Spending on medicines reached $373.9 billion in the US in 2014, up 13.1% year over year, the highest growth level since 2001.So what was behind the resurgence in the US market and will it continue? DCAT Value Chain Insights offers perspective from a recent IMS analysis.

The US is the largest single national pharmaceutical market in the world, so the direction of the US market is critical for the overall performance of the global pharmaceutical industry. The story for 2014 was the recovery in the US pharmaceutical market, which reached its highest growth rate since 2001. The year 2014 was also a landmark year with major change in US healthcare policy with the implementation of the Affordable Care Act. So how do these changes, combined with overall industry trends of increased spending for specialty medicines, biologics, and ever-present generic competition, mean for the US pharmaceutical market?

A macro view of the US pharma market
Nominal spending on medicines reached $373.9 billion in the US in 2014, up 13.1% year over year, the highest growth level since 2001 when growth was 17.0%, according to a recent analysis by the IMS Institute for Healthcare Informatics, Medicines Use and Spending Shifts: A Review of the Use of Medicines in the US in 2014. Overall spending on medicines in the US increased $43.4 billion to $373.9 billion in 2014, according to the IMS analysis. Spending on new brands increased by $20.2 billion in 2014, triple the previous level. New drugs for the treatment of hepatitis C, cancer and multiple sclerosis, and higher spending on diabetes drugs contributed the most to spending growth. Another key trend continued in 2014 in the US was the rise of spending on specialty medicines. IMS defines specialty medicines as products that are often injectable, high-cost biologics or require cold-chain distribution. They are most used by specialists and include treatments for cancer and other serious chronic conditions. In the US, spending on specialty medicines has increased $54.0 billion over the past five years and contributed 73% of overall medicine spending growth in that period. In 2014, spending of specialty medicines in the US increased by 26.5% to $124.1 billion, according to IMS. Increases in specialty spending were driven by new medicines for autoimmune diseases, hepatitis C, and oncology, which collectively accounted for $34.7 billion of the increased spending. The largest single driver of specialty spending growth in the US was for treatments for hepatitis C, which totaled $12.3 billion in 2014. Spending on oncology and autoimmune treatments increased 16.8% and 24.0% respectively and spending on MS drugs increased 24.4%. Overall, specialty medicines accounted for $16.3 billion or 81% of the $20.2 billion in total new brand spending in the US. Four new treatments for hepatitis C increased spending by $11.3 billion in the US in 2014. Other new medicines, including treatments for multiple sclerosis (MS), cancer, and diabetes, drove $8.9 billion of increased spending in the US.

Overall, spending on protected brands in the US increased $25.6 billion in 2014 following an increase of $18.3 billion in 2013. The decline in the volume of protected brand products reduced spending by $700 million in 2014. Prices for branded products rose in 2014 at an average rate of 13.5% on an invoice level but were reduced to a 5% to 7% increase when taking into account off-invoice discounts and rebates. Overall prices increases for protected brands increased spending on medicines in the US in 2014 by $26.3 billion, contributing 8.2% to total market growth on an invoice price basis. Estimated net price growth was lower as the result of rising off-invoice discounts and rebates that offset incremental price increases and reduced the net price growth contribution to 3.1%.

The impact of patent expiries, which had slowed spending in the past five years, reached a recent low, of only $11.9 billion in 2014, almost one-third of the level in 2012 when patent expiry peaked and reached $29.3 billion. Some key patient expiries included Eli Lilly's Cymbalta (duloxetine), a serotonin and norepinephrine reuptake inhibitor indicated for major depressive disorder, generalized anxiety disorder, anxiety, and certain pain indications, in 2013, and in 2014, Pfizer's Celebrex (celecoxib), a nonsteroidal anti-inflammatory drug for treating arthritis among other indications A period of fewer patent expiries since the middle of 2013 drove most of the reduced impact, according to the IMS analysis, but off-patent brands that did not face generic competition reduced the impact in 2014 by an estimated $4 billion to $5 billion. Generic drug spending increased $9.5 billion in the US in 2014, driven by increased spending on generic mental health, pain, and cancer medicines. Despite the lower level of expiry impact in the US in 2014, the share of prescription medicines dispensed in the US as generics increased by 2% to 88% in 2014, according to the IMS analysis.

“Last year's $43 billion grown in spending on medicines was record-setting and the result of simultaneous very high level of spending on new drugs and an unusually low level of patent expiry impact,” said Murray Aitken, IMS Health senior vice president and executive director of the IMS Institute for Healthcare Informatics, in commenting on the trends in the US market. “It was also a landmark year in the implementation of the Affordable Care Act (ACA), and yet the increase in the number of insured patients under the ACA directly accounted for only $1 billion of the spending growth as patients took some time to ramp up their medicine use.”

Trends in reimbursement activity and Rx drugs
Overall, demand for healthcare services in the US declined in 2014 despite being the first year of insurance coverage for Americans under the ACA. From the end of September 2013 to year-end 2014, the uninsured rate was reduced by 5.1% with 15.7 million people added to the insured population due to the ACA's Medicaid expansion, Health Insurance Exchanges, and the continued economic recovery. In the first full year of enrollment for expanded Medicaid and exchanges under the ACA, patients with Medicaid in stated that expanded eligibility filled 25.4% more prescriptions than the prior year compared with 2.8% more in non-expansion states, according to the IMS analysis. Newly covered patients in Health Insurance Exchanges had slightly lower levels of increase in medicine us, and 70% of them were commercially insured in the prior year. Patients with employer-based insurance filled few prescriptions in 2014 due in part to the impact of rising co-pays and deductibles. High out-of-pocket costs can be mitigated with various forms of co-pay assistance, including vouchers and discounts. The IMS analysis points out that as many as half of all branded prescriptions in newer diabetes treatments, for example, are supported this way, compared to 8% of brands in other therapy areas. Overall, healthcare services in the US shifted in 2014 as patients had 3.0% fewer office visits and 1.7% fewer hospital admissions but filled 2.1% more prescriptions.

A look at the pipeline
New product introductions, which helped to drive strong growth for the US pharmaceutical market in 2014, is an important barometer for future growth. It is expected that specialty medicines will continue to hold an important part of the US market, continuing a trend. The share of spending for specialty drugs in the US market increased dramatically over the past decade. In 2004, the share of specialty medicines of the US market in 2004 was 14% and in 2014, this share rose to 33%, a trend that is likely to continue as 42% of the late-stage pipeline is composed of specialty drugs, according to the IMS analysis. Overall, IMS estimates that there are 532 distinct research programs (overall, specialty and non-specialty drugs) in late stage (Phase II and greater) for the US market, 60% to 65%, which are likely to make it to market. Cancer, autoimmune, and infectious disease indications lead the drugs with new active substances (NAS) that are under development. IMS estimates that there are 320 NASs in late-stage development in the US. The number of pipeline candidates in late-stage development of non-NAS products, which are products with new drug-delivery systems, line extensions, and biosimilars, are estimated at 110, and products with follow-on indications in late-stage development for the US market are 102, according to IMS estimates.