John J. Castellani Keynote Remarks at Rutgers Business School Annual Healthcare Symposium

Trends and Issues Facing the Bio-Pharmaceutical Industry

Keynote Remarks of John J. Castellani
President & CEO
Pharmaceutical Research and Manufactures of America

To:
Rutgers’ Business School Annual Healthcare Symposium
Trends and Issues Facing the Bio-Pharmaceutical Industry
Rutgers University, Newark, New Jersey
April 30, 2013

Nearly 140 years ago – not too far from here in Menlo Park – Thomas Edison invented the modern research laboratory.

Edison’s imagination, innovativeness, hard-work and persistence helped to usher in the modern age and create the world we share today.

That world was very different then.

Edison’s work was personal.  His laboratory and staff were initially small.  He required minimal investment and few resources.  Yet he could deliver – quickly translating good ideas and his profound mechanical insight into invention after invention in relatively rapid succession.

But today’s vast and complicated biopharmaceutical research eco-system does share one thing with Edison.  Everything this industry does to create innovative medicines rests on a large pyramid of both incremental steps forward and occasional set-backs.

Those set-backs, the ideas that fail to reach full potential, the trials that don’t deliver expected positive results, ALL lay the foundation for future success.

As Edison observed of his own trials and errors: “I have not failed, I’ve just found 10,000 ways that won’t work.”

It is the ability to find 10,000 ways that won’t work in the pursuit of the one or two that might that is at the core of our work and the challenge the biopharmaceutical research industry faces today.

In the world of modern biopharmaceutical research, only one of every 5,000 to 10,000 compounds studied as a potential new medicine ever makes it to final approval for patient use.

For example, only three of 101 potential medicines in late stages of development to treat Alzheimer’s disease between 1998 and 2011 were approved for patients – a one-to-34 ratio.

In spite of the odds, whether a small start-up laboratory driven by one innovative idea, or a large R&D operation like those run by PhRMA member companies, the biopharmaceutical research sector strives to find answers to the toughest health questions we face.

We do it to give patients and their families real hope for a healthier, better tomorrow.

We do it because PhRMA member companies exist to solve the riddle of disease.

And we do it out of a sincere belief in the power of innovation and great science to both enhance life and to fuel economic growth.

And, as an aside, New Jersey is a great example of such an ecosystem.

Today, for example, the sector employs nearly 52,000

New Jersey men and women who work directly in the life science sector, helping to support a total of nearly 200,000 direct and indirect jobs statewide.  Last year, the life science sector directly contributed more than $24 billion to the state’s economy, including spending more than $8 billion on vendors and other support businesses.

In other words, not only do New Jersey patients rely on the research done here, so too does the State’s economy.

In short, this industry’s success is critical to America’s health and its future.

From Alzheimer’s to cancer, from preventable, manageable – but costly – chronic disease to rare disorders, we need more medical progress that is only possible with a thriving innovative biopharmaceutical research sector.

To meet its economic challenges, America also needs the millions of good, high-paying and high-skilled jobs that we create and that help keep this country globally competitive.

This is why every one of the more than 650,000 women and men now working directly for a biopharmaceutical research company, and the millions more employed to support, it are proud of what our industry’s has achieved.

But, as successful as the biopharmaceutical research sector has been, there remains more to do.

Patients still wait in hope of new treatments and even cures.

And this industry exists to help find these needed solutions – the evidence is the more than 300 new medicines approved for patient use since 2000 and the over 5,000 new medicines now in late stage development that are being considered for approval.

But for the search for solutions to go on and for health and medical progress to continue, it is critical that policy makers, the media and all healthcare stakeholders understand that this industry is unlike any other sector or business in our economy.

  • It is focused on improving human health;
  • It is both risky and costly to research and develop new medicines;
  • It has long investment timelines, great potential for failure and promises uncertain returns;
  • The business model is rapidly changing – driven by science increasingly focused on personalized solutions; and
  • It operates in a strictly regulated market where everything we do is closely governed.

That is our industry’s reality. Yet, year after year, PhRMA member companies continue creating medicines that help save and improve lives.

But for this to continue, our industry requires long-term, interdependent and integrated policies that nurture innovation and not penalize it – these policies rest on what I’ve called the Four Pillars.

First, we need a business environment that inspires and rewards smart risk-taking and investment, while recognizing our industry’s unique business model and time-lines;

Second, a vibrant, collaborative and modern scientific eco-system that underpins great scientific and technological innovation;

Third, we need a modern, transparent regulatory system that evolves with the science to get safe medicines to patients quickly; and,

Fourth, we need an environment that properly values medicines.

This last point in particular – the value of medicines – is really exciting and I believe a potential game-changer.

And this moment comes about because the evidence that innovative medicines enhance treatment, reduce costs and improve lives is increasingly compelling.

Uncontrolled diabetes, for example, can lead to many complications including amputations, kidney failure, heart attack and stroke.  These complications are bad for patients and costly.

The average cost of amputation surgery is $40,000.

A single year of dialysis for kidney failure runs about $83,000.

But a year’s supply of medicines that can help control diabetes averages around $2,400.

More than the cost, however, I hope we can all agree that it is unquestionably better for patients to treat and control their diabetes, than to amputate or endure endless dialysis.

What is true for diabetes is also true in the fight against cancers, heart disease and stroke and many preventable and manageable chronic conditions.

And recently, we’ve begun to see just how the dynamic value of medicines can help control healthcare costs.

For example, a 2011 Harvard study published in JAMA found that the implementation of the Medicare Part D program was associated with a $1,200 average reduction in non-drug medical spending for Medicare beneficiaries with limited prior drug coverage in each of the first two years of the program.

When coupled with the fact that 11 million seniors gained comprehensive prescription drug coverage through Part D, these offsets translate to an overall savings of $13.4 billion on other Medicare services in 2007, the first full year of enrollment in the program.

Analysis and evidence like this is finally helping to change how the value and costs of medicines are calculated.

After years of work, the U.S. Congressional Budget Office (CBO) now recognizes this important positive dynamic. CBO updated how it calculates the costs of Medicare policies so that it now reflects the positive impact of prescription medicines on total medical costs.

This is big. 

For the first time, CBO is specifically accounting for the savings from medicines that reduce the need for other costly medical services, like hospitalizations, acute care and long-term care.

The new methodology incorporates a 0.2 percent decrease in spending on medical services for every one percent increase in the number of prescriptions.

And – while this may seem small –it represents a sea-change in government thinking.  CBO has come around, in a small but important way, to recognizing what all governments must face if we are to avoid pushing the cost of untreated, un-managed disease down the road.

The bottom-line is that no nation, no matter how wealthy, can provide innovative health care for its citizens unless it values wellness, prevention and disease management at least as much as it values acute care.

Similarly, no nation can afford to ignore the looming costs of chronic diseases like diabetes, hypertension and Alzheimer’s disease by dis-incentivizing investment in the innovative therapies that can help reduce those costs.

Innovative medicines represent real solutions.

Consider that over the course of this decade, innovative medicines are projected to comprise approximately eight percent of Medicare and Medicaid spending.

That doesn’t sound like a lot.  But that eight percent delivers better health, lower costs, more productivity, investment, jobs and hope.

That’s a pretty good deal.

To take full advantage of this value and potential savings we must put a premium on the fruits of innovation. The benefits to payers, to economies and, most importantly, to patients more than justify the premium.

Now, unfortunately, in the current fiscal environment, too many policymakers view medicines through a narrow lens that sees only costs.  They appear willing to sacrifice continued and future health progress on the altar of immediate political and fiscal needs.

It is a mind-set best described by the great American humorist, Ogden Nash who said:

“Progress might have been all right once, but it’s gone on too long...”

So as industry and patients and healthcare stakeholders explain the healthcare opportunities and challenges we face to policymakers, the media, the public, allies and critics alike, we must remember that when it comes to improving health and building our economy, progress isn’t an option, it is a necessity.

And the economic and scientific environment that fosters progress doesn’t exist in a vacuum.

The enormous medical progress made in recent decades was made possible because of scientific, regulatory, economic and investment conditions that helped make America the global leader in new, innovative R&D.

Conditions and interdependent policies that America’s global competitors increasingly understand and seek to copy in order to build their own innovative biopharmaceutical research sector.

Conditions that also inspired unprecedented R&D investment that created new opportunities in the battle against disease.

In fact, since 2000, PhRMA member companies have invested more than half-a-trillion dollars in innovative biopharmaceutical R&D – $48.5 billion in new investments in 2012 alone – and, I might add, in a difficult economic environment.

Certainly, the potential rewards of this investment are enormous and are as critical to the health and hopes of patients as it is to America’s long-term economic health.

But continued robust investment and the progress it funds is not certain.

There are warning signs.

Venture capital investment, for example, makes a critical contribution to growing the biotechnology and biopharmaceutical sectors.  This investment is declining. In fact, it dropped 24 percent between 2007 and 2012.

Today, America’s biopharmaceutical research sector remains the most innovative and vibrant anywhere in the world.

But it is not difficult for people in this industry to imagine scenarios where continued progress is stifled and where innovation languishes and this vibrant, sophisticated and inspired sector struggles to survive.

And keep in mind that if this industry falters here in America, it will leave behind more than closed manufacturing facilities and hundreds of thousands of unemployed highly-skilled, once highly-paid employees. It will also leave millions of patients here and around the globe without hope for innovative treatments.

That is why I want to propose a biopharmaceutical research version of the so-called “precautionary principle.”

As many of you know, environmentalists often use the “precautionary principle” to challenge industry.  It goes something like this:

 “If an action or policy has a suspected risk of causing harm to the public or to the environment in the absence of scientific consensus that the action or policy is harmful, the burden of proof is on those taking the act.”

A Bio-Pharmaceutical Precautionary Principle goes something like this:

Any action or policy that risks delaying or halting efforts to research and develop innovative healthcare solutions, prevents patients from accessing or benefiting from the latest, best medicines available, or otherwise undermines investment in new research and development is harmful and the burden of proof is on those taking the act.”

We need such a principle because, at the end of the day, whether a proposed policy makes things better for patients – meets their needs and fulfills their hopes for a healthier future and a longer life – is the only test that counts.

In other words, does a proposal help an HIV/AIDS patient get access to medicines needed to manage the disease?

Will it foster the R&D needed to tackle the looming Alzheimer’s disease crisis?

Will it help reduce the enormous cost of treating chronic diseases by providing innovative solutions and treatments?

Will it help Judy Orem and thousands of other cancer patients just like her?

Judy is a leukemia survivor from Oregon who today advocates for patient access to clinical trials.

In 1995, her doctor told her that the medicines she was on were no longer effective and that her chances of making it – even with a last-gasp bone marrow transplant – were no better than five percent.

She didn’t lose hope.  She wanted to find another way. She found – and was enrolled in – a Phase One clinical trial of a possible treatment. 

Now, not all clinical trial participants will do as well as Judy.  That is the difficult truth of clinical trials and finding solutions that work for patients.  And they, like Judy, are the true heroes of medical progress.

But fortunately Judy flourished.  Today she is alive, strong, her cancer is in remission and she’s an advocate for patients and for improving access to clinical trials. 

And today, 15 years later, that medicine, Gleevec, is responsible for helping Judy and tens of thousands of patients survive this horrible disease.

But Judy’s story isn’t unique.  And, today it is being duplicated in one way or another in new clinical trials designed to find solutions for disease as well as for millions of patients who rely on hundreds of great medicines approved for patient use after rigorous clinical trials.

So we must ask again: will a proposed policy hurt Judy Orem?

Will it scare away needed new R&D investment?

Will it slow ongoing R&D into innovative medicines?

Will it slow clinical trials?

Will it prevent patients like Judy from getting a needed medicine once it is approved?

In other words: will a proposed policy “solve” a short-term problem by undermining long-term and on-going progress?

To meet the healthcare and economic challenges we face today – both here in America and around the world – we must stop undermining the eco-system needed to foster great science.

Instead, we must cultivate that eco-system here and globally.  Our ability to find real solutions for patients in the real world lies in fostering competition and the rewarding of great minds, innovative ideas and advancing technology. 

The alternative is unacceptable.  It is disease and health cost burden status quo.  It portends the slow withering away of a phenomenally successful biopharmaceutical and life science R&D sector. 

It says to current and future patients that we no longer have the will, drive or ability to continue finding innovative solutions to battle disease and that what answers we have now are enough.

I don’t buy that.

I know that Judy Orem and hundreds of thousands of patients battling many different diseases don’t buy it either.

I urge you not to buy it.

In the end, we have choices to make about how well we will meet the healthcare challenges we face:  tough choices, costly choices, uncertain choices.

I am convinced, and I hope you are also, that the biopharmaceutical research industry can play an integral role in helping us meet the health and economic challenges ahead.

Growing and sustaining a viable, long-term innovation eco-system is the smart choice and the only choice that makes sense for patients and for our national economy.

I close by asking your continuing help to both carry this message forward and to achieve public policies needed to propel the healthcare and medical revolution forward.

Thank you.  

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