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Although ‘turbulent,’ Rx market up

BY Jim Frederick

BOSTON

The continuing impact of Medicare drug benefits, ongoing drug safety concerns, rising generics competition for off-patent big-name drugs, growing calls for universal health coverage and increasing oversight from the Food and Drug Administration are all roiling the U.S. pharmaceutical marketplace, one of the industry’s best-known market watchers declared last month.

“This market is very turbulent,” said Doug Long, vice president of industry relations for IMS Health, in a speech to chain pharmacy executives and suppliers at the National Association of Chain Drug Stores’ annual Pharmacy & Technology Conference here Aug. 14.

For the pharmaceutical market over the 12-month period ended in June, Long said. “There’s probably been more change this year than any other year we’ve seen.” He summed up his prediction for the U.S. prescription drug market in 2007 as “fast start, slow finish.”

U.S. pharmaceutical sales have staged a resurgence since growth rates plummeted in 2005 over drug-safety concerns, Long said, and reached $284.8 billion over the 12-month period ended in June. “Clearly, we’re not in the double-digit pharmaceutical growth pattern that we were in late the 1990s and early 2000s,” he said. “We’re in single-digit growth.”

Nevertheless, Long dubbed 2006 “a very good year, and it recovered quite substantially over the low point of 2005,” a year in which such blockbuster nonsteroidal anti-inflammatory drugs as Merck’s Vioxx and G.D. Searle and Pfizer’s cox-2 inhibitor, Bextra, were withdrawn from the market over side-effect issues.

Retail drug sales grew more than 8.3 percent in 2006, Long said, and are rising at a 7.9 percent growth rate in the first half of 2007. “There’s now 3.5 billion prescriptions filled at retail and mail [order],” he declared. “And volume over the last 12 months is up 180 million prescriptions.”

That translates to a 4.4 percent rate of growth in scripts dispensed thus far in 2007, Long told NACDS members. For all of 2007, he predicted a unit-growth rate of 3.5 percent to 4.5 percent.

“What boosted prescription volume is Medicare Part D, and some of the high-quality generic products [that] became available last year.”

Long also credited a modest recovery in demand for immunizations and other flu-related products early this year.

Citing his predictions for a “fast start, slow finish” for the Rx market in 2007, however, IMS is forecasting that dollar growth will moderate as the year goes on. Although the drug market staged a 7.9 percent dollar growth rate in the first half of the year, Long said, it’s likely to finish the year with an overall growth rate of 5 percent to 6 percent.

“The market is decelerating in dollar growth and prescription growth. And the reason primarily is Medicare Part D.”

The reason: Year-to-year comparisons with the fast rise in Part D-related prescription sales in 2006 will become tougher as the year goes on, Long explained. “Medicare Part D did increase prescription volume 1 [percent] to 2 percent,” he said, calling it “a spectacular increase for the industry.”

That growth, however, came at the cost of lower profit margins as more prescription business shifted from higher-margin sources of payment like Medicaid, private third-party payers and patients themselves into the lower-margin Medicare Part D plans.

Part D continues to drive growth in the pharmaceutical market, the IMS executive said, and now accounts for nearly 20 percent of total prescriptions. “Pharmacy was a great beneficiary of Medicare Part D,” Long asserted. Launched in January 2006, the massive prescription drug benefit program triggered a “reshuffling of the deck” in pharmaceutical marketing, he added.

Other factors, however, are weighing on the U.S. drug market and slowing growth, Long said. “We’ve had a dearth of new product launches, particularly in primary care, and they are providing less growth than in previous years. That’s a fundamental problem for the industry right now.”

In addition, many big-selling drugs lost patent protection in 2006, and more are facing that resulting loss of market exclusivity and generic competition in 2007. “That has reduced brand share of prescriptions to 34 percent, a record low,” Long said. He also cited ongoing safety issues “that dampen sales” in such drug classes as SSRIs, which have delayed the launches of other potentially big-selling products.

Despite the overall easing of growth rates in the second half, Long cited two red-hot sources of continuing opportunity in pharmaceuticals: multisource generics and bio-engineered drugs.

“The unbranded generic business is growing, over the last 12 months on a dollar basis, by 28 percent,” Long said. “That’s because of the slew of blockbuster products … that have lost patent over the past year. We’re in the Golden Age of the generic business at this point.”

Long cited biotechnology as “the second-best growth area,” with an 18 percent annual growth rate expected in 2007.

“Those are the two stellar segments in the market: generics in the low end and biotechnology in the high end,” the IMS expert said.

Also driving the market: the specialty drug market, which he said is growing at 13 percent. Those products—including high-cost medications to treat such conditions as transplant rejection and HIV/ AIDS—are the bright spot in the branded pharmaceutical arena this year.

“When you look at primary care,” Long said, the market for mainstream pharmaceuticals “has actually turned negative” on a dollar basis, due to “a lack of introductions” of new products. “Eighty-seven percent of the growth is coming from specialty-driven products, meaning prescriptions initiated by specialists.

“Now, we have almost as many blockbuster specialty products as we do blockbuster primary care [products],” Long said.

Generics continue to pace the market. “Generics are growing at 13.3 percent in a market that is growing by 5 percent through the second quarter,” Long said, calling it “a stellar performance on the generic side of the business.”

Looked at another way, the IMS executive said, “There are more prescriptions than ever before,” with an incremental increase in volume of 183 million scripts year-to-year. However, he added, “Virtually all of that incremental growth on a prescription basis is coming from generics.”

The generic side of the drug business now accounts for roughly $30 billion to $40 billion in annual sales, Long said, and with an estimated $12 billion worth of branded drugs facing loss of patent life this year, that figure will continue to go up. However, he noted, furious price competition within the me-too drug business is “driving merger activity, and I would expect merger activity to continue.” Generic drug makers, he added, also are faced with “a backlog of over 800 submissions … at the FDA” of me-too drug applications.

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