Prescription Medicines Costs in Context April 2021

1. Prescription Medicines:
Costs in Context
2021

2. We are in a New Era of Medicine Where
Breakthrough Science is Transforming Patient Care
2
53 New Medicines Were Approved by the FDA in 2020
Prescription Medicines: Costs in Context www.phrma.org/cost
Cancer death rate posts biggest
one-year drop ever
Newly approved drug being
called ‘game changer’ for people
who suffer from hemophilia
Reasons for hope: the drugs,
tests and tactics that may
conquer coronavirus
Cancer Death Rate Game Changer Coronavirus Vaccine
Source: US FDA. Center for Drug Evaluation and Research (CDER) Advancing Health through Innovation. 2020 New Drug Approvals.
Note: Due to lack of data availability, novel approvals are not inclusive of medicines approved by the Center for Biologics Evaluation and Research (CBER) in 2020.

3. Though Growth in Medicine Prices and Spending Remains in Line With
Inflation, Many Patients Still Struggle to Afford their Medicines
3
Brand Medicine Prices Retail Medicine Spending
2019
1.7%
2019*
3.2%
Prescription Medicines: Costs in Context www.phrma.org/cost
*projected

4. 4
4
24%
32%
21%
23%
Negotiating power is increasingly concentrated among
fewer pharmacy benefit managers (PBMs).
Top 3
Market Share:
77%
OptumRx (UnitedHealthGroup)
CVS Health (Caremark)
Express Scripts
All Other
4
Insurers and PBMs Have a Lot of
Leverage to Hold Down Medicine Costs
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
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: Drug Channels Institute, March 2021.

5. 5
5
5
Spending on Retail and Physician-administered Medicines
Represents Just 14% of Health Care Spending
8%
12%
14%
17%
14%
4%
31%
Admin Costs
Home Health & Nursing Home Care
Prescription Medicines
Physician & Clinical Services
Other**
Dental Services
Hospital Care
U.S.
Health Care
Spending,
2018
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: PhRMA analysis of CMS National Health Expenditures, Altarum Institute, and Berkeley Research Group data. May not sum to 100% due to rounding.
7% Brand Manufacturers
2% Generic Manufacturers
5% Supply Chain Entities

6. 6
6
91% of All Medicines Dispensed in the United States are Generics
nearly
$2.2 trillion
10-year savings
(2010 - 2019)
Prescription Medicines: Costs in Context www.phrma.org/cost
19%
33%
43%
52%
72%
88% 90% 91%
1984 1990 1996 2002 2008 2014 2018 2020
Source: IMS Health. Drug Channels Institute, March 2021; Association for Accessible Medicines. “Generic Drug & Biosimilars Access & Savings Report,” 2020.

7. 7
7
7
Medicine Spending is Projected to Grow in Line with
Health Care Spending Through Next Decade
Prescription Medicines: Costs in Context www.phrma.org/cost
Total Health Spending Growth Rate Prescription Drug Spending Growth Rate
In 7 of the last 10 years, Retail Drug Spending Growth was below Total Health Spending Growth
Annual
Growth
Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2024 2025 2026 2027 2028
14%
12%
10%
8%
6%
4%
2%
0%
Projections show retail
drug spending growth
in line with overall
health spending
Source: CMS National Health Expenditures Report 2020
Note: Total retail sales include brand medicines and generics.

8. 8
8
8
Nearly Half of Spending on Brand Medicines Goes to Entities
Other Than the Manufacturers Who Developed Them
Rebates, discounts, fees and other price
concessions have more than doubled since 2012
2012 2020
$74B
$187B
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: Berkeley Research Group, 2020.
54%
46%
Brand Manufacturer Other Entity Received
Percent of Total Spending on Brand Medicines
Received by Manufacturers and Other Entities, 2018
Source: Drug Channels Institute, March 2021.

9. 9
9
9
Insurers are Increasingly Shifting Costs to Patients
Through the Use of Deductibles and Coinsurance
The use of four or more cost-sharing tiers is
becoming more common on employer plans
Percent of plans with deductibles
on prescription drugs
Prescription Medicines: Costs in Context www.phrma.org/cost
23%
52%
2012 2017
4%
7%
11%
14%
23% 23%
44% 45%
48%
2005 2007 2009 2011 2013 2015 2017 2019 2020
Source: PWC, KFF

10. Too Often, Negotiated Savings Do Not Make Their Way to Patients
at the Pharmacy Counter
10
Cost sharing for nearly 1 in 10 brand prescriptions is
based on list price
Half of commercially insured patients’ out-of-pocket spending for
brand medicines is based on the full list price
51.4%
14.3%
34.3%
49%
Copay
Deductible
Coinsurance
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: IQVIA. August 2020.

11. Total U.S. Spending
Hospital Care Retail Prescription Drugs
Patients Face High Out-of-pocket Costs at the Pharmacy Counter Even
Though Total Spending on Other Parts of the Health Care System is Far Higher
11
Hospital spending is much higher
than prescription drug spending.
Yet patients pay more out-of-pocket
for medicines than for hospital care.
$1,192B
$370B
Total Patient Out-of-Pocket Spending
Hospital Care Retail Prescription Drugs
$53.7B
$35.9B
$822B
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: Drug Channels Institute analysis of National Health Expenditure Accounts, Office of the Actuary in the Centers for Medicare & Medicaid Services, December 2020. Outpatient prescription drug figures exclude
inpatient prescription drug spending within hospitals and nearly all provider-administered outpatient drugs. Figures in billions.
11

12. 12
12
12
Hospitals Account for 1/3 of All U.S. Health Care Spending and
Contribute to Patient Out-of-pocket Costs by Marking Up Medicines
Prescription Medicines: Costs in Context www.phrma.org/cost
An analysis found that 320 hospitals
mark up some medicine prices at
least 1,000%
Nearly one in five hospitals marks
up medicine prices to 700% or
more of their acquisition cost
If a hospital purchased a medicine
for $150, a 700% markup could
result in patients being billed
$1,050 for that medicine
1,000%
Amount paid
by hospital
Amount billed
by hospital
$1,050
$150
Source: The Moran Company. Hospital Charges and Reimbursement for Medicines: Analysis of Cost-to Charge Ratios. September 2018.

13. Hospitals and Other Health Care Providers Use the 340B Drug Discount
Program to Retain an Increasing Share of Medicine Spending
13
The amount of brand medicine spending retained by
hospitals, pharmacies and providers grew 2x between 2013 and 2018.
$0B
$10B
$20B
$30B
$40B
$50B
$60B
2013 2018
Other Provider…
9X
$3.5B
$21.2B
$30.6B
$18.0B
Source: Berkeley Research Group.

14. 14
14
14
Medicine Spending in the United States is
In Line with Spending Around the World
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
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.

15. 87%
63%
59%
51% 50%
46%
39%
United States Germany United Kingdom Japan France Canada Australia
More Medicines are Available to U.S. Patients as Compared
with Other Countries that Set Prices Artificially Low
15
Number of New Medicines Available by Country, 2011-2019
Prescription Medicines: Costs in Context www.phrma.org/cost
The 5-year survival rate for all cancers is 42% higher for
men and 15% higher for women in the U.S. than in Europe.
Source: PhRMA analysis of IQVIAAnalytics Link and U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) and Japan's Pharmaceuticals and Medical Devices Agency (PMDA) data. June 2020. Note: New active substances approved by FDA, EMA and/or PMDA and first launched in
any country between January 1, 2011, and December 31, 2019. Many launched medicines are subject to additional government coverage restrictions. Updated March 2021.

16. 16
16
MAT makes it easier for those struggling to afford their medicines to find and learn more
about various programs that can make prescription medicines more affordable.
PhRMA Created the Medicine Assistance Tool, or MAT,
To Help Patients Navigate Medicine Affordability
A search engine to connect patients with
900+
assistance programs offered by
biopharmaceutical companies, including
some free or nearly free options
Resources to help patients
navigate their insurance coverage
Links to biopharmaceutical
company websites where
information about the cost of a
prescription medicine is available
The Medicine Assistance Tool Includes:
Prescription Medicines: Costs in Context www.phrma.org/cost

17. PhRMA Is Working to Fix the Health Care System
So It Works Better for Patients
17
Improving Patient
Affordability
Fixing Market
Incentives
Shifting
Toward
Value
Increasing
Competition
• Require insurers & PBMs to pass through negotiated rebates and discounts
• Establish an annual cap on patient out-of-pocket costs in Part D
• Allow patients to spread costs throughout the year
• Lower patients’ cost sharing from 25% to 20% in Part D
• Delink supply chain payments from list prices
• Reduce 340B distortions
• Citizen petitions
• Patent settlements
• Patent transparency
• Remove barriers to innovative payment arrangements
• Identify better tools for value assessment
Prescription Medicines: Costs in Context www.phrma.org/cost