The Global Pharmaceutical Industry Timothy F Christian, MD, MPA

Characteristics of Big Pharma One of OECD largest industries In US: sales = $380 Billion R&D costs=$40 Billion Single drug to market=$1-4 Billion – The fixed cost in R&D and IP is high – The marginal cost is very low-opportunity to recapture investment Marketing costs generally outstrip R&D by 2:1 or 24.4% of budget vs 13.4%

Pharma is BIG

Where are drugs consumed?

FDA Review Process Patent Clock Starts

Phrma and Congress >$800 million spent on lobbying in US >3000 Pharma lobbyist on the Hill 75 former members of congress lobby for the drug industry Attempted influence in >1600 bills, >$90 million in political contributions, 69% of these are to Republican candidates, though Romney and Obama had equal amounts 2012

Medicare Part D Enacted in 2006 by George Bush Subsidizes Medicare recipients for drug costs Costs about $50 Billion/year (maybe more) By law, it prohibits Medicare from negotiating with Pharma on the costs of the drugs covered The congressman who wrote the bill left congress upon passage and became president of Phrma, many others joined the industry

Pricing a new drug Prescription drugs = 17% US healthcare dollars Reference pricing=the benchmark price a company charges for initial roll-out Since US Gov does not negotiate price, most Pharma pricing is established in the US Other governments negotiate a % of US price Differential pricing maxes profit as it allows countries to choose willingness to pay value

Reference Pricing of Drugs

The US subsidizes world innovation US R&D Subsidy

Drug Paths to Market Pharma R&DVenture Capital Buyout Pull Programs R&D discoveryAcademic discoveryGov/Foundation identifies need Animal studiesSBIR from NIHAward announcement Clinical phases 1-3Small co. spin-off (Bayh-Dole Act) Private/public partnerships FDA approvalAttract venture capitalR&D Manufacture pillsScale upDiscovery MarketIPO (amgen) or Pharma buy-out Scale to world need

The “me too” problem Drug companies tend to stick with what works Often develop me-too drugs for patent that are similar to an innovative drug Possible because FDA only requires a drug be better than placebo, not existing drugs Eg: multiple drugs that treat high-cholesterol This creates an Innovation problem as companies divert resources away from harder to treat problems that have a less certain pay-off

Orphan Drug Act For diseases affecting<200,000 pts Passed in 1983: – Exclusive marketing to producer for 7 years – Tax credit=50% of drug development cost – US Research grants to company $50 Billion industry Has stimulated over 1000 new drugs No price controls so can be very profitable Eg: Gattex for SBS: $300,000/yr for individual

Generic Drugs Must bring suit against patent Co. Can use clinical data from original FDA approval Only has to submit new bioequivalency data Hatch-Waxman Act – Suit=trigger of 30 mos protection before any action – Extends marketing exclusivity additional 3-5 years for original developer During these hold periods, Pharma often buys off the generic manufacturer not to copy the drug

Drug pricing in LDCs GATT agreement protected patents in LDCs HIV crisis threatened Pharma with compulsory licensing by country for retrovirals WTO Doha round LDCs won patent infringement for public health emergencies Pharma eventually responded with differential pricing for LDCs Still not clear if LDC generics can be exported

Competition reduces prices: Evidence from HIV/AIDS

Local production of drugs in LDCs Pro Security thru independence Draw to bring in expertise Creates Jobs Potential for export Con No comparative advantage Duplicative Requires infra-structure Regulation for corruption/counterfeits