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 Big Pharma executives acknowledged the depth of change this week
during public presentations and interviews with Reuters at the J.P.
Morgan Healthcare conference in San Francisco. Drugmakers have long
relied on their ability to charge whatever they deemed appropriate
in the U.S., the world’s most expensive healthcare system.
Industry advocates have defended those U.S. prices in the past as a
way to recoup the billions of dollars spent on experimental drugs
that fail and to offset discounts offered overseas.
"There has definitely been increased price competition ... if a
product is viewed as a commodity," Derica Rice, chief financial
officer at Eli Lilly & Co <LLY.N>, said in an interview. "Our goal
is clinical differentiation."
Pascal Soriot, chief executive of AstraZeneca Plc <AZN.L>, warned
investors that the pressure exerted by health insurers has expanded
from medicines used to treat common maladies to the specialized
fields, like cancer, where drugmakers have been able to charge their
highest prices.
"Payers will try to leverage their strengths to try and get pricing
concessions because those agents are very expensive," Soriot said.
Many say the tide shifted with a campaign by insurers and pharmacy
benefits companies against Gilead Sciences Inc's <GILD.O> $84,000
hepatitis C treatment Sovaldi. The drug represented the first
effective cure for hepatitis C and quickly raked in billions of
dollars in sales within its first few months on the market in 2014.
Sovaldi's cost is based on a 12-week treatment regime and amounts to
$1,000 a pill. By contrast, the treatment costs about $57,000 in the
U.K.
As soon as U.S. regulators approved Sovaldi's competitor, a
treatment from AbbVie Inc <ABBV.N>, last month, the country's
largest pharmacy benefits manager Express Scripts Co <ESRX.O>
dropped reimbursement for the Gilead drug.
Express Scripts said it had received a substantial discount from
AbbVie, a departure from industry practice of pricing new competing
drugs close to the incumbent for as long as possible. It didn't say
how much the discount was.
Express Scripts said this week it sought similar opportunities for
discounts in new cancer medications, and was looking closely at a
new class of cholesterol-fighting drugs aimed at millions of
patients who can't tolerate or get enough benefit from widely-used
statins.
Amgen Inc <AMGN.O> and Regeneron Pharmaceuticals Inc <REGN.O> are
two of the companies racing to bring the new cholesterol treatments,
which target a protein called PCSK9, to market.
"It's not a worry. It's a reality that we will deal with," Regeneron
CEO Len Schleifer said of Express Scripts' goals. "I think there
will be fair pricing and healthy competition in the marketplace."
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A LESS CROWDED FIELD
When pressed on how they could counter the growing pressure from
insurers, large drugmakers say they are relying on strategies long
employed in the marketplace, focusing research on diseases that
don't have adequate treatments and finding ways to differentiate
their products from competitors in terms of effectiveness and
convenience.
But some industry experts believe they will have to become far more
selective even when entering a new treatment area. The hepatitis C
example shows how insurers have been able to play just two
competitors off one another to wrest a discount.
Gilead Chief Operating Officer John Milligan said that in recent
weeks, more health plans are asking the company to drop its
hepatitis C drug price more in line with AbbVie in order to keep
both drugs on their reimbursement lists.
"Payers are starting to move beyond hand-wringing to real action,"
said Glen Giovannetti, head of global life sciences at Ernst &
Young. "We are starting to see (pharmaceutical) companies deciding
which therapeutic options they want to compete in."
Nils Behnke, a partner with Bain & Co's global healthcare and
strategy practices, noted that even for the most new promising
classes of medications, there are often three or four companies
pursuing similar development programs.
"Companies that were heavily into specialty indications thought they
were immune, but it is now clear that they are not," he said
Merck & Co CEO Kenneth Frazier acknowledged that U.S. prices for
diabetes drugs remain under pressure. "We need to identify a value
proposition ... show that over time we can reduce costs," he said in
an interview.
Smaller biotech Isis Pharmaceuticals Inc <ISIS.O> said it is already
taking into account potential competition when deciding which
research programs to pursue. CEO Stanley Crooke said the company
abandoned its PCSK9 program when it became clear the drug would
reach the market only after several others.
"We are working on diseases for which there are no real treatments
-- Parkinson's, Alzheimer's, ALS," said George Scangos, CEO at
Biogen-Idec <BIIB.O>. "In the future, we will see more correlation
between value that drugs deliver and the way they are reimbursed."
(Editing by Michele Gershberg and John Pickering)
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