Bio Pharmaceutical Innovation Improving Lives

Biopharmaceutical Innovation: Improving Lives Rick Smith SVP Policy, Research & Strategic Planning, PhRMA September 10, 2007

PhRMA – Who We Are

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We represent the nation’s leading pharmaceutical and biotechnology research companies

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Our mission is to effectively advocate for public policies that encourage discovery of important new medicines for patients

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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

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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

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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.

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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 •

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•

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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

Expenditures (Billions of Dollars)

$60

PhRMA Member Companies' R&D Expenditures Entire Pharma Industry

$50

$55.2 $51.8 $47.6 $39.9

$40

$34.5 $29.8

$30

$20

$43.0

$37.0

$31.0

$26.0

$15.2

$16.9

$19.0

$21.0 $22.7

$10

“The pharmaceutical industry is one of the most researchintensive 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

$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 41% of the top 50 innovative drugs were of American origin, in the late 1990s…[it had] climbed to 62%.

Number of Compounds in Development

3500 3000 2500 2000

“In 1990, the pharmaceutical industry spent 50% more on research in Europe than in the U.S. In 2001, the situation was reversed with 40% spent more in the U.S.

1500 1000 500 0 1997 1999 2001 2003 2005 2007 Year

US

Rest of World

EU

Japan

--Gunter Verheugen, VicePresident of the European Commission for Enterprise and Industry

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 667

700 564

600 Survival Time (Days)

According to researchers, "This improvement in survival appeared to be caused by the availability and use of newer, more effective systemic agents for the treatment of metastatic breast cancer."

500

438

450

1991 to 1992

1994 to 1995

400 300 200 100 0 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 “I think we really are in the midst of a revolution in the treatment of cancer.” – Dr. Len Lichtenfeld, American Cancer Society

• First cancer vaccines, new targeted treatments, personalized approaches • Over 600 cancer medicines in the pipeline • Reducing cancer death rates by 10% would be worth roughly $4.4 trillion in economic value.

“Many examples exist of major therapeutic gains achieved by the industry in recent years…anecdotal and statistical evidence suggests that the rapid increases that have been observed in drugrelated R&D spending have been accompanied by major therapeutic gains in available drug treatments. -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 disability incidence

14.0

19% reduction in lost productivity costs

Reduced short term disability incidence plus declining duration

12.8

26% reduction in lost productivity costs 0

2

4

6

8

10

12

Dollars (millions) Source: Integrated Benefits Institute, A Broader Reach for Pharmacy Plan Design, May 2007.

14

16

18

20

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, 4%

Long-term disability, 4% Pharmacy, 15%

Disability costs of lost productivity from higher co-pays are twice as large as pharmacy expenditures from increased medication use

Group health, 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

Average Number of Months Until Nursing Home Placement

73 Months 80 70 60

43 Months

50 40 30 20 10 0 Less Drug Use (<5mg/Day, <8 Weeks Treatment)

More Drug Use (>5mg/Day, >36 Weeks 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 New uses for biologics: •Expanding approved uses •Treating different conditions •Demonstrating improved results when used in combination with another drug

Recent examples: •Two biologics first approved to treat rheumatoid arthritis have also been approved for psoriasis and Crohn’s disease •A biologic initially approved to treat colorectal cancer has also been approved for certain lung cancers and is undergoing FDA review to treat breast and kidney cancer Source: J. Calfee. “The Golden Age of Innovation,” The American. March/April 2007.

“[M]edicine today is actually in a new golden era of innovation. In this new era, the most important advances in treatment often come from products which have been on the market for a while but whose properties were not completely understood until intensive research after the drug was introduced.” --Jack Calfee, American Enterprise Institute

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 $1,600 $1,400 $1,200 $1,000 $800 $600

Personal Medical Equipment and Non-Prescription Drugs Nursing Home and Home Health Care Net Cost of Private Health Insurance, Administrative Costs, and Public Health Programs* Hospital Care

Prescription Drugs

$400 $200

Doctors, Dentists, and Other 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

--Kenneth Thorpe, Emory University

Percent Change in Health Spending Due to Rise in Treated Prevalence and Increased Population, 1987-2000 100% 90%

79%

79%

76%

80%

Percent Increase

Discussion of the magnitude of health care spending growth usually does not take into account changes in disease prevalence and demographic factors behind spending growth

63%

70% 60% 50% 40% 30% 20% 10% 0% Mental Disorders Cerebrovascular Disease

Pulmonary Conditions

Diabetes

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

Mortality and heart failure fell by nearly half among patients hospitalized for heart attacks between 1999 and 2006 as the result of an increased use of prescription drugs

Return on investment for a 20% increase in adherence to medicines: $1 spent on medicines= $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 Projected Spending (in Billions)

$1,000

$980

Current Projection (without Treatment Investment) $778

$800

$653 $593

$553

$600 $443 $332

$400 $184 $184

$200 $112 $112

$261

$216 $155

$156

$416 $314

$235 $183

$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.

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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 of Parkinson's Disease 10

There are 27 medicines in development for Parkinson’s Disease. 8.7

For example: •A drug that may prolong effective treatment window and treat comorbid conditions of depression and anxiety. •A gene therapy which may help prevent neuron degeneration in Parkinson’s patients.

Population (in millions)

8 6 4.1 4 2 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?

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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

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Public/private partnerships to collectively combat the burden of disease

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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