participant Retention Rate (% of participants completing trial)

69% 48% -30%

Source: Tufts Center for the Study of Drug Development12


Illustrative Pharmaceutical Lifecycle

New pharmaceutical medicines face competition after a relatively short period on the market.

Sources: PhRMA13; J. DiMasi and C. Paquette14; H. Grabowski, M. Kyle, et al.15; PhRMA16

* Refers to new drugs (i.e., excludes new forms of administration) with annual sales in 2008 of more than $100 million, which accounted for 95% of the sales of new medicines exposed to generic competition.

Drug Discovery Drug Development

& Clinical Trials

Generic entry, brand sales decline rapidly

For first-in-class drugs, brand competitors enter market

FDA approval, brand product enters market

Average time to brand competition = 2 yrs14

Average time before generic entry = 11.8* yrs15

Drug Available to Patients

Generics can apply for approval as early as 4 years after originator is approved

Average time to develop a new medicine = 10–15 yrs13


Earlier and More Frequent Patent Challenges by Generic Companies

On average, new brand drugs face generic competition after 11.8* years, but generic companies can

challenge patents as soon as four years after a brand enters the market.

Share of Brand Products that Ever Experienced a “Paragraph IV” Patent Challenge** from a Generic Manufacturer,

Among Those Facing Generic Entry in Year Listed

Source: H. Grabowski, M. Kyle, et al.17

*Refers to new drugs (i.e., excludes new forms of administration) with annual sales in 2008 of more than $100 million. These accounted for 95% of the sales of new medicines exposed to generic competition.

** A generic company may file with FDA a Paragraph IV certification to “challenge” patents associated with brand-name medicines, potentially allowing generic market entry before the patent expiration date.

17%

75%

0%

20%

40%

60%

80%

100%

1995 2008

Hu

nd

red

s

Year of First Generic Entry


Competing Medicines Race for Approval

By 1995, nearly all first-in-class medicines being approved already had potential competitors in Phase II clinical testing.

Percent of First-in-Class Medicines with a Competitor Already in Phase II Clinical Testing at Time of Approval

26

Source: J. DiMasi and L. Faden18

23%

50%

71%

77%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1970s 1980-1984 1985-1989 1990-1994 1995-1999


Increasing Competition Within Therapeutic Categories

The average time a medicine is the only drug available in its therapeutic class has declined dramatically — from more than 10 years in the 1970s to less than two years by 1998.

Time Between Approval of First and Second Drugs in a Therapeutic Class

27

Source: Tufts CSDD19

10.2

4.1

1.2 0

2

4

6

8

10

12

1970s 1980s 1990-2003

Med

ian

Nu

mb

er o

f Ye

ars

Year of Approval of First-in-Class Medicine


$1,880

$701

$434

$299

$162 $87 $39 $21

$6 $0

$500

$1,000

$1,500

$2,000

1 2 3 4 5 6 7 8 9 10

Aft

er-T

ax P

rese

nt

Val

ue

of

Sale

s (M

illio

ns

of

2000

Do

llars

)

New Medicine Introduced Between 1990 and 1994, grouped by Tenths, by Lifetime Sales

After-Tax Average R&D Costs

-$1

Few Approved Medicines are Commercially Successful

Ongoing investment in R&D depends on the commercial success of a few products that must make up for all the rest, including those that never reach the market.

Just Two in 10 Approved Medicines Produce Revenues that Exceed Average R&D Costs

28

Source: J.A. Vernon, J.H. Golec, and J.A. DiMasi20


Notes and Sources

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1. Rare diseases are those affecting 200,000 or fewer people in the U.S.

2. Except where noted otherwise, data for listed conditions from PhRMA tabulations of data from Adis R&D Insight Database, Wolters Kluwer Health [accessed 10 October 2011]. Data for rare diseases are from: Pharmaceutical Research and Manufacturers of America (PhRMA), “Orphan Drugs in Development for Rare Diseases,” (2011). Data for Parkinson’s disease and related conditions are from: Pharmaceutical Research and Manufacturers of America (PhRMA), “2011 Report: Medicines in Development – Parkinson’s Disease,” (Washington DC: PhRMA, 2011). Data for arthritis and related conditions are from: Pharmaceutical Research and Manufacturers of America (PhRMA), “2011 Report: Medicines in Development – Arthritis,” (Washington DC: PhRMA, 2011). Data for HIV/AIDS and related conditions are from: Pharmaceutical Research and Manufacturers of America (PhRMA), “2011 Report: Medicines in Development – HIV/AIDS,“ (Washington DC: PhRMA, 2011).

3. Adis R&D Insight Database, Wolters Kluwer Health, as reported in Pharmaceutical Research and Manufacturers of America, “2011 Report: Medicines in Development – Biotechnology,” (Washington DC: PhRMA, 2011).

4. Reflects the number of compounds in clinical trials or awaiting approval as of June of each year. Compounds in development for multiple regions are counted in each region for which regulatory approval is sought, and multiple indications are counted only once.

5. Adis R&D Insight Database, Wolters Kluwer Health, customized runs, October 2011.

6. Pharmaceutical Research and Manufacturers of America, “Drug Discovery and Development: Understanding the R&D Process,” (Washington DC: PhRMA, 2007). Available at: www.innovation.org.

7. Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey (Washington, DC: PhRMA, 1996–2012).

8. National Institutes of Health Office of Budget, “History of Congressional Appropriations,” http://officeofbudget.od.nih.gov/pdfs/FY12/Approp.%20History%20by%20IC)2012.pdf [accessed 5 March 2012].

9. Adapted from E. Zerhouni, Presentation at Transforming Health: Fulfilling the Promise of Research, 2007.


Notes and Sources

30

10. Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey (Washington, DC: PhRMA, 1996–2012); National Institute of Health Office of Budget, “History of Congressional Appropriations,” http://officeofbudget.od.nih.gov/pdfs/FY08/FY08%20COMPLETED/appic3806%20-%20transposed%20%2090%20-%2099.pdf (for 1995-1999), http://officeofbudget.od.nih.gov/pdfs/FY12/Approp.%20History%20by%20IC)2012.pdf (for 2000-2011) [accessed 5 March 2012].

11. J.A. DiMasi and H.G. Grabowski, “The Cost of Biopharmaceutical R&D: Is Biotech Different?” Managerial and Decision Economics no. 28 (2007): 469–79.; J.A. DiMasi, R.W. Hansen, and H.G. Grabowski, “The Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health Economics 22 (2003): 151–185. Note: Data for early 2000s is adjusted to 2000 dollars based on correspondence with study author.

12. Tufts Center for the Study of Drug Development, “Growing Protocol Design Complexity Stresses Investigators, Volunteers,” Tufts CSDD Impact Report 10, no. 1 (2008).

13. Pharmaceutical Research and Manufacturers of America, Drug Discovery and Development: Understanding the R&D Process, (Washington DC: PhRMA, 2007). Available at: www.innovation.org.

14. J.A. DiMasi and C. Paquette, “The Economics of Follow-on Drug Research and Development: Trends in Entry Rates and the Timing of Development,” Pharmacoeconomics 22, suppl. 2 (2004): 1–14.

15. H. Grabowski, M. Kyle, R. Mortimer, G. Long and N. Kirson, “Evolving Brand-name And Generic Drug Competition May Warrant A Revision Of The Hatch-Waxman Act,” Health Affairs 30, no. 11 (2011): 2157-2166.

16. Pharmaceutical Research and Manufacturers of America analysis (2009).

17. Estimate is based on sample of 200 NMEs experiencing first generic entry between 1995 and 2008. The 11.8 years refers to the market exclusivity period which is defined as the time between launch of the brand-name version of the drug and its first generic competitor. See H. Grabowski, M. Kyle et al., “Evolving Brand-name And Generic Drug Competition May Warrant A Revision Of The Hatch-Waxman Act,” Health Affairs 30, no. 11 (2011): 2157-2166.

18. J. DiMasi and L. Faden, “Follow-On Drug R&D: New Data on Trends in Entry Rates and the Timing of Development,” Tufts Center for the Study of Drug Development, Working Paper, (September 2009).


Notes and Sources

31

19. Sources: Unpublished data from Tufts CSDD, March 2010. Median data for shorter time periods published in: Tufts Center for the Study of Drug Development, “Marketing Exclusivity for First-in-Class Drugs Has Shortened to 2.5 Years,” Tufts CSDD Impact Report 11, no. 5 (2009).

20. J. A. Vernon, J. H. Golec, and J. A. DiMasi, “Drug Development Costs When Financial Risk Is Measured Using the Fama-French Three-Factor Model,” Health Economics 19, no. 8 (2009): 1002-5; Drug development costs represent after-tax out-of-pocket costs in 2000 dollars for drugs introduced from 1990–94. The same analysis found that the total cost of developing a new drug was $1.3 billion in 2006. Average R&D costs include the cost of the approved medicines as well as those that fail to reach approval.

36

3 • Spending and Costs

3 SPENDING AND COSTS

Biopharmaceutical Spending and Health Care Costs

Prescription medicines represent a small share of national health spending. Since 2000, growth in prescription drug spending has slowed markedly, while prices for prescription medicines have risen in line with overall medical inflation.

Innovator pharmaceutical companies produce medical advances through pioneering scientific work and large-scale investments. The innovators’ work and investment lead both to new medicines and, over time, to generic copies that consumers use at low cost for many years.

Health plans use many tools — such as tiered formularies and cost sharing — to steer use toward generics and lower-cost medicines. Payers also typically require patients to pay a higher share of the costs of medicines out-of-pocket compared to other health services.

33

3 • Spending and Costs 34

Sharply Declining Prescription Medicine Spending Growth: 1999–20091

18.4%

15.4% 14.7%

14.0%

10.7%

8.6%

6.0%

9.0%

4.7%

3.1%

5.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: CMS2

Spending growth for prescription medicines has slowed dramatically over the past decade, with historically low rates of growth observed in recent years.


Medicines Account for a Small and Declining Share of Health Spending Growth

Growth in Health Care Expenditures Attributable to Prescription Drugs, 1994–2009

Source: CMS3

16% 14% 10%

84% 86% 90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994-1999 1999-2004 2004-2009

All Other Health CarePrescription Drugs


Retail Spending on Prescription Medicines is a Small Share of Total U.S. Health Care Spending

Health Care Dollar, 2009

Source: CMS5

$0.07

$0.09

$0.20

$0.31

$0.10

$0.24

Hospital Care

Physician & Clinical Services

Home Health & Nursing Home Care

Prescription Medicines

Other4

Government Administrative & Net Cost of Private Health Insurance


Growth in Prescription Medicine Prices Has Been in Line with Other Health Care Prices

Consumer Price Index (Dec 1999 = 100)

Source: Bureau of Labor Statistics6

95

115

135

155

175

195

215

235

Hospital & Related Services

All Medical Costs

Prescription Medicines

Consumer Price Index


More Than Three-Quarters of U.S. Prescriptions Are Filled with Generics

Generic Share of Prescriptions Filled 1984–2010

Source: IMS7,8

0%

10%

20%

30%

40%

50%

70%

60%

80%

90%

1984 1990 1996 2002 2008 2009 2010

19%

33%

43%

52%

71% 75% 78%

In 2010, generics accounted for 19 of the 20 most commonly prescribed medicines.7


The U.S. Prescription Drug Lifecycle Promotes Innovation and Affordability

Innovator pharmaceutical companies produce medical advances through pioneering scientific work and large-scale investments. The innovators’ work and investment lead both to new medicines and, over time, to generic copies that consumers use at low cost for many years.

Price Change for 2006 Market Basket of 25 Leading Brand Drugs, Including Available Generics*

39

Source: E.R. Berndt and M.L. Aitken9 * Calculation of price change reflects use of generic copies of brand medicines in the market basket, when available.

-2.9%

-12.9%

-7.0%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2006-2007 2007-2008 2008-2009

% P

rice

Ch

ange

21% cumulative decline in average prices from

2006 to 2009


Insurance Covers a Lower Share of Prescription Drug Costs Than of Other Medical Services

On average, privately-insured consumers pay for more than one quarter of prescription drug costs out-of-pocket, compared to 4% for hospital stays.10

Percent of Spending for Each Type of Service Paid Out-of-Pocket: Privately Insured People Under Age 65 with Prescription Drug Coverage

40

Source: 2007 MEPS11

4%

8% 10%

16%

27%

0%

10%

20%

30%

40%

Hospital Inpatient Hospital Outpatient Emergency Room Physicians Prescription Drugs


Powerful Purchasers Negotiate on Behalf of Patients

A small number of large purchasers dominate the U.S. prescription drug market.

Prescription Volume by Pharmacy Benefit Companies, 1Q 2011

41

* Values may not sum due to rounding.

Company Number of Prescriptions* Market Share (%)

Top 5 PBMs 2,786 million 65.7%

Medco Health Solutions 740 million 17.4%

Express Scripts 656 million 15.5%

CVS/Caremark 585 million 13.8%

Argus Health Systems 510 million 12.0%

Prescription Solutions 295 million 7.0%



Total 4,243 million 100%

Sources: Drug Benefit News.12


Payers Influence Which Medicines Patients Receive

Payers have many tools to steer use toward generics

and lower cost brands

42

Sources: PhRMA, from PBM annual reports13

Tiered Co-pays Higher patient costs for non-preferred brands

Formularies List of covered drugs

Prior Authorization Physicians required to justify

medicine’s use before it is covered

Financial Incentives Payments to physicians and/or

pharmacies for high generic prescribing rate or switching patients to preferred drugs

Counter-detailing Payers contact physicians to

promote generics

Step Therapy Patients must try and fail on alternatives before certain medications are covered


Newly Introduced Generics are Adopted Rapidly

When a generic version of a medicine becomes available for the first time, it can capture as much as 84% to 94% of the market within the first month.

Generic share of filled prescriptions following the launch of a new generic osteoporosis treatment

43

Sources: Medco14

0%

20%

40%

60%

80%

100%

0 7 14 30 60 90 120 150 180

Mail Retail


Biologic Medicines are a Small Share of Health Plan Costs

Spending Mix for Severely Ill Patients in Top 2.5% of Health Plan Spending

Source: V.J. Willey, et al.15 * Biologic medicines are biologically derived medicines used to treat conditions like cancer, multiple sclerosis, hepatitis C, hemophilia, and primary immune diseases. They are typically administered by injection or infusion and often require special handling, education, and monitoring.

33.9%

6.6%

14.1%

45.4%

Other Medicines

Biologic Medicines

Ambulatory Care

Hospitalizations

For the sickest patients, who are most likely to be treated with biologic medicines,* hospital costs are seven times the cost of biologic medicines.


$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Canada United States Germany

All Other Health Care Spending

Prescription Drugs

93% of the difference

$4,218

$7,960

$4,363

9% of the difference 7% of the difference

91% of the difference

Medicines Account for a Small Share of Health Spending Differences Between the U.S. and Other Countries

Per Capita Health Care Spending 2009, U.S. vs. Canada and Germany

45

Source: OECD16


Notes and Sources

46

1. Total retail sales including brand medicines and generics.

2. PhRMA analysis of Centers for Medicare & Medicaid Services (CMS ), National Health Expenditures by type of service and source of funds, CY 1960-2008 (Excel spreadsheet), Available at: http://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp# [accessed 14 October 2011].

3. ibid.

4. Includes dental, other professional, home health, durable medical equipment, and other services.

5. PhRMA analysis of Centers for Medicare & Medicaid Services (CMS), National Health Expenditures (2010). Available at: https://www.cms.gov/NationalHealthExpendData/downloads/PieChartSourcesExpenditures2009.pdf [accessed 20 October 2011].

6. PhRMA analysis of Bureau of Labor Statistics, Consumer Price Index — All Urban Consumers (2011). Available at: http://www.bls.gov/cpi/#tables [accessed 18 October 2011].

7. IMS Health, IMS National Prescription AuditTM (2010).

8. IMS Health, “IMS Institute Reports U.S. Spending on Medicines Grew 2.3 Percent in 2010, to $307.4 Billion ,"IMS Health (2010). Available at: http://www.imshealth.com/portal/site/imshealth/ [accessed 23 August 2011]; PhRMA analysis of IMS Health, IMS National Prescription AuditTM (2011).

9. E.R. Berndt and M.L. Aitken, “Brand Loyalty, Generic Entry and Price Competition in Pharmaceuticals in the Quarter Century after the 1984 Waxman-Hatch Legislation,” National Bureau of Economic Research Working Paper no. 16431 (October 2010).


Notes and Sources

47

10. Prescription drug spending includes brand and generic ingredients, pharmacy, and distribution costs. Estimates are for civilian non-institutionalized population under age 65 who are privately insured and report coverage for prescription medicines.

11. PhRMA analysis of Agency for Healthcare Research and Quality (AHRQ), Medical Expenditure Panel Survey (2007). Available at: http://www.meps.ahrq.gov/mepsweb/ [accessed 5 May 2010].

12. “Table: Top 50 Pharmacy Benefit Companies by Annual Rx Volume, as of 1Q 2011,” Drug Benefit News, (June 10, 2011).

13. PhRMA analysis of annual reports from Pharmacy Benefit Managers. See for example: Medco Drug Trend Reports (2007–2009).

14. Medco Health Solutions, 2009 Drug Trend Report (2009). Available at: www.drugtrend.com [accessed 28 April 2010].

15. V.J. Willey, et al., “Costs of Severely Ill Members and Specialty Medication Use in a Commercially Insured Population,” Health Affairs 27, no. 3 (2008): 824-834.

16. PhRMA analysis of Organization for Economic Co-operation and Development (OECD), Health at a Glance 2011: OECD Indicators, OECD Publishing. Available at: http://dx.doi.org/10.1787/health_glance-2011-en [accessed November 2011].

52

4 • Appropriate Use of Medicines

4 APPROPRIATE USE OF MEDICINES The Challenges of Gaps in Treatment and Lack of Adherence to Prescribed Therapies

Undertreatment of chronic disease and lack of adherence to prescribed medicines are significant public health problems, costing the U.S. economy hundreds of billions of dollars each year. Improved adherence to prescribed medicines, however, can result in better health outcomes, lower costs for other health care services, and increased worker productivity.

49


Most Americans Use Few or No Medicines — a Small Share of People Fill the Majority of Prescriptions

The 20% of people who used medicines the most accounted for two-thirds of all prescriptions filled in 2007.

50

Source: 2007 MEPS1

80%

35%

20% 65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% of Population % of Perscription Fills

(38% of the population

uses no medicines)


Medicines’ Changing Role in Recommended Care

Revisions to clinical guidelines based on the latest research have resulted in appropriate increases in the use of medicines in recent years.

51

Source: R. Dubois and B. Dean2

Changes in the size of the treatable population as target levels change, such as lower targets for blood pressure, blood glucose, lipids

Changes in the number and type of recommended medicines — such as a shift from single to combination therapy — to better control conditions

Changes in therapeutic regimen and duration to better control conditions, such as longer continuation of treatment for depression


Failure to Prescribe the Indicated Treatment is the Most Common Prescription Drug Quality Problem

RAND researchers report that failure to prescribe an indicated treatment is a far more common quality problem than is inappropriate medicine use.

Quality Problems Among Vulnerable Older Patients

52

Source: RAND3 * Quality indicators were developed and implemented based on systematic literature reviews and multiple layers of expert judgment.

3%

19%

36%

50%

0% 10% 20% 30% 40% 50% 60%

Inappropriate medication

Inadequate education/ continuity/documentation

Inadequate monitoring

Failure to prescribe when called for byguidelines


15 million are TREATED • Blood sugar control (diet & exercise, medicines) •

• Testing to prevent complications •

Diabetes: An Example of Underdiagnosis and Undertreatment

Uncontrolled diabetes can lead to kidney failure, amputation, blindness, and stroke.

53

Source: NHANES; CDC4

24 million Americans with DIABETES

18 million are DIAGNOSED

6 million are treated and have their disease CONTROLLED

6 million have CONTROLLED diabetes

6 million are UNDIAGNOSED

3 million are diagnosed but NOT TREATED

9 million receive some treatment but are NOT SUCCESSFULLY CONTROLLED

18 million have UNCONTROLLED diabetes


Recommended Medicines Can Save Lives and Dramatically Improve Health

“...achieving effective blood pressure control would be approximately equivalent to eliminating all deaths from accidents, or from influenza and pneumonia combined.”

—David Cutler, Harvard University

Annual Hospitalizations and Deaths Avoided through Use of Recommended Antihypertensive Medications

54

Source: D.M. Cutler, et al.5

Actual Hospitalizations Avoided Annual Premature Deaths Avoided

Actual Prevention: Based on Current Treatment Rates

833,000 86,000

Potential Additional Prevention: If Untreated Patients Received

Recommended Medicines 420,000 89,000

4 • Appropriate Use of Medicines 55

Evidence Shows Use of Medicines Reduces Spending on Other Health Care Services

Sources: M.C. Roebuck, et al.6; C.C. Afendulis, et al.7; J.M. McWilliams, et al.8; C.C. Afendulis and M.E. Chernew9

Better coverage for prescription drugs and better adherence to prescribed medicines allows for significant cost savings.

• Patients with chronic conditions who had better adherence to prescribed medicines had savings of $3 to $10 in non-drug spending for each additional dollar spent on prescriptions* – a net savings of $1,200 to $7,800 per patient per year.6

• Seniors with medication-sensitive conditions saw a 4.1% decline in their

rate of hospital admissions after obtaining drug coverage through Part D.7

• Among all newly insured Part D enrollees, hospital and skilled nursing facility costs declined by about $1,200 per person8 – an overall savings of $13.4B in 2007.9

*For adherent patients compared to non-adherent patients.


Gaining Drug Coverage Can Significantly Reduce Non-Drug Medical Spending Total nondrug medical spending among newly-insured Medicare Part D enrollees was about $1,200 per year less than expected10 – an overall savings of $13.4 billion in 2007, the first full year of the Part D program. 11

*Home health, durable medical equipment, hospice, and outpatient institutional services. Sources: J.M. McWilliams, et al.10 ; C.C. Afendulis and M.E. Chernew11

-$816

-$28

-$1,224

Average Annual Reduction in Medical Spending in 2006 and 2007, for Beneficiaries Gaining Drug Coverage through Part D

-$816

-$268

-$140 -$1,224

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0Part A Part B Other Non-Drug*

Total Non-DrugMedical Spending


Improving Medication Adherence Would Yield Significant Health Gains and Economic Benefits

“Poor adherence to treatment of chronic diseases is a worldwide problem of striking magnitude. Adherence to long-term therapy for chronic illnesses in developed countries averages 50%.”

—World Health Organization

Recent research has found medication non-adherence to be associated with:

• 5.4 times increased risk of hospitalization, rehospitalization, or premature death for patients with high blood pressure.12

• 2.5 times increased risk of hospitalization for patients with diabetes.13

• as many as 40 percent of nursing home admissions.14

• an additional $2,000 per year per patient in physician visit costs.14

• an economic burden of $100 to $300 billion per year.15

57

Source: F.H. Gwadry-Sridhar, et al.12; D.T. Lau and D.P. Nau.13; American Pharmacists Association14; M.R. DiMatteo15


The Large Gulf Between a Written Prescription and the Intended Treatment for the Patient

Patients are vulnerable to gaps or discontinuation at many points during treatment.

58

Source: NACDS16

For every 100 prescriptions

written

50–70 go to a

pharmacy

48–66 are filled at

the pharmacy

25–30 are taken properly

15–20 are refilled

as prescribed


Outcomes Improve as Adherence to Prescribed Medicines Increases

Non-adherent diabetes patients were 2.5 times as likely to be hospitalized as those who followed their prescribed treatment.

Hospitalization Rate among Diabetes Patients by Level of Adherence to Oral Antihyperglycemic Medication*

59

Source: D.T. Lau and D.P. Nau17

* Adherent patients defined as patients with a “medication possession ratio” (i.e., the sum of the “days of supply” of prescriptions filled divided by the number of days in the year) of 80% or higher.

15%

12%

10%

5%

4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

<40% 40-59% 60-79% 80-99% 100%

Ho

spit

aliz

atio

n R

ate

Adherence Rate


Greater Adherence to Medicines Can Reduce Spending on Other Healthcare Services

Among Medicaid beneficiaries with congestive heart failure, total healthcare costs for adherent patients* were 23 percent lower than those of non-adherent patients.

Healthcare Spending by Level of Adherence Among Medicaid Beneficiaries with Congestive Heart Failure

60

Source: D. Esposito, et al.18

* Adherent patients defined as patients with a “medication possession ratio” (i.e., total days supply of medication divided by number of days between first fill and the last day patient had medication available) of 80% or higher.

$23,112

$17,832

$14,418

$2,212

$2,915

$3,247

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Less than 80% 80% to 95% Greater than 95%

Ave

rage

An

nu

al H

ealt

hca

re S

pen

din

g

Adherence (%)

Prescription Drug Costs

Other Medical Costs


High Cost-Sharing Reduces Adherence

RAND researchers found that doubling co-pays reduced patients’ adherence to prescribed medicines by 25% to 45% and increased emergency-room visits and hospitalizations.

Percent Change in Adherence from Doubling Medicine Co-pays

61

Source: D. Goldman, et al.19

-45% -44%

-34% -33% -32%

-26% -26% -25%

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Day

s Su

pp

lied

of

Med

icin

e


New Classes of Medicines Can Improve Adherence and Persistence

Studies have found better adherence to newer medicines.20 Similar results have been found even when insurance requires higher patient cost-sharing for the newer medicines compared to older medicines.21

Persistence Patterns Among Antihypertensive Patients, by Drug Class20

62

Sources: P. Conlin, et al.20; D.A. Taira, et al.21; Drugs@FDA22

16%

35%

41%

47%

51%

0%

10%

20%

30%

40%

50%

60%

Thiazide Diuretics (1957) Beta Blockers (1967) Calcium-Channel Blockers(1981)

ACE Inhibitors (1981) ARBs (1995)

Pe

rcen

t o

f P

atie

nts

Ad

her

ing

to

Pre

scri

bed

Th

erap

y A

fter

48

Mo

nth

s

Drug Class (Year of First Launch22 )


Notes and Sources

63

1. PhRMA analysis of Agency for Healthcare Research and Quality (AHRQ), Medical Expenditure Panel Survey (2007). Available at: http://www.meps.ahrq.gov/mepsweb/ [accessed 5 May 2010].

2. R.W. Dubois & B.B. Dean, “Evolution of Clinical Practice Guidelines: Evidence Supporting Expanded Use of Medicines,” Disease Management 9, no. 4 (2006): 210–23.

3. RAND Health, “U.S. Healthcare Facts About Cost, Access, and Quality” (2005) citing T. Higashi, et al., “The Quality of Pharmacologic Care for Vulnerable Older Patients”, Annals of Internal Medicine 140, no. 9 (2004): 714-720.

4. PhRMA analysis of data from National Health and Nutrition Examination Survey for 2003–2004 and 2005–2006; Centers for Disease Control and Prevention, National Diabetes Fact Sheet, (2007).

5. D.M. Cutler, et al., “The Value of Antihypertensive Drugs: A Perspective on Medical Innovation,” Health Affairs 26, no. 1 (2007): 97-110.

6. M.C. Roebuck, et al., “Medication Adherence Leads to Lower Health Care Use and Costs Despite Increased Drug Spending,” Health Affairs 30, no. 1 (January 2011): 91-99.

7. C.C. Afendulis, et al., “The Impact of Medicare Part D on Hospitalization Rates,” Health Services Research 46, no. 4 (August 2011): 1022-1038.

8. J.M. McWilliams, et al., “Implementation of Medicare Part D and Nondrug Medical Spending for Elderly Adults With Limited Prior Drug Coverage,” Journal of the American Medical Association 306, no. 4 (2011): 402-409.

9. C.C. Afendulis and M.E. Chernew, “State-Level Impacts of Medicare Part D,” American Journal of Managed Care 17, Suppl 12:S (October 2011).

10. J.M. McWilliams, et al., “Implementation of Medicare Part D and Nondrug Medical Spending for Elderly Adults With Limited Prior Drug Coverage,” Journal of the American Medical Association, 306 no. 4 (2011): 402-409.

11. C.C. Afendulis and M.E. Chernew, “State-Level Impacts of Medicare Part D,” American Journal of Managed Care 17, Suppl 12:S (October 2011).


Notes and Sources

64

12. F.H. Gwadry-Sridhar, et al. “A Framework for Planning and Critiquing Medication Compliance and Persistence Using Prospective Study Designs.” Clinical Therapeutics, 31, no. 2 (2009): 421-435.

13. D.T. Lau and D.P. Nau. “Oral Antihyperglycemic Medication Nonadherence and Subsequent Hospitalization among Individuals with Type 2 Diabetes,” Diabetes Care 27, no. 9 (2004): 2149-53.

14. American Pharmacists Association, Medication Compliance-Adherence-Persistence Digest, (2003).

15. M.R. DiMatteo. “Variation in Patients’ Adherence to Medical Recommendations.” Medical Care 42 no. 3 (2004) (Estimated the cost of non-adherence to be $300 billion per year); L. Osterberg and T. Blaschke, “Adherence to Medication,” New England Journal of Medicine 353 (2005): 487-497, and M.R. DiMatteo, op cit. (Estimated that 33 to 69 percent of medicine-related hospital admissions are caused by poor adherence, with a resulting estimated cost as high as $100 billion a year).

16. National Association of Chain Drug Stores, Pharmacies: Improving Health, Reducing Costs, (July 2010). Based on IMS Health data.

17. D.T. Lau and D.P. Nau, “Oral Antihyperglycemic Medication Nonadherence and Subsequent Hospitalization Among Individuals with Type 2 Diabetes.” Diabetes Care 27, no. 9 (September 2004): 2149-2153.

18. D. Esposito, et al., “Medicaid beneficiaries with congestive heart failure: association of medication adherence with healthcare use and costs,” American Journal of Managed Care 15, no. 7 (2009): 437–45.

19. D.P. Goldman, G.F. Joyce, J.J. Escarce, J.E. Pace, M.D. Solomon, M. Laouri, P.B. Landsman and S.M. Teutsch, “Pharmacy benefits and the use of drugs by the chronically ill,” Journal of the American Medical Association 291, no. 19 (2004): 2344-2350.

20. P. Conlin, et al., “Four-year Persistence Patterns Among Patients Initiating Therapy with the Angiotensin II Receptor Antagonist Losartan Versus Other Antihypertensive Drug Classes,” Clinical Therapeutics 23, no. 12 (December 2001):1999-2010.

21. D.A. Taira, et al., “Copayment Level and Compliance with Antihypertensive Medication: Analysis and Policy Implications for Managed Care,” American Journal of Managed Care 12, no. 11 (2006): 678-683.

22. Drugs@FDA, http://www.accessdata.fda.gov/scripts/cder/drugsatfda/ [accessed 12 July 2010] (for approval dates).


70

5 • Marketing and Promotion

5 MARKETING AND PROMOTION Informing Consumers & Providers about Medicines

Biopharmaceutical marketing and promotion are important and extensively regulated ways of informing consumers and health care professionals about medicines.

Biopharmaceutical company representatives help speed the dissemination of improvements in medical care, and many physicians value this information.

Direct-to-consumer (DTC) advertising by biopharmaceutical companies can lead patients to seek additional information and consult their doctors about previously untreated conditions; it also informs patients about medicines’ risks and benefits.

While marketing and promotion increase awareness of medical treatment options, other factors, including formulary design and utilization-management strategies, often have a greater impact on prescribing decisions.

67


Many Factors Affect Prescribing Decisions

Factors Influencing Prescribing Decisions in the U.S. in 2008

68

Source: KRC Research1

29%

11%

35%

37%

43%

53%

88%

92%

42%

63%

41%

52%

47%

41%

11%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Whether prescription is subject to prior authorization by insurer orbenefits manager

Information from biopharmaceutical company representatives

Patient's insurance coverage and formulary

Colleagues and peers

Clinical practice guidelines

Articles in peer-reviewed journals

Patient's particular situation, including drug interactions, side effects, andcontraindications

Own clinical knowledge and experience

Great DealSome


Physicians Find Biopharmaceutical Representatives’ Information Up-to-date, Useful and Reliable

Physicians’ Assessment of Biopharmaceutical Representatives’ Information

69

Source: KRC Research2

56%

33%

28%

41% 63%

62%

3% 3% 7%

2%

Up-to-date Useful Reliable

Strongly Disagree

Somewhat Disagree

Somewhat Agree

Strongly Agree

96% 97% 90%


Advertising Often Prompts Patients to Seek Additional Information

Consumer Responses to Viewing Advertisements for Prescription Medicines

70

Source: Princeton Survey Research Associates3

47%

27%

14%

8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Sought Information Initiated Conversation with Doctor Newly Aware of Medical Condition Requested Specific Medication


Advertising Increases Awareness of the Benefits and Risks of New Medicines

Awareness of Benefit and Risk Information Among People Who Saw an Advertisement on TV

71

Source: Prevention Magazine National Survey Data4

73%

63%

79% 76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Aware Pay Particular Attention Aware Pay Particular Attention

Pe

rcen

tage

of

Po

pu

lati

on

Awareness of Benefit Information Awareness of Risk Information


Physicians Respond to Patients’ Requests for Specific Treatments with a Broad Range of Alternatives

When Asked by a Patient About a Specific Treatment, Physicians Frequently...

72

Source: Kaiser Family Foundation5

5%

14%

18%

14%

50%

0% 10% 20% 30% 40% 50% 60%

Give prescription for requested drug

Recommend a different prescription drug

Recommend over-the-counter drug

Recommend no treatment

Recommend lifestyle or behavior changes


According to Government and Academic Experts, Marketing Costs Do Not Add to Prescription Drug Prices

“*Direct-to-consumer advertising] can empower consumers to manage their own health care by providing information that will help them, with the assistance of their doctors, to make better informed decisions about treatment options.... Consumers receive these benefits from DTC advertising with little, if any, evidence that such advertising increases prescription drug prices.6”

—Federal Trade Commission

“One sometimes hears it said that the industry would have more money for R&D if it would cut down its marketing costs. This comment reflects misunderstanding of the economics of the industry. If a firm did so, it would be less profitable and would attract less capital for R&D or would have fewer internally generated funds to invest [in R&D].7”

—J. Newhouse, Harvard University

73

Sources: Federal Trade Commission6; J.P. Newhouse7


Notes and Sources

74

1. KRC Research, “Survey of Physicians on Pharmaceutical Company Information, Nationally Representative Survey of 501 Physicians” (2008). Commissioned by PhRMA.

2. ibid.

3. Princeton Survey Research Associates for Prevention Magazine, Men’s Health and Women’s Health, “Consumer Reaction to DTC Advertisements of Prescription Medicines,” 10th Annual Presentation (2007).

4. Prevention Magazine, “The National Survey on Consumer Reaction to DTC Advertising of Prescription Medicines,” (2010).

5 Kaiser Family Foundation, “National Survey of Physicians, Toplines” (2006), http://www.kff.org/kaiserpolls/upload/7584.pdf [accessed 29 November 2011]. .

6 Federal Trade Commission, Comments before the Department of Health and Human Services Food and Drug Administration in the Matter of Request for Comments on Consumer-Directed Promotion (2003).

5. J.P. Newhouse, “How Much Should Medicare Pay for Drugs?,” Health Affairs 23, no. 1 (2004): 89–102.

5 • Marketing and Promotion 75

80

6 • Economic Impact

6 ECONOMIC IMPACT

The Biopharmaceutical Sector’s Role in the Economy

America’s biopharmaceutical research companies support high-quality jobs across the U.S. economy, investing more than ten times as much per employee in research and development than other manufacturing industries.

High-risk biopharmaceutical R&D is supported by profits. While standard accounting treatment overstates profits to R&D-intensive industries, more appropriate measures show that financial returns in the biopharmaceutical sector are approximately average.

Biopharmaceutical companies rank among the highest in charitable contributions, both in the U.S. and around the world.

77


The Biopharmaceutical Sector is the Most R&D-Intensive in the U.S.

Biopharmaceutical companies invested more than ten times the amount of R&D per employee than manufacturing industries overall.

R&D Expenditures per Employee, by Manufacturing Sub-sector and Industry, 2000–2007

78

Source: N.D. Pham1 * Asterisks indicate manufacturing subsectors.

$2,238

$5,663

$6,411

$9,956

$13,319

$15,693

$15,704

$21,162

$22,262

$34,978

$37,980

$40,341

$62,995

$105,428

Paper, printing

Machinery

Electrical equipment, appliances

All Manufacturing

Petroleum, coal

Transportation equipment

Motor vehicles, trailers, parts*

Aerospace products*

Navigational, measuring equipment*

Chemicals

Computers and electronics

Semiconductors*

Communications equipment*

Biopharmaceuticals*

6 • Economic Impact 79

The Ripple Effect of High-Value Biopharmaceutical Jobs

The biopharmaceutical sector supported 4 million jobs across the economy in 2009, including about 3.3 million in other sectors.

Source: Battelle Technology Partnership Practice2

Biopharma Jobs More than 650,000 Jobs in the U.S. Biopharmaceutical Sector

Total Jobs Supported 4 million total U.S. Jobs Supported by

the Biopharmaceutical Sector

Each direct biopharmaceutical job supports 5 additional jobs in other sectors


Biopharmaceuticals are a Rare Source of Projected Growth in U.S. Manufacturing Jobs

Projected Change in Employment from 2006 to 2018*

80

Source: PhRMA, adapted from Bureau of Labor Statistics3

* Selected illustrative sectors. The government projects increases in manufacturing employment in only one fifth of the sectors or subsectors it defines.

-16

-20

-31

-54

-58

-58

-70 -60 -50 -40 -30 -20 -10 0 10 20 30

Change in Manufacturing Jobs (in Thousands)

Chemical

Computer Equipment

Machinery

Motor Vehicle

Steel

Food

-2: Aerospace

Wood Product: 9

Biopharmaceuticals: 18

Concrete/Cement Product: 24

Employment Losses Employment Gains


U.S. Leads in Biopharmaceutical Intellectual Property

The intellectual property related to more than half of new medicines resides in the U.S.

U.S. Biopharmaceutical Patents 1990–2002, by Location of Inventors

81

Source: J.T. Macher and D.C. Mowrey5

U.S. (64.4%)

E.U.4 (24.8%)

Japan (10.7%)

Other OECD (6.0%)

India (1.1%) China (0.2%)

Other (2.8%)


U.S. is the World Leader in Biotechnology

U.S. biotechnology firms account for 80% of the world’s research & development in biotechnology.

82

Source: Burrill and Company6

* Biotechnology companies are defined as those whose primary activity is to use biological processes to develop health care products, and other companies whose primary activity is to supply health biotechnology companies with technology-based research products.

2008 Biotechnology Statistics*

USA Europe Asia/Pacific Canada Total

Annual R&D $24B $5B $0.6B $0.9B $30B

Total Companies 1,450 1,600 760 400 4,210

Total Employees 140,000 65,000 15,000 6,000 226,000

Publicly Held Corporations 336 150 160 67 693


U.S. Biopharmaceutical Exports Have Grown

Biopharmaceutical exports grew by 60% between 2005 and 2010, accounting for 4.2% of all US exports by 2010.

U.S. Biopharmaceutical Goods Exports (Billions)

83

$0B

$10B

$20B

$30B

$40B

$50B

2005 2006 2007 2008 2009 2010

$29.1 $32.2

$36.7

$41.7

$46.0 $46.7

Source: PhRMA analysis of US International Trade Commission Trade Data Database7


Accounting Treatment of R&D Overstates Biopharmaceutical Profits

“Correctly accounting for R&D as a long-lived investment tends to reduce substantially, if not to eliminate altogether, the inference that pharmaceutical companies are on average achieving supranormal profit returns.”8

—F.M. Scherer, AEI-Brookings Joint Center for Regulatory Studies

“...the standard accounting measure of profits overstates true returns to R&D-intensive industries, such as pharmaceuticals, and makes it difficult to meaningfully compare profit levels among industries. Accounting measures treat most R&D spending (except for capital equipment) as a deductible business expense rather than as a capitalized investment. But the intangible assets that research and development generate — such as accumulated knowledge, new research capabilities, and patents — increase the value of a company’s asset base. Not accounting for that value overstates a firm’s true return on its assets.”9

—Congressional Budget Office

“Usual profit figures greatly overstate the industry’s economic profit rate.”10

—Joseph Newhouse, Harvard University

84

Sources: F.M. Scherer8; CBO9; J. Newhouse10


Biopharmaceutical Companies Lead Corporate Giving

Ten of the top 16 health care sector donors in the U.S. in 2008 were biopharmaceutical companies.

85

Source: Committee Encouraging Corporate Philanthropy11 * Includes $1,204 per employee in cash giving.

Average Corporate Giving, by Sector Total Giving as % of Pre-Tax Profit Total Giving per Employee

All Companies 1.2% $752

Health Care 2.5% $2,618*

Energy 0.5% $2,217

Utilities 0.9% $863

Consumer staples 1.3% $785

Information Technology 0.8% $635

Industrials 0.9% $233


Notes and Sources

86

1. Adapted from N.D. Pham, “The Impact of Innovation and the Role of Intellectual Property Rights on U.S. Productivity, Competitiveness, Jobs, Wages, and Exports,” (Washington, DC: NDP Consulting, 2010).

2. Battelle Technology Partnership Practice, “The U.S. Biopharmaceuticals Sector: Economic Contribution to the Nation,” (Washington, DC: Battelle Technology Partnership Practice, July 2011).

3. PhRMA analysis of Bureau of Labor Statistics, National Employment Matrix: Search by Occupation (2009). Available at: http://www.bls.gov/emp/#tables [accessed 3 March 2010].

4. E.U. refers to the 15 countries that were members of the E.U. prior to the 2004 expansion: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

5. J.T. Macher and D.C. Mowrey (eds.), “Innovation in Global Industries: U.S. Firms Competing in a New World (Collected Studies),” (Washington DC: The National Academies Press, 2008).

6. Burrill and Company, analysis for PhRMA based on publicly available data (August 2009). R&D expenditures include activities worldwide by companies based in the listed region, including foreign owned affiliates.

7. Data retrieved from The U.S. International Trade Commission Interactive Tariff and Trade DataWeb database for four-digit NAIC code 3254. Available at: http://dataweb.usitc.gov [accessed 21 June 2011].

8. F.M. Scherer, “Pharmaceutical Innovation,” AEI Brookings Joint Center for Regulatory Studies Working Paper 07-13 (2007).

9. Congressional Budget Office, “Research and Development in the Pharmaceutical Industry,” (2006).

10. J.P. Newhouse, “How Much Should Medicare Pay for Drugs?,” Health Affairs 23, no. 1 (2004): 89–102.

11. Committee Encouraging Corporate Philanthropy, “Giving in Numbers,” (New York, NY: Committee Encouraging Corporate Philanthropy, 2009) Available at: http://www.corporatephilanthropy.org/resources/benchmarking-reports/giving-in-numbers.html [accessed 26 April 2010].

6 • Economic Impact 87


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