According to the 2014 Express Scripts Drug Trend Report, prescription drug spending in the United States increased year-over-year by 13% to $374 billion in 2014. New biotechnology drugs for Hepatitis C, multiple sclerosis, cancer, and other complex conditions accounted for a substantial 31% of total prescription drug spending.
The above graph shows a breakdown of biotechnology spending in 2014, segmented by therapeutic areas. Drug sales have been the highest for immune-oncology followed by multiple sclerosis, HIV (human immunodeficiency virus), rheumatoid arthritis, and organ transplants.
Despite having lower absolute sales, Hepatitis C drugs accounted for 45% of the increase in total specialty drug spending in 2014. Immuno-oncology, also called cancer immune-therapy, and Hepatitis C are currently considered the most profitable drug categories in the biologics industry (IBB).
According to IMS Health, global oncology spending reached $100 billion in 2014. Immuno-oncology is currently considered the most lucrative therapeutic area in the biotechnology industry. Immuno-oncology involves the use of the human immune system to treat cancer.
Bristol-Myers Squibb’s (BMY) Opdivo and Merck & Co.’s (MRK) Keytruda have recently received FDA (Food and Drug Administration) licenses. These drugs offer an innovative solution called PD-1/PD-L1 mechanism to detect cancer cells. They’re currently the most advanced drugs in the cancer treatment category. With an innovative solution and first-mover advantage, Opdivo and Keytruda are expected to be the blockbuster drugs of 2015.
Bristol-Myers Squibb and Merck, however, are expected to face tough competition from Roche and AstraZeneca, who have their PD-1 drugs in the late stages of their pipelines. Amgen (AMGN) also has an immune-oncology drug called Blincyto, although it targets rare types of blood cancer and is not expected to compete with blockbuster drugs.
Gilead Sciences’ (GILD) breakthrough treatments Sovaldi and Harvoni resulted in blockbuster sales for the company in 2014. However, the company will witness reduced profit margins, since it has to offer drug discounts up to 46% to Medicaid and the U.S. Department of Veteran Affairs. This was mainly the result of AbbVie’s Viekira Pak entering the Hepatitis C market at a much lower price.
As the price war continues and more drugs enter the arena, the Hepatitis C market may witness a decline in profitability.