Projecting Future Drug Expenditures

and an
Approach to Financial Planning for
Pharmaceuticals
11th Annual Pharmacy Purchasing
Networking Conference
August 14, 2007

James M. Hoffman, PharmD, MS, BCPS

Medication Outcomes Coordinator
St. Jude Children’s Research Hospital
Assistant Professor
University of Tennessee College of Pharmacy
Memphis, TN
 Objectives

Discuss recent trends in overall, hospital, and
clinic prescription drug expenditures and
understand factors that will influence
pharmaceutical expenditure patterns.

Describe the drug pipeline for and evaluate the
influence of these new agents on prescription
drug expenditures for health systems.

Discuss the diffusion patterns of recently
approved drugs that influence health system drug
expenditures and trends in the availability and
pricing of generic drugs.

Devise an approach to financial planning for
pharmaceuticals.
 2005 U.S. Pharmaceutical Market
Exceeded $250 Billion Dollars

$300 $273.5
$252.0
$239.0
$250 $216.4
$192.2
$200
Billions

$172.2
$146.8
$150 $128.0
$107.3
$92.9
$100 $66.6 $73.4 $82.0
$61.2
$50
$0

6E
3

2
3

4
5
'9

'9

'9

'9

'9

'9

'9

'0

'0

'0

'0

'0

'0
'0
Source: IMS HEALTH
 2005 US Health Care
Expenditures by Category
7.4% Total HC Growth
Public Health Research Structures &
Activity 2.1% Equipment
Other Program 3.1% 4.6%
Medical Svcs Admin
10.1% 7.1% Medical
8% Rx Equipment
Growth 2.8%

Hospital
Care
Pharmaceuticals 30.1%
10.1%

Nursing Home/
Home Health Physician
8.5% Services
21.3%
Source: CMS, Office of the Actuary from Borger et al, Health Affairs, 2006; W61– W73; Numbers Projected
 2004 US Health Care
Expenditures by Category
7.5% Total HC Growth
Public Health
Activity Research &
Program
Other 3.2% Construction
11.9% Rx Admin
3.8% Medical
Medical Svcs 7.1%
Growth Equipment
10.2%
3.0%

Pharmaceuticals
11.1%

Hospital
Care
30.6%

Nursing Home/
Home Health
8.9% Physician
Services
Source: CMS, Office of the Actuary from Heffler et al, Health Affairs, 2005; W5-74 – W5-85 22.0%
 Growth in Health Care
Expenditures by Type, 1995-2004

20
% G ro w th

15
10

5
0
1970 1980 1993 1997 2000 2003 2004 2005

National Health Expenditures Hospital Care

Physician and Clinical Services Prescription Drugs
Caitlin et al, Health Affairs 26, no. 1 (2007): 142–153 (CMS data)
 Trends in Overall Drug
Expenditures: 2000 to 2006
Since 2001, the growth in overall drug expenditures has moderated
20% 18%
15%
15%
12.3%
11.4%
10% 8.3% 7.5%
5.5%
5%

0%
Sources:
Hoffman JM, Shah ND, Vermeulen LC, et al.
Hoffman JM, Shah ND, Vermeulen LC, et al.
Hoffman JM, Shah ND, Vermeulen LC, et al.
Hoffman JM, Shah ND, Vermeulen LC, et al.
2000 2001
Forecasting future drug expenditures 2004.
Forecasting future drug expenditures 2005.
Forecasting future drug expenditures 2006.
Forecasting future drug expenditures 2007.
2002 2003 2004 2005 2006 (9mos)
Am J Health-Syst Pharm. 2004; 61:145-58. (IMSHealth data)
Am J Health-Syst Pharm. 2005; 62:149-67. (IMSHealth data)
Am J Health-Syst Pharm. 2006; 63:123-38 (IMSHealth data)
Am J Health-Syst Pharm. IN PRESS (IMSHealth data)
 Trends in Drug Expenditures for
Non-Federal Hospitals: 2000-2006*
30% 26.8%
25%

20%

15%
9.7%
10% 6.2% 6.4%
4.9% 5.7%
5% 2.5%

0%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*
* 2006 Data based on 9 months of 2006
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2005. Am J Health-Syst Pharm. 2005; 62:149-67. (IMSHealth data)
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2006. Am J Health-Syst Pharm. 2006; 63:123-38 (IMSHealth data)
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2007. Am J Health-Syst Pharm. IN PRESS (IMSHealth data)
 Trends in Drug Expenditures for
Clinics: 2000-2006*
30%
24.6%
23.0%
25% 21.4% 22.5%
20% 18.2%
13.5% 12.4%
15%

10%

5%

0%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*
* 2006 Data based on 9 months of 2006
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2005. Am J Health-Syst Pharm. 2005; 62:149-67. (IMSHealth data)
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2006. Am J Health-Syst Pharm. 2006; 63:123-38 (IMSHealth data)
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2007. Am J Health-Syst Pharm. IN PRESS (IMSHealth data)
 Trends in Overall Drug
Expenditures: 2000 to 2006*
20% 18.1%

15.3%
15%
12.4% 12.6%

9.2%
10%
7.5%
5.5%
5%

0%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*

* 2006 Data based on 9 months of 2006

 Reasons for Moderation in
Growth of Drug Expenditures

Increased cost sharing for consumers
• Average co pay:
• 2000: $7 generics, $13 preferred, $17 nonpreferred
• 2005: $10 generics, $22 preferred, $35 nonpreferred

Decrease in number of new agents,
especially new “blockbusters”
• For example, 21 NMEs in 2003 and 17 NMEs in
2002 vs. a high of 53 NMEs in 1996
Sources:
Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2000-2005.
http://www.fda.gov/cder/rdmt/default.htm
 Reasons for Moderation in
Growth of Drug Expenditures

Safety concerns
• Hormone replacement therapy
• COX 2 Inhibitors
• SSRIs in children and adolescents

Rx to OTC conversions
• Nonsedating antihistamines
• Proton pump inhibitors

Generic Drugs
 Examples of Recent
Significant New Generics

Fluoxetine
Ciprofloxacin

Lisinopril
Gabapentin

Milrinone
Fluconazole

Loratadine
Carboplatin

Metformin
Amoxicillin-clavulanate

Omeprazole
Glimepride

Paroxetine
Azithromycin
 Fluoxetine: Rapid Switch to Generic

Source:
Benjamin G. Druss, Steven C. Marcus, Mark Olfson, and Harold Alan Pincus, Listening To Generic Prozac: Winners, Losers, And Sideliners, Health Affairs, Vol 23, Issue 5,2004: 210-216
 Monitoring and Evaluating
Drugs in Development

Gather information on drugs in development

Determine which drugs are relevant to your
institution
• Talk to key prescribers!!!

If relevant to your setting, discern if the drug is a:
• Therapeutic breakthrough
• Will change practice and/or improve outcomes
• “Me too” drug
• Marginal advantages over existing drugs in class
• Lifestyle drug
• Improve quality of life but do not increase life expectancy
• Orphan/Military Use
• Not used in most hospitals (but important influence if used)
 Evaluating the Cost of
Drugs in Development

Based on knowledge of new drug and existing
drugs, preliminary cost analysis can be conducted

Global assessment of cost impact
• Will the new drug replace an existing drug? (+, -, or =)
• Will the new agent be added to existing therapy? (+)
• Will the new agent shift costs between settings of care?
(e.g. from inpatient to clinic)

Remember not to overlook “me too” drugs
• Aggressive pricing can sometimes lead to therapeutic
interchange opportunities and cost savings
 Broad Pipeline Indicators

FDA Approvals

New Drug Applications (NDAs) and
Investigational New Drug Applications
(INDs)

FDA Approval Time
Broad Indicators of the Pipeline Size:
FDA Approvals

20 novel drugs approved by FDA in 2005
• 18 New Molecular Entities (NMEs) and 2 Biologics

36 novel drugs approved by FDA in 2004
• 31 NMEs and 5 Biologics

Compared to:
• 21 NMEs approved in 2003
• 17 NMEs approved in 2002

Recent approvals not expected to result in
widespread increase in drug costs
• 2005: approvals not truly new (e.g. 2 Hyaluronidase
products) or for small populations
• Many orphan drugs approved (7 in 2005; 9 in 2004)
Sources:
http://www.fda.gov/cder/rdmt/default.htm
Number of Novel Drugs Approved by FDA:
2000 to 2006
40 36
35 32

30 27
23
25 21 20
20 17

15
10
5
0
2000 2001 2002 2003 2004 2005 2006
Sources:
http://www.fda.gov/cder/rdmt/default.htm
Broad Indicators of the Pipeline Size:
NDAs and INDs

Late Stage Pipeline
Early Stage Pipeline
• Commercial INDs received by
• Number of NDA filings
FDA
consistent • 2005* = 637
• 2005* = 116 • 2004* = 621
• 2004* = 115 • 2003 = 391
• 2003 = 109 • Number of Active Commercial
INDs at FDA by end of CY
• 2005* = 5,023
• 2004* = 4,827
• 2003* = 4,544

* Numbers include therapeutic biologics

http://www.fda.gov/cder/rdmt/
Broad Indicators of the Pipeline Size:
Approval Time

Approval time expected to increase
• Lack of permanent FDA leadership
• Greater caution due to safety concerns (from both
FDA and manufacturers)

Mean approval time for all application types
actually decreased
• 2005 = 14.4 months
• 2004 = 18.7 months
• 2003 = 17.1 months

However, decrease due to mix of priority vs.
standard applications
• 75% of 2005 approvals were priority applications
Broad Indicators of the Pipeline Size:
Approval Time

Approval times have remained consistent
• Priority NMEs/Biologics: Median approval
• 6.0 months in 2005
• 6.0 months in 2004
• 6.7 months in 2003
• Standard NMEs/Biologics: Median approval
• 23.0 months in 2005
• 24.7 months in 2004
• 23.1 months in 2003
 Drugs in Development:
Alvimopan (Entereg)

Opioid antagonist with specificity for the GI tract

Indication: treatment of postoperative illeus
• Also being studied for opioid-induced bowel dysfunction
in patients with chronic pain not due to cancer

In a randomized placebo controlled study of
patients undergoing abdominal surgery:
• Median time to first bowel movement was faster in the
alvimopan group (70 hrs vs. 111 hrs, p=0.01)
• 23 hour difference in median time until hospital
discharge (68 hrs vs. 91 hrs (p=0.03)
Taguchi A, et al.. N Engl J Med. 2001; 345:935-940.
 Drugs in Development:
Alvimopan (Entereg)

FDA deemed alvimopan “approvable” in 2005- but
requested additional data from an ongoing trial

Approval was expected in 2006

FDA issued another approvable letter issued Nov
2006; FDA requested:
• 12 month safety data from ongoing study, including
analysis of cardiovascular events
• Risk management plan

Data expected to be available 2nd Quarter 2007

See: http://phx.corporate-ir.net/phoenix.zhtml?c=120919&p=irol-newsArticle&t=Regular&id=926785
 Anti-infectives in Development:
Dalbavancin (Zeven)

Second generation lipoglycopeptide that
acts by inhibiting cell wall synthesis

Intravenous antibiotic with activity against a
variety of Gram positive bacteria
• Including methicillin-resistant Staphylococcus
aureus (MRSA)

Being evaluated for complicated skin and
soft tissue infections and catheter related
blood stream infections
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S
Seltzer E, Dorr MB, Goldstein BP et al. Clin Infec Dis. 2003; 37:1298-1303.
Anti-infectives in Development:
Dalbavancin (Zeven)

Drug has long ~7.5 day half life, which
leads to unique once weekly dosing
regimen
• Expected to be key marketing point, but may
also present challenges

Adverse events similar to various
comparator regimens

FDA issued approvable letter June 2006;
approval and launch expected in 2007
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S
Seltzer E, Dorr MB, Goldstein BP et al. Clin Infec Dis. 2003; 37:1298-1303.
Pfizer Form 10-Q on 3-Nov-2006 available at http://biz.yahoo.com/e/061103/pfe10-q.html
Anti-infectives in Development:
Doripenem

New carbapenem with activity similar to
currently available antipseudomonal
carbapenems

Initial development focused on ventilator
associated pneumonia

Also, being evaluated for complicated
urinary tract infections, pyelonephritis,
complicated intraabdominal infections

Approval possible in late 2007
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S
 Quarterly Expenditures for
Erythropoietin Products
(Darbepoetin = Yellow Squares, Epoetin alfa = green diamonds; Total = Orange circles)
2,750
2,536

2,500 2,331
2,233 2,243
2,168
2,250 2,126 2,097
2,031 2,054
2,004 1,968
1,925
2,000 1,852
1,712 1,723
1,669
1,750 1,616 1,622 1,603 1,577
1,565 1,558 1,532 1,565 1,545
1,511
$ in Millions

1,499 1,484 1,475 1,466

1,500

1,250
991
1,000 866
768
684 722
750 598
522 560
454
500 366
303 335
237
250 147 165

-
Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06

Quarter
 Continuous Erythropoietin
Receptor Activator (CERA)

Pegylated epoetin product

Initial development focused on Chronic
Kidney Disease (CKD) population

Application for CERA filed in 2006

Patent challenges but approval possible in
2007

Other anemia therapies in development –
dynamic class over next 3 – 5 years
Summary of Emerging Therapies (1)
Estimated
Drug Indication
Approval Date
Rufinamide Anti-epileptic 2007
(Xilep)
Garenoxacin Broad Spectrum 2007
Quinolone
Sitaxsentan Pulmonary Artery 2007
(Thelin) Hypertension
Summary of Emerging Therapies (2)
Estimated
Drug Indication
Approval Date
CERA Anemia Late 2007 or early
(Continuous Erythropoietin 2008
Receptor Activator)

Lapatinib Breast Cancer APPROVED

(Tykerb)
Vildagliptin Diabetes ?
(Galvus)
Certolizumab Rheumatoid 3rd Quarter 2007
(Cimzia) Arthritis; Crohn’s
Disease
Summary of Emerging Therapies (3)

Expected
Drug Indication
Approval Date
Satraplatin Prostate Cancer 3rd Quarter 2007

Temsirolimus Various Cancers APPROVED

Vigabatrin Anticonvulsant 4th Quarter 2007

(Sabril)
 Emerging Therapies:
Looking Beyond 2007

Torcetrapib
• New class of antihyperlipidemic therapies
that dramatically increases HDL
• Safety concerns – development ended

Denosumab
• New injectable osteoporosis therapy;
administered only 2 times per year

Maraviroc and other CCR5 Inhibitors
• New class of HIV therapies
Brousseau ME, et al. Effects of an Inhibitor of Cholesteryl EsterTransfer Protein on HDL CholesterolN Engl J Med 2004;350:1505-15.
 Summary of
Drugs in Development

Approvals
• Numbers are modest and flat
• Specialized

Early stage pipeline appears to be growing
at slow rate

Relatively small number of drugs in
pipeline important to health systems

Trends in drugs in development have
helped moderate drug expenditures
 Diffusion of Innovation

New behaviors
or technologies
are adopted in
stages depicted
by an “S”
shaped curve.

Rogers EM. Diffusion of innovations. 4th ed.

New York: Free Press; 1995.
“Typical” Drug Diffusion Pattern

Initial use may slow

But as familiarity with drug increases,
use increases rapidly until drug is widely
in use and use stabilizes

Therefore, economic impact may not
become important until several years
after approval

However, typical pattern has been less
common recently
 New Drug Diffusion Pattern

Slower drug diffusion due to safety
concerns, which moderates drug
expenditures

Examples
• COX 2 Inhibitors
• Natalizumab
• Nesiritide
 Safety Concerns
and Diffusion: 2006

Safety concerns going away in 2006?

No just lower profile

Examples
• Gatifloxacin and dysglycemias
Telithromycin and hepatatoxicity

Safety concerns still moderate
expenditures
 Data on Nesiritide

Meta analysis of 3 studies showed that the
risk of death within 30 days after nesiritide
therapy was higher compared to controls

Meta analysis of 5 studies showed that
nesiritide treated patients had an increased
risk of worsening renal function compared
to control patients

Sackner-Bernstein JD, Kowalski M, Fox M, Aaronson K. Short-term risk of death after treatment with nesiritide for decompensated heart failure: a pooled analysis of
randomized controlled trials. JAMA. 2005; 293:1900-1905.

Sackner-Bernstein JD, Skopicik HA, Aaronson KD. Risk of worsening renal function with nesiritide in patients with acutely decompensated heart failure. Circulation.
2005; 111:1487-1491.
 Quarterly Expenditures for Nesiritde
(4th Quarter 2002 to 2nd Quarter 2006)
140
$124
120 $113

$98 $99
100 $89 $87
$ in Millions

$75
80

$58 $56
60 $49
$44
$39
$36
40 $32
$25

20

-
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
02 03 03 03 03 04 04 04 04 05 05 05 05 06 06
Quarter
 Typical Drug Diffusion
Pattern Still Exists

Antifungals (azoles, echinocandins)
• Dynamic and important class
• Prophylaxis increasing
• Caspofungin 15th highest expenditure for
Non-Federal Hospitals in 2005
 Quarterly Expenditures for Caspofungin
(Green Squares) and Voriconazole (Yellow Triangles)
(4th Quarter 2002 to 2nd Quarter 2006)
$87
90
$81 $83 $81
$78 $78
80 $76

70 $66
$61
$58
60 $54
$46
$ Millions

50
$38
40
$31 $43 $45
$41
30 $36 $38
$22 $34 $34
$30 $31 $32
$28
20 $25
$20 $22
$18
10

-
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
02 03 03 03 03 04 04 04 04 05 05 05 05 06 06
Quarter
 Typical Drug Diffusion
Pattern Still Exists

Recombinant Factor VIIa (NovoSeven)
• Use continues to increase
• 1st quarter 2005 expenditures for hospitals and
clinics were more than double that of 1st quarter
2002
• New indications – for example recent data
on use for intracerebral hemorrhage

Mayer SA, Brun NC, Berftrup K, et al. for the Recombinant Factor VII Intracerebral Hemorrhage Trial Investigators. Recombinant Activated Factor VII for acute
intracerebral hemorrhage. N Engl J Med. 2005; 352:777-785.
 Quarterly Non Federal Hospital and Clinic Sales of
Recombinant Factor VIIa from 1st Quarter 2002 to
2nd Quarter 2005 (NovoSeven, Novo Nordisk)
$50
$45.4
$41.8 $41.9 $42.2

$40 $36.9
$36.0
$34.1
$31.8 $31.7
$28.2 $28.1
$30
$ Millions

$24.4

$18.8 $18.0
$20

$10

$0
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
2002 2002 2002 2002 2003 2003 2003 2003 2004 2004 2004 2004 2005 2005

Quarter
 Typical Drug Diffusion
Pattern Still Exists

Colony Stimulating Factors (CSFs)
(pegfilgrastim, filgrastim, sargramostim)
• Pegfilgrastim drives overall increase in CSF
expenditures
• Particularly growth in CSF expenditures for clinic
setting
• Further increase in use expected from:
• Updated NCCN guidelines recommend broader use
• FDA indication for pegfilgrastim expanded to include use
in less myelosuppressive chemotherapy regimens
 Quarterly Hospital and Clinic Sales of CSFs from 1st
Quarter 2002 to 2nd Quarter 2005
(Total CSFs include pegfilgrastim, filgrastim, and sargramostim)

Total Hospital and Clinics CSFs Total Hospital and Clinics Pegfilgrastim
Total CSFs for Clinics Total Hospital and Clinics Filgrastim
$680.2
$700
$624.2
$599.9
$579.4
$600
$546.0
$516.7

$500 $472.2 $487.9 $472.8

$447.7 $445.7
$429.8 $425.0
$392.5 $383.9 $447.0
$ Millions

$400 $359.1
$326.8 $332.6 $406.7
$313.1 $381.5 $378.9
$289.0 $286.5 $354.2
$300 $264.1
$230.6 $298.2 $306.5
$278.3
$261.3
$200 $206.3

$150.3 $146.0 $144.3 $143.0 $142.8 $140.4 $139.3 $151.5

$100 $137.2
$106.1
$0.6
$0
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
2002 2002 2002 2002 2003 2003 2003 2003 2004 2004 2004 2004 2005 2005

Quarter
 Estimated Value of
Expected Patent Expirations
$35
$29
$30 $27
$25 $22
$20
$15
$10
$5
$0
2006 2007 2008
$ Billions
Source: Bain and Company/GPhA
 Key Potential
Patent Expirations in 2007

Amlodipine (Norvasc)

Carvedilol (Coreg)

Fentanyl transmucosal (Actiq)

Fosphenytoin (Cerebryx)

Metoprolol Extended Release (Toprol XL)

Sumatriptan (Imitrex)

Zolpidem (Ambien)

Ziprasidone (Geodon)
 Key Potential
Patent Expirations in 2008

Alendronate (Fosamax)

Divalproex (Depakote)

Granisetron (Kytril)

Levetiracetam (Keppra)

Irinotecan (Camptosar)

Risperidone (Risperdal)

Salmeterol (Serevent)
 Pricing/Availability Trends:

More “at risk” launches (e.g. clopidogrel)

Legislation to address citizen petitions

Patent Reform
• Patent Act of 2005

• Medicare Modernization Act

• More likely to immediately influence generic access

• Only one 30 month stay during legal challenges
 Pricing/Availability Trends:
Industry Consolidation

Recent examples
• Sandoz (Novartis) acquired Eon
• Teva acquired IVAX (completed Jan 26)
• Various Indian generic firms acquiring firms in US,
Canada, and Europe

Theory: Fewer generic firms =
less competition =
higher generic prices
• No data to suggest this has occurred across generics
market
• But remains trend to monitor

Generic drug industry ability to broadly raise prices
may be limited, but monitor niche products
 Pricing/Availability Trends:
FDA Approval
Generic Drug Approvals
Median times, approvals

36 400

321 380
207
273 263
212

Approvals
244 234
225
Months

186
18 200

27.0
23.0
19.3 18.0 18.6 18.2 18.1 18.3 17.0 15.7

0 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Calendar year
Median approval times Number of generic approvals

Source: 2004 FDA CDER Report to the Nation

 Pricing/Availability Trends:
FDA Approval
Generic Drugs
Submissions*

700
Number

350
635
479
365 392
330 345 320
283 307 296

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Calendar year
*Submissions = workload in subsequent years

Applications received (workload in future years)

Source: 2004 FDA CDER Report to the Nation

 Pricing/Availability Trends:
FDA Approval

Median ANDA approval time increasing, projected
to be:
• 16.9 months in FY06
• 17.5 months in FY07

Substantial backlog of generic applications
• 800 to 850 pending applications at FDA
• FDA received record number of generic applications in
Dec 05 (129)

FDA Office of Generic Drugs funding has remained
level over last 3 years
Sources:
Kaufman M New generics delayed: FDA sees backlog of 800 applicants, an all time high. The Boston Globe Feb 5 06
Generic drug reviews take a hit in FDA 2007 budget request. FDC Reports The Pink Sheet. Feb 13 06
“Generic” Biologics - Biosimilars

Biologics are among top expenditures for
hospitals and clinics

Some patents expired or nearing expiration,
but “generic” biologics not yet marketed

Presents unique challenges and questions
• Legal/regulatory
• Production
• Safety
• Savings
 Top 15 Drug Expenditures for Hospitals
Percent of 2004
2004 Expenditures Percent Increase
Drug ($000’s)
Hospital Drug over 2003
Expenditures
Epoetin Alfa 1,178,462 4.8% -13.2%
Enoxaparin 806,156 3.3% 15.1%

Darbepoetin 379,864 1.5% 68.5%

Pegfilgrastim 426,804 1.7% 44.0%
Infliximab 521,449 2.1% 2.6%
Ondansetron 497,174 2% 7.6%

Rituximab 451,023 1.8% 7.5%

Pipercillin/Tazobactam 396,940 1.6% 24.3%
Propofol 470,571 1.9 3.5%
Ceftriaxone 444,471 1.8% -0.8%

Filgrastim 335,413 1.4% -2.6%

Iohexol 344,644 1.4% 20.8%
Sevoflurane 267,090 1.1% 15%

Nesiritide 372,662 1.5% 63.9%

Eptifibitide 312,588 1.3% 5.1%
Hoffman et al. Projecting Future Drug Expenditures-2006 Am J Health-Syst Pharm 2006; 63:123-38
 Top 15 Drug Expenditures for Clinics
2004 Percent of Total 2004 Percent Increase
Drug Expenditures Clinic over 2003
($000’s) Expenditures
Epoetin Alfa 3,901,126 17.7% -.05%
Darbepoetin 1,214,297 5.5% 83.8%
Pegfilgrastim 1,160,429 5.3% 45.8%
Infliximab 1,269,004 5.8% 25.1%
Rituximab 950,981 4.3% 12.1%
Oxaliplatin 541,014 2.5% 71.8%
Docetataxol 635,990 2.9% -0.4%
Zolendronic Acid 466,887 2.1% 10.6%

Traztuzumab 364,762 1.7% 33.9%

Gemcitabine 420,510 1.9% 16.6%
Paricalcitol 349,728 1.6% 23.7%
Pneumococcal Vaccine 349,836 1.6% -16%
Irinotecan 327,023 1.5% -14.9%

Filgrastim 227,999 1% -7.1%

Carboplatin 317,603 1.4% -30.5%

Hoffman et al. Projecting Future Drug Expenditures-2006 Am J Health-Syst Pharm 2006; 63:123-38
 “Generic” Biologics

No clear regulatory framework exists
• After 3 years, application for generic growth hormone
approved by FDA
• But FDA explicit that product is not generic biologic, not
equivalent to innovator, not a pathway for future approvals
• FDA guidance delayed on multiple occasions, and will
likely not be completed until confirmed FDA
commissioner

Appears legislation will be required to clarify
approval process
• HR 6257 introduced in Sept 2006
 “Generic” Biologics

Production process for biologics is more
complex compared to small molecules
• Significant capital investment
• Innovator may hold patents for process

Would differences in production process
lead to differences in safety profile?
• Pure Red Cell Aplasia (PRCA) from epoetin
associated with differences in production
process
 “Generic” Biologics

Savings would not be as significant as
current generics
• GPhA estimates these products will cost 20-
30% less than innovator product
• European Generics Association suggests 25-
40% less than innovator product
 “Generic” Biologics

Despite challenges, many companies
have “generic” biologics in development
• Area of growth for major generic
manufacturers
• European regulatory framework evolving
• 7 companies developing generic epoetin for
European market

No “generic” biologics expected to be
available in the US in 2007 or early 2008

Could pose some challenging questions
for hospitals
 The Medication Technology
Management Model
Medication Cost Medication Technology
Driver “Gestalt” Management

Higher Order Phenomenon

Planning V
(Uncontrollable) I
-Financial
G
(Budget)
I
External Phenomenon L
- Strategic
(Largely Uncontrollable) A
(Programmatic)
N
Internal Phenomenon - Tactical C
(Somewhat Controllable) (Policy) E
N. Shah, L. Vermeulen, University of Wisconsin
 Financial Planning (Budgeting)

Pareto Principal (80/20 rule)
• In nearly all cases, a few vital factors (20%)
are important and many (80%) are trivial
• Applies to preparing a drug budget
• 60 to 70 drugs will make up 80% of a drug budget
• Focus for budgeting and cost containment should
be on these top drugs

Extraordinary situations can occur which
can be nearly impossible to anticipate
• Example: Million dollar patients
 Distribution of Inpatient Drug
Expenditures
100%
90%
% of Inpt Rx Expenditures

80%
70%
60%
50%
40%
30%
20%
10%
0%
0% 10% 21% 31% 42% 52% 63% 73% 83% 94%

% of Patients
An Approach Pharmaceutical
Financial Management

Step-wise, systematic approach to
financial plan (budget) development

Detailed description appeared in
January 15, 2005 AJHP “Projecting
Future Drug Expenditures – 2005”

Acknowledgement to Lee Vermeulen
and Nilay Shah

Nine-step process
Better Financial Planning (1)

Step 1: Obtain data

Step 2: Assess past performance

Step 3: Build high-priority budget

Step 4: Build new product budget

Step 5: Build non-formulary budget

Step 6: Build low priority budget

Step 7: Establish cost-containment plan

Step 8: Budget “reality check”

Step 9: Vigilance
 Step 1: Obtain Data (1)

Review and understand financial statements
and all other relevant data

Review previous full fiscal year, current year
to date and annualized current fiscal year

Purchasing data vs. utilization data

Distinguish between issues related to price
issues related to volume of use

Contract price forecast from various sources
 Step 1: Obtain Data (2)

Utilization forecasts
• Interviews with clinical leadership
• Discussions with other key department heads
• Administration forecasts

New programs

Strategic expansion of existing programs

Data on external factors, e.g.
• Patent expirations
• New elements
• Overall forecast picture
 Step 2: Review Past
Performance

Last full fiscal year vs budget

Annualized current fiscal year vs
current budget

Current fiscal year vs actual last
fiscal year

Performance on current cost-
containment initiatives

Identify causes of variance
 Key Aspects of Steps 1 and 2
– Data Acquisition

Key to success – acquisition of purchasing
data AND utilization data

Distinguish between issues related to price
issues related to volume of use

Utilization forecasts
• Discussions with clinical leadership
• Discussions with other key department heads
• Use administrative forecasts with caution!
• New programs
• Strategic expansion of existing programs
Step 3: Build High-Priority Budget

Identify products with highest total cost

Top 60 to 70 PRODUCTS (not line-items) often
represent 80-90% of total budget

Focus detailed planning efforts on that list
• Plot historical spending patterns
• Identify utilization by prescriber or service
• Cost trend by class and agent from AJHP paper
• Identify impact of price, expected utilization changes, potential
brand to generic conversion

Develop product specific budget

Watch for diffusion of new agents

Consider adding uncertainty factor, but document
carefully
Step 4: Build New Product Budget

Pipeline information from various sources
• AJHP forecast
• GPO
• Other sources

Identify those that will affect your facility

Identify price cautiously

Volume estimate

Estimate of release date

Pipeline list as discussed previously
 Step 5: Build Non-Formulary
Budget

Separate out non-formulary drug use and
budget separately

Key agents as line items; remainder as fixed
cost

Critical for financial performance monitoring

Report on performance vs budget to P&T

Track by prescriber for intervention
Step 6: Build Low-Priority Budget

Remainder of products not included in high-
priority budget

“Residual” budget

Appropriate to apply standard inflationary
figure BUT apply on a volume-specific basis
(cost per discharge)

Use estimates of contract price available from
various sources, particularly GPO (often only
2-3%)
 Step 7: Establish Cost
Containment Plan

Calculate a preliminary total budget and compare vs.
expected target

Identify variance

Identify cost containment opportunities (generally in high-
priority budget) to make up variance

Use benchmarks with caution (compass vs. thermometer)

Document well
• Target amount
• Expected tactics to be used to achieve target
• Time frame for project

Cost reduction vs. inflation trend moderation
 Step 8: Finalize Budget

Total budget sum of:
• High-priority product
• New elements
• Non-formulary budget
• Low-priority budget

Less value of cost containment initiatives

“Reality check”

Respond to requests for additional cuts after
submission
 Step 9: Vigilance

Tracking of performance

Variance identification and resolution

Focus attention on high-priority budget
at line-item level

Overall picture of financial performance
• Cost per day vs cost per discharge
• Watch volume of cost-driving service
elements

Continuous process makes subsequent
budgeting efforts easier!
 2007 Drug Expenditures
Forecast by Setting

Use with caution… not a “multiplier”

Clinics include prescriber offices and hospital
outpatient clinics where meds are administered

Setting Inflation Rate Forecast

Outpatient 5 to 7%

Clinics 14 to 16%
Non-federal hospitals 4 to 6%

Hoffman et al. Projecting Future Drug Expenditures – 2007. Am J Health-Syst Pharm. 2007;
64:298-314
 Conclusions

Growth in drug expenditures is moderating
across all settings (overall, hospital, and clinic)

Pipeline growth limited and recent approvals
are specialized

Drugs in development highlighted included
alvimopan and CERA

Mixed diffusion trend for 2007
• Moderation due to safety concerns (e.g. nesiritide)
but also “typical” diffusion pattern
 Conclusions

Diffusion of recent approvals will be important to
manage (e.g. panitumumab, inhaled insulin)

Generic biologics will not be available in 2007,
but their availability remains important to
monitor (coming challenge?)

Mixed picture for generic pricing and availability,
but negatives do not overshadow dominant
pattern which is unprecedented generic drug
availability

Financial planning for drugs requires data and
constant vigilance
 Acknowledgments

Lee Vermeulen (U of Wisconsin - Madison)

Nilay Shay (Mayo Clinic)

Glen Schumock (U of Illinois –Chicago)

Collaborators at IMS HEALTH, especially
Bob Hunkler
 THANK YOU!
Questions and Discussion