Generics dampen US drug spending; payers fear rising specialty costs

It's confirmed: Another study shows that U.S. drug spending dropped ever so slightly last year. The obvious culprit is generic drugs, with major blockbusters such as Pfizer's ($PFE) Lipitor and AstraZeneca's ($AZN) Seroquel IR now facing cheap rivals.

But has the drug market absorbed about as much generic use as it can take? Utilization last year stood at 84%, IMS Health reports. That's the highest rate ever. IMS figures that rate can tick upward by two or three more percentage points, but no further.

That's partly because the worst of the patent cliff is passing. As fewer big blockbusters go generic, there's less room for generics growth. And the danger of that, of course, is that the big drop in primary-care drug spending will be surpassed by an even bigger increase in specialty drug costs.

You'll recall that earlier this month, Express Scripts rolled out numbers showing that specialty drug spending had increased by 18.4% last year. And specialty drugs are pharma's primary focus these days, partly because they can bear premium price tags. They're also difficult to copy.

The theory is that payers are willing to pay top dollar for rare-disease drugs and other pricey specialty treatments, because few patients need them. Their price tags may be higher, but their absolute costs, compared with primary-care drugs, are lower. But drugmakers may find themselves back-pedaling on that as insurers and government payers watch the costs add up.

"This is a charmed era that won't last forever," Paul B. Ginsburg, president of the Center for Studying Health System Change, told the NYT. "When you talk to benefits managers at large employers or insurers, the trend of specialty pharma is very, very prominent. You might even say they regard it as their biggest problem."

- read the NYT piece