Prices for These 4 Top-Selling Prescription Drugs Have More Than Doubled Since 2010

By Markets Fool.com


Image source: Getty Images.

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Don't blink, because if you do you might miss your prescription drug costs soaring.

We certainly don't have to look far to find instances of questionable drug-pricing practices. Last year, the so-called "Bad Boy of Pharma," Martin Shkreli, attempted to raise the price of an acquired therapeutic known as Daraprim by more roughly 5,500% without changing the formulation or manufacturing process one iota. Not long thereafter, Valeant Pharmaceuticalswas in the Congressional crosshairs after fessing up to increasing the price on two acquired cardiovascular products by 525% and 212% despite not altering the formulation or changing the manufacturing process. Instances like this have many consumers believing that drugmakers may be completely out of touch with reality when setting prices on their therapeutics.

Prescription drug prices are soaring

But here's the real shock: Huge price increases aren't limited to Pharma's Bad Boy or the highly troubled Valeant. Steady price hikes have become a reality for nearly all U.S. pharmaceutical consumers.

According to a Reuters report released in April, which examined pricing data over a five-year period using 2014 sales figures from IMS Health and proprietary pricing data from Truven Health Analytics, four top-selling drugs in the U.S. had their prices more than doubled between the end of 2010 and present day, while another six popular drugs absorbed a minimum price increase of 54%. Altogether, sales of these 10 top-selling therapeutics rose by 44% to $54 billion between 2011 and 2014, but prescription volume for these therapies actually fell 22% per IMS Health data.

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Here's the list of these top-10 drugs, per Reuters:

Company

Drug

Price Growth

AbbVie (NYSE: ABBV)

Humira

126.4%

Amgen (NASDAQ: AMGN)

Enbrel

118.2%

Teva Pharmaceutical (NYSE: TEVA)

Copaxone

118%

AstraZeneca (NYSE: AZN)

Crestor

112.9%

Otsuka Pharmaceutical

Abilify

96.4%

Sanofi

Lantus

94.2%

GlaxoSmithKline

Advair

67.4%

Johnson & Johnson

Remicade

62.9%

Amgen

Neulasta

55.3%

AstraZeneca

Nexium

54.4%

Table by author based on data source: Reuters. Price changes reflective since Dec. 31, 2010.

It's worth mentioning that Reuters data is based on wholesale costs, meaning it doesn't factor in the gross-to-net discounting that drugmakers and pharmacy-benefit managers work out. This data is a highly guarded secret among drugmakers, but it will obviously have some impact on the scope of the noted price increases. However, when the data was presented to the eight drugmakers listed above, none apparently objected to it, according to Reuters.


Image source: Getty Images.

Prices for these four popular drugs have more than doubled since the end of 2010

AbbVie's Humira, an anti-inflammatory drug used to treat plaque psoriasis and rheumatoid arthritis, is the current best-selling drug in the world for two reasons. First, we have AbbVie's apparent ability to hike Humira's sale price with ease. Secondly, and more importantly, Humira's $14 billion in annual sales is a result of the Food and Drug Administration approving the drug in nine separate label indications. Having so many approved indications allows Humira to stand out as a special anti-inflammatory drug in a crowded space, pushing physicians to prescribe it, and consumers to ask for it. Sales of Humira accounted for $4.15 billion of AbbVie's $6.43 billion in product sales during the second quarter.

Image source: Amgen.

Amgen's Enbrel is a competitor of Humira's, offering five label indications, including moderate-to-severe plaque psoriasis and rheumatoid arthritis (though 80% of Enbrel's sales are in rheumatology). For many quarters now Amgen has been using its drug-pricing power on Enbrel to its advantage. For instance, in Q2 2016, Enbrel's volume fell 2% year over year, but growth vaulted forward by 10%. Despite heavy competition within the space, Amgen has been able to consistently pass along double-digit percentage price hikes on a year-over-year basis. The $1.48 billion in sales Enbrel produced in Q2 comprised 27% of the company's net product sales for the quarter.

Image source: Teva Pharmaceutical.

Teva Pharmaceutical's Copaxone, an injection for patients with multiple sclerosis, has been a dominant force in the MS space for years. Based on June 2016 IMS data, it holds a 24.9% share of new prescriptions and a 29.1% of total prescriptions. Teva's second-quarter report also points out that the company successfully passed along a 7.9% price increase on its Copaxone products. Of the $5 billion in sales Teva rang up during the second quarter, Copaxone alone accounted for $1.14 billion.

Finally, AstraZeneca's high cholesterol treatment Crestor has seen its price rise nearly 113% since the end of 2010. The reasoning from AstraZeneca's point of view is pretty simple: Crestor was running on borrowed time, so AstraZeneca wanted to pump every last bit of profit out of its blockbuster drug that it could. Having now gone over the patent exclusivity cliff, Crestor is starting to get exposed to generic competition. During the second quarter, sales of Crestor dipped 29% from the previous year. Nonetheless, Crestor remains on pace for between $3 billion and $4 billion in sales in 2016 based on its current sales trajectory.

Inherent advantages in the system favor drugmakers

Although efficacy is one reason these drugmakers can command the pricing power they do, it far from tells the whole story. Here are a handful of reasons drugmakers possess such strong pricing power, and why we're unlikely to see a change in the system anytime soon.

For starters, simple supply and demand is at play. Demand for pharmaceuticals is higher in the U.S. than any other country in the world. Drugmakers know this and boost the prices of drugs in the U.S. to capitalize on this enormous demand. The standard of living in the U.S. is also higher than most countries, allowing drugmakers to get away with higher prices with the understanding that Americans can probably afford it.


Image source: Getty Images.

Secondly, drugmakers aren't just covering their costs to develop a single drug that's made it to market. They're looking to cover the costs to develop hundreds, or even thousands, of drugs that never made it past the discovery stage, or out of preclinical and clinical trials. They're also attempting to cover the costs of marketing their drug, as well as of protecting their intellectual property through legal means. With so many experimental drugs failing to make it to pharmacy shelves, drugmakers tend to pile on the price hikes to ensure they have substantial capital to cover their expenses.

Third, drugmakers face few repercussions for dramatically increasing their drug prices. Insurance formularies rarely exclude more than a handful of drugs for fear of chasing their members to a competing network. This leaves most insurance companies and pharmacy-benefit managers to simply grin and bear price hikes, or, as often happens, to pass them along to the patient.

Finally, the speed by which drugs are approved and hit pharmacy shelves in the U.S. works in the favor of drugmakers. As soon as the FDA approves a drug, it can be legally sold in pharmacies. In the European Union, for contrast, drugmakers are required to negotiate pricing terms with each member nation after receiving an approval from the broad-based European Medicines Agency. This means quicker access to drugs for U.S. consumers -- but at a hefty price.

These inherent advantages for U.S. drugmakers are unlikely to change without a major overhaul of the system by lawmakers on Capitol Hill. Until that happens, we can likely expect prescription drug costs to handily outpace the rate of inflation, and for drugmakers like AbbVie, Amgen, Teva, and AstraZeneca to keep raking in the dough.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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