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Drug Importation and its Deleterious Effects on the U.S. Pharmaceutical R&D Industry

Drug Importation and its Deleterious Effects on the U.S. Pharmaceutical R&D Industry. Jeannie Chow 30 November 2004 Pharmaceutical Regulatory Affairs. Agenda. Background Will Drug Importation Work? FDA’s Rules & Regulations Financial/R&D Effect of Drug Importation

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Drug Importation and its Deleterious Effects on the U.S. Pharmaceutical R&D Industry

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  1. Drug Importation and its Deleterious Effects on the U.S. Pharmaceutical R&D Industry Jeannie Chow 30 November 2004 Pharmaceutical Regulatory Affairs

  2. Agenda • Background • Will Drug Importation Work? • FDA’s Rules & Regulations • Financial/R&D Effect of Drug Importation • Other Risks of Drug Importation • Conclusions • Recommendation/Approach • Contingency Plan

  3. Background • Motivation: The pursuit of cheaper foreign prices for prescription drugs. • Hypothesis: U.S drug spending would be lowered if drug importation were allowed. Source: IMS Health Data. Anderson, Gerard F., “Doughnut Holes and Price Controls”. Health Affairs. 21July2004.

  4. Will Drug Importation Work? • Financial Impact: Would drug importation decrease U.S prescription drug spending? NO • Drug importation of foreign-distributed prescription drugs would produce at most a modest reduction in prescription drug spending in the U.S.; it would be approximately a reduction of $40 billion over 10 years or about 1 percent. • Volume Impact: Would drug importation create sufficient supply volumes for the U.S demand? NO • Assuming all drugs currently parallel traded in Europe and Canada were made available in the U.S., supply would only be sufficient to meet 3-5% of existing U.S. demand. Congressional Budget Offfic, H.R. 2427: The Pharmaceutical Market Access Act of 2003, CBO Cost Estimate (November 2003) “The Future of Price Regulation in the U.S. Pharmaceutical Market,” The Cambridge Briefing. September 2004.

  5. FDA’s Rules & Regulations • 1938 – Food, Drug and Cosmetic Act • 1988 – Prescription Drug Marketing Act • States that no drug…which is manufactured in a State and exported may be imported into the United States unless the drug is imported by the person who manufactured the drug. • 2000 – Medicine Equity & Drug Safety Act (MEDS Act) • Required the Secretary of Health & Human Services to certify that the MEDS Act would pose no additional risk to the public’s health and safety, and would result in a significant reduction in the cost of prescription drugs to the American consumer (21 U.S.C. Section 384(l)). • FDA guidance “Coverage of Personal Importations” • Allows individuals to import otherwise illegal drugs under certain defined circumstances, and as a matter of enforcement discretion. The drug quantity must not represent more than a three-month supply. Source: www.fda.gov

  6. Source: IMS HEALTH Pharma Prognosis International, 2000-2004 The Pharmaceutical Market • Why is the U.S investment so much greater? Source: EFPIA member associations, PhRMA, JPMA. 2003 U.S figure is an estimate. 2003 Japan figure not available.

  7. U.S vs. EU Pharmaceutical R&D Source: SCRIP-EFPIA calculation (according to nationality of mother company). Source: EFPIA member associations.

  8. Financial Impact to U.S Pharm. Industry • R&D spendingwould fall by $14.8 billion. • Abandonment of an additional 262 drugs • Only nine new drugs would likely be approved in a year – a decrease of more than 70% from the current average of 31. • A loss of $14.8 billion in R&D corresponds to an approximate loss of $21.8 billion in net after tax profits! Source: Tuerck, D.G., Barrett, J., Giuffre, D., and Rzakhanov, Z. “The Impact of Drug Reimportation and Price Controls: The U.S and Massachusetts.” Institute for Policy Innovation. Policy Report 184. September 2004. Source: Reinhardt, U.E., “U.S Health Care Spending In An International Context”, Health Affairs 23(3): 10-25. May/June 2004

  9. Other Risks of Drug Importation Lack of FDA’s Ability to Assure Safety Patent Rights Jeopardized Significant FDA Administrative Resource Costs

  10. Conclusions • Drug importation would drastically decrease the investment in research & development. • $14.8 billion in R&D spending would be lost over 12 years. • This loss in R&D spending corresponds to an approximate loss of $21.8 billion in net after tax profits! • Only nine new drugs would likely be approved in a year – a decrease of more than 70% from the current average of 31. • Drug importation would pose a great health risk to U.S. consumers as the FDA lacks the ability to regulate any drug reimportation policy. • Drug importation would produce at most a modest reduction in prescription drug spending in the U.S. • It would be approximately a reduction of $40 billion over 10 years or about 1 percent.

  11. Drug Importation: Decreases R&D spending/No. of New Drugs Lacks Drug Safety Would not reduce U.S. prescription drug spending Direct to Consumer Advertising Recommendation/Approach to the Possibility of Drug Importation • Recommendation: Prevent the implementation of drug importation in the U.S. • Approach: Utilize cross-functional departments within the organization to promote public awareness. • Resources: 1 Marketing FTE; 0.25 Regulatory FTE; 0.25 Scientist FTE • Costs: Allocate ~ $20 - $40 million for DTC advertising on drug importation.

  12. Contingency Plan if Drug Importation Implemented • Stricter evaluation of a project at each phase of development. • Evaluate and reduce administrative costs. • Strategic use of outsourcing to complement in-house manufacturing and testing capabilities. • Launch new product first in markets without price controls or allows the highest price. Must take into consideration ethics and therapeutic use of product.

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