Imagine if 22% of fields that need fertilizer from Agrium (NYSE: AGU ) never got it. Or 22% of cars were just abandoned by their owners because they didn't bother filling up their tanks with product from ExxonMobil (NYSE: XOM ) or Chevron (NYSE: CVX ) . Investors would be frothing at the mouth at the potential for increased sales.
That's the situation that drugmakers are in. An article in this month's Journal of General Internal Medicine found that 22% of prescriptions are never filled. Imagine if every drugmaker was suddenly able to realize those sales, which were apparently medically necessary since a doctor wrote the prescriptions. There'd be an instant 28% increase in revenue -- maybe higher if the drugs that aren't filled are at the higher end of the cost scale.
And that might be the rub
The people in this study had insurance -- that's how they tracked the prescriptions -- but in most plans there's still a difference in the level of co-payment for generic drugs and branded drugs. At a cost of double or more their generic counterparts, branded drugs may be out of reach for some patients.
That's one of the reasons pharmaceutical companies have struck deals with health insurers to lower the co-pay in exchange for discounting the price the insurer pays for their branded drugs. The drugmakers make less money per prescription, but the lower co-pay may encourage patients to refill their medications month after month.
I imagine the number of abandoned prescriptions is much higher when you include the uninsured. That's part of the reason that the pharmaceutical companies were so quick to strike a deal to give up some of their profits to help low-income seniors in the Medicare donut hole. They tied the agreement to the passage of the entire health-reform package, which should increase the number of insured patients who are able to afford medications.
Of course, health-care reform is in limbo right now, but if anything does pass, the number of people the bill can get off the uninsured rolls is the key number that drug investors should look for.
A little education could go a long way
The breakdown of drugs that didn't get picked up could give clues about which drugs might benefit if drugmakers could decrease the abandonment rate. Not surprisingly, prescriptions for drugs that treat children were picked up at a higher-than-average level. Adults apparently aren't as likely to gamble with their children's health as their own.
Pain medications was the highest class of new prescriptions that weren't picked up -- a whopping 55.2% of the prescriptions. Drug companies may have a hard time capturing those patients though -- I imagine a lot of them were for patients who started to feel better and decided they didn't need the drugs after all.
But there were a few other classes where drugmakers might have better luck. New prescriptions for hypertension medications weren't picked up 28.4% of the time, cholesterol drugs like Pfizer's (NYSE: PFE ) Lipitor or AstraZeneca's (NYSE: AZN ) Crestor weren't picked up 28.2% of the time, and diabetes drugs like Merck's (NYSE: MRK ) Januvia or GlaxoSmithKline's (NYSE: GSK ) Avandia had a whopping 31.4% abandonment rate. For these relatively long-term illnesses, patients aren't likely to feel sick when given the prescription and may be more likely to put off filling their medications.
It might be time for drug companies to start launching commercials encouraging patients to pick up their drugs rather than the current mantra encouraging you to "talk to your doctor." Based on this data, the return on investment could be fairly high.
Tim Hanson has a prescription to save your portfolio. Don't forget to pick it up.