Health Care Costs: Issues for Business Economic Summit & Outlook 2006 presented by CBIA and MetroHartford Alliance Thursday, January 5, 2006 The Connecticut.

Health Care Costs: Issues for Business

Economic Summit & Outlook 2006presented by CBIA and MetroHartford Alliance

Thursday, January 5, 2006The Connecticut Convention Center, Hartford, CT

Connecticut United for Research Excellence, Inc. (CURE)

Paul R. Pescatello, President & CEO

• CURE, as an educational organization and trade association, seeks to foster connectedness among pharma companies, biotech firms, colleges & universities, and firms that help core members do business, especially R&D.– Represent the biotechnology and pharmaceutical sectors

before the state legislature and policy makers– Build a critical mass of biotech and pharmaceutical

companies– Foster relationships between academic and industry

research that lead to technology transfer– Be the “go to” source for information about bioscience in

Connecticut

CURE Mission

The Mission, distilled

• Advocate

• Build critical mass

• Facilitate tech transfer

• Resource

• BioBus

Often, the same thing

At legislatures and administrative agencies and/or with news media/opinion makers

For the public, opinion makers, state economic development efforts

Workforce development and public education

Bioscience

• Jobs Multiplier highest of any industry sector (3.3)

–Build student interest in science–Relay new scientific techniques to educators

–Show how bioscience is relevant

–Show students bioscience careers other than M.D. and nursing programs

CURE

&

The

BioBus

Programs

From Compound to Cure

What is a biotech?

A company that wants to be a pharmaceutical company

Changing Face of Biotech

Pharmacogenomics – the study of how genes affect the way individuals respond to drugs.

Diagnostics, then Therapeutics

XDx’s AlloMap

From 10+ cardiac tissue biopsies to blood test

Genomic knowledge creates cheaper, less invasive diagnostic

HistoRx

Using biomarkers ascompanion diagnosticsfor new pharmaceuticals

What we’re really talking about - costs of illness

• Medications

• Hospitalizations

• Doctor visits

• Physical therapies

• Surgeries

• Lost productivity

Healthcare costs are rising . . .

– But share of healthcare dollar attributable to medicines has held steady at 10%

Health Care Dollar

0 20 40 60 80 100

Drugs

All OtherHealth CareExpenses

U.S. Annual Health Care Spending

$1.6 TRILLION$1.6 TRILLION

1.41.4

1.21.2

1.01.0

0.80.8

0.60.6

0.40.4

0.20.2

00‘‘6565 ‘‘7070 ‘‘7575 ‘‘8080 ‘‘8585 ‘‘9090 ‘‘9595 ‘‘0000 NOTE: 2001 AND 2002 DATA PROJECTEDNOTE: 2001 AND 2002 DATA PROJECTED

RESEARCH AND CONSTRUCTIONRESEARCH AND CONSTRUCTION PERSONAL MEDICAL EQUIPMENT PERSONAL MEDICAL EQUIPMENT AND NON-PRESCRIPTION DRUGSAND NON-PRESCRIPTION DRUGS

NURSING HOME AND HOME NURSING HOME AND HOME HEALTH CAREHEALTH CARE

PRESCRIPTION DRUGSPRESCRIPTION DRUGS

NET COST OF PRIVATE HEALTH NET COST OF PRIVATE HEALTH INSURANCE, ADMINISTRATIVE COSTS, INSURANCE, ADMINISTRATIVE COSTS, AND PUBLIC HEALTH PROGRAMSAND PUBLIC HEALTH PROGRAMS

HOSPITAL CAREHOSPITAL CARE

DOCTORS, DENTISTS, AND OTHER DOCTORS, DENTISTS, AND OTHER PROFESSIONAL SERVICESPROFESSIONAL SERVICES

Source: Health And Human Services DepartmentSource: Health And Human Services Department

Health Care Dollar

Drugs

All Other HealthCare Expenses

Health Care Dollar

0102030405060708090

Drugs All Other Health CareExpenses

Health Care Dollar

Drugs

All Other HealthCare Expenses

Production Costs

PEN + INK ≠ TEXTBOOK

ACTIVE + INACTIVE INGREDIENTS ≠ MEDICINE

Secret Ingredient

KNOWLEDGE

Drug Discovery Basics

5 Number of compounds investigated that are tested in clinical trials

=

Number of compounds in clinical trials that are approved for patient use

10,000

1=

5

Cost of researching and developing a drug from idea to pharmacy:

$800,000,000 to $1,500,000,000$800,000,000 to $1,500,000,000

Birth of a Drug

Drug Development - A Risky and Expensive Proposition

Source: Tufts Center for the Study of Drug DevelopmentSource: Tufts Center for the Study of Drug Development

5,000–10,000Screened

5,000–10,000Screened

250Enter Preclinical

Testing

250Enter Preclinical

Testing

5Enter

Clinical Testing

5Enter

Clinical Testing

1Approved by

the FDA

1Approved by

the FDA

Compound Success Rates by Stage

Compound Success Rates by Stage

16

14

12

10

8

6

4

2

0

Phase II100–300 Patient Volunteers Used to Look for Efficacy and Side Effects

Phase II100–300 Patient Volunteers Used to Look for Efficacy and Side Effects

Phase III1,000–5,000 Patient Volunteers Used to

Monitor Adverse Reactions to Long-term Use

Phase III1,000–5,000 Patient Volunteers Used to

Monitor Adverse Reactions to Long-term Use FDA Review ApprovalFDA Review Approval

Additional Post-marketing

Testing

Additional Post-marketing

Testing

Phase I 20–80 Healthy

Volunteers Used to Determine Safety and

Dosage

Phase I 20–80 Healthy

Volunteers Used to Determine Safety and

Dosage

Preclinical TestingLaboratory and Animal Testing

Preclinical TestingLaboratory and Animal Testing

Discovery(2–10 Years)

Discovery(2–10 Years)

YearsYears

1 –2 1 –2 ProductsProducts

1 –2 1 –2 ProductsProducts

Attrition is High in theKnowledge BusinessAttrition is High in theKnowledge Business

DiscoveryDiscovery Exploratory DevelopmentExploratory Development

IdeaIdea DrugDrug11 - 15 Years11 - 15 Years-----TIME----------TIME-----

Full DevelopmentFull Development

Phase I Phase II Phase III

00 151555 1010

Preclinical Pharmacology

Preclinical Safety

Millions ofCompounds Screened

Clinical Pharmacology& Safety

Healthcare Economics:Prescription Drugs Save Money

• Stroke – 40,000 fewer strokes per year

• HIV/AIDS – Death rate cut by 70%

• High Cholesterol – 1/3 fewer hospitalizations

• Cancer – Survival rate up to 62.7% from 50% in 1971

Impact of Drugs on Spending and Mortality for HIV/AIDS

Source: Costs - Bozette et al., New England Journal of Medicine Vol. 344, No. 11, March 15, 2001; Mortality - Centers for Source: Costs - Bozette et al., New England Journal of Medicine Vol. 344, No. 11, March 15, 2001; Mortality - Centers for Disease Control; data on drug development from PhRMA and the NIH Office of Technology transfer; Pfizer.Disease Control; data on drug development from PhRMA and the NIH Office of Technology transfer; Pfizer.

HIV Mortality Declined Dramatically HIV Mortality Declined Dramatically after Introduction of First after Introduction of First

“Expensive” Antiretrovirals . . .“Expensive” Antiretrovirals . . .

0

3

6

9

12

15

18

82 86 90 94 98

Year

Dea

ths

per

100

,000

Po

pu

lati

on

First new Drugs First new Drugs Introduced, 1995Introduced, 1995

Highly Active Highly Active Antiretroviral Antiretroviral Therapy (HAART) Therapy (HAART) introduced, introduced, 1996-971996-97

Total: $1804Total: $1804

Total: $1521Total: $1521

Drug Drug Costs Costs IncreaseIncrease by 34%by 34%

Other Other Costs Costs DecreaseDecrease by 41%by 41%

. . . While Monthly Costs for AIDS . . . While Monthly Costs for AIDS Patients Decreased by 16% after Patients Decreased by 16% after

HAART IntroducedHAART Introduced

New Drugs Reduce Visits to Hospital and ER: Asthma Management Program Improves

Outcomes for Children with Asthma

Concept that Leads to Cures

Revenues from

successful medicines cover

the cost of much, much

“unsuccessful” research

Only 3 of 10 Marketed Drugs Produce Revenues That Match or Exceed Average R&D Costs

If biotechs and pharmaceutical companies

don’t do the R&D,

who will?

Not the NIH

2004 NIH Budget for administration,government research & grants (total): $27.9 billion

Biotech/pharmaceuticaltotal R&D spending: $49 billion

Biopharma does the clinical trials, translates basic science into practical medicines

Why risk investment in a company needing tens of millions of dollars and a decade or more to have a chance of marketing a product?

Commensurate reward

Reduce the reward

• Less research

• Less knowledge creation & discovery

• Fewer medicines

The answer to high drug costs?

Importation?No, only shorthand way for politicians to show empathy for high cost of health care

But side effect worse than cure:– Importation of price controls– Innovation stagnation

What are we really talking about?

An international relations/trade issue.– Motivating other developed economies to pay more for

the R&D that makes up the price of prescription drugs

– Figuring out a way to spread the cost of healthcare across the entire population

Hint #1: Greatest cost components of healthcare are the 1st and last six months of lifeHint #2: The annual tab for a daily cup of Starbucks is $1,003.75