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But dark clouds for some have silver linings for others
The increased use of generics, a drop in the number of new molecular entities approved by the FDA, and fewer drugs achieving blockbuster status are laying waste to traditional drug-maker business models. But as bad as the news may be for drug makers, it promises an upside for health plan payers and consumers: current cost projections are likely too high.
All in all, the changing drug business dynamics could have significant policy implications, according to a study published in December on the web site of the journal Health Affairs.
Although annual growth in real prescription drug spending averaged 9.9% from 1997-2007, the growth has slowed since 2003, falling to 1.6% in 2007, according to Prescription Drug Spending Trends In The United States: Looking Beyond The Turning Point. That’s its lowest rate in 30 years.
The report is authored by Murray Aitken, SVP for healthcare insight at IMS; Ernst Berndt, professor of applied economics at the Alfred P. Sloan School of Management, Massachusetts Institute of Technology; and David Cutler, professor of economics at Harvard University.
Achieving a balance between introduction of innovative therapies and regulatory stringency will rise to the top of healthcare policymaker and industry agendas, according to a statement announcing the report.
“What is clear is that the prescription drug spending trends observed in the 1980s, 1990s, and the first few years of this decade have changed dramatically in the past five years,” according to the report. “When one looks beyond the recent turning point, the growth, size, and composition of prescription drug spending is likely to be dramatically different, raising both policy opportunities and dangers.”
Reason for optimism
Such differences are likely unaccounted for in health care cost projections. For health plan payers and consumers, the prospects may be more optimistic than many fear. For example, the Centers for Medicare and Medicaid Services recently projected 8.5% pharmaceutical spending growth in 2006, 6.7% in 2007, 6.8% in 2008, and an average annual growth rate of 8.2% between 2006 and 2017. “Our data suggest that these forecasts are too high,” the authors write.
The authors warn that, unless biopharmaceutical R&D productivity improves or results in “an increased proportion of blockbuster molecules affecting large populations (an unlikely outcome, given recent trends), reduced revenues are likely to constrain future rates of new product innovation.”
One result is likely to be increased pressure on the FDA. “Is the reduction in new blockbusters the result of technological wells running dry, or the implication of increased regulatory stringency? Should the FDA be doing something about this, or has it done all it should or can do?” the authors ask.
FDA scrutiny has likely never been higher than it is today, given the incoming Obama administration, recent high-visibility threats to its credibility, and a perception that the agency struggles to fulfill its drug and food missions.
“FDA is hanging on by its fingertips in protecting us,” said William K. Hubbard, who worked for the agency for 27 years, in a recent Washington Post report.
The FDA is among federal agencies described by some Bush administration critics as driven by ideology rather than science, the report says, citing the long delay in approving the over-the-counter sale of the emergency contraceptive Plan B as an example.
In preparing the study, the authors used IMS’s National Sales Perspectives, an audit of pharmaceutical product sales from wholesalers to pharmacies and other outlets, and IMS’s National Prescription Audit, which tracks prescriptions dispensed by pharmacists. Prescription product sales are reported by IMS using nominal dollars. For purposes of this study, nominal sales amounts have been adjusted by the GDP deflator as calculated by the Bureau of Economic Analysis.