…Making Medicines More Affordable… Robert A. Armitage, Senior Vice President and General Counsel May 7, 2010 Creating the Best Medicines for Patients… …But Not Limiting Research to Medicines With the Best Patents Additional Thoughts

May 7, 2010

Total cost of Rx drugs is ca. $250 billion in R&D Expenditures are ca. 16% of sales.

Industry produces ca. 25 new medicines each year. Industry R&D Expenditures are ca. $60 billion each year. What would it require in terms of an IP protection period for the industry to sustain itself if it expends $60 billion per year to produce ca. 25 new medicines each year? Is 10 years of data package protection really enough to sustain a research-based biopharma industry?

Mathematics of Biopharma Industry IP Protection Period: 1.Currently, about $60 billion in industry-wide R&D produces < 25 new medicines approved each year industry-wide. 2.To spend 16% of industry-wide revenues on R&D requires $375 billion in annual sales for the entire research-based industry to fund $60 billion in R&D. 3.In any given year, 375 IP-protected medicines would be needed to realize $375 billion in annual sales, if each IP-protected medicine average $1 billion in sales per year throughout its entire IP-protection period. 4.For 375 medicines to be IP-protected at any one time, with 25 new medicines being approved each year, would require an IP-protection period of 15 years for every new medicine (375 meds / 25 meds/year = 15 years). 5.Reality: Most new medicines are not “blockbusters” or “super-blockbusters” that can average $1 billion in sales over their entire IP-protection period. 6.Reality: If the IP-protection period is less than 15 years, ca. 10 years, meaning the average annual sales will be less (ca. $ 750 million), then 25 new medicines approved each year produces only 250 IP-protected medicines and industry-wide sales of less than $200 million, enough to fund only $30 billion in R&D, which would produce about half as many new medicines each year.