Introduction to the
Pharmaceutical Industry
Presented by Gillian Woollett, MA, D.Phil.,
Avalere Health LLC
Avalere Health LLC | The intersection of business strategy and public policy
Session Objectives
 Introduction and context
 Overview of the players and their roles – academia, industry, regulators,
consumers
 The Products - drugs, biologics, devices
 The make up of the industry
 Conclusions
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The US is a Leading Biopharmaceutical Market but Must be
Considered in a Global Context
Europe
0.50
Largely
have and
expect
access
Brazil
US
0.19
0.31
Russia
0.14
ICH plus others
(1st World)
India
Canada
1.14
0.03
China
Japan
0.13
1.13
Australia
0.02
World Population
Total 6.7
See
products
and want
greater
access
ROW (Largely 3rd World)
Limited health care infrastructure
BRIC plus
others
(2nd World)
Little knowledge and
even less access
ICH: International Conference on Harmonisation
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The Pharmaceutical Industry’s Market
Global Pharmaceutical Sales, by Region (in billions $)
$800
$700
$600
$500
2009
$400
773
664
$300
312
$200
837
2008
2007
324
305
$100
206
248 264
107
62 91
$0
North
America
Europe
Asia,
Africa,
Australia
59 77 95
Japan
32 47 48
Latin
America
Total
 Largest commercial health sector
 Global industry, consolidated players
 Highly regulated industry (FDA, Patent and Trademark Office)
Source: Standard & Poor’s. Industry Surveys Healthcare: Pharmaceutics. November 25, 2010.
IMS Health Inc.
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Progress in Emerging Markets Offsets Slow Growth in
Developed Regions
Pharmaceutical Spending Compound Annual
Growth Rate (CAGR) from 2006 to 2010, By Region
70
60.6
CAGR (%)
60
48.8
Global Pharmaceutical Sales
(BIL $) in 2010
US
310.6
40
EU*
147.4
30
Japan
96.5
20
China
41.1
Tier II**
48.8
Tier III***
60.6
50
10
41.1
4.5
4.1
2.6
0
US
EU*
Japan
Developed Regions
China
Tier II** Tier III***
Emerging Regions
*Germany, France, Italy, Spain, and UK
**Brazil, India, Russia
***Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, S. Africa, Thailand, Romania,
Egypt, Ukraine, Pakistan, and Vietnam
Source: Standard & Poor’s. Industry Surveys Healthcare: Pharmaceutics. December 1, 2011.
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Global versus Regional Considerations for the Development
of any Medicinal Product
GLOBAL
REGIONAL/NATIONAL
ACCESS
Patients are everywhere (albeit Dx
and healthcare infrastructure vary)
SCIENCE
Essentially global
Some variation in patients
Companies develop and
manufacture for the leading
markets, ideally global standards
(inconsistent requirements lead to
requirements for different products)
Regulations are regional with some
harmonization for drugs, and
innovator biologics (cost of getting
to market less if can use a single data
set)
IP varies, and getting a little better
harmonized, but barely (certain
global free-trade norms are emerging
but limited)
Healthcare systems vary (affects
reimbursements and ROI, primary &
secondary markets)
Patient access is determined by regulatory approval, market viability by
purchase/reimbursement system
AVAILABILITY = APPROVAL & REAL COMPETITION ON PRICE
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The Standard Model of Drug Development
Generics offer:
 High quality drugs for
established treatments
 Affordable costs and
thereby free up healthcare
funds for new innovative
drugs
Patents Expire
Innovative drugs offer:
Net Progress
Radical New
Therapies and
Iterative
Improvements
 Improved treatment
 Less side effects
 New therapeutic options
and thereby replace older
and/less effective
medications
Obsolescence
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The Terminology of Drug Development
Clinical Trials
Phase II
Phase III
FDA
Years
6.5
1.5
2
3.5
1.5
Test
Population
Laboratory
and animal
studies
20 to 100
healthy
volunteers
100 to 500
patient
volunteers
1,000 to 5,000
patient
volunteers
Evaluate
effectiveness,
look for side
effects
Confirm
effectiveness,
monitor
adverse
reactions from
long-term use
Purpose
Asses safety,
biological
activity and
formulations
Success
Rate
5,000
compounds
evaluated
Determine
safety and
dosage
5 enter trials
File NDA/BLA at FDA
Phase I
File IND at FDA
Discovery /
Preclinical
Testing
Review
process /
approval
Phase IV
Additional
postmarketing
testing
required by
FDA
1
approved
Source: PhRMA
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The R&D Process Takes Time and Resources
Source: Pharmaceutical Research and Manufacturers of America, Drug Discovery and Development:
Understanding the R&D Process. http://www.phrma.org/research-development-process
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Overview of the Players and their
Roles
The intersection of business
strategy and public policy
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Ultimate Driver is an Identified Patient Need
 Unmet medical need:
» Debilitating or fatal; temporary or lifelong
» Diagnosed routinely by physicians – may need specific associated diagnostics, and
specialist support
 Affected population of sufficient size to support the development of a commercial product
(average cost of development $1.4 billion per product)
 Viable payment model needs covered populations:
» Government programs such as Medicare/Medicaid
» Privately Insured patients, largely still through employers
» Uninsured patients often have more limited access, but some medicines have PAP
programs
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Source of Candidate Medicines – this step is highly
technology and research dependent
 The fundamental scientific research enterprise received significant Federal funding:
» Academia – universities and researchers in every state
» National labs, such as NIH, NAS, CDC, FDA
 Industry – pharma, biotech and related innovative industries such as computation,
modeling support ongoing research through ROI
 Disciplines are basic research, as well as epidemiology, statistics, clinical/regulatory
science, and manufacturing
All contribute to the global scientific literature and the basic understanding of disease, and
this generates the candidate drug target and drugs for further development as therapeutic
interventions/cures
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Creation of Candidate Medicines
 The ideas for a drug target/medicine must be taken, developed into a candidate that can
be tested for safety and efficacy in animals, then man, and converted into a product.
 This can be initiated in academia, developed in science parks and facilitated small
business environments, but ultimately manufacturing requires major biopharma industry
support (sponsorship and investment, or acquisition)
 All sorts of relationships occur between stakeholders:
» Licensing of patents, products for small or all indications between individuals,
academia, biotechs, pharma
» Deals limited to US and specific ex-US markets (with different licenses to different
sponsors), some with specific milestone payments
» Investments by angels, VCs, or outright purchase of the asset
» Patient groups funding specific research targeted at their disease
VC: Venture Capitals
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PhRMA Member Company and Public R&D Spending
PhRMA Member Company R&D and NIH Operating Budget: 1995–2011
$60
Expenditures (Billions of Dollars)
$50.7
$47.9 $47.4
$50
$49.5*
$45.8
$43.4
PhRMA Member
Companies’
R&D
Expenditures
$39.9
$40
$37.0
$34.5
$29.8
$30
$26.0
$21.0
$20
$31.0
$28.5 $28.5 $29.0 $29.3
$27.1 $27.9
$22.7
$19.0
$15.2
$30.6 $31.2 $30.9
Total NIH
Budget
$23.3
$16.9
$20.5
$17.8
$10
$12.7 $13.7
$11.3 $11.9
$15.6
$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
*Estimated for CY 2011.
Source: PhRMA, NIH Office of Budget10
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Biopharmaceuticals are a Source of Projected Growth in US
Manufacturing Jobs
Projected Change in Employment from 2006 to 2018*
Employment Losses
-58
Chemical
-58
Computer Equipment
Employment Gains
-54 Machinery
-31
Motor Vehicle
-20
Steel
-16
Food
C
-2: Aerospace
Wood Product: 9
Biopharmaceuticals: 18
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
Change in Manufacturing Jobs (in Thousands)
* Selected illustrative sectors. The government projects increases in manufacturing
employment in only one fifth of the sectors or subsectors it defines.
Source: PhRMA, adapted from Bureau of Labor
Statistics 3
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FDA’s Evolving Policy Role Will Affect Market Access for
Medical Technologies, Necessitating Strategic Refinement
FDA Regulatory Strategy
 Pre-clinical/clinical trial design
 Regulatory applications
 Evidence submission and evaluation
Market Access
Strategy
Value Proposition
Novel FDA Policy Initiatives
 CMS/FDA parallel review
 Investment in CER infrastructure
 Post-market data collection &
surveillance
 Evidence standards harmonization
 Regulation of communication
Reimbursement
Quality Measurement
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FDA’s Approval Process
 FDA governs market access and product promotion
» An FDA approval/license is necessary but not sufficient for product viability
» Indications can be added to currently marketed products after the initial approval –
expands potential market, but requires FDA review of additional data and negotiation
for any label changes
» Issues of off-label use, expanded access (formerly called compassionate use),
progressive approval will be discussed later. All can impact date of approval and time
patients can access medication
» Post approval, brand/innovator/originator products gain sales through marketing.
Generics, approved when patents/exclusivity has expired gain market share through
competition on price.
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US Regulatory Pathways
Statute
Pathway
New Drug
Application (NDA) 505(b)(1) and 505(b)(2)
Devices: Pre-Market Authorization
(PMA), 510ks
U.S. Food Drug & Cosmetic
Act
Abbreviated NDA
(505(j) or ANDA)
Biologic License
Application (BLA)
351(a)
U.S Public Health
Service Act

BIOSIMILAR 351(k)
(Can Be Interchangeable)
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Some Medicines Get Priority at FDA
New drugs may undergo an expedited review* process
 Drugs classified as a real advance over available treatments undergo a 6 month “priority
review” instead of the 10 month “standard review”
 Drugs that treat a range of serious diseases and fill an unmet need may request and
receive a “fast track” designation at any point during drug development
 Fast track drugs are eligible for accelerated approval or rolling review
 Accelerated approval uses findings that are likely to predict clinical benefit rather than
direct measurements & results
 Rolling review allows companies to submit completed NDA sections individually rather than
the entire application all at once, allowing earlier resolution to potential problems
*Accelerates review but does not guarantee approval
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The Products - Drugs, Biologics,
Devices
The intersection of business
strategy and public policy
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Global Market: Development of Medicines by the Geographic
Region
Number of Compounds in Development, by Geographic Region4, 1997–2011
3500
3000
Different countries also have different
health priorities – dependent on
demographics and disease prevalence
U.S.
3091
All Other
2465
2500
2000
EU
1449
1500
1000
Japan
556
500
0
1997
1999
2001
2003
2005
2007
2009
2011
Source: Adis R&D Insight Database5
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In the US the Greatest Proportion of Drugs and Biologics in
Development are Oncology-related
Biopharmaceuticals in Development by Therapeutic Category, 2009
932
Cancer Related
460
Rare Diseases
Arthritis and Related
Conditions
198
88
HIV/AIDS Related
383
Respiratory Disorders
Cardiovascular
Disorders
Mental and Behavioral
Disorders
245
250
200
Diabetes Melitus
Alzheimer's and Other
Dementias
Parkinson's and Related
Conditions
98
36
0
200
400
600
*Reflects number of compounds in clinical trials or under review by the FDA for approval through New Drug Application
(NDA) or Biologic License Application (BLA) pathways. Medicines with multiple indications may appear in more than one
category but are counted only once for total (3,091).
Source: PhRMA
800
1000
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While Companies Have Spent More on Research, This Has
Not Led to More Drug Approvals
Research and Development Spending, and New Drug Approvals (NDAs) and
New Biologic License Applications (BLAs) by the U.S. FDA, 1998-2008
60
$40,000
Number of Approved
NDA and BLAs*
$30,000
40
$25,000
30
$20,000
$15,000
20
$10,000
10
Domestic R&D Spending
(in millions)
$35,000
50
$5,000
$0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004*
2005
2006
2007
2008
2009
2010
0
Drug Approvals
Domestic R&D Spending
*Beginning in 2004, figures include BLAs.
Sources: PhRMA, Profile 2011, Pharmauetical Industry. http://www.phrma.org/sites/default/files/159/phrma_profile_2011_final.pdf
FDA, CDER Approval Times for Priority and Standard NMEs and New BLAs CY 1993 – 2008.
FDA, NMEs Approved by CDER.
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Biologics are Now a Major Component of the Originator
Pipeline, but Approvals Lag Behind Investments
Biologic Drugs in Development
(Cumulative)2
Biologic Drug Approvals Per Year
(NDA and BLA)1
1000
14
900
10
8
6
4
2
800
Number of Products
Number of Products
12
700
600
500
400
300
200
100
0
0
As drugs in development move through the pipeline, the expansion of the biologic
drug market is expected to dramatically increase the total costs of biologics
1. FDA. “Drug and Biologic Approval Reports.” http://www.fda.gov/Drugs/DevelopmentApprovalProcess/
HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/default.htm
2. PhARMA. “Biotechnology Research Promises to Bolster the Future of Medicine with More Than 900 Medicines and
Vaccines in Development.” 2011.
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Generic Drugs Took a While to Take Off After the Enactment of
Hatch Waxman in 1984, But Now Market Penetration is Rapid
But by 2008, generics accounted for 14/15 most commonly prescribed meds, and 13/15 of
those most commonly used by Medicare Part D beneficiaries (seniors pharmacy benefits)
Generic Share of Prescriptions Filled 1984-2009
80%
71%
75%
70%
60%
52%
50%
43%
40%
33%
30%
20%
19%
10%
0%
1984
1990
http://www.phrma.org/sites/default/files/159/phrma_chart_pack.pdf
Source: PhRMA
1996
2002
2008
2009
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Generic Small Molecule Drugs have Created Savings When
Patents Expire
 Generic medicines account for 69% of all prescriptions dispensed in the United
States, and only 16% of all dollars spent on prescriptions. (source: IMS Health)
 Brand sales of $228 billion compared to Generic sales of $58.5 billion (2007),
and have saved consumers and the American health care system $931 billion
over the last 10 years.
 In 2010, generics saved $158 billion — a savings of more than $3 billion every
week.
 10,072 of the 12,751 drugs listed in the FDA's Orange Book have generic
counterparts (source: FDA, MedAd News).
Similar hopes and expectations are being applied to biologics, which,
through the chance of history, did not have an explicit regulatory pathway in
the US until 23 March 2010
Source include http://www.gphaonline.org/about-gpha/about-generics/facts
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Will Biosimilars Be the New Generics in the US Market?
 Congress included Title VII, Biologics Price Competition and Innovation Act (BPCIA)* in
the Patient Protection and Affordable Care Act because of the expectations for savings, as
well as the hope for expanded access.
» Using the new 351(k) pathway, applications can be for biosimilars and also for
interchangeable biosimilars
 Legislation was enacted 23Mar2010, and the new biosimilars pathway was available the
day of enactment
 While FDA has held ~21 PreIND meetings (~35 meeting requests for 11 reference
products) there have as yet been no applications filed for biosimilars in the US
 Draft guidances were published mid-Feb12, another FDA Public Meeting 11May12,
transparent and on-going discussions; user fees negotiated and proposed (BsUFA) in
parallel
 Payors/ reimbursers are waiting…
* Source FDA: http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/UCM216146.pdf
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Medical Devices Are Classified into One of Three Classes
According to Level of Risk
 Class l devices are subject to the least regulatory control
» Examples include elastic bandages, examination gloves, hand-held surgical
instruments
 Class II devices are those for which general controls alone are insufficient to ensure their
safety and effectiveness
» Examples include powered wheelchairs, infusion pumps, surgical drapes
 Class III devices are life-sustaining, life-supporting, and implantable devices, or new
devices not substantially equivalent to legally marketed devices, that must receive
premarket approval to ensure safety and effectiveness
» Examples include heart valve replacements, implanted cerebellar stimulators, breast
implants
Intended use of a device is a significant factor in determining its classification
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Most Devices Are Regulated by the Center for Devices and
Radiological Health
Center for Biologics
Evaluation and
Research (CBER)
Center for Devices
and Radiological
Health (CDRH)
 Blood collection devices
510 (K)
 Premarket notification
 Substantially equivalent
to an existing,
predicate device
PMA
 Premarket
approval
application
Device regulation includes more specific requirements for individual classes of
products than drug regulations; as a result, it may appear more fragmented and
confusing
*Until 1976, Congress had never enacted specific legislation governing the regulation of medical devices. The 1976 Medical
Device Amendments (Pub.L.No. 94-295, 90 Stat. 539), vastly expanded FDA’s statutory authority over devices, creating a
comprehensive regulatory scheme. Medical devices available on the market before May 28, 1976, “preamendment devices”,
were permitted to remain on the market, pending FDA classification, without any FDA review. Prior to this, FDA’s authority to
regulate medical devices was limited to action against adulterated or misbranded devices.
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The Make Up of the Industry
The intersection of business
strategy and public policy
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US Public Biopharma Companies by Region, 2006
Region
Number of Public
Companies
San Francisco Bay Area
69
New England
60
San Diego
38
New Jersey
28
Mid-Atlantic
23
Southeast
19
New York State
17
Pacific Northwest
15
Pennsylvania Delaware
Valley
12
Los Angeles/Orange
County
11
Texas
11
North Carolina
9
Mid-West
8
Other
8
Colorado
6
Utah
2
Source: Ernst & Young LLP
Biotechnology companies are defined as those whose primary activity is to use biological processes to develop health care
products, and other companies whose primary activity is to supply health biotechnology companies with technology-based research
products. (Source: Biotechnology Industry Organization, Guide to Biotechnology 2008)
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US Public Biopharma Companies by Region, 2006
WA
ME
MT
ND
VT
NH
MN
OR
WI
ID
NY
SD
MI
WY
PA
IA
NE
San Francisco
Bay Area
NV
IL
WV
UT
CA
OH
IN
CO
KS
MO
VA
NC
San Diego
AZ
OK
NM
SC
AR
MS
TX
AK
RI
NJ
DE
MD
D.C.
KY
TN
Los Angeles /
Orange County
MA
CT
AL
GA
60-69
30-39
20-29
LA
FL
HI
Number of Public
Companies
10-19
0-9
No data or info
Source: Adapted from Ernst & Young LLP
Biotechnology companies are defined as those whose primary activity is to use biological processes to develop health
care products, and other companies whose primary activity is to supply health biotechnology companies with technologybased research products. (Source: Biotechnology Industry Organization, Guide to Biotechnology 2008)
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The Biopharmaceutical Sector is the Most R&D-intensive in
the US
 Biopharmaceutical companies invested more than ten times the amount of R&D per
employee than manufacturing industries overall.
R&D Expenditures per Employee, by Manufacturing Sub-sector and Industry, 2000–2007
Biopharmaceuticals*
$105,428
Communications equipment*
$62,995
$40,341
Semiconductors*
Computers and electronics
$37,980
Chemicals
$34,978
Navigational, measuring equipment*
$22,262
Aerospace products*
$21,162
Motor vehicles, trailers, parts*
$15,704
Transportation equipment
$15,693
Petroleum, coal
$13,319
All Manufacturing
$9,956
Electrical equipment, appliances
$6,411
Machinery
Paper, printing
$5,663
$2,238
* Asterisks indicate manufacturing subsectors.
Source: Adapted from N.D. Pham,
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Global Leaders in Biotechnology Research
 U.S. biotechnology firms account for 80% of the world’s research development in
biotechnology.
2008 Biotechnology Statistics*
USA
Europe
Asia/Pacific
Canada
Total
Annual R&D
$24B
$5B
$0.6B
$0.9B
$30B
Total Companies
1,450
1,600
760
400
4,210
Total Employees
140,000
65,000
15,000
6,000
226,000
Publicly Held
Corporations
336
150
160
67
693
* Biotechnology companies are defined as those whose primary activity is to use biological processes to develop
health care products, and other companies whose primary activity is to supply health biotechnology companies
with technology-based research products.
Source: Burrill and Company6
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Biotechnology: Who’s providing the money?
Biotechnology Financing
(in millions $)
Venture
Funding,
$6,230 , 25%
Other
Financings
of Public
Companies,
$13,419,
54%
Public
Offerings,
$5,125. ,
21%
Total = $24,773.8 Million
Source: Biotechnology Industry Organization, Guide to Biotechnology 2008
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Global Biopharmaceutical Intellectual Property
 The intellectual property related to more than half of new medicines resides in the U.S.
U.S. Biopharmaceutical Patents 1990–2002, by Location of Inventors
India (1.1%)
China (0.2%)
Other (2.8%)
Other OECD (6.0%)
Japan (10.7%)
U.S. (64.4%)
E.U.4 (24.8%)
Source: J.T. Macher and D.C. Mowrey5
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The Ripple Effect of High-Value Biopharmaceutical Jobs
 The biopharmaceutical sector supported 4 million jobs across the
economy in 2009, including about 3.3 million in other sectors.
Each direct
biopharmaceutical job
supports 5 additional jobs
in other sectors
Biopharma Jobs
Total Jobs Supported
More than 650,000 Jobs in the U.S.
Biopharmaceutical Sector
4 million total U.S. Jobs Supported by the
Biopharmaceutical Sector
Source: Battelle Technology Partnership Practice2
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