PhRMA Chart Pack 2012

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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 ...

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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PhRMA Chart Pack 2012 Presentation Transcript

  • 1. 1
  • 2. 2
  • 3. TABLE OF CONTENTSIntroduction 1Chapter 1 Advances in Treatment 3Chapter 2 Research and Development 15Chapter 3 Spending and Costs 33Chapter 4 Appropriate Use of Medicines 49Chapter 5 Marketing and Promotion 67Chapter 6 Economic Impact 77
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  • 5. INTRODUCTIONThis chart pack provides facts and figures about prescriptionmedicines and their role in the health care system. Topicsinclude medicines’ impact on health and quality of life, thedrug discovery and development process, biopharmaceuticalspending and costs, the challenge of treatment gaps and lackof adherence to prescribed therapies, the marketing andpromotion of medicines, and the role of thebiopharmaceutical sector in the U.S. economy.Data and information found in this publication were drawnfrom a wide range of sources, including government-agencyreports, peer-reviewed journals, and the PharmaceuticalResearch and Manufacturers of America’s (PhRMA’s) ownresearch and analysis. PhRMA hopes this publicationprovides useful context for discussions about the role ofmedicines in the U.S. health care system. 1
  • 6. 6
  • 7. 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.1 • Advances in Treatment 3
  • 8. U.S. Life Expectancy 1950–20091 “New drugs are no small part of this medical miracle.” —Mark McClellan, FDA2 85 80.6 80 78.8 79.3 Women 77.4 75.7 At Birth (in Years) 74.7 Men 75 74.1 73.1 71.8 71.1 70 70 66.6 67.1 65.6 65 60 1950 1960 1970 1980 1990 2000 2009 Source: CDC31 • Advances in Treatment 4
  • 9. Cardiovascular Disease:Declining Rates of Death and Heart FailureMedicines and interventional treatments contributed to a 45% decline in heart attack deaths and heart failurefrom 1999 to 2005. Adverse Events Among Patients with Coronary Disease4 in a Study of 14 countries 20% 19.5% 1999 Patients with Coronary Disease 15% 2005 Rate of Occurrence among 10% 11.0% 8.4% 5% 4.6% 4.8% 2.0% 0% In-Hospital Heart Attack Deaths In-Hospital Congestive Heart Failure or Heart Attack within 6 Months of Hospital Pulmonary Edema Discharge Source: K. Fox, et al.51 • Advances in Treatment 5
  • 10. 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. 18 Annual Number of AIDS Deaths in the U.S. … ……………………………………… 16 16.2 14Deaths Per 100,000 Population 12 1996: HAART becomes widely available 10 8 6 6.0 5.3 5.0 4 4.7 4.2 3.7 2 0 1995 1997 1999 2001 2003 2005 2007 Source: CDC6 1 • Advances in Treatment 6
  • 11. Cancers: Decline in Death RatesA 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 1% 0.5% 0% -0.3% -1% -1.1% -1.6% -2% 1975-1990 1990-1993 1993-2001 2001-2006 Sources: D.K. Epsey, et. al.7; B.K. Edwards, et al.81 • Advances in Treatment 7
  • 12. Alzheimer’s Disease: Delayed Nursing Home PlacementMedicines help delay costly care for Alzheimer’s patients. Nursing-Home Admission of Patients Treated with Alzheimer’s Medicine Compared to Untreated Patients9 60% Percent of Patients Placed in a Nursing Home 50% 50% 40% Untreated Patients 30% Treated Patients 20% 16% 10% 11% 1% 0% After 2 Years After 3 Years Source: O.L. Lopez, et al.101 • Advances in Treatment 8
  • 13. Rare Diseases: Drug Approvalsfor Rare Diseases Have IncreasedRare diseases are those that affect 200,000 or fewer people in the U.S. There are between 6,000 and 7,000 rarediseases affecting 25 million Americans. Number of Drug Approvals for Rare Diseases11 250 200 202 Drug Approval* 150 145 100 50 ~10 0 1970s 1983-1996 1997-2010* Comprehensive record keeping on drug approvals for rare diseases began in 1983, when the OrphanDrug Act was passed. Data for 1970s is approximate. Data for 2010 is partial, January through June. Source: FDA121 • Advances in Treatment 9
  • 14. Future Impact: Need for New Treatmentsfor Alzheimer’s DiseaseThe development of a new treatment that delays the onset of Alzheimer’s could reduce Medicare and Medicaidspending 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 $1,000 $900 Projected Medicare and Medicaid Spending (in Current Trajectory Projection with Delayed Onset Treatment Advance $800 $805 $700 $600 Billions) $500 $529 $400 $443 $300 $297 $276 $200 $174 $157 $100 $140 $122 $122 $0 2010 2020 2030 2040 2050* Assumes research breakthroughs that delay the average age of onset of Alzheimer’s disease by five years beginning in 2010. Source: Alzheimer’s Association141 • Advances in Treatment 10
  • 15. Need for Treatments: Parkinson’s DiseaseParkinson’s costs society $27 billion per year in medical bills and lost wages; worldwide, projected cases ofParkinson’s will more than double by 2030. Projected Worldwide Increase in Prevalence of Parkinson’s Disease 10 8 8.7Number of Patients (in Millions) 6 4 4.1 2 0 2005 2030 Source: E.R. Dorsey, et al.151 • Advances in Treatment 11
  • 16. Notes and Sources1. 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, [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, [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, [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, [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): 544–73.1 • Advances in Treatment 12
  • 17. Notes and Sources9. 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 [accessed August 2010] (for data from 1983–2010). Food and Drug Administration, “Developing Products for Rare Diseases & Conditions,”, [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): 384–6.1 • Advances in Treatment 13
  • 18. 18
  • 19. 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.2 • Research and Development 15
  • 20. More than 3,000 Medicines were in Development in 2011 Medicines in Development in 2011 for Selected Conditions* Alzheimer’s and Other Dementias 98 Cardiovascular Disorders 245 Arthritis and Related Conditions 198 Diabetes Mellitus 200 Cancer 932 HIV/AIDS and Related Conditions 88 Breast Cancer 129 Mental and Behavioral Disorders 250 Colorectal Cancer 84 Parkinson’s and Related Conditions 36 Lung Cancer 140 Respiratory Disorders 383 Leukemia 119 Rare Diseases1 460 Skin Cancer 82*Reflects number of compounds in clinical trials or under review by the FDA for approval through New DrugApplication (NDA) or Biologic License Application (BLA) pathways. Medicines with multiple indications mayappear in more than one category but are counted only once for total (3,091). Source: PhRMA2 2 • Research and Development 16
  • 21. More than 900 Biotechnology Medicines were in Development in 2011 Biotechnology Medicines in Development in 2011 by Therapeutic Category* Autoimmune Disorders 69 HIV Infection 39 Blood Disorders 32 Infectious Diseases 188 Cancer/Related Conditions 352 Musculoskeletal Disorders 22 Cardiovascular Disease 59 Neurologic Disorders 44 Diabetes/Related Conditions 24 Respiratory Disorders 40 Digestive Disorders 27 Skin Disorders 27 Eye Conditions 20 Transplantation 18 Genetic Disorders 19 Other Diseases 36 Growth Disorders 5*Biotechnology medicines are defined here as those products that involve recombinant DNA, monoclonalantibody/hybridoma, continuous cell lines, cellular therapy, gene therapy and vaccines technology. Medicineswith multiple indications may appear in more than one category but are counted only once for total (901). Source: Adis R&D Insight Database and PhRMA3 2 • Research and Development 17
  • 22. U.S. Market Drives Global Development of Medicines Number of Compounds in Development, by Geographic Region4, 1997–2011 3500 U.S. 3000 3091 2500 All Other 2465 2000 1500 EU 1449 1000 Japan 500 556 0 1997 1999 2001 2003 2005 2007 2009 2011 Source: Adis R&D Insight Database52 • Research and Development 18
  • 23. The Research and Development Process Developing a new medicine takes an average of 10–15 years. Post-Marketing Drug Discovery Preclinical Clinical Trials FDA Review Scale-Up to Mfg. Surveillance 5,000 – 10,000PRE-DISCOVERY COMPOUNDS 250 5 ONE FDA- APPROVED DRUG PHASE 1 PHASE 2 PHASE 3 NDA SUBMITTED IND SUBMITTED NUMBER OF VOLUNTEERS 20–100 100–500 1,000–5,000 3 – 6 YEARS 6 – 7 YEARS 0.5 – 2 YEARS INDEFINITE Source: PhRMA6 2 • Research and Development 19
  • 24. Government and Industry Roles in Research & Development Government and biopharmaceutical industry research complement one another. PhRMA Member Companies: $49.5B*7 Clinical Research Clinical Research Translational Research Translational Research Basic Research Basic Research National Institutes of Health: $30.9B8*NIH spending is for FY 2011. PhRMA member companies’ spending is for CY 2011.PhRMA member companies account for the majority of private biopharmaceuticalR&D spending. Non-member company data are not included. Sources: PhRMA7; NIH Office of Budget8; adapted from E. Zerhouni9 2 • Research and Development 20
  • 25. PhRMA Member Company and Public R&D Spending PhRMA Member Company R&D and NIH Operating Budget: 1995–2011 $60 PhRMA Member $50.7 Companies’ R&D $49.5* $50 $47.9 $47.4 Expenditures $45.8 $43.4 Expenditures (Billions of Dollars) $39.9 $40 $37.0 $34.5 $31.0 $29.8 Total NIH Budget $30 $26.0 $30.6 $31.2 $30.9 $22.7 $28.5 $28.5 $29.0 $29.3 $21.0 $27.1 $27.9 $19.0 $20 $16.9 $23.3 $15.2 $20.5 $17.8 $15.6 $10 $12.7 $13.7 $11.3 $11.9 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*Estimated for CY 2011. Source: PhRMA, NIH Office of Budget10 2 • Research and Development 21
  • 26. 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. $1.4 $1.2 $1.2B Billions (Constant Dollars, Year 2000) $1.0 $0.8 $800M $0.6 $0.4 $320M $0.2 $140M $0.0 mid-1970s mid-1980s late-1990s early 2000s Source: J. DiMasi, et al. and J. DiMasi and H. Grabowski112 • Research and Development 22
  • 27. Complexity of Clinical Trials Has IncreasedDuring the last decade clinical trial designs and procedures have become much more complex, demanding morestaff time and effort, and discouraging patient enrollment and retention. Changes in Clinical Trials: Resources, Length and Participation Percentage 1999 2005 Change Procedures per Trial Protocol (Median) 96 158 65% (e.g., bloodwork, routine exams, x-rays, etc.) Clinical Trial Staff Work Burden 21 35 67% (Measured in Work-effort Units) Length of Clinical Trial (Days) 460 780 70% Clinical Trial-Participant Enrollment Rate 75% 59% -21% (% of volunteers meeting trial criteria) Clinical Trial-Participant Retention Rate 69% 48% -30% (% of participants completing trial) Source: Tufts Center for the Study of Drug Development 122 • Research and Development 23
  • 28. Illustrative Pharmaceutical LifecycleNew pharmaceutical medicines face competition after a relatively short period on the market. For first-in-class drugs, brand competitors enter market FDA approval, Generics can apply brand product for approval as early enters market as 4 years after originator is Generic entry, brand approved sales decline rapidly Drug Development Drug Discovery Drug Available to Patients & Clinical Trials Average time to develop a new medicine = 10–15 yrs13 Average time to brand competition = 2 yrs14 Average time before generic entry = 11.8* yrs15* Refers to new drugs (i.e., excludes new forms of administration) with annual sales in2008 of more than $100 million, which accounted for 95% of the sales of new medicines Sources: PhRMA13; J. DiMasi and C. Paquette14; H. Grabowski, M. Kyle, etexposed to generic competition. al.15; PhRMA162 • Research and Development 24
  • 29. Earlier and More Frequent Patent Challengesby Generic CompaniesOn average, new brand drugs face generic competition after 11.8* years, but generic companies canchallenge 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 100% Hundreds 80% 75% 60% 40% 20% 17% 0% 1995 2008 Year of First Generic Entry*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 withbrand-name medicines, potentially allowing generic market entry before the patent expiration date. Source: H. Grabowski, M. Kyle, et al.172 • Research and Development 25
  • 30. Competing Medicines Race for ApprovalBy 1995, nearly all first-in-class medicines being approved already had potential competitors inPhase II clinical testing. Percent of First-in-Class Medicines with a Competitor Already in Phase II Clinical Testing at Time of Approval100% 90% 90% 80% 70% 77% 71% 60% 50% 50% 40% 30% 20% 23% 10% 0% 1970s 1980-1984 1985-1989 1990-1994 1995-1999 Source: J. DiMasi and L. Faden182 • Research and Development 26
  • 31. Increasing Competition Within Therapeutic CategoriesThe average time a medicine is the only drug available in its therapeutic class has declined dramatically — frommore 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 12 10 10.2 Median Number of Years 8 6 4 4.1 2 1.2 0 1970s 1980s 1990-2003 Year of Approval of First-in-Class Medicine Source: Tufts CSDD192 • Research and Development 27
  • 32. Few Approved Medicines are Commercially SuccessfulOngoing investment in R&D depends on the commercial success of a few products that must make up for all therest, including those that never reach the market. Just Two in 10 Approved Medicines Produce Revenues that Exceed Average R&D Costs $2,000 $1,880After-Tax Present Value of Sales $1,500 (Millions of 2000 Dollars) $1,000 After-Tax Average R&D Costs $701 $500 $434 $299 $162 $39 $21 $87 $6 -$1 $0 1 2 3 4 5 6 7 8 9 10 New Medicine Introduced Between 1990 and 1994, grouped by Tenths, by Lifetime Sales Source: J.A. Vernon, J.H. Golec, and J.A. DiMasi202 • Research and Development 28
  • 33. Notes and Sources1. 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: 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,” [accessed 5 March 2012].9. Adapted from E. Zerhouni, Presentation at Transforming Health: Fulfilling the Promise of Research, 2007.2 • Research and Development 29
  • 34. Notes and Sources10. 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,” (for 1995-1999), (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: 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).2 • Research and Development 30
  • 35. Notes and Sources19. 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.2 • Research and Development 31
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  • 37. 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.3 • Spending and Costs 33
  • 38. Sharply Declining Prescription Medicine SpendingGrowth: 1999–20091Spending growth for prescription medicines has slowed dramatically over the past decade, with historicallylow rates of growth observed in recent years.20%18% 18.4%16%14% 15.4% 14.7% 14.0%12%10% 10.7%8% 8.6% 9.0%6% 6.0%4% 5.3% 4.7%2% 3.1%0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: CMS23 • Spending and Costs 34
  • 39. Medicines Account for a Small andDeclining Share of Health Spending Growth Growth in Health Care Expenditures Attributable to Prescription Drugs, 1994–2009 100% 90% 80% 70% 60% 84% 86% 90% 50% 40% 30% 20% 10% All Other Health Care 16% 14% 10% Prescription Drugs 0% 1994-1999 1999-2004 2004-2009 Source: CMS33 • Spending and Costs 35
  • 40. Retail Spending on Prescription Medicines is a Small Shareof Total U.S. Health Care Spending Health Care Dollar, 2009 Government Administrative & Net Cost of Private Health Insurance Home Health & Nursing Home Care Other4 $0.07 $0.24 $0.09 $0.20 Physician & Clinical Services Prescription Medicines $0.10 $0.31 Hospital Care Source: CMS53 • Spending and Costs 36
  • 41. Growth in Prescription Medicine Prices HasBeen in Line with Other Health Care Prices Consumer Price Index (Dec 1999 = 100)235215 Hospital & Related Services195175 All Medical Costs155 Prescription Medicines135 Consumer Price Index115 95 Source: Bureau of Labor Statistics63 • Spending and Costs 37
  • 42. More Than Three-Quarters of U.S. PrescriptionsAre Filled with GenericsIn 2010, generics accounted for 19 of the 20 most commonly prescribed medicines. 7 Generic Share of Prescriptions Filled 1984–2010 90% 80% 70% 75% 78% 71% 60% 50% 52% 40% 43% 30% 33% 20% 19% 10% 0% 1984 1990 1996 2002 2008 2009 2010 Source: IMS7,83 • Spending and Costs 38
  • 43. The U.S. Prescription Drug LifecyclePromotes Innovation and AffordabilityInnovator pharmaceutical companies produce medical advances through pioneering scientific work andlarge-scale investments. The innovators’ work and investment lead both to new medicines and, over time, togeneric copies that consumers use at low cost for many years. Price Change for 2006 Market Basket of 25 Leading Brand Drugs, Including Available Generics* 0% -2% -2.9% -4% % Price Change -6% -7.0% 21% cumulative decline in average prices from -8% 2006 to 2009 -10% -12% -12.9% -14% 2006-2007 2007-2008 2008-2009* Calculation of price change reflects use of generic copies of brand medicines in the market basket, when available. Source: E.R. Berndt and M.L. Aitken93 • Spending and Costs 39
  • 44. Insurance Covers a Lower Share of PrescriptionDrug Costs Than of Other Medical ServicesOn 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 Coverage40%30% 27%20% 16%10% 10% 8% 4% 0% Hospital Inpatient Hospital Outpatient Emergency Room Physicians Prescription Drugs Source: 2007 MEPS113 • Spending and Costs 40
  • 45. Powerful Purchasers Negotiate on Behalf of PatientsA small number of large purchasers dominate the U.S. prescription drug market. Prescription Volume by Pharmacy Benefit Companies, 1Q 2011 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% Top 10 PBMs 3,671 million 86.5% Top 15 PBMs 4,077 million 96.1% Total 4,243 million 100%* Values may not sum due to rounding. Sources: Drug Benefit News.123 • Spending and Costs 41
  • 46. Payers Influence Which Medicines Patients Receive Tiered Co-pays Prior Authorization Higher patient costs for Formularies Physicians required to justify List of covered drugs medicine’s use before it is non-preferred brands covered Payers have many tools to steer use toward generics and lower cost brands Step Therapy Financial Incentives Patients must try and fail on Counter-detailing Payments to physicians and/or Payers contact physicians to pharmacies for high generic alternatives before certain promote generics prescribing rate or switching medications are covered patients to preferred drugs Sources: PhRMA, from PBM annual reports133 • Spending and Costs 42
  • 47. Newly Introduced Generics are Adopted RapidlyWhen 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 100% Mail Retail 80% 60% 40% 20% 0% 0 7 14 30 60 90 120 150 180 Sources: Medco143 • Spending and Costs 43
  • 48. Biologic Medicines are a Small Share of Health Plan CostsFor the sickest patients, who are most likely to be treated with biologic medicines,* hospital costs are seventimes the cost of biologic medicines. Spending Mix for Severely Ill Patients in Top 2.5% of Health Plan Spending 33.9% Ambulatory Care Hospitalizations 45.4% 6.6% 14.1% Biologic Medicines Other Medicines* Biologic medicines are biologically derived medicines used to treat conditions like cancer, multiple sclerosis, hepatitis C, hemophilia, and primary Source: V.J. Willey, et al.15immune diseases. They are typically administered by injection or infusion and often require special handling, education, and monitoring.3 • Spending and Costs 44
  • 49. Medicines Account for a Small Share of Health SpendingDifferences Between the U.S. and Other Countries Per Capita Health Care Spending 2009, U.S. vs. Canada and Germany $9,000 $7,960 $8,000 All Other Health Care Spending $7,000 Prescription Drugs $6,000 $5,000 $4,363 $4,218 $4,000 $3,000 93% of the difference 91% of the difference $2,000 $1,000 7% of the difference 9% of the difference $0 Canada United States Germany Source: OECD163 • Spending and Costs 45
  • 50. Notes and Sources1. 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: [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: [accessed 20 October 2011].6. PhRMA analysis of Bureau of Labor Statistics, Consumer Price Index — All Urban Consumers (2011). Available at: [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: [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).3 • Spending and Costs 46
  • 51. Notes and Sources10. 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: [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: [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: [accessed November 2011].3 • Spending and Costs 47
  • 52. 52
  • 53. 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.4 • Appropriate Use of Medicines 49
  • 54. Most Americans Use Few or No Medicines —a Small Share of People Fill the Majority of PrescriptionsThe 20% of people who used medicines the most accounted for two-thirds of all prescriptions filled in 2007. 100% 20% 65% 90% 80% 80% 70% (38% of the population 60% uses no medicines) 50% 40% 30% 35% 20% 10% 0% % of Population % of Perscription Fills Source: 2007 MEPS14 • Appropriate Use of Medicines 50
  • 55. Medicines’ Changing Role in Recommended CareRevisions to clinical guidelines based on the latest research have resulted in appropriate increases in the use ofmedicines in recent years. 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 Source: R. Dubois and B. Dean 24 • Appropriate Use of Medicines 51
  • 56. Failure to Prescribe the Indicated Treatment is theMost Common Prescription Drug Quality ProblemRAND researchers report that failure to prescribe an indicated treatment is a far more common quality problemthan is inappropriate medicine use. Quality Problems Among Vulnerable Older Patients Failure to prescribe when called for by 50% guidelines Inadequate monitoring 36% Inadequate education/ continuity/ 19% documentation Inappropriate medication 3% 0% 10% 20% 30% 40% 50% 60%* Quality indicators were developed and implemented based on systematic literature reviews and multiple layers of expert judgment. Source: RAND34 • Appropriate Use of Medicines 52
  • 57. Diabetes:An Example of Underdiagnosis and UndertreatmentUncontrolled diabetes can lead to kidney failure, amputation, blindness, and stroke. 24 million Americans with DIABETES 18 million are DIAGNOSED 6 million are UNDIAGNOSED 15 million are TREATED 3 million are • Blood sugar control (diet & exercise, medicines) • diagnosed but • Testing to prevent complications • NOT TREATED 6 million are treated and have 9 million receive some treatment but are their disease CONTROLLED NOT SUCCESSFULLY CONTROLLED 6 million have 18 million have UNCONTROLLED diabetes CONTROLLED diabetes Source: NHANES; CDC44 • Appropriate Use of Medicines 53
  • 58. Recommended Medicines Can Save Livesand Dramatically Improve Health“...achieving effective blood pressure control would be approximately equivalent to eliminating all deaths fromaccidents, or from influenza and pneumonia combined.” —David Cutler, Harvard University Annual Hospitalizations and Deaths Avoided through Use of Recommended Antihypertensive Medications Actual Hospitalizations Avoided Annual Premature Deaths Avoided Actual Prevention: 833,000 86,000 Based on Current Treatment Rates Potential Additional Prevention: If Untreated Patients Received 420,000 89,000 Recommended Medicines Source: D.M. Cutler, et al.54 • Appropriate Use of Medicines 54
  • 59. Evidence Shows Use of Medicines Reduces Spending on Other Health Care Services 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. 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 4 • Appropriate Use of Medicines 55
  • 60. 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 Average Annual Reduction in Medical Spending in 2006 and 2007, for Beneficiaries Gaining Drug Coverage through Part D Total Non-Drug Part A Part B Other Non-Drug* Medical Spending $0 -$200 -$400 -$600 -$816 -$816 -$800 -$1,000 -$28 -$268 -$140 -$1,224 -$1,224 -$1,200 -$1,400*Home health, durable medical equipment, hospice, and outpatient institutional services. Sources: J.M. McWilliams, et al.10 ; C.C. Afendulis and M.E. Chernew11 4 • Appropriate Use of Medicines 56
  • 61. Improving Medication Adherence Would YieldSignificant Health Gains and Economic Benefits“Poor adherence to treatment of chronic diseases is a worldwide problem of striking magnitude. Adherence tolong-term therapy for chronic illnesses in developed countries averages 50%.” —World Health OrganizationRecent 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 Source: F.H. Gwadry-Sridhar, et al.12; D.T. Lau and D.P. Nau.13; American Pharmacists Association14; M.R. DiMatteo154 • Appropriate Use of Medicines 57
  • 62. The Large Gulf Between a Written Prescriptionand the Intended Treatment for the PatientPatients are vulnerable to gaps or discontinuation at many points during treatment. For every 100 50–70 48–66 25–30 15–20 prescriptions go to a are filled at are taken are refilled written pharmacy the pharmacy properly as prescribed Source: NACDS164 • Appropriate Use of Medicines 58
  • 63. Outcomes Improve as Adherenceto Prescribed Medicines IncreasesNon-adherent diabetes patients were 2.5 times as likely to be hospitalized as those who followedtheir prescribed treatment. Hospitalization Rate among Diabetes Patients by Level of Adherence to Oral Antihyperglycemic Medication* 16% 14% 15% 12% 12% Hospitalization Rate 10% 10% 8% 6% 4% 5% 4% 2% 0% <40% 40-59% 60-79% 80-99% 100% Adherence Rate* 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. Source: D.T. Lau and D.P. Nau174 • Appropriate Use of Medicines 59
  • 64. Greater Adherence to Medicines Can ReduceSpending on Other Healthcare ServicesAmong Medicaid beneficiaries with congestive heart failure, total healthcare costs for adherent patients* were 23percent lower than those of non-adherent patients. Healthcare Spending by Level of Adherence Among Medicaid Beneficiaries with Congestive Heart Failure Prescription Drug Costs $30,000 Other Medical Costs Average Annual Healthcare Spending $25,000 $2,212 $23,112 $20,000 $2,915 $17,832 $3,247 $15,000 $14,418 $10,000 $5,000 $0 Less than 80% 80% to 95% Greater than 95% Adherence (%)* Adherent patients defined as patients with a “medication possession ratio” (i.e., total days supply of medicationdivided by number of days between first fill and the last day patient had medication available) of 80% or higher. Source: D. Esposito, et al.184 • Appropriate Use of Medicines 60
  • 65. High Cost-Sharing Reduces AdherenceRAND researchers found that doubling co-pays reduced patients’ adherence to prescribed medicines by 25% to45% and increased emergency-room visits and hospitalizations. Percent Change in Adherence from Doubling Medicine Co-pays 0% -5% -10%Days Supplied of Medicine -15% -20% -26% -26% -25% -25% -30% -33% -32% -34% -35% -40% -45% -44% -45% -50% Source: D. Goldman, et al.194 • Appropriate Use of Medicines 61
  • 66. New Classes of Medicines CanImprove Adherence and PersistenceStudies have found better adherence to newer medicines.20 Similar results have been found even when insurancerequires higher patient cost-sharing for the newer medicines compared to older medicines.21 Persistence Patterns Among Antihypertensive Patients, by Drug Class20 60% 50% Prescribed Therapy After 48 Months 51% Percent of Patients Adhering to 47% 40% 41% 35% 30% 20% 16% 10% 0% Thiazide Diuretics (1957) Beta Blockers (1967) Calcium-Channel Blockers ACE Inhibitors (1981) ARBs (1995) (1981) Drug Class (Year of First Launch22 ) Sources: P. Conlin, et al.20; D.A. Taira, et al.21; Drugs@FDA224 • Appropriate Use of Medicines 62
  • 67. Notes and Sources1. PhRMA analysis of Agency for Healthcare Research and Quality (AHRQ), Medical Expenditure Panel Survey (2007). Available at: [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).4 • Appropriate Use of Medicines 63
  • 68. Notes and Sources12. 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, [accessed 12 July 2010] (for approval dates).4 • Appropriate Use of Medicines 64
  • 69. 4 • Appropriate Use of Medicines 65
  • 70. 70
  • 71. 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.5 • Marketing and Promotion 67
  • 72. Many Factors Affect Prescribing Decisions Factors Influencing Prescribing Decisions in the U.S. in 2008 Own clinical knowledge and experience 92% 7%Patients particular situation, including drug interactions, side effects, and 88% 11% contraindications Articles in peer-reviewed journals 53% 41% Clinical practice guidelines 43% 47% Colleagues and peers 37% 52% Patients insurance coverage and formulary 35% 41% Information from biopharmaceutical company representatives 11% 63% Whether prescription is subject to prior authorization by insurer or Great Deal 29% 42% Some benefits manager 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: KRC Research1 5 • Marketing and Promotion 68
  • 73. Physicians Find Biopharmaceutical Representatives’Information Up-to-date, Useful and Reliable Physicians’ Assessment of Biopharmaceutical Representatives’ Information 2% 3% 3% 41% 63% 7% 62% Strongly Disagree 56% Somewhat Disagree 97% 96% 90% Somewhat Agree Strongly Agree 33% 28% Up-to-date Useful Reliable Source: KRC Research25 • Marketing and Promotion 69
  • 74. Advertising Often Prompts Patientsto Seek Additional Information Consumer Responses to Viewing Advertisements for Prescription Medicines 50% 45% 47% 40% 35% 30% 25% 27% 20% 15% 14% 10% 8% 5% 0% Sought Information Initiated Conversation with Doctor Newly Aware of Medical Condition Requested Specific Medication Source: Princeton Survey Research Associates 35 • Marketing and Promotion 70
  • 75. Advertising Increases Awareness ofthe Benefits and Risks of New Medicines Awareness of Benefit and Risk Information Among People Who Saw an Advertisement on TV 90% 80% 79% 76% 70% 73% Percentage of Population 60% 63% 50% 40% 30% 20% 10% 0% Aware Pay Particular Attention Aware Pay Particular Attention Awareness of Benefit Information Awareness of Risk Information Source: Prevention Magazine National Survey Data45 • Marketing and Promotion 71
  • 76. Physicians Respond to Patients’ Requests for SpecificTreatments with a Broad Range of Alternatives When Asked by a Patient About a Specific Treatment, Physicians Frequently... Recommend lifestyle or behavior changes 50% Recommend no treatment 14% Recommend over-the-counter drug 18% Recommend a different prescription drug 14% Give prescription for requested drug 5% 0% 10% 20% 30% 40% 50% 60% Source: Kaiser Family Foundation 55 • Marketing and Promotion 72
  • 77. According to Government and Academic Experts,Marketing Costs Do Not Add to Prescription Drug Prices“*Direct-to-consumer advertising] can empower “One sometimes hears it said that the industryconsumers to manage their own health care by would have more money for R&D if it would cutproviding information that will help them, with down its marketing costs. This comment reflectsthe assistance of their doctors, to make better misunderstanding of the economics of theinformed decisions about treatment options.... industry. If a firm did so, it would be less profitableConsumers receive these benefits from DTC and would attract less capital for R&D or wouldadvertising with little, if any, evidence that such have fewer internally generated funds to invest [inadvertising increases prescription drug prices.6” R&D].7” —Federal Trade Commission —J. Newhouse, Harvard University Sources: Federal Trade Commission6; J.P. Newhouse75 • Marketing and Promotion 73
  • 78. Notes and Sources1. 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), [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 74
  • 79. 5 • Marketing and Promotion 75
  • 80. 80
  • 81. 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.6 • Economic Impact 77
  • 82. The Biopharmaceutical Sector isthe Most R&D-Intensive in the U.S.Biopharmaceutical companies invested more than ten times the amount of R&D per employee thanmanufacturing industries overall. R&D Expenditures per Employee, by Manufacturing Sub-sector and Industry, 2000–2007 Biopharmaceuticals* $105,428 Communications equipment* $62,995 Semiconductors* $40,341 Computers and electronics $37,980 Chemicals $34,978 Navigational, measuring equipment* $22,262 Aerospace products* $21,162 Motor vehicles, trailers, parts* $15,704 Transportation equipment $15,693 Petroleum, coal $13,319 All Manufacturing $9,956 Electrical equipment, appliances $6,411 Machinery $5,663 Paper, printing $2,238* Asterisks indicate manufacturing subsectors. Source: N.D. Pham16 • Economic Impact 78
  • 83. The Ripple Effect of High-Value Biopharmaceutical JobsThe biopharmaceutical sector supported 4 million jobs across the economy in 2009,including about 3.3 million in other sectors. Each direct biopharmaceutical job supports 5 additional jobs in other sectors Biopharma Jobs Total Jobs SupportedMore than 650,000 Jobs in the 4 million total U.S. Jobs Supported byU.S. Biopharmaceutical Sector the Biopharmaceutical Sector Source: Battelle Technology Partnership Practice26 • Economic Impact 79
  • 84. Biopharmaceuticals are a Rare Source of Projected Growth in U.S. Manufacturing Jobs Projected Change in Employment from 2006 to 2018* Employment Losses Employment Gains -58 Chemical -58 Computer Equipment -54 Machinery -31 Motor Vehicle -20 Steel -16 Food -2: Aerospace Wood Product: 9 Biopharmaceuticals: 18 Concrete/Cement Product: 24-70 -60 -50 -40 -30 -20 -10 0 10 20 30 Change in Manufacturing Jobs (in Thousands) * Selected illustrative sectors. The government projects increases in manufacturing employment in only one fifth of the sectors or subsectors it defines. Source: PhRMA, adapted from Bureau of Labor Statistics3 6 • Economic Impact 80
  • 85. U.S. Leads in Biopharmaceutical Intellectual PropertyThe 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 China (0.2%) India (1.1%) Other (2.8%) Other OECD (6.0%) Japan (10.7%) U.S. (64.4%) E.U.4 (24.8%) Source: J.T. Macher and D.C. Mowrey56 • Economic Impact 81
  • 86. U.S. is the World Leader in BiotechnologyU.S. biotechnology firms account for 80% of the world’s research & development in biotechnology. 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* 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. Source: Burrill and Company66 • Economic Impact 82
  • 87. U.S. Biopharmaceutical Exports Have GrownBiopharmaceutical exports grew by 60% between 2005 and 2010, accounting for 4.2% of all US exports by 2010. U.S. Biopharmaceutical Goods Exports (Billions) $50B $46.0 $46.7 $40B $41.7 $36.7 $30B $32.2 $29.1 $20B $10B $0B 2005 2006 2007 2008 2009 2010 Source: PhRMA analysis of US International Trade Commission Trade Data Database76 • Economic Impact 83
  • 88. Accounting Treatment of R&DOverstates Biopharmaceutical Profits“Correctly accounting for R&D as a long-lived investment tends to reduce substantially, if not to eliminatealtogether, 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 aspharmaceuticals, and makes it difficult to meaningfully compare profit levels among industries. Accountingmeasures treat most R&D spending (except for capital equipment) as a deductible business expense rather thanas a capitalized investment. But the intangible assets that research and development generate — such asaccumulated 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 Sources: F.M. Scherer8; CBO9; J. Newhouse106 • Economic Impact 84
  • 89. Biopharmaceutical Companies Lead Corporate GivingTen of the top 16 health care sector donors in the U.S. in 2008 were biopharmaceutical companies. 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* Includes $1,204 per employee in cash giving. Source: Committee Encouraging Corporate Philanthropy116 • Economic Impact 85
  • 90. Notes and Sources1. 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: [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: [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: [accessed 26 April 2010].6 • Economic Impact 86
  • 91. 6 • Economic Impact 87
  • 92. Pharmaceutical Research and Manufacturers of America950 F Street NW, Suite 300Washington, DC Spring 2012 Version 2.06 • Economic Impact