1. R&D Productivity and Costs in Today’s Health Care Arena Dr Pat Audet Chair and Professor Department of Pharmaceutical and Healthcare Business 11 Jan 2011

2. C&EN, 1/10/11

5. Health Care Reform

6. Health Care Costs: 1965 – 2004 Note: Total health care expenditures for 2004 were $1.9 trillion. * Now revised to Structures and Equipment ** Now revised to Government Public Health Activities Data source: U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, Office of the Actuary 6 7 Research and Construction* Personal Medical Equipment and Nonprescription Drugs Nursing Home and Home Health Care Net Cost of Private Health Insurance, Administrative Costs, and Public Health Programs** Hospital Care Prescription Drugs Doctors, Dentists, and Other Professional Services

8. Spending on Prescription Drugs as % of Total Spending on Health Services and Supplies, 1980-2007 Pharmaceutical R&D and the Evolving Market for Prescription Drugs CBO, 10/26/09

9. Changing Demographics of the U.S. Population (2000–2100) Data source: U.S. Census Bureau 2 4

10. Chronic Diseases Projected to Become More Prevalent Prevalence of Diabetes Is Projected to Nearly Double 2000–2030 Data sources: Wild et al. 4 ; Centers for Disease Control and Prevention 5 6

11. Using Newer Medicines Results in Savings of $111 per Treated Condition Data source: Lichtenberg 35 Net Savings of $111 36

15. D Long. Resilience, Respite, Reset: US Pharma. Market in Review and Preview, 3/9/10

16. Changes in Components of Demand for Prescription Drugs (2000-2008) CBO, 10/26/2009; adjusted for inflation, excludes mail order Year Rx Filled (B) Mkt share generics (%) Avg/Rx ($) Total RX ($ B) Avg p.a. Incr in Rx Total (%) 2000 2.9 42 56 178 n.a. 2002 3.1 42 65 215 10.4 2004 3.3 48 70 246 7.2 2006 3.4 53 70 263 3.5 2008 3.5 58 ^(2007) 72 265 ^(2007) 0.8

17. Average Copayment for a Prescription Drug by Tier (2000, 2004, 2008) Pharmaceutical R&D and the Evolving Market for Prescription Drugs CBO, 10/26/09

19. D Long. Resilience, Respite, Reset: US Pharma. Market in Review and Preview, 3/9/10

20. D Long, Biologics, Biosimilars and Follow on Biologics, IMS, NJ PA BIO, 10/27/10

21. D Long, Biologics, Biosimilars and Follow on Biologics, IMS, NJ PA BIO, 10/27/10

22. D Long. Resilience, Respite, Reset: US Pharma. Market in Review and Preview, 3/9/10

23. D Long. Resilience, Respite, Reset: US Pharma. Market in Review and Preview, 3/9/10

24. Biopharmaceutical Companies’ Investment in R&D Increasing Steadily Total Biopharmaceutical Company R&D and PhRMA Member R&D: 1995–2009 1 Sources: 1Burrill & Company, analysis for PhRMA, 2005–2010 (Includes PhRMA research associates and nonmembers) in PhRMA, “Profile 2010, Pharmaceutical Industry;” PhRMA, “PhRMA Annual Membership Survey,” 1996-2010; 2 CBO, Research and Development in the Pharmaceutical Industry , 2006. The pharmaceutical industry is one of the most research-intensive industries in the United States. Pharmaceutical firms invest as much as five times more in research and development , relative to their sales, than the average U.S. manufacturing firm. 2 — Congressional Budget Office “ “

25. Grabowski H. Pharmacoeconomics 22 (suppl 2): 15-24, 2004 Trends in Fully Capitalized Cost Per Drug

26. Munos B. Lessons from 60 years of pharmaceutical innovation Nature Reviews/Drug Discovery 8:959-967, 2009 Cost per NME ($B)

27. Even After Approval, Few Medicines Are a Commercial Success Note: 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. Lifetime Sales Compared to Average R&D Costs New Rx Drugs Introduced Between 1990 and 1994, Grouped by Tenths, by Lifetime Sales After-Tax Present Value of Sales (Millions of 2000 Dollars) Sources: 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, (2009). ; J. DiMasi and H. Grabowski, “The Cost of Biopharmaceutical R&D: Is Biotech Different?,” Managerial and Decision Economics, 2007.

28. CMR International 2009 Pharmaceutical R&D Factbook

29. Increasing Complexity of Clinical Trials Source: Tufts Center for the Study of Drug Development, “Growing Protocol Design Complexity Stresses Investigators, Volunteers,” Impact Report , 2008. 1999 2005 Percentage change Unique Procedures per Trial Protocol (Median) 24 35 46% Total Procedures per Trial Protocol (Median) 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 75% 59% -21% Clinical-Trial-Participant Retention Rate 69% 48% -30%

30. CMR International 2009 Pharmaceutical R&D Factbook

31. Gudiksen M, Fleming E, Furstenthal L, Ma P, What Drives Success for Specialty Pharmaceuticals. Nature Reviews/Drug Discovery, 7:563-567, 2008

32. Kola I, Landis J. Can the Pharmaceutical Industry Reduce Attrition Rates Nature Review/Drug Discovery 3:711-715, 2004

33. Probability of Success for Investigational Drugs Is Small Source: 1 Tufts Center for the Study of Drug Development, “ New drugs entering clinical testing in top 10 firms jumped 52% in 2003-05,” Impact Report, 2006. Approximately 20% of self-originated new drugs that enter clinical testing will receive U.S. marketing approval. 1 Clinical Approval Success Rates by Therapeutic Class 1

35. Munos B. Lessons from 60 years of pharmaceutical innovation Nature Reviews/Drug Discovery 8:959-967, 2009

36. Business Development Strategies: Alliances by Stage McCully M. Trends in Biopharm Dealmaking, 5/26/10

38. David E et al Pharmaceutical R&D: the road to positive returns. Nature Reviews DD 8:609-610 NPV for Small and Large Molecules

39. Gudiksen M, Fleming E, Furstenthal L, Ma P, What Drives Success for Specialty Pharmaceuticals. Nature Reviews/Drug Discovery, 7:563-567, 2008

40. CMR International 2009 Pharmaceutical R&D Factbook

42. CMR International 2009 Pharmaceutical R&D Factbook

43. CMR International 2009 Pharmaceutical R&D Factbook

44. David E et al Pharmaceutical R&D: the road to positive returns. Nature Reviews DD 8:609-610 Improving the Return on Small Molecule R&D

45. A Novel Model for Clinical Development J Orloff et al. The future of drug development improving clinical trial design. Nature Reviews Drug Discovery 8, 949-957 (December 2009)

46. Impact of Combined POC and Dose Ranging: Use of Adaptive Design J Orloff et al. The future of drug development improving clinical trial design. Nature Reviews Drug Discovery 8, 949-957 (December 2009)

47. Too Many Procedures in Clinical Trials? The Pursuit of High Performance through R&D: Understanding Pharmaceutical Research and Development Cost Drivers. Accenture, 2007.

48. CMR International 2009 Pharmaceutical R&D Factbook

50. Kaiser Family Foundation. Prescription Drug Trends. May 2010

51. D Long. Resilience, Respite, Reset: US Pharma. Market in Review and Preview, 3/9/10