Life Science Compliance Update

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October 11, 2010

The Value of Medicine

A recent report from Eli Lilly focused on “The Value of Medicine,” and how pharmaceutical companies are dedicated to the discovery and development of medicines that help people live longer, healthier lives. Despite their dedication, the complexity of the pharmaceutical industry creates many questions for the public to consider in a number of areas. To help address some of these questions, Eli Lilly focused its report on a number of issues including health care spending and value in medicine.


Prescription medicines help people avoid the disability and death caused by disease, and help lower overall treatment costs. In fact, medical advances, including prescription medicines, have lowered death rates for heart disease, stroke, cancer, and other deadly diseases. Specifically:

  • Since 1970, the death rate from heart disease has dropped nearly 60%
  • Deaths from stroke are down 70% since 1970
  • The death rate from cancer has dropped 16% since 1990
  • The death rate from HIV/AIDS dropped more than 75% from its highest point in 1995
  • The average life span of Americans increased from 69.7 years in 1960 to approximately 80 years in 2007.

If it were not for the declines in death rates from heart disease and stroke, we would lose 1 million more Americans every year. In addition, the 5-year survival rates for cancer have risen by 26% just since 1984. And while HIV/AIDS was the 8th leading cause of death in the US in 1996, today, it’s not even ranked in the top 15. There is also significant value in prescription samples because they allow patients to start immediate treatment and try out treatment options before paying for a prescription. Based on these values, health economists were able to show that for every $1 spent on:

  • Statin therapy for heart attack survivors produced as much as $9.44 in health gains.
  • Routine use of beta-blockers for acute heart attack sufferers produced as high as $38.44 in health gains
  • Intensive glycemic control in newly diagnosed type 2 diabetes patients produced $3.77 in health gains

The treatment of asthma, which affects about 23.3 million Americans, 7 million of which are children, has also derived significant value from medicines. Asthma causes about 444,000 hospitalizations, 1.7 million emergency room visits, and about 3,600 deaths a year. In total, asthma costs about $20.7 billion a year, including $15.6 billion in direct medical costs. Consequently, the use of newer inhaled corticosteroids for one year reduced the risk of hospitalization by 50%, the number of outpatient visits by 26%, and monthly health care costs by 24% per patient.

Cancer is also another tragic disease that tremendously affects Americans. About 1 in 2 men and 1 in 3 women will develop cancer during their lifetimes. About 11.4 million Americans alive in 2006 had a history of cancer. In 2010, the overall direct and indirect costs of cancer will reach an estimated $263.8 billion in the United States, and about 1.5 million new cancer cases will be diagnosed this year. As a result, cancer is expected to claim more than 1,500 lives a day in the United States in 2010.

Because of the treatments and medicine researched and developed by the pharmaceutical industry however, early detection and better treatments have increased overall 5-year cancer survival rates by 36% since the late 1970s. Moreover, life expectancy for people with cancer increased 3 years between 1980 and 2000, and 86% of that gain is attributed to better treatment, including medicines.


The pharmaceutical industry defines the value in medicine because companies research, develop, and produce the vast majority of new medicines discovered, not the government. In addition, companies invest significantly more money in research and development than the National Institutes of Health (NIH). For example, in 2009, the pharmaceutical and biotech industries invested about $65 billion in research and development. Meanwhile, the total operating budget of NIH is $31 million.

In addition, pharmaceutical companies invest more in research and development (R&D) than other industries, with 19% of domestic sales on R&D being spent in 2009. This kind of spending is significant because only 1 out of 5,000 to 10,000 chemical compounds makes it to the pharmacy, and only 2 out of 10 medicines that reach the marketplace ever make enough profit to cover average R&D costs. Therefore, the risk is substantially high for the industry to make such investments, yet they continue to dedicate significant amounts to these discoveries. Companies are also changing the R&D model to develop more targeted therapies instead of blockbusters, and researchers today are targeting narrow patient populations and designing tailored therapies that are more effective.

Part of the reason why companies take on this substantial risk is that pharmaceutical research and development represents a dynamic partnership between the public and private sectors, although their roles are distinct but complementary. This partnership began in 1984, when Congress carefully examined the pharmaceutical market and enacted the Hatch-Waxman Act to strike a balance between providing incentives for the development of new medicines and encouraging generic competition to reduce health care costs. Since its enactment, the amount of prescriptions filled with generic medicines has more than tripled. The brand-name industry’s investment in R&D in the US has grown from about $2 billion in 1980 to more than $65 billion in 2009 – and patients have benefited from the introduction of new medicines.

The reason that this relationship was established is because NIH funds largely only government and academic researchers to conduct basic research to advance the scientific knowledge and understanding of disease. This kind of research rarely ever produces an actual product. Rather, pharmaceutical companies also conduct basic research, and then translate that research into the discovery and development of new medicines. For example, most top-selling medicines are developed solely by industry: 9% developed in part with NIH-funded technologies; 91% developed solely by industry. In fact, one NIH study revealed that out of the 47 top-selling medicines in the US, 43 were developed without any NIH-funded technologies.

Nevertheless, the government’s role in advancing pharmaceutical research is still vitally important because most licensed inventions funded by NIH are valuable because they prove concepts, such as confirming that HIV is the cause of AIDS that can help guide the discovery of new medicines. By helping pharmaceutical companies identify new treatment approaches or drug targets, publicly funded research can help speed the delivery of new medicines to the patients who need them.


Health Care Spending

A critical part of this report is that it recognizes that prescription medicine costs are not driving increased spending for health services or insurance. Prescription medicines account for only 10 cents of every dollar spent on health care, and while many people consider spending on prescription drugs in the U.S. to be increasing or very expensive, money spent on drugs is considerably less than spending on hospital care or physician services.  In addition, chronic disease, which accounts for $3 out of every $4 spent on healthcare, is what threatens the U.S. health care system, not the cost of medicines.

Accordingly, it is important to recognize that as more innovative and effective medicines reach the marketplace, more people are relying on medicines to improve or protect their health, which increases the demand for prescription medicines. And as trust in and reliance on these important medicines rises, so does spending. Media reports however, often confuse the rise in “medicine spending” or “medicine costs” with increases in “medicine prices.” The reality is, spending growth results from increased use – greater volume, the mix of medicines used, and the introduction of new medicines – and price changes.

While prescription medicine spending has remained at or below 10% of total national health expenditures for more than 40 years, spending on hospital care was three times greater than prescription medicine spending, and spending on health care provider visits was twice as much as spending on medicines. Consequently, spending on hospital services is by far the largest and fastest-growing component of increased spending on health care, accounting for more than half of the total increase.

Interestingly, what is important to note about healthcare spending is for many patients, medicines can help reduce other health care costs – by eliminating the need for hospitalization or surgery, reducing trips to their health care provider or the emergency room, slowing or reversing the progression of disease, or preventing a disease from developing.

Whereas chronic diseases, particularly heart disease, cancer, and diabetes, exact a devastating human toll – 7 out of every 10 deaths and $3 of every $4 spent on health care. This total is likely to grow as the population ages. As a result, the report asserts that only by taking on chronic disease – through prevention, chronic disease management, and continued medical innovation – can we address the economic and human costs in a meaningful way.

With respect to direct-to-consumer (DTC) advertising, the report acknowledged that there are a wide variety of conditions or diseases where patients are still not receiving recommended care. Since the average American still spends far more on alcohol and tobacco products than on over-the-counter and prescription medicines combined, the report recognized the need to design pharmaceutical ads to educate consumers about products and the solutions they offer. DTC ads aim to educate consumers about diseases, about the symptoms that may help their health care provider identify the diseases, and about available therapies to treat these conditions.

Moreover, research indicates that DTC ads actually encourage dialogue between patients and health care providers, prompting many Americans to discuss their illnesses with health care providers for the first time or to do so earlier than they otherwise would have. DTC ads also help to educate the public about the benefits of new treatments, as well as the risks involved, and promote improved compliance with prescribed treatments. Health care providers agree.

 According to an FDA survey of physicians, prescription medicine advertisements can have a positive effect on the physician-patient relationship by increasing communication between the physician and the patient. The positive benefits seen from DTC advertising show its importance is well worth the 2% of pharmaceutical company sales, especially considering industry R&D expenditures are about 15 times that amount.


In addition, a study from the Bureau of Consumer Protection at the US Federal Trade Commission found that DTC advertising on demand do not support the conclusion that it has led to the increased use of inappropriate drugs or increased drug prices. Accordingly, the report noted that limiting prescription drug promotion might negatively affect patients and health care providers by restricting access to important information about diseases and proper medical treatment. Also, consumers may not as easily receive information about the benefits and risks of prescription medicines. A study found that 25% of consumers who visited their health care provider after viewing an ad for a prescription medicine received a diagnosis for a previously unidentified condition. More than 40% of those diagnoses were for conditions considered “high priority.”


From the various findings contained in this report, it is clear that patients in the US have the greatest access to the newest medical technology and prescription medicines in the world, especially considering more than half of new therapeutic substances released worldwide in 2009 launched first in the US. As a result, Americans should be proud of the progress the pharmaceutical industry has made, and support policies that enhance ways for more collaboration between industry, government, and academia to continue advancing our healthcare system and practice of medicine.

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