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Positive outlook for U.S. drug prices

Drug prices are a constant concern for investors in the biopharmaceutical industry. Drug prices in the United States will continue to rise as the innovations offered by many medicines are effective. A survey of drug buyers in the United States over the past 29 years has shown that drug prices continue to rise despite multiple reforms, pricing fears and election cycles.

Buyers who took part in the survey in December 2023 expected that the average cost of purchasing branded medicines per unit would increase by 8% over the next three years (+12% on a weighted average). Fifteen percent of respondents attributed a significant (75%) portion of the expected price increases over the next three years to a shift to more expensive new therapies, as opposed to 19% last year. Only one respondent, representing only 1% of drug costs among the surveyed payers, predicts a decrease in drug prices over the next three years. The survey results are based on responses from 27 HMOs, PBMs and hospitals.

In total, they purchased medicines worth about $144 billion in 2023, which is about a fifth of total drug spending in the United States.

Implications for financial and industry models

The optimistic outlook for the biopharmaceutical sector takes into account the favorable dynamics of production and the absence of negative effects of drug prices in the United States. This gives confidence in production forecasts, which are key growth factors in the coming years. The Inflation Reduction Act (IRA) provides mechanisms to control drug prices from 2026. Half of the respondents believe that the law has a moderate (25%) impact on drug prices over the next 3 years. No payer expects a significant (75%) impact on drug prices, and 23% of buyers believe that the IRA will have no impact.

When asked about the likelihood of an IRA bill assistance provision affecting drug use in 5 years, 42% of payers replied “Probably without impact.” The prospects for biosimilars are also in the spotlight. Over the past few years, there has been a steady trend in which payers expect biosimilars to take an increasing share of the market, especially when several biosimilars compete with one original product.

This trend has coincided with an increase in the number of high-tech branded biologics with high sales and value coming out of patent, an example of which is Humira. Despite the drop in profits from off-patent drugs, overall average drug prices are still expected to increase in line with previous years.

Average prices for branded medicines 

The cost of purchasing branded medicines per unit has increased by an average of 5% over the past 12 months, while the weighted average has increased by 9%, which is very similar to the changes of +4% and +6% in 2022. Eleven percent of the respondents attributed a significant (75%) part of the increase to a shift in their purchases towards more expensive new drugs, while 59% attributed a moderate (50%) part of the increase to new drugs, and 15% – a small (25%) part. In last year’s survey, these figures were 19%, 27% and 54%, respectively.

The products/categories that were most often mentioned as having the greatest impact on product range renewal included oncology, diabetes, rheumatology, genetic/cell therapy, obesity, dermatology and gastrointestinal tract. This is very similar to last year, although obesity has risen in the list.

The political structure of the executive and congressional branches of the federal government does not seem to correlate strongly with price trends for branded medicines.

Customer expectations 

Over the next 12 months, the average cost of purchasing a unit of general medicine is expected to increase by about 2%, but decrease by about 1% on a weighted average. After 3 years, our respondents predict that the average cost of purchasing a unit of general medicine will increase by about 2%, although the weighted average will be -1%.

The cost of purchasing branded medicines per unit is expected to increase by 8% over the next 3 years. In terms of the weighted average, payers predict an increase of 12%. The latter is slightly higher than last year’s three-year forecast and represents a continuation of the trend towards double-digit price increases. The most frequently mentioned as those likely to have the greatest impact on overall drug price inflation over the next 3 years were oncology, genetic/cell therapy, and diabetes.

With the increase in the use of GLP-1 (a category specifically mentioned by several payers), the increase in cost was associated with diabetes drugs. Due to the advent of Humira biosimilars, rheumatology has become a less frequent choice compared to the past.

The Law on Limiting Inflation

A survey of payers regarding expectations regarding the impact of the Law on Limiting Inflation on drug pricing and use yielded the following results. The Inflation Reduction Act (IRA) will abolish catastrophic co-insurance and limit the annual out-of-pocket costs of patients suffering from Part D of the Medicare program (an additional program of the US federal government that helps Medicare beneficiaries pay for prescription drugs themselves).

Half of the respondents believe that the law is likely to have a minor (25%) contribution to changes in drug prices over the next 3 years, 27% of payers believe that the effect will be moderate (50%). None of them foresee a significant (75%) impact on drug prices, and 23% of buyers believe that the law will have no impact.

The categories considered most vulnerable to the provisions of the Law on Limiting Inflation were diabetes, oncology, rheumatology, cardiovascular diseases and obesity.

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