PhRMA Chart Pack: Biopharmaceuticals in Perspective (Spring 2013)

TABLE OF CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1

Chapter 1 Advances in Treatment . . . . . . . . . . . . . . . . . . 3

Chapter 2 Research and Development . . . . . . . . . . . . . 13

Chapter 3 Spending and Costs. . . . . . . . . . . . . . . . . . . . 32

Chapter 4 Outcomes and Savings . . . . . . . . . . . . . . . . . .47

Chapter 5 Marketing and Promotion. . . . . . . . . . . . . . . 62

Chapter 6 Economic Impact . . . . . . . . . . . . . . . . . . . . . . 73

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
improving use of 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

DR TORSTEN WITTMANN/SCIENCE PHOTO LIBRARY

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

U.S. Life Expectancy 1950–2011*
“While nutrition, sanitation, other public health measures, and expanded access to care have been major sources
of increasing human health, innovative medicines have also played a profound role in this progress.”
— The President’s Committee of Advisors on Science and Technology1

85

81.1
78.8 79.3
80
77.4
76.3
At Birth (in Years)

74.7 74.1
75 73.1
71.8
71.1
70
70
66.6 67.1
65.6
65
Women
Men

60
1950 1960 1970 1980 1990 2000 2011

*Life expectancies prior to 1997 were calculated using a slightly different methodology
than for those post-1997. Source: U.S. Centers for Disease Control and Prevention (CDC)2


Cardiovascular Disease:
Declining Rates of Death and Heart Failure
“Factors contributing to the decline in heart disease and stroke mortality include better control of risk factors,
improved access to early detection, and better treatment and care, including new drugs and expanded uses for
existing drugs.”
— U.S. Centers for Disease Control and Prevention3

U.S. Death Rates Due to Diseases of the Heart*
450
401.6 397.0
388.9
375.0
Age-adjusted Death Rates per 100,000

400
355.9
332.0
350 313.8 309.9
296.3
300 280.4
266.5
247.8
232.3
250 211.1
190.9 180.1
200 173.7

150

100

50

0
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

*Age-adjusted death rates based on Year 2000 U.S. Standard Population. 1980–1998 causes of death are classified by
the Ninth Revision International Classification of Diseases (ICD-9). Beginning in 1999, causes of death are classified by
the Tenth Revision International Classification of Diseases (ICD-10). Source: CDC4


HIV/AIDS: Decline in Death Rates
The number of U.S. AIDS deaths decreased dramatically following the introduction of highly active antiretroviral
treatment (HAART) and has continued to decline.

Annual Number of AIDS Deaths in the United States

18

16
16.2
Deaths Per 100,000 Population

14

12 1996: HAART becomes widely available

10

8

6
6.0
5.3 5.0
4 4.7
4.2
3.7
2 3.1
2.5

0
1995 1997 1999 2001 2003 2005 2007 2009 2011

Source: CDC5


Cancers: Decline in Death Rates
According to the American Cancer Society, improvements in treatment contributed to the increase in cancer
survival.6

Percent Change by Decade in U.S. Death Rates from Cancer

4% 4.7%
3.9%

-1%

-6%
-7.6%

-11%

-15.5%
-16%
1970–1980 1980–1990 1990–2000 2000–2011

Source: CDC7


Rare Diseases: Drug Approvals for Rare Diseases
Have Increased
Rare diseases are those that affect 200,000 or fewer people in the United States. There are between 6,000 and
7,000 rare diseases affecting 25 million Americans.

Number of Drug Approvals for Rare Diseases*
450

400

350

300

250

200
1983: Orphan Drug Act passed
150

100

50

0

Cumulative Prior Orphan Drug Approvals New Orphan Drug Approvals

*Approvals for rare diseases include initial approvals of new medicines and subsequent
approvals of existing medicines for rare disease areas. Source: U.S. Food and Drug Administration (FDA)8


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)**
$1,000
Projected Medicare and Medicaid Spending

$900 Current Trajectory
Projection with Delayed Onset Treatment Advance
$800
$805
$700

$600
(in 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.
**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. Source: Alzheimer’s Association9


Notes and Sources
1. Executive Office of the President (EOP), President's Committee of Advisors on Science and Technology. “Report to the President
on Propelling Innovation in Drug Discovery, Development, and Evaluation.” Washington, DC: EOP, September 2012.
2. U.S. Department of Health and Human Services (HHS), CDC, National Center for Health Statistics (NCHS). “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 2009; 57(14): 5. Hyattsville, MD: NCHS. 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 2010; 58(19):
13. Hyattsville, MD: NCHS. 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 2011; 59(4): 28. Hyattsville, MD: NCHS.
www.cdc.gov/nchs/data/nvsr/nvsr59/nvsr59_04.pdf (accessed August 2011); 2010–2011 data from D.L. Hoyert and J. Xu.
“Deaths: Preliminary Data for 2011.” National Vital Statistics Reports 2012; 61(6): 5. Hyattsville, MD: NCHS.
www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf (accessed December 2012).
3. HHS, CDC, NCHS. “Health, United States, 2006 With Chartbook on Trends in the Health of Americans.” Hyattsville, MD: HHS,
2006. www.cdc.gov/nchs/data/hus/hus06.pdf (accessed December 2012).
4. CDC, NCHS, National Vital Statistics System. "Unpublished table NEWSTAN 79–98S created on 00/03/02: Age-Adjusted Death
Rates for 72 Selected Causes by Race and Sex Using Year 2000 Standard Population: United States, 1979–98." Mortality.
Atlanta, GA: CDC, 2002. www.cdc.gov/nchs/data/mortab/aadr7998s.pdf (accessed February 2013); D.L. Hoyert, et al. “Deaths:
Final Data for 1999.” National Vital Statistics Reports 2001; 49(8): 1–3. Hyattsville, MD: NCHS.
www.cdc.gov/nchs/data/nvsr/nvsr49/nvsr49_08.pdf (accessed February 2013); K.D. Kochanek, et al. “Deaths: Final Data for
2009.” National Vital Statistics Reports 2011; 60(3): 32. Hyattsville, MD: NCHS.
www.cdc.gov/nchs/data/nvsr/nvsr60/nvsr60_03.pdf (accessed December 2012); D.L. Hoyert and J. Xu. “Deaths: Preliminary
Data for 2011.” National Vital Statistics Reports 2012; 61(6): 28. Hyattsville, MD: NCHS.


Notes and Sources
5. HHS, CDC, NCHS. “Health, United States, 2003 With Chartbook on Trends in the Health of Americans.” Hyattsville, MD: HHS,
2003; HHS, CDC, NCHS. “Health, United States, 2009 With Chartbook on Medical Technology.” Hyattsville, MD: HHS, 2010; 2007
data from J. Xu, K.D. Kochanek, and B. Tejada-Vera. “Deaths: Preliminary Data for 2007.” National Vital Statistics Reports 2009;
58(1): 5. Hyattsville, MD: NCHS. www.cdc.gov/nchs/data/nvsr/nvsr58/nvsr58_01.pdf (accessed December 2009); 2009 data
from K.D. Kochanek, et al. “Deaths: Final Data for 2009.” National Vital Statistics Reports 2011; 60(3): 41. Hyattsville, MD: NCHS.
www.cdc.gov/nchs/data/nvsr/nvsr60/nvsr60_03.pdf (accessed December 2012); 2011 data from D.L. Hoyert and J. Xu. “Deaths:
Preliminary Data for 2011.” National Vital Statistics Reports 2012; 61(6): 38. Hyattsville, MD: NCHS.
6. American Cancer Society. “Cancer Facts & Figures, 2011.” Atlanta, GA: American Cancer Society, 2011.
www.cancer.org/acs/groups/content/@epidemiologysurveilance/documents/document/acspc-029771.pdf (accessed
December 2012).
7. HHS, CDC, NCHS. “Health, United States, 2011 With Special Features on Socioeconomic Status and Health.” Hyattsville, MD:
HHS, 2012; K.D. Kochanek, et al. “Deaths: Final Data for 2009.” National Vital Statistics Reports 2011; 60(3): 32. Hyattsville, MD:
NCHS. www.cdc.gov/nchs/data/nvsr/nvsr60/nvsr60_03.pdf (accessed December 2012); D.L. Hoyert and J. Xu. “Deaths:
Preliminary Data for 2011.” National Vital Statistics Reports 2012; 61(6): 28. Hyattsville, MD: NCHS.
8. U.S. Food and Drug Administration (FDA), Office of Orphan Product Development. “Orphan Drug Designations and Approvals
Database.” Available at www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm (accessed December 2012).
9. Alzheimer's Association. “Changing the Trajectory of Alzheimer's Disease: A National Imperative.” Washington, DC: Alzheimer's
Association, May 2010.


2 RESEARCH AND
DEVELOPMENT
The Process of Drug Discovery and Development

More than 5,000 medicines are in development globally.
PhRMA member companies invested $48.5 billion in
biopharmaceutical research and development (R&D) in 2012,
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
commercial successes. 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 13

Medicines in Development by Regulatory Phase Globally
In 2011, 5,408 medicines* were in clinical development worldwide.

Phase I Phase II
2,164 2,329

Phase III
Regulatory 833
Review in
the United
States, 82

*Defined as single products which are counted exactly once regardless of the number of indications pursued. Source: Analysis Group1


More than 900 Biologic Medicines in Development in 2013
Biologic medicines — large, complex molecules derived from living cells — frequently represent novel strategies
that have the potential to transform the clinical treatment of disease.

Number of Medicines in Development in 2013, by Therapeutic Category*

Autoimmune Disorders 71
Blood Disorders 43
A vast array of biologic
Cancers/Related Conditions 338 medicines are in
development, for
Cardiovascular Disease 58 example:
Diabetes/Related Conditions 28 • A monoclonal
Digestive Disorders 26 antibody to treat
juvenile rheumatoid
Eye Conditions 25 arthritis
Genetic Disorders 30 • Several cancer
vaccines for
Infectious Diseases 176 malignant
Musculoskeletal Disorders 34 melanoma
Neurologic Disorders 39
• A gene therapy to
treat bladder cancer
Respiratory Disorders 38
Skin Diseases 30
Transplantation 13
Other 58
0 50 100 150 200 250 300 350 400
*Some medicines are being explored in more than one therapeutic category. Source: PhRMA2
Source: Biotechnology Research Continues to Bolster Arsenal Against Disease with 633 Medicines in Development. PhRMA, 2008.


Potential First-in-Class Medicines in the Pipeline
70% of drugs across the pipeline are potential first-in-class medicines.

Percentage of Projects in Development that are Potentially First-in-Class Medicines
in Selected Therapeutic Areas, 2011

Neurology 84%

Cardiovascular 81%

Cancer 80%

Psychiatry 79%

Immunology 72%

Diabetes 71%

HIV/AIDS 69%

Infections 57%

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

Source: Analysis Group3


The Research and Development Process
Developing a new medicine takes an average of 10–15 years.

Source: PhRMA4


Government and Industry Roles in Research & Development
Government and biopharmaceutical industry research complement one another.

PhRMA Member Companies: $48.5 Billion

Clinical Research
Clinical
Research

Translational
Research Translational Research

Basic
Basic Research Research

National Institutes of Health: $30.9 Billion*

*NIH spending is for FY 2012. PhRMA member companies’ spending is estimated for CY 2012.
PhRMA member companies account for the majority of private biopharmaceutical R&D spending.
Non-member company data are not included. Sources: PhRMA5; NIH Office of Budget6; adapted from E. Zerhouni7


PhRMA Member Company R&D Spending
“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.”
— Congressional Budget Office (CBO)8

PhRMA Member Company R&D Expenditures: 1995–2012
$60

$50.7
$47.9 $47.4 $48.6 $48.5*
$50 $46.4
$43.4
Expenditures (Billions of Dollars)

$39.9
$40 $37.0
$34.5
$29.8 $31.0
$30 $26.0
$22.7
$21.0
$19.0
$20 $16.9
$15.2

$10

$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*Estimated for CY 2012. Source: PhRMA9


Drug Development Costs Have Increased
According to a 2007 study, it costs an average of $1.2 billion to develop one new drug.10 More recent studies
estimate the costs to be even higher.11

The Average Cost to Develop One New Approved Drug — Including the Cost of Failures

$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

Sources: J.A. DiMasi and H.G. Grabowski10; J. Mestre-Ferrandiz, et al. and S.M. Paul, et al.11; J.A. DiMasi, et al.12


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.

Trends in Clinical Trial Protocol Complexity

Percentage
2000–2003 2008–2011
Change
Total Procedures per Trial Protocol (median)
105.9 166.6 57%
(e.g., bloodwork, routine exams, x-rays, etc.)
Total Investigative Site Work Burden
28.9 47.5 64%
(median units)
Total Eligibility Criteria 31 46 58%
Clinical Trial Treatment Period
140 175 25%
(median days)*
Number of Case Report Form Pages per
55 171 227%
Protocol (median)

*These numbers reflect only the “treatment duration” of the protocol. Source: K.A. Getz, et al. and Tufts Center for the Study of Drug Development13


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

FDA Generics
Approval Enter Market
Most brand drugs
face competition
from other brands

Drug Development Brand Drug Lifespan Generics

Average time to develop a Average time on market
new medicine before generic entry
= 10–15 yrs = 11.8* yrs

*Refers to new drugs (i.e., excludes new forms of administration) with annual sales in 2008 of more than $100 million,
which accounted for 95% of the sales of new medicines exposed to generic competition. Sources: PhRMA14; H.G. Grabowski, et al.15


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 4 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, which 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.G. Grabowski, et al.16


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

Percentage 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.A. DiMasi and L.B. Faden17


Increasing Competition Within Therapeutic Categories
The time a medicine is the only drug available in its therapeutic class has declined dramatically — from a median
of 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 Center for the Study of Drug Development18


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 2 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
$701
$500
$434
$299
$87
$162 $39 $21
$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, et al.19


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.”20
— 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.”21
— Congressional Budget Office

“Usual profit figures greatly overstate the industry’s economic profit rate.”22
— J.P. Newhouse, Harvard University

Sources: F.M. Scherer20; CBO21; J.P. Newhouse22


Notes and Sources
1. Analysis Group. "Innovation in the Biopharmaceutical Pipeline: A Multidimensional View." Boston, MA: Analysis Group, January
2013. www.analysisgroup.com/uploadedFiles/Publishing/Articles/2012_Innovation_in_the_Biopharmaceutical_Pipeline.pdf
(accessed January 2013).
2. Pharmaceutical Research and Manufacturers of America. "Medicines in Development: Biologic Medicines." Washington, DC:
PhRMA, 2013.
3. Analysis Group, Op. cit.
4. Pharmaceutical Research and Manufacturers of America. "Drug Discovery and Development: Understanding the R&D Process."
Washington, DC: PhRMA, 2007. www.innovation.org/drug_discovery/objects/pdf/RD_Brochure.pdf (accessed February 2013).
5. Pharmaceutical Research and Manufacturers of America. “PhRMA Annual Membership Survey.” 2013.
6. National Institutes of Health (NIH), Office of Budget. “History of Congressional Appropriations, Fiscal Years 2000–2012.”
Bethesda, MD: NIH, 2012. http://officeofbudget.od.nih.gov/pdfs/FY12/Approp.%20History%20by%20IC)2012.pdf (accessed
February 2013).
7. Adapted from E. Zerhouni. “Transforming Health: NIH and the Promise of Research.” Transforming Health: Fulfilling the Promise
of Research. Washington, DC. November 2007. Keynote address. www.researchamerica.org/transforming_health_transcript
8. CBO. “Research and Development in the Pharmaceutical Industry.” Washington, DC: CBO, October 2006.
9. Pharmaceutical Research and Manufacturers of America. "PhRMA Annual Membership Survey." 1996–2012.
10. J.A. DiMasi and H.G. Grabowski. "The Cost of Biopharmaceutical R&D: Is Biotech Different?" Managerial and Decision
Economics 2007; 28: 469–479.
11. More recent estimates range from $1.5 billion to more than $1.8 billion. See e.g. J. Mestre-Ferrandiz, J. Sussex, and A. Towse.
“The R&D Cost of a New Medicine.” London, UK: Office of Health Economics, 2012; S.M. Paul, et al. “How to Improve R&D
Productivity: The Pharmaceutical Industry’s Grand Challenge.” Nature Reviews Drug Discovery 2010; 9: 203–214.


Notes and Sources
12. J.A. DiMasi, et al. “The Price of Innovation: New Estimates of Drug Development Costs.” Journal of Health Economics 2003; 22:
151–185. Study findings originally reported in 2005 dollars. Based on correspondence with the study author, these figures were
adjusted to 2000 dollars.
13. K.A. Getz, R.A. Campo, and K.I. Kaitin. “Variability in Protocol Design Complexity by Phase and Therapeutic Area.” Drug
Information Journal 2011; 45(4): 413–420; updated data provided through correspondence with Tufts Center for the Study of
Drug Development.
14. Pharmaceutical Research and Manufacturers of America. "Drug Discovery and Development: Understanding the R&D Process."
Washington, DC: PhRMA, 2007. www.innovation.org/drug_discovery/objects/pdf/RD_Brochure.pdf (accessed February 2013).
15. H.G. Grabowski, et al. “Evolving Brand-name and Generic Drug Competition may Warrant a Revision of the Hatch-Waxman Act.”
Health Affairs 2011; 30(11): 2157–2166.
16. Estimate is based on sample of 200 New Molecular Entities (NMEs) experiencing first generic entry between 1995 and 2008.
The 11.8 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.G. Grabowski, et al. "Evolving Brand-name and Generic Drug Competition may
Warrant a Revision of the Hatch-Waxman Act." Health Affairs 2011; 30(11): 2157–2166.
17. J.A. DiMasi and L.B. 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. Boston, MA: Tufts Center for the Study of Drug Development,
September 2009.
18. Tufts Center for the Study of Drug Development. Unpublished data. 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.” Impact Report 2009; 11(5).


Notes and Sources
19. J.A. Vernon, et al. “Drug Development Costs When Financial Risk Is Measured Using the Fama-French Three-Factor Model.”
Health Economics 2009; 19(8): 1002–1005; Drug development costs represent after-tax out-of-pocket costs in 2000 dollars for
drugs introduced from 1990–1994. 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.
20. F.M. Scherer. “Pharmaceutical Innovation.” AEI-Brookings Joint Center for Regulatory Studies Working Paper 07–13. July 2007.
21. CBO. “Research and Development in the Pharmaceutical Industry.” Washington, DC: CBO, October 2006.
22. J.P. Newhouse. “How Much Should Medicare Pay for Drugs?” Health Affairs 2004; 23(1): 89–102.


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 with other health services.

3 • Spending and Costs 32

Sharply Declining Prescription Medicine Spending
Growth: 1999–2011*
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%
15.4%
14% 14.7%
14.0%
12%

10% 11.3%

9.2% 9.5%
8%

6% 6.5%

4% 5.2% 5.0%

2% 2.8% 2.9%
0.4%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

*Total retail sales including brand medicines and generics. Source: Centers for Medicare & Medicaid Services (CMS)1


Medicines Account for a Small and Declining Share of
Health Spending Growth
Growth in Health Care Expenditures Attributable to Prescription Drugs, 1997–2011

100%
7%
17% 13%
90%

80%

70%

60%

50%
93%
83% 87%
40%

30%
Prescription Drugs
20%
All Other Health Care

10%

0%
1997–2001 2002–2006 2007–2011

Source: CMS2


Retail Spending on Prescription Medicines is a Small Share
of Total U.S. Health Care Spending
Health Care Dollar, 2011

Prescription
Drugs
$0.10
Other*
$0.25

Government Hospital Care
Admin. & Net Cost
$0.34
of Private Health
Insurance
$0.06
Physician and
Home Health and Clinical Services
Nursing Home Care $0.22
$0.03

*Other includes dental, home health, and other professional services as well as durable medical equipment costs. Source: PhRMA analysis based on CMS3


Growth in Prescription Medicine Prices Has Been in Line
with Other Health Care Prices
Consumer Price Index (Dec 1999 = 100)
235
Hospital & Related Services

215

195

175
All Medical Costs
155 Prescription Medicines

135 Consumer Price Index

115

95

Source: PhRMA analysis based on Bureau of Labor Statistics4


More Than Four Out of Five U.S. Prescriptions
Are Filled with Generics
Generic Share* of Prescriptions Filled 1984–2012
90%

80% 84%

70%
71%
60%

50%
52%

40% 43%

30% 33%

20%
19%
10%

0%
1984 1990 1996 2002 2008 2012

*Generic share includes generics and branded generics. Sources: IMS5,6,7,8,9


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.

Daily Cost of Top 10 Therapeutic Classes* Most Commonly Used by Medicare Part D Enrollees
$1.50
$1.50
Actual
Estimated
$1.20
$1.00
Cost per Day ($)

$0.90

$0.65
$0.60

$0.30

$0.00

*Ten therapeutic classes most commonly used by Part D enrollees in 2006 were: lipid regulators, ACE inhibitors, calcium
channel blockers, beta blockers, proton pump inhibitors, thyroid hormone, angiotensin II, codeine and combination products, Source: M.L. Aitken and E.R. Berndt10
antidepressants, and seizure disorder medications.


Insurance Covers a Lower Share of Prescription
Drug Costs Than of Other Medical Services
On average, privately-insured consumers pay out-of-pocket more than 20% of their total prescription drug
spending, compared with 4% of spending for inpatient hospital care and 7% on hospital outpatient care.

Percentage of Spending for Each Type of Service Paid Out-of-Pocket:
Privately-insured People Under Age 65
40%

30%

20% 22%

17%

10%
9%
7%
4%
0%
Hospital Inpatient Hospital Outpatient Emergency Room Physicians Prescription Drugs*

*Includes brand & generic Sources: P.J. Cunningham11; PhRMA analysis based on Medical Expenditure Panel Survey (MEPS)12


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 Management (PBM) Companies, 2012

Company Number of Prescriptions Market Share (%)*
1. Express Scripts/Medco Health
1,411 million 29.5%
Solutions**
2. CVS/Caremark 775 million 16.2%

3. Argus Health Systems 504 million 10.5%

4. OptumRx, Inc. 319 million 6.7%

5. ACS, Inc. 250 million 5.2%

Top 5 PBMs Total 3,259 million 68.2%


All PBMs in U.S. 4,780 million 100%

*Figures may not sum to totals due to rounding.
**Medco was acquired by Express Scripts in April 2012. Figure for Express Scripts/Medco is the sum
of the individual script totals for each entity for the most recently reported 12 month period in 2012. Source: Atlantic Information Services, Inc.13


In the U.S. System, Health Plans Have Powerful Tools to
Reduce Spending on Medicines

Tiered Copays Formularies Prior Authorization
Higher cost to patients for List of covered drugs Physicians required to justify
brands than for generics and medicine’s use before it’s
preferred brands covered

Payers drive nearly all use of
medicines to generics and
“preferred” brands.

Concentrated Purchasing Power Financial Incentives
Individual Pharmacy Benefit Managers Payments to physicians and/or
buy medicines for more people than
Step Therapy pharmacies for generic prescribing or
in entire European countries Patients must try and fail on switching patients to preferred drugs
alternatives before certain
medicines are covered

Source: IMS Health, Inc.14


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 90% of the
market within 3 months.

Generic Share of Filled Prescriptions Following the Launch of a New Generic Osteoporosis Treatment

100%
Mail
Retail

80%

60%
Generic Use Rate

40%

20%

0%
0 7 14 30 60 90 120 150 180

Number of Days After Launch

Source: Express Scripts, Inc.15


Medicines Account for a Small Share of Health Spending
Differences Between the United States and Other Countries
Per Capita Health Care Spending 2010, United States vs. Canada and Germany

$9,000
$8,233
$8,000
All Other Health Care Spending
$7,000
Prescription Drugs

$6,000

$5,000
$4,445 $4,338
$4,000

$3,000
94% of the 91% of the
$2,000 difference

$1,000

6% of the difference 9% of the difference
$0
Canada United States Germany

Source: PhRMA analysis based on Organisation for Economic Co-operation and Development16


Notes and Sources
1. CMS. "National Health Expenditures by Type of Service and Source of Funds, CY 1960–2011." Baltimore, MD: CMS, 2012.
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html (accessed January 2013).
2. Ibid.
3. PhRMA analysis based on CMS, “National Health Expenditures Projections 2011–2021." Baltimore, MD: CMS, 2012.
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html (accessed January 2013).
4. PhRMA analysis based on U.S. Bureau of Labor Statistics (BLS). “Consumer Price Index—All Urban Consumers, History Table.”
Washington, DC: BLS, 2012. www.bls.gov/cpi/#tables (accessed December 2012).
5. PhRMA analysis based on IMS Health, Inc. “IMS National Prescription AuditTM.” Danbury, CT: IMS Health, 2012.
6. IMS Health, Inc. “IMS Institute Reports U.S. Spending on Medicines Grew 2.3 Percent in 2010, to $307.4 Billion.” Danbury, CT:
IMS Health, 2010. www.imshealth.com/portal/site/imshealth/ (accessed August 2011).
7. PhRMA analysis based on IMS Health, Inc. “IMS National Prescription AuditTM.” Danbury, CT: IMS Health, 2011.
8. IMS Institute for Healthcare Informatics. “The Use of Medicines in the United States: Review of 2011.” Parsippany, NJ: IMS
Health, April 2012.
9. IMS Health, Inc. “IMS National Prescription Audit™: December 2012.” Danbury, CT: IMS Health, 2012.
10. M.L. Aitken and E.R. Berndt. “Medicare Part D at Age Five: What Has Happened to Seniors' Prescription Drug Prices?” Parsippany,
NJ: IMS Institute for Healthcare Informatics, July 2011.
www.imshealth.com/ims/Global/Content/Home%20Page%20Content/IMS%20News/IHII_Medicare_Part_D2.pdf (accessed
October 2012).
11. P.J. Cunningham. “Despite the Recession's Effects on Incomes and Jobs, the Share of People with High Medical Costs was Mostly
Unchanged.” Health Affairs 2012; 31(11): 2563–2570.


Notes and Sources
12. PhRMA analysis based on Agency for Healthcare Research and Quality (AHRQ). “Medical Expenditure Panel Survey.” Rockville,
MD: AHRQ, 2009. www.meps.ahrq.gov/mepsweb/ (accessed December 2012). Prescription drug spending includes brand and
generic ingredients, pharmacy, and distribution costs. Estimates are not restricted to individuals with private coverage that
includes prescription coverage, which can be expected to account for less than 2%.
13. Atlantic Information Services, Inc. (AIS). “Pharmacy Benefit Survey Results: 4th Quarter 2012.” 2012. www.AISHealth.com
(accessed February 2013).
14. IMS Health, Inc. “IMS National Prescription Audit™: December 2012.” Danbury, CT: IMS Health, 2004–2012.
15. Express Scripts, Inc. “2009 Drug Trend Report.” St. Louis, MO: Express Scripts, April 2010. www.express-
scripts.com/research/research/dtr/archive/2009/dtrfinal.pdf (accessed February 2013).
16. PhRMA analysis based on Organisation for Economic Co-operation and Development (OECD). “OECD Health Data 2012—
Frequently Requested Data.” Paris, France: OECD Publishing, June 2012.
www.oecd.org/els/healthpoliciesanddata/oecdhealthdata2012-frequentlyrequesteddata.htm (accessed December 2012).


4 OUTCOMES AND
SAVINGS
Overcoming Gaps in Treatment, Improving Outcomes, and
Reducing Costs through Better Use of Medicines

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

4 • Outcomes and Savings 47

Most Americans Use Few or No Medicines — a Small Share
of People Fill the Majority of Prescriptions
The top 20% of people who used medicines accounted for almost two-thirds of all prescriptions filled in 2010.

100%
20% 64%
90%

80%
80%
70%
(39% of the
population
60% uses no
medicines)
50%

40%

30% 36%

20%

10%

0%
% of Population % of Prescription Fills

Source: MEPS1


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.W. Dubois and B.B. Dean2


Failure to Prescribe the Indicated Treatment is the
Most Common Prescribing 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
50%
for by guidelines

Inadequate monitoring 36%

Inadequate education/
19%
continuity/ documentation

Inappropriate medication 3%

0% 10% 20% 30% 40% 50% 60%
Percentage of Quality Indicators Failed*

*Quality indicators were developed and implemented based on systematic literature reviews and multiple layers of expert judgment. Source: RAND Health3


Diabetes:
An Example of Underdiagnosis and Undertreatment
Uncontrolled diabetes can lead to kidney failure, amputation, blindness, and stroke.

26 million Americans with DIABETES

19 million are DIAGNOSED 7 million are UNDIAGNOSED

16 million are TREATED 3 million are
• Blood sugar control (diet and exercise, medicines) • diagnosed but
• Testing to prevent complications • NOT TREATED

8 million receive some treatment
8 million are treated and have their
but their disease is
disease CONTROLLED
NOT SUCCESSFULLY CONTROLLED

8 million have
18 million have UNCONTROLLED diabetes
CONTROLLED diabetes

Sources: CDC4; National Health and Nutrition Examination Survey (NHANES)5


Better Use of Medicines Improves Patient Health
Diabetes patients who take their medicines as prescribed experience fewer complications.

18%
15.9% 15.7%
16%

14% 13.0%
11.8%
12%
Likelihood of Event

10.8%
10.1%
10%
8.0% 7.8%
8%
5.8%
6%
4.0% 4.0%
4%
1.8%
2%

0%
Acute Myocardial Amputation/ Ulcer Cerebrovascular Neuropathy Renal Events Retinopathy
Infarction Disease

Non-Adherent Patients Adherent Patients

Source: T.B. Gibson, et al.6


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, Ph.D., Harvard University

Annual Hospitalizations and Deaths Avoided through Use of Recommended Antihypertensive Medications

Annual Hospitalizations Avoided Annual Premature Deaths Avoided

Prevention Achieved:
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.7


Prescription Medicines Are Part of the Solution to
Controlling Medical Spending
Better use of medicines reduces use of avoidable medical care, resulting in reductions in medical spending.

Adherence to Medicines Lowers Total Health Spending for Chronically Ill Patients

Drug Spending Medical Spending
$2,000
$1,058
$656 $429 $601
Difference in Annual Spending Between
Adherent and Nonadherent Patients

$0
-$1,860
-$2,000
-$4,337
-$4,413
-$4,000

-$6,000

-$8,000 -$8,881

-$10,000 Congestive Heart Failure Diabetes Hypertension Dyslipidemia

Source: M.C. Roebuck, et al.8


Gaining Drug Coverage Reduced Other Medical Spending
The Medicare drug benefit increased access to medicines for those previously without drug coverage, resulting
in reduced non-drug medical spending9 and overall savings of $13.4 billion in 2007, the first full year of the
program.10

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

Average
Total
Spending
Reduction
per
-$816 Beneficiary

-$268
-$1,224

-$140

*Home health, durable medical equipment, hospice, and outpatient institutional services Sources: J.M. McWilliams, et al.9; C.C. Afendulis and M.E. Chernew10


Better Use of Medicines Yields Significant Health Gains and
Savings on Other Services
In 2012, the CBO announced that its budget estimates would recognize reductions in other medical expenditures
associated with Medicare policy initiatives that increased the use of prescription medicines.11

Numerous studies demonstrate the value of better access to and use of medicines in improving health
outcomes and reducing use of other medical services:

• Better adherence to antihypertensive medications could save approximately
200,000 lives over 5 years.12
• Improved medication adherence among diabetes patients could prevent
more than 1 million emergency department visits and hospitalizations
annually, for potential savings of $8.3 billion each year.13

• Non-adherence has also been linked to excess hospitalizations for conditions
such as chronic obstructive pulmonary disease,14,15 osteoporosis,16 congestive
heart failure, hypertension, diabetes, and dyslipidemia,17 with costs of roughly
$170 billion per year.18

Sources: CBO11; J.E. Bailey, et al.12; A.K. Jha, et al.13; B.C. Stuart, et al.14; L. Simoni-Wastila, et al.15 R. Halpern, et al.16; M.C. Roebuck, et al.17; and W.H. Schrank et al.18


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%
Percent Change in Days Supplied of Medicine

-5%

-10%

-15%

-20%
-26% -26% -25%
-25%

-30% -33% -32%
-34%
-35%

-40%
-45% -44%
-45%

-50%

Source: D.P. Goldman, et al.19


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 Class
60%
Prescribed Therapy After 48 Months
Percentage of Patients Adhering to

50%
51%
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.R. Conlin, et al.20; D.A. Taira, et al.21; FDA22


Notes and Sources
1. IHS Global Insight Analysis based on 2010 Medical Expenditure Panel Survey (MEPS). http://meps.ahrq.gov/mepsweb/ (accessed
December 2012).
2. R.W. Dubois and B.B. Dean. “Evolution of Clinical Practice Guidelines: Evidence Supporting Expanded Use of Medicines.” Disease
Management 2006; 9(4): 210–223.
3. RAND Health. "U.S. Healthcare Facts About Cost, Access, and Quality." Santa Monica, CA: RAND Corporation, 2005 citing T.
Higashi, et al. "The Quality of Pharmacologic Care for Vulnerable Older Patients." Annals of Internal Medicine 2004; 140(9): 714–
720.
4. CDC. "National Diabetes Fact Sheet: National Estimates and General Information on Diabetes and Prediabetes in the United
States, 2011." Atlanta, GA: HHS, CDC, 2011. www.cdc.gov/diabetes/pubs/pdf/ndfs_2011.pdf (accessed December 2012).
5. IHS Global Insight Analysis based on 2010 National Health and Nutrition Examination Survey (NHANES), Op. cit.
6. T.B. Gibson, et al. “Cost Sharing, Adherence, and Health Outcomes in Patients with Diabetes.” American Journal of Managed Care
2010; 16(8): 589–600.
7. D.M. Cutler, et al. “The Value of Antihypertensive Drugs: A Perspective on Medical Innovation.” Health Affairs 2007; 26(1): 97–
110.
8. M.C. Roebuck, et al. “Medication Adherence Leads to Lower Health Care Use and Costs Despite Increased Drug Spending.”
Health Affairs 2011; 30(1): 91–99.
9. J.M. McWilliams, A.M. Zaslavsky, and H.A. Huskamp. “Implementation of Medicare Part D and Nondrug Medical Spending for
Elderly Adults with Limited Prior Drug Coverage.” JAMA 2011; 306(4): 402–409.
10. C.C. Afendulis and M.E. Chernew. “State-Level Impacts of Medicare Part D.” American Journal of Managed Care 2011; 17 Suppl
12:S.
11. CBO. “Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Service.” Washington, DC: CBO, November
2012.
12. J.E. Bailey, et al. “Antihypertensive Medication Adherence, Ambulatory Visits, and Risk of Stroke and Death." Journal of General
Internal Medicine 2010; 25(6): 495–503.


Notes and Sources
13. A.K. Jha, et al. “Greater Adherence to Diabetes Drugs is Linked to Less Hospital Use and Could Save Nearly $5 Billion Annually.”
Health Affairs 2012; 31(8): 1836–1846.
14. B.C. Stuart, et al. “Impact of Maintenance Therapy on Hospitalization and Expenditures for Medicare Beneficiaries with Chronic
Obstructive Pulmonary Disease.” American Journal of Geriatric Pharmacotherapy 2010; 8(5): 441–453.
15. L. Simoni-Wastila, et al. “Association of Chronic Obstructive Pulmonary Disease Maintenance Medication Adherence With All-
Cause Hospitalization and Spending in a Medicare Population.” American Journal of Geriatric Pharmacotherapy 2012; 10(3):
201–210.
16. R. Halpern, et al. “The Association of Adherence to Osteoporosis Therapies with Fracture, All-Cause Medical Costs, and All-
Cause Hospitalizations: A Retrospective Claims Analysis of Female Health Plan Enrollees with Osteoporosis.” Journal of
Managed Care Pharmacy 2011; 17(1): 25–39.
17. M.C. Roebuck, et al. “Medication Adherence Leads To Lower Health Care Use And Costs Despite Increased Drug Spending.”
Health Affairs 2011; 30(1): 91–99.
18. W.H. Schrank, et al., "A Blueprint for Pharmacy Benefit Managers to Increase Value." American Journal of Managed Care 2009;
15(2): 87–93.
19. D.P. Goldman, et al. “Pharmacy Benefits and the Use of Drugs by the Chronically Ill.” JAMA 2004; 291(19): 2344–2350.
20. P.R. 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 2001; 23(12): 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 2006; 12(11): 678–683.
22. U.S. Food and Drug Administration. “Drugs@FDA: FDA Approved Drug Products.”
www.accessdata.fda.gov/scripts/cder/drugsatfda/ (accessed July 2010).


5 MARKETING AND
PROMOTION
Informing Consumers and 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 advertising (DTCA) 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 62

Many Factors Affect Prescribing Decisions

Factors Influencing Prescribing Decisions in the United States in 2011

Clinical knowledge and experience 84% 13%

Patient's particular situation, including drug interactions,
side effects, and contraindications
80% 16%

Clinical practice guidelines 53% 39%

Articles in peer-reviewed medical journals 47% 42%

Information from colleagues and peers 40% 49%

Patient's insurance coverage and formulary 40% 41%

Information from pharmaceutical company representatives 18% 51%

Pharmaceutical company-sponsored educational programs
featuring physician speakers, not CME
17% 47%

Information from insurance and prescription benefits manager
representatives
15% 40%

A great deal Some

Source: KRC Research (survey of physicians)1


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

Physicians’ Assessment of Biopharmaceutical Representatives’ Information

Up-to-date and timely 38% 56% 94%

Useful 32% 60% 92%

Reliable 27% 57% 84%

Strongly agree Somewhat agree

Source: KRC Research (survey of physicians)2


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%

5% 8%

0%
Sought Information Initiated Conversation Newly Aware of Requested Specific
with Doctor Medical Condition Medication

Source: Princeton Survey Research Associates International3


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
100%

90%

80%
87%

76%
Percentage of Population

70%
70%
60%

50% 55%

40%

30%

20%

10%

0%
Seen/heard Pay a lot/some attention Seen/heard Pay a lot/some attention

Awareness of Benefit Information Awareness of Risk Information

Source: Prevention Magazine National Survey Data4


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 over-the-counter drug 18%

Recommend no treatment 14%

Recommend a different prescription drug 14%

Give prescription for requested drug 5%

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

Source: Kaiser Family Foundation (survey of physicians)5


Direct-to-Consumer Advertising Encourages
Appropriate Use of Medicines
Study finds DTCA promoted appropriate use of oral breast cancer therapies and did not promote inappropriate use.*

*Study determined effect of DTCA to patients and doctors on appropriate and inappropriate prescribing of aromatase inhibitors (AIs). Study found that DTCA spending on AIs
was associated with an overall new AI prescription increase of 0.18% after three months (approximately 118 new AI prescriptions per million dollars spent). There was “no
significant change associated with DTCA spending for AIs for those aged 40 years or less at any time from 0 to 6 months.”

Source: G.A. Abel, et al.6


Patients Benefit from Direct-to-Consumer Advertising
DTCA increases the likelihood that patients will seek and receive treatment for undiagnosed conditions.

Percentage Increase in Consumer Welfare* from DTCA
for Cholesterol-Reducing Medicines
14% • A study examining DTCA and
cholesterol-reducing
12%
medications found that
12–13%
patients between the ages of
50–70, who are more likely to
10%
have high cholesterol levels,
experienced the greatest
8% welfare gains of 12–13% of the
8%
average cost of a prescription.
6%
• The study’s author notes that
“DTCA helps bring the under-
4%
diagnosed consumers to
physicians' offices, which in
2% turn helps to improve
consumer welfare.”
0%
Average welfare gain of overall Average welfare gain of patients
population between 50–70 years old

*“Consumer welfare” refers to the population-wide net value to consumers (patients) from their use of health care services. Source: J. Jayawardhana7


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

“[Direct-to-consumer advertising] can empower consumers to manage their own health
care by providing information that will help them, with the assistance of their doctors, to
make better informed decisions about treatment options.... Consumers receive these
benefits from DTC advertising with little, if any, evidence that such advertising increases
prescription drug prices.”8
— Federal Trade Commission

“One sometimes hears it said that the industry would have more money for R&D if it
would cut down its marketing costs. This comment reflects misunderstanding of the
economics of the industry. If a firm did so, it would be less profitable and would attract
less capital for R&D or would have fewer internally generated funds to invest [in R&D].”9
— J.P. Newhouse, Harvard University

Sources: Federal Trade Commission8; J.P. Newhouse9


Notes and Sources
1. KRC Research. “Survey of Physicians About Pharmaceutical and Biotech Research Company Activities and Information.”
commissioned by Pharmaceutical Research and Manufacturers of America, 2011.
2. Ibid.
3. Princeton Survey Research Associates International 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.” 2012.
5. Kaiser Family Foundation. “National Survey of Physicians, Toplines.” November 2006. www.kff.org/kaiserpolls/upload/7584.pdf
6. G.A. Abel, et al. “Impact of Oncology-Related Direct-to-consumer Advertising: Association with Appropriate and Inappropriate
Prescriptions.” Cancer 2013; 119(5): 1065–1072.
7. J. Jayawardhana. “Direct-to-consumer Advertising and Consumer Welfare.” International Journal of Industrial Organization 2013;
31(2): 164–180.
8. Federal Trade Commission Staff. Comments Before the Department of Health and Human Services, Food and Drug
Administration, in the Matter of Request for Comments on Consumer-Directed Promotion. Docket No. 2003N-0344. 1 December
2003.
9. J.P. Newhouse. “How Much Should Medicare Pay for Drugs?” Health Affairs 2004; 23(1): 89–102.


6 ECONOMIC IMPACT
The Biopharmaceutical Sector’s Role in the Economy

Biopharmaceutical research companies lead the world in the
development of new medicines. America’s biopharmaceutical
research companies comprise one of the most R&D intensive
industries in the United States, support high-quality jobs across
the U.S. economy, and serve as the foundation for one of the
country’s most dynamic innovation and business ecosystems.

American biopharmaceutical research companies are leaders
in charitable contributions, both in the United States and
around the globe.

6 • Economic Impact 73

The Biopharmaceutical Sector is the Single Largest
Funder of Business R&D in the United States
The biopharmaceutical sector accounts for the single largest share of all U.S. business R&D, representing nearly
20% of all domestic R&D funded by U.S. businesses.

Share of Total U.S. Business R&D by Sector, 2008*
25%

19.4%
20%

15%
11.9%

10% 9.3%

5.2% 4.9% 4.5% 4.5%
5% 4.0%

0%
Pharmaceuticals Software Semiconductors Automobiles Communications Navigational, Aerospace Computer
and Medicines Equipment Measuring, Equipment
Electromedical
Equipment

*The remaining 36% share of business R&D spending is conducted by other industries including subsectors of
the machinery sector, the electrical equipment sector, and the professional, scientific, and technical services
sector, among others. Source: PhRMA analysis based on National Science Board1


The Biopharmaceutical Sector is the Most
R&D-Intensive in the United States
Biopharmaceutical companies invested more than ten times the amount of R&D per employee than
manufacturing industries overall.

R&D Expenditures per Employee, for Selected Manufacturing Subsectors and Industries, 2000–2008

Biopharmaceuticals* $111,032

Communications equipment* $65,887

Semiconductors* $41,406

Chemicals $38,288

Computers and electronics $37,540

Aerospace products* $21,097

Transportation equipment $15,543

Motor vehicles, trailers, parts* $15,509

All manufacturing $10,209

Electrical equipment, appliances $6,472

Machinery $5,957

Paper, printing $2,102

*Asterisks indicate subsectors. Sources: PhRMA analysis based on National Science Board2; R.A. Woods3


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 Practice4


United States Leads in Biopharmaceutical
Intellectual Property
The intellectual property related to more than half of new medicines resides in the United States.

U.S. Biopharmaceutical Patents 1995–2010, by Location of Inventors

United States,
53.7%
European Union,
26.0%

China, 0.4%
South Korea, Japan, 10.3%
Taiwan, India, 2.7% All Others, 7.0%

Source: PhRMA analysis based on National Science Board5


United States is the World Leader in Health Biotechnology
U.S. biotechnology firms* account for 80% of the world’s publicly reported health biotechnology research and
development.

Health Biotechnology R&D, 2011 (Billions)

Europe
$3.1
United States
$18.3
Asia/Pacific,
$0.8
Canada, $0.4

*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 biotechnology companies with tools and technology-based research products.
Companies that provided just consultation were not included in the analysis. All numbers are based on publicly reported data. No
estimates were used for R&D spending of private companies. Source: Burrill & Company6


U.S. Biopharmaceutical Exports Have Grown
Biopharmaceutical exports have more than doubled over the 10-year period between 2003 and 2012, accounting
for 3.3% of all U.S. exports by 2012.

U.S. Biopharmaceutical Goods Exports (Billions)
$60

$50
$51
$48
$40

$30 $33

$20 $23

$10

$0
2003 2006 2009 2012

Source: U.S. Department of Commerce, International Trade Administration7


Biopharmaceutical Companies Lead Corporate Giving
Biopharmaceutical companies led corporate giving in 2011. Nearly 90% of these contributions were in the form of
in-kind product donations.

Average Corporate Giving by Sector, 2011 Total Giving as % of Pre-Tax Profit Total Giving per Employee

All Companies 1.0% $695

Biopharmaceuticals 9.1% $11,196

Energy 0.8% $2,629

Utilities 0.9% $1,144

Information Technology 0.8% $779

Consumer Staples 1.1% $607

Industrials 0.7% $303

Source: Committee Encouraging Corporate Philanthropy8


Notes and Sources
1. PhRMA analysis based on National Science Board. “Science and Engineering Indicators 2012.” Arlington, VA: National Science
Foundation (NSB12-01), 2012.
2. Ibid.
3. R.A. Woods. “Employment Outlook: 2008–2018. Industry Output and Employment Projections to 2018.” Monthly Labor Review
2009; Washington, DC: Bureau of Labor Statistics.
4. Battelle Technology Partnership Practice. “The U.S. Biopharmaceuticals Sector: Economic Contribution of the Nation.” Columbus,
OH: Battelle Memorial Institute, July 2011. Prepared for Pharmaceutical Research and Manufacturers of America.
5. PhRMA analysis based on National Science Board, Op. cit.
6. Burrill & Company. Unpublished analysis for PhRMA based on publicly available data. December 2012. R&D expenditures include
activities worldwide by companies based in the listed region, including foreign-owned affiliates.
7. U.S. Department of Commerce, International Trade Administration. “TradeStats Express™: National Trade Data.”
http://tse.export.gov/TSE/TSEhome.aspx (accessed February 2013).
8. Committee Encouraging Corporate Philanthropy. “Giving in Numbers.” New York, NY: Committee Encouraging Corporate
Philanthropy, 2012. www.corporatephilanthropy.org/research/benchmarking-reports/giving-in-numbers.html (accessed December
2012).


PhRMA Chart Pack: Biopharmaceuticals in Perspective (Spring 2013)

PhRMA Chart Pack: Biopharmaceuticals in Perspective (Spring 2013)

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