Drug Watch 2009

Let’s start with the good news. ESI Canada’s annual drug trend analysis found that private drug spend increased by 5% nationally in 2008 (an increase of $33 per claimant, from $665 to $698) compared to a 7.1% increase in the average drug spend per claimant in 2007. This lower drug trend is due, in part, to an increased generic fill rate, which reached a record high in 2008. Forty-five percent of all prescriptions filled during the last year were for generic drugs.

Figure 1 shows the top 10 drugs ranked by total cost in ESI Canada’s book of business for 2008. While many remain the same from year to year, several have experienced generic competition in recent years (e.g., Effexor XR, Altace and Pantoloc).

Generic Drug Pipeline
Increased utilization of generic drugs has helped to reduce the drug trend in 2008. Further savings are expected as more highly utilized brand name drugs are scheduled to come off patent within the next five years. A number of the top 10 drugs that currently aren’t subject to generic competition will lose their patents, offering the potential for significant savings.

For example, Lipitor, Norvasc and Advair are scheduled to lose patent protection in 2010, and Crestor and Nexium in 2012 and 2013, respectively. Using current percentages of total drug spend, savings are estimated at 5% to 7%, assuming that generics will enter the market at approximately 70% of the brand price. Note that these dates indicate when the first patent will expire on the drug. This doesn’t necessarily imply that generics will be immediately available, as patent litigation and other market dynamics could delay their entry.

Growth in Specialty Drugs
The lower drug trend in 2008 may be a little misleading. While generic drug utilization has reduced the percentage increase over the past year, expenditures on high-cost specialty drugs are increasing at an alarming rate. Specialty drug spend is growing at a rate of 17% per year, compared to 3% for all other drugs. In 2008, specialty drugs accounted for 14.7% of drug spend, versus 13.2% in 2007. Furthermore, specialty drugs represented less than 1% of all prescriptions filled over the course of last year but had an average cost per script of $1,068.

The fastest growing specialty drug category is biologics (e.g., Remicade, Enbrel, Humira, Orencia) for rheumatoid arthritis, Crohn’s disease and other related conditions. This trend will likely continue with the recent approval of Simponi (golimumab) for rheumatoid arthritis, psoriatic arthritis and ankylosing spondylitis, and the addition of Cimzia (certolizumab) for Crohn’s disease and rheumatoid arthritis expected in the near future.

Increased Cost Shifting
Although the lower drug trend and generic drug pipeline look promising, this is not the time for private payers to become complacent and ignore their drug expenditures. The ongoing cost shifting from the public to the private sector is expected to continue, with more drugs being administered in private infusion clinics or at home, which could lead to a greater number of high-cost specialty drugs falling into private payers’ budgets.

The impact of high-cost specialty drugs is already being felt by plan sponsors (as seen in Figure 1 with Remicade and Enbrel), and this will increase in the future. More than half of the new drugs introduced to the Canadian market in 2008 (see Figure 2) reveal a continuing focus on the development of high-cost specialized drug therapies. These drugs have had a small impact on the therapeutic mix in 2008 but will have a greater impact in 2009 and in future years. Many of these new drugs provide advantages over existing therapies and treatments for diseases that were previously untreatable. However, they come with a significant price tag. For example, Revlimid and Catena can cost more than $100,000 per patient per year.

Pipeline and Future Forecast
Specialty drugs are the primary focus going forward and have the potential to expand to conditions that are currently treated with relatively inexpensive medications. A number of large pharmaceutical manufacturers have recently announced that they will be focusing their research and development efforts toward biotech ventures, primarily in the areas of cancer, mental illness, vaccines and autoimmune disorders.

Based on the data currently available, more than 250 unique chemical entities are in the late stages of development in Canada. It’s important for private payers to know that approximately half of these drugs would be classified as specialty drugs, which could enter the market at high prices. If the specialty drug trend continues at its current rate (17%), coupled with the number of potential specialty drugs set to enter the market in the next five to seven years, it is estimated that the overall average drug spend per claimant could increase from $698 to nearly $1,200 by 2018—representing an increase in drug spend of more than 70% in just 10 years.

Subsequent Entry Biologics
The prospect of “generic” versions of biologics (drugs derived from living organisms or their by-products) could provide some relief to the escalating costs seen with these agents. However, the approval process will be quite different from what exists today for generic drugs in Canada.

The issue is that biologics are much more complex than traditional synthetic drugs. Any “copies” will be similar but not exactly the same as the innovator product. Because the products won’t be identical, subsequent entry biologics (SEBs) will, in most cases, require their own clinical trials demonstrating efficacy for a particular indication.

As a result of this increased investment, SEBs may provide only marginal cost savings compared to the original biologics. However, one may argue that a 10% savings on a drug that costs $30,000 or more per patient per year is still significant.

The first SEB in Canada—Sandoz’s version of somatropin (human growth hormone)—was approved by Health Canada on April 20, 2009. Plan sponsors should make the necessary provisions within their plans so that they are poised to benefit from SEBs when they become available, as existing generic interchangeability rules may not apply.

Solutions for Plan Sponsors
Looking ahead, drug plan sponsors will need to ensure that they are set to benefit from the number of brand name drugs that are scheduled to lose their patents within the next few years. This involves initiating generic substitution—or mandatory generic substitution—to enforce the use of lower-cost equivalents when they become available.

In addition, the approval pathway for SEBs will soon be finalized in Canada, allowing more such products to come to market. Plan sponsors will need to consider how they can incorporate these agents into their plan designs to benefit from any potential cost savings.

Finally, the management of specialty and biologic drugs will become increasingly important to plan sponsors. While these drugs do provide substantial advantages over existing therapies, it’s critical to manage appropriate utilization because of their high cost.

Searching out provincial programs for other avenues of coverage, defining the conditions under which specialty and biologic drugs should be reimbursed (for example, prior authorization), monitoring appropriate utilization (e.g., dosing, response and side effects), and considering the various funding options (such as the use of plan maximums, high-amount pooling and stop-loss insurance) will all be necessary to manage this category of drugs in the future.

Cory Cowan is product manager, business development, with ESI Canada.
ccowan@express-scripts.com

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