BILL ANALYSIS Ó
AB 463
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Date of Hearing: January 12, 2016
ASSEMBLY COMMITTEE ON HEALTH
Bonta, Chair
AB 463 (Chiu) - As Amended January 4,
2016
SUBJECT: Pharmaceutical Cost Transparency Act of 2016.
SUMMARY: Requires pharmaceutical companies to file an annual
report with the Office of Statewide Health Planning and
Development (OSHPD) containing specified information regarding
the development and pricing of prescription drugs.
Specifically, this bill:
1)Establishes the Pharmaceutical Cost Transparency Act of 2016,
which requires that a pharmaceutical manufacturer that sells a
prescription drug in California file a report with OSHPD if
the wholesale acquisition cost (WAC) of the drug is more than
$10,000 annually or per course of treatment.
2)Requires the report to include the following:
a) The total cost of production of the drug, including:
i) Research and development costs, both to the
manufacturer and any predecessor companies;
ii) Clinical trial and regulatory costs, both to the
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manufacturer and any predecessor companies;
iii) Materials, manufacturing, and administration costs
of the drug;
iv) Costs paid by any other entity, including federal,
state, or other governmental programs or any form of
subsidy, grant or other support;
v) Acquisitions costs of the drug, including patents,
licensing, or acquisition of another corporate entity;
and,
vi) Marketing and advertising costs for the promotion of
the drug, as specified.
b) A cumulative annual history of the average wholesale
price (AWP) and WAC increases, and which month the
increases took effect;
c) Total company profits attributable to the drug;
d) Total amount of financial assistance the manufacturer
has provided through patient prescriptions assistance
programs, if available; and,
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e) The total costs of drugs or research projects that
failed to succeed through the process to market approval.
3)Requires the report in 2) above to be audited by a fully
independent third-party auditor prior to filing.
4)Limits the reporting of information required by 2)a) above
from five years prior to the filing date of an Investigational
New Drug application with the United States Food and Drug
Administration (FDA) to the approval date of the New Drug
Application by the FDA. Permits a manufacturer to separately
provide information outside of this time frame.
5)Requires that the report be filed with OSHPD annually, on a
form prescribed by OSHPD, no later than May 1 of each year.
6)Requires OSHPD to issue an annual report to the Legislature
outlining the information submitted pursuant to this measure,
and to post the report publicly on its Website.
7)Requires OSHPD to convene an advisory workgroup to develop the
submission form. Specifies that the workgroup must include, at
least, representatives from the pharmaceutical industry,
health care service plans and insurers, pharmacy benefit
managers, governmental agencies, consumer advocates and
physicians.
8)Requires OSHPD to maintain the confidentiality of any
information that the director deems to be confidential,
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proprietary information of the prescription drug manufacturer
and the disclosure of which would cause the manufacturer
competitive harm, as specified.
9)Finds and declares that the report required by this measure
imposes a limitation on the public right to access that
information
EXISTING LAW:
1)Establishes OSHPD and requires each organization that
operates, conducts, or maintains a health facility to make and
file with OSHPD certain specified reports, including a
hospital discharge abstract data record that currently
includes 19 elements of data per admission that are required
to be included.
2)Requires OSHPD to compile and publish summaries of individual
facility and aggregate data that do not contain
patient-specific information for the purposes of public
disclosure.
FISCAL EFFECT: This bill has not been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. The author asserts that as prices for
both new and existing prescription drugs continue to rise, it
is critically important to analyze drug price and underlying
costs that drive drug pricing to inform the development of
policies that will ensure access to affordable medications.
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Legislation is needed to enhance transparency in prescription
drug pricing so policymakers and purchasers can deliver on the
promise of health care coverage and affordability. According
to the author, manufacturers should report data to the State
of California in order to provide taxpayers, policymakers and
consumers with insight into cost centers associated with drug
development and availability.
2)BACKGROUND. The high price of some prescription drugs has
raised questions about their affordability, whether their cost
is worth the clinical benefits they provide, and the financial
model of the current healthcare system. The rising costs of
prescription drugs are placing an increasing burden on payers,
employers, and patients. Notably, new Hepatitis C virus (HCV)
treatment options that cure the underlying disease with
remarkable efficiency offer a drastic improvement over
previous therapies. Payment systems have been significantly
impacted by the cost of these drugs since their arrival on the
market, but many argue that patients and payers will benefit
in the long run by the avoided downstream costs such as cancer
treatment and liver transplants. Other high priced drugs
offer striking therapeutic advances for a range of very
serious conditions, including cancer, rheumatoid arthritis,
multiple sclerosis, and many others. Policymakers are faced
with balancing the need to reward pharmaceutical breakthroughs
in order to ensure the innovation of future cures with the
fact that payers and patients have limited resources to afford
very high prices.
3)THE RISING COSTS OF DRUGS. A report by the IMS Institute for
Healthcare Informatics states that total U.S. spending on
medicines was $373.9 billion in 2014, an increase of 13.1%
from the amount spent in 2013<1>. This is the highest single
year increase since 2001 (when growth reached 17.0%).
According to the Centers for Medicare and Medicaid Services
(CMS) prescription drug spending growth was predicted to be
around 6.4% in 2015, driven by increases in the use of
prescription drugs among people who are newly insured and
---------------------------
<1> IMS Institute for Healthcare Informatics. Global Outlook for
Medicines Through 2018. November 2014.
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those who move to more generous insurance plans as a result of
the premium and cost-sharing subsidies offered by the Patient
Protection and Affordable Care Act (ACA). Additionally, fewer
branded drugs are losing patent exclusivity to generics.
CMS also found that prescription drugs generally account for
10% of all healthcare dollars spent. The CMS National Health
Expenditures report found that healthcare spending in all
segments grew 3.6% in 2013. In late 2014, IMS projected that
despite a temporary increase in U.S. spending growth in 2014,
pharmacy spending would moderate to 5% to 8% over the next few
years, coming back in-line with overall healthcare spending
growth.
a) Specialty and High-Cost Drugs. Historically, a majority
of drugs approved by the FDA were small-molecule products,
manufactured using simple processes, were
self-administered, and most often dispensed through retail
pharmacies. Today, many of the drugs being approved each
year are being lumped into a poorly defined group known as
"specialty drugs." These drugs are often large molecule or
biologic products; which means they are produced using
advanced biotechnology and may require special
administration, monitoring, and handling. According to a
2012 report by United Healthcare<2>, treatment for complex
or life-threatening health conditions now includes the use
of certain drugs broadly referred to as specialty drugs.
While no standard definition exists, specialty drugs
generally are defined as having one or more of the
following characteristics:
i) Complex to manufacture, requiring special handling
and administration;
-------------------------
<2>
http://www.unitedhealthgroup.com/~/media/UHG/PDF/2014/UNH-The-Gro
wth-Of-Specialty-Pharmacy.ashx
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ii) Injectable or oral, self-administered or
administered by a health care provider;
iii) Costly, both in total and on a per-patient basis
(taken by a relatively small share of the population who
have complex medical conditions); or,
iv) Difficult for patients to take without ongoing
clinical support, making them challenging for providers
to manage.
Historically, specialty drugs were usually injectable drugs and
were used to treat conditions like cancer, rheumatoid arthritis,
multiple sclerosis, and growth disorders; today, their use has
expanded beyond those conditions to include treatment for other
chronic and inflammatory conditions and through other modes of
administration. The FDA has approved about 300 drugs which many
consider "specialty," compared to a mere handful available two
decades ago. In recent years, 70% of new drugs approved by FDA
have been considered specialty drugs.
Most of the conditions targeted by these specialty drugs tend to
be chronic and progressive in nature and can impact quality of
life, along with morbidity and mortality. Examples include
growth hormone disorders, rheumatoid arthritis, asthma, multiple
sclerosis, hepatitis C, hemophilia, cancer, and lupus. Cancer
drugs represent a very large segment of specialty drugs, and can
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cost up to $10,000 per month. Cancer drugs traditionally are
delivered either through IV fluid or through injection in a
physician's office or hospital, and were often covered through
the plan's medical benefit, rather than pharmacy benefit.
Recently, oral anticancer medications have also been used in
cancer treatment either as an adjunct to IV therapy, as a
substitution for IV therapy, or alone. Oral anticancer
medications are being prescribed more frequently for cancer
treatment, and an estimated 25% of anticancer agents currently
in development are oral cancer treatments. With the advent of
oral chemotherapeutics, and recent changes in benefit designs,
some of most the expensive drugs have shifted to pharmacy
benefit instead of medical benefit.
Another group of high-cost specialty drugs are "orphan drugs,"
those that are developed to treat very rare diseases. The FDA
provides orphan status to drugs and biologics which are intended
for the treatment, diagnosis or prevention of rare
diseases/disorders that affect fewer than 200,000 people in the
U.S., or are not expected to recover the costs of developing and
marketing a treatment drug. Because orphan drugs treat very
rare conditions, their high market price is often justified to
balance the need to fund manufacturers' research and development
toward medical breakthroughs that might not otherwise happen.
In recent years, concerns have been raised by payers that
manufacturers are charging prices typically reserved for orphan
drugs for new drugs that treat a significantly larger
population. Due to expected approval of more specialty drugs,
the movement of expensive drugs into pharmacy benefits, and
charging specialty drug prices for non-specialty drugs, the high
cost of prescription drugs is at the forefront for the public,
payers, and policymakers.
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b) The $1,000 Pill Sparks Controversy. In December 2013,
the FDA approved a drug produced by Gilead Sciences called
Sovaldi for the treatment of HCV. Sovaldi represents a
significant advancement in treatment for HCV as it provides
a higher cure rate, allows for a shorter duration of
treatment, has fewer adverse side effects, and opens up
treatment options for individuals with comorbid conditions
for which traditional treatments are contraindicated.
While the drug has been found to be remarkably effective
(curing 90% or more patients over the course of 12 weeks,
according to the FDA), Gilead Sciences has come under heavy
fire for initially pricing Sovaldi at $1,000 per pill.
Critics have raised additional concerns due to variation in
costs globally. According to an April 13, 2014 article in
the San Francisco Chronicle, Gilead prices the treatment at
$57,000 in the United Kingdom, $66,000 in Germany, while in
Egypt and other developing countries the treatment costs
$900, which is 99% less than the U.S. cost.
After nearly a year of market exclusivity for Sovaldi, in late
2014 Abbvie gained FDA approval to market rival HCV treatment
Viekira Pak. Pharmacy benefit managers, like ExpressScripts and
CVS Caremark quickly signed deals agreeing to exclusive coverage
for specific brand drugs on their formulary, in return for a
hefty price discount on the drug. At least two more competitor
drugs are currently in final stages of clinical trials and could
be on the market in the near future; the increased competition
in the market is expected to bring costs down significantly. In
early 2015, Gilead announced it would be offering rebates of up
to 46% on Sovaldi now that multiple rival drugs have entered the
market.
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Many insurers and government programs have tried to limit their
financial exposure by reserving Sovaldi and other new drugs for
patients with more advanced liver disease. This has raised
concerns among patient advocates that cost-containment measures
might force patients to wait until their condition has
dangerously worsened before they are deemed eligible for the
cure.
4)DETERMINING THE COST TO CONSUMERS IS DIFFICULT.
a) Price Benchmarks. Knowing how much a drug costs is
difficult; there are many different prices for each drug
and different ways of expressing those prices. In the US,
the two most common ways of stating drug prices are the WAC
and AWP. Neither one, though, is the actual price paid by
a payer, nor are they what their names imply. Rather,
they're standardized ways of expressing a price, thus
allowing comparisons to be made from one drug to another.
AWP is a benchmark that has been used for over 40 years for
pricing and reimbursement of prescription drugs for both
government and private payers. Initially, the AWP was
intended to represent the average price that wholesalers
used to sell medications to providers, such as physicians,
pharmacies, and other customers. However, the AWP is not a
true representation of actual market prices for either
generic or brand drug products. AWP has often been
compared to the "list price" or "sticker price," meaning it
is an elevated drug price that is rarely what is actually
paid. AWP is not a government-regulated figure, does not
include buyer volume discounts or rebates often involved in
prescription drug sales. As such, the AWP, while used
throughout the industry, is a controversial pricing
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benchmark.
b) Sticker Price vs Actual Price Paid Varies Widely. The
WAC price of a drug on the market, as originally announced
by the company is also rarely the price paid by a payer.
The actual price paid by any one payer is proprietary
information, complicating discussions of value and cost to
consumers. Drug companies negotiate with payers -
Medicare, Medicaid, insurers, and pharmacy benefit plans -
to set an initial gross sales price. Drug manufacturers
pay rebates back to government entities, creating a
difference between gross sales for a drug and net sales.
The rebates are not publicly available, and vary highly
among payers and for different drugs. Estimates put them
between 2% for innovative new drugs all the way to 60% for
drugs that have several competitors or generics on the
market.
Federal law requires manufacturers to provide rebates to CMS and
state Medicaid agencies. The program requires a drug
manufacturer to enter into, and have in effect, a national
rebate agreement with the Secretary of the Department of Health
and Human Services (HHS) in exchange for state Medicaid coverage
of most of the manufacturer's drugs. These rebates are paid by
drug manufacturers on a quarterly basis to states and are shared
between the states and the Federal government to offset the
overall cost of prescription drugs under the Medicaid program.
According to the Department of Healthcare Services (DHCS), drug
manufacturers are required to pay a Medi-Cal rebate for all
outpatient drugs that are dispensed and paid for by the Medi-Cal
program. In addition, some manufacturers have agreed to pay
supplemental Medi-Cal rebates above the standard rebate.
Federal law requires rebates for prescriptions offered through
the AIDS Drug Assistance Program (ADAP), in part because of the
high cost of HIV/AIDS medications. According to the Kaiser
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Family Foundation, drug manufacturer rebates account for 40% of
the annual ADAP budget<3>.
c) Impact on State Finances. With the state Medi-Cal
program covering nearly one-third of Californians, combined
with CalPERS, ADAP, state hospitals, and corrections, the
state and taxpayer liability for increasing drug costs is
significant. According to a December 2015 report published
by the U.S. Senate Committee on Finance, Medi-Cal's
fee-for-service system alone spent nearly $25 million
treating roughly 340 patients with Sovaldi and Harvoni in
2014<4>. Med-Cal fee-for-service represents only a
fraction of the entire Medi-Cal population, so the full
amount spent by the state is likely much higher. The
2015-16 California state budget allocated $228 million for
high cost drugs to DHCS and the Department of Corrections
and Rehabilitation. In December 2015, it was reported that
CalPERS spent $438 million on specialty drugs, and increase
of 32% from the previous year. This represents one quarter
of the total drug costs paid by CalPERS, while only 1% of
the prescriptions filled.
5)The cost of developing drugs. The research and development
process is complex, costly, and time-consuming. According to
the California Biotechnology Foundation, it takes 10 to 15
years and costs $1.2 billion, on average, to advance on
potential new medicine from a research concept to an
FDA-approved treatment. Failure is built into the research
system. Roughly 95% of candidates entering clinical trial
---------------------------
<3>
http://kff.org/hivaids/fact-sheet/aids-drug-assistance-programs/
<4>
http://www.finance.senate.gov/ranking-members-news/wyden-grassley
-sovaldi-investigation-finds-revenue-driven-pricing-strategy-behi
nd-84-000-hepatitis-drug
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will eventually fail. On average, only one out of every 10
thousand potential new compounds becomes a new drug.
According to the Pharmaceutical Manufacturers of America
(PhRMA), out of every 5,000 to 10,000 screened compounds, only
250 enter preclinical testing, five enter human clinical
trials, and one is approved by the FDA.
Due to the complexity and length of time invested in research,
it is difficult for analysts and researchers to assess exactly
how much it costs to bring one drug to market. The timeframe
of development can last for decades, and may be a combination
of efforts from multiple companies or previous research on
other drugs. An analysis of publicly available data performed
by Forbes magazine in 2013 estimated the cost of bringing a
drug to market can vary from $350 Million to $4.5 Billion<5>.
a) Exclusivity, Patents, and Generic Drugs. Patent
exclusivity for a new molecule starts when the initial new
drug application is filed with the FDA. While patents
generally cover a molecule for 20 years, the time it takes
each drug to come to market varies and therefore the
remaining patented time varies among drugs - typically 10
to 12 years. As drugs come off patent the presence of
generic competition dramatically reduces price. For
example, blockbuster drugs such as Lipitor, Cymbalta, and
OxyContin have recently come off patent as part of a wave
of billions of dollars' worth of brand blockbuster
--------------------------
--------------------------
<5>
http://www.forbes.com/sites/matthewherper/2013/08/11/how-the-stag
gering-cost-of-inventing-new-drugs-is-shaping-the-future-of-medic
ine/
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medications losing patent protection<6>. This led to
unprecedented availability of generic drugs, while the
resulting competition among manufacturers and suppliers of
new generic medications drove down drug costs substantially
in the most popular drugs. The high rate of generic
utilization in recent years has led to more than 80% of
prescriptions being now filled with generic medicines.
However, the pace of price reductions has begun to slow and
some generic drugs; for example, doxycycline and oxycodone,
available generically for many years, experienced
considerable price increases in 2014.
b) Publicly Available Reports and Information. Publicly
traded companies report significant amounts of financial
data to shareholders and the government in annual U.S.
Securities and Exchange Commission (SEC) filings. The
items include such things as research and development
costs, marketing, sales, advertising, information
technology, legal defense, the cost of raw materials, and
more. These reports are filed on an annual basis, and not
compiled over the lifetime of drug development.
Additionally, these reports contain aggregate information
for all products on the market and currently being
developed by a manufacturer. Some small companies might
bring a single drug to market in a given year, but larger
companies might have many drugs approved for market every
year. For example, a recent filing by Pfizer stated that
in one year they had 276 projects in all phases of
development; 13 were in phase 3 clinical trials, 65 in
earlier phases of clinical trials, and the remaining 200
were in very early discovery phases. The Committee notes
--------------------------
<6> The 2014 Drug Trend report, Express Scripts Labs, March 2015
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that some of the information required by this bill is
available in these SEC filings, but this information is
reported in aggregate for the company as a whole, not
broken down by specific drug as this bill would require.
6)SUPPORT. Supporters believe that this bill is necessary due to the
lack of transparency surrounding the pricing of prescription
drugs. Proponents state that the public and policymakers
should know more about the pricing of drugs in order to
determine if the value is worth exorbitant costs. The ACA has
increased transparency across our health care system but
unfortunately not regarding prescription drug costs and
pricing. Anthem Blue Cross writes that this bill will bring
the increasing cost of pharmaceuticals into to the broader
conversation around how to control health care costs in the
coming years. While the focus of controlling costs is
generally directed at health plans and insurers, it is time
for drug manufacturers and other entities to participate in
this conversation and offer solutions to reduce costs.
The California School Employees Association and other
supporters believe that the information provided by this bill
will provide accountability into the pricing process and help
the public know what the costs are based on. AIDS Healthcare
Foundation believes that the lack of drug pricing transparency
has been a detriment to the state and its citizens for too
long. Many of the supporters argue that high prescription
drug prices affect the overall cost of delivering health care
threatens the long-term success of the ACA and put enormous
cost pressure on state and local governments. Health Net
states that health plans, insurers, hospitals, and physicians
are all required to submit extensive cost and quality data to
regulators to guide them in their policymaking. If the high
cost of these new specialty drugs is justified by the
investment the pharmaceutical companies have made to develop,
manufacture, and market these drugs then the reporting
requirements of this bill will demonstrate this.
7)SUPPORT IF AMENDED. The California Association of Physician
Groups (CAPG) would support a bill that demonstrably produced
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a transparency program that reflects the true value of a drug,
even if it carries a high price tag. CAPG states that
unfortunately, even with the recent amendments, this bill
falls short of a viable solution to this problem for several
reasons, including: most of the information sought in the
filing process will likely be deemed to be proprietary and
thus will not end up being publicly reported; the failure to
recognize and include the actual drug pricing after rebate
produces data that does not reflect the true market cost of
the targeted drugs; and the failure to address the rapid
inflation of generic drug costs, which impact a much broader
segment of the patient population.
8)OPPOSITION. Opponents argue this bill will result in increased costs
without tangible results. The Biotechnology Industry
Organization states that this bill does not provide adequate
context for the complex issue of pricing, which is based not
just on manufacturers' costs, but also on market forces and an
assessment of value that cannot simply be reduced to a few
lines on a balance sheet. The Pharmaceutical Research and
Manufacturers of American (PhRMA) opposes this bill and claims
it would create new burdensome reporting requirements on an
industry that should otherwise be dedicating its resources to
bringing new therapies and cures to prescribing physicians and
their patients. PhRMA asserts that the information required
by this bill would be difficult to ascertain, and complying
with the reporting requirements imposed in the bill will be
costly for the life sciences industry. The Orange County
Business Council states that these types of disclosures are
limited due to confidentiality and proprietary reasons because
substantial competitive information can be gleaned from costs
associated with specific research and development information
and sales and marketing information by marketplace
competitors.
REGISTERED SUPPORT / OPPOSITION:
Support
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AIDS Healthcare Foundation
American Federation of State, County and Municipal Employees,
AFL-CIO
American Medical Students Association
America's Health Insurance Plans
Anaheim Chamber of Commerce
Anthem Blue Cross
Association of California Life and Health Insurance Companies
Blue Shield of California
California Association of Health Plans
California Hepatitis Alliance
California Labor Federation
California Nurses Association
California PACE Association
California Pan-Ethnic Health Network
California Professional Firefighters
California School Employees Association
California Teachers Association
CALPIRG
Consumers Union
Fresno Chamber of Commerce
Greater West Covina Business Association
Health Access
Health Net
Industry Manufacturers Council
Kaiser Permanente
Laborers International Union of North America Local 777 and 792
Los Angeles Area Chamber of Commerce
L.A. Care Health Plan
Molina Healthcare
Montebello Chamber of Commerce
National Council of Asian Pacific Islander Physicians
National Multiple Sclerosis Society
National Physicians Alliance
Ontario Chamber of Commerce
Public Citizen's Global Access to Medicines Program
Redlands Chamber of Commerce
Richmond Chamber of Commerce
San Gabriel Valley Economic Partnership
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San Gabriel Valley Regional Chamber of Commerce
San Mateo Area Chamber of Commerce
San Ramon Chamber of Commerce
SEIU California
Small Business Majority
State Building and Construction Trades Council, AFL-CIO
Torrance Area Chamber of Commerce
UFCW Western States Council
United Nurses Associations of California/Union of Health Care
Professionals
Universities Allied for Essential Medicines
Valley Industry and Commerce Association, Healthcare Committee
Young Professionals Chronic Disease Network
Opposition
AbbVie
Allergan
Amgen
Astellas Pharma
BayBio
Bayer
Biocom
Biogen
BioMarin Pharmaceutical
Biotechnology Innovation Organization
Boehringer-Ingelheim
Bristol-Myers Squibb
California Life Sciences Association
California Manufacturers & Technology Association
Eisai
Eli Lilly
Genzyme
Genentech
GlaxoSmithKline
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International Foundation for Autoimmune Arthritis
Irvine Chamber of Commerce
Mental Health Systems
Orange County Business Council
Otsuka Pharmaceutical Development & Commercialization, Inc.
Pfizer
Pharmaceuticals Research and Manufacturers of America
Sanofi
Sunovion
Takeda Pharmaceutical Company
TechNet
UCB
Analysis Prepared
by: Dharia McGrew / HEALTH / (916) 319-2097