News from the drug front

Looking at the top 10 drugs claimed by unique drug identification number (Figure 1, see PDF), three of them are biologics. In terms of overall dollars, Lipitor remains in the lead—on this list, three variants of Lipitor combine to total about 4.4% of total spend. Next is Remicade, a biologic with an average value of about $3,500 per claim (bearing in mind that average claims values are dependent on any number of variables including co-pay, plan designs, co-ordination of coverages with the Ontario Drug Benefit (ODB) and so on). Of the other two biologic drugs on this list, Enbrel has an average cost of around $1,645 per claim, and Humira averages $1,660 per claim. Examining the claim amounts per item instead of grouping similar products allows us to see, in greater detail, the impact that biologics are having on drug claims costs.

The generic cliff
The year in review for prescription drug plans in 2009 brings a new term to the lexicon of pharmacy plan management. The “generic cliff” comes ever closer as we witness patent expiration on some of the biggest names in prescription drugs. Most notable is Lipitor, expected to expire in 2010, but the list of expirations from now to 2014 (Figure 2, see PDF) is an impressive who’s who of top drugs.

We might expect this to be good news—after all, conventional practice has been that once a drug goes off patent, a lower-cost generic enters the market to provide price relief to plan sponsors. However, this model is rather “last decade.” Since traditional single-molecule drug pipelines are not as robust as in years past, pharmaceutical firms are proving to be very dynamic in their ability to guard their traditional turf using new pricing policies. Today, it is not uncommon to have brand name products aggressively priced to counter generics before patent expiry. Going forward, it does not seem as though generics will be able to offer the same savings to plan sponsors that they used to, although they remain the majority of claims by number.

Loss of traditional generic savings
The unintended consequence of Bill 102, the Transparent Drug System for Patients Act, is that it puts greater cost pressures on private sector payers. Since most of the private payer drug spend is on generic products, addressing generic pricing gaps would greatly benefit private payers. Yet in Canada, that does not necessarily translate into lower costs, with or without patent protection. There is a relatively new practice of re-pricing the brand to compete with the generic even before the brand comes off patent protection.

For example, take Crestor, a brand name drug used to lower cholesterol levels that will come off patent within the next four years. Today, it costs $145.63 for the 10mg variant. Simvastatin, a generic statin (a class of drugs used to lower cholesterol) and a relative equivalent, costs about $148.20. No savings there—but this is where drug pricing policy in Canada desperately needs attention. In the U.S., that same generic prescription costs $80.11 (all figures in Canadian dollars).

When plan sponsors think of generics and lower costs, paying $80 as opposed to $145 reflects the thinking behind plans that tout generics and generic equivalents. This pricing disparity is indicative of new opportunities for brand to generic competition—opportunities that did not exist even three years ago.

In reaction to this reality, there’s an emerging trend of plan sponsors going directly to the manufacturers to negotiate pricing, foregoing the traditional wholesale model that is so well entrenched. Manufacturers and the local pharmacist—who, in the case of direct cost negotiations, are not at the table—will not have their interests represented. It is widely expected that in 2010, there will be another attempt to address this complex issue.