Inflation Driven Price Rise and Its Impact On Buyer Behavior

Rising costs across the pharmaceutical manufacturing and supply chain is a key concern for the Industry. The Consumer Price Index recently showed inflation to be at a nearly 40-year high – over the past 12 months, prices have climbed by 8.5% in Europe. Medical inflation is estimated to be 6.5% in the US. Data shows that the sector is currently susceptible to rising prices and inflation, but what has caused climbing costs for healthcare? Furthermore, what impact will this have / is this having on buyer behavior?

Inflation impact and supply chain issues

One of COVID-19’s lingering effects has been staff shortages. As a result of a reduced labor force, wages have been driven up. With more than half of hospital budgets going to paying staff, this incline has had an undeniable impact. A survey by McKinsey expects staff shortages and consequential wage increases to only continue. Almost ⅓ of 400 nurses suggested they might quit their role, leading to an even smaller workforce. Paired with current, widespread inflation – affecting supplies, drugs, food and energy – healthcare is having to tighten its budget.

Drug prices have been largely impacted by cost issues. There have been price increases for all types of drugs – in the U.S. This includes cancer drugs, non-cancer drugs, pills and injections. For existing drugs, prices are liable to increase over time. This occurs especially when there is little to no competition for a particular product. Generic drugs can help to reduce these prices by providing more competitive prices, without the branded name. These, however, take time to produce, as manufacturers conduct research and outwait patents. In the meantime, branded drug prices can be high.

Such prices are only made worse by inflation and restricted supply. As of 2021, drug prices were 5 times higher than they were in 1984. This rate of inflation is 3 times the rate for goods in other markets. Inflation is expected to cause a general decline in profit, with a McKinsey analysis predicted a 12% to 24% decline in overall profit for the healthcare sector. As a result, drug prices have been hiked by manufacturers, including Pfizer, GlaxoSmithKline (GSK) and Teva Pharmaceuticals.

Recent supplier trends

Cardiovascular treatments, of all drugs, have increased in price the most over the past 2 decades. For instance, if a heart disease drug cost $100 in the year 2000, by 2021 it cost roughly $1,350. This growth is over 10 times larger than that of any other drug. Unfortunately, this impact is on treatment for the most common cause of death in America, heart disease. These drugs make up ¼ of the 200 most prescribed drugs in the U.S. At the same time, 6/10 of the most expensive drugs are cardiovascular related.

Such increases are not limited to one therapeutic area. As of January this year, over 430 branded drugs had their prices upped by, on average, 5.2%. Pfizer raised the most prices, including their:

• Pneumococcal shot – Prevnar 13, by 6.5%
• Pneumococcal shot – Prevnar 20, by 6.6%
• Antibiotic – CR, by 10%
• Chemotherapy – Camptosar, by 10%
• Estrogen-replacement therapy – Depo-Estradiol, by 10%
• and anticoagulant – Fragmin, by 10%.

GSK, Teva Pharmaceuticals, Sanofi and Gilead are examples of more price hikes. GSK’s increase was between 2% and 7%, while Teva’s averaged at 9.4% and Gilead’s at 5.6%. Sanofi increased the price of their:

• Combination vaccine for titans and diphtheria – Pentacel, by 2.4%
• Meningococcal vaccine – Menactra, by 5.2%
• Meningococcal vaccine – Menquadfi, by 5.2%

Cost cutting pressures on buyers

Buyers on the other hand have exhausted their budgets in pandemic management and are constrained by their respective governments, who insist on reduction in cost of treatment. Considering the inflation, providers have to rethink salary and benefits budgets. Hence, the rising price of pharmaceuticals is a major concern. Buyers find it difficult to justify inflation adjusted pricing for ongoing contracts.

In response to attempts of suppliers trying to renegotiate the prices of key drugs (especially subsequent to the Ukraine war); most buyers are exploring alternative treatment paths or suppliers. Increased usage and approvals of biosimilars in the US and Europe is a good indicator of this trend. In addition, Vamstar has seen an increase in price sensitivity even in Nordic markets, where price is not the primary determinant of purchase decision. There has been a rapid switch of key accounts between top 50 pharmaceutical companies, indicates increased active participation.

Since, the inflation pressure is felt industrywide, buyers also do not have several options. This is true especially for life saving patented drugs. Further, stock pressures and maintaining supply chains are also key challenges for buyers. As a result, a few buyers have accepted higher prices for a few drugs.  For Instance, France has accepted higher prices for a few oncology drugs in April 2022. While the current contracts have seen a marginal increase of 3 to 4%, the contracts have been extended with a higher jump. A similar trend has been witnessed in a fertility segment in Spain, where the cost of a few biologicals have gone up by 8.1%.

Forecasting

There are some key areas that are more likely to see a price rise than others. These include:

• Cancer drugs
• Development of new drugs (due to large research costs)
• Labor (due to a staff shortage and the rising cost of living)

At the moment, experts observe that many of inflation’s negative effects are being felt by consumers. Increased costs hit the public either by having to pay more for healthcare or by having to pay higher taxes and/or insurance. For some Americans, this has already meant skipping or delaying their treatments. Over the last 6 months, 38% of Americans have cut back on costs such as fuel, food and utilities in order to pay for healthcare costs. As a result, the Inflation Reduction Act has been put into place to provide subsidies for those on low income. There may be more measures to come to help the consumer.

Vamstar provides price prediction services to global pharmaceutical giants, by using deep learning, time series analysis, and game theory. Using AI to capture industry/ price trends and combining it with competitive intelligence and buyer behavior estimates, Vamstar provides a solution that forecasts for each stakeholder in the industry. These highly accurate models also consider trends that are typically missed by human intelligence.

For more information, please feel free to reach out here: soumitra.sharma@vamstar.io

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