TD Cowen 30th Annual Drug Pricing Survey Results

Overview:

• Our survey shows most payors believe brand drug prices will rise at a low-single-digit rate annually over the next three years — similar to the last few years.
• Most respondents again attribute overall price growth to newer, higher-priced therapies.
• Oncology, gene/cell therapy, diabetes and rare disease drugs are expected to contribute most to price increases.
• Impact of Inflation Reduction Act (IRA) on price is expected to be modest. IRA is now expected to drive more utilization in five years than previously.
• Biosimilar penetration expectations tempered as did gross-to-net (GTN) discounts. Obesity drug coverage is expected to improve.

The TD Cowen Insight

Highlights of the TD Cowen 30th Annual Drug Pricing survey, which captured 25% of U.S. drug spend:

1. U.S. brand drug prices to rise over next three years at low single-digit annual rate driven by innovation;
2. IRA to have a minimal impact on pricing but now a positive impact on utilization;
3. biosimilar penetration to moderate;
4. GTN discounts tempered and
5. obesity drug coverage to improve.

Innovation in Biopharma Driving Drug Prices

Drug prices are a source of anxiety for biopharma investors. In contrast to this fear, we believe U.S. prices will increase as higher-priced new drugs offer benefit to patients. As long as biopharma delivers innovation, we see no change in the upward trend in drug prices.

Annual U.S. Drug Buyer Survey Suggests Price Increase Amongst Multiple Reform Initiatives

We have conducted annual surveys of buyers of drugs in the U.S. for the past 30 years. During this time, our analysis has predicted that drug prices would rise despite multiple reform initiatives, pricing scares and government changes. As predicted, drug prices have indeed increased during this span.

This year's sample of purchasers, who responded to our survey in Q4 2024 but after U.S. elections, anticipate that brand drug acquisition cost per unit will increase by an average of 8% over the next three years (9% by weighted average). This is in line with last year's forecast although the weighted average decreased slightly (12% weighted average in 2023). Eleven percent of respondents attribute a substantial (75%) portion of the anticipated increase to a shift in mix to higher-priced newer therapies, although this is down from 15% in 2023 and 19% in 2022.

Our survey results are based on responses from 27 Health Maintenance Organizations (HMOs), Pharmacy Benefit Managers (PBMs) and hospitals. Collectively, they purchased approximately US$179 billion of drugs in 2024, or about one-fourth of total U.S. drug expenditures.

Biopharma Sector Fundamentally Solid

We view the biopharma sector as fundamentally solid given strength of pipelines, favorable unit dynamics and that U.S. drug prices do not appear to be a drag on this outlook, blunting price erosion outside the U.S. This backdrop allows for greater conviction in product forecasts. These products should drive growth for years to come.

This year's survey results should reassure investors. Innovation commands higher prices, so the most innovative companies should benefit most from what our survey shows.

What To Watch

The Inflation Reduction Act (IRA) limits patient out-of-pocket expenses (started in 2024) and allows for price negotiations on certain drugs (beginning in 2026). In our survey, we asked about the impact seen in 2024 and expected impact going forward. Twenty-six percent of respondents think IRA will have a moderate (50%) impact on drug prices over the next three years. No payor anticipates a substantial (75%) impact, and 15% think IRA will have no impact. This is a change from last year when 23% thought IRA would have no impact.

In terms of drug utilization, payors believe out-of-pocket maximums drove an average volume increase of 3% (or 8% weighted average) in 2024. In five years, payors expect this component to drive an average drug volume increase of 5%. Twenty-two percent of respondents thought IRA would have no impact on drug volumes, which is a change from 42% who selected no impact in last year's survey. We also asked if prices on the initial ten drugs designated under IRA for Medicare are spilling over to the non-Medicare commercial setting; the survey showed 7% of respondents thought it was "definitely true" and 67% "probably true". Regarding biosimilars, payors expect them to capture smaller share.