This document provides an overview of the role of prescription medicines in the healthcare system, highlighting their significant impact on health, advances in treatment, and the economic contributions of the biopharmaceutical sector. It covers various topics including research and development, treatment advances for diseases like cancer and HIV/AIDS, and the growing number of medications for rare diseases. The information is derived from various sources, aiming to foster discussions about the importance of medicines in the U.S. health care landscape.

1. 1

2. 2

3. 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

4. 4

5. 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.
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: CDC3
1 • Advances in Treatment 4

9. 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
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.5
1 • 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
14
Deaths 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 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
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.8
1 • Advances in Treatment 7

12. 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
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.10
1 • Advances in Treatment 8

13. 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
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 Orphan
Drug Act was passed. Data for 1970s is approximate. Data for 2010 is partial, January through June. Source: FDA12
1 • Advances in Treatment 9

14. 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
$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 Association14
1 • Advances in Treatment 10

15. 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
10
8 8.7
Number of Patients (in Millions)
6
4
4.1
2
0
2005 2030
Source: E.R. Dorsey, et al.15
1 • Advances in Treatment 11

16. Notes and Sources
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.
1 • Advances in Treatment 12

17. Notes and Sources
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.
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 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). 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, 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 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 Database5
2 • 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 – 10,000
PRE-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 biopharmaceutical
R&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. Grabowski11
2 • Research and Development 22

27. 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
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 12
2 • Research and Development 23

28. Illustrative Pharmaceutical Lifecycle
New 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 in
2008 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, et
exposed to generic competition. al.15; PhRMA16
2 • Research and Development 24

29. 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
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 with
brand-name medicines, potentially allowing generic market entry before the patent expiration date. Source: H. Grabowski, M. Kyle, et al.17
2 • Research and Development 25

30. 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
100%
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. Faden18
2 • Research and Development 26

31. 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
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 CSDD19
2 • Research and Development 27

32. 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
$2,000
$1,880
After-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. DiMasi20
2 • Research and Development 28

33. Notes and Sources
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.
2 • Research and Development 29

34. Notes and Sources
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).
2 • Research and Development 30

35. Notes and Sources
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.
2 • Research and Development 31

36. 36

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 Spending
Growth: 1999–20091
Spending growth for prescription medicines has slowed dramatically over the past decade, with historically
low 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: CMS2
3 • Spending and Costs 34

39. Medicines Account for a Small and
Declining 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: CMS3
3 • Spending and Costs 35

40. Retail Spending on Prescription Medicines is a Small Share
of 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: CMS5
3 • Spending and Costs 36

41. Growth in Prescription Medicine Prices Has
Been in Line with Other Health Care Prices
Consumer Price Index (Dec 1999 = 100)
235
215
Hospital & Related Services
195
175
All Medical Costs
155
Prescription Medicines
135
Consumer Price Index
115
95
Source: Bureau of Labor Statistics6
3 • Spending and Costs 37

42. More Than Three-Quarters of U.S. Prescriptions
Are Filled with Generics
In 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: IMS7,8
3 • Spending and Costs 38

43. 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*
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. Aitken9
3 • Spending and Costs 39

44. 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%
30%
27%
20%
16%
10%
10%
8%
4%
0%
Hospital Inpatient Hospital Outpatient Emergency Room Physicians Prescription Drugs
Source: 2007 MEPS11
3 • Spending and Costs 40

45. 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
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.12
3 • 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 reports13
3 • Spending and Costs 42

47. 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
100%
Mail
Retail
80%
60%
40%
20%
0%
0 7 14 30 60 90 120 150 180
Sources: Medco14
3 • Spending and Costs 43

48. Biologic Medicines are a Small Share of Health Plan Costs
For the sickest patients, who are most likely to be treated with biologic medicines,* hospital costs are seven
times 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.15
immune 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 Spending
Differences 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: OECD16
3 • Spending and Costs 45

50. Notes and Sources
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).
3 • Spending and Costs 46

51. Notes and Sources
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].
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 Prescriptions
The 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 MEPS1
4 • Appropriate Use of Medicines 50

55. 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.
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 2
4 • Appropriate Use of Medicines 51

56. 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
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: RAND3
4 • Appropriate Use of Medicines 52

57. Diabetes:
An Example of Underdiagnosis and Undertreatment
Uncontrolled 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; CDC4
4 • Appropriate Use of Medicines 53

58. 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
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.5
4 • 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 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
Source: F.H. Gwadry-Sridhar, et al.12; D.T. Lau and D.P. Nau.13; American Pharmacists Association14; M.R. DiMatteo15
4 • Appropriate Use of Medicines 57

62. 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.
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: NACDS16
4 • Appropriate Use of Medicines 58

63. 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*
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. Nau17
4 • Appropriate Use of Medicines 59

64. 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
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 medication
divided by number of days between first fill and the last day patient had medication available) of 80% or higher. Source: D. Esposito, et al.18
4 • Appropriate Use of Medicines 60

65. 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
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.19
4 • Appropriate Use of Medicines 61

66. 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
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@FDA22
4 • Appropriate Use of Medicines 62

67. Notes and Sources
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).
4 • Appropriate Use of Medicines 63

68. Notes and Sources
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).
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%
Patient's 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%
Patient's 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 Research2
5 • Marketing and Promotion 69

74. Advertising Often Prompts Patients
to 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 3
5 • Marketing and Promotion 70

75. 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
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 Data4
5 • Marketing and Promotion 71

76. 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...
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 5
5 • 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 industry
consumers to manage their own health care by would have more money for R&D if it would cut
providing information that will help them, with down its marketing costs. This comment reflects
the assistance of their doctors, to make better misunderstanding of the economics of the
informed decisions about treatment options.... industry. If a firm did so, it would be less profitable
Consumers receive these benefits from DTC and would attract less capital for R&D or would
advertising with little, if any, evidence that such have fewer internally generated funds to invest [in
advertising increases prescription drug prices.6” R&D].7”
—Federal Trade Commission —J. Newhouse, Harvard University
Sources: Federal Trade Commission6; J.P. Newhouse7
5 • Marketing and Promotion 73

78. Notes and Sources
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 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 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
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. Pham1
6 • Economic Impact 78

83. 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.
Each direct
biopharmaceutical job
supports 5 additional
jobs in other sectors
Biopharma Jobs Total Jobs Supported
More than 650,000 Jobs in the 4 million total U.S. Jobs Supported by
U.S. Biopharmaceutical Sector the Biopharmaceutical Sector
Source: Battelle Technology Partnership Practice2
6 • 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 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
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. Mowrey5
6 • Economic Impact 81

86. U.S. is the World Leader in Biotechnology
U.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 Company6
6 • Economic Impact 82

87. 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)
$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 Database7
6 • Economic Impact 83

88. 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
Sources: F.M. Scherer8; CBO9; J. Newhouse10
6 • Economic Impact 84

89. Biopharmaceutical Companies Lead Corporate Giving
Ten 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 Philanthropy11
6 • Economic Impact 85

90. Notes and Sources
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 86

91. 6 • Economic Impact 87

92. Pharmaceutical Research and Manufacturers of America
950 F Street NW, Suite 300
Washington, DC 20004
www.phrma.org
Spring 2012
Version 2.0
6 • Economic Impact