Will new drug spending figures increase pressure on pharma?

IMS

The annual report on just how much the U.S. healthcare system pays for meds is out--and it will likely serve to further anger those who believe pharma is unreasonably hiking its prices. Still, it also shows that pressure on drugmakers by payers is getting some results.

The IMS Institute for Healthcare Informatics has released figures this morning showing that spending on prescription drugs in the U.S. rose 12% to a record $425 billion (before discounts) last year, fueled by new and costly drugs for cancer and hep C.

And predictions for the future see even greater costs as the analysts at IMS estimate that U.S. annual spending on prescription meds is set to jump by 22% over the next 5 years--climbing as high as $400 billion by the end of the decade.

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These numbers take into account anticipated discounts, rebates and other price concessions and would mean an annual growth rate of 4% to 7% through 2020, according to the report. But when using wholesale prices, IMS sees U.S. spending rising 46% to as high as $640 billion in 2020.

These numbers and predictions come as U.S. politicians and presidential hopefuls heap pressure on the industry to do more to keep new medicines affordable, and open their secretive methods on how they come to a price tag. High-profile pharma companies like Valeant Pharmaceuticals ($VRX) and execs such as Martin Shkreli have become the bad boys of pharma and are often used as examples of the “price gouging” tactics seemingly employed by some in the industry.

But the figures do not paint a black and white picture and the report notes that in fact market forces have kept growth relatively low, as the average net price increase for branded drugs was just 2.8% in 2015, versus 12.4% using wholesale prices.  And while growth for wholesale meds was 12% in 2015, this is down from the 14% registered in 2014.

Murray Aitken, executive director of IMS Institute for Healthcare Informatics, explained: “That reflects the new dynamics in the marketplace, where we have heightened competition in several major therapy areas, including diabetes, with manufacturers taking price concessions through rebates.”

He added that this was coupled with more “aggressive tactics” by pharmacy benefit managers and health insurers to restrict access to certain drugs unless manufacturers agree to big discounts.

The IMS report found that those concessions reached $115.3 billion in 2015--more than double the $52.4 billion offered in 2009.

But there were spikes. Cancer saw one of the biggest jumps, with U.S. oncology drug spend hitting $39.1 billion in 2015--an 18% jump. Spending on treatments for autoimmune diseases --such as rheumatoid arthritis-- was even higher, rising a staggering 28% to $30.2 billion.

More than half of the spending growth stemmed from medicines approved by the FDA since 2014, with Gilead’s ($GILD) hep C pills and new meds for cancer and multiple sclerosis, combining to be worth $151 billion--an increase of 20% from a year earlier.

Hep C drugs alone, dominated by Gilead's Harvoni and Sovaldi, saw a spend of $18.8 billion from U.S. payers in 2015, with a new treatment out from Merck approved earlier this year which has recently bested Sovaldi in a head-to-head trial set to add to those costs this year. Scripts for these drugs have however fallen in the past 12 months, and pharma companies argue that the near-term costs will be offset by the longer term savings from curing people with the liver-destroying disease. 

"Our spending on those drugs will be relatively high but still manageable ... because they will be offset by more modest price increases for branded drugs and a rising level of savings from drugs losing patent protection," Aitken said.

Upcoming high-profile patent expirations include AstraZeneca's ($AZN) heart drug Crestor and Pfizer’s pain drug Lyrica and erectile dysfunction pill Viagra. All three are major sellers for the drugmakers, collectively making sales of nearly $10 billion in 2015.

There are also a slew of biologics waiting in the wings that will soon start to erode the big names in autoimmune drugs, with the FDA just this month approving Pfizer ($PFE) and Celltrion's biosimilar version of Janssen’s ($JNJ) Remicade--cracking open a big market for one of the world's top blockbusters.

But other big drugs are on the horizon, with Roche’s ($RHHBY) new PD-L1 cancer immunotherapy atezolizumab set to gain two FDA approvals in lung and bladder cancer this fall--an approval that will likely add billions to payers’ invoices in the coming years.

The nuance of slowing growth is however unlikely to dampen the political pressure from the government and attention from media as the healthcare system continues to creak under the pressure of high price meds.

- check out the WSJ coverage (sub. req.)

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