Tuesday, April 11, 2017

Our Exclusive 2021 Outlook for Specialty Pharmacy Prescription Revenues

The specialty boom continues to drive the pharmacy industry’s revenue growth. We estimate that in 2016, retail, mail, long-term care, and specialty pharmacies dispensed about $115 billion in specialty pharmaceuticals. Specialty drugs accounted for 28% of the pharmacy industry’s prescription dispensing revenues.

We project that in 2021, the pharmacy industry’s revenues will be about $572 billion—and that specialty drugs will account for 42% of that figure. More details below.

The growth of specialty drugs is reshaping the pharmacy and pharmacy benefit management (PBM) industries. This expansion is also drawing hospitals, health systems, and physician practices into the market. Later this week, we’ll take a closer look at the evolving landscape of specialty pharmacy providers.

The following chart appears in Section 4.3.1. of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. Note that our forecasts include only specialty drugs paid under the pharmacy benefit. These figures do not represent payers’ net spending, because they exclude rebates.

[Click to Enlarge]

Here are three key factors behind the projections:
  • Pharmacy industry revenues have been shifting from traditional brand-name drugs to specialty drugs. We estimate that in 2016, specialty drugs accounted for 28% of the pharmacy industry’s prescription dispensing revenues, up from 17% of revenues in 2011. This shift will continue, because the next-generation pharmaceutical blockbusters will primarily be specialty products aimed at smaller patient populations than were the mass-market blockbusters of yesteryear. Consequently, most of the industry’s best-selling drugs by revenue will be specialty drugs, not traditional drugs.
  • The generic wave is ending, which means that the growth rate of generic substitution will slow in coming years. Over the past five years, the generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug—grew by 26 percentage points, from 63% in 2006 to 89% in 2016. We project that by 2021, GDR will have grown by only 3 percentage points, to 92%.
  • From 2009 to 2016, brand-name drugs with about $167 billion in retail sales faced generic competition. Annual brand sales facing generic competition averaged $21 billion annually. From 2016 to 2019, however, brand-name drugs with total sales of $19 billion will lose patent protection—an annual average of about $6 billion. (See Exhibit 65 of our 2017 pharmacy and PBM report .) Since generic drugs have much lower prices than do brand-name drugs, revenues from traditional drugs will grow slowly.
Will we be proven correct? Alas, the inner eye does not see upon command.

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