THE COWEN INSIGHT
The majority of respondents in the drug pricing survey expect U.S. brand drug prices to continue to rise over the next 3 years, but at a low single digit rate. In some past years, buyers have underestimated future price strength.
The political makeup of the federal government does not correlate with brand drug price changes. Price controls are unlikely.
Diabetes is the most vulnerable to price erosion. Biosimilar trends continue to meander. Expected discounts have increased as has expected penetration when there are multiple competitors.
Buyers Responsible for One-Fifth Of U.S. Retail Drug Purchases Surveyed
In mid-January, Cowen conducted its 26th Annual Drug Pricing/Purchasing Trends survey of U.S. buyers to gain insight into the direction of U.S. drug prices over the next 3 years. Our survey results are based on responses from 26 U.S. HMOs, PBMs, and hospitals. Collectively, they purchased $40B+ of drugs in 2020, or about one-fifth of total U.S. retail drug purchases.
Low-Single Digit Rise In Drug Prices Projected
This year’s sample of purchasers anticipate that brand drug acquisition cost per unit will increase by an average of 2% annually over the next 3 years. This is in line with last year’s forecast. It is the second year in a row of a reversal in a decades-long trend for mid single-digit increases. 12% of respondents attribute a substantial (75%) portion of the anticipated increase over the next 3 years to a mix shift to higher-priced, newer therapies vs. 35% last year. Average generic drug acquisition cost per unit is expected to be about flat over the next 3 years.
Biosimilar Pricing Trends Continue To Meander
Respondents indicate that a weighted-average 41% price discount would be needed to switch from a brand to a biosimilar product. Surprisingly, this is up from 30% last year.
For molecules for which one biosimilar is available, a weighted-average 27% of dispensed prescriptions are likely to be biosimilar substitutions in three years. This is similar to last year’s results. This rises to 50-59% when three biosimilars are available, significantly increased from the 34-35% forecast last year.
Drug Price Controls Still Unlikely In Next Three Years
31% of respondents believe there is a 10% or less chance that price controls on pharmaceuticals will be implemented in the U.S. in the next three years (vs. 42% of respondents last year). Only 8% of these respondents believe there is a 50%+ chance (vs. 12% of respondents last year). When asked how the likelihood of price controls has changed in the last five years, 18% indicate no change, 58% believe the likelihood has increased somewhat, but 24% feel the likelihood has increased significantly. Last year, 12% thought the likelihood had increased significantly.
Drug Prices Have Increased Each Year For A Quarter Century
Our survey has correctly predicted the direction of drug prices for 25 years, through multiple pricing scares, reform initiatives, and election cycles. Investor sentiment and political rhetoric have swung significantly over this time, but the expectations of drug buyers and realized price increases have remained positive for 25 years.
This year is largely in line; the majority of respondents (24 out of 26, representing >$38B in annual drug spend) expect drug prices to rise both in the next year and over the next 3 years. We believe that drug prices have continued to increase because innovative drugs add real value to patients. As long as pharma companies continue to deliver these innovative drugs, we see no change in the upward trend in prices.
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