For the pharma industry as a whole, there are several issues that impact the availability and affordability of safe and effective medications. While research and development technology moves quickly, moving a product from concept to market is very lengthy and expensive for pharmaceutical companies, and once a drug makes it to the market there’s only a window of a few years in which to earn a return on investment before that drug patent expires and it can be manufactured and sold as a generic. Once brand exclusivity is lost, generic alternatives typically arrive on the market at about 70% of the cost of the brand name drug during the first six months, and by the end of twelve months drops to 15-20% of the cost of the brand name drug (Zimmerman, 2013). U.S. pharmaceutical companies are also at a disadvantage, in particular, since as leaders in the industry they bear the weight of R&D costs. The U.S. population also pays more for drugs, too, since there are no pricing controls for medications in this country like there are in many others (Williams & Torrens, 2008).
Unless a new drug is completely unique or otherwise differentiated from like drugs in utility/purpose, health plans and/or the Pharmacy Benefit Managers that develop formularies will generally opt to exclude the more expensive new drug in favor of cheaper drugs or generics used for the same purpose. Young (2013) notes that pharmaceutical companies’ “revenue challenges will be tied directly to the difficulties in getting drugs approved, reimbursement challenges, patent expirations, weak product pipelines, and failing business models” (p. 20). Vogenberg (2012) notes that, in order for pharmaceutical companies to be successful in gaining PBM formulary status, they must find ways to demonstrate the cost effectiveness of the medication based on total cost in treating the patient and not just the cost of the drug itself.
According to Zimmerman (2013), the fastest growing pharma segment is the specialty drug market. While these large molecule drugs and biologics/bio-similars are only utilized by a small portion of the population, they represent in excess of 20% of pharmaceutical costs currently and will likely meet or exceed 40% of all drug costs by the year 2020.
While the ACA is expected to increase drug sales by as much as $26 billion annually by 2021, it is anticipated that manufacturers of generics and pharmacies/pharmacists will benefit most from the expansion of benefits. However, gains will be offset by higher rebates and new fees that are also built into the ACA (Blank, 2012). It is probable that mergers and acquisitions will continue to be a trend in survival in the pharma industry.
Health plans and PBMs will also continue to push mail order programs and other strategies that reduce the cost of drugs. Ilengar, Henderson, Visaria & Frazee (2013) found that among patients with chronic conditions (such as hypertension, diabetes, and high blood cholesterol), medication...