My previous blog opined about some recently published news in the New York Times surrounding sudden price increases of popular brand drugs used by the Medicare population. I used that report to dig into my own (non-Medicare) experience with retail drug pricing and found one example of exorbitant price increases that I still cannot explain (n=1). Yet, I looked closer at the reports that were referenced in the NYTimes and found some interesting contradictions, or better yet shortcomings of the reporting for consumer purposes.

I also interviewed the key Executive from IMS Health responsible for their global pharmaceutical market trend report (see Press Release)   IMS Health is the largest pharmaceutical research and market intelligence company in the world and is in the middle of a $5.2 Billion sale to several large investment houses. They have a global footprint and more data about pharmaceutical trends than we have time to elaborate upon.

The NYTimes references a nicely packaged report called the Rx Watchdog Report from the AARP Public Policy Institute. That report represents that the most widely used prescription drugs combined market baskets of drugs (commonly used by the Medicare Part D beneficiaries) had manufacturer prices (wholesale acquisition cost) that were increasing at rates above the Consumer Price Index. AARP reports that the overall market basket growth for pharmaceuticals increased by 5.4% in the 12-months ending September 2009. Specifically AARP reported that widely used Brand Name prescriptions grew by 9.3% and Specialty Prescription drugs increased by 10.3%.  The AARP report also states that Generic Prescription drugs decreased in price by 8.7%.

The NYTimes references reports from IMS Health but fails to parse out the details of their U.S. findings from their October 8, 2009 announcement which reported global market growth of 4-6 percent in 2010.

I mistakenly believed that when you looked at the IMS Health press release about global pharmaceutical trends and aligned it with the AARP Rx Watchdog Report that they were saying the same thing, when in fact they don’t. It might have been coincidence that the reports were released at similar times and have similar numbers in their headlines, but it just doesn’t add up!

For example:

1. The AARP Rx Watchdog Report only looks at Medicare Part D beneficiary market baskets. It is a segment of pharmaceutical utilization, and I guess for political reasons it is a really big deal to those trying to balance the reform budget and influence Medicare Part D drug benefits and administration. It does point out one thing for sure; the combined market basket has increased 5.4% at a time when the Consumer Price Index is falling. But I have to ask, what healthcare segment isn’t growing, and in the current economy it is nice to see any industry that has found a way to expand.

1. I do like the comparison of Brand vs. Specialty vs. Generic comparisons made in this AARP Report, but once again, it is useful for a Medicare Part D market basket only, it doesn’t tell us anything about what else is going on in the industry, even simple things like discounts, rebates, sample costs, improvements in efficacy, formulary make up of generic and brand drugs etc. It is one data point among many worth considering when calculating value.

1. The AARP Rx Watchdog Report measures price, it speaks not one word toward outcomes, efficacy, safety or quality…so the report is void of the major components of true Value. I would think its members might care a bit about that!

The IMS Health news release of October 8, 2009 and my interview with Murray Aitken, SVP of Healthcare Insights, was quite revealing and informative, but on an entirely different plane.  The product that IMS sells to the pharmaceutical industry to develop forecasts and cited in several stories is IMS Market Prognosis. IMS is in the business of trend reporting  on the $800 Billion global pharmaceutical industry. Analysts around the world use IMS data for: predictive modeling, planning, monitoring market surveillance, and to strategize about global drug issues.  Their audience is a business and research community looking at investments in therapies in dozens and dozens of countries around the world. The IMS reporting is what I would describe as B2B reporting.

I did learn a few things from Aitken that are worth reporting;

• The U.S. market represents 40% of the global pharmaceutical market and like most developed markets is growing in the mid-single digit range.
• The U.S. market projection is predicted to grow 3 – 5% in 2010 and 2 – 5% through 2013.
• The increases from the previous IMS Health projections are fundamentally the result of difficult multi-variant models that use history to project the future. Not all history is constant and for example some of the factors that influenced their most recent increases relate to a) inventory patterns that reflected swings in fluctuations from lows in Q4 ’08 to highs in Q1 ’09, b) expected price moderation in Branded products that did not develop, c) continued price contraction in Generics which failed to continue, and d) a better than anticipated year for drug safety with no major drug recalls occurring in 2009. So yes, I learned that price caught them by surprise as well.
• Pharmaceuticals, as a health industry segment account for a declining 10% of overall health care spending.
• 2009 U.S. pharmaceutical growth will likely end up as being one of the four lowest years for growth since 1957, the first year records were collected on this topic.  

In my opinion, the IMS Health report poses a fairly gloomy picture for the U.S. pharmaceutical industry from an investor’s standpoint.

So, two reports, two perspectives and a few insights about the complexities of a massive industry that has yet to figure out how to translate the spend into value. So in the interim, folks will look at Wholesale Acquisition Cost as the proxy for price (discounts and rebates cannot be accounted for) and little will be understood about how a $2.00 or $200.00 pill or bio-agent can; help improve the quality, extend the duration of or save the life of a loved one.

The biggest take away here is that the pharmaceutical industry needs to do what the hospital industry has done and develop a Pharmaceutical Value Index, so transparency can be introduced into the cost/outcome equation so desperately sought by today’s health activated consumer. And when those of us who are activated read the NYTimes, we should be cautious about news reports that combine Medicare Policy Watchdog reports and B2B global market data into a single conclusion that in retrospect may seem a bit politically motivated.

Are prices going up, yes. Do I know why my Accutane example is such an outlier, not yet.

Alas, my next big idea, The Pharmaceutical Value Index! Stay tuned.

John Morrow, The Ratings Guy.