If you've got an arm or a leg to spare, the pharmaceutical industry just might have a drug for you! OK, so maybe that's a bit of a facetious way of looking at the drug development industry, but there's little denying that prescription drug costs are a growing concern for many consumers.
Prescription drug prices are soaring
Although prescription drug costs have always been a contentious issue among consumers, drug costs were brought to the forefront in September when privately held Turing Pharmaceuticals jacked up the costs of rare disease drug Daraprim, which it had acquired just a month prior, from $13 per pill to $750 per pill overnight. Turing eventually caved in to consumer pressure days after the price hike, but it nonetheless put drug developers square in the spotlight. Consulting firm Milliman expects a 13.6% increase in prescription drug prices for 2015, a trend that looks poised to continue into next year as well.
As we discussed last week, traditional drug price inflation tends to be hit or miss depending on the therapeutic indication. However, when it comes to specialty indications, which are more complex and rare than traditional ones, there's no mistaking the trend: prescription costs are rising very fast.
These specialty drug classes cost an arm and a leg
According to the 2014 Drug Trend Report from Express Scripts (NASDAQ:ESRX), the nation's largest pharmacy-benefits manager, specialty therapies for the top 10 spendiest therapeutic indications rose by a whopping 25.2% in 2014, while utilization rates increased by a modest 5.8%. Increased cancer drug usage, stemming from longer survival times, was a driver of utilization, whereas price growth can be pinpointed, in many instances, to individual drugs.
Express Scripts determines whether costs rose or fell on a year-over-year basis by utilizing its per member, per year spend, or PMPY spend. Based on its findings, the following specialty therapy classes are by far the costliest to consumers.
Topping the list, according to Express Scripts' PMPY spend, is inflammatory conditions, where overall drug use rose by 8.5%, and unit costs rose close to 16%. This was the sixth consecutive year that inflammatory conditions took the "honor" as the most expensive drug class per Express Scripts.
What's the culprit? It looks to be a combination of a growing number of rheumatoid arthritis cases, as well as two primary therapies holding a vast majority of market share. AbbVie's Humira and Amgen's Enbrel together hold more than 80% of the inflammatory condition market share. Enbrel is currently on pace for $5 billion in sales, whereas Humira could be on pace for a record year of more than $13 billion. With little in the way of established competition, these two titans can raise their prices on an almost as-needed basis.
Something worth watching here is the imminent loss of patent exclusivity on Humira at the end of 2016 and the eventual introduction of non-branded competition. It's possible that the inflammatory condition class could see cost cuts in the near future with Humira's dominance ending, but we're still a little more than a year away from that happening.
Sporting a PMPY spend of $52.36, multiple sclerosis therapies are the second-costliest specialty drug class, per Express Scripts. Although a mere 0.1% of the members in its network use MS drugs, the average prescription cost is over $4,500 due to the lack of generic drugs in this space. Year-over-year costs rose close to 10%.
There are a number of big players in MS, such as Teva Pharmaceutical (NYSE:TEVA) with its new longer-acting version of Copaxone. It'll be interesting to see how successful Teva is in transitioning patients over to the new extended formulation considering the prior-generation formulation is now off patent. For now, Copaxone maintains a commanding lead with nearly 30% market share, but expect this share to shift when Express Scripts updates the data next year.
If there is a therapy to rival Copaxone, it's Biogen's (NASDAQ:BIIB) Tecfidera, a $3 billion-plus annual drug that costs about $55,000 per year. At the end of 2014, Tecfidera nearly had 20% market share in the MS space, and it sports such a favorable safety profile compared to competing therapies Gilenya and Aubagio that it'll likely hold onto its commanding market share for years to come. Biogen is among the leading researchers in MS, and its therapies will more than likely go a long way to determining pricing in this indication in the coming years.
Personally, I was shocked this wasn't higher up on the list, but oncology drugs rank third in total PMPY spend at $41.64. Usage in this space rose by 8.9%, while costs jumped almost 12%. Oncology usage in Express Scripts' network is slightly lower than MS drug usage, but prescription costs in this indication average almost $6,200.
Express Scripts points out that patients living and responding longer has helped drive oncology drug demand higher. Drug developers' focus on specialized cancer therapies, such as immunotherapies, is expected to play a major role in driving costs higher over the long run, too. Newly-approved immunotherapies such as Keytruda and Opdivo bring annual wholesale costs of $150,000 and $143,000 to the table. Insurers are almost certainly working out discounts relative to these wholesale costs, but these are expenses that the average American is going to struggle to afford.
Celgene's (NASDAQ:CELG) Revlimid, a drug used as a primary first- and second-line treatment for multiple myeloma, held 10.8% of all oncology drug market share in Express Scripts' network of patients. With Revlimid being examined in eight other ongoing studies and already boasting a price tag near $100,000 per year, it's no wonder that Celgene's lead product is on pace for between $5.6 billion and $5.7 billion in sales this year.
Finally, it should come as no surprise that hepatitis C shot up the cost ranks among specialty diseases to No. 4 on Express Scripts' list with a PMPY spend of $37.95. Overall demand for HCV medicine rose 76% in 2014, while prices jumped a staggering 667%. No, there's not a misplaced number or decimal point there -- that's six hundred and sixty-seven percent!
If you want to point the finger, look no further than Gilead Sciences (NASDAQ:GILD). The approval of Sovaldi in 2013 and Harvoni in 2014 introduced two once-daily pills that came with price tags of $1,000 per day and $1,125 per day, respectively. Taking into account the average treatment timeframe of 12 weeks (some patients can qualify for as little as eight weeks of treatment, while others need up to 24 weeks), patients and their insurers are staring down $84,000 or $94,500 in total treatment costs.
Of course, Sovaldi and Harvoni also offer unparalleled convenience and efficacy compared to prior-generation HCV therapies. Prior therapies, such as ribavirin and interferon, came with unpleasant side effects that included, but weren't limited to, flu-like symptoms, anemia, and rashes. Plus, cure rates prior to Sovaldi's approval were in the 50% to 80% range. Sovaldi and then Harvoni eliminated many of those unpleasant side effects, and most importantly led to a 90%-plus HCV clearance rate in nearly all clinical studies. As long as Gilead maintains its convenience and efficacy lead in the HCV space, expect its price to remain high.
With the exception of inflammatory conditions, it's unlikely that consumers are going to see any relief in specialty drug prices anytime soon. For investors in most specialty drug developers that's great news, but for consumers it could mean opening up their pocketbooks ever wider.