Pipeline Products: Specialty Products Stretch to the Horizon

In May 1897, Mark Twain wrote, “the report of my death was an exaggeration.” When people say that the pharmaceutical industry is dying, that the R&D pipeline is drying up, sometimes all you can do is shake your head. It may be true that industry insiders say that company X has a weak pipeline and is seeking to buy another company to bolster its prospects, but an analysis by PhRMA (http://www.phrma.org/sites/default/files/159/phrma_chart_pack.pdf) finds that the agents in various stages of clinical development number around 2,200 right now. That includes a staggering 878 oncology agents, followed by 334 products for respiratory disorders, and more than 200 being studied for mental health (not including Alzheimer’s disease or dementia) and cardiovascular disorders. Of note, a record number of medicines are being evaluated for the treatment of rare diseases. Further evidence of the health of the pipeline is how much money is being spent by the industry in R&D. In 2004, pharmaceutical and biotechnology companies spent nearly $48 billion in the United States alone on R&D. In 2010, this sum exceeded $67 billion.

That sounds like good news all around, right? Well, payers have been concerned for some time with the growing proportion of drugs that are considered specialty pharmaceuticals (generally costing more than $500 per month of therapy). These medicines—not only defined by price but by how they are stored, stocked, and administered—are highly scrutinized by pharmacy benefit managers. These executives aim their utilization management weapons, including the use of specialty pharmacies in an effort to get better pricing from the manufacturers, squarely at these products.

Generally, specialty pharmaceuticals are large molecules (as opposed to the common small-molecule agents that were introduced in decades past, like beta blockers, metformin, diuretics, etc.) that are synthesized through biotechnology methods. CVS Caremark’s annual trend reported that 21 drugs approved by the FDA in 2010 were in the specialty drug class. For payers, this is indeed worrisome. Express Scripts, one of the largest PBMs in America, predicts that by 2014, specialty drugs expenditures will constitute 40% of drug purchases in the United States (http://www.express-scripts.com/research/studies/drugtrendreport/2010/dtrFinal.pdf). In 2010 alone, Express Scripts found that spending on specialty medications increased by 19.6%. Leading the way were drugs to treat inflammatory disorders (e.g., rheumatoid arthritis), multiple sclerosis, and cancer therapeutics, accounting for more than two-thirds of the total. These agents averaged $2,080 per prescription, and much of this is subject to out-of-pocket payments (when obtained through the pharmacy benefit): usually coinsurance of up to 50% or flat copays of up to $500. Another interesting issue is that perhaps half of these pharmaceuticals are covered under the medical benefit, especially if administered in the doctors’ office, and patients may not contribute anything toward the cost of the biopharmaceutical. Since PBM organizations like Express Scripts don’t capture these claims data, the specialty drug trend may actually be higher.

In either case, this is driven by two major factors: the proportion of new products approved by the FDA that are specialty pharmaceuticals, and their increasing utilization. This is driven by 2 statistics, from CVS Caremark: > 50% of late-stage pipeline drugs and > 70% of applications for new indications are for specialty drugs, to widen their use even further. (http://info.cvscaremark.com/files/reports/Insights2011.pdf)

Express Scripts forecasts the trend from 2011 to 2013 to top 20% annually in the inflammatory disorder category, with a per-member per-year cost rocketing from $44.95 in 2011 to $66.26 by 2013. And of the 3 fastest-growing specialty drug areas, these are the slowest-growing figures.

Willie Sutton, the famous bank robber, contributed another famous quote when asked why he robs banks. “Cause that’s where the money is.” The trend in growth of the specialty category will continue for some time, because the pharmaceutical companies know where the money is in 2011 and beyond. That’s why the pipeline is as robust as it is, that’s why the larger manufacturers are seeking to bolster their own pipelines through acquisitions or partnerships with drug discovery firms, and that’s why payer executives are looking very worried today and for the future.

Disease Category

Products in Clinical Development

Cancer

878

Respiratory disorders

334

Mental and behavioral disorders

252

Cardiovascular disorders

237

Diabetes mellitus

193