Can drug spending keep growing?

screenshot_254POST SUMMARY: According to IMS, spending on medicines rose 13.1% on a nominal basis – and 10.3% on a real per capita basis – driven by innovation, higher levels of price increases and lower patent expiry impact. Will pharma continue this trend and is this a green light for more expensive drugs?


The IMS report says:

  • Nominal spending on pharmaceuticals reached $373.9 billion in 2014, an increase of 13.1%, the highest increase since 2001 when spending increased 17.0%.
  • Losses of patent exclusivity led to $11.9 billion lower spending on branded medicines, almost one-third the level in 2012 when expiry impact peaked.
  • Price increases for protected brands increased spending by $26.3 billion, contributing 8.2% to total market growth on an invoice price basis; estimated net price growth was substantially lower as rising off-invoice discounts and rebates offset incremental price growth and reduced net price contribution to growth to 3.1%.
  • Specialty medicines now account for one-third of spending, driven by a wave of recent innovations.
  • Spending on new brands increased dramatically in 2014 as new treatment options for hepatitis C, cancer, multiple sclerosis and diabetes had stronger uptake than new medicines in prior years.

Right now I would think that across Biopharma companies in the US senior executives are salivating about the potential for more expensive drugs with the justification that it costs more to develop drugs.  That is bullshit.

The cost of conducting clinical trials is decreasing thanks in part to new digital tools and shared resources among pharma companies and academia. While Gilead has taken a lot of flak for the cost of their Hep-C treatment the price still remains high and they have already sold over $2 billion worth.

The short way to innovation, it seems, is to charge exhorbanetly high prices for new drugs so overpaid CEO’s can increase the value for shareholders.

This model is not sustainable and it’s going to bring a lot more heat on the Biopharma industry.  Healthcare costs are going to become a central part of political discussions and are going to erode trust when headlines on the Web lead to quick judgement and the lack of independent thinking.