2023 Medicaid Pharmacy Trend Report by Prime/Magellan Rx

MEDICAID PHARMACY

TREND REPORT 2023 EIGHTH EDITION

TABLE OF CONTENTS

Introduction

Class and Drug Trends

Value-Based Contracting

Glossary

CONTRIBUTORS Meredith Delk, Ph.D., MSW Senior Vice President, General Manager, State Government Solutions Kristen Haloski, Pharm.D., AAHIVP Senior Director, Government PDL Markets

Medicaid Fee-ForService Key Trends and Insights

Medicaid Fee-ForService Trends

Top 10 Therapeutic Classes Driving Net Trend

Pipeline and Forecasting

Medicaid Pharmacy Economics

Kristin Haas Lead Health Informatics Analyst, Government PDL Markets Katie Lockhart, MS Senior Manager, Forecasting and Pharmacoeconomics

Methodology

EXTERNAL CONTRIBUTOR Doug Brown, R.Ph., MBA Senior Vice President, Value and Access Coeus Consulting Group

©2023 Prime Therapeutics LLC | Magellan Rx Management, LLC, a Prime Therapeutics LLC company. Magellan Rx Management 2023 Medicaid Trend Report™ is published in conjunction with D Custom. All rights reserved. All trademarks are the property of their respective owners. The content — including text, graphics, images and information obtained from third parties, licensors, and other material (“content”) — is for informational purposes only. The content is not intended to be a substitute for professional medical advice, diagnosis, or treatment. Figures may be reprinted with the following citation: Magellan Rx Management Medicaid Trend Report™, ©2023. Used with permission.

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

INTRODUCTION Prime Therapeutics and Magellan Rx Management are pleased to present the eighth edition of the Medicaid Pharmacy Trend Report™. This annual publication offers insights into the gross and net drug spend trends across Medicaid programs.

The year 2022 was a dynamic one for the Medicaid space. We saw the overall drug trend fall back to single-digit growth after hitting double digits the previous year. Looking ahead, we predict this trend will abate as the launches of key biosimilars and generics accelerate, and the inflation rate returns to pre-COVID-19 levels. For the third year in a row, specialty drug spend accounted for more than half of the total net drug spend, but comprised just 1.3% of pharmacy utilization. While we continued to see many of the same top drug spend classes from previous years, hypoglycemics, incretin mimetics/ enhancers, and smoking cessation were new to the top 50 drug classes in Medicaid. As states continued to explore and implement efforts to address the increasing cost of specialty drugs with unique payment models, including subscription and outcomes-based contracting models, an increasing number of Medicaid programs took the necessary steps to gain CMS approval for these arrangements. Outcomes-based contracting remained a common theme at Medicaid pharmacy administration meetings. States must use these critical approaches, though still early in their lifecycle, if they want the contracting of these drugs to pivot away from traditional volume discounts and toward the value these high-cost drugs promise to deliver. Among 2022’s notable milestones was the implementation of the CMS value-based purchasing rule and the approval of two high-profile gene therapies: Zynteglo® (for beta-thalassemia) by bluebird bio at $2.8M and Hemgenix® (for hemophilia B) by CSL Behring at $3.5M. The 2023 gene therapy

pipeline has multiple million-dollar drugs, including two one-time curative therapies for sickle cell disease. We anticipate that most states will secure CMS approval to contract on these drugs using a VBC model in 2024. More information on value-based contracting can be found on Page 16. In this year’s Medicaid Trend Report (MTR), we once again track the top classes and individual drugs driving trend as well as those with the highest net spend, coupled with a deeper look into the top 10 classes driving trend and highlights of why they made such an impact on the Medicaid program. New last year, we have again ranked the top 50 classes by percentage of net spend comparing 2021 to 2022. This analysis provides the reader with a more holistic view of the drug classes both impacting and driving Medicaid drug spend. The Medicaid Pharmacy Economics section, included in every issue of the MTR, provides the fundamental background for new readers and those who need a refresher on the calculation of the federal rebate and the impact rebates have on the net price of drugs in the Medicaid program. Thank you for your continued interest in the Medicaid Trend Report. We are confident the information inside will drive important conversations and strategic opportunities for managing Medicaid pharmacy programs in the coming years.

FIGURE 1: MEDICAID 7-YEAR NET COST PER CLAIM TREND 2016-2022 Traditional

Specialty

Overall Trend

20.5% 1.9% -5.1%

4.6% -4.4% -9.7%

6.1% 0.8% -2.6%

8.6% 4.3% -0.4%

10.9% 8.9% 1.7%

13.0% 11.0% 5.8%

13.4% 9.7% 5.7%

2016

2017

2018

2019

2020

2021

2022

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

INTRODUCTION Overall Drug Cost Trends In 2022, gross cost per claim rose 5.4% (+$7.60), while net cost per claim rose 9.7% (+$5.50). Both specialty and traditional drug trends contributed to overall Medicaid net spend. Unlike the previous four years, during which specialty trend increased slightly more than two percentage points each year, the category rose 0.4 percentage points to 13.4% in 2022. At 5.7%, the 2022 net trend of traditional drugs was similar to that of the previous year. Taken together, the traditional and specialty trends drove the positive overall 9.7% trend in 2022 (see Figure 1).

FIGURE 2: GROSS COST PER CLAIM 2021-2022 2021

2022

FIGURE 4: TOP 5 CLASSES BY NET SPEND 2022* The top drug classes in Medicaid programs across the country remained unchanged from previous years. HIV/AIDS and Antipsychotics remained the top two drug classes and accounted for more than 17.57% of the total net drug spend. As in 2021, the top five classes accounted for almost 40% of total net spend.

10.0%

HIV/AIDS Antipsychotics

% Change

8.4%

Hemophilia Treatment 4.3%

8.2%

4.9%

5.4%

4.3%

7.2%

Anticonvulsants

2021

Cystic Fibrosis, Oral All Other

6.3%

62.6%

5.5%

148.16 142.11

146.76 139.88

151.12 139.68

146.13 140.10

148.03 140.43

Average

FIGURE 3: NET COST PER CLAIM 2021-2022 2021

2022

9.4%

% Change 12.0%

8.2%

9.7% 9.7%

9.2%

7.0%

7.5%

2022

63.9%

59.88 55.70

61.40 56.25

64.56 57.62

63.82 58.17

5.7%

62.45 56.95

5.8%

Average

*See Page 8 for Top 50 Drug Classes by Net Spend.

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

MEDICAID FEE-FOR-SERVICE KEY TRENDS AND INSIGHTS Overall Trends

Traditional vs. Specialty Impact

FIGURE 5: OVERALL NET TREND IN SPEND 2022

Our year-over-year analysis continued to show an ever-higher percentage of total cost per claim associated with specialty drugs. In 2022, 56.5% of states’ net spend was used to reimburse providers for specialty drugs. As in previous years, specialty utilization held steady at just 1.3% of total utilization.

FIGURE 7: CLAIM VOLUME

9.7% Overall Trend

Traditional

13.4%

Traditional Trend

Specialty Trend

1.49

5.5%

Cost Trend

Utilization Trend

313.81

5.0%

Cost Trend

Utilization Trend

2021

Specialty

1.3%

5.7%

FIGURE 9: TRADITIONAL COST TREND 2022

% Change

1.3% 3.4%

84.17

81.42

2021

2022

98.7

5.7% %

Gross Cost per Claim

FIGURE 6: OVERALL COST TRENDS 2021-2022 2021

2022

FIGURE 8: TOTAL NET COST

% Change

Traditional

140.43

Net Cost per Claim

FIGURE 10: SPECIALTY COST TREND 2021

Specialty

2022

% Change

8.6%

5.4% $

27.51

26.02

54.9%

56.5

% $

2021 45.1%

9.7%

56.95

Gross Cost per Claim

4,892.03

4,503.85

148.03

2022

13.4%

2,657.79

43.5%

2,343.98

62.45

Net Cost per Claim

Gross Cost per Claim

Net Cost per Claim

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

MEDICAID FEE-FOR-SERVICE TRENDS Federal Rebate Update In 2022, federal rebates declined 2.6 percentage points in the aggregate federal rebate inclusive of the rebate offset amount (ROA). (See Figure 12) The decline from 53.4% in 2021 to 50.8% in 2022 continues a trend we identified three years ago after several years of increases in the federal rebate, which peaked at 55.6% in 2018. The decline, driven by new specialty drugs, was significantly offset by a corresponding 0.9 percentage point increase in supplemental rebates. On closer inspection, the federal rebate on traditional drugs decreased by 0.8 percentage points this year to 65.1% compared to last year’s 0.1 percentage point increase. At the same time, the federal rebate on specialty drugs continued to decline, falling another 2.8% from 42.3% to 39.5% on top of last year’s decline of 3.9 percentage points. Considering new drugs to market start with a federal rebate of 23.1% of AMP, higher utilization of newer products likely brought the average specialty federal rebate down. Specialty spend experienced further growth, up 1.6 percentage points in 2022 and accounting for 56.5% of total pharmacy spend. As we did last year, we want to highlight the suspected impact of inflation on the CPI-U penalty component of the federal rebate. While it is beyond the scope of this report to calculate the direct impact of the CPI-U on the overall federal rebate, inflation is likely exerting downward pressure on the average federal rebates that states receive. Comparing the annual change in the December CPI-U over the last 10 years, we saw a spike in 2021 (as noted in last year’s report) and the similar impact of continued inflation in 2022. (See Figure 11)

Supplemental rebates, a bright spot for states, increased to 7.0% of total net spend, up from 6.1% the prior year. This is the highest supplemental rebate percentage ever reported in this publication. Unfortunately, not all drugs have supplemental rebates to protect states’ net cost when federal rebates decline. This occurs because supplemental rebates have an inverse relationship to federal rebates when contracted under a guaranteed net unit price or GNUP model (typical in Medicaid). Under these agreements, when federal rebates decline, supplemental rebates increase in an equal fashion (the opposite is also true). Supplemental rebates are collected on top of the mandatory federal rebate. In 2022, the total Medicaid rebate (federal, supplemental, and ROA) was 57.8%, which, unfortunately for states, was 1.6 percentage points lower than the previous year.

FIGURE 12: FEDERAL REBATE PERCENTAGE BY SEGMENT The average federal rebate can be subdivided into either specialty and traditional drugs or brand and generic drugs. As we noted earlier, the growth in specialty net spend (13.4% per claim) was the primary driver of a lower average federal rebate in 2022.

FIGURE 11: ANNUAL CHANGE IN DECEMBER CPI-U OVER 10 YEARS 8.0%

2021

2022

Brand 64.0%

Brand 61.3%

7.0%

Specialty 42.3%

6.0% 5.0%

Federal Rebate* 53.4%

Traditional 65.9%

Specialty 39.5%

Federal Rebate* 50.8%

Traditional 65.1%

4.0%

Generic 10.2%

3.0%

Generic 9.6%

2.0% 1.0% *Federal rebate as a percent of pharmacy reimbursement and net of ROA

0.0% 2012

2014

2016

2018

2020

2022

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

MEDICAID FEE-FOR-SERVICE TRENDS Medicaid Forecasting MRx Predict is Magellan Rx Management’s advanced analytics platform that incorporates various predictive analytics tools. One of these tools, Drug Cost Planner, provides predictions on drug spend and trend while also detailing the factors driving those future trends, allowing clients to prepare for future events (pipeline launches, patent expirations, etc.). The other tools, Predictive Medication Adherence and Predictive Opioid Misuse, proactively identify at-risk patients and individually stratify them based on the probability of nonadherence to chronic medications and opioid therapy misuse, respectively. Medicaid forecasting data can be found on Page 15.

Our Drug Cost Planner tool predicts overall gross trend will drop precipitously next year and then remain relatively constant over the next several years, trending between 6.9% and 6.7%. Overall net cost will have peaked in 2021 at 11.0% and is predicted to trend between 7.5% and 6.2% through 2023 and 2025. (See Figure 13) Rebates will continue to help offset increasing drug prices, but the full impact of inflation on the CPI-U component of the federal rebate won’t be realized until next year.

FIGURE 13: MEDICAID FORECASTING Gross Cost Per Claim

Net Cost Per Claim

6.7%

5.4%

6.7%

6.9%

180.16

168.85

157.95

140.43

148.03

56.95

2021

62.45

2022

67.13

2023

6.2%

6.3%

7.5%

9.7%

71.36

2024

75.78

2025

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

CLASS AND DRUG TRENDS Therapeutic Class Net Dollar Impact

Drug Net Spend Impact

Cytokine and CAM antagonists had the highest net dollar impact on the 2022 trend, contributing $0.81 to the $5.50 (9.7%) increase in average net cost per claim. Immunomodulators for atopic dermatitis remained a key trend driver for states by adding $0.45 to the trend on top of the $0.40 gain we highlighted last year. Stimulants and related agents drove $0.31 in 2022, as opposed to the previous year, which saw a -$0.08 impact on total net trend. Hepatitis C agents helped mitigate the overall increase in net trend this year with -$0.10 impact. While the net cost per claim for hepatitis C agents increased by 4.3%, overall claims volume declined by 8.2%. (See Figure 15)

Looking at individual net drug spend as a percentage of total net spend, the top 10 specialty drugs account for 20.9% of total net spend or $1.3B of the $6.3B in total net spend for 2022. The top 10 traditional drugs accounted for 8.5% of total net drug spend or $538M of the $6.3B in total net spend for 2022. Together, these 20 drugs account for nearly one-third of the net pharmacy drug spend.

FIGURE 14: MEDICAID TOP 5 CLASSES INCREASING TOTAL NET SPEND BY DOLLAR IMPACT 2022 Traditional

FIGURE 16: 2022 TOP 10 SPECIALTY DRUGS BY PERCENT OF TOTAL NET SPEND

Specialty

0.81

4.99%

4.48% 2.92%

0.45

0.34

Cytokine and CAM Antagonists

Immunomodulators, Atopic Dermatitis

Cystic Fibrosis, Oral

0.32

Opiate Dependence Treatments

Stimulants and Related Agents

FIGURE 15: MEDICAID TOP 5 CLASSES DECREASING TOTAL NET SPEND BY DOLLAR IMPACT 2022 Traditional

2.05%

0.31

Trikafta (oral)

Biktarvy (oral)

Hemlibra (SQ)

Stelara Syringe (INJ)

1.20%

Epidiolex (oral)

Dupixent Syringe (SQ)

Mavyret (oral)

1.00%

0.99%

0.89%

Evrysdi (oral)

Dupixent Pen (SQ)

Eloctate (IV)

FIGURE 17: 2022 TOP 10 TRADITIONAL DRUGS BY PERCENT OF TOTAL NET SPEND

Histamine II Receptor Blocker

Analgesics, Narcotics Short

Hypoglycemics, SGLT2

Epinephrine, Self-Injected

1.64%

1.41%

1.36% 0.82%

-0.07

-0.10

1.21%

Specialty

Hepatitis C Agents

1.25%

-0.06

-0.05

-0.04

Vraylar (oral)

Invega Sustenna (IM)

Suboxone Film (SL)

Rexulti (oral)

0.76%

Abilify Maintena (IM)

0.61%

0.55%

0.54%

Latuda (oral)

Trulicity (SQ)

Amphetamine Salt Combo (oral)

0.45%

0.40%

Vyvanse Capsule (oral)

Invega Trinza (IM)

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

CLASS AND DRUG TRENDS FIGURE 18: TOP 50 DRUG CLASSES BY NET SPEND RANK RANK RANK 2022 2021 CHANGE

CLASS

Traditional

% OF TOTAL NET SPEND 2021

% OF NET SPEND TOTAL NET % CHANGE SPEND 2022

RANK RANK RANK 2022 2021 CHANGE

CLASS

% OF TOTAL NET SPEND 2021

% OF NET SPEND TOTAL NET % CHANGE SPEND 2022

HIV/AIDS

10.20%

9.35%

NSAIDs

0.75%

0.77%

Antipsychotics

8.47%

8.22%

Immunomodulators, Asthma

0.72%

0.76%

Hemophilia Treatment

7.38%

6.95%

Oncology, Oral - Renal Cell

0.75%

0.74%

Anticonvulsants

6.34%

5.83%

Oncology, Oral - Other

0.66%

0.72%

0.66%

0.63%

0.27%

0.62%

Antihistamines, Minimally Sedating Hypoglycemics, Incretin Mimetics/Enhancers

Cystic Fibrosis, Oral

5.67%

5.71%

Cytokine and CAM Antagonists

4.24%

5.16%

Stimulants and Related Agents

2.70%

2.96%

Mucopolysaccharidosis

0.61%

0.59%

2.68%

2.96%

Glucocorticoids, Oral

0.56%

0.59%

1.77%

2.33%

Analgesics, Narcotics Short

0.71%

0.55%

Oncology, Oral - Hematologic

1.65%

1.72%

Anxiolytics

0.57%

0.53%

Oncology, Oral - Breast

1.62%

1.64%

Antimigraine Agents, Other

0.40%

0.52%

Spinal Muscular Atrophy

1.51%

1.61%

Laxatives and Cathartics

0.57%

0.51%

Hepatitis C Agents

1.85%

1.53%

Contraceptives, Other

0.60%

0.51%

Antidepressants, Other

1.46%

1.36%

Oncology, Oral - Lung

0.47%

0.51%

Antidepressants, SSRIs

1.26%

1.21%

Lipotropics, Statins

0.52%

0.50%

Neuropathic Pain

1.23%

1.07%

Urea Cycle Disorders, Oral

0.44%

0.46%

Duchenne Muscular Dystrophy Treatments

0.76%

1.07%

Antihistamines, First Generation

0.42%

0.46%

Movement Disorders

1.00%

1.02%

Cephalosporins and Related Antibiotics

0.41%

0.45%

Immune Globulins

0.94%

0.90%

Beta-Blockers

0.49%

0.44%

PAH Agents, Oral and Inhaled

0.90%

Antiemetic/Antivertigo Agents

0.47%

0.44%

Bronchodilators, Beta-Agonists

0.85%

0.89%

Vaccines

0.44%

Multiple Sclerosis Agents

0.79%

0.87%

Smoking Cessation

0.25%

0.42%

HAE Treatments

0.60%

0.82%

Skeletal Muscle Relaxants

0.46%

0.41%

Angiotensin Modulators

0.85%

0.82%

Immunosuppressives, Oral

0.45%

0.41%

Proton Pump Inhibitors

0.74%

0.78%

Contraceptives, Oral

0.48%

0.40%

Opiate Dependence Treatments Immunomodulators, Atopic Dermatitis

Specialty

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

CLASS AND DRUG TRENDS 2022 Top 10 Traditional And Specialty Drugs Driving Trend

FIGURE 19: TOP 10 TRADITIONAL DRUGS INCREASING DRUG TREND

FIGURE 21: TOP 10 SPECIALTY DRUGS INCREASING DRUG TREND 0.60

0.47

0.37

0.30

0.25

0.23

0.17

0.13

Trulicity (SQ)

0.12

0.11

Suboxone Film (SL)

Latuda (oral)

0.10

0.09

Caplyta (oral)

Vraylar (oral)

Varenicline Vyvanse ProAir HFA Tartrate Chewable Tablet (INH) (oral) (oral)

0.09

0.08

0.07

Qelbree (oral)

Ozempic (SQ)

Famotidine Suspension (oral)

-0.07

Albuterol HFA Pfizer Paliperidone Chlorpromazine (ProAir) (AG) COVID-19 (oral) (oral) (INH) Vaccine (EUA)

-0.06

-0.05

-0.04

Jardiance Levothyroxine Moderna (oral) Sodium COVID (12y Up) Tablets (oral) Vac (EUA)

-0.04

Evrysdi (oral)

Verzenio (oral)

0.13

0.11

Trikafta (oral)

Stelara Syringe (INJ)

Dupixent Pen (SQ)

Hemlibra (SQ)

Biktarvy (oral)

Skyrizi Pen (SQ)

Sublocade (SQ)

Amondys 45 (IV)

FIGURE 22: TOP 10 SPECIALTY DRUGS DECREASING DRUG TREND

Narcan Spray (nasal)

0.13

0.07

FIGURE 20: TOP 10 TRADITIONAL DRUGS DECREASING DRUG TREND

Vimpat Tablet (oral)

-0.03

Symdeko (oral)

Genvoya (oral)

Advate (IV)

Orkambi Tablet (oral)

-0.09

Skyrizi Syringe (SQ)

-0.03

Descovy (oral)

Triumeq (oral)

Mavyret Emtricitabine/ Adynovate (oral) Tenofovir Disoproxil (IV) Fumarate (oral)

-0.06

-0.12

-0.10

-0.09

-0.05

-0.04

-0.21

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

TOP 10 THERAPEUTIC CLASSES DRIVING NET TREND

Cytokine and CAM Antagonists

Immunomodulators, Atopic Dermatitis

Net Dollar Impact $0.81

$94.3M

40.8%

Net Spend Trend

Net Dollar Impact $0.45

12.3%

Total Net Spend Trend

25.4%

Claim Volume Trend

Net Cost Per Claim Trend

$50.4M

52.2%

Net Spend Trend

23.8%

Total Net Spend Trend

23.0%

Claim Volume Trend

Net Cost Per Claim Trend

Class Summary

For the second consecutive year, cytokine and cell adhesion molecule (CAM) antagonists accounted for the highest net cost per claim among therapeutic classes and held steady as the No. 6 net spend category in 2022. Utilization remained fairly steady for the top three agents in the class: Humira Pen, Enbrel Pen, and Cosentyx Pen. Like the previous year, net dollar impact was driven by Stelara Syringe at $0.47, which accounted for 5.02% of market share in the class. Taltz was a new entrant to the top utilized agents in the class, accounting for 3.6% of claim volume in the class and $0.06 net dollar impact.

The immunomodulators for atopic dermatitis (AD) class accounted for the second-largest net dollar impact at $0.45 per claim. Positive net dollar impact was driven by Dupixent’s pen formulation, which had a 10.94% market share increase in 2022. Since its initial approval in 2017 for the treatment of moderate to severe atopic dermatitis, Dupixent has experienced utilization increases due to expanding indications. Calcineurin inhibitor Protopic was discontinued in 2022, causing its market share in the class to decline and likely transfer to its generic, Tacrolimus, which saw an 8.27% increase in market share.

FIGURE 23: MARKET SHARE AND NET DOLLAR IMPACT

FIGURE 24: MARKET SHARE AND NET DOLLAR IMPACT

Humira Pen Kit (INJ) Stelara Syringe (INJ)

Enbrel Pen (INJ) Cosentyx Pen Injector (SQ) Humira Kit (INJ) Otezla (oral) Taltz Autoinjector (SQ) Other Market Share

Dupixent Syringe (SQ) Dupixent Pen (SQ) Eucrisa (topical) Elidel (topical) Tacrolimus (topical) Protopic (topical) Tacrolimus (AG) (topical) Other

Net Dollar Impact Change

Market Share

29.52% 42.33%

42.75%

Net Dollar Impact Change

26.07%

0.47

8.95%

8.31%

6.12%

6.06%

6.37%

5.46%

4.49% 4.58% 2.83%

5.02% 4.70% 3.60%

24.11%

0.37

10.32%

21.26%

21.99% 17.39% 0.31 15.21%

13.87%

2.90% 24.33%

0.06 $0.03 -0.03

2021

2022

10.24%

16.06% -0.01 -0.02

$ $

2021

0.05

1.14% 2.86%

5.55% 2022

2.07% 3.55%

0.02

0.01

2022

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

TOP 10 THERAPEUTIC CLASSES DRIVING NET TREND

Cystic Fibrosis, Oral

Opiate Dependence Treatments Net Dollar Impact $0.34

$51.5M

16.7%

Net Spend Trend

10.2%

Total Net Spend Trend

5.9%

Claim Volume Trend

Net Cost Per Claim Trend

Net Dollar Impact $0.32

$40.4M

27.6%

Net Spend Trend

7.0%

Total Net Spend Trend

19.2%

Claim Volume Trend

Net Cost Per Claim Trend

Class Summary

Cystic fibrosis (CF) remained the No. 5 net spend class in 2022 but moved up three spots to the No. 3 positive trend class. This class consists of agents that modulate the CF transmembrane conductance regulator (CFTR), providing disease-modifying therapy for patients with CF with applicable mutations of the CFTR gene. The triple combination product Trikafta is indicated for the treatment of patients with CF age ≥ 2 years who have at least one F508del mutation. Since F508del mutation is the most common cause of CF and an estimated 85.5% of CF patients in the U.S. have at least one copy of the F580del mutation, this agent continued to gain market share, with a 9.67% increase since last year, and its net $0.60 net dollar impact outpaced the rest of the agents in the class.

Opiate dependence treatment was new to this year’s report as a positive trend driver and held steady as the No. 8 net spend class. The positive net dollar impact can be attributed to Suboxone Film (buprenorphine/naloxone), the market share leader in the class, which accounted for $0.12 net dollar impact in 2022. Although Sublocade subcutaneous injection (buprenorphine) had less than 2% of market share, it contributed to $0.17 of $0.19 of other drugs in the class for net dollar impact change.

FIGURE 25: MARKET SHARE AND NET DOLLAR IMPACT

FIGURE 26: MARKET SHARE AND NET DOLLAR IMPACT

Trikafta (oral) Orkambi Packet (oral) Kalydeco Tablet (oral) Symdeko (oral) Orkambi Tablet (oral) Other Market Share

Kalydeco Packet (oral)

Suboxone Film (SQ) Naltrexone (oral) Buprenorphine Hcl (SQ) Buprenorphine/Naloxone Tab (SQ) Zubsolv (SQ) Buprenorphine/Naloxone Film (SQ) Naloxone Spray (AG) (Nasal) Other

Net Dollar Impact Change

Market Share

Net Dollar Impact Change

0.19

0.60

77.17%

65.32%

63.98%

6.53%

6.78%

6.37% 4.63% 4.68% 3.60%

6.13% 5.17% 4.40%

8.87%

8.43%

2021

2022

86.84%

-0.03

7.17%

-0.09

4.33% 2.95% 4.76% 3.63%

6.16% 3.01%

2021

2022

2.59 0.97% 0.42% %

-0.12

2022

-0.01 $-0.01 $

0.12

2.70% 2.41%

0.03

-0.02

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

TOP 10 THERAPEUTIC CLASSES DRIVING NET TREND

Stimulants and Related Agents

Antipsychotics Net Dollar Impact $0.31

$39.9M

27.1%

Net Spend Trend

8.5%

Total Net Spend Trend

17.2%

Claim Volume Trend

Net Cost Per Claim Trend

Net Dollar Impact $0.31

$57.0M

12.3%

Net Spend Trend

2.2%

Total Net Spend Trend

9.9%

Claim Volume Trend

Net Cost Per Claim Trend

Class Summary

The stimulants and related agents class consistently rank as a top drug class by net spend, and 2022 was no exception — it remained steady as the No.7 net spend class, accounting for a positive net dollar impact of $0.31. A large portion of this impact came from Amphetamine Salt Combo’s price and market share increases. This class also saw utilization increases for other agents such as the non-stimulant Qelbree and narcolepsy agent Wakix.

The antipsychotics class consistently ranks as a top net spend category. In 2022, it came in as the No.2 net spend category and accounted for $0.31 in net dollar impact. Relatively inexpensive general oral atypicals, including quetiapine, aripiprazole, risperidone, and olanzapine, comprised 65% of class utilization. Increases in net spend can be attributed to utilization and price increases in newer oral atypical agents such as Vraylar and Rexulti. While this list of top agents in the class has remained fairly consistent over the last four years, we anticipate Latuda’s loss of exclusivity to bring additional market shift dynamics next year.

FIGURE 27: MARKET SHARE AND NET DOLLAR IMPACT

FIGURE 28: MARKET SHARE AND NET DOLLAR IMPACT

Vyvanse Capsule (oral) Amphetamine Salt Combo (oral) Adderall XR (oral) Concerta (oral) Atomoxetine (oral) Focalin XR (oral) Other Market Share

18.70%

Guanfacine ER (oral)

Quetiapine Tablets (oral) Olanzapine Tablet (oral)

Net Dollar Impact Change

Aripiprazole Tablet (oral) Risperidone Tablet (oral) Latuda (oral) Vraylar (oral) Haloperidol (oral) Other Market Share

18.54%

23.99%

Net Dollar Impact Change

23.77% 0.12

15.89%

16.04% 0.29

18.29%

18.69%

13.53%

13.11% 9.51%

12.60%

11.93%

10.35%

9.74%

8.13

8.15%

9.49%

5.07%

5.23% 4.61%

5.41%

5.72

0.11

0.02 0.02 $0.02

2.95% 3.08%

5.25%

0.09

23.55%

3.39% 2.99%

25.75%

23.27%

23.29%

2021

2022

-0.01 -0.01

-0.02

2021

2022

-0.01

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

TOP 10 THERAPEUTIC CLASSES DRIVING NET TREND

Duchenne Muscular Dystrophy Treatments

Hypoglycemics, Incretin Mimetics/Enhancers

Net Dollar Impact $0.23

$25.8M

62.3%

Net Spend Trend

29.1%

Total Net Spend Trend

25.7%

Claim Volume Trend

Net Cost Per Claim Trend

Net Dollar Impact $0.23

$24.2M

163.1%

Net Spend Trend

28.3%

Total Net Spend Trend

105.0%

Claim Volume Trend

Net Cost Per Claim Trend

Class Summary

Duchenne muscular dystrophy (DMD) treatments moved up six spots, coming in as the No.17 net spend class in 2022. The class consists of four different antisense oligonucleotides that facilitate exon skipping for specific gene mutations to produce dystrophin. Notable changes for 2022 include increased Amondys 45 utilization, indicated for patients with a confirmed mutation of the DMD gene amenable to exon 45 skipping; and Viltepso, indicated for patients with mutations of the DMD gene amenable to exon 53 skipping, which attributed to its $0.06 net dollar impact. As highly expensive gene and cell therapies enter the market in this class, we anticipate a continuation of this positive trend in the coming years.

The hypoglycemics and incretin mimetics/enhancers class moved up 37 spots from the previous year, reaching No.31 on the net spend class in 2022. The positive $0.23 net dollar impact was driven by increases in utilization of glucagon-like peptide 1 (GLP-1) receptor agonists: Trulicity by 10.63% and Ozempic by 6.6%. Attention has been paid to both the benefits and misuses of GLP-1 agonists, making the utilization rate of this class one to monitor in the coming years.

FIGURE 29: MARKET SHARE AND NET DOLLAR IMPACT

FIGURE 30: MARKET SHARE AND NET DOLLAR IMPACT

Exondys 51 (IV)

Amondys 45 (IV)

Viltepso (IV)

Market Share

Vyondys 53 (IV)

Trulicity (SQ) Januvia (oral) Janumet XR (oral) Other Net Dollar Impact Change

Ozempic (SQ)

Victoza (SQ)

Market Share

Tradjenta (oral)

Janumet (oral)

Net Dollar Impact Change

25.22% 35.85% 0.11

0.13

66.33%

23.44%

80.82%

17.59% 10.33% 0.06

16.93%

0.07

17.11% 17.46%

13.44%

6.99% 7.03

4.47%

0.06

11.45%

7.69%

4.76%

2021

2022

6.07% 8.54

2022

2.28%

4.81% 4.39%

5.35%

2021

2022

1.64%

0.04

0 2022

-0.01

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

TOP 10 THERAPEUTIC CLASSES DRIVING NET TREND

HAE Treatments

Spinal Muscular Atrophy Net Dollar Impact $0.17

$19.2M

58.9%

Net Spend Trend

49.7%

Total Net Spend Trend

6.1%

Claim Volume Trend

Net Cost Per Claim Trend

Net Dollar Impact $0.15

$19.4M

23.5%

Net Spend Trend

24.3%

Total Net Spend Trend

-0.7%

Claim Volume Trend

Net Cost Per Claim Trend

Class Summary

The No. 23 net spend class was hereditary angioedema (HAE) treatments, which moved up nine spots from last year and accounted for $0.17 in net dollar impact. The class consists of agents used in acute treatment as well as prophylaxis of HAE. The most utilized agent in the class was Haegarda, the C1 Esterase Inhibitor indicated for routine prophylaxis in patients ages ≥6 years, which accounted for 25.93% of the market share and contributed to $0.04 in net dollar impact. The plasma kallikrein inhibitor Takhyzro Syringe, which is also indicated for prophylaxis, also experienced utilization increases. We expect utilization to increase in the coming years due to expanding indications on this agent.

Accounting for $0.15 of 2022’s net dollar impact was the spinal muscular atrophy (SMA) class, which came in as the No. 12 net spend class for the year. Like the previous year, we saw utilization increases on the oral agent Evrysdi, which accounted for 94.08% of claims in the class and $0.13 in net dollar impact. This agent is indicated for the treatment of SMA in pediatric and adult patients. Utilization shifts to Evrysdi caused claim declines for provider-administered agents Spinraza and Zolgensma.

FIGURE 31: MARKET SHARE AND NET DOLLAR IMPACT

FIGURE 32: MARKET SHARE AND NET DOLLAR IMPACT

Haegarda (SQ) Ruconest (IV)

Takhzyro Syringe (SQ) Berinert (IV) Other

Icatibant (SQ)

Market Share

25.94%

Orladeyo (oral)

Takhzyro Vial (SQ)

Evrysdi (oral)

Spinraza (IT)

Net Dollar Impact Change

Zolgensma (IV)

Market Share

Net Dollar Impact Change

25.93% 0.10

0.13

11.54%

14.58

8.23%

94.08%

91.65%

0.04

14.52% 0.04

30.68%

14.22% 0.03

4.56

5.99% 13.06%

4.78% 2021

-0.02

5.97% 2022

0.06

0.01

14.04% 5.97%

0.01

-0.04

7.68%

2022

2021

-0.04

0.68%

5.41% 2022

0.51% 2022

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

PIPELINE AND FORECASTING Pharmacy Pipeline

Key Condition Forecast

In this unique watch list, we’ve identified notable agents still awaiting approval. These products have the potential to make a significant clinical and financial impact and their development status is being tracked on the MRx Pipeline radar. We’ve displayed these pipeline products and their respective class or proposed indication, as well as an estimated financial forecast for the year 2027. The financials are projected total annual U.S. sales, reported in millions.

As in previous years, we anticipate the largest and most impactful classes will continue to trend upward over the next three years. Hypoglycemics and incretin mimetics/enhancers had one of the largest trends out of all therapy classes. This trend is expected to decline in the coming years as patients discontinue treatment due to side effect profiles and weight loss use is shifted to the manufacturer’s alternative brand labeling. Cytokine and CAM antagonists will see the launch of Humira biosimilars, which should result in savings, but due to the novelty of biosimilars and differing manufacture offerings around price point, we won’t fully comprehend their impact until next year’s report.

FIGURE 33: KEEP ON YOUR RADAR

FIGURE 34: KEY CONDITIONS FORECAST 2022 aficamten

xanomeline-trospium Behavioral health

Cardiovascular

$1,810

$872

2023

2024

2025

10%

tovorafenib

atidarsagene autotemcel

$374

$89

Metabolic

Oncology

6% 6% 6% 5% 5% 5%

tirzepatide

blarcamesine

$4,969

$1,049

5% 4% 4%

Neurology

Weight management

Oncology

2% 2%

-1%

datopotamab deruxtecan

tabelecleucel

-1% -2%

Oncology

$401

$891

sotatercept

donanemab

Cardiology

Neurology

$1,453

Cytokine and CAM Antagonists

Antipsychotics

Stimulants and Related Agents

HIV/AIDS

Anticonvulsants

$1,261 fidanacogene elaparvovec

reproxalap

Ophthalmology

$285

Hematology/Gene therapy

$193

prademagene zamikeracel (EB-101)

giroctocogene fitelparvovec

Dermatology/Gene therapy

$129

10%

7% 6%

6% 0%

Hematology/Gene therapy

insulin icodec Endocrine

$318

influenza vaccine (FluMist® Quadrivalent)

0% 0% -1%

$106

4% 4%

1% 1%

-2% -3% -3%

(self-/caregiver-administered) Infectious disease

-1% -1%

-5%

$31

For more detailed information on the pipeline, please see the latest MRx Pipeline Report on our website: www.magellanrx.com/pipeline

Hypoglycemics, Incretin Mimetics/ Enhancers

Hypoglycemics, Insulin and Related Agents

Hemophilia Treatment

Opiate Dependence Treatments

Glucocorticoids, Inhaled

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

VALUE-BASED CONTRACTING The Rise of Cell and Gene Therapies

Evolving the Medicaid Drug Payment Model

Due to rising drug prices, increased use of costly specialty and biologic drugs, and the introduction of novel cell and gene therapies, prescription drug spending is projected to increase meaningfully in the near term.

States now can consider the value or outcome of a drug relative to its price and the overall impact to their Medicaid program’s total cost of care. To determine program savings and, ultimately, the durability of novel cell and gene therapies, they’ll need to look at both pharmacy and medical claims data and measure any reduction in outcomes like hospitalization rates, doctors’ office visits, relapses, and other key metrics.

Unlike most traditional treatments, cell and gene therapies are viewed as single-dose treatments intended to cure or significantly alter the trajectory of a person’s disease. Cell therapies are typically priced close to $500,000 per treatment, and gene therapies may exceed $1 million per treatment. While these therapies are life-changing for the patients who need them, the introduction of novel multimillion-dollar therapies presents the risk of throwing the Medicaid state ecosystem out of balance. One study, published last year in JAMA Pediatrics, found that if a $1.85 million sickle cell gene therapy was administered to only 7% of eligible patients annually, the average one-year budget impact per state Medicaid program would be nearly $30 million.1 This single example illustrates the potential magnitude of the problem: Even small increases in Medicaid spending can significantly impact a state’s ability to balance its budget and fund appropriate health care for this sensitive population. Two gene and cell therapies were approved in 2022: Zynteglo®, priced at $2.9 million, is indicated

Historically, states have encountered a range of barriers to adopting value-based contracts (VBCs). The most frequently cited challenge has been the administrative resources needed to develop and negotiate VBCs, followed by the data collection and measurement requirements, the time required for implementation, and the time required to measure value.3 These challenges have previously limited the feasibility of VBCs, especially for smaller states with lower volume and utilization. To address these challenges, Prime Therapeutics and Magellan Rx Management are currently partnering with states to find innovative solutions to manage high-cost drugs. Learn more about how we are helping states negotiate value-based contracts for cell and gene therapies: www.magellanrx.com/valueplus.

for the treatment of beta-thalassemia, and Hemgenix®, priced at $3.5 million, is indicated for the treatment of hemophilia B. While these one-time curative therapies offer new hope for patients affected by these diseases, they also carry extraordinarily high price tags. Because many novel and high-cost therapies lack therapeutic alternatives and Medicaid is required by law to cover these drugs, the mandatory Medicaid rebate alone is not sufficient to make these treatments affordable for states. This presents states with a difficult dilemma: How can they provide necessary access to high-cost therapies while managing their pharmacy budgets?

25 –30 MILLION People affected by rare diseases and conditions2

7% Approved treatments

By 2025, it's predicted that

10 to 20

7,000 Rare diseases2

cell and gene therapy products will be approved by the FDA each year4

1. DeMartino, P., et al. (2021). “A budget impact analysis of gene therapy for sickle cell disease: The Medicaid perspective.” Obstetrical & Gynecological Survey, 1 Dec. 2021, https://journals.lww.com/obgynsurvey/abstract/2021/12000/a_budget_impact_analysis_of_gene_therapy_for.6. 2. Magellan Rx Management Medical Pharmacy Trend Report 2022. 18 Nov. 2022, https://issuu.com/magellanrx/docs/medical_pharmacy_trend_report_2022?fr=sNWIwNzU2MDk5ODQ. 3. Gifford, Winter, et al. “How state Medicaid programs are managing prescription drug costs: Results from a state Medicaid pharmacy survey for state fiscal years 2019 and 2020.” The Henry J. Kaiser Family Foundation, April 2020, https://www.kff.org/medicaid/report/ how-state-medicaid-programs-are-managing-prescription-drug-costs-results-from-a-state-medicaid-pharmacy-survey-for-state-fiscal-years-2019-and-2020/. 4. “Statement from FDA commissioner Scott Gottlieb, M.D. and Peter Marks, M.D., Ph.D., director of the center for biologics evaluation and research on new policies to advance development of safe and effective cell and gene therapies.” U.S. Food & Drug Administration, 15 Jan. 2019, https://www.fda.gov/news-events/press-announcements/statement-fda-commissioner-scott-gottlieb-md-and-peter-marks-md-phd-director-center-biologics. 2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

MEDICAID PHARMACY ECONOMICS

This Medicaid economics primer, abbreviated from previous editions, is included to help readers interpret the net cost data presented in this report. For more detailed information on Medicaid pharmacy economics, see previous Medicaid Trend Reports available online at www1.magellanrx.com.

Background The pharmacy economics of Medicaid are different from commercial and Medicare drug pricing and rebate management strategies. Medicaid is a state-run program with federal oversight that demands full government transparency. All Medicaid feefor-service federal and supplemental rebates are paid directly to the state and then shared with the federal government in line with their Federal Medical Assistance Percentage. For Medicaid, pharmaceutical cost evaluation focuses on the net cost of the drug after all discounts (federal, supplemental, and rebate offset amount), not on the total supplemental rebates offered by manufacturers or collected by states. In 2022, the states’ average federal rebate (net of the rebate offset amount) was 50.8% of gross pharmacy reimbursement. New brand drugs have a minimum rebate of 23.1% average manufacturer price (AMP). Established brands can approach and exceed 90% of AMP after years of discounting and Consumer Price Index for All Urban Consumers (CPI-U) penalties. Supplemental rebates are best price exempt and averaged 7% of state gross spend in 2022, depending on utilization management, unit cost management, and drug mix. In 2022, the average Medicaid discount, net of federal rebate, supplemental rebate, and ROA, was 57.8%.

The Economics To better understand the Medicaid pharmacy economics depicted in Figure 35, let’s consider a scenario in which pharmacy reimbursement, wholesale acquisition cost (WAC), and AMP are identical. A new brand drug enters the market with a minimum mandatory rebate of 23.1% AMP. This drug enters a competitive class with three clinically equivalent therapeutic

FIGURE FIGURE 35: XX: MEDICAID MEDICAID PHARMACY PHARMACY ECONOMICS ECONOMICS

Brand Drug Price

Generic Drug Price

$100.00

State Net Drug Cost

$50.00

Supplemental Rebate

State Net Drug Cost

$23.10

Brand Federal Rebate

Generic Federal Rebate

Greater of (23.1% AMP or AMP – Best Price) + CPI-U Penalty

New Drug Introduction

Time

alternatives, each with higher discounts and lower net costs than the new drug. With a pharmacy reimbursement cost of $100, the net cost to the state is $76.90 ($100 minus 23.1%, or $23.10). To be competitive, the manufacturer of the new brand will offer an additional discount, known in Medicaid as a supplemental rebate, to lower the net cost from $76.90 to a competitive price of $50. The value of the supplemental rebate at time zero is thus equal to $26.90 and the total discount is 50%, or $50. Moving through time, manufacturer pricing actions drive the total discounts up, but due to the inverse relationship between supplemental and federal rebates, supplemental discounts decline over time as the total discount increases. As the patent expiration approaches, the manufacturer increases the cost of the drug, and the CPI-U penalty accelerates the growth of the federal rebate in the quarters just prior to that event.

13.0% AMP + CPI-U Penalty

Patent Expiration/ Generic Introduction

Generic Impact While the launch of a generic is generally welcomed by commercial plans to lower reimbursement and overall drug costs, in Medicaid this welcome is delayed until after the six-month exclusivity period and the entry of multiple generics into the market. The CPI penalty for generic drugs is tied to the AMP price in the fifth full quarter after initial competition drives prices down. Initially, generics enter the market at a discounted price compared to the brand’s full WAC and have a federal rebate of 13% of AMP. The net cost of a brand drug can be notably lower than that of the generic during this period. When the net cost of the generic becomes lower than the brand, the state will prefer the generic, indicating a shift in preference. This nuance underscores the importance of considering net costs, as brands with rebates can be more costeffective than generic drugs in certain scenarios. 2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

METHODOLOGY The Medicaid Trend Report focuses exclusively on Medicaid FFS drug spend and does not include managed care utilization. It provides a comprehensive year-over-year analysis of Medicaid FFS pharmacy claims data on a cost per claim basis.

» The report trends are based on gross cost and net cost per claim basis and compared the 2021 calendar year data to the 2022 calendar year data. » The data set used in this evaluation contains more than 100 million claims with a gross cost of $14.9 billion and a net cost of $6.3 billion. » Data was obtained from 24 Medicaid FFS clients across the country from which two years of complete FFS data was available. Claims data used in this report is publicly available on the CMS website: https://www.medicaid.gov/medicaid/prescription-drugs/state-drugutilization-data/index.html.

» Similar to commercial plans, both traditional and specialty drug trends are not immune to manufacturer price actions at the gross cost level. However, the increase at the net cost level is somewhat mitigated by supplemental rebates (where applicable) and the CPI penalty component of the federal rebate. » To achieve the highest level of accuracy for the Medicaid FFS space, this report again incorporates the CMS federal rebate data for both 2021 and 2022. Federal rebate data at the drug level is confidential and protected by federal law under the Social Security Act at 42 U.S.C. 1396r-8 (b)(3)(d). Therefore, this report does not disclose net cost pricing information on a per-drug basis.

MRx customer data used in analysis

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t

GLOSSARY AD........................................................................................................................................... Atopic Dermatitis

INH.......................................................................................................................................inhaled/inhalation

AG........................................................................................................................................authorized generic

INJ.............................................................................................................................................................. injection

AS................................................................................................................................Ankylosing Spondylitis

IT.............................................................................................................................................................intrathecal

AMP..................................................................................................................average manufacturer price

IV..........................................................................................................................................................intravenous

CAM...........................................................................................................................cell adhesion molecule

JIA.................................................................................................................... Juvenile Idiopathic Arthritis

CD...............................................................................................................................................Crohn’s Disease

PSA......................................................................................................................................... Psoriatic Arthritis

CF................................................................................................................................................... Cystic Fibrosis

PSO...........................................................................................................................................Plaque Psoriasis

CMS.................................................................................. Centers for Medicare & Medicaid Services

RA....................................................................................................................................Rheumatoid Arthritis

COVID-19.......................................................... severe acute respiratory syndrome coronavirus

ROA................................................................................................................................ rebate offset amount

CPI-U.....................................................................Consumer Price Index for All Urban Consumers

SL............................................................................................................................................................sublingual

DMD......................................................................................................... Duchenne Muscular Dystrophy

SMA.........................................................................................................................Spinal Muscular Atrophy

EUA..............................................................................................................Emergency Use Authorization

SQ...................................................................................................................................................subcutaneous

ER............................................................................................................................................ extended release

UC............................................................................................................................................Ulcerative Colitis

FFS................................................................................................................................................fee-for-service

VBC.........................................................................................................................value-based contracting

GLP-1.....................................................................................................................Glucagon-like peptide-1

WAC................................................................................................................... wholesale acquisition cost

HAE..........................................................................................................................Hereditary Angioedema

XR............................................................................................................................................ extended release

HIV/AIDS........human immunodeficiency virus/acquired immunodeficiency syndrome

2 0 2 3 / M a g e l l a n R x M e d i c a i d P h a r m a c y Tr e n d R e p o r t