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.


  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.

  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.