Ouch at Big Pharma: Generics Kick In, Slowing Rise in Drug Spending

The cost of medications administered by clinics and hospitals are expected to rise by as much as 4 percent this year, which is less than in previous years, thanks to the increasing availability of lower-cost generics, according to a study in the American Journal of Health-System Pharmacy.

Specifically, medication expenditures are projected to rise between 1 percent and 3 percent across all clinics and hospitals not run by the federal government. But medication costs are forecast to increase between 2 percent and 4 percent in clinics, while there will be a 1.5 percent gain in hospitals.

If drug company labs were pumping out more new medicines, the slowing in drug spending growth would be harder to achieve. The labs’ failure to do so is making it hard for major pharmaceutical companies – such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), Sanofi (SNY), Bristol-Myers Squibb (BMY) and Eli Lilly (LLY) – to generate revenue growth.

PFE Revenue TTM Chart

PFE Revenue TTM data by YCharts

“In the aggregate, drug expenditure growth is moderating, especially in the hospital setting,” says lead author James Hoffman, medication outcomes and safety officer and an associate member in pharmaceutical sciences at St. Jude Children’s Research Hospital in Memphis, says in a statement. “But we also see dramatic increases in growth when looking at specific drugs, such as biologics frequently used in clinics.”

From September 2011 to September 2012, prescription sales in the US totaled $326 billion, a 0.8 percent increase from the previous 12 months, which the study noted was the lowest in recent years. Why? The study authors cite “slowing to modest” increases in expenditures for new products (3.3 percent) and pricing of existing products (5.9 percent), along with an 8.4 percent drop in overall volume and mix.

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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