Speeches & Communication

Remarks of John J. Castellani Before the NIAF

PhRMA September 10, 2011

Thank you, John, for that kind introduction. And thanks also to the National Italian American Foundation for inviting me to take part in this Series of Distinguished Lectures. To be asked to take part in an event that has featured so many Washington men and women whom I admire… It’s a true honor. And it is a pleasure to be speaking to a room full of people whose names also end in a vowel. 

When I was invited, I knew that I wanted to give you some perspective on the industry I represent – the pharmaceutical industry. But I am mindful of something Enrico Fermi said after hearing a lecture by one of his colleagues. Fermi observed: “Before I came here I was confused about this subject. Having listened to your lecture I am still confused. But on a higher level.”

My goal this afternoon is to provide some clarity and not leave you with too much confusion, either low level or high. So I’m going to focus on the connections between the pharmaceutical industry and two issues of vital interest to every person in this room…in fact to every American: health care and innovation. 

Let’s start with health care. I’ve been in this job almost a year, and one of the most important things I have learned is that the promise of the research is even greater than I imagined. 

Carlo Rubbia, the great Italian American physicist, once said, “Science for me is very close to art… I see no difference between a scientist developing a marvelous discovery and an artist making a painting.” 

The researchers in our industry have produced some masterpieces. For example, last month marked the 30th anniversary of the first published description of the disease now known as AIDS. Remember those haunting images of the AIDs quilt? 

Made up of sections that represented loved ones who had died of the disease, it grew so large the National Mall couldn’t hold it. Today, thanks to the advances made by the pharmaceutical industry, a diagnosis of HIV is no longer a death sentence. It’s a chronic disease. A range of treatment options, including different combinations of drugs, often keep patients symptom-free for years. 

Remember back in the 1970s, doctors had few tools to combat cardiovascular disease. High blood pressure and high cholesterol went pretty much unchecked, and the result was often heart attack, stroke, or other complications.  Almost, every family had a loved one who died suddenly in middle age or earlier, and many others had to cope with long hospital stays and years of disability.  

Today, patients can take medicines that manage cardiovascular risks, often preventing heart attacks and strokes and the deaths and disability they once brought.  Between 1984 and 2004/05 cardiovascular medicines improved by more than 50 percent the chances an elderly patient would survive a cardiovascular event without becoming disabled. And between 1997 and 2007 death rates for cardiovascular disease fell a dramatic 28 percent.

Cancer is still a terrible disease. But thanks to new treatments, life expectancy is increasing for cancer patients. Cancer death rates began to fall for the first time in the 1990s, and are continuing to decline. According to a new report from the National Cancer Institute, between 2003 and 2007 death rates fell an average of 1.6 percent per year. 

Behind these statistics are the faces of parents who didn’t have to say good-by to a child, or wives who can travel with their husbands in old age instead of standing long vigils at a rest homes, and grandparents who can watch their grandchildren graduate from college and even get married.

And believe me our researchers are not resting on their laurels. As we meet here today, they are working on the next generation of research masterpieces.

  • Today, there are more than 3,000 medicines in clinical trials or before the U.S. Food and Drug Administration and under review for patient use, and
  • There are currently more than 800 drugs in development for cancer and 300 for heart disease and stroke – the three leading causes of premature death in the United States.

But, as they say, “the past is prologue” and patients and doctors understandably impatient for new solutions ask: “but what have you done for me lately?”

The answer is in new medicines like Merck’s Januvia®.  It is the first oral medication for Type 2 diabetes. That means fewer or no needles for millions of patients.  That’s real medical progress, just ask the patient.

PhRMA recently awarded the two women scientists who developed it, PhRMA’s Discoverers Award – the first time, by the way, this award went solely to women scientist.

What moved me most, however, was when one of the scientists told of her excitement when her mother – who suffers from Type 2 diabetes – was prescribed the drug. Needless to say, all of the years of research and all of the successes and failures were made worth it, knowing that she made an advance that helped her mother better control and live with diabetes.

But the future holds more than the promise of better medicines. We are at the beginning of the next great medical revolution: personalized medicines.

Ten years ago, the human genome was mapped.  Today, what we learned is helping us understand the genetic and biological causes of disease and new ways to fight them.  This means targeting our treatments to best suit each patient’s individual needs.

This is exciting stuff. And to try and take advantage of where the science is taking us, nearly 95 percent of PhRMA member companies are today investing in personalized medicine research and their investment grew by 75 percent between 2006 and 2010. 

This investment is beginning to yield results, promising better treatments for melanoma, lung cancer and other diseases. 

And it’s critical that we push forward because the nation now faces diseases that endanger our lives and health, as well as our economic future. For example, thirty years after AIDS was discovered, Alzheimer’s and the diseases associated with obesity are huge health challenges. Cancer still takes far too many lives.

I’ll say more about these challenges in a moment, but for now let me turn to the connection between the pharmaceutical industry and another issue of interest to all Americans: innovation. 

I’ve been in Washington a long time, and I can’t remember a period when there was so much focus –in both parties, and across the political spectrum – on innovation as a means to stimulate our economy.  Just listen to what politicians are saying.

One says:  “The key to our success [in the global economy]– as it has always been – will be to compete by developing new products, by generating new industries, by maintaining our role as the world’s engine of scientific discovery and technological innovation. It’s absolutely essential to our future.”

And another:  “The countries which innovate the most effectively are the wealthiest, the strongest, the safest, and the healthiest.  And innovation in that sense has been the key to the progress of the human race for all of recorded history. It is still the key…”

The first quote is from President Obama – he’s all about innovation these days.  The second is from someone who disagrees with President Obama on pretty much everything else – Newt Gingrich. 

For all the focus on innovation, one of the best kept secrets in Washington is that the pharmaceutical industry is an innovation engine for the nation. 

Any economist will tell you that the key to innovation – sustained innovation – is investment in research and development. CEOs know it, too. 

Jeff Immelt, General Electric’s CEO has said that for GE to be successful over the long-term, it had to invest more than five percent of its revenues into new research and development. He is proud that GE has reached that target, and certain that it can lead to new products and trail-blazing innovation.

That’s a great achievement.  Do you know what our industry’s R&D spending was last year? 20.5 percent of revenues. That not only puts us ahead of GE, but well ahead of other industries. In fact, we invest five times more in R&D than the average manufacturing firm.

Just last year, despite the continuing uncertainties about the economy, PhRMA member companies increased R&D spending by $3 billion to a record $67.4 billion industry-wide. 

The medicines we develop are one product of this investment. The other is jobs. Biopharmaceutical companies employ nearly 675,000 Americans. Each of these jobs helps to create an additional six indirect and induced jobs economy-wide. This accounts for over four million jobs in this country.

Now I would love to end my talk here. But one of the reasons Italian Americans have succeeded here is that they see things as they are, the shadows as well as the light. 

And the fact is the pharmaceutical industry faces historic challenges. How these challenges are resolved will affect the health of Americans and the future of American innovation.

Let me focus on three of the most serious challenges, all of which are closely related – how we pay for medicines (also know as “cost re-imbursement,”) the treatment of chronic diseases, and the innovation climate.

America’s current reimbursement model is something you come face to face with whenever you file a health insurance claim. I don’t know many people who are happy with it. In part, that’s because it was put together when medicines were inexpensive, when the practice of medicine focused on acute care, when wellness and prevention were not really thought about too much.  

While this system may have worked well enough back in the day, today it causes two huge problems.

First, it creates perverse incentives for patients. 

Drugs currently constitute a little more than 10 percent of total health spending.  Yet they account for upwards of 40 percent of what the average patient spends out of pocket for healthcare each year.  

In other words, while patients have to come up with cash for their medicines, the current system makes acute care seem “free.” So reimbursement pays for a diabetic’s amputation rather than the insulin that would prevent it. It is much more likely to pay for chemotherapy than for smoking cessation. It pays for dealing with a heart attack but not for managing the Type 2 diabetes that caused it.

In practice, this means that patients are and will be driven to rely on acute care services because they appear to cost less.  

At a time when chronic diseases are the most prevalent and costly health care challenges in the United States, the current incentives can be deadly. 

Chronic disease now accounts for about 75 percent of the nation's aggregate health care spending. Just five of them – heart disease, cancer, stroke, chronic obstructive pulmonary disease, and diabetes – account for more than two-thirds of all deaths.  

The second major problem is that the current re-imbursement system creates a distorted picture of costs for policy makers. 

Let me illustrate with a disease that every baby boomer is thinking about – Alzheimer's.

Currently, a person in the U.S. develops Alzheimer's disease every 71 seconds.  If trends continue this will increase to every 33 seconds by 2050 – that’s the time it took me to say the last three sentences. That could mean 15 million Americans with Alzheimer’s.  The cost of their care? More than $1 trillion per year. 

A medicine that could delay the onset of the condition would be wonderful, a godsend for patients and families. PhRMA’s member companies are working on new treatments.  

But bringing a potential new medicine from the laboratory all the way through to FDA approval for patients takes, on average, between 10 to 15 years and can cost around $1.3 billion.

The investment risks are enormous. Only about five of every 10,000 compounds explored as a potential new medicine makes it all the way to clinical trials with patients and is submitted for FDA approval for patient use. And, even after that, we know that only two to three out of every 10 approved medicines ever make their investment back.

So what if a new treatment for Alzheimer’s arrives, but it comes with a high, short-term price tag?  Suppose its one-year cost approaches $11 billion, the all-time annual price tag for the most expensive medicine ever developed.

Under the current systems, my fictitious $11 billion per year would be viewed only as a huge cost to the system.

As the members of the Italian American Congressional Delegation here know better than any one, Congress is grappling with soaring government deficits now and will be for the foreseeable future. You can bet that budget hawks would put a huge bulls eye on an $11 billion cost.

Yet the Alzheimer’s Association study projects that a new treatment that delayed the onset of the disease by five years could reduce the growth of new cases dramatically and save $447 billion a year by 2050.  Under our current system, government leaders will focus on the $11 billion cost not the $447 billion saved.

The third challenge we face is fueling the innovation climate. 

Take a look some time at a list of some of the Italian Americans who helped build the pharmaceutical industry – especially the men and women who won Nobel Prizes in medicine and biology. Many -- Renato Dulbecco, Rita Levi-Montalcini, Edward Salvador Luria among them – escaped fascism and came to America to find freedom, to take risks and see their discoveries come to fruition.

The favorable climate of innovation they came here to find is still going strong. More medicines are in development here than anywhere else in the world. 

Let me underscore this point by paraphrasing a recent Battelle report on the industry.

If we were to imagine an “ideal” industry for economic growth and sustainability in the U.S., it would have several key characteristics. Among other things it would:

  • Have the ability to grow and increase output in tough economic times;
  • Provide high-wage, good quality jobs;
  • Be innovative and deploy the latest technology to generate comparative advantages for U.S. companies;
  • Generate significant exports;
  • Create a strong supply-chain that drives further economic growth;
  • Encourage capital flows to sustain growth; and
  • Be profitable and provide funds for reinvestment into the R&D cycle.

Battelle concluded that the biopharmaceutical research sector “has all of the above characteristics and more.”

But threats are in the wind. Outmoded regulations, the burdens of the reimbursement system, and a failure of political leaders to take a long-term view…all put a straight jacket on the kind of risk taking our health care system and economy need. 

And, other countries are racing to build successful biopharmaceutical research sectors and attract research done in the U.S. They want those good jobs and economic growth.

The Chinese government identified biotechnology as one key to its future economic growth. The Indian government pledged to develop more than 20 biotech parks and committed more than $1.7 billion to grow the sector. And Singapore’s vision is to be “biopolis” of Asia, an international science cluster aimed at advancing human health.

We are not afraid of competition. On a level playing field, we can continue to save lives, improve health care and move our economy forward through innovation. 

Our challenge is to do more to make political leaders and the public leaders aware of what needs to be done to ensure our industry keeps helping families, growing jobs, and supporting growth. 

I’m confident we can achieve those goals…in part because we have such terrific people in our industry, and also because so many of those people are…well… Italian. We have Lamberto Andreotti, the CEO of Bristol Myers Squibb; John Gargiulo, the President and CEO of Daiichi Sankyo; our member Sigma Tau group is headquartered in Italy and was founded by Claudio Cavazza…and there are many more. How can we go wrong?

I began by saying how honored I was to be asked to speak here. Let me close by saying that honor also goes to my parents. Like everyone in this room, I stand where I do right now because of the efforts of men and women who were willing to take the risk of leaving the old country to find opportunities here in America. My mother and father left behind families that had been in the Piedmont literally for centuries. They became a part of a new land. And my father landed on Omaha beach on D-Day. My parents made it possible for their children to seize opportunities overcome obstacles.

As long as my industry and the nation embrace those kinds of Italian American values, we’ll be fine.

Thank you.