Biopharmaceutical Innovation:

Improving Lives
Rick Smith
SVP Policy, Research & Strategic Planning, PhRMA
September 10, 2007
PhRMA – Who We Are

• We represent the nation’s leading pharmaceutical and

biotechnology research companies

• Our mission is to effectively advocate for public policies that

encourage discovery of important new medicines for patients

• Our 33 member companies:

— Employ more than 83,000 US-based R&D staff

— Invested $43 billion on R&D in 2006 (industry overall spent $55

billion)
Biopharmaceutical Companies are
Committed to Innovation

• More than 3,300 new biopharmaceutical projects in clinical trials or

undergoing FDA review

• The Biomarkers Consortium—PhRMA is collaborating with the National

Institutes of Health, the Food and Drug Administration, and BIO to
discover, develop, and qualify new biological markers to support new drug
development, preventive medicine, and medical diagnostics

• Rare Diseases—Between 1995 and 2005 160 medicines were approved to

treat diseases that affect 200,000 or fewer patients.
Today there are over 300 more drugs in development for rare diseases.

• Entering the Genomic Era—A new generation of targeted cancer

treatments represents the first wave of personalized medicine. This month
for the first time FDA approved new labeling for an existing drug linking it
to a genomic marker.
More than 400 biotechnology medicines targeting
over 100 disease are currently in development

New Medicines in the

Pipeline

• Monoclonal
antibodies to treat
asthma, Crohn’s
disease, and lupus
• Gene therapies for
cancer and heart
disease
• A recombinant
protein to treat
autoimmune
disorders
• Therapeutic
vaccines for
AIDS

Source: PhRMA 2006 report – Medicines in Development: Biotechnology

 Industry investment in R&D increased
steadily over the past decade

In 2006, total industry spending on R&D exceeded $55 billion

$60 “The pharmaceutical

$55.2 industry is one of
PhRMA Member Companies' R&D Expenditures $51.8 the most research-
Entire Pharma Industry
Expenditures (Billions of Dollars)

$50 $47.6 intensive industries

$43.0 in the United States.
$39.9 Pharmaceutical
$40 $37.0 firms invest as much
$34.5
as five times more
$31.0
$29.8 in research and
$30 $26.0 development,
relative to their
$21.0 $22.7
$19.0 sales, than the
$20 $16.9 average U.S.
$15.2
manufacturing
firm.”
$10
-- Congressional
Budget Office
$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(est)

Source: Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey, 2007.
 U.S. leads the world in
biopharmaceutical innovation

In 2007, U.S. companies had more medicines in development than the rest of the world

4000
“…in the late 1980s only
3500 41% of the top 50
innovative drugs were of
Number of Compounds

3000
American origin, in the late
in Development

2500 1990s…[it had] climbed to

62%.
2000
“In 1990, the pharmaceutical
1500
industry spent 50% more
1000 on research in Europe than
in the U.S. In 2001, the
500 situation was reversed with
40% spent more in the U.S.
0
1997 1999 2001 2003 2005 2007 --Gunter Verheugen, Vice-
President of the European
Year Commission for Enterprise
and Industry
US Rest of World EU Japan

Source: Adis R&D Insight Database, customized run, December 2005 and Verheugen, G., “Address to the Concluding Session of
the European Track”, Lyon, April 14, 2005.
Notes: Comparisons were completed for June of each year. Some compounds are at different phases for different indications.
 Innovation is yielding results–
Beginning to turn the tide on cancer

Survival times for patients with metastatic breast cancer (MBC) improved by 30% in
the 1990s; Researchers link the improvement to new medicines

Average Survival Time (in days) of Metastatic Breast Cancer Patients

According to
667
researchers, 700
"This improvement in 564
survival appeared to 600
be caused by the
Survival Time (Days)

500 438 450

availability and use of
newer, more effective 400
systemic agents for
the treatment of 300
metastatic breast
200
cancer."
100

0
1991 to 1992 1994 to 1995 1997 to 1998 1999 to 2001
Time when MBC patients were diagnosed and treated*

Source: SK Chia et. al, “The Impact of new Chemotherapeutic and Hormone Agents on Survival in a Population-Based Cohort of women
with Metastatic Breast Cancer,” Cancer 2007;110 and “New drugs improve breast cancer survival,” Reuters, July 24, 2007.
 Turning the tide on cancer

“From Killer to Chronic Disease: Drugs Redefine Cancer for Many”

—Washington Post headline, 2003

• Cancer deaths in 2003 down

for the first time in 70 years “Many examples exist of
“I think we major therapeutic gains
really are in the • First cancer vaccines, new achieved by the industry in
midst of a targeted treatments, recent years…anecdotal and
revolution in personalized approaches statistical evidence suggests
the treatment that the rapid increases that
of cancer.” • Over 600 cancer medicines
in the pipeline have been observed in drug-
related R&D spending have
– Dr. Len
• Reducing cancer death rates been accompanied by major
Lichtenfeld,
American by 10% would be worth therapeutic gains in
Cancer Society roughly $4.4 trillion in available drug treatments.
economic value. -Congressional Budget
Office

Sources: Hoyert DL, Heron M, Murphy SL, Kung HC. Deaths: Final data for 2003. Health E-Stats. Released January 19, 2006. J.L. Lichtenfeld,
PhRMA “Future of Innovation briefing, Washington DC, 24 April 2006. K.M. Murphy and R.H. Topel, “Measuring the Gains from Medical Research,”
2003. PhRMA, Medicines in Development for Cancer, 2006. Congressional Budget Office, “Research and Development in the Pharmaceutical
Industry,” October 2006.
 Innovation is yielding results –
Rheumatoid Arthritis

A recent study on adherence to rheumatoid arthritis medications found a 26%

reduction in lost productivity costs when short term disability costs were included

Baseline 17.2

Reduced short term

14.0
disability incidence
19% reduction in lost
productivity costs

Reduced short term

disability incidence plus 12.8
declining duration
26% reduction in lost
productivity costs

0 2 4 6 8 10 12 14 16 18 20
Dollars (millions)
Source: Integrated Benefits Institute, A Broader Reach for Pharmacy Plan Design, May 2007.
 Higher co-pays for patients reduce
RA medication adherence

Among RA patients, as co-pays decreased, adherence increased, lowering total costs

Full costs for rheumatoid arthritis

Short-term disability, 4%

Workers' compensation, Long-term disability, 4%

4%

Pharmacy, 15%

Disability costs of lost

productivity from higher
co-pays are twice as large
as pharmacy
Group expenditures from
health, increased medication use
42%

Lost
productivity,
32%

Source: Integrated Benefits Institute, A Broader Reach for Pharmacy Plan Design, May 2007.
 Innovation is yielding results –
Alzheimer’s Disease

Alzheimer’s medicine delays need for costly nursing home care

73 Months
80
Average Number of Months Until

70
Nursing Home Placement

60 43 Months
50

40

30
20

10

0
Less Drug Use (<5mg/Day, <8 Weeks More Drug Use (>5mg/Day, >36 Weeks
Treatment) Treatment)

Source: G. Provenzano, et al., “Delays in Nursing Home Placement for Patients with Alzheimer’s Disease Associated with
Treatment with Donepezil May Have Health Care Cost-saving Implications,” Value in Health, 4 (2001): 2,158.
 Innovation is yielding results –
Importance of post-approval R&D

Maintaining strong patent protection along with robust data exclusivity is critical to
ensuring continued R&D investment vital to new advances

“[M]edicine today is actually

New uses for biologics:
in a new golden era of
•Expanding approved uses
innovation. In this new
•Treating different conditions
era, the most important
•Demonstrating improved results when used in
advances in treatment
combination with another drug
often come from products
which have been on the
market for a while but
Recent examples: whose properties were
•Two biologics first approved to treat not completely
rheumatoid arthritis have also been understood until
approved for psoriasis and Crohn’s disease intensive research after
•A biologic initially approved to treat the drug was
colorectal cancer has also been approved introduced.”
for certain lung cancers and is undergoing
FDA review to treat breast and kidney
--Jack Calfee, American
cancer
Enterprise Institute

Source: J. Calfee. “The Golden Age of Innovation,” The American. March/April 2007.
 Medicines account for small portion of overall
health care cost growth

Prescription medicines accounted for about 10% of total health spending in 2005,
the same proportion as in 1960

$2,000
Research and Construction*
$1,800
Personal Medical Equipment and
$1,600 Non-Prescription Drugs

$1,400 Nursing Home and Home Health

Care
$1,200
Net Cost of Private Health
$1,000 Insurance, Administrative Costs,
and Public Health Programs*
$800 Hospital Care

$600
Prescription Drugs
$400
Doctors, Dentists, and Other
$200 Professional Services

$0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: National Health Expenditure Accounts, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

 Changes in Disease Prevalence and Population
Characteristics are a Key Driver of Increased
Health Care Costs

For four costly chronic conditions, up to 79% of the growth in spending has been due to
an increase in the number of cases over a 13 year period

Percent Change in Health Spending Due to Rise in Treated

Discussion of the
Prevalence and Increased Population, 1987-2000
magnitude of
health care 100%
spending growth
90%
usually does 79% 79%
76%
not take into 80%
account changes in 70% 63%
Percent Increase

disease
prevalence and 60%
demographic 50%
factors behind 40%
spending growth
30%
--Kenneth Thorpe, 20%
Emory University
10%
0%
Mental Disorders Cerebrovascular Pulmonary Diabetes
Disease Conditions

Source: K. Thorpe et. al., “Which Medical Conditions Account for the Rise in Health Care Spending,” Health Affairs, 25 August 2004.
 Medicines are one part of the solution

Slowing the rise in the nation’s health costs will require controlling
the epidemic of chronic disease.

The City of Asheville, NC provided free screenings and medicines to

patients with diabetes and other chronic conditions. Employees learned to
better manage their conditions, resulting in significant health improvements
and an average net decrease of 34% in health care costs -- $2000 per
patient per year -- and a 50 percent reduction in absenteeism

Return on investment
Mortality and heart failure fell by for a 20% increase in
nearly half among patients hospitalized adherence to medicines:
for heart attacks between 1999 and
2006 as the result of an increased use of $1 spent on medicines=
prescription drugs $4 to $7 in savings

Sources: K.A. Fox, et al., “Decline in Rates of Death and Heart Failure in Acute Coronary Syndromes, 1999-2006,” JAMA 297, no.
17: 1892-1900. M.C. Sokol, et al., “Impact of Medication Adherence on Hospitalization Risk and Healthcare Cost,” Medical Care,
June 2005. C.W. Cranor et al., “The Asheville Project: Long-Term Clinical and Economic Outcomes of a Community
Pharmacy Diabetes Care Program,” Journal of the American Pharmaceutical Association, March/April 2003.
 Continued robust innovation is essential
to better, more affordable care as
boomers retire

Delaying the onset of Alzheimer’s Disease by 5 years could save $100

billion per year by 2020
$1,167
$1,200

Projection with Treatment Investment

$980
$1,000
Current Projection (without Treatment Investment)
Projected Spending (in Billions)

$778
$800
$653
$593
$553
$600
$443
$416

$400 $332
$314
$261
$216 $235
$184 $184 $183
$155 $156
$200 $112 $112

$0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Source: The Lewin Group for Alzheimer’s Association, “Saving Lives, Saving Money: Dividends for Americans Investing in
Alzheimer’s Research,” 2004.
49
 Continued robust innovation is essential to
better, more affordable care as boomers retire

Parkinson’s costs society $27 billion per year in medical bills and lost wages;
Worldwide, projected cases of Parkinson’s will more than double by 2030

Projected Increase in Prevalence

There are 27 medicines
of Parkinson's Disease
in development for
Parkinson’s Disease.
10
8.7
For example:
8 •A drug that may prolong
effective treatment
window and treat
(in millions)
Population

6
comorbid conditions of
4.1 depression and anxiety.
4 •A gene therapy which
may help prevent neuron
degeneration in
2
Parkinson’s patients.

0
2005 2030

Year
Data source: E.R. Dorsey et al., “Projected Number of People with Parkinson’s Disease in the Most Populous Nations, 2005
Through 2030,” Neurology. 2007; 68: 384-386
 Fostering innovation through
collaboration and strong incentives

How do we enable the US to uphold its position as the leader

in biopharmaceutical development?

• Strong patent incentives to encourage medical advances through new

investments in R&D
• Data exclusivity to support investments essential to the development of
new biologics
• Public/private partnerships to collectively combat the burden of disease
• Evidence-based medicine that supports quality improvement and
physician/patient decision-making, rather than line-item cost-cutting
and blunt access controls

For more information on new medicines visit

www.innovation.org