Get the facts on medicines costs and spending.

1. Prescription Medicines:
Costs in Context
2018

2. 2
Then Now
We are in a new era of medicine where breakthrough science
is transforming care with innovative treatment approaches...
Medicines made of chemical
compounds
Medicines treat broad diseases
Radiation and chemotherapy to
treat cancer
Medicines made from living cells
Medicines targeted to specific
patient based on genetic makeup
Immunotherapy that harnesses
body’s own immune system to
fight disease
CAR T-cell therapy
CRISPR
Prescription Medicines: Costs in Context www.phrma.org/cost

3. 3
Treating people with one or more chronic condition consumes
90 cents of every dollar spent on health care.
…and enabling us to more effectively treat chronic disease,
the biggest cost driver.
Prescription Medicines: Costs in Context www.phrma.org/cost
Prevalence and Spending by Number of Chronic Conditions (2014)
PERCENTAGE
Total
population
Total
expenditures
12%
41%16%
26%
31%
23%
10%
40%
Number of
chronic conditions
5+
3 – 4
1 – 2
0
Note: Total health care spending defined as the amount
spent on all outpatient and inpatient health care
services across all payers, including out of-pocket
payments.
Health Care Spending by Number of Chronic Conditions (2014)
AVERAGEANNUALSPENDINGPERPERSONINDOLLARS
Number of Chronic Conditions
Note: Total health care spending
is defined as the amount spent on
health care services across all
payers, including patient out-of-
pocket payments.
Other
Home health
Prescription
ED
Office and outpatient
Inpatient
Source: RAND Corporation

4. 4
In the midst of this incredible progress, medicine cost
growth is declining.
Prescription Medicines: Costs in Context www.phrma.org/cost
3.8%
1.5%
2016
2017
3.2%
1.9%
2016
2017
3.9%
0.6
2016
2017
Note: IQVIA data is reflective of retail and physician-administered medicine spending.

5. 5
In fact, after discounts and rebates, brand medicine prices
grew just 1.9% in 2017.
Source: IQVIA. Medicines use and spending in the U.S.: a review of 2017 and outlook to 2022. Published April 2018. Accessed April 2018.
*Includes protected brand medicines only (ie, brand medicines without generic versions available in the year indicated).
**Net price growth reflects impact of off-invoice rebates and discounts provided by manufacturers.
Estimated Net Price Growth**Invoice Price Growth
Prescription Medicines: Costs in Context www.phrma.org/cost

6. 6
Spending on retail and physician-administered medicines
continues to represent just 14% of spending…
8%
12%
14%
18%
13%
4%
31%
Admin Costs
Home Health & Nursing Home Care
Prescription Medicines
Physician & Clinical Services
Other**
Dental Services
Hospital Care
U.S. Health
Care
Spending,
Source: PhRMA analysis of CMS National Health Expenditures data, Altarum Institute study and Berkley Research Group study.
**Supply chain entities- stakeholders involved in bringing medicines from manufacturer to patient, including wholesalers, pharmacies, PBMs and healthcare provider locations.
Prescription Medicines: Costs in Context www.phrma.org/cost

7. 7
Dental Services
Other
Prescription Medicines
Government Administrative Costs
Physician and Clinical Services
Home Health and Nursing Home Care
Hospital Care12%
32%
34%
2%
3%
…and a small share of total Medicaid spending…
TOTAL
$545B
Note: Prescription drug data is net of rebates and includes both retail and non-retail drugs. Data used were predominantly derived from CMS 64 reports. Pre-rebate expenditures were tabulated using FY2015 CMS
State Drug Utilization data files and CMS brand/generic indicators for each NDC.
Source: CMS National Health Expenditure Data and Altarum Institute.
Prescription Medicines: Costs in Context www.phrma.org/cost
11%
7%

8. 8
…and is projected to grow in line with health care spending
through next decade.
Note: Total retail sales include brand medicines and generics.
Source: Centers for Medicare & Medicaid Services (CMS).
Prescription Medicines: Costs in Context www.phrma.org/cost
PercentAnnualGrowthRate
Health Care Retail Prescription Medicines

9. 9
At the same time, growth in other health care services will be
5 times total medicine spending growth through next decade.
Source: CMS National Health Expenditures Report, July 2016.
Source: PhRMA analysis of Altarum Institute, “A Ten Year Projection of the Prescription Drug Share of National Health Expenditures Including Non-Retail,” August 2015.
Other Health Care Services
(10-year cumulative
increase: $1,950 billion)
Total Prescription Drug Expenditures
(10-year cumulative increase:
$393 billion)
Prescription Medicines: Costs in Context www.phrma.org/cost

10. 10
Insurers and PBMs have a lot of leverage to hold down
medicine costs.
Negotiating power is increasingly concentrated among
fewer pharmacy benefit managers (PBMs).
Top 3
Market Share:
71%
22%
25%
24%
29%
OptumRx/Catamaran*
CVS Health (Caremark)
Express Scripts
All Other
Note: OptumRx and Catamaran merged in 2015. Their 2014 shares are shown combined.
Source: Drug Channels. Institute, 2018.
Prescription Medicines: Costs in Context www.phrma.org/cost
Insurers determine:
FORMULARY
if a medicine is covered
TIER PLACEMENT
patient cost sharing
ACCESSIBILITY
utilization management through
prior authorization or fail first
PROVIDER INCENTIVES
preferred treatment guidelines
and pathways

11. 11
In fact, more than 1/3 of the list price is rebated back to payers,
the government and other stakeholders in the supply chain.
Prescription Medicines: Costs in Context www.phrma.org/cost
Rebates, discounts and fees keep increasing
Brand companies retain just 63% of list price
spending on medicines
62.6%
18.5%
12%
6.9%
Brand Companies
Market Access Rebates and Discounts
Statutory Rebates and Fees
Supply Chain Entities
Source: Berkeley Research Group.
2013 2014 2015
$67.0B
$84.6B
$106.4B

12. 12
90% of all medicines dispensed in the United States
are generics.
Source: IMS Health.
Source: Generic Pharmaceutical Association, “Generic Drug Savings in the U.S. Report,” 2017.
$1.67
trillion
10-year savings
(2007-2016)
Prescription Medicines: Costs in Context www.phrma.org/cost
90%88%
72%
52%
33%
43%
19%
1984 1990 1996 2002 2008 2014 2017

13. 13
Generics cost a fraction of the price of the initial
brand medicine.
Note: Figures represent the average annual price for 30 pills of the most commonly dispensed form and strength. "Then” price represents the average price in the year prior to generic entry. “Now” price represents the average price in CY 2014.
Source: IMS analysis for PhRMA, May 2015.
$87
$85
$166
$87
$393
$13
$4
$5
$3
$8
85%
95%
97%
98%
97%
Prescription Medicines: Costs in Context www.phrma.org/cost
Medicine
DIOVAN VCT®
Hypertension (2010)
LIPITOR®
Cholesterol (2010)
PLAVIX®
Blood Thinner (2011)
SEROQUEL®
Schizophrenia (2010)
ZYPREXA®
Schizophrenia& (2010)
Bipolar Disorder
% Change
Brand Name THEN Generic NOW

14. 14
Competition from generics and biosimilars is expected to
reduce U.S. brand sales by $105 billion from 2018 to 2022.
Source: IQVIA. Medicines use and spending in the U.S.: a review of 2017 and outlook to 2022. Published April 2018. Accessed April 2018.
2013-2017: $74 Billion
Projected
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2018-2022: $105 Billion
-$17
-$12
-$15 -$14
-$16
-$26
-$19 -$18
-$17
-$26

15. 15
At the same time, innovator companies race to be the first to
market with a new medicine.
Time Between Approval of First and
Second Medicines in a Therapeutic
Class Has Declined Dramatically
Competing brands generally launch within years
10.2
years
1970’s
2.3
years
2005-2011
Source: Tufts Center for the Study of Drug Development (CSDD).
Prescription Medicines: Costs in Context www.phrma.org/cost

16. 16
For example, American patients have access to cancer
medicines about two years earlier.
The competitive U.S. market provides patients with access to
innovative medicines faster.
22
15
10
10
10
10
10
21
17
17
15
13
7
4
0 5 10 15 20 25 30 35 40 45 50
Taiwan
Australia
Spain
Italy
United Kingdom
France
Germany
Months
Delay in cancer medicine approval and reimbursement, 2010-2014
Delay Between U.S. Approval and Country-Specific Approval Delay Between Country Approval and Reimbursement
17
23
25
27
32
43
14
Source: PhRMA analysis of IMS Consulting Group “Patient Access to Innovative Oncology Medicines Across Developed Markets.” June 2016
Prescription Medicines: Costs in Context www.phrma.org/cost

17. 17
When cancer medicines are eventually approved in other
countries, they are often not reimbursed.
Note: In the UK and Scotland, only drugs reimbursed through NICE and the SMC were included among “reimbursed” drugs. Any additional medicines reimbursed through the Cancer Drug Fund (CDF) were not included in the
reimbursed category, due to the uncertainty of the continuation of this fund.
Source: IMS Institute for Healthcare Informatics, May 2016
Availability and reimbursement in 2015 of 49 cancer medicines
launched globally between 2010 and 2014.
41
37
32
27 25 23
19 19 19
11
8
12
17
22 24 26
30 30 30
38
United States Germany France Italy Canada Spain UK Scotland Sweden Australia
NumberofCancerMedicines
Available and Reimbursed Not Available or Not Reimbursed
Prescription Medicines: Costs in Context www.phrma.org/cost

18. 18
Spending on prescription medicines is a small percentage of
total health care spending around the world.
Note: Total health care spending includes hospital care, physician and clinical services, home health and nursing home care, government administration and net cost of private health insurance, dental, home health and other
professional services as well as durable medical equipment.
Source: OECD Health Statistics Database (accessed February 2016); Altarum Institute, 2015, A ten year projection of the prescription drug share of national health expenditures including non-retail.
Prescription Medicines as a Percentage of Total Health Care Spending
14% Canada
14% USA
11% UK
13% France
13% Germany
15% Italy
12% Spain
16% Japan
10% Australia
16% Korea
Prescription Medicines: Costs in Context www.phrma.org/cost

19. 19
Patients in the United States are facing rising out-of-pocket
costs and other barriers to care.
The use of four or more cost-
sharing tiers is becoming more
common on employer plans
Percent of plans with deductibles
on prescription drugs
23%
52%
2012 2017
Source: PWC, Health and Well-Being Touchstone Survey, various years
Prescription Medicines: Costs in Context www.phrma.org/cost
2004 2006 2008 2010 2012 2014 2015 2016 2017
3%
5%
7%
13%
14%
20%
23%
32%
44%

20. 20
Cost sharing for nearly 1 in 5 brand
prescriptions is based on list price
More than half of commercially insured
patients’ out-of-pocket spending for brand
medicines is based on the full list price
And too often negotiated savings do not make their way
to patients.
48%
39%
13%
52%
Copay
Deductible
Coinsurance
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: Amundsen Consulting Group study.

21. 21
Certain commercially insured patients could save $145 to more than $800 annually.
Sharing negotiated discounts with patients would increase
premiums about 1%.
NOTE: Plan cost includes medical and pharmacy claims
*HDHP = High-deductible health plan
Prescription Medicines: Costs in Context www.phrma.org/cost
Change in Plan Costs with Shared Rebates
PLAN TYPE
Traditional PPO Copay HDHP* Coinsurance HDHP
Net Plan Per Member Per Month Spend $433.91 $374.41 $372.89
Change in Plan Costs $ $0.82 $2.62 $3.84
Change in Plan Costs % 0.2% 0.7% 1.0%

22. 22
And
20%
of revenues are reinvested
into R&D
Note: The remaining 57% share of business R&D spending is conducted by other industries, including subsectors of the machinery sector, the electrical equipment sector, and the professional,
scientific, and technical services sector.
Source: Research!America report and PhRMA analysis of National Science Foundation data.
Phamaceuticals
& Medicines
Software Automobiles Aerospace Computer
Systems Design
Scientific R&D
Services
Industry invests 17% of all domestic research
and development funded by U.S. businesses
Invested about
$90 Billion
in R&D in 2016
Prescription Medicines: Costs in Context www.phrma.org/cost
Biopharmaceutical companies use today’s revenues to invest
in tomorrow’s treatments and cures.

23. 23
On average, it takes more than
10 years and $2.6B to research and develop a new medicine.
BETWEEN 1998 AND 2014
Unsuccessful
Attempts
Successful
Attempts
123
Alzheimer’s Disease
96
Melanoma
167
Lung Cancer
4
Alzheimer’s Disease
7
Melanoma
10
Lung Cancer
Just
12%
of drug candidates that enter
clinical testing are approved
for use by patients
Source: Tufts Center for the Study of Drug Development (CSDD).
Source: Pharmaceutical Research and Manufacturers of America (PhRMA), “Researching Alzheimer’s Medicines: Setbacks and Stepping Stones,” 2015.
Source: Pharmaceutical Research and Manufacturers of America (PhRMA), “Researching Cancer Medicines: Setbacks and Stepping Stones,” 2014.
Prescription Medicines: Costs in Context www.phrma.org/cost
We need a public policy environment that recognizes and
rewards risk taking.

24. 24
PROMOTE VALUE-DRIVEN HEALTH CARE
• Remove barriers restricting information companies can share with insurers.
• Reform regulations discouraging companies from offering discounts tied to outcomes.
• Modify Medicaid best price requirements.
MODERNIZE THE DRUG DISCOVERY AND DEVELOPMENT PROCESS
• Modernize the FDA to keep pace with scientific discovery and increase efficiency of generic approvals
• Promote and incentivize generic competition.
EMPOWER CONSUMERS AND LOWER OUT-OF-POCKET COSTS
• Provide patients with access to negotiated rebates.
• Address affordability challenges in the deductible.
• Make more information on health care out-of-pocket costs and quality available to patients.
IMPROVE TRADE AGREEMENTS
• Enforce existing trade agreements.
• Ensure new trade agreements recognize value of innovative medicines.
Prescription Medicines: Costs in Context www.phrma.org/cost
ADDRESS MARKET DISTORTIONS
• Address burdensome regulations that distort programs like the 340B Drug Pricing program.
Collectively, these market-based reforms can make medicines
more affordable and accessible.