PRESCRIPTION DRUGS: BACKGROUND AND BASICS
Medicare & Medicaid BriefingsNational Health Policy Forum
January 30, 2009
Jim HahnCongressional Research Service
PRESCRIPTION DRUGS FAQS• What is the price of drug Z?
• Are drug prices higher in the U.S.? Why?
• Are drug industry profits too low, appropriate, or excessive?
• How to keep prices down while preserving safety and innovation?
• It depends.
• Maybe — it’s complicated.
• Yes.
• No one knows for certain.
MARKET FOR PRESCRIPTION DRUGS, 1998-2007
0
200
400
600
800
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
89 105 121 138 158 174 189 200 217 227
298331 356
390427
497559
602643
712
Global ($ billions) U.S. ($billions)
U.S. PRESCRIPTION DRUG EXPENDITURES, 1980–2007
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Pres
crip
tion
Dru
g Ex
pend
iture
s pe
r Cap
ita
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Pres
crip
tion
Dru
g Ex
pend
iture
s as
% o
f Nat
iona
l Hea
lth E
xpen
ditu
res
$ Drugs per capita Drugs as % of NHE
PUBLIC AND PRIVATE PER CAPITA DRUG EXPENDITURES
198019821984198619881990199219941996
1998
2000
2002
2004
2006
Public
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
$450.00
$500.00
Year
LIFE CYCLE OF DRUGS
• Research & Development
• Filing/Granting of Patent
• Clinical testing and FDA approval
• Market introduction
• Competition
• End of product life/steady state
LIFE CYCLE OF DRUGS
Time
$
R&D/Lab Testing
RESEARCH AND DEVELOPMENT
• Drug development process typically takes 10+ years
• ~ 5-10,000 compounds to produce one approved drug
• Expensive to bring a drug to market (~ $500 - $800 million?)
INNOVATION AND PATENTS
• Economic rationale: Innovation might be reduced if new ideas/products are easily copied.
• Patents provide incentive to innovators to assume risk.
• Patents provide the inventor with the sole right to exploit the invention (monopoly) for a given number of years.
LIFE CYCLE OF DRUGS
Time
$Clinical Trials
FDA NEW DRUG TESTING PROCESS OVERVIEW
Phase Synopsis Time (approx)
Lab testing Pharmacology & mechanism of action;animal tests for safety ~3–4 years
CT: Phase I Small group (20-80) healthy volunteers to establish a drug's safety and dose range ~ 1 year
CT: Phase II Larger groups (100-300) of patient volunteers to establish safety & assess effectiveness parameters ~2 years
CT: Phase IIILarge controlled trials (1000-3000); establish
effectiveness, safety for all proposed indications & adverse reactions
~ 3 years
LIFE CYCLE OF DRUGS
Time
$Clinical Trials
LIFE CYCLE OF DRUGS
Time
$
Introduction of productMonopoly position
TOP BRAND DRUGS BY RETAIL SALES, 2007
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,0000 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,0000 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000
$6,165,531
$4,355,901
$3,390,766
$3,315,740
$3,082,712
$2,863,326
$2,518,409
$2,464,396
$2,304,364
$2,229,333
$2,136,899
$1,938,882
$1,837,388
$1,790,436
$1,781,562
$1,732,827
$1,717,429
$1,579,252
$1,433,000
$1,416,084
Lipitor
Nexium
Advair Diskus
Prevacid
Plavix
Singulair
Seroquel
Effexor XR
Lexapro
Actos
Protonix
Vytorin
Topamax
Risperdal
Abilify
Cymbalta
Lamictal
Zyprexa
Levaquin
Celebrex
TOP BRAND DRUGS, PRESCRIPTIONS 2007
0 15,000 30,000 45,000 60,000
Lipitor
Nexium
Advair Diskus
Prevacid
Plavix
Singulair
Seroquel
Effexor XR
Lexapro
Actos
Protonix
Vytorin
Topamax
Risperdal
Abilify
Cymbalta
Lamictal
ZyprexaLevaquin
Celebrex
LIFE CYCLE OF DRUGS
Time
$
Competition /Expiration of Patent
TOP GENERIC DRUGS BY RETAIL SALES, 2007
$0 $250,000 $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000 $1,750,000 $2,000,000
$1,736,101$1,302,635
$1,295,036
$1,253,324$1,000,754
$938,642
$927,435
$894,163
$864,380
$835,112
$832,601$728,916
$687,256$603,436
$570,726
$554,672
$538,282$524,247
$501,413$476,739
Hydrocodone/APAP
Azithromycin
Simvastatin
Oxycodone ER
Sertraline
Fentanyl Transdermal
Amlodipine BesylateFexofenadine
Amoxicillin/Pot ClavOmeprazoleGabapentin
Fluticasone NasalLisinopril
Oxycodone w/APAPMetoprolol Succinate
MetforminNovoLog
Amlodipine Besylate/Levothyroxine
Zolpidem Tartrate
TOP GENERIC DRUGS, PRESCRIPTIONS 2007
0 37500 75000 112500 150000
Hydrocodone/APAP
Azithromycin
Simvastatin
Oxycodone ER
Sertraline
Fentanyl Transdermal
Amlodipine Besylate
Fexofenadine
Amoxicillin/Pot Clav
Omeprazole
Gabapentin
Fluticasone Nasal
Lisinopril
Oxycodone w/APAP
Metoprolol Succinate
Metformin
NovoLog
Amlodipine Besylate
Levothyroxine
Zolpidem Tartrate
LIFE CYCLE OF DRUGS
Time
$
End of Product Life /Steady State
TOP PHARMACEUTICAL FIRMS BY GLOBAL SALES, 2006
Sales Based/
Rank Company $ (m) Headquartered in
1 Pfizer 45,083 US
2 GlaxoSmithKline 36,947 UK
3 sanofi-aventis 35,605 France
4 Novartis 28,868 Switzerland
5 Hoffman-La Roche 26,560 Switzerland
6 AstraZeneca 25,741 UK/Sweden
7 Johnson & Johnson 23,267 US
8 Merck & Co 22,636 US
9 Wyeth 15,683 US
10 Eli Lilly 14,816 US
Source: Wood Mackenzie's Productview™ March 2007
DRUGS VS. BIOLOGICS
• Small molecule with defined structure, physical and chemical characteristics
• Synthetic organic compounds
• Stable
• FDC Act
• Large, less well-defined molecule with complex tertiary structure
• Protein/carbohydrate based product from living entity
• Heat and shear sensitive
• PHS Act
LIPITOR & ERYTHROPOIETIN
MEDICARE AND MEDICAID BENEFICIARY MARKET SHARE
7451.9 51
2648.1 49
0%10%20%30%40%50%60%70%80%90%
100%
Recipien
ts
Prescri
ptions
Rx Spen
ding
Medicare & MedicaidOther
Source: NACDS Economics Department August 2003
CURRENT AND EMERGING POLICY ISSUES
• Medicare Part D lessons
• Non-interference
• Reimportation
• Follow-on biologics
• Drug safety and adverse event reporting
• Direct-to-consumer (DTC) advertising
• Industry: New Product Pipeline / Consolidation
LESSONS FROM MEDICARE PART D
• Incentives
• Tiered Formularies
• Generics
• Spending
• Variance in Prices
• Choices and changes
MMA IMPOSED RESTRICTION
• SSA section 1860D (i): “NONINTERFERENCE. -- In order to promote competition under this part and in carrying out this part, the Secretary --
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.”
DRUGS BY THERAPEUTIC CATEGORY ACROSS COUNTRIES, 2006
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000
US
Japan
Germany
France
UK
Italy
Canada
Spain
Brazil
Mexico
Aus/NZ
Argentina
Cou
ntry
US$ (millions)
CARDIOVASCULARCENTRAL NERVOUS SYS
ALIMENTARY/ MET.
RESPIRATORYANTI- INFECTIVES
MUSCULO-SKELETAL
GENITO- URINARYCYTOSTATICS
BLOOD AGENTS
DERMATOLOGICALS
SENSORY ORGANSDIAGNOSTIC AGENTS
SYSTEMIC HORMONES
MISCELLANEOUSHOSPITAL SOLUTIONS
PARASITOLOGY
Source: IMS Health - Retail Drug Monitor
+
= Wyzer?