Manufacturers concede on price as drug spending increases

By Melissa Fassbender

- Last updated on GMT

The total spending on medicines in the US reached $310bn in 2015. (Image: iStock/Milkare)
The total spending on medicines in the US reached $310bn in 2015. (Image: iStock/Milkare)
Specialty medicine innovation is driving growth, yet advances are being offset by price concessions from manufacturers, according to IMS Health.

According to a new report​ by the IMS Institute for Healthcare Informatics, the total spending on medicines in the US reached $310bn in 2015, which is up 8.5% from the previous year.

The report covered the influx of new medications last year and the demand for newly launched brands – especially specially drugs for which spending reached $121bn, up more than 15% from 2014.

Michael Kleinrock, IMS Institute director of research, told us that “by far the biggest surprise​” in the report was “the extent to which net prices grew more slowly than invoice prices​.”

According to the report, total spending on an invoice price basis reached $425bn in 2015, up 12.2% from 2014. On the contrary, competition among manufacturers, coupled with efforts from health plans and pharmacy benefit managers to stifle price growth, resulted in concessions that reduced price increases on an estimated net basis to 2.8%. According to IMS, this number is significantly lower than in previous years.

A competitive market is critical to the way in which payers negotiate rebates which contribute to slower net price growth​,” added Kleinrock.

Manufacturers have to concede rebates, usually as a payment for formulary position in competitive markets, or they have to concede price protection (price increases above a set level are rebated back), and in some cases they provide coupons to patients which lower patients’ costs, and those payments all lower their net sales, though not all concessions are paid to the same participants​,” he explained. “Some are to insurers, some are to patients or pharmacies, and it’s constantly shifting​.”

Spending through 2020

Spending on medicines on a net price basis in the US is expected to reach $370bn to $400bn in 2020, growing at a 4% to 6% compound annual growth rate.

The report explained, “This growth will reflect increased spending on innovative medicines, offset by lower spending on brands that will lose market exclusivity over the next five years​.”

As Kleinrock explained, these brand prices will be offset by various price concessions, although prices are expected to continue to increase from 10 to 12% on an invoice basis.

In this same time over the next five years, an average 43 to 49 NASs are expected to be launched and the late-phase pipeline currently holds 2,320 novel products. “The prospects for additional innovative medicines becoming available for patients through 2020 are very bright​,” according to IMS. 

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