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?

World Popsasia/IndiaUSAfricaEuropeJapanLatin Amer-ica

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, 1998-2004• >$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 MarketPharma R&D Venture Capital

BuyoutPull Programs

R&D discovery Academic discovery Gov/Foundation identifies need

Animal studies SBIR from NIH Award announcement

Clinical phases 1-3 Small co. spin-off (Bayh-Dole Act)

Private/public partnerships

FDA approval Attract venture capital R&D

Manufacture pills Scale up Discovery

Market IPO (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 ActFor 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