Prescription Pharmaceuticals

Will LyleFeb 13, 2012

CBE 555

Overview

• Economic Impact• Drug Breakdown• Prescription Logistics• Lipitor Example• Public distrust• Misconceptions

Per Capita Health Care SpendingUS OECD Median

1990 $2,799 $1,286

1997 $3,925 $1,728

2005 $6,401 $2,925

2010 $8,402 n/a

*OECD: Organization for Economic Co-Operation and Development

Percent of GDP Spent on HealthUS OECD Median

1990 12.6 7.2

1997 13.5 7.5

2005 15.3 9.1

2010 17.9 n/a

*US percentage was 16.0 in 2007, but has increase quickly the past few years due to the recession

Figure from 2000

Pharmaceutical Revelence

• 10-15% of health care costs in US • 17-19% avg in other OECD

countries

• 15.8% percent profit margins– Third highest industry behind

telecommunications & crude-oil production/mining

• US Pharma companies account for 36% of all R&D internationally

Battelle Memorial Institute

• Study of healthcare costs of five major issue– AIDS, Heart disease, Cancer, Alzheimer’s, Arthritis

• Drugs to reduce spending $750 billion over next 25 years

• Schizophrenia example– $4,500/yr for medication– Alternative: $70,000 in hospitalization costs

Drug Categories

• Chemical Pharmaceuticals– Originally found in nature– Reproduced in laboratories to obtain active

ingredients with high purities – Examples:• Aspirin – Willow Bark• Mevacor – Red Yeast Rice Powder• Vincristine – Madigascar Periwinkle• Ephedra – Ma Huang

Drug Categories (cont.)

• Fungal Fermentation– Antibiotics & Steroids– Examples: Penicillin, Tetracycline, Erythromycin,

Cortisone• Biologic Drugs– Manipulated biologic cells used to create

pharmaceuticals• CHO (Chinese Hamsters Ovary) cells, yeast, ecoli

• Categories I & II: 100-1000 g/gmol• Category III: ~100,000 g/gmol

Prescription Drugs

• Standard patent issued for 20 year period• Issued long before drug hits the market– 12 year avg to get to market

• Effective patent range: 7-15 years

Clinical Trial Timeline

• Phase 1: 20-80 healthy volunteers to establish drug’s safety and profile (1 year)

• Phase 2: 100-300 patient volunteers to assess the drug’s effectiveness (2 years)

• Phase 3: 1000-3000 patients in clinics and hospitals (3 years)

• Company submits application to the FDA for approval (1-2.5 years)

Lipitor

• Pfizer’s Lipitor– Statin for lowering cholesterol

• Revenues of $13 billion in 2006– More than MLB or the US box office– Currently $7.8/yr– Revenues dropped after 2006 when Merck’s

Zocor went generic• 3 million Americans currently on it• Patent ends in 2012

– Out-of-pocket users will have prices cut in half

– Insured users will have co-pay drop from $30-$35 to $5-$7

Public Distrust of Industry

• Industry spends $855 million/yr on lobbyists– More than any industry

• Spending on Marketing vs R&D– 10-15% on R&D– 20-35% on Marketing

• Drug marketing in Canada: $2 billion/yr

• Drug marketing in US: $30 billion– Direct-to-consumer marketing in US

• Only US and New Zealand

Public Distrust (cont.)

• 81,000 pharmaceutical reps in US– vs 830,000 pharma prescribers (mainly physicians)

• Tactics used in 80s and 90s– Dine & Dash, Gas & Go, etc.

• Price differentials between US and other OECD nations

• Markup of production costs• Creation of Step Therapy among physicians

Marketing

• Canadian drug marketing 2/3 of the US per capita

• Canadian marketing only physicians• US drug marketing breakdown– 56% free samples– 25% detailing (1:1 education) of physicians– 12.5% direct to user advertisements– 4% hospital education– 2% journal advertisements

Marketing (cont.)

• Marketing down 10% from 2009 to 2010• Laws eliminating “dirty” marketing tactics to

doctors in the past 10-15 years– Gifts– Restaurant meals vs hospital education

Drug Development

• US pharma companies invest $12.6 billion a year in drug development

• Cost of developing and testing a new drug is estimated between $100 and $800 million

• 11% of drugs that begin clinical trials reach the market– 1 in 1000 compounds that enter testing make it to

human testing

Conclusion

• Flaws need to be improved• Industry and FDA need to adjust accordingly to

politics around heath care• Complicated economics that can’t be simply

blamed by “corporate greed”• Industry robustness

References• Dunn, Nina. New Developments in Pharma/FDA Faceoff. Spector & Associates. 1/25/2012• FDA Approval Process. Drug Information Online.http://www.drugs.com/fda-approval-

process.html• Fortune 500. CNNMoney. 5/23.2011• Harper, Matthew. Why There Will Never be Another Drug Like Lipitor. Forbes. 11/30/2011.• Kelley, Braden. Global Pharma Innovation at Abbott. Innovation Excellence. 11/25/2011.• Lankford, Kimberly. Brand-Name Lipitor at Generic Prices. Kiplinger. March 2012.• Marketsensus Research and Innovation. Overcoming Nasty Side-Effects Means the

Difference Between Life and Death for Competitive Drug Companies. 1/16/2012• Pharmaceutical Spending. OECD Observer.• Smith, Aaron. The War Against Cholesterol Gets Cheaper. CNN. 11/30/2011• Spirer, Janet. Pharma – New Challenge, New Sales Strategy, New Sales Trainer.

Businessweek. 1/27/2012• Spirer, Janet. It’s a New World for Pharma Sales Reps. Sales Training Connection. July, 20

2011.

Questions?