Branded drug spend up, but slower growth ahead

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For pharmaceutical brands, 2011 brought succor from the huge wave of patent losses on blockbuster drugs. Spending on branded products in the US grew by 2.2% in actual dollars last year to $258 billion from $252 billion, fueled by new product launches. It was an improvement over 2010, when spending on protected medicines shrunk 0.7% to $229 billion, and it helped boost overall drug spending by 3.7% to $320 billion for the year.

All of that is set to change this year. According to a report from the IMS Institute, losses of exclusivity—which offset the gains from newer products by $14.9 billion on affected medicines in 2011—are set to drive brand growth down. Way down.

“Brand growth will be historically low,” predicted Michael Kleinrock, director of research development for the IMS Institute. “2012 and 2013 will be bigger years in terms of the impact,” with growth somewhere in the 0-1% range.

Take Lipitor, the $7.5 billion drug which went off patent late in November. It lost only about $200 million in sales over the last two months, when the first filer's and an authorized generic became available. “With 180-day exclusivity for generics, you don't see any decline of note,” Kleinrock said. Come mid-2012, as more generics launch, the losses will be steeper.

In the meantime, Pfizer clung to its spot as the top company by US sales, despite a 7.8% decrease to $25.1 billion, while Lipitor held onto its position as top-selling brand, after a 5.5% lift to $7.7 billion.

Migration through the end of protected life is not the only thing happening to big branded medicines. Indeed, they can either shift to generic (like Lipitor to generic atorvastatin), or be supplanted by newer meds, as was the case when off-patent warfarin was replaced by new anticoagulants like Johnson & Johnson/Bayer's factor Xa drug Xarelto. The latter contributed positively to brand growth.

Companies launched 34 products last year, which IMS said was the most in a decade. Orphan drugs saw the most launches in 10 years, as well. It was also a year when the FDA approved 30 new NMEs and BLAs, many with new mechanisms of action including first-time therapies for treating cancer, hepatitis C and cardiovascular conditions.

Usage and spend in five therapy areas grew faster than the overall market: cancer, asthma and COPD, dyslipidemia, diabetes and mental health (psychoses and bipolar), and the vast majority of spend was still concentrated in traditional small-molecule pills, IMS found.

Still, growth is being offset by patent expiries on older products. All told, said Kleinrock, about $20 billion in revenue was exposed to losses of exclusivity. Had these losses not been staggered throughout the year, the toll could have been much more substantial.

With generics becoming available in a number of chronic therapies, spend on generics now accounts for 80% of all prescriptions. After a $5.6 billion increase, they command 27% of overall spending; brands' share is 73%, IMS found.

Another big red flag for pharma: Rising out-of-pocket costs, which historically have not hampered patient spending, finally reached a level where patients started to choose generics more often.

In past years, Kleinrock said, even as co-pays rose patients would continue to spend more. “But in 2011, most patients with insurance actually spent no more out of pocket,” he said. With the exception of those on Medicare Part D and Medicaid, “[the insured] used less medicine with higher individual costs.”

Overall per-capita use of medicines declined slightly in 2011, as physician office visits fell 4.7% and older Americans reduced their retail drug use by 3.1%, mostly in the antihypertensive class. As a result, retail prescription usage declined on average 1.1% and fell by more than 3% in 10 states. The only age group to increase utilization was those 19-25; their med usage rose 2.0%, notably for ADHD drugs and antidepressants.

The message for branded drugmakers: Brace for more contraction. While brand spend inched up 2% last year, “it will certainly be lower in 2012 and 2013,” said Kleinrock. However, “The real story is people are using less medicine.” Fewer patients are going to see their doctor. When they do go, they are being started on a generic more often. “For branded companies, there are increasing hurdles to getting a new patient.”

Once they do start on a branded drug, rising co-pays for visits and branded meds contribute to more opportunities for patients to discontinue therapy on the branded product. “The longer the weak economy and these rising costs are experienced,” Kleinrock concluded, “eventually more people reset expectations and overall use of healthcare.”

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