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Understanding the impact of structural changes in the US life sciences market and how to tackle them

14 Oct 2022

In an insightful presentation at the Indegene Digital Summit 2022, Blue Line Advisors' Scott Howell delved deeper into the primary drivers behind rising drug list prices in the US, highlighting their direct impact on how payers respond to change and how manufacturers develop and commercialize products.

This blog summarizes the main highlights of his presentation.

Reasons behind rising US drug list prices

The market has evolved from a time when branded drugs accounted for a majority of the prescriptions dispensed in the US. These drugs typically targeted primary care conditions with large patient populations – resulting in low drug prices per unit. However, generic drugs account for about 90% of all prescriptions filled in the US today. Of the 10% branded prescriptions, two-thirds target specialty conditions such as haematology, oncology, and auto-immune diseases where the patient population is relatively small. As a result, per-unit prices tend to be higher for the drug to be commercially successful.

"The industry has become hyper-concentrated in terms of where it receives its revenue, owing to high genericization of drugs," Scott said, adding that US manufacturers have also been forced to raise list prices over time given that countries outside the US typically pay significantly less for drugs due to varied price control measures used.

How payers are responding

Payers are increasingly using formulary exclusions and bidding competitive medicines against each other for limited spots in their formularies. Drug utilization management has also become more common and intense, with a majority of drugs being prior authorized today. On the other hand, patient cost-sharing has increased in the form of higher deductibles and co-insurance for expensive medicines placed in the specialty tier.

“As a result of all of this, prescription fill rates for new branded drugs have been declining, and this can have a big implication in terms of shifting launch uptake curves. It is a challenge for the industry and the patients we are trying to serve,” Scott said.

The impact

The impact on the industry triggered by the market changes highlighted above has been substantial, resulting in a big pricing headwind for the US life sciences market.

  1. Rebates have more than doubled from the $74 billion level recorded in 2012
  2. Net price trends have been negative since mid-2017, and
  3. Overall drug spending has flattened since 2014

There are also implications for patients as they face challenges related to intense utilization management and increasing cost shares.

  1. Average out-of-pocket spending by patients increased by 38% between 2014 and 2019
  2. Abandonment rates increased by 31% on average, while adherence rates in key diseases decreased significantly

The changes in the market have impacted the effectiveness and efficiency of traditional promotional levers used by life sciences' commercial teams. This is primarily due to the shift from face-to-face, rep-led engagements to digital modes of engagement among physicians. As a result, marketing spending on digital promotions has increased significantly. The industry's average spend on digital advertising has grown 38% since 2017.

What’s next?

“Focus on the implications that matter,” Scott said. To tackle the slew of challenges triggered by structural and market changes, he emphasized five key points that the life sciences industry should focus on to stay at the forefront.

  1. Build excellence in core functions, including market access, patient services, and integrated sales and marketing roles
  2. Simplify your selection criteria for registration trials to easily identify the patients likely to benefit from the drug, and focus on clinical endpoints that clearly demonstrate drug value
  3. Portfolios are important for asset valuations. Ensure that you create better value propositions for Pharmacy Benefit Managers and other payers
  4. Not all standard-of-care molecules translate to a good product or business. Manage portfolios thoughtfully and focus on medicines that bring incremental value
  5. And lastly, create a new system that incentivizes companies that offer fair prices and provide patients with better access to medicines