Biopharmaceuticals In Perspective - PhRMA

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TABLE OF CONTENTS Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Chapter 1

Advances in Treatment . . . . . . . . . . . . . . . . . . 3

Chapter 2

Research and Development . . . . . . . . . . . . . 21

Chapter 3

Market Dynamics . . . . . . . . . . . . . . . . . . . . . 45

Chapter 4

Cost Sharing Trends . . . . . . . . . . . . . . . . . . . 67

Chapter 5

Drug Spending Trends. . . . . . . . . . . . . . . . . . 81

Chapter 6

Outcomes and Savings . . . . . . . . . . . . . . . . . 95

Chapter 7

Economic Impact . . . . . . . . . . . . . . . . . . . . .109

Cover photo: Jennifer O’Neil and Yingzi Yue, Merck cancer researchers


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, health care spending and costs, the challenges of addressing treatment gaps and improving use of prescribed therapies, and the contributions of the biopharmaceutical sector. Data and information 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 and the US economy.

1


1

ADVANCES IN TREATMENT Medicines’ Impact on Health and Quality of Life Prescription medicines continue to yield important advances, helping patients live longer and healthier lives. Over the past 25 years, prescription medicines have transformed the trajectory of many debilitating diseases and conditions, including HIV/AIDS, cancer, and heart disease, resulting in decreased death rates, improved health outcomes, and better quality of life for patients. Recent advances continue to improve outcomes for patients and are slowing disease progression, preventing complications and the need for medical care across a broad range of chronic conditions—including, for example, asthma, diabetes, and hepatitis C. Today’s medicines are at the forefront of science, with many new drugs taking a targeted approach to attacking the underlying causes of disease. Advances such as these are opening up doors to the development of first‐time treatments for many rare diseases and other unmet medical needs. Continued advances in biopharmaceutical innovation will be critical in addressing future health care challenges and improving health outcomes for patients.

1 • Advances in Treatment

3

Increases in US Life Expectancy 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. — President’s Council of Advisors on Science and Technology1

US Life Expectancy, 1950‐2013* 85

78.8

At Birth (in Years)

80

79.3

81.0

81.2

76.2

76.4

77.4 74.7

75

74.1

73.1

71.8

71.1

70

70

65.6

66.6

2013

67.1 Women

65

Men 60 1950

1960

1970

*Life expectancies before 1997 were calculated using a slightly different methodology from those after 1997.


1980

1990

2000

2010

Sources: President’s Council of Advisors on Science and Technology1; Centers for Disease Control and Prevention (CDC)2

4

A Decade of Advances

Source: US Food and Drug Administration (FDA)3


5

Medicines Are Transforming the Treatment of Many Diseases HIV/AIDS

Cystic Fibrosis (CF)

During the past 2 decades, advances in treatment have contributed to a nearly 87% decline in death rates and transformed the disease from an acute, fatal illness to a chronic condition.8

Advances in understanding the genetic mutations that cause CF have led to the development of highly targeted treatments— including for patients with a mutation known to be the most common cause of the disease.4

Rheumatoid Arthritis (RA) Cancer New therapies have contributed to a nearly 23% decline in cancer deaths since the 1990s. Today, 2 out of 3 people diagnosed with cancer survive at least 5 years.6,7

Therapeutic advances have transformed the RA treatment paradigm over the past 20 years, shifting from a focus on managing symptoms to aiming for slowed disease progression and even disease remission.5 Sources: FDA4; Boston Healthcare Associates5; National Cancer Institute (NCI)6; American Cancer Society7; CDC8


6

Rheumatoid Arthritis: Medicines Are Transforming the Lives of Patients

HAND WITH RA

THEN: Treatments for rheumatoid arthritis were generally effective at reducing joint inflammation but were limited to treating the symptoms of the disease, allowing for a steady, rapid progression from disease onset to disability.

HEALTHY JOINT

NOW: Biologic disease‐modifying antirheumatic drugs target the underlying sources of inflammation, which improves physical functioning and prevents irreversible joint damage, making disease remission possible. Source: Boston Healthcare Associates9


7

HIV/AIDS: Decline in Death Rates The number of US AIDS deaths decreased dramatically following the introduction of highly active antiretroviral treatment (HAART).10 As a result of HAART and all the important medical innovations that followed, it is estimated that more than 862,000 premature deaths have been avoided in the United States alone.11

Sources: CDC10; Truven Health Analytics11


8

HIV/AIDS: Treatment Advances Build Over Time Dramatic declines in death rates did not occur with one single breakthrough but rather through a series of advances providing important treatment options for patients over time.

Sources: Boston Healthcare Associates12; CDC13


9

Cancers: Decline in Death Rates Since peaking in the 1990s, cancer death rates have declined 23%.14 Approximately 83% of survival gains in cancer are attributable to new treatments, including medicines.15 I think some of the treatments that we have developed over the last half century or so are really starting to pay off and, honestly, [it] seems limitless as to what may pay off in the future. — William Nelson, MD, PhD, Director of Sidney Kimmel Comprehensive Cancer Center, Johns Hopkins University16

Percent Change by Decade in US Death Rates From Cancer14

Sources: NCI14; Sun E, et al.15; Dunellari A16


10

Chronic Leukemia: Increased Survival Rates When the first‐in‐class drug imatinib was approved in 2001 to treat chronic myeloid leukemia (CML), the transformative impact of this new class of medicines had not been completely realized.17

• After initial approval, continued research revealed that imatinib had a greater impact when initiated earlier in the progression of the disease.

5‐Year Survival Rates for CML Patients20,21 89%

• Further research also revealed that imatinib was effective in combating other types of cancer. • Additional drugs in this class have since been approved that target mutated forms of CML in patients who have become resistant or intolerant to imatinib.18

31%

• Today, survival rates have improved dramatically, and CML patients are living close to normal life spans.19 Before Introduction of Imatinib

After Introduction of Imatinib

Sources: Boston Healthcare Associates17; PhRMA18; Gambacorti‐Passerini C, et al.19; American Cancer Society20; Druker BJ, et al.21


11

Rare Diseases: Drug Approvals for Rare Diseases Have Increased Rare diseases are those that affect 200,000 or fewer people in the United States.22 The FDA has approved more than 500 orphan drugs since the passage of the Orphan Drug Act in 1983.23 Number of Drug Approvals for Rare Diseases* 600 500 400

Cumulative Prior Orphan Drug Approvals New Orphan Drug Approvals

300 200 100 0

*Drug approvals for rare diseases include initial approvals of new medicines and subsequent approvals of existing medicines.


Source: FDA22,23

12

Cardiovascular Disease: Declining Rates of Death Tremendous strides have been made in reducing cardiovascular disease morbidity and mortality, thanks in part to new medicines. The death rate from heart disease has declined about 38% over the past decade alone.24 US Death Rates Due to Diseases of the Heart*

Age‐Adjusted Death Rates per 100,000

450 400

412 389

350

379

365

353 322

300 250

306

300

288

272

258

245 222

200

206

192

179

171

150 100 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

*Age‐adjusted death rates based on year 2000 US standard population. 1980‐1998 causes of death are classified by the International Classification of Diseases, Ninth Revision (ICD‐9). Beginning in 1999, causes of death have been classified by the International Classification of Diseases, Tenth Revision (ICD‐10). Source: CDC24,25


13

Hepatitis C (HCV): Cure Rates Are Rising

Sources: Armstrong GL, et al.26; PhRMA27


14

Projected Reductions in Hepatitis C–Related Complications Increased screening and the availability of new treatments for hepatitis C are projected to dramatically reduce complications associated with the disease. Projections suggest that the number of liver‐related deaths avoided will total 126,500 by 2050.28 Avoided Cases of Hepatitis C–Related Complications by 2050 140,000 120,000

126,500

124,200

100,000 80,000 78,800 60,000 40,000 20,000 9,900

0 Liver‐Related Deaths

Advanced Cirrhosis

Liver Cancer

Liver Transplants

Source: Kabiri M, et al.28


15

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 $218 billion annually by 2050.* Projected Annual Medicare and Medicaid Spending With and Without New Treatment Advances (in Billions)** Projected Medicare and Medicaid Spending

$900 $800 Current Trajectory

$700

$765

Projection with Delayed Onset Due to Treatment Advance

$600 $500

$547

$529

$400 $377

$300

$310 $262

$200 $182

$182

$100 $0 2020

2030

2040

*Assumes research advances that delay the average age of onset of Alzheimer’s disease by 5 years beginning in 2025 **Projected savings to Medicare and Medicaid assume research breakthroughs that slow the progression of Alzheimer’s disease. This would dramatically reduce spending for comorbid conditions and expensive nursing home care.


2050

Source: Alzheimer’s Association29

16

Notes and Sources 1.

Executive Office of the President, President’s Council of Advisors on Science and Technology. Report to the president on propelling innovation in drug discovery, development, and evaluation. https://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast‐fda ‐final.pdf. Published September 2012. Accessed April 2016.

2.

Xu J, Murphy SL, Kochanek KD, Bastian BA; US Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics, National Vital Statistics System. Deaths: final data for 2013. Natl Vital Statistics Rep. 2016;64(2). http://origin.glb.cdc.gov/nchs/data/nvsr/nvsr64/nvsr64_02.pdf. Accessed April 2016.

3.

US Food and Drug Administration (FDA). Drugs@FDA: FDA approved drug products. FDA Web site. http://www.accessdata.fda.gov/scripts /cder/drugsatfda. Accessed April 2016.

4.

US Food and Drug Administration (FDA). FDA approves new treatment for cystic fibrosis. FDA Web site. http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm453565.htm. Published July 2, 2015. Accessed April 2016.

5.

Augustyn C, Walker B, Goss TF; Boston Healthcare Associates. Recognizing the value of innovation in the treatment of rheumatoid arthritis. http://www.phrma.org/sites/default/files/pdf/BHARAWhitepaperMarch2013.pdf. Published March 2013. Accessed April 2016.

6.

National Institutes of Health (NIH), National Cancer Institute (NCI). Cancer statistics. NIH NCI Surveillance, Epidemiology, and End Results Program Web site. http://seer.cancer.gov/faststats/selections.php?#Output. Accessed April 2016.

7.

American Cancer Society. Cancer treatment & survivorship facts & figures 2014‐2015. http://www.cancer.org/acs/groups/content /@research/documents/document/acspc‐042801.pdf. Published 2014. Accessed April 2016.

8.

US Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics. Health, United States, 2014: with special feature on adults aged 55‐64. http://www.cdc.gov/nchs/data/hus/hus14.pdf. Published May 2015. Accessed April 2016.

9.

Augustyn C, Walker B, Goss TF; Boston Healthcare Associates. Recognizing the value of innovation in the treatment of rheumatoid arthritis. http://www.phrma.org/sites/default/files/pdf/BHARAWhitepaperMarch2013.pdf. Published March 2013. Accessed April 2016.

10. US Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics. Health, United States, 2014: with special feature on adults aged 55‐64. http://www.cdc.gov/nchs/data/hus/hus14.pdf. Published May 2015. Accessed April 2016. 11. Lacey MJ, Hanna GJ, Miller JD, Foster TS, Russell MW; Truven Health Analytics. Impact of pharmaceutical innovation in HIV/AIDS treatment during the highly active antiretroviral therapy (HAART) era in the US, 1987‐2010: an epidemiologic and cost‐impact modeling case study. http://truvenhealth.com/Portals/0/Assets/Life‐Sciences/White‐Papers/pharma‐innovation‐hiv‐aids‐treatment.pdf. Published December 2014. Accessed April 2016.


17

Notes and Sources 12. Augustyn C, Walker B, Goss TF; Boston Healthcare Associates. Recognizing the value of innovation in the treatment of rheumatoid arthritis. http://www.phrma.org/sites/default/files/pdf/BHARAWhitepaperMarch2013.pdf. Published March 2013. Accessed April 2016. 13. US Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics. Health, United States, 2014: with special feature on adults aged 55‐64. http://www.cdc.gov/nchs/data/hus/hus14.pdf. Published May 2015. Accessed April 2016. 14. National Cancer Institute, Surveillance, Epidemiology, and End Results Program. Number of new cases and deaths per 100,000 people (all races, males and females), age‐adjusted. http://seer.cancer.gov/statfacts/html/ld/all.html. Accessed April 2016. 15. Sun E, Lakdawalla D, Reyes C, Goldman D, Philipson T, Jena A. The determinants of recent gains in cancer survival: an analysis of the Surveillance, Epidemiology, and End Results (SEER) database. J Clin Oncol. 2008;26(15S)(May 20 suppl):6616. 16. Dunellari A. Researchers optimistic about future of cancer treatment. Voice of America. http://www.voanews.com/content/researchers ‐optimistic‐about‐future‐cancer‐treatment/3144653.html. Published January 13, 2016. Accessed March 2016. 17. Goss TF, Picard EH, Tarab A; Boston Healthcare Associates. Recognizing value in oncology innovation. http://www.phrma.org/sites/default /files/flash/phrma_innovation_oncology.pdf. Published June 2012. Accessed April 2016. 18. Pharmaceutical Research and Manufacturers of America (PhRMA). A decade of innovation in rare diseases: 2005‐2015. http://www.phrma.org/sites/default/files/pdf/PhRMA‐Decade‐of‐Innovation‐Rare‐Diseases.pdf. Published 2015. Accessed April 2016. 19. Gambacorti‐Passerini C, Antolini L, Mahon F‐X, et al. Multicenter independent assessment of outcomes in chronic myeloid leukemia patients treated with imatinib. J Natl Cancer Inst. 2011;103(7):553‐561. doi:10.1093/jnci/djr060. 20. Thirty‐one percent 5‐year survival rate reported for cases diagnosed during 1991‐1992. American Cancer Society (ACS). Cancer facts & figures 2012. ACS Web site. http://www.cancer.org/research/cancerfactsfigures/cancerfactsfigures/cancer‐facts‐figures‐2012. Accessed April 2016. 21. Druker BJ, Guilhot F, O’Brien SG, et al. Five‐year follow‐up of patients receiving imatinib for chronic myeloid leukemia. N Engl J Med. 2006;355(23):2408‐2417. 22. US Food and Drug Administration (FDA). Helping rare disease patients find their voice. FDA Web site. http://www.fda.gov/ForConsumers /ConsumerUpdates/ucm293213.htm. Updated February 22, 2016. Accessed April 2016. 23. US Food and Drug Administration (FDA). Search orphan drug designations and approvals. FDA Web site. http://www.accessdata.fda.gov /scripts/opdlisting/oopd/index.cfm. Accessed March 2016.


18

Notes and Sources 24. US Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC). Vital signs: avoidable deaths from heart disease, stroke, and hypertensive disease—United States, 2001‐2010. Morbidity & Mortality Weekly Rep. 2013;62(35):721‐727. 25. Centers for Disease Control and Prevention (CDC), National Center for Health Statistics (NCHS), National Vital Statistics System. Age‐adjusted death rates for 72 selected causes by race and sex using year 2000 standard population: United States, 1979‐98. http://www.cdc.gov/nchs /data/mortab/aadr7998s.pdf. Accessed April 2016. Xu J, Murphy SL, Kochanek KD, Bastian BA; US Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics, National Vital Statistics System. Deaths: final data for 2013. Natl Vital Statistics Rep. 2016;64(2). http://origin.glb.cdc.gov/nchs/data/nvsr/nvsr64/nvsr64_02.pdf. Accessed April 2016. 26. Armstrong GL, Wasley A, Simard EP, McQuillan GM, Kuhnert WL, Alter MJ. The prevalence of hepatitis C virus infection in the United States, 1999 through 2002. Ann Int Med. 2006;144(10):705‐714. 27. Pharmaceutical Research and Manufacturers of America (PhRMA). A decade of innovation in chronic diseases: 2006‐2016. http://phrma.org/sites/default/files/pdf/decade‐of‐innovation‐chronic‐disease.pdf. Published February 2016. Accessed April 2016. 28. Kabiri M, Jazwinski AB, Roberts MS, Schaefer AJ, Chhatwal J. The changing burden of hepatitis C virus infection in the United States: model‐ based predictions. Ann Intern Med. 2014;161(3):170‐180. 29. Alzheimer’s Association. Changing the trajectory of Alzheimer’s disease: how a treatment by 2025 saves lives and dollars. http://www.alz.org/documents_custom/trajectory.pdf. Published 2015. Accessed April 2016.


19


2

RESEARCH AND DEVELOPMENT The Process of Drug Discovery and Development The rapid pace of scientific advances is bringing tremendous hope to patients. The pipeline for new medicines has never been more promising, with more than 7,000 medicines in development around the world. In 2015, PhRMA member companies invested an estimated $58.8 billion in biopharmaceutical research and development (R&D), accounting for the majority of private biopharmaceutical R&D spending. Development of new medicines is a long and rigorous process, and it has become more costly and complex over the past decade. Scientific complexities are creating new challenges in R&D, and biopharmaceutical companies are working to create efficiencies and are collaborating with others across the research ecosystem to navigate through the complexities.

2 • Research and Development

21

More Than 7,000 Medicines in Development Globally Biopharmaceutical researchers are working on new medicines* for many diseases, including:

*Defined as single products that are counted exactly once regardless of the number of indications pursued


Source: Adis R&D Insight Database1

22

Potential First‐in‐Class Medicines in the Pipeline An average of 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 Group2


23

Cutting‐Edge Research Drives Development of Medicines Biopharmaceutical researchers are pursuing many novel scientific approaches that are driving therapeutic advances.

MULTIPLE SCLEROSIS Anti‐LINGO‐1 Antibodies can protect the nerves damaged by multiple sclerosis by spurring myelin growth.

CANCER

RARE DISEASES

Chimeric Antigen Receptor (CAR) T‐Cell Immunotherapy involves the personalized modification of immune‐ boosting T‐cells to target and kill blood cancer cells.

Viral‐Based Gene Therapies involve using a virus to insert a therapeutic gene into removed stem cells, then returning the cells to the patient.

Cancer Metabolism‐Targeting Drugs disrupt cancer cell metabolism and can impede cancer cell growth.

Source: PhRMA3


24

Harnessing Innovation in Rare Diseases Since the passage of the Orphan Drug Act in 1983, we have seen tremendous advances in treatments for rare diseases. The rapid pace of the science holds significant promise for the future.

Source: PhRMA4


25

Biopharmaceutical Companies Are Committed to Advancing Personalized Medicine In recent years we have seen remarkable advances in targeted therapy, and the R&D pipeline has never been more promising.

Sources: Personalized Medicine Coalition5; Tufts Center for the Study of Drug Development (CSDD)6


26

Biopharmaceutical Firms Conduct the Largest Share of Biomedical Research in the United States The biopharmaceutical industry was the source of nearly half of all US biomedical research funding in 2012, accounting for the largest share of funding, public or private. Share of US Biomedical Research Funding, 2012* State and Local Government Entities, 5%

Foundations, Charities, Other Private Sector, 4%

Other Federal Government Entities, 6%

National Institutes of Health (NIH), 27%

Biopharmaceutical Industry, 49%

Medical Device Industry, 10% *Total US biomedical research funding in 2012 estimated to be $116.5 billion. The biopharmaceutical industry’s total share of funding comprised funding from pharmaceutical firms (32%) and biotechnology firms (17%).


Source: Moses H III, et al.7

27

The Lengthy, Costly, and Uncertain Biopharmaceutical Research and Development Process From drug discovery through FDA approval, developing a new medicine on average takes 10 to 15 years and costs $2.6 billion.* Less than 12% of the candidate medicines that make it into phase I clinical trials are approved by the FDA.

Source: PhRMA adaptation based on DiMasi JA, et al.; Tufts CSDD; FDA8


28

Biopharmaceutical Research Companies Play a Pivotal Role in Drug Discovery and Development The private sector makes the largest R&D contributions in translating basic research findings into therapeutic advances for patients. Share of Contributions to Key R&D Milestones for the Most Transformative Drugs of the Past 25 Years9

58% 73%

81%

42% 27% Discovery

19%

Development Public

Manufacturing

Today, most important developments in medical science typically begin in laboratories, such as the discovery of specific new biological molecules, processes, or pathways, or innovative applications of existing knowledge. In most cases, these discoveries in and of themselves have limited effect beyond meeting a fairly narrow research goal. Their real impact for public health generally comes after several more significant steps—including further R&D, testing, approval by appropriate regulatory bodies (such as the FDA), manufacturing, and distribution. — NIH, Office of Intramural Research (OIR), Office of Technology Transfer (OTT)10

Private Sources: Tufts CSDD9; NIH OIR OTT10


29

Biopharmaceutical Companies Do the Vast Majority of Research to Translate Basic Science Into New Medicines While basic science is often initiated in government and academia, it is biopharmaceutical firms that provide the necessary critical mass, expertise, and experience needed to develop new medicines.12 2015 PhRMA Member Companies Biopharmaceutical R&D Investment: $58.8 Billion (est.)11,13

Applied Research Management & Administration

Applied Research

Basic Research

Basic Research 2015 TOTAL NIH Budget: $30.3 Billion11,14 In addition to biopharmaceutical R&D, the NIH budget includes funding in support of medical devices, diagnostics, prevention, training, and other activities.


Sources: Tufts CSDD12; PhRMA13; NIH14

30

Innovative Biopharmaceutical Companies Sit at the Heart of a Dynamic R&D Ecosystem in the United States While research‐based biopharmaceutical companies are responsible for bringing new medicines to patients, they are part of an ecosystem marked increasingly by collaborations with academic institutions, government agencies, venture capital firms, nonprofit foundations, patients, and others.

Source: PhRMA15


31

Collaboration Is Key in Researching and Developing New Medicines The rapid pace of science and technological advances is propelling a new era in biopharmaceutical innovation in the United States. Along with these advances come complexities in translating complex learnings into medical advances. Partnerships are crucial to address these challenges. Select examples of key collaborative efforts across the R&D spectrum include:

Sources: NIH16; Foundation for NIH17; Lung‐MAP18


32

PhRMA Member Company R&D Investment 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)19

PhRMA Member Company R&D Expenditures, 1995‐2015 $58.8*

$60

Expenditures (in Billions of Dollars)

$50.7 $50 $39.9 $40 $30

$26.0

$20 $15.2 $10 $0

*Estimated fiscal year 2015


Sources: CBO19; PhRMA20

33

The Costs of Drug Development Have More Than Doubled Over the Past Decade Less than 12% of the candidate medicines that make it into phase I clinical trials are approved by the FDA, less than half the rate a decade ago. Average Cost to Develop One New Approved Drug—Including the Cost of Failures (in Constant 2013 Dollars) $2.6B

KEY DRIVERS of increasing R&D costs: • • • •

increased clinical trial complexity larger clinical trial sizes greater focus on targeting chronic and degenerative diseases higher failure rates for drugs tested in earlier‐phase clinical studies $1.0B

$413M $179M 1970s

1980s

1990s‐Early 2000s

2000s‐Early 2010s

*Previous research by the same author estimated the average R&D costs in the early 2000s at $1.2 billion in constant 2000 dollars (see DiMasi JA, Grabowski HG. The cost of biopharmaceutical R&D: is biotech different? Managerial Decis Economics. 2007;28:469‐479). That estimate is based on the same underlying survey as the author’s estimates for the 1990s to early 2000s reported here ($800 million in constant 2000 dollars) but is updated for changes in the cost of capital.


Source: DiMasi JA, et al.21

34

Setbacks in Alzheimer’s Disease Research Provide Stepping Stones for Future Innovation Since 1998, 123 medicines in development for the treatment of Alzheimer’s disease have not made it through clinical trials, with only 4 gaining FDA approval. These setbacks highlight the complexity of the R&D process. Though disappointing, they provide important knowledge to fuel future research.

Number of Alzheimer’s Drugs No Longer Under Development

Unsuccessful Alzheimer’s Drugs in Development, 1998‐2014

14 13 12 10

10

9

9 8

7

7 5

5

5

3 2

2

2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: PhRMA22


35

Cancer Researchers Build on Knowledge Gained From Setbacks to Inform Future Advances Developing a new cancer medicine is a complex process, fraught with setbacks, but these so‐called “failures” are not wasted efforts. Researchers learn from them to inform future study and direct research efforts.

The scientific process is thoughtful, deliberate, and sometimes slow, but each advance, while helping patients, now also points toward new research questions and unexplored opportunities. — Clifford A. Hudis, MD, FACP23 Chief, Breast Medicine Service, Memorial Sloan Kettering Cancer Center; Professor, Weill Cornell Medical College

*Setbacks and advances from 1998 to 2014


Sources: Patel JD, et al.23; PhRMA24

36

The Complexity of Clinical Trials Has Increased During the past 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 2000‐2003

2008‐2011

Increase in Complexity

Total Procedures per Trial Protocol (median) (eg, bloodwork, routine exams, x‐rays)

105.9

166.6

57%

Total Investigative Site Work Burden (median units)

28.9

47.5

64%

Total Eligibility Criteria

31

46

48%

Clinical Trial Treatment Period (median days)*

140

175

25%

Number of Case Report Form Pages per Protocol (median)

55

171

211%

*These numbers reflect the “treatment duration” of the protocol only.

Source: Getz KA, et al.; Tufts CSDD25


37

Innovative Biopharmaceutical Companies Seek to Improve R&D Efficiency Biopharmaceutical companies are using new approaches to increase R&D efficiency and effectiveness.

Select examples include: • Improving target validation methods to allow for greater accuracy in identifying and selecting the most promising drug candidates • Enhancing IT infrastructure to improve efficiencies in translating drug discovery and preclinical data into clinical research activity • Using adaptive trial designs to improve late‐ stage success rates and optimize clinical trial performance and data quality

Biopharmaceutical companies…are using a wide variety of innovative approaches to adapt the R&D and manufacturing process to the changing scientific landscape. These innovative approaches to drug discovery, development, and manufacturing shed light on a resilient enterprise making progress in improving the quality, performance, and efficiency of R&D and manufacturing. — Tufts Center for the Study of Drug Development26

Source: Tufts CSDD26


38

Modernizing the Drug Discovery and Development Process The use of novel drug development tools will enable researchers to follow the trajectory of the science, which is creating new avenues of research, exploration, and discovery.


39

EXTRA PHOTO



Adis R&D Insight Database. Accessed March 2016.

2.

Long G, Works J; Analysis Group. Innovation in the biopharmaceutical pipeline: a multidimensional view. http://www.analysisgroup.com /uploadedFiles/Publishing/Articles/2012_Innovation_in_the_Biopharmaceutical_Pipeline.pdf. Published January 2013. Accessed March 2016.

3.

Pharmaceutical Research and Manufacturers of America (PhRMA). 2016 PhRMA profile. http://www.phrma.org/profiles‐reports. Published April 2016.

4.

Pharmaceutical Research and Manufacturers of America (PhRMA). Great strides against rare diseases. http://phrma.org/sites/default/files /pdf/great‐strides‐against‐rare‐diseases.pdf. Published February 2016. Accessed March 2016.

5.

Personalized Medicine Coalition. 2015 progress report: personalized medicine at FDA. http://www.personalizedmedicinecoalition.org /Userfiles/PMC‐Corporate/file/2015_Progress_Report_PM_at_FDA1.pdf. Accessed March 2016.

6.

Tufts Center for the Study of Drug Development (CSDD). Personalized medicine gains traction but still faces multiple challenges. Tufts CSDD Impact Rep. 2015;17(3).

7.

Moses H III, Matheson DHM, Cairns‐Smith S, George BP, Palisch C, Dorsey ER. The anatomy of medical research: US and international comparisons. JAMA. 2015;313(2):174‐189.

8.

PhRMA adaptation based on DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Economics. 2016;47:20‐33; DiMasi JA, Grabowski HG, Hansen RW; Tufts Center for the Study of Drug Development. Innovation in the pharmaceutical industry: new estimates of R&D costs. In: Briefing: Cost of Developing a New Drug. http://csdd.tufts.edu/files/uploads /Tufts_CSDD_briefing_on_RD_cost_study_‐_Nov_18,_2014..pdf. Published November 18, 2014. Accessed April 2016; US Food and Drug Administration. US Food and Drug Administration drug approval process. http://www.fda.gov/downloads/Drugs/ResourcesForYou /Consumers/UCM284393.pdf. Accessed April 2016.

9.

Chakravarthy R, Cotter K, DiMasi J, Milne C‐P, Wendel N; Tufts Center for the Study of Drug Development. Public and private sector contributions to the research & development of the most transformational drugs of the last 25 years. http://csdd.tufts.edu/files/uploads /PubPrivPaper2015.pdf. Published January 2015. Accessed March 2016.

10. National Institutes of Health (NIH), Office of Intramural Research (OIR), Office of Technology Transfer (OTT). About NIH OTT. NIH OIR OTT Web site. https://www.ott.nih.gov/about‐nih‐ott. Accessed March 2016.


41

Notes and Sources 11. Total National Institutes of Health (NIH) spending is for fiscal year 2015. In addition to funding for basic and applied research, the total NIH budget includes funding in support of prevention (eg, suicide prevention), diagnostics and medical devices, Superfund Research Program activities, training and education (eg, dental), program evaluation, management and support, buildings and facilities, and other activities. PhRMA member companies’ R&D spending is estimated for calendar year 2015. PhRMA member companies account for the majority of private biopharmaceutical R&D spending. Nonmember company data are not included. 12. Chakravarthy R, Cotter K, DiMasi J, Milne C‐P, Wendel N; Tufts Center for the Study of Drug Development. Public and private sector contributions to the research & development of the most transformational drugs of the last 25 years. http://csdd.tufts.edu/files/uploads /PubPrivPaper2015.pdf. Published January 2015. Accessed April 2016. 13. Pharmaceutical Research and Manufacturers of America (PhRMA). PhRMA Annual Membership Survey. Washington, DC: PhRMA; 2015. US Department of Health and Human Services (HHS). FY 2016 budget & performance. HHS Web site. http://www.hhs.gov/about/budget /fy2016/index.html#. Accessed April 2016. 14. National Institutes of Health (NIH), Office of Budget. FY 2016 president’s budget request. NIH Office of Budget Web site. https://officeofbudget.od.nih.gov/br2016.html. Accessed April 2016. 15. Pharmaceutical Research and Manufacturers of America (PhRMA). 2016 PhRMA profile. http://www.phrma.org/profiles‐reports. Published April 2016. 16. National Institutes of Health (NIH). Accelerating medicines partnership (AMP). NIH Web site. http://nih.gov/science/amp/index.htm. Accessed April 2016. 17. Foundation for the National Institutes of Health. The Biomarkers Consortium Web site. http://www.biomarkersconsortium.org/index.php. Accessed April 2016. 18. Lung‐MAP. About Lung‐MAP. Lung‐MAP Web site. http://www.lung‐map.org/about‐lung‐map. Accessed April 2016. 19. Congressional Budget Office (CBO). A CBO study: research and development in the pharmaceutical industry. www.cbo.gov/sites/default /files/cbofiles/ftpdocs/76xx/doc7615/10‐02‐drugr‐d.pdf. Published October 2006. Accessed April 2016. 20. Pharmaceutical Research and Manufacturers of America (PhRMA). PhRMA Annual Membership Survey, 1995‐2015. Washington, DC: PhRMA; 2016. 21. DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Economics. 2016;47:20‐33.


42

Notes and Sources 22. Pharmaceutical Research and Manufacturers of America (PhRMA). Researching Alzheimer’s medicines: setbacks and stepping stones. http://phrma.org/sites/default/files/pdf/alzheimers‐setbacks‐and‐stepping‐stones.pdf. Published 2015. Accessed April 2016. 23. Patel JD, Krilov L, Adams S, et al. Clinical cancer advances 2013: annual report on progress against cancer from the American Society of Clinical Oncology. J Clin Oncol. 2013;31. http://jco.ascopubs.org/content/early/2013/12/09/JCO.2013.53.7076.full.pdf+html. Accessed April 2016. 24. Pharmaceutical Research and Manufacturers of America (PhRMA). Researching cancer medicines: setbacks and stepping stones. http://www.phrma.org/sites/default/files/pdf/2014‐cancer‐setbacks‐report.pdf. Published 2014. Accessed April 2016. 25. Getz KA, Campo RA, Kaitin KI. Variability in protocol design complexity by phase and therapeutic area. Drug Inf J. 2011;45(4):413‐420; updated data provided through correspondence with Tufts Center for the Study of Drug Development. 26. Lamberti MJ, Getz K; Tufts Center for the Study of Drug Development. Profiles of new approaches to improving the efficiency and performance of pharmaceutical drug development. http://csdd.tufts.edu/files/uploads/CSSD_PhRMAWhitePaper_FINAL.pdf. Published May 2015. Accessed April 2016.


43


MARKET DYNAMICS The Economics of Drug Development and the Market Forces That Shape Spending on Medicines Biopharmaceutical competition begins in the research and development (R&D) process, well before a medicine ever reaches a patient. Companies “race” to bring the first medicine in a therapeutic class to market, and once a medicine is approved, it typically faces swift competition from other brands in its class. The US prescription drug lifecycle promotes innovation while providing built‐in cost containment because brands eventually lead to lower‐cost generics—and soon many biosimilars—that bring long‐term value to patients. 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. Recent research has found that average lifetime revenues from new drug launches have declined. Health plans have powerful tools, such as tiered formularies and step therapy, to manage the use of medicines, and negotiating power is increasingly concentrated among fewer pharmacy benefit managers, driving large rebates that reduce overall drug spending. Meanwhile, the market is rapidly evolving, increasingly linking payment to quality and value.

3 • Market Dynamics

45

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

FDA Approval Most brand drugs face competition from other brands

DRUG DEVELOPMENT

Average time to develop a new medicine = at least 10 yrs

BRAND DRUG LIFESPAN

GENERICS

Average time on market before generic entry = 12.5* yrs

*For brand medicines with more than $250 million in annual sales in 2008 dollars, which account for 92% of sales of the brand medicines analyzed


Generics Enter Market

Sources: PhRMA1; Grabowski H, et al.2; Tufts CSDD3

46

Increasing Competition Within Therapeutic Categories The time a medicine is the only drug available in its pharmacologic class declined from a median of more than 10 years in the 1970s to close to 2 years in the 2000s. Time Between Approval of First and Second Medicines in a Pharmacologic Class 12

8

Half of second medicines in a class were approved within 2.3 years of the first medicine’s approval.

6

One‐quarter were approved within just 4 months.

Median Number of Years

10

10.2

4 2

2.3

0 1970s

2005‐2011

Year of Approval of First‐in‐Class Medicine Source: Tufts CSDD4


47

Earlier and More Frequent Patent Challenges by Generic Companies As early as 4 years after brand launch, a generic company may file with the FDA a Paragraph IV certification to challenge patents associated with the brand medicine, often allowing generic market entry before the patent expiration date. Patent challenges are occurring earlier…

…and are more common

Average Time From Brand Launch to Paragraph IV Patent Challenge

Share of Brand Products Experiencing at Least One Paragraph IV Patent Challenge Prior to Generic Entry 94%

Number of Years

25 20 15

60%

14.3 8.5

10

5.2

25%

5 0 1995

2005

2014

Brands by Year of First Generic Entry Note: All numbers are 3‐year moving averages for brand medicines with more than $250 million in annual sales in 2008 dollars, which account for 92% of sales of the brand medicines analyzed.


1995

2005

2014

Brands by Year of First Generic Entry Source: Grabowski H, et al.5

48

Newly Introduced Generics Are Adopted Rapidly When a generic version of a medicine becomes available for the first time, it captures an average of three‐ quarters of the market within 3 months,6 and some generics capture as much as 90% by that time.7 Average Generic Share of Total Use Following Launch of a Brand Medicine’s First Generic, 2013‐2014* 100%

Generic Use Rate

80%

60%

40%

20%

0% Mo. of First Full Mo. Before Generic Month Generic Entry Entry

2

3

4

5

6

8

9

10

11

12

Number of Months After First Generic Entry

*Average monthly generic share of total standardized units of a unique molecule/form combination


7

Sources: Grabowski H, et al.6; Express Scripts7

49

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. Present Value of Lifetime Sales of Medicines Introduced 1991‐20097 $55 $50

2005 Dollars, in Billions

$45 $40 $35

Just 2 in 10 Approved Medicines Produce Revenues That Exceed Average R&D Costs9

$30 $25 $20 $15 $10 $5 $0 100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

Medicines by Lifetime Sales Percentile A “medicine” is defined as a novel active substance (ie, a molecular or biologic entity or combination product in which at least one element had not been previously approved by the FDA). Sales are global sales net of rebates and discounts.


Sources: Berndt ER, et al.8; Vernon JA, et al.9

50

Average Lifetime Returns From Newly Introduced Medicines Have Declined in Recent Years The R&D investments required to bring medicines to patients in the future rely on revenues from existing approved innovative medicines. Continued declines in average lifetime revenues from new medicines could reduce the ability of companies to maintain their historically high levels of innovation. Average Present Value of Lifetime Sales of Medicines by When They Were Introduced

2005 Dollars, in Billions

$5.1 $4.6

$3.4 $2.9

1991‐1994

1995‐1999

2000‐2004

2005‐2009

Year of Launch A “medicine” is defined as a novel active substance (ie, a molecular or biologic entity or combination product in which at least one element had not been previously approved by the FDA). Sales are global sales net of rebates and discounts.


Source: Berndt ER, et al.10

51

The Economics of Biopharmaceuticals Has Changed Markedly in Recent Years

Source: PhRMA11


52

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. — Frederic Scherer, AEI‐Brookings Joint Center for Regulatory Studies12

[T]he 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. — Congressional Budget Office13

Usual profit figures greatly overstate the industry’s economic profit rate. — Joseph Newhouse, Harvard University14

Sources: Scherer FM12; CBO13; Newhouse JP14


53

The US Prescription Drug Lifecycle Promotes Innovation and Affordability

Figures represent the average annual price for 30 pills of the most commonly dispensed form and strength. “Then” price represents the average price in the year prior to generic entry. “Now” price represents the average price in CY 2014.


Source: IMS Health15

54

Savings From the Prescription Drug Lifecycle Reduce Treatment Costs for the Most Common Conditions Incredible advances by innovative pharmaceutical companies, resulting from pioneering scientific work and large‐scale investments, eventually lead to lower‐cost generics that bring long‐term value to consumers. Daily Cost of Top 10 Therapeutic Classes* Most Commonly Used by Medicare Part D Enrollees

*Ten therapeutic classes most commonly used by Part D enrollees in 2006 were lipid regulators, angiotensin‐converting‐enzyme inhibitors, calcium channel blockers, beta blockers, proton pump inhibitors, thyroid hormone, angiotensin II, codeine and combination products, antidepressants, and seizure disorder medications.


Source: Kleinrock M16

55

Medicines Offer Built‐in Cost Containment, Which Is Unique in Health Care The price of a common medicine used to prevent cardiovascular disease dropped 92% between 2005 and 2013, while the average charge for a surgical procedure used to treat it increased 66% over the same period.

Source: PhRMA analysis of Healthcare Cost and Utilization Project Hospital Charge Database; IMS17


56

Powerful Purchasers Negotiate on Behalf of Payers Negotiating power is increasingly concentrated among fewer pharmacy benefit managers (PBMs), with the top 3 PBMs accounting for three‐quarters of the market.

PBM Market Share by Total Equivalent Prescriptions, 2014

Top 3 Market Share 75%

22% 25%

Express Scripts CVS Health (Caremark) OptumRx/Catamaran*

24%

All Other

29%

*OptumRx and Catamaran merged in 2015. Their 2014 shares are shown combined.


Source: Drug Channels Institute18

57

In the US System, Health Plans Have Powerful Tools to Reduce Spending on Medicines TIERED COPAYS Higher cost to patients for brands than for generics and preferred brands

FORMULARIES List of covered drugs

PRIOR AUTHORIZATION Requirement to justify medicine’s use before it is covered

Plans drive nearly all use of medicines to generics and “preferred” brands. FINANCIAL INCENTIVES

CONCENTRATED PURCHASING POWER

STEP THERAPY

Individual Pharmacy Benefit Managers buy medicines for more people than those who live in entire European countries

Patients must try and fail on alternatives before certain medicines are covered

Payments to physicians and/or pharmacies for generic prescribing or switching patients to preferred drugs

Source: IMS Health19


58

Case Study in Manufacturer‐Payer Negotiations: Hepatitis C Medicines Leveraging increased competition in the hepatitis C market, payers negotiated deep discounts off list prices for new medicines with manufacturers, reducing prices below those in many western European countries.20

What Payers Claimed Would Happen What they have done with this particular drug will break the country…. It will make pharmacy benefits no longer sustainable. Companies just aren’t going to be able to handle paying for this drug. — Express Scripts, April 201421

This pricing, which Gilead attempts to justify as the cost of medical advancement, will have a tsunami effect across our entire health care system. — America’s Health Insurance Plans, July 201422

What Actually Happened The price is sufficiently low that we can go to our clients and say that they can treat every patient with hepatitis C. — Express Scripts, January 201523

We are receiving market‐leading rates from both companies. Neither company wanted to be left off the formulary. — Prime Therapeutics, January 201524

Competitive market forces and hard‐nosed bargaining make “tremendously effective” new hepatitis C medicines not just more accessible to ailing patients—but also offer good value to the U.S. health care system. — The New York Times Editorial Board, September 201525

Sources: LaMattina J20; Cortez MF21; Ignagni K22; Silverman E23; Langreth R24; New York Times Editorial Board25


59

Many Factors Affect Physicians’ Prescribing Decisions Factors Influencing Prescribing Decisions in the United States in 2013 Clinical knowledge and experience

91%

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

89%

8% 9%

Articles in peer‐reviewed medical journals

50%

42%

Clinical practice guidelines

48%

44%

Patient’s insurance coverage and formulary

39%

Information from colleagues and peers

38%

Pharmaceutical company–sponsored educational programs featuring physician speakers, not Continuing Medical Education

11%

Information from pharmaceutical company representatives

10%

Information from insurance and prescription benefits manager representatives

10% A great deal

44% 54% 47% 53% 35%

Some

Source: KRC Research26


60

Direct‐to‐Consumer Advertising Encourages Patient Engagement and Appropriate Use of Medicines Advertising has promoted the appropriate use of oral breast cancer therapies consistent with medical practice guidelines.*

*Study measured the effect of DTCA on patients and doctors regarding the use of aromatase inhibitors (AIs) consistent with medical practice guidelines. The study found that DTCA spending on AIs was associated with an overall new AI prescription increase of 0.18% after 3 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: Abel GA, et al.27


61

EXTRA PHOTO


Pharmaceutical Research and Manufacturers of America (PhRMA). Drug Discovery and Development: Understanding the R&D Process. Washington, DC: PhRMA; 2014.

2.

Grabowksi H, Long G, Mortimer R, Boyo A. Updated trends in US brand‐name and generic drug competition. J Med Economics. In press.

3.

Tufts Center for the Study of Drug Development. Cost of developing a new drug [briefing]. http://csdd.tufts.edu/files/uploads /Tufts_CSDD_briefing_on_RD_cost_study_‐_Nov_18,_2014..pdf. Published November 18, 2014. Accessed April 2016.

4.

1970s data: Tufts Center for the Study of Drug Development, unpublished data, March 2010; 2005‐2011 data: Tufts Center for the Study of Drug Development. First‐in‐class drugs in competitive development races with later entrants. Tufts CSDD Impact Rep. 2015;17(6).

5.


6.


7.

For example, a new generic version of an osteoporosis treatment launched in 2009 captured more than 90% of the mail order market in the first week and more than 90% of all prescriptions in the first 3 months. Express Scripts. 2009 drug trend report. https://www.express ‐scripts.com/research/research/dtr/archive/2009/dtrFinal.pdf. Published April 2010. Accessed April 2016.

8.

Berndt ER, Nass D, Kleinrock M, Aitken M. Decline in economic returns from new drugs raises questions about sustaining innovations. Health Aff. 2015;34(2):245‐252.

9.

Vernon JA, Golec JH, DiMasi JA. Drug development costs when financial risk is measured using the Fama‐French three‐factor model. Health Economics. 2010;19(8):1002‐1005.

10. Berndt ER, Nass D, Kleinrock M, Aitken M. Decline in economic returns from new drugs raises questions about sustaining innovations. Health Aff. 2015;34(2):245‐252. 11. Pharmaceutical Research and Manufacturers of America (PhRMA). 2016 PhRMA profile. http://www.phrma.org/profiles‐reports. Published April 2016. 12. Scherer FM. Pharmaceutical innovation. AEI‐Brookings Joint Center for Regulatory Studies Working Paper 07‐13. July 2007. 13. Congressional Budget Office. Research and development in the pharmaceutical industry. http://www.cbo.gov/sites/default/files/cbofiles /ftpdocs/76xx/doc7615/10‐02‐drugr‐d.pdf. Published October 2006. Accessed April 2016.


63

Notes and Sources 14. Newhouse JP. How much should Medicare pay for drugs? Health Aff. 2004;23(1):89‐102. 15. IMS Health analysis for PhRMA. May 2015. 16. Kleinrock M. Daily Cost of Medicare Part D: December 2013 Update. Danbury, CT: IMS Institute for Healthcare Informatics; December 2013. 17. PhRMA analysis of average hospital charge data from Healthcare Cost and Utilization Project Hospital Charge Database 2005 and 2013; invoice price data for atorvastatin 10mg from IMS National Sales Perspective for 2005 (branded Lipitor), 2013 (generic), and 2014 (generic). 18. Fein AJ; Pembroke Consulting, Inc., and Drug Channels Institute. 2014‐15 economic report on retail, mail, and specialty pharmacies. http://drugchannelsinstitute.com/files/2014‐15‐PharmacyIndustry‐Overview.pdf. Published January 2015. Accessed April 2016. Total adjusted prescriptions include claims at a PBM’s network pharmacies plus equivalent prescriptions and specialty claims filled by a PBM’s mail pharmacy. 19. IMS Health Inc. IMS National Prescription Audit™: December 2012. Danbury, CT: IMS Health. 20. LaMattina J. For hepatitis C drugs, U.S. prices are cheaper than in Europe. Forbes. December 4, 2015. http://www.forbes.com/sites /johnlamattina/2015/12/04/for‐hepatitis‐c‐drugs‐u‐s‐prices‐are‐cheaper‐than‐in‐europe/#7ced43f564bb. Accessed April 2016. Citing comments made at Forbes Healthcare Summit 2015. Video available at http://www.forbes.com/healthcare‐summit/#5550ec6e7ffc. Accessed April 2016. 21. Cortez MF. Express Scripts raises pressure on Gilead for drug price. Bloomberg. April 8, 2014. http://www.bloomberg.com/news/articles /2014‐04‐08/express‐scripts‐raises‐pressure‐on‐gilead‐for‐drug‐price. Accessed April 2016. 22. Ignagni K. We all pay for $1,000 a pill drug. CNN. July 24, 2014. http://edition.cnn.com/2014/07/07/opinion/ignagni‐hepatitis‐c‐drug. Accessed April 2016. 23. Silverman E. “The big issue has not been choice, but access:” Express Scripts’ Miller explains. Wall Street Journal. January 6, 2015. http://blogs.wsj.com/pharmalot/2015/01/06/the‐big‐issue‐has‐not‐been‐choice‐but‐access‐express‐scripts‐miller‐explains. Accessed April 2016. 24. Langreth R. Hepatitis drug prices fall so low, no exclusives needed. Bloomberg. January 12, 2015. http://www.bloomberg.com/news /articles/2015‐01‐12/prime‐covers‐both‐gilead‐and‐abbvie‐liver‐drugs‐as‐prices‐plunge. Accessed April 2016. 25. New York Times Editorial Board. Costly hepatitis C drugs for everyone? New York Times. September 2, 2015.


64

Notes and Sources 26. KRC Research; for PhRMA. Survey of Physicians About Pharmaceutical and Biotech Research Company Activities and Information: Nationally Representative Survey of 502 Physicians. Washington, DC: KRC Research; February 2014. 27. Abel GA, Chen K, Taback N, Hassett MJ, Schrag D, Weeks JC. Impact of oncology‐related direct‐to‐consumer advertising: association with appropriate and inappropriate prescriptions. Cancer. 2013;119(5):1065‐1072.


65


4

4 • Cost Sharing Trends

COST SHARING TRENDS Evaluating the Impact of Insurance Benefit Design on Patients Insurers are increasingly using high deductibles, coinsurance, and multiple cost sharing tiers, which results in high cost sharing for some patients. High cost sharing for medications may limit patients’ access to needed treatments, reduce adherence, and lead to poor health outcomes. Out‐of‐pocket spending for prescription medications can represent a disproportionate share of total health care costs borne directly by patients, especially those who are low income or chronically ill.

67

Insurance Covers a Lower Share of Prescription Drug Costs Than the Costs of Other Medical Services On average, patients pay out of pocket 17% of their total prescription drug costs compared with 4% of costs for hospital care.1 Average Share of Health Care Costs Patients Pay Out of Pocket, All Ages 17%

Average, All Health Care (14%)

4%

Hospital Care

Note: Prescription drug spending includes brand and generic ingredients, pharmacy, and distribution costs for retail prescriptions. Hospital care includes inpatient and outpatient.


Prescription Drugs

Source: PhRMA analysis based on Medical Expenditure Panel Survey, 20131

68

More Plans Are Including Drugs in Combined Deductibles The share of plans offered on the Health Insurance Exchanges including drugs in combined deductibles (a single deductible for medical services and drugs) has steadily increased over the 3 years the exchanges have been in operation. Plans that apply a large deductible to prescriptions can leave patients with high out‐of‐pocket costs from accessing needed medicines, like those that treat chronic conditions. About half of plans without a combined deductible have a separate drug deductible, and the remaining plans exempt drugs from the deductible. Percentage of Plans With Combined Deductibles

68%

73%

63% Average Combined Deductible for Silver Plans 2015: $2,658 2016: $3,075

2014

2015

2016

In the Federally Facilitated Marketplace Individual Landscape File, plans note either a combined deductible, which reflects a single deductible for medical services and drugs, or separate deductibles that apply only to medical services or drugs.


Source: Avalere Health PlanScape®2

69

Subjecting Prescription Drugs to a Combined Deductible Results in Disproportionately High Cost Sharing An analysis of the most common type of exchange plans under the Affordable Care Act found that drug coverage was generally less generous than coverage for other services—primarily because plans subjected drug spending to a large deductible. Average Share of Costs Paid by the Plan Among Silver Plans in 2014 With a Combined Medical/Drug Deductible* 72%

71%

Hospital

Professional/Other

54%

Pharmacy

*Silver Plans accounted for a majority of Health Insurance Exchange enrollment, and combined deductibles were the most common type of deductible arrangement among these plans. A deductible is the amount patients must pay annually with their own money (out of pocket) before a health plan will pay for any expenses. Figure shows the actuarial value for each service category listed (ie, the percentage of covered costs paid by the plan).


Source: Milliman, Inc.3

70

Plans Often Charge Patients a Percentage of a Medicine’s Total Cost Rather Than Fixed‐Dollar Copays In the most frequently purchased type of Health Insurance Exchange plan, coinsurance for certain medicines is common: 74% of these plans require enrollees to pay a percentage of a specialty tier medicine’s total cost, with 36% of these plans requiring patients to pay coinsurance of more than 30% of the cost. Cost Sharing in Specialty Tiers of 2016 Silver Plans*

Fixed‐ Dollar Copays 26%

COINSURANCE

Coinsurance 74%

is a percentage of costs a patient is responsible for paying with his or her own money (out of pocket). Coinsurance can make a patient’s out‐of‐pocket costs difficult to predict—and potentially much higher—than fixed‐dollar copays.

*Silver Plans are shown here because they account for a majority of Health Insurance Exchange enrollment. Plans subject different medicines to different levels of cost sharing, or “tiers.” Medicines assigned to a “specialty tier” typically require the highest level of cost sharing.


Source: Avalere Health PlanScape®4

71

Plans Increasingly Subject Certain Medicines to Higher Cost Sharing Patients taking medicines placed on higher cost sharing “tiers” commonly face serious and chronic health conditions. Increased use of 4 or more tiers by plans means that more patients are subject to what is commonly higher cost sharing in the specialty tier. Medicines on the specialty tier are also more likely to be subject to coinsurance than products placed on lower cost sharing tiers.5

*Silver Plans account for a majority of Health Insurance Exchange enrollment. “Tiers” refer to the different levels of cost sharing that plans require patients to pay for different groupings of medicines.


Sources: Kaiser Family Foundation (KFF)5; Avalere Health PlanScape®6; KFF/Health Research & Educational Trust7

72

Insurers May Be Discouraging Enrollment Through Drug Benefit Design By placing all drugs to treat certain high‐cost conditions on the highest drug formulary cost sharing tier, a practice known as adverse tiering, some insurers may be trying to discourage patients with certain conditions from enrolling in their plans. Percentage of Silver Plans Placing All Drugs in the Class on the Specialty Tier 67% 60%

2014 2015

51%

47% 42% 34%

30%

29% 20%

16%

Protease Inhibitors

HIV‐Other*

Antiangiogenics*

HIV/AIDS *There are no generic drugs available in this class. All products are single‐source.


Molecular Target Inhibitors*

Multiple Sclerosis Agents

ONCOLOGY Source: Avalere Health PlanScape®8

73

High Cost Sharing Reduces Adherence RAND researchers found that doubling copays reduced patients’ adherence to prescribed medicines by 25% to 45% and increased emergency room visits and hospitalizations. Percent Change in Adherence From Doubling Medicine Copays

Percent Change in Days Supplied of Medicine

0% ‐5% ‐10% ‐15% ‐20%

‐26%

‐25% ‐30%

‐34%

‐33%

‐26%

‐25%

‐32%

‐35% ‐40% ‐45%

‐45%

‐44%

‐50% Source: Goldman DP, et al.9


74

Patients Facing High Cost Sharing Commonly Do Not Initiate Treatment Chronic myeloid leukemia patients facing high out‐of‐pocket costs for medicines on a specialty tier are less likely to initiate drug therapy than patients receiving a cost sharing subsidy and take twice as long to initiate treatment.

Percentage of Chronic Myeloid Leukemia Patients Initiating Treatment Patients facing high cost sharing Patients facing minimal cost sharing

67%

65% 53% 45% 36% 21%

1 month

3 months

6 months

Time Following Diagnosis Source: Doshi JA, et al.10


75

Formulary Restrictions Can Lead to Greater Medical Spending Non‐elderly Medicaid patients facing formulary restrictions* for antipsychotic medications were 7% to 13% more likely to be hospitalized and had higher medical costs than patients in states without formulary restrictions. Medicaid Total Annual Medical Expenditures per Patient, 2008 $16,000 $14,000

$10,000

$13,735

$13,299

$12,000

$12,344 $10,952

$8,000 $6,000 $4,000 $2,000 $0 Schizophrenia States Without Formulary Restrictions *Restrictions examined: prior authorization, step therapy, and quantity limits


Bipolar Disorder States With Formulary Restrictions Source: Seabury SA, et al.11

76

Patient Assistance Programs Help Patients Access Needed Medicines Despite more Americans having insurance, many are facing high cost sharing that puts their ability to stay on a needed therapy at risk. Patient assistance programs sponsored by US biopharmaceutical companies are one option to help patients maintain access to needed medicines.

Source: Partnership for Prescription Assistance12


77


PhRMA analysis based on US Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2013. http://www.meps.ahrq.gov/mepsweb. Accessed April 2016. Prescription drug spending includes brand and generic ingredients, pharmacy, and distribution costs. Hospital includes inpatient and outpatient. Analysis includes individuals with any source of health care coverage, public or private; this includes individuals who had health coverage without coverage for prescription drugs, which can be expected to account for less than 2% of those with health coverage.

2.

Avalere Health PlanScape®, a proprietary analysis of exchange plan features, December 2015. This analysis is based on data collected by Managed Markets Insight & Technology, LLC. Avalere Health PlanScape®, a proprietary analysis of exchange plan features, December 2014. Avalere Health analyzed data from the Federally Facilitated Marketplace Individual Landscape File released November 2014 and the California and New York state exchange Web sites.

3.

Milliman, Inc.; for PhRMA. Impact of health insurance marketplace on participant cost sharing for pharmacy benefits. http://www.phrma .org/sites/default/files/pdf/milliman‐impact‐of‐hix‐on‐pharmacy‐benefits‐report.pdf. Published May 13, 2014. Accessed March 2016.

4.

Avalere Health PlanScape®, a proprietary analysis of exchange plan features, December 2015. This analysis is based on data collected by Managed Markets Insight & Technology LLC.

5.

Kaiser Family Foundation. Cost‐Sharing for Plans Offered in Federally Facilitated or Partnership Marketplaces for 2016. Washington, DC: Kaiser Family Foundation; November 2015.

6.

Avalere Health PlanScape®, a proprietary analysis of exchange plan features, December 2015. This analysis is based on data collected by Managed Markets Insight & Technology LLC.

7.

Kaiser Family Foundation/Health Research & Educational Trust. Employer Health Benefits: 2015 Annual Survey. Washington, DC: Kaiser Family Foundation; September 2015, 162.

8.

Avalere Health PlanScape®, a proprietary analysis of exchange plan features, updated February 2015. This analysis is based on data collected by Managed Markets Insight & Technology, LLC. The sample includes Silver Plans in 6 states (Florida, Georgia, Illinois, North Carolina, Pennsylvania, and Texas), relying on HealthCare.gov and California and New York. Coverage is weighted according to unique plan‐state combinations.

9.

Goldman DP, Joyce GF, Escarce JJ, et al. Pharmacy benefits and the use of drugs by the chronically ill. JAMA. 2004;291(19):2344‐2350.


78

Notes and Sources 10. Doshi JA, Li P, Ladage VP, Pettit AR, Taylor EA. Impact of cost sharing on specialty drug utilization and outcomes: a review of the evidence and future directions. Am J Managed Care. 2016;22(3):188‐197. http://www.ajmc.com/journals/issue/2016/2016‐vol22‐n3/Impact‐of‐Cost‐ Sharing‐on‐Specialty‐Drug‐Utilization‐and‐Outcomes‐A‐Review‐of‐the‐Evidence‐and‐Future‐Directions. Accessed March 2016. 11. Seabury SA, Goldman DP, Kalsekar I, Sheehan JJ, Laubmeier K, Lakdawalla DN. Formulary restrictions on atypical antipsychotics: impact on costs for patients with schizophrenia and bipolar disorder in Medicaid. Am J Managed Care. 2014;20(2):e52‐e60. http://www.ajmc.com /journals/issue/2014/2014‐vol20‐n2/formulary‐restrictions‐on‐atypical‐antipsychotics‐impact‐on‐costs‐for‐patients‐with‐schizophrenia‐and‐ bipolar‐disorder‐in‐medicaid. Accessed March 2016. 12. Partnership for Prescription Assistance Web site. https://www.pparx.org. Accessed March 2016.


79


5

DRUG SPENDING TRENDS Understanding Reported Spending on Medicines Prescription medicines represent a small share of national health spending, and government estimates project medicines to remain a stable share of health spending through the next decade. Overall drug price growth has been in line with overall medical price growth, in large part due to the cost containment built into the drug cost lifecycle; 9 of every 10 US prescriptions are filled with generics. Despite reported increases in list prices for brand medicines, average net brand price growth has declined in recent years, a result of increased rebates negotiated by payers.

5 • Drug Spending Trends

81

Prescription Medicine Spending Growth: 2008‐2024* After spiking at 12.2% in 2014, government actuaries project prescription drug spending growth to moderate over the next few years to 5% to 7% through 2024, back in line with overall health care spending growth.1

2014 saw a record 41 medicines approved by the FDA—including a number of transformative medicines for many debilitating diseases—as well as nearly 15.7 million Americans gaining coverage through the Affordable Care Act.2,3

14%

Percent Annual Growth Rate

12% 10% 8% 6% 4% 2% 0%

Total Health Care Spending Growth Rate *Total retail sales including brand medicines and generics


Prescription Drug Spending Growth Rate

Sources: PhRMA analysis of Centers for Medicare & Medicaid Services (CMS) data1; RAND Corporation2; FDA3

82

Medicines Are Expected to Account for a Stable Share of Total Health Care Expenditures Through the Next Decade Health Care Expenditures Attributable to Retail and Nonretail Prescription Medicines, 2008‐2024

Percentage of National Health Expenditures

16%

Actual

Projected

14% 12% 10% 8% 6% 4% 2% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Retail Nonretail

Retail prescription medicines are those filled at retail pharmacies or through mail service. Nonretail prescription medicines are those purchased through physicians’ offices, clinics, and hospitals and are typically administered to the patient by the provider.


Source: Altarum Institute4

83

Retail Spending on Prescription Medicines Is a Small Share of Total US Health Care Spending Prescription medicines today account for about 10% of the $3 trillion of annual health care spending in the United States, the same percentage as in 1960.

*Figures may not sum due to rounding. **Other includes dental, home health, and other professional services as well as durable medical equipment costs.


Source: PhRMA analysis based on CMS data5

84

Growth in Prescription Medicine Prices Has Been in Line With Other Health Care Prices Consumer Price Index (2005 = 100) 195

175

Hospital and Related Services

155

135

115

All Medical Costs Prescription Medicines Consumer Price Index— Urban, All Items

95

Source: PhRMA analysis based on Bureau of Labor Statistics data6


85

Nine Out of Every 10 US Prescriptions Are Filled With Generics Generic Share* of Prescriptions Filled, 1984‐2015

88%

91%

72% 52% 43% 33% 19% 1984

1990

1996

*Generic share includes generics and branded generics. “Other” category from IMS National Prescription Audit™ not included in calculation.


2002

2008

2014

2015

Source: PhRMA analysis based on IMS Health data7

86

Medicines Account for a Small Share of Health Spending Differences Between the United States and Other Countries Per Capita Health Care Spending in the United States, Canada, and Germany, 2013 $9,000

$8,713

$8,000

For example, medicines account for 6% of the difference in total health care spending between the United States and Canada and 9% between the United States and Germany.

$7,000 $6,000 $5,000

All Other Health Care

$4,819 $4,351

$4,000 $3,000



Rx Medicines

Rx Medicines

Rx Medicines

United States

Canada

Germany

$2,000 $1,000 $0

Source: PhRMA analysis based on Organisation for Economic Co‐operation and Development data8


87

Spending on Cancer Medicines Represents About 1% of Overall Health Care Spending Cancer Medicines as a Portion of Total US Health Care Spending, 2014

Column1 Cancer Medicines $32.6 Billion

Total Health Care Spending $3.03 Trillion Sources: IMS Institute for Healthcare Informatics9; CMS10


88

Forecasts of Specialty Drug Spending Have Been Routinely Overstated A recent analysis of annual drug trend reports found that inconsistent and arbitrary definitions of “specialty medicines” can bias spending projections. Forecasted vs. Actual Annual Growth in Specialty Drug Spending From a Major Pharmacy Benefits Management Company* Forecasted 2 Years Prior As Reported for Year

24%

17%

2011

*As reported in annual Drug Trend Reports from Express Scripts.


27%

18%

2012

19%

14%

2013

Source: Milliman, Inc.11

89

Average Net Brand Price Growth Declined as a Result of Increased Rebates Commonly reported “list” or “invoice” prices are higher than what payers ultimately pay for medicines. Average Price Growth for Brand Medicines 16%

14.3%

14% 12% 10% 8%

12.4%

11.5% 9.3% 8.7%

10.0% 9.1%

6% 4%

5.1%

4.9%

2%

2.8%

0% 2011

2012 Invoice Price Growth

2013

2014 Estimated Net Price Growth

Includes protected brand medicines only (ie, brand medicines without generic versions available in the year indicated). Net price growth reflects impact of off‐invoice rebates and discounts provided by manufacturers.


2015

Source: IMS Institute for Healthcare Informatics12

90

$93 Billion of US Brand Sales Are Projected to Face Generic Competition From 2016 to 2020 The savings from patent expiries in the coming years are expected to match the large‐scale savings observed in recent years. Pre‐expiry Value of Small Molecule Products at Risk (in Billions), 2011‐2020

2011‐2015: $101 Billion

2016‐2020: $93 Billion

Projections exclude biologics, which will face competition from biosimilars entering the market.

$19

$33

$12

$11

$27

$23

$21

$27

$13

$11

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Projected Pre‐expiry sales of products are calculated for products facing loss of exclusivity (LOE) in each year; the sales in the prior year for each product are aggregated to represent the collective industry exposure to LOE. LOE does not indicate generic market entry. Only small molecule LOEs are included.



91

EXTRA PHOTO


PhRMA analysis of Centers for Medicare & Medicaid Services data. National Health Expenditure (NHE) amounts by type of expenditure and source of funds: calendar years 1960‐2024 in PROJECTIONS format. https://www.cms.gov/Research‐Statistics‐Data‐and‐Systems/Statistics‐ Trends‐and‐Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html; click on NHE Historical and Projections 1960‐2024 [ZIP 80KB] under Downloads. Accessed April 2016.

2.

RAND Corporation. Health coverage grows under Affordable Care Act. http://www.rand.org/news/press/2015/05/06.html. Published May 6, 2015. Accessed April 2016.

3.

Food and Drug Administration. New drugs at FDA: CDER’s new molecular entities and new therapeutic biological products. http://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm20025676.htm. Accessed April 2016.

4.

Altarum Institute. Center for Sustainable Health Spending data brief: a ten year projection of the prescription drug share of national health expenditures including non‐retail. http://altarum.org/sites/default/files/uploaded‐publication‐files/Non‐Retail%20Rx%20Forecast %20Data%20Brief_with%20Addendum.pdf. Published October 2014; addendum update August 2015. Accessed April 2016.

5.

PhRMA analysis based on Centers for Medicare & Medicaid Services data. The nation’s health dollar ($3.0 trillion), calendar year 2014, where it went. https://www.cms.gov/Research‐Statistics‐Data‐and‐Systems/Statistics‐Trends‐and‐Reports/NationalHealthExpendData/Downloads /PieChartSourcesExpenditures2014.pdf. Accessed April 2016.

6.

PhRMA analysis based on Bureau of Labor Statistics data. Consumer price index—all urban consumers, history table. http://www.bls.gov/cpi /#tables. Accessed March 2015.

7.

PhRMA analysis based on IMS Health data. IMS National Prescription Audit™. Danbury, CT: IMS Health; 2016.

8.

PhRMA analysis based on Organisation for Economic Co‐operation and Development (OECD) data. Health at a glance 2015: OECD indicators. http://www.oecd.org/health/health‐at‐a‐glance‐19991312.htm. Published November 4, 2015. Accessed April 2016.

9.

IMS Institute for Healthcare Informatics. Medicines Use and Spending Shifts. Danbury, CT: IMS Institute for Healthcare Informatics; April 2015.

10. Centers for Medicare & Medicaid Services (CMS). National Health Expenditures Report. Baltimore, MD: CMS; December 2015. 11. Dieguez G, Pyenson B, Carioto J; Milliman, Inc.; for PhRMA. Understanding specialty drug forecasts. http://www.phrma.org/sites/default/files /pdf/milliman‐specialty‐drug‐forecasts.pdf. Published February 2015. Accessed April 2016. 12. IMS Institute for Healthcare Informatics. Medicines use and spending in the U.S.—a review of 2015 and outlook to 2020. http://www.imshealth .com/en/thought‐leadership/ims‐institute/reports/medicines‐use‐and‐spending‐in‐the‐us‐a‐review‐of‐2015‐and‐outlook‐to‐2020. Published April 2016. Accessed April 2016. 13. IMS Institute for Healthcare Informatics. Global medicines use in 2020: outlook and implications. http://www.imshealth.com/en /thought‐leadership/ims‐institute/reports/global‐medicines‐use‐in‐2020. Published November 2015. Accessed March 2016.


93


6

OUTCOMES AND SAVINGS Overcoming Gaps in Treatment, Improving Outcomes, and Reducing Costs Through Better Use of Medicines Undertreatment of complex and chronic conditions as well as suboptimal use of prescribed medicines are significant public health problems, costing the US economy hundreds of billions of dollars each year. Medicines help patients live healthier lives and reduce the need for costly health care services such as emergency department visits, hospital stays, surgeries, and long‐term care. An ever‐growing body of evidence demonstrates that improved use of prescribed medicines can result in better health outcomes, lower costs for other health care services, and increased worker productivity.

6 • Outcomes and Savings

95

The Human and Economic Costs of Chronic Disease More than 1 million lives could be saved annually through better treatment and prevention of chronic disease.

Sources: Agency for Healthcare Research and Quality1; IHS Life Sciences2


96

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

Source: IHS Life Sciences analysis based on CDC data3


97

Potential Savings From Better Use of Medicines Better use of medicines could eliminate up to $213 billion in US health care costs annually, which represents 8% of the nation’s health care spending.

Avoidable Annual US Health Care Costs (in Billions, 2012)

Nonadherence

$105

Medication Errors*

$21

Suboptimal Prescribing**

$87

Total Avoidable Costs

$213 $0

$50

$100

*Category includes medication errors ($20 billion) and mismanaged polypharmacy ($1 billion) **Category includes untimely medicine use ($40 billion), inappropriate antibiotic use ($35 billion), and suboptimal generic use ($12 billion)


$150

$200

$250


98

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 inappropriate medicine use. Quality Problems Among Vulnerable Older Patients Failure to prescribe when called for by guidelines

50%

Inadequate monitoring

36%

Inadequate education/ continuity/documentation

19%

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 Health5

99

Better Use of Medicines Yields Significant Health Gains by Avoiding the Need for Other Medical Services Due to a growing body of evidence, in 2012 the Congressional Budget Office (CBO) began recognizing reductions in other medical expenditures associated with an increased use of prescription medicines in Medicare.

Since the CBO announcement, the evidence has continued to develop, broadening the potential for cost offsets in the health care system.

CHRONIC DISEASES Medicare savings due to better use of medicines may be 3 to 6 times greater than estimated by the CBO for seniors with common chronic conditions, including heart failure, diabetes, and hypertension.7

$

MEDICAID Increased use of medicines is associated with reductions in Medicaid expenditures from avoided use of inpatient and outpatient services.8 Sources: CBO6; Roebuck MC7; Roebuck MC, et al.8


100

Mounting Evidence Demonstrates the Potential for Savings and Improved Outcomes

Sources: Cutler DM, et al.9; Dall TM, et al.10; Jha AK, et al.11; Jiang Y, Ni W12; Modi A, et al.13; Stuart BC, et al.14; van Boven JF, et al.15; Roebuck MC, et al.16; Stuart B, et al.17; Stuart BC, et al.18; IMS Institute for Healthcare Informatics19


101

Recent Studies Show Significant Value From Better Use of Medicines Patients with less common diseases are able to offset health care spending by exercising better adherence.

PARKINSON’S DISEASE

MULTIPLE SCLEROSIS

Health care savings of up to $6,300 can be achieved among patients with Parkinson’s who continually stay on therapy.20

Improved persistence to medications reduces the likelihood of a patient’s hospital admission by up to 50%.21

CYSTIC FIBROSIS

LUPUS

Among children with cystic fibrosis, poor medication adherence is associated with more hospitalizations and emergency department visits and more than $14,000 in higher same‐year medical costs compared with children who are highly adherent.22

Nonadherence among children in Medicaid who are diagnosed with lupus is associated with a 55% increased rate of emergency department use and a nearly 40% increased rate of hospitalizations.23

Sources: Wei YJ, et al.20; Thomas NP, et al.21; Quittner AL, et al.22; Feldman CH, et al.23


102

Improving Adherence Increases Worker Productivity For workers with asthma/chronic obstructive pulmonary disease (COPD), better medication adherence results in more than $3,100 in savings on average per worker annually. Absenteeism and Short‐Term Disability for Adherent Patients Compared With Nonadherent Patients Diabetes

Hypertension

High Cholesterol

Asthma/COPD

0 ‐1

Missed Days Per Year

‐2 ‐3

‐3.6

‐3.6

‐2.7

‐3.1

‐3.6

‐4 ‐5 ‐6

‐6.0

‐6.3

‐7 ‐8 ‐9 ‐10

‐9.8 Absenteeism

Short‐Term Disability Source: Carls GS, et al.24


103

Gaining Drug Coverage Reduced Other Medical Spending The Medicare drug benefit increased access to medicines for those previously without drug coverage, resulting in reduced medical spending25 and an overall savings of $13.4 billion in 2007, the first full year of the benefit.26 Average Reduction in Medical Spending in 2006 and 2007 for Beneficiaries Who Gained Drug Coverage Through Medicare Part D

PART D Since the implementation of Part D in 2006, nearly 200,000 Medicare beneficiaries have lived at least 1 year longer, with an average increase in longevity of 3.3 years.27

Sources: McWilliams JM, et al.25; Afendulis CC, Chernew ME26; Semilla AP, et al.27


104


Cohen SB; Agency for Healthcare Research and Quality. The concentration and persistence in the level of health expenditures over time: estimates for the U.S. population, 2012‐2013. Statistical Brief #481. http://meps.ahrq.gov/mepsweb/data_files/publications/st481 /stat481.pdf. Published September 2015. Accessed April 2016.

2.

IHS Life Sciences. Burden of Chronic Illnesses in the US: Technical Overview and Fact Sheets. Englewood, CO: IHS Life Sciences; 2016.

3.

IHS Life Sciences analysis based on Centers for Disease Control and Prevention data. National Health and Nutrition Examination Survey, 2013‐2014. http://wwwn.cdc.gov/nchs/nhanes/search/nhanes13_14.aspx. Accessed April 2016.

4.

IMS Institute for Healthcare Informatics. Avoidable costs in US healthcare: the $200 billion opportunity from using medicines more responsibly. http://www.imshealth.com/files/web/IMSH%20Institute/Reports/Avoidable_Costs_in%20_US_Healthcare /IHII_AvoidableCosts_2013.pdf. Published June 2013. Accessed March 2016.

5.

Goldman DP, McGlynn EA; RAND Health. US Health Care: Facts About Cost, Access, and Quality. Santa Monica, CA: RAND Corporation; 2005. Cited by: Higashi T, Shekelle PG, Solomon DH, et al. The quality of pharmacologic care for vulnerable older patients. Ann Intern Med. 2004;14(9):714‐720.

6.

Congressional Budget Office (CBO). Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services. Washington, DC: CBO; 2012.

7.

Roebuck MC. Medical cost offsets from prescription drug utilization among Medicare beneficiaries [commentary]. J Managed Care Pharm. 2014;20(10):994‐995.

8.

Roebuck MC, Dougherty JS, Kaestner R, Miller LM. Increased use of prescription drugs reduces medical costs in Medicaid populations. Health Aff. 2015;34(9):1586‐1593.

9.

Cutler DM, Long G, Berndt ER, et al. The value of antihypertensive drugs: a perspective on medical innovation. Health Aff. 2007;26(1):97‐110.

10. Dall TM, Blanchard TD, Gallo PD, Semilla AP. The economic impact of Medicare Part D on congestive heart failure. Am J Managed Care. 2013;19:S97‐S100. 11. Jha AK, Aubert RE, Yao J, Teagarden JR, Epstein RS. Greater adherence to diabetes drugs is linked to less hospital use and could save nearly $5 billion annually. Health Aff. 2012;31(8):1836‐1846. 12. Jiang Y, Ni W. Estimating the impact of adherence to and persistence with atypical antipsychotic therapy on health care costs and risk of hospitalization. Pharmacother. 2015;35(9):813‐822.


105

Notes and Sources 13. Modi A, Siris ES, Tang J, Sen S. Cost and consequences of noncompliance with osteoporosis treatment among women initiating therapy. Curr Med Res Opinion. 2015;31(4):757‐765. 14. Stuart BC, Simoni‐Wastila L, Zuckerman IH, et al. Impact of maintenance therapy on hospitalization and expenditures for Medicare beneficiaries with chronic obstructive pulmonary disease. Am J Geriatr Pharmacother. 2010;8(5):441‐453. 15. van Boven JF, Chavannes NH, van der Molen T, Rutten‐van Mölken MP, Postma MJ, Vegter S. Clinical and economic impact of non‐ adherence in COPD: a systematic review. Respir Med. 2014;108(1):103‐113. 16. Roebuck MC, Liberman JN, Gemmill‐Toyama M, Brennan TA. Medication adherence leads to lower health care use and costs despite increased drug spending. Health Aff. 2011;30(1):91‐99. 17. Stuart B, Loh FE, Roberto P, Miller LM. Increasing Medicare Part D enrollment in medication therapy management could improve health and lower costs. Health Aff. 2013;32(7):1212‐1220. 18. Stuart BC, Dai M, Xu J, E. Loh F‐H, S Dougherty J. Does good medication adherence really save payers money? Med Care. 2015;53(6):517‐ 523. 19. IMS Institute for Healthcare Informatics. Avoidable costs in U.S. healthcare: the $200 billion opportunity from using medicines more responsibly. http://www.imshealth.com/files/web/IMSH%20Institute/Reports/Avoidable_Costs_in%20_US_Healthcare /IHII_AvoidableCosts_2013.pdf. Published June 2013. Accessed March 2016. 20. Wei YJ, Palumbo FB, Simoni‐Wastila L, et al. Antiparkinson drug adherence and its association with health care utilization and economic outcomes in a Medicare Part D population. Value Health. 2014;17(2):196‐204. 21. Thomas NP, Curkendall S, Farr AM, Yu E, Hurley D. The impact of persistence with therapy on inpatient admissions and emergency room visits in the US among patients with multiple sclerosis. J Med Econ. 2016;Jan 18:1‐9. [Epub ahead of print] 22. Quittner AL, Zhang J, Marynchenko M, et al. Pulmonary medication adherence and health‐care use in cystic fibrosis. Chest. 2014;146(1):142‐ 151. 23. Feldman CH, Yazdany J, Guan H, Solomon DH, Costenbader KH. Medication nonadherence is associated with increased subsequent acute care utilization among Medicaid beneficiaries with systemic lupus erythematosus. Arthritis Care Res. 2015;67(12):1712‐1721. 24. Carls GS, Roebuck MC, Brennan TA, Slezak JA, Matlin OS, Gibson TB. Impact of medication adherence on absenteeism and short‐term disability for five chronic diseases. J Occup Environ Med. 2012;54(7):792‐805.


106

Notes and Sources 25. McWilliams JM, Zaslavsky AM, Huskamp HA. Implementation of Medicare Part D and nondrug medical spending for elderly adults with limited prior drug coverage. JAMA. 2011;306(4):402‐409. 26. Afendulis CC, Chernew ME. State‐level impacts of Medicare Part D. Am J Managed Care. 2011;17 Suppl 12:S. 27. Semilla AP, Chen F, Dall TM. Reductions in mortality among Medicare beneficiaries following the implementation of Medicare Part D. Am J Managed Care. 2015;21:S165‐S172.


107


7

7 • Economic Impact

ECONOMIC IMPACT Sustaining and Growing State and Local Economies America’s biopharmaceutical industry is the foundation for one of the country’s most dynamic innovation and business ecosystems. The industry is among the most research and development (R&D) intensive in the United States, accounting for 1 out of every 6 dollars spent on domestic R&D by US businesses. The industry’s large‐scale research and manufacturing supply chain supports high‐quality jobs in communities across the United States.

109

The Biopharmaceutical Sector Is the Single Largest Funder of Business R&D in the United States The biopharmaceutical industry accounts for the single largest share of all US business R&D, representing 1 out of every 6 dollars (17%) spent on domestic R&D by US businesses. Share of Total US Business R&D by Industry, 2013* 17% 13%

5%

Pharmaceuticals & Medicines

Software

Automobiles

4%

Aerospace

*The remaining 57% 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.


3%

1%

Computer Systems Design

Scientific R&D Services

Source: PhRMA analysis of National Science Foundation data1

110

The Biopharmaceutical Sector Invests More in R&D Relative to Sales Than Other Manufacturing Industries The biopharmaceutical sector invests more in R&D relative to sales than any other manufacturing industry, investing more than 6 times the average for all manufacturing industries. R&D as a Percentage of Sales by Industry, 2000‐2012 Pharmaceuticals & Medicines

18.3%

Semiconductor

14.6%

Computer & Electronic

11.9%

Medical Equipment & Supplies

7.3%

Chemical

6.5%

Aerospace

6.2%

Transportation

3.9%

All Manufacturing Petroleum & Coal

3.0% 0.4% Source: NDP Analytics2


111

The Biopharmaceutical Industry Invests More R&D Dollars per Employee Than Any Other Industry Biopharmaceutical companies invest more than 12 times the amount of R&D dollars per employee than manufacturing industries overall. R&D Expenditures per Employee by Manufacturing Industry, 2000‐2010 $130,086

Pharmaceuticals & Medicines Chemical

$49,489

Semiconductor

$46,438

Computer & Electronic

$40,848

Aerospace

$23,372

Medical Equipment

$16,981

Transportation Equipment

$16,404

Petroleum & Coal All Manufacturing Industries

$14,268 $10,529

Machinery

$7,212

Electrical Equipment

$6,516

Misc. Nonmedical Equipment

$2,791 Source: NDP Analytics3


112

The Biopharmaceutical Industry Employs the Largest Share of R&D Workers Across All Manufacturing Industries One out of every 8 R&D workers in the nation’s manufacturing industries is employed by the biopharmaceutical industry. Selected Manufacturing Industries’ Share of Total R&D Workers, 2012* 13% 11% 9% 8% 7% 6% 5%

Pharmaceuticals Semiconductors & Medicines

Navigational Equipment

*The manufacturing industries that employ the remaining 41% of the R&D workforce each account for less than 5% of the total R&D workforce.


Aerospace

Automobiles

Communications Equipment

Medical Equipment

Source: PhRMA analysis of National Science Foundation data4

113

The Economic Reach of the US Biopharmaceutical Industry Every biopharmaceutical sector job supports more than 4 additional jobs outside the industry.

Source: TEConomy Partners5


114

The Biopharmaceutical Sector Produces Jobs in a Wide Array of Fields One‐third of the jobs in the biopharmaceutical sector are in key STEM (Science, Technology, Engineering, and Math) occupations. US Biopharmaceutical Industry Employment by Occupational Category, 2014 Office & Admin Support, 13.4% Computer & Mathematical,* 7.1%

Production, 13.0%

Architecture & Engineering,* 9.2% Management, 11.4%

Life, Physical & Social Science,* 16.6%

Business & Financial Operations, 8.9% Sales & Related (eg, wholesalers), 7.3% Other,** 9.2%

*Indicates a STEM occupation **Occupations include health practitioners and persons in installation, maintenance, and repair; arts, design, and media; and building and grounds maintenance.


Transportation & Material Moving, 3.8% Source: TEConomy Partners6

115

US Biopharmaceutical Exports Have Grown Biopharmaceutical exports have nearly tripled over the 13‐year period from 2003 through 2015, accounting for 3.1% of all US exports by 2015.

US Biopharmaceutical Goods Exports $60 $50

$47 Billions

$40

$38 $30

$29 $20 $10

$16

$0 2003

2007

2011

2015

Source: PhRMA analysis of data from US Department of Commerce, International Trade Administration7


116

Industry‐Sponsored Clinical Trials Contribute Significant Value to the Communities in Which They Are Located In 2013, the biopharmaceutical industry sponsored 6,199 clinical trials of medicines in the United States, involving a total of 1.1 million volunteer participants and supporting a total of $25 billion in economic activity across all 50 states and the District of Columbia.* Estimated Economic Impact From Industry‐Sponsored Clinical Trial Sites Across the United States, 2013

*Estimates reflect only those activities occurring at clinical trial sites and exclude more centralized, cross‐site functions such as coordination and data analysis. Also excluded are nonclinical R&D such as basic and preclinical research and the significant economic contribution from non‐R&D activities of the industry such as manufacturing and distribution.


Source: Battelle Technology Partnership Practice8

117

States Are Increasingly Targeting the Biopharmaceutical Industry in Their Economic Development Plans Recognizing the broad economic impact of the biopharmaceutical industry, states across the country are adopting a range of policies and programs to attract and grow the industry within their borders. Common policies and programs that states are pursuing include: Adopting comprehensive, targeted strategies for life science industry development

Accelerating innovation through entrepreneurial development programs

Building research capacity and infrastructure

Increasing the availability of financial capital for life science development

Building advanced manufacturing capabilities

Establishing economic incentives for life science innovation

Advancing the STEM talent pipeline Source: TEConomy Partners9


118

The United States Leads in Biopharmaceutical Intellectual Property The intellectual property related to more than half of new medicines was invented in the United States. US Patents Granted in Pharmaceutical Technology by Region/Country of Inventor, 2014

United States, 55.2% European Union, 21.6%

China, 1.8% Asia,* 5.4% *Asia includes India, Malaysia, Singapore, South Korea, Taiwan, and others.


All Others, 9.5% Japan, 6.4% Source: PhRMA analysis of National Science Foundation data10

119

The United States Leads in Biopharmaceutical Venture Capital Investment Nearly three‐quarters of worldwide venture capital investments in high‐growth potential biopharmaceutical startups are made in the United States. Biopharmaceutical Venture Capital Investment by Country, 2015

European Union, 23%

United States, 73%

All Others, 4%

Source: Evaluate Pharma11


120

The Biopharmaceutical Industry Supports a Broader Ecosystem Through Corporate Venture Capital The corporate venture arms of established biopharmaceutical companies have helped fuel the next generation of medical innovations by investing more than $6 billion in startups over the past decade. Much of this investment has been directed toward early‐stage innovation and support for the formation of new startups. Biopharmaceutical Corporate Venture Capital Investment, 2006‐2015 $1,400 $1,239 $1,200 $925

Millions

$1,000 $800 $600

$533

$577

$567 $464

$465

$437

$400

$465 $357

$200 $0 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: PricewaterhouseCoopers/National Venture Capital Association12


121

Biopharmaceutical Companies Lead Corporate Giving Biopharmaceutical companies led worldwide corporate giving* in 2013. Ninety percent of these contributions were in the form of in‐kind product donations.

Average Corporate Giving by Sector

Total Giving as % of Pretax Profit

Total Giving per Employee

All Companies

1.0%

$644

Biopharmaceuticals

19.4%

$24,453

Energy

0.8%

$2,912

Utilities

1.2%

$1,092

Information Technology

1.1%

$666

Consumer Staples

1.1%

$608

Industrials

0.8%

$244

*Domestic giving makes up the largest portion of total corporate giving across all sectors surveyed. Domestic giving made up 78% of total giving in 2013.


Source: CECP13

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The Biopharmaceutical Industry Is Advancing STEM Education in the United States The STEM workforce accounts for more than 50% of the nation’s sustained economic growth. From 2008 to 2012, PhRMA member companies and their foundations supported more than 90 STEM education programs across the United States, impacting more than 1.6 million students and 17,500 teachers. PhRMA member company and foundation contributions to STEM education in the United States include:

Source: Battelle Technology Partnership Practice14


123

The Biopharmaceutical Industry is Increasingly Focused on Sustainability Biopharmaceutical companies are pioneers in green chemistry and are committed to finding creative and innovative ways, including the following, to reduce waste, conserve energy, and adopt other more environmentally friendly processes.

Source: Deloitte15


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Fostering Growth of the US Biopharmaceutical Industry Depends on Policies That Support R&D Investment Industry analysts have consistently identified 3 policy areas as critical for the US biopharmaceutical industry to remain an engine of economic growth and innovation:

Strong

INTELLECTUAL PROPERTY

protections, including patent and data protection

A well‐functioning, science‐based

REGULATORY SYSTEM

COVERAGE AND PAYMENT policies that support and encourage medical innovation

The capability to innovate is fast becoming the most important determinant of economic growth and a nation’s ability to compete and prosper in the 21st century global knowledge‐based economy. — Battelle Technology Partnership Practice16

Sources: Battelle Technology Partnership Practice16; Deloitte17


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PhRMA analysis of National Science Foundation, National Center for Science and Engineering Statistics, data. Funds spent for business R&D performed in the United States, by source of funds and selected industry: 2013. http://www.nsf.gov/statistics/2016/nsb20161/uploads/1 /7/tt04‐08.pdf. Accessed March 2016.

2.

Pham ND; NDP Analytics. IP‐intensive manufacturing industries: driving US economic growth. http://www.ndpanalytics.com/ip‐intensive ‐manufacturing‐industries‐driving‐us‐economic‐growth‐2015. Published March 2015. Accessed March 2016.

3.

Pham ND; NDP Analytics. IP‐intensive manufacturing industries: driving US economic growth. http://www.ndpanalytics.com/ip‐intensive ‐manufacturing‐industries‐driving‐us‐economic‐growth‐2015. Published March 2015. Accessed March 2016.

4.

PhRMA analysis of National Science Foundation, National Center for Science and Engineering Statistics, data. Worldwide, domestic, and foreign R&D paid for by the company and others and performed by the company, R&D employment, and R&D cost per R&D employee, by industry and company size: 2012. http://www.nsf.gov/statistics/2016/nsf16301/pdf/tab45.pdf. Accessed April 2016.

5.

TEConomy Partners; for PhRMA. The Economic Impact of the US Biopharmaceutical Industry. Columbus, OH: TEConomy Partners; April 2016.

6.

TEConomy Partners; for PhRMA. The Economic Impact of the US Biopharmaceutical Industry. Columbus, OH: TEConomy Partners; April 2016.

7.

PhRMA analysis of data from US Department of Commerce, International Trade Administration, Web site. http://tse.export.gov/TSE /TSEhome.aspx. Accessed March 2016.

8.

Battelle Technology Partnership Practice; for PhRMA. Biopharmaceutical Industry‐Sponsored Clinical Trials: Impact on State Economies. Columbus, OH: Battelle Technology Partnership Practice; 2015.

9.

TEConomy Partners; for PhRMA. Driving Innovation and Economic Growth for the 21st Century: State Efforts to Attract and Grow the Biopharmaceutical Industry. Columbus, OH: TEConomy Partners; May 2016.

10. PhRMA analysis of National Science Foundation, National Center for Science and Engineering Statistics, data. USPTO patents granted in pharmaceuticals, by region/country/economy: selected years, 1998–2014. http://www.nsf.gov/statistics/2016/nsb20161/uploads/1/9 /at06‐50.pdf. Accessed April 2016. 11. Urquhart L, Gardner J; Evaluate Ltd. Pharma & biotech 2015 in review. http://info.evaluategroup.com/rs/607‐YGS‐364/images/epv ‐pbr15.pdf. Published March 2016. Accessed April 2016.


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Notes and Sources 12. PricewaterhouseCoopers/National Venture Capital Association. MoneyTree Report: Biotechnology Investing by Corporate Venture Capital Groups 1995‐2015. March 2016. 13. CECP. Giving in numbers: 2014 edition. http://cecp.co/pdfs/giving_in_numbers/GIN2014_Web_Final.pdf. Published 2014. Accessed April 2016. 14. Battelle Technology Partnership Practice. STEM: building a 21st century workforce to develop tomorrow’s new medicines. www.phrma.org /sites/default/files/pdf/stem‐education‐report‐2014.pdf. Published January 2014. Accessed March 2016. 15. Jacoby R, Pernenkil L, Harutunian S, Heim M, Sabadal A; Deloitte. Advanced biopharmaceutical manufacturing: an evolution underway. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life‐sciences‐health‐care/us‐lshc‐advanced‐biopharmaceutical ‐manufacturing‐white‐paper‐051515.pdf. Published 2015. Accessed March 2016. 16. Battelle Technology Partnership Practice; for PhRMA. The US biopharmaceutical industry: perspectives on future growth and the factors that will drive it. http://www.phrma.org/sites/default/files/pdf/2014‐economic‐futures‐report.pdf. Published April 2014. Accessed March 2016. 17. Lesser N, Terry C, Wu J, Mulder J, Dondarsk K; Deloitte. In the face of uncertainty: a challenging future for biopharmaceutical innovation. http://www2.deloitte.com/content/dam/Deloitte/lu/Documents/life‐sciences‐health‐care/us_consulting_Inthefaceofuncertainty _040614.pdf. Published 2014. Accessed March 2016.


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