Not long ago, gloom and doom was predicted for the pharma industry as blockbuster drugs ran out of patent protection, taking their historic profits with them. The patent cliff, a several-year span in which Lipitor, Diovan, Singulair, Plavix, Lovenox, Nexium, and Cymbalta (just to name a few) faced generic competition with limited options for replacement in the pipeline, was seen as heralding a period of long-term difficulty for innovative drug makers.
Based on information from IMS Health’s newly published Medicine Use and Spending Shifts: A Review of the Use of Medicines in the U.S. in 2014, however, it may be time to change the tune. Domestic drug spending last year reached $374 billion, exceeding forecasts and achieving the highest annual increase (13.1%) since the early 2000s. While fewer patent expirations and an increase in brand prices get some of the credit for the upswing, the real growth driver was specialty drugs.
Of the $20.2 billion increase in spending on new brands, 78% was from this category, defined by IMS as “products that are often injectable, high-cost, biologics or require cold-chain distribution … are mostly used by specialists … and include treatment for cancer and other serious chronic conditions. “ More than half of the new brand sales growth ($11.3 billion) comes from recent launches of new hepatitis C drugs while new cancer and multiple sclerosis medicines were respectively responsible for $1.6 billion and $2.0 billion. Overall, according to IMS, the $54 billion in increased specialty medicine spending over the last five years makes up 73% of growth across all categories in that period.
These trends have given specialty drugs a firm foothold in the market, making up 33% of all drug spending last year. And it looks like this will continue for the next few years, as 42% of late-stage-pipeline drugs are currently in this category.
Bright and shiny topline growth numbers aren’t everything though: at some point, we’ll get around to posting an analysis of how these phenomenal revenue figures are really derived from a handful of extremely successful drugs rather than a broad-based industry turnaround. The plateau in drug utilization, which we evaluated in-depth in a 2013 whitepaper, provides further reason for skepticism regarding the sustainability of the current rally.
It has also been said that everything carries within itself the seeds of its own destruction – this was true in the late 1990s/early 2000s when the last period of outsized growth was eventually contained through Paragraph IV challenges, higher copays, aggressive formulary management, and pro-generic policies. Considering that specialty drug prices have already sparked backlash among physicians and pharmacy benefits managers and that we’ve just recently seen the advent of biosimilars which promise to exert pricing pressure on biologics, it is not too difficult to predict that counterforces will eventually curtail the latest round of growth as well.