Drug-spending increase highest in four years

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Spending on pharmaceuticals in the United States rose more in 2009 than in the previous three years, driven by a 9.2-percent
increase in branded-drug prices and a jump in children treated for chronic conditions.

The amount paid for drugs increased 3.7 percent, compared with 3.3 percent in 2008, according to a report Wednesday from
Medco Health Solutions Inc., the largest pharmacy benefits manager by revenue. Branded-drug prices increased each year since
2005, when they rose 6.3 percent, Medco said.

Spending for treatments used by children up to age 19 grew four times faster than the overall population, Medco said. One
in four insured children with chronic conditions, led by diabetes and attention deficit disorder, is taking drugs, such as
Eli Lilly and Co.’s schizophrenia drug Zyprexa, once prescribed only for adults.

“Children are looking like little versions of adults when it comes to chronic illness,” said Robert Epstein,
chief medical officer at Medco, which is based in New Jersey but has major operations in central Indiana.

The price increase was fueled by the debate over the health-care overhaul in Washington, D.C., Medco CEO David Snow said
in a conference call. The increases began about the same time Congress was asking the drugmakers to contribute to funding
as part of the health-care bill.

“The tax is a legitimate cost of business and it will be passed through to the end users,” Snow said.

Pharmaceutical companies agreed to contribute $90 billion during the next decade to help finance the health-care overhaul.
That includes $28 billion in new taxes as well as 50-percent discounts for elderly customers who buy through Medicare’s
prescription drug program.

AARP, formerly the American Association of Retired Persons, found a similar trend in brand-name drug inflation, with prices
rising 9.7 percent, the most since 2002. Overall, the U.S. consumer price index fell 0.3 percent last year, said John Rother,
executive vice president for policy at the Washington-based association. AARP released the study May 17.

Rother said the increases beginning in 2007 reflect “an effort to compensate” for the fact that the pipeline
of drugs under development doesn’t have many blockbusters.

“The drug companies can blame the increases on health reform,” Rother said. “But they got a pretty good
deal. I think it’s more of a feeling, ‘Let’s get it while we can.’”

The Medco 2010 Drug Trend Report is based on a compilation of claims data from the company’s biggest 200 clients, with
about 40 million plan participants cumulatively.

Biologic Drugs

Spending on biologic drugs used to fight cancer, rheumatoid arthritis and multiple sclerosis climbed 14.7 percent, as use
of therapy rose 2.6 percent and prices climbed 12.1 percent, the Medco data show. More than half of the increase in drug spending
reported in 2009 was attributable to such specialty therapies.

For the third straight year, diabetes was the biggest contributor to the increase, accounting for 16.7 percent of the growth,
according to the study.

Higher rates of obesity among children produced more reliance on diabetes drugs such as Osaka, Japan-based Takeda Pharmaceutical
Co.’s Actos and New Jersey-based Merck & Co.’s Januvia. Other obesity-related treatments that rose include
London-based AstraZeneca Plc’s Atacand for hypertension and New York-based Pfizer Inc.’s Protonix to alleviate
gastroesophageal reflux disease.

In 2007, the American Diabetes Association estimated that 186,300 children under age 20 had diabetes in the U.S. An additional
2 million, ages 12 to 17—about 1 in every 6 overweight adolescents—were prediabetic. There are 23.5 million over
20 who are diabetic and 55 million prediabetic.

“While there are twice as many adults that are prediabetic compared with those that are diabetic, there are 10 times
as many children,” Epstein said.

Drugs for attention deficit hyperactivity disorder, such as Zyprexa and AstraZeneca’s Seroquel, were another growth
area, particularly for adults ages 20 to 34 whose spending rose 21 percent. Overall, spending in the category climbed 24 percent
and was the fourth-leading driver of expenditures, Medco said.

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