Last April, when the IMS Institute for Healthcare Informatics issued its annual data-rich report on the state of the prescription-medicine union, the headline came with a big asterisk. The headline was that drug spending in the U.S. jumped a whopping 13.1% in 2014, to just under $374 billion. The asterisk was that owing to a handful of outlier events — notably the impact of Gilead’s expensive hep.-C cures and the myriad concessions, in terms of rebates, made by drug sellers — the real growth rate was closer to 2.3%.

So when the IMS Institute revealed its 2015 findings right around Tax Day, it was inevitable that a similar close reading of the results would be required — and, potentially, that a similar asterisk would be assigned. Without further buildup, then: Per the institute’s “Medicines Use and Spending in the U.S.: A Review of 2015 and Outlook to 2020,” total medicine spending on an invoice-price basis surged to $424.8 billion in 2015, representing an increase of 12.2%. On that same invoice-price basis, new spending amounted to $46.2 billion.

But when the rebates that deflated last year’s percentage-growth figure are factored in, the actual growth number shrinks … to $309.5 billion on a net-price basis, which represents an 8.5% gain. Or at least it would if there weren’t offsetting factors, like what the report terms as “the impact of new competition for brands resulting from the expiry of patents or other forms of market exclusivity.” And that, according to its research director, Michael Kleinrock, is why the 12.2% growth figure should actually be reduced to something in the neighborhood of 2.9%.

“It’s a more-of-the-same situation. When you take out all the outliers, the real growth number is lower,” Kleinrock says. “There is some non-price-related growth for brands, for sure, but there is also a substantial set of concessions that manufacturers are making in the market.”

From the 2016 Pharma Report: All the data in one place

Those concessions go further than rebates negotiated with PBMs, the usual bogeyman in most such discussions. There are statutory rebates via Medicaid, coupons, e-vouchers, you name it. “You say, ‘Oh, there’s only so much impact all this can have,’ but we’re seeing a whole bunch of these different concessions. They offset a substantial amount of sales — in 2015, about a third.”

THE BIG PICTURE

“Medicines Use and Spending in the U.S.” paints a portrait of an industry battling its way through a host of unprecedented challenges — and doing a pretty OK job of it, at least from a big-picture financial/growth perspective. Even though emboldened PBMs and health plans have intensified their efforts to limit drug-price growth, they’ve only succeeded modestly. According to IMS, the average net price for Rx brands already in the market grew by 2.8% in 2015. Is that figure lower than sums from previous years? Absolutely. But it also doesn’t fit tidily into the PBMs-and-health-plans-hold-the-line-on-prices narrative that has been spun in recent months.

At the same time, the report shows that much of the 2015 growth stems from brands that have been available for less than two years. Spending on new brands jumped from $24.2 billion in 2014 to $42.3 billion in 2015; this represents more than half of the overall spending growth. Leading the way were new products that take aim at hep. C, cancer, and diabetes. That’s probably why Kleinrock characterizes his overall outlook as “a tale of two cities,” one in which certain drugmakers are being richly rewarded for R&D toil while many others are just scraping by.

“For years you’ve been hearing, ‘Oh, woe is me, the market’s in the tank, it’s hard to market products, payers resist innovation.’ And really, nothing about that has changed. The vast majority of marketers are still in Woeland,” Kleinrock explains. “You’ve got those few sectors where innovation is accelerating — hep. C, oncology, but especially immuno-oncology, autoimmune, MS. What that says is that occasionally somebody hits a home run, but this is not another blockbuster era. It’s an era of niches and execution against a plan. It’s a hard slog. It’s down and dirty.”

From the 2016 Pharma Report: Post Pfizer, Allergan faces the future

That, perhaps, is why Kleinrock hesitates to give a grander assessment of innovation within pharma. During the blockbuster era, the entire industry’s narrative was defined by the strategies of the big winners. But for all the successes enjoyed by Gilead, Kleinrock notes that the breadth of just about every major company’s portfolio is far narrower than it was a decade ago.

“What the numbers tell us is that companies want to go where they can be distinctive versus that aspiration toward ‘I’ve got this one pill that will sort it all out for you,’” he explains. “They’re not chasing a benefit for millions of people. More and more, we’re seeing a focus on a product or two in an area of unmet need.”

Asked how the rise of the new class of cholesterol drugs fits into his theory, Kleinrock acknowledges their obvious clinical value.

“On one hand, what’s the goal here? To bring good stuff to the market. You bring good stuff and you’ll be rewarded — and the PCSK-9s are good stuff,” Kleinrock explains. “When you cure hep. C, when your cancer drug extends life significantly — those are going to get used. But with [high] cholesterol, the market is really comfortable with older generic stuff.”

A ‘COMPLIMACATED’ SITUATION

Kleinrock, then, is neither cautiously bullish nor warily bearish about what lies ahead for the pharma business. He points to the oncology and specialty-drug categories as potential growth drivers during the next five years, but he doesn’t subscribe to the current line of thought about diabetes drugs. “A lot of the growth will be given right back in rebates,” he predicts. The IMS report anticipates steady mid-single-digit growth through the rest of the decade, with spending on medicines poised to reach $610 billion to $640 billion by 2020.

At the same time, Kleinrock remains a huge believer in the power of creative thinking. As an example, he points to Teva’s success in migrating nearly all of its Copaxone patient population to a three-times-per-week 40mg dosage of the MS drug once the patent expired on its 20mg daily dosage. “Successful migration to next-generation products is something that’s hardly ever successfully done, but it’s possible. Maybe that could limit expiry impact in more cases,” he suggests.

From the 2016 Pharma Report: An index of the top 20 drugmakers in 2015

Kleinrock likewise believes that similar creativity — even some soul-searching — will inform the pricing battles that lie ahead. “Is there a breaking point somewhere? It’s hard to answer that,” he continues. “What are manufacturers thinking the value of their products is and which customers do they think are most supportive? It’s not a straight-up, ‘OK, let’s set a price’ exercise anymore. They have to not only set a price, but also think about how it’ll play in the marketplace.”

He pauses for a second, then finishes his answer by channeling Homer Simpson. “Honestly? The best word I can think of for it all is ‘complimacated.’ It’s a very, very complimacated situation.”

From the May 01, 2016 Issue of MM+M - Medical Marketing and Media