Annual spending on prescription medications in the United States will increase 22% over the next five years, climbing as high as $400 billion by 2020, according to a new report from IMS Health Holdings, a health care information company. Those figures represent a compound annual growth rate of 4% to 7% and reflect increased spending on innovative drugs, offset by lower spending on brands that will lose market exclusivity over the next five years.

Upcoming high-profile patent expirations include Crestor (rosuvastatin, AstraZeneca), Lyrica (pregabalin, Pfizer), and Viagra (sildenafil, Pfizer).

While brand price increases are expected to continue in the 10% to 12% range on an invoice basis, they will be significantly offset by rebates, discounts, and other forms of price concessions, the report notes.

The prospects for additional innovative medications becoming available for patients through 2020 are “very bright,” according to IMS. The late-phase pipeline holds 2,320 novel products, and an average 43 to 49 products are expected to be launched annually over the next five years.

In 2015, the average net price increase for branded drugs in the U.S. was only 2.8% compared with 12.4% using wholesale prices, the report states.

“That reflects the new dynamics in the marketplace, where we have heightened competition in several major therapy areas, including diabetes, with manufacturers taking price concessions through rebates,” IMS director Murray Aitken told Reuters.

It also reflects more aggressive tactics by pharmacy benefit managers and health insurers to restrict access to certain drugs unless manufacturers agree to hefty discounts, he said.

In 2015, oncology drug spending reached $39.1 billion, an 18% jump, whereas treatments for autoimmune diseases, such as rheumatoid arthritis, rose nearly 29% to $30.2 billion.

“Our spending on those drugs will be relatively high but still manageable … because they will be offset by more modest price increases for branded drugs and a rising level of savings from drugs losing patent protection,” Aitken said.

Sources: IMS Health; April 14, 2014; and Reuters; April 14, 2016.

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