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Pharma’s Failure: Drug Spending Finally Declines

Ed Silverman

For the first time in decades, US spending on medicines has ticked downwards. Overall, the money spent by consumers totaled $325.8 billion last year, a 1 percent drop from 2011, according to IMS Health. Looked at another way, per capita spending declined 3.5 percent to $898.

Why? The reasons should not be surprising. The market research firm cited the patent cliff – there was less use of brand-name drugs as more lower-cost generic drugs arrived in pharmacies. What else? There were also lower levels of price increases taken by drugmakers and simply reduced spending on new medicines.

However, IMS also noted that the use of medicines also declined as patient office visits fell by 0.9 percent, which reflects both ongoing reverberations from the recent recession and higher insurance costs. “Patients are being influenced by higher out-of-pocket costs as employers seek to rein in insurance costs," says Michael Kleinrock, director of research development at IMS.

As a result, spending on brand-name meds fell $11.4 billion to $230.2 billion in 2012, and patent expirations on big-selling drugs led to $28.9 billion in lower spending. Spending on new brands slowed slightly, but still added $10.8 billion to spending, IMS found.

Patent expirations and a failure by company labs to develop enough new medicines has made it difficult of late for major pharma companies – Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), AstraZeneca (AZN), Bristol-Myers Squibb (BMY) and Eli Lilly (LLY) among them – to generate revenue growth.

PFE Revenue TTM Chart

Last year generics reached 84 percent of dispensed prescriptions, as spending on copycat drugs grew by $8 billion. And the generic share of the prescription drug market is expected to reach 87 percent by 2017, but is not forecast to exceed this level for the next five years.

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com.

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