The TD Cowen Insight
Like the last few years, our annual U.S. drug pricing survey shows that the majority of respondents continue to expect U.S. brand drug prices to rise over the next three years at a low-single-digit annual rate. The impact of the Inflation Reduction Act (IRA) is expected to be very modest, both in terms of implications for price and utilization. Additionally, biosimilar pricing and usage expectations may have plateaued.
Positive Outlook For U.S. Drug Prices
The outlook for drug prices is an ongoing source of anxiety for biopharma investors. In contrast to this fear, we believe that U.S. drug prices will continue to increase because the innovation that many medications provide offers a real benefit to patients. As long as biopharma continues to deliver these innovative products, we see no change in the upward trend in drug prices.
Acquisition Cost Per Unit Expected to Rise
This year’s survey results are based on responses from 26 HMOs, PBMs, and hospitals. Collectively, they purchased $90B + of drugs in 2022, or about two-fifths of total U.S. retail drug purchases.
We have conducted a survey of buyers of drugs in the U.S. for the past 28 years. During this time, our survey has predicted that drug prices would rise, despite multiple reform initiatives, pricing scares, and election cycles. And indeed, prices have increased during this time.
This year’s sample of purchasers, who responded to our survey in December 2022, anticipated that brand drug acquisition cost per unit would increase by an average of 8% over the next three years. This is slightly higher than last year’s forecast and may be the continuation of a trend back toward expectations for double-digit price increases.
Newer Therapies Drive Increases
Nineteen percent of respondents attributed a substantial (75%) portion of the anticipated increase over the next three years to a mix shift to higher-priced, newer therapies vs. 8% last year. Only one respondent, representing just 1% of drug spend amongst surveyed payors, predicted a decline in drug prices over the next three years.
We are constructive on the biopharma sector given the strength of pipelines, favorable unit dynamics, and the fact that U.S. drug prices do not appear to be a drag on this outlook, blunting to some extent price erosion outside the U.S. This backdrop allows us to have a greater conviction in our forecasts for individual products, many of which are critical drivers of growth for years to come.
Impact of the Inflation Reduction Act
New in 2022 was the passage of the Inflation Reduction Act (IRA), which includes mechanisms to curb drug prices while boosting usage, beginning in 2026. Clearly this needs to be monitored closely, so we asked about it in this year’s survey.
The answers might not be what some would anticipate. A majority of respondents – 54% – deemed the bill likely to make a modest (25%) contribution to drug price changes over the next 3 years. The next most common response was “None (0%),” chosen by 23% of payors. When asked to what degree the co-pay assistance provision of the IRA is likely to impact drug usage in 5 years, 42% of payors responded, “Likely no impact.” Also imminent is the arrival of biosimilar competition on certain big-selling drugs. But our survey suggests that biosimilar pricing and usage expectations may have plateaued.
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