Pricing pressure is the new new normal for drugmakers

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We probably should have seen this coming. When QuintilesIMS issued its annual report Medicines Use and Spending in the U.S. in April 2016, it disclosed that drug spends had grown by 12% in 2015 compared to 2014. But when factoring in rebates given to payers and other price concessions, that figure shrank to around 8.5%.

So nobody was entirely sure what to expect from the 2016 numbers, especially given the recent abundance of headlines along the lines of “Backlash Against Drug Prices Hits Manufacturers and Middlemen.” Such analyses signaled that in-fighting between pharma and PBMs had reached a fever pitch, which led many pundits to predict tepid growth at best.

See also: 2017 Pharma Report: All the data in one place

This year's QuintilesIMS report reflects just that. Drug spends in the U.S. grew by 6% in 2016, which represented the slowest top-line growth rate in two years. When taking into account payer rebates and other concessions, the true rate was 4.8%. And that's before one considers what QuintilesIMS research director Michael Kleinrock characterized last year as “the impact of new competition for brands resulting from the expiry of patents or other forms of market exclusivity.” For 2015 spending levels, that further reduced the growth figure to a mere 2.9%.

PRICING PRESSURES

The authors of this year's report, however, write that 2014 and 2015 were “atypical relative to the long-term trend” — or, to put it more simply, they were outliers. During those years, spending rates exploded due to several factors, among them the broad adoption of expensive hepatitis-C drugs (particularly Gilead Sciences' Sovaldi and Harvoni), fewer drugs losing patent protection, and more ambitious price increases.

And while the players and factors may change, the lower-spending trend is likely to linger, according to Les Funtleyder, healthcare portfolio manager at E Squared Capital Management. “There will be more pressure on pricing, more considerations given to pharmacoeconomic [data], and more [pricing] transparency,” he notes.

Of course, to hear the authors of the QuintilesIMS report tell it, it's not just payers that are hitting the brakes on higher prices. QuintilesIMS also attributes 2016's slowdown to fewer product launches. The FDA approved 22 new drugs in 2016, a six-year low.

While spending growth rates may be down, the number of overall prescriptions dispensed in 2016 jumped by 3%, driven in large part by a boost in demand for hypertension drugs. Blood-pressure prescriptions increased by 3.5% and accounted for 19% of all prescriptions in the U.S. last year. However, that growth was led by generics, with ACE inhibitor lisinopril and beta-blocker metoprolol leading the way.

Funtleyder says that first-in-class drugs with tan­gible benefits will continue to command high prices, though in general he believes there has been enough of a backlash to the pricing of some specialty medicines that “a more robust response from payers is coming.” He adds that the pricing future of second- or third-in-class drugs is far hazier.

The numbers reflect that. Specialty medicines continued to be strong drivers of net spending in 2016, accounting for 42.6% of net spend, compared to a 23.6% share in 2007. Of the $895 that an average person doles out for medicines in a given year, $384 is spent on specialty drugs.

While a robust response from payers may be looming, some pharma CEOs have pre-empted it with action of their own. Starting in mid-2016, the CEOs of AbbVie, Allergan, and Takeda, among others, said they would limit price increases of their products to the single digits. Those pledges came, not surprisingly, after the repricing practices of Turing, Valeant, and Mylan prompted widespread scrutiny and unwanted attention.

What the payer response to high price tags may eventually look like is anyone's guess, Funtleyder adds, but it will likely include “more exclusions” and “more restrictive tiering” in formularies. The only thing for certain in Funtleyder's mind? That “the ongoing push and pull [between payers and drugmakers] that's being played out in public and in politics [will continue to be] a distraction for everyone.”



Top 12 companies based on U.S. sales in 2016


1. Gilead Sciences

2. Pfizer

3. Johnson & Johnson

4. Merck

5. Amgen

6. Teva Pharmaceutical Industries

7. AbbVie

8. Sanofi

9. Roche

10. Novartis

11. Eli Lilly

12. AstraZeneca 

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