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

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

3


U.S. Life Expectancy 1950–2011*

“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

4

Source: U.S. Centers for Disease Control and Prevention (CDC)2

71.1

73.1 74.7

77.4 78.8 79.3

81.1

65.6 66.6 67.1

70 71.8

74.1

76.3

60

65

70

75

80

85

1950 1960 1970 1980 1990 2000 2011

At B

irth

(in Y

ears

)

Women

Men

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


401.6 397.0 388.9 375.0 355.9

332.0 313.8 309.9 296.3

280.4 266.5 247.8

232.3 211.1

190.9 180.1 173.7

0

50

100

150

200

250

300

350

400

450

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

Age-

adju

sted

Dea

th R

ates

per

100

,000

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

5

Source: CDC4

U.S. Death Rates Due to Diseases of the Heart*

*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).


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.

6

Source: CDC5

16.2

6.0 5.3 5.0 4.7

4.2 3.7

3.1 2.5

0

2

4

6

8

10

12

14

16

18

1995 1997 1999 2001 2003 2005 2007 2009 2011

1996: HAART becomes widely available

Deat

hs P

er 1

00,0

00 P

opul

atio

n

Annual Number of AIDS Deaths in the United States


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

7

4.7% 3.9%

-7.6%

-15.5% -16%

-11%

-6%

-1%

4%

1970–1980 1980–1990 1990–2000 2000–2011

Source: CDC7

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


0

50

100

150

200

250

300

350

400

450Number of Drug Approvals for Rare Diseases*

Cumulative Prior Orphan Drug Approvals New Orphan Drug Approvals

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.

8

Source: U.S. Food and Drug Administration (FDA)8

1983: Orphan Drug Act passed

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


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.*

9

Source: Alzheimer’s Association9

*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.

$122 $174

$297

$529

$805

$122 $140 $157

$276

$443

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2020 2030 2040 2050

Proj

ecte

d M

edic

are

and

Med

icai

d Sp

endi

ng

(in B

illio

ns)

Current TrajectoryProjection with Delayed Onset Treatment Advance

Projected Annual Medicare & Medicaid Spending, With and Without New Treatment Advances (Billions)**


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. www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf (accessed December 2012).

10


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. www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf (accessed December 2012).

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. www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf (accessed December 2012).

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.

11

2 • Research and Development

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.

13


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

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

14

Phase I 2,164

Phase II 2,329

Phase III 833 Regulatory

Review in the United States, 82


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.

15

Source: Biotechnology Research Continues to Bolster Arsenal Against Disease with 633 Medicines in Development. PhRMA, 2008.

Source: PhRMA2

A vast array of biologic medicines are in development, for example: • A monoclonal

antibody to treat juvenile rheumatoid arthritis

• Several cancer vaccines for malignant melanoma

• A gene therapy to treat bladder cancer

*Some medicines are being explored in more than one therapeutic category.

58

13

30

38

39

34

176

30

25

26

28

58

338

43

71

0 50 100 150 200 250 300 350 400

Other

Transplantation

Skin Diseases

Respiratory Disorders

Neurologic Disorders

Musculoskeletal Disorders

Infectious Diseases

Genetic Disorders

Eye Conditions

Digestive Disorders

Diabetes/Related Conditions

Cardiovascular Disease

Cancers/Related Conditions

Blood Disorders

Autoimmune Disorders

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


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

16

Source: Analysis Group3

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

57%

69%

71%

72%

79%

80%

81%

84%

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

Infections

HIV/AIDS

Diabetes

Immunology

Psychiatry

Cancer

Cardiovascular

Neurology


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

17

Source: PhRMA4


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

18

Sources: PhRMA5; NIH Office of Budget6; adapted from E. Zerhouni7

Clinical Research

Translational Research

Basic Research

Clinical Research

Translational Research

Basic Research

National Institutes of Health: $30.9 Billion*

PhRMA Member Companies: $48.5 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.


PhRMA Member Company R&D Spending

19

Source: PhRMA9

$15.2 $16.9

$19.0 $21.0

$22.7 $26.0

$29.8 $31.0 $34.5

$37.0 $39.9

$43.4

$47.9 $47.4 $46.4

$50.7 $48.6 $48.5*

$0

$10

$20

$30

$40

$50

$60

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

Expe

nditu

res (

Billi

ons o

f Dol

lars

)

*Estimated for CY 2012.

“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


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

20

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

$140M

$320M

$800M

$1.2B

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

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

Billi

ons (

Cons

tant

Dol

lars

, Yea

r 200

0)

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


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.

21

2000–2003 2008–2011 Percentage Change

Total Procedures per Trial Protocol (median) (e.g., bloodwork, routine exams, x-rays, etc.) 105.9 166.6 57%

Total Investigative Site Work Burden (median units) 28.9 47.5 64%

Total Eligibility Criteria 31 46 58%

Clinical Trial Treatment Period (median days)* 140 175 25%

Number of Case Report Form Pages per Protocol (median) 55 171 227%

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

Trends in Clinical Trial Protocol Complexity


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

22

Drug Development

FDA Approval

Generics Enter Market

Average time to develop a new medicine

= 10–15 yrs

Average time on market before generic entry

= 11.8* yrs

Brand Drug Lifespan Generics

*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

Most brand drugs face competition

from other brands


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.

23

Source: H.G. Grabowski, et al.16

*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.

17%

75%

0%

20%

40%

60%

80%

100%

1995 2008

Hun

dred

s

Year of First Generic Entry

Share of Brand Products that Ever Experienced a “Paragraph IV” Patent Challenge** from a Generic Manufacturer, Among Those Facing Generic Entry in Year Listed


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

24

Source: J.A. DiMasi and L.B. Faden17

23%

50%

71% 77%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

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


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.

25

Source: Tufts Center for the Study of Drug Development18

10.2

4.1

1.2 0

2

4

6

8

10

12

1970s 1980s 1990–2003

Med

ian

Num

ber o

f Yea

rs

Year of Approval of First-in-Class Medicine

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


$1,880

$701

$434 $299

$162 $87 $39 $21 $6

$0

$500

$1,000

$1,500

$2,000

1 2 3 4 5 6 7 8 9 10

Afte

r-Ta

x Pr

esen

t Val

ue o

f Sal

es

(Mill

ions

of 2

000

Dolla

rs)

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

-$1

After-Tax Average R&D

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

26

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

27

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 (accessed January 2013).

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.

28


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).

29


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.

30

3 • Spending and Costs

3 SPENDING AND COSTS Biopharmaceutical Spending and Health Care Costs Prescription medicines represent a small share of national health spending. Since 2000, growth in prescription drug spending has slowed markedly, while prices for prescription medicines have risen in line with overall medical inflation.

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

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

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.

33

Source: Centers for Medicare & Medicaid Services (CMS)1

18.4%

15.4% 14.7%

14.0%

11.3%

9.2%

6.5%

9.5%

5.2%

2.8%

5.0%

0.4% 2.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

*Total retail sales including brand medicines and generics.


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

Growth in Health Care Expenditures Attributable to Prescription Drugs, 1997–2011

34

Source: CMS2

83% 87% 93%

17% 13% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997–2001 2002–2006 2007–2011

Prescription Drugs

All Other Health Care


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

Health Care Dollar, 2011

35

Source: PhRMA analysis based on CMS3

Prescription Drugs $0.10

Hospital Care $0.34

Physician and Clinical Services

$0.22 Home Health and

Nursing Home Care $0.03

Government Admin. & Net Cost of Private Health

Insurance $0.06

Other* $0.25

*Other includes dental, home health, and other professional services as well as durable medical equipment costs.


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

Consumer Price Index (Dec 1999 = 100)

36

Source: PhRMA analysis based on Bureau of Labor Statistics4

95

115

135

155

175

195

215

235Hospital & Related Services

All Medical Costs Prescription Medicines

Consumer Price Index


More Than Four Out of Five U.S. Prescriptions Are Filled with Generics

37

Sources: IMS5,6,7,8,9

19%

33%

43%

52%

71%

84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1984 1990 1996 2002 2008 2012

Generic Share* of Prescriptions Filled 1984–2012

*Generic share includes generics and branded generics.


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.

38

$1.50

$1.00

$0.65

$0.00

$0.30

$0.60

$0.90

$1.20

$1.50

Cost

per

Day

($)

Actual Estimated

*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, antidepressants, and seizure disorder medications.

Source: M.L. Aitken and E.R. Berndt10

Daily Cost of Top 10 Therapeutic Classes* Most Commonly Used by Medicare Part D Enrollees


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

39

Sources: P.J. Cunningham11; PhRMA analysis based on Medical Expenditure Panel Survey (MEPS)12

4%

7% 9%

17%

22%

0%

10%

20%

30%

40%

Hospital Inpatient Hospital Outpatient Emergency Room Physicians Prescription Drugs*

*Includes brand & generic


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

40

*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.

Company Number of Prescriptions Market Share (%)*

1. Express Scripts/Medco Health Solutions** 1,411 million 29.5%

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%

Source: Atlantic Information Services, Inc.13


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

41

Payers drive nearly all use of medicines to generics and

“preferred” brands.

Formularies List of covered drugs

Tiered Copays Higher cost to patients for

brands than for generics and preferred brands

Prior Authorization Physicians required to justify

medicine’s use before it’s covered

Concentrated Purchasing Power Individual Pharmacy Benefit Managers buy medicines for more people than

in entire European countries

Source: IMS Health, Inc.14

Financial Incentives Payments to physicians and/or

pharmacies for generic prescribing or switching patients to preferred drugs

Step Therapy Patients must try and fail on alternatives before certain

medicines are covered


Newly Introduced Generics are Adopted Rapidly When a generic version of a medicine becomes available for the first time, it can capture as much as 90% of the market within 3 months.

42

Source: Express Scripts, Inc.15

0%

20%

40%

60%

80%

100%

0 7 14 30 60 90 120 150 180

Mail Retail

Number of Days After Launch

Gene

ric U

se R

ate

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


$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Canada United States Germany

All Other Health Care Spending

Prescription Drugs

94% of the

$4,338

$8,233

$4,445

9% of the difference 6% of the difference

91% of the difference

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

43

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.

44


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).

45

4 • Outcomes and Savings

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.

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.

48

Source: MEPS1

80%

36%

20% 64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% of Population % of Prescription Fills

(39% of the population

uses no medicines)


Medicines’ Changing Role in Recommended Care Revisions to clinical guidelines based on the latest research have resulted in appropriate increases in the use of medicines in recent years.

49

Source: R.W. Dubois and B.B. Dean2

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

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

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


Failure to Prescribe the Indicated Treatment is the Most Common 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.

50

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

3%

19%

36%

50%

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

Inappropriate medication

Inadequate education/continuity/ documentation

Inadequate monitoring

Failure to prescribe when calledfor by guidelines

Percentage of Quality Indicators Failed*

Quality Problems Among Vulnerable Older Patients


16 million are TREATED • Blood sugar control (diet and exercise, medicines) •

• Testing to prevent complications •

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

51

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

26 million Americans with DIABETES

19 million are DIAGNOSED

8 million are treated and have their disease CONTROLLED

8 million have CONTROLLED diabetes

7 million are UNDIAGNOSED

3 million are diagnosed but NOT TREATED

8 million receive some treatment but their disease is

NOT SUCCESSFULLY CONTROLLED

18 million have UNCONTROLLED diabetes


4.0%

8.0%

10.1%

15.9%

10.8%

15.7%

1.8%

4.0%

7.8%

11.8%

5.8%

13.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Acute MyocardialInfarction

Amputation/ Ulcer CerebrovascularDisease

Neuropathy Renal Events Retinopathy

Like

lihoo

d of

Eve

nt

Non-Adherent Patients Adherent Patients

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

Diabetes patients who take their medicines as prescribed experience fewer complications.

Better Use of Medicines Improves Patient Health

52


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

53

Source: D.M. Cutler, et al.7

Annual Hospitalizations Avoided Annual Premature Deaths Avoided

Prevention Achieved: Based on Current Treatment Rates 833,000 86,000

Potential Additional Prevention: If Untreated Patients Received

Recommended Medicines 420,000 89,000

Annual Hospitalizations and Deaths Avoided through Use of Recommended Antihypertensive Medications


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.

54

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

$1,058

-$8,881

$656

-$4,413

$429

-$4,337

$601

-$1,860

-$10,000

-$8,000

-$6,000

-$4,000

-$2,000

$0

$2,000Drug Spending Medical Spending

Congestive Heart Failure Diabetes Hypertension Dyslipidemia

Adherence to Medicines Lowers Total Health Spending for Chronically Ill Patients

Diffe

renc

e in

Ann

ual S

pend

ing

Betw

een

Ad

here

nt a

nd N

onad

here

nt P

atie

nts


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

55

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

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

-$816

-$268

-$140

-$1,224

Average Total

Spending Reduction

per Beneficiary


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

56

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

Better Use of Medicines Yields Significant Health Gains and Savings on Other Services

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


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.

57

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

-45% -44%

-34% -33% -32%

-26% -26% -25%

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Percent Change in Adherence from Doubling Medicine Co-pays

Perc

ent C

hang

e in

Day

s Sup

plie

d of

Med

icin

e


New Classes of Medicines Can Improve Adherence and Persistence Studies have found better adherence to newer medicines.20 Similar results have been found even when insurance requires higher patient cost-sharing for the newer medicines compared to older medicines.21

58

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

16%

35%

41%

47% 51%

0%

10%

20%

30%

40%

50%

60%

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

ACE Inhibitors (1981) ARBs (1995)

Perc

enta

ge o

f Pat

ient

s Adh

erin

g to

Pr

escr

ibed

The

rapy

Aft

er 4

8 M

onth

s

Drug Class (Year of First Launch22)

Persistence Patterns Among Antihypertensive Patients, by Drug Class


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.

59


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).

60

5 • Marketing and Promotion

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.

62


Factors Influencing Prescribing Decisions in the United States in 2011

63

Source: KRC Research (survey of physicians)1

15%

17%

18%

40%

40%

47%

53%

80%

84%

40%

47%

51%

41%

49%

42%

39%

16%

13%

Information from insurance and prescription benefits managerrepresentatives

Pharmaceutical company-sponsored educational programsfeaturing physician speakers, not CME

Information from pharmaceutical company representatives

Patient's insurance coverage and formulary

Information from colleagues and peers

Articles in peer-reviewed medical journals

Clinical practice guidelines

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

Clinical knowledge and experience

A great deal Some

Many Factors Affect Prescribing Decisions


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

64

Up-to-date and timely 94%

Useful 92%

Reliable 84%

38%

32%

27%

56%

60%

57%

Strongly agree Somewhat agree

Source: KRC Research (survey of physicians)2

Physicians’ Assessment of Biopharmaceutical Representatives’ Information


Advertising Often Prompts Patients to Seek Additional Information

Consumer Responses to Viewing Advertisements for Prescription Medicines

65

Source: Princeton Survey Research Associates International3

47%

27%

14%

8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Sought Information Initiated Conversationwith Doctor

Newly Aware ofMedical Condition

Requested SpecificMedication


Advertising Increases Awareness of the Benefits and Risks of New Medicines

76%

55%

87%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

Perc

enta

ge o

f Pop

ulat

ion

Awareness of Benefit Information Awareness of Risk Information

66

Source: Prevention Magazine National Survey Data4

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


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...

67

Source: Kaiser Family Foundation (survey of physicians)5

5%

14%

14%

18%

50%

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

Give prescription for requested drug

Recommend a different prescription drug

Recommend no treatment

Recommend over-the-counter drug

Recommend lifestyle or behavior changes


Direct-to-Consumer Advertising Encourages Appropriate Use of Medicines

68

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.

69

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

• A study examining DTCA and cholesterol-reducing medications found that patients between the ages of 50–70, who are more likely to have high cholesterol levels, experienced the greatest welfare gains of 12–13% of the average cost of a prescription.

• The study’s author notes that “DTCA helps bring the under-diagnosed consumers to physicians' offices, which in turn helps to improve consumer welfare.”

8%

12–13%

0%

2%

4%

6%

8%

10%

12%

14%

Average welfare gain of overallpopulation

Average welfare gain of patients between 50–70 years old

Source: J. Jayawardhana7

Percentage Increase in Consumer Welfare* from DTCA for Cholesterol-Reducing Medicines


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

70

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

(accessed January 2013). 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.

71

6 • Economic Impact

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.

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.

74

Source: PhRMA analysis based on National Science Board1

*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.

19.4%

11.9%

9.3%

5.2% 4.9% 4.5% 4.5% 4.0%

0%

5%

10%

15%

20%

25%

Pharmaceuticalsand Medicines

Software Semiconductors Automobiles CommunicationsEquipment

Navigational,Measuring,

ElectromedicalEquipment

Aerospace ComputerEquipment

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


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.

75

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

$2,102

$5,957

$6,472

$10,209

$15,509

$15,543

$21,097

$37,540

$38,288

$41,406

$65,887

$111,032

Paper, printing

Machinery

Electrical equipment, appliances

All manufacturing

Motor vehicles, trailers, parts*

Transportation equipment

Aerospace products*

Computers and electronics

Chemicals

Semiconductors*

Communications equipment*

Biopharmaceuticals*

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


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.

76

Source: Battelle Technology Partnership Practice4

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

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

the Biopharmaceutical Sector

Each direct biopharmaceutical job supports 5 additional jobs in other sectors


United States, 53.7%

European Union, 26.0%

Japan, 10.3%

All Others, 7.0% South Korea,

Taiwan, India, 2.7%

China, 0.4%

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

77

Source: PhRMA analysis based on National Science Board5

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

United States Leads in Biopharmaceutical Intellectual Property


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.

78

Source: Burrill & Company6

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

United States $18.3

Europe $3.1

Asia/Pacific, $0.8

Canada, $0.4

Health Biotechnology R&D, 2011 (Billions)


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.

$23

$33

$48 $51

$0

$10

$20

$30

$40

$50

$60

2003 2006 2009 2012

79

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

U.S. Biopharmaceutical Goods Exports (Billions)


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.

80

Source: Committee Encouraging Corporate Philanthropy8

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


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).

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phrma chart pack: biopharmaceuticals in perspective (spring 2013)

Health & Medicine

heart disease

role of medicines

disease control

cardiovascular disease

health care system

human health

medical advances

innovative medicines