1. 1 HEALTH NEEDS AND INDUSTRIAL GOALS: What future for the research-based pharmaceutical industry in Europe? Brian AGER EFPIA AIFA Spring Conference Rome, 30 March 2007

2. Brian Ager – 30 March 2007 2 The facts Benchmarking competitiveness Report (Pammolli & Co, November 2000): ‘The observed concentration of research and innovation in the USA is worrying because Europe risks to be relegated into the fringe of the industry, surviving and even thriving through imitation, generics, marketing, but giving up a large share of the value added and becoming dependent on the USA for the development of new products.’ (The loss of competitiveness…) ‘linked to the “institutional shock” created by cost-containment policies in a context of fragmented institutions and rules’.

3. Brian Ager – 30 March 2007 3 THE CHALLENGE Pharmaceutical R&D expenditure 1990- 2006 (€ mio) Data 2006: estimate EFPIA & PhRMA Source: EFPIA member associations, PhRMA, JPMA Changes in research sites: data relate to 22 global companies – Source: IMI (EFPIA Research Directors Group & IFPMA) R&D expenditure – Annual growth rate (%)

4. Brian Ager – 30 March 2007 4 Why are we losing ground? Under-investment in research, education and training (brain drain) - Lack of ‘ critical mass ’ Europe is not functioning as a single market – Parallel trade – Significant market access delays and hurdles Europe perceives innovation as a cost – Government cost containment policies – Poor reward for innovation – Poor uptake of new medicines

5. Brian Ager – 30 March 2007 5 StartTarget The race for new therapeutic options R&D: an unpredictable lottery? Basic research leads to new scientific knowledgeBasic research leads to new scientific knowledge > 30 Pharma companies start R&D programmes> 30 Pharma companies start R&D programmes 3-5 substances reach market within 3-5 years3-5 substances reach market within 3-5 years Different obstacles in toxicology, kinetics, formulation, R&D frameworkDifferent obstacles in toxicology, kinetics, formulation, R&D framework Development: 12-15 yearsDevelopment: 12-15 years No certainty of successNo certainty of success Profile of products not yet knownProfile of products not yet known

6. Brian Ager – 30 March 2007 6 Pricing: an unpredictable lottery? In Europe, all governments control prices in different ways. For companies, this final critical stage remains unpredictable. They do not know how long it will take for a decision, what the final price will be and whether additional information studies will be required...This results in an unpredictable lottery for companies who have brought a product through a series of regulatory hurdles and still do not know what the final reimbursed price will be. Source: Priority Medicines for Europe and the World, WHO 2004

7. Brian Ager – 30 March 2007 7 Pharmaceutical innovation is about patients Can expect to live 30 years longer than 100 years ago Huge reductions in mortality (e.g. HIV/AIDS, many cancers, cardiovascular diseases) Significant progress in quality of life (e.g. asthma, diabetes) Huge challenges remain (e.g. Alzheimer, multiple sclerosis, orphan diseases)

8. Brian Ager – 30 March 2007 8 The nature of innovation is incremental Most medical innovation is incremental (cardiovasculars, asthma treatment, transplantation, antivirals, cancer drugs) Without respect for patents no future innovation Patent implies innovation, but what about added value? Within a (therapeutic) group – Adequate reward for incremental innovation – Significant reward for breakthrough innovation

9. Brian Ager – 30 March 2007 9 Medical innovation: ‘Health Gains’ Tackling any new disease and/or indication Better health outcomes (gains) as compared to existing treatments Fewer side effects and/or improved tolerability Fewer negative interactions with other medicines Possibility of better treating one or more different patient subpopulations

10. Brian Ager – 30 March 2007 10 Medical innovation: ‘Patients Convenience’ Better compliance and better health outcomes Can include any new presentation or delivery method of existing molecules (patches), opportunity for patients to treat themselves at home, presentations for children Something the end user could be willing to pay for given the chance Better adherence leads to cost reductions by avoiding waste arising from non-compliance

11. Brian Ager – 30 March 2007 11 Medical innovation: ‘Other Societal Gains’ Increase in spending on medicines may lead to reduction in overall treatment costs Faster recovery may lead to a reduction of non- health care spending Improved treatment may lead to productivity benefits Soft factors: the value of one’s parents being able to look after themselves for longer, or value of recognizing their children’s names longer

12. Brian Ager – 30 March 2007 12 What value does Europe place on innovation? A few examples: Mixing of patented and off-patent products under reference price systems (Jumbo groups) Health technology assessment is not used to identify value but to put up new hurdles The industry increasingly appears to be seen as a ‘lender of first resort’

13. Brian Ager – 30 March 2007 13 Europe needs to focus on value not cost Deliver fair and appropriate reward for innovation and therapeutic progress – Assessment of the value of innovative medicines must be done with the goal of better healthcare, not rationing or delay Secure early patient access to new therapies Allow for full competition for medicines that are neither purchased not reimbursed by the State Address current inefficiencies in the distribution and supply chain

14. Brian Ager – 30 March 2007 14 A pan- European comparison regarding patient access to cancer drugs, Karolinska Institutet & Stockholm School of Economics, September 2005

15. Brian Ager – 30 March 2007 15 In conclusion Pharmaceutical innovation brings value to patients and wealth to society Innovation does not come for free Need to keep the right balance between industrial policy and health policy – Pricing as an indicator of governments’ willingness to pay Governments have a role to play –Recognize and reward value to patients –Regulate less and better Europe needs a strong R&D pharmaceutical industry IN EUROPE

16. 16 Supporting slides

17. Brian Ager – 30 March 2007 17 Europe needs to support science and strengthen the science base Innovative Medicines initiative (7th EU Research Framework programme) – Objective: overcome bottlenecks identified with pre-competitive research – Improved relationships with academia, regulators, patients, clinicians, SMEs and policy makers Intellectual property protection (in Europe and worldwide)

18. Brian Ager – 30 March 2007 18 The R&D pharmaceutical industry in Europe 5 th largest industrial sector  3.5% of the total EU manufacturing value added 612,000 highly qualified jobs  100,000 of them in R&D € 21.7 billion invested in R&D  18% of all private R&D in Europe and a higher percentage than any other industrial sector Trade surplus of € 37 billion  Highest contribution among high-tech industries to Europe’s trade balance

19. Brian Ager – 30 March 2007 19 Oncology drugs: do their costs outweight their benefits? Source: Measuring market access, a health economics and public policy perspective, Bengt Jönsson, Stockholm Scool of Economics, IFPM workshop, 17 March 2006

20. Brian Ager – 30 March 2007 20 Unequal access: Access or rationing?