The growth of generic drugs has been a good news story for payers and pharmaceutical benefit managers (PBMs), but that story may be coming to an end.
Generic Drugs and the Global Market
Many major brand name drugs are at the end of their patent-protected life cycles and now face generic competition. Two years ago, Lipitor and Plavix alone were at $15 billion combined revenue but are nearing the end of their revenue blitz with a projected drop to as low as $1 billion.
While generic alternatives to Lipitor and Plavix will take billions in drug costs out of the healthcare system in the next 3 to 4 years, other major drugs reaching the end of patent protection will reduce spend in a similar way. But this anticipated decline in spending is masking the growth of specialty drug costs. For many healthcare payers, the drug portion is the most slowly increasing area of their spending, but in the next couple of years the tide will turn, as specialty drugs becomes the focus.
For payers and PBMs this will be more good news, as they can offer services to control costs and utilization, but it also harbors bad news for PBMs. It is not unlikely that in the very near future, nine out of 10 drugs dispensed will be generic. With generic utilization at more than 90 percent, the need to manage this area of drugs spend will not be of great concern. As a result, the current PBM business model has 3 to 4 years of life before it goes over the cliff.
With the need for business model change on the horizon, the ongoing deal making within the PBM industry is not surprising. Witness the recent deal between Catamaran and Cigna, along with the massive acquisition of Medco by Express Scripts. We will continue to see strategic distribution planning as PBMs brace for the end of the generic wave, a new era of specialty pharmacy and a re-positioning imperative to their expansion and acquisition goals. To continue reading, click here for the full article...