Friday, June 12, 2009

Specialty Spending Soars (for now)

The new report from the Federal Trade Commission (FTC) on follow-on biologics (FOBs) is a must-read for anyone interested in the future profitability of drug channels companies (pharmacies, wholesalers, and PBMs). Here's a link to the complete 120 page report:

Emerging Health Care Issues: Follow-On Biologic Drug Competition

The latest spending data for specialty drugs show why momentum for follow-on biologics (FOBs) is building.

These data come from the most recent drug trend reports of the three largest PBMs:

The biggest factor behind the specialty trend growth was price inflation, not utilization. For example, Express Scripts notes that price inflation for specialty drugs was 9.4% – three times the rate for traditional meds.

The new FTC report suggests that FOBs will provide a relatively modest price reduction, noting:

"Only two or three FOB manufacturers are likely to attempt entry for a given pioneer drug product. These FOB entrants are unlikely to introduce their FOB products at price discounts any larger than between 10 and 30 percent of the pioneer products' price."

I think that's too pessimistic. I'll have some comments next week on the economic implications of FOBs for drug channels, especially with regard to potential reimbursement and cost dynamics.

2 comments:

  1. You said, "price inflation for specialty drugs was 9.4% – three times the rate for traditional meds." This doesn't sound accurate to me at all. In my experience, traditional brand-name drugs usually increase about 7-8% each year . . . not 3%.

    Now, if you're mixing in generics into the equation, I could see spending increasing by that amount. However, that would be more of a generic vs. brand-name issue--not a traditional vs biologic issue.

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  2. Mr. M:

    Correct. The figure that I reported includes all traditional (non-specialty) drugs. Thus, Express Scripts reported the following (non-specialty) inflation rates:
    Generics = -9.0%
    Brands = +7.6%

    The non-specialty drug trend at ESRX was only 1.5%. Note that all PBMs report the aggregate trend (not cost) as a (mathematical) function of:
    a) units/Rx
    b) price inflation
    c) utilization
    d) brand/generic mix, and
    e) therapeutic mix.

    The Express Scripts report does a good job of laying out the calculations.

    Adam

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