Innovative Drugs Drive Big Increase in U.S. Spending

Episode Summary

Executive Summary: IMS Institute’s Murray Aitken explains that U.S. drug spending surged 13.1% in 2014 largely due to a wave of innovative launches, especially hepatitis C drugs like Sovaldi, alongside more oncology and specialty therapies. He argues the year was also shaped by unusually light patent expiries, ACA-driven access gains, and higher patient cost-sharing, while expecting spending growth to moderate in 2015 as generic savings return and biosimilars emerge.

Main Topics: Record U.S. drug spending growth in 2014 (Priority: 5/5): The discussion centers on the IMS Institute finding that U.S. drug spending rose 13.1% to $373.9 billion, the largest annual increase since 2001, driven by a mix of innovation, utilization, and policy factors. Impact of Sovaldi and hepatitis C treatments (Priority: 5/5): Aitken says hepatitis C therapies, including Sovaldi, were a major contributor to spending growth, but emphasizes that increased treatment volume mattered as much as price and discounting. Broad innovation beyond hepatitis C (Priority: 4/5): The interview highlights record drug launches in 2014 across multiple therapeutic areas, including orphan drugs, breakthrough therapies, oncology, and large primary-care markets such as diabetes and COPD. Specialty drugs and the changing mix of spending (Priority: 4/5): Specialty drugs are taking a growing share of spending because of strong pipelines and clinical value, while traditional drugs face patent expiries and generic substitution that offset some costs. Patent expiries, generics, and biosimilars (Priority: 5/5): Aitken explains that 2014 had relatively light patent-expiry savings compared with prior years, and he flags biosimilars as a coming factor that could alter pricing and utilization in biologics. Affordable Care Act and access expansion (Priority: 3/5): The ACA, especially Medicaid expansion and insurance exchanges, modestly increased prescription use and broadened access, with more impact expected over time if enrollment and state expansion continue. Patient cost-sharing and adherence pressures (Priority: 4/5): Rising deductibles, copays, and coinsurance are shifting more burden to patients, which can reduce adherence and increase abandonment, especially for chronic therapies.

Key Arguments: Sovaldi was important, but hepatitis C spending growth reflected both higher prices and a much larger number of patients starting treatment. New drug launches reached their highest level since 2001, showing that FDA incentives such as orphan-drug and breakthrough pathways are supporting innovation. The bar for success in crowded therapeutic areas is higher; products need clear clinical differentiation to gain traction. Specialty-drug spending will likely keep rising because the pipeline is strong, but this is partly balanced by savings from patent expiries in non-specialty drugs. 2014’s spending surge was amplified by an unusually small patent-expiry impact compared with prior years. Biosimilars are expected to become an important new competitive force, though their market impact will take time to develop. ACA-related access expansion increased prescription volume, especially in Medicaid-expansion states, but its overall market impact was still modest in 2014. Higher out-of-pocket costs can reduce prescription pickup and adherence, potentially raising longer-term healthcare costs. Drug-spending growth should moderate in 2015 and over the next five years because 2014 was an unusually strong year for new-therapy growth and unusually weak for generic savings.

Data Points: U.S. drug spending growth in 2014: 13.1% - Year-over-year increase reported by IMS Institute Total U.S. drug spending in 2014: $373.9 billion - IMS Institute report headline figure Overall spending increase: $43 billion - Total increase in U.S. drug market in 2014 Hepatitis C treatments’ contribution: about $11 billion - Spending growth attributable to viral hepatitis treatments including Sovaldi New brands’ contribution to growth: $20 billion - Contribution of new drugs to the overall $43 billion increase New launches in 2014: 42 - Most since 2001, according to IMS Institute Orphan drug launches in 2014: 18 - Record number of orphan drugs launched Breakthrough therapy launches: 10 - Drugs launched carrying FDA breakthrough therapy designation Antibacterials launched: 5 - Including 4 that came through a special program Therapy areas with >5 million potential patients: 9 - Large-population markets newly reached by launches in 2014 Hepatitis C patients starting treatment in 2014: 161,000 - Patients initiating treatment with new hepatitis C options Hepatitis C patients starting treatment in 2013: 17,000 - Prior-year comparison showing rapid volume growth Hepatitis C patients starting treatment in 2011-2012: 35,000 - Earlier annual treatment initiation level before newer therapies Patients potentially living with hepatitis C in the U.S.: about 3 million - Diagnosed or undiagnosed estimate cited in interview Spending growth attributed to ACA expansion: about $1 billion - Estimated share of 2014 market growth linked to expanded access Prescription increase in Medicaid-expansion states: 25% - Growth in prescriptions filled through Medicaid in expansion states Prescription increase in non-expansion states: 2.8% - Growth in prescriptions filled through Medicaid in non-expansion states Reduction in branded-drug spending from patent expiries in 2014: about $12 billion - Savings from patent expiries Reduction in branded-drug spending from patent expiries in 2013: $20 billion - Prior-year comparison Reduction in branded-drug spending from patent expiries in 2012: $29 billion - Earlier comparison year Commercial-plan share of exchange enrollees: about 70% - Estimate of enrollees coming out of commercial plans Projected outlook: lower growth in 2015 and over next five years - Aitken’s forecast for spending growth moderation

Pivotal Quotes: "when great new therapies come to market, there is indeed a market for them" — Murray Aitken: Explaining how innovative drugs, including hepatitis C and oncology therapies, drove spending higher "we do expect to see the share of spending on specialty drugs increase" — Murray Aitken: Discussing the future mix of drug spending and the strong specialty pipeline "we won't see another 13% growth rate" — Murray Aitken: Forecasting that 2014 was an unusually strong year and growth should slow

Implications: Drug spending growth is likely to slow from 2014’s spike, but specialty drugs, ACA-driven access, and biosimilars will keep reshaping payer budgets. Expect more emphasis on value, adherence, and price competition.