Growth spurt

At least seven of the 35 new drugs approved by the Food and Drug Administration last year cost $9,000 or more per month as manufacturers turn to developing high-priced specialty drugs to shore up bottom lines eroding from the expiration of patents on best-selling drugs that treat common conditions.

So-called specialty drugs treat chronic diseases such as multiple sclerosis, hepatitis C and cancers that hit limited populations. Spending on these drugs has grown year after year as more drug manufacturers have pursued treatments for unmet medical needs.

Of 35 new drugs approved last year, nine were for orphan diseases affecting fewer than 200,000 people in the U.S., and 28 were classified as specialty drugs by Express Scripts, the largest U.S. pharmacy benefit manager.

PBMs and insurers have been sounding the alarm on rising specialty drug costs for years, especially as the number of drugs topping the $100,000 threshold rose.

However, it's clear—both from the pharmaceutical industry's pipeline of drugs targeting high unmet medical needs and from patients willing to pay high prices for treatments that previously didn't exist—that there is a market for high-priced specialty drugs.

Prescription drug spending grew 2.9% to $263 billion in 2011 over the previous year. CMS officials, in their annual spending review published in Health Affairs, attributed rising drug spending to growth in prescription drug prices, specifically citing brand-name and specialty drugs and increased spending on new brands.

Specialty drugs made up 17.6% of Express Scripts' pharmacy benefit spending in 2011 and will likely account for more than 25% of spend per member per year by 2014.

“This has incredible implications for healthcare,” said Dr. Steve Miller, Express Scripts' senior vice president and chief medical officer. “Because if you think that the generic wave was going to take care of your pharmacy spend and that we could all take a sigh of relief, that sigh period is over. These are going to come fast and furious.”

Onyx Pharmaceuticals, a South San Francisco-based biopharmaceutical company, last July received FDA approval for its multiple myeloma drug, Kyprolis. A study of 266 patients found that 23% of those patients reported complete or partial disappearance of their tumors after treatment.

An Onyx spokeswoman said the company looked at factors like unmet medical need and the size of the population before settling on a $9,950 monthly price tag for the drug.

Approval isn't the only time that drug prices are considered. The costs of already pricey multiple sclerosis treatments, many of which have been on the market for years, tend to rise by 20% each year, even with the arrival of costly new drugs such as Sanofi's Aubagio.

Several of the drugs approved during the FDA's fiscal 2012 have already raised their prices. Incyte's Jakafi reported a 9% increase in November, while Vertex Pharmaceutical's Kalydeco rose to $25,603 in 2013 from its launch price of $24,500 in 2012.

There are 5,400 drugs in clinical development, and nearly 1,800 of those drugs have been designated orphan drugs, according to a report released in January by the Pharmaceutical Research and Manufacturers of America.

“Specialty medicines are harnessing cutting-edge science to bring needed medical advances to patients while accounting for a small share of health spending,” a PhRMA spokeswoman said. “The cost of these medical advances has been growing at a historically slow rate, averaging 3.3% per year over the past five years.”

The pricing structure for orphan drugs makes them viable sources of investment. “Drugs for rare diseases can secure higher prices to the limited size of the patient population; there are fewer, if any, competitors; and there is a high level of unmet need,” according to a 2012 Thomson Reuters research report.

The population for Ferriprox, a treatment for iron overload in patients with a genetic disorder that causes anemia, is fewer than 300 patients, an ApoPharma spokeswoman said. The drug costs about $12,000 per month.

“To be able to recoup our costs of development, it was necessary to charge a higher price than would be charged for a medication to treat a common disease,” she said. “However, in the interest of keeping costs down, the price charged is about the same as that for Exjade, the other oral iron chelator.”

Dr. John Santa, director of Consumer Reports Health Ratings Center, said the industry should be part of the solution to high prices, including providing more “clear-cut evidence” about a drug's benefits and risks. “This is really testing the transparency and credibility of the healthcare process.”