Specialty Medicines Drive US Pharmaceutical Growth

Total spending on medicines in the US reached $310 billion in 2015 on an estimated net price basis, up 8.5% from the previous year, according to the IMS Institute for Healthcare Informatics. Specialty drug spending reached $121 billion on a net price basis, up more than 15% from 2014. So will the US rebound continue?.

The outlook for medicine spending in the US through 2020 is for mid-single digit growth, driven by clusters of innovative treatments and offset by the rising impact of brands facing generic or biosimilar competition. Spending on specialty medicines has nearly doubled in the past five years, contributing more than two-thirds of overall medicine spending growth between 2010 and 2015. DCAT Value Chain Insights (VCI) examines the product winners and key trends.;

US shows strong growth
Total spending on medicines in the US reached $310 billion in 2015 on an estimated net price basis, up 8.5% from the previous year, according to a new report issued by the IMS Institute for Healthcare Informatics. The surge of new medicines remained strong last year and demand for recently launched brands maintained historically high levels. The savings from branded medicines facing generic competition were relatively low in 2015, and the impact of price increases on brands was limited due to higher rebates and price concessions from manufacturers. Specialty drug spending reached $121 billion on a net price basis, up more than 15% from 2014.

For purposes of the report, “spending on medicines” and “invoice-price spending” refer to the amounts paid to distributors by their pharmacy or hospital customers. It does not relate directly to either the out-of-pocket costs paid by a patient or the amount health plans pay for the medicines, and does not include mark-ups and additional costs associated with dispensing or other services associated with medicines reaching patients. “Net-price spending” is an alternative measure that is an estimate of the amount received by pharmaceutical manufacturers and therefore reflects rebates, off-invoice discounts and other price concessions made by manufacturers to distributors, health plans and intermediaries.

The IMS study, Medicines Use and Spending in the US: A Review of 2015 and Outlook to 2020, found that longer-term trends continued to play out last year, driven by the Affordable Care Act and ongoing response to rising overall healthcare costs. Increasingly, healthcare is being delivered by different types of healthcare professionals and from different facilities, while patients face higher out-of-pocket costs and access barriers. The outlook for medicine spending through 2020 is for mid-single digit growth, driven by clusters of innovative treatments and offset by the rising impact of brands facing generic or biosimilar competition, according to the report.

Total spending on an invoice price basis, without adjusting for the impact of estimated rebates and other price concessions, reached $425 billion in 2015, up 12.2% over 2014 levels. Invoice prices for branded medicines rose 12.4% in 2015, compared with 14.3% in the prior year. The IMS study noted that heightened competition among manufacturers, along with more aggressive efforts by health plans and pharmacy benefit managers to limit price growth, resulted in concessions that reduced price increases on an estimated net basis to 2.8%, significantly lower than in prior years.

“The challenge of balancing access and the cost of care in an era of innovative but more expensive treatments continues as a theme across our healthcare system,” said Murray Aitken, IMS Health senior vice president and executive director of the IMS Institute for Healthcare Informatics, in commenting on the report “The level of price concessions achieved in 2015 points to a shift in market dynamics as manufacturers accept lower price increases on existing products. At the same time, spending on new brands continued at near-historic levels.”

Key findings
Total spending on medicines. In 2015, spending net of off-invoice discounts and rebates reached $309.5 billion in the US and grew 8.5% year over year. Growth moderated about 2 percentage points from the 2014 level, when total spending was at its highest since 2001. The increase in 2015 spending of $24.3 billion on a net basis and $46.2 billion on an invoice basis was fueled by new brands and protected brand price increases, offset by the impact of patent expiries. The greater use of generics and a small increase in demand for branded drugs contributed to the spending growth.

Growth in specialty drugs. Spending on specialty medicines in the US has nearly doubled in the past five years, contributing more than two-thirds of overall medicine spending growth between 2010 and 2015. Increased specialty spending was driven primarily by treatments for hepatitis, autoimmune diseases and oncology, which accounted for $19.3 billion in incremental spending. Overall, 2015 saw a 21.5% spending increase for specialty medicines to $150.8 billion on an invoice price basis.

New medicines. A total of 43 new active substances (NASs) was launched in 2015, a third of those receiving orphan drug designations from the US Food and Drug Administration. An additional 30 brands were launched last year, bringing new combination therapies, alternative dosing and treatment administration options. The report says that the strong momentum of breakthroughs and R&D productivity is reflected in the 2015 cohort of new medicines. Among last year's launches, the number of non-orphan drugs with new mechanisms of action reached 14, double the number in 2014. Among the 2015 NAS launches were notable advances in precision medicines, rare disease therapeutics and chronic disease medicines that could benefit large populations.

Prescription volume growth. Total prescriptions dispensed in the US 2015 reached 4.4 billion, up 1% year over year. Demand was higher in some therapy areas such as antidepressants and anti-diabetes, each of which increased about 10% in 2015. Among those therapy areas that declined, narcotic drugs saw a 16.6% drop in the number of prescriptions dispensed. Provisions under the Affordable Care Act for coverage to the uninsured through Medicaid expansion and Health Exchange Plans (HIX) have been the leading drivers of retail prescription growth in the past two years, according to IMS. At the same time, growth in Medicare Part D subscriptions has slowed, and the number of retail prescriptions filled through commercial plans (excluding HIX) and for cash have declined.

Patient cost exposure. The average patient cost exposure for brand prescriptions filled through a commercial plan has increased more than 25% since 2010, reaching $44 per prescription last year. The increased prevalence of health plans with pharmacy deductibles, co-payments and co-insurance is contributing to the rise. The report points out that in response, brand manufacturers are steadily increasing their use of mechanisms such as coupons or vouchers to help patients offset these expenses. Within the diabetes market, for example, coupons are being used by patients in commercial plans to reduce their costs. Of those diabetes patients facing $50 or more per prescription, about half were able to reduce their out-of-pocket cost to zero in 2015. The average patient cost exposure for generics has remained at approximately $8 per prescription since 2010.

Healthcare delivery changes. Over the past five years, Integrated Delivery Networks (IDNs) have expanded their affiliations with healthcare professionals (HCPs) in an effort to increase negotiating power with insurers, leverage economies of scale and drive pay-for-performance initiatives, explains IMS in its report. More than 54% of all HCPs nationally now are affiliated with IDNs. Newer facility types addressing patient access and convenience, such as urgent care centers and pharmacy in-store clinics, have grown by 115% in the past five years, and are part of an increasingly diverse set of healthcare facilities. The number of prescriptions written by Nurse Practitioners and Physician Assistants more than doubled over the past 5 years, reaching 676 million prescriptions in 2015.

A look ahead
US spending on medicines on a net price basis is expected to reach $370 billion to $400 billion in 2020, growing at a compound annual growth rate of 4% to 7%, according to the IMS report. This growth will reflect increased spending on innovative medicines, offset by lower spending on brands that will lose market exclusivity over the next five years. While brand price increases are expected to continue in the 10% to 12% range on an invoice basis, they will be significantly offset by rebates, discounts, and other forms of price concessions, according to IMS. The prospects for additional innovative medicines becoming available for patients through 2020 are strong, concludes the report. The late-phase pipeline holds 2,320 novel products, and an average 43-49 NASs are expected to be launched annually over the next five years.

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