Health insurers and American consumers might be spending more than ever for prescription drugs, but there are also more choices and more information to find value in a sea of volume.
Express Scripts, the nation's largest pharmacy benefit manager, is warning that healthcare payers will "face half-a-trillion dollars in prescription drug costs as soon as 2020" without "more fair drug pricing."
Pharmaceutical drug spending increased by 13 percent last year, the highest annual increase since 2003, according to Express Scripts' annual report. It was a "seismic change," according to the company, that illuminated major faultlines in both the state of biomedical science and business of pharmaceuticals.
Going back to the post-World War II economy, drug companies focused on research and development to treat conditions affecting millions of patients, to create "blockbusters" treating a large volume of patients and garnering a "high, but not exorbitant, price tag," Express Scripts said. Now, the medicines, patient populations and business models are rather different. There are newer, better drugs (and ones that are not always that much better), targeted medications in areas like cancer, complex biological therapies, and reconfigurations and pricing schemes for generics.
As Express Scripts saw the last year: "New treatments for non-orphan conditions like hepatitis C were introduced in the US market at exorbitant, orphan-drug pricing. Compounding pharmacies began exploiting a loophole in a new regulation that made the creation and dispensing of unproven topical creams a lucrative cottage industry. Drug manufacturers--brand and generic alike--continued to consolidate, placing additional strain on the supply chain to handle temporary shortages. The pipeline of new medications to treat conditions like cancer and high blood cholesterol also threatened to undermine the sustainability of the US pharmacy benefit."
New drugs for common chronic diseases
Despite the focus on oncology and speciality medications, there is still a huge market for drugs treating increasingly prevalent common chronic conditions like diabetes and high blood pressure, which together affect almost 20 million Americans.
Both diseases have relatively well-established treatment regimens with generic equivalents; metformin, for instance, is the gold standard for diabetes. But many new Food and Drug Administration approvals and Big Pharma pipelines will likely increase current and future drug spending for diabetes and hypertension, according to Express Scripts.
Diabetes medications, according to the company's analysis, were the only non-specialty therapy class with a significant increase in 2014--up 18 percent to $97 per-member, per-year and likely to keeping rising at that rate thanks to newly approved sodium-glucose co-transporter 2 inhibitors.
Generics accounted for less than half diabetes drugs last year, despite the fact that the most common treatments (metformin, glipizide and glimepiride) "are generic drugs with branded formulation patents that expired at least a decade ago."
Four new diabetes treatments were approved in 2014: Farxiga (dapagliflozin), Tanzeum (albiglutide), Jardiance (empagliflozin) and Invokamet(canagliflozin/metformin). And the pipeline is promising once-weekly oral and injectable treatments and new therapies that could regenerate insulin-producing cells. Also, Express Scripts said, "we anticipate insulin medications such as Lantus (insulin glargine) will soon compete with next-generation biosimilar insulins from several pharmaceutical manufacturers, likely spurring the escalation of costs for insulin medications that occurred in 2014."
Amid all the new diabetes treatments, though, is a lack of evidence supporting their long-term benefit in curbing cardiovascular disease, the ultimate cause of death for some 65 percent of diabetics. An investigation by MedPage Today reviewed the 30 diabetes drugs approved between 2004 and 2013 and found that "they have rigorous proof of reducing clinical outcomes such as heart attack, stroke, blindness or amputations."
A related disease is also poised to be awash in spending increases on a smaller scale: high blood cholesterol, which consumed $48.73 per-member per-year spending in 2014 among Express Scripts' commercially insured patients, the second highest spending drug class.
New medications called PCSK9 inhibitors, blocking proprotein convertase subtilisin/kexin type 9 enzyme, are currently in development with the goal of treating a genetic disorder called familial hypercholesterolemia, an inherited condition that leaves people with the inability remove low-density lipoprotein cholesterol from circulation and at risk of early cardiovascular disease.
The emerging drugs, projected to cost $10,000 or more annually per patient, "represent a novel way to lower cholesterol and may offer additional treatment options for those patients with very high LDL cholesterol levels," the report said. But "their potential for expanded uses as adjunct therapies to lower LDL in general could impact drug spend significantly," since they could end up being used for many of the 71 million Americans high cholesterol.
Express Scripts has seen spending on compounding medications soar, by 128 percent last year, to become the third-most-expensive therapy class on a per-member per-year basis, after diabetes and high cholesterol.
In some ways, it is actually a comeback: compounding was the primary method of preparing prescriptions until the 1950s, before mass pharmaceutical production. Today compounding still only represents 1 percent of prescriptions, but following a 2012 law requiring all components of compounded drugs to be specified and billed at the ingredient level, manufacturers and compounding pharmacies have raised prices substantially for many compounded drugs. "The result has been unsustainable cost increases," according to Express Scripts.
The cancer climb
Of the 41 drugs approved by the FDA last year, nine are treatments for cancer, and more than 1,000 targeted cancer treatments are in development, including many with genetic-based indications. With some of those drugs being priced in the mid to high five figures per year, cancer is a significant driver of drug spending, increasing 21 percent last year for Express Scripts.
As Bloomberg Business observed of the biotech and pharma boom, investors are betting that $100,000 oncology drug prices are here to stay.
One example of a niche cancer drug is Merck's Keytruda (pembrolizumab), an immunotherapy approved for advanced melanoma (helping more than 30 percent of patients live six months, double the standard chemotherapy) and certain patients with non-small cell lung cancer patients based on genetic expressions. It's priced at around $12,500 per month.
"Keytruda and other niche drugs have the potential to vastly improve outcomes and are often clinical game changers" Express Scripts said. "Many come with unprecedented price tags, however, as pharmaceutical companies try to maintain profit margins and recoup their investments in drug discovery."
Another recent study, in the Journal of Economic Perspectives, found that in 1995, cancer drugs cost on average $54,000 for each additional year of life. As of 2013, that rose to $207,000 per year of added life. In fact, "gains in survival time associated with recently approved anti-cancer drugs are typically measured in months, not years," the authors wrote.
That kind of data seems to suggest a "pursuit of marginal indications, as Tito Fojo, MD, a senior investigator at the NIH's Center for Cancer Research, argued in JAMA: "The modest gains of FDA-approved therapies and the limited progress against major cancers is evidence of a lowering of the efficacy bar that, together with high drug prices, has inadvertently incentivized the pursuit of marginal outcomes and a me-too mentality evidenced by the duplication of effort and redundant pharmaceutical pipelines."
For Express Scripts, increases in both utilization and unit cost contributed to a 20.7 percent increase in PMPY spend for the cancer therapy class. But some drugs do, whatever, the price do represent progress in treating certain cancers as a chronic condition that people can live with for years or even decades, among them Gleevec, a leukemia drug made by Novartis, which also happened to be "prime contributor" to last year's price surge.
"Generics to Gleevec (imatinib) are expected in 2016 and their competition will slightly mitigate trend growth, according to Express Scripts, "however, high prices for new and existing branded drugs will minimize the impact on trend."