Prescription Pharmaceuticals Will Lyle Feb 13, 2012 CBE 555

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

Per Capita Health Care Spending USOECD Median 1990$2,799$1, $3,925$1, $6,401$2, $8,402n/a *OECD: Organization for Economic Co-Operation and Development

Percent of GDP Spent on Health USOECD Median 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: 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: healthy volunteers to establish drug’s safety and profile (1 year) Phase 2: patient volunteers to assess the drug’s effectiveness (2 years) Phase 3: 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 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. process.htmlhttp:// process.html Fortune 500. CNNMoney. 5/ 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 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,

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