(Bloomberg Gadfly) — The defining story of the past year in biopharma has been drug pricing, as much as the industry might wish otherwise.
But though much of the anxiety has been over politically driven criticism and the potential for government price curbs, the only real pricing pressure in the U.S. has come from the private sector. Pharmacy benefit managers have gotten more aggressive about refusing to cover certain drugs and negotiating discounts, which means biopharma's annual and biannual price hikes on aging drugs aren't nearly the sales drivers they used to be.
This phenomenon is unlikely to stay quiet much longer, as this pressure has mounting and negative impacts on some of the biggest companies and drugs in the industry.
The most fully realized example of this phenomenon is the diabetes market.
It's a perfect environment for payer pricing pressure. Millions of Americans suffer from the disease, so there's a major incentive to cut costs. There are many drugs in each treatment category, letting payers pit companies against each other to extract discounts. Cheaper copies of widely used medications are beginning to hit the market; for example, CVS Health Corp. is doing something unprecedented in the U.S. next year by excluding Sanofi's Lantus in favor of an Eli Lilly & Co. knockoff. Many insulins are years old and have seen sales volume growth slacken in the United States.
The only way companies have generated any kind of sales growth in this environment is through consistent list-price hikes. The chart below shows how Eli Lilly's pre-discount U.S. sales of its best-selling insulin Humalog have skyrocketed, even as the actual number of prescriptions dispensed has fallen. But the discounts Lilly is paying to maintain market share mean its actual U.S. revenue is starting to decline in spite of price increases.
Anti-inflammatory sore spots
Other companies in crowded drug classes that depend on price hikes rather than volume to boost revenue should be deeply concerned by that chart.
A set of blockbuster drugs that treat inflammatory conditions such as arthritis will likely be the next to face a major pricing pinch. The three biggest drugs in the class, Humira, Remicade and Enbrel, are expected to combine for more than $30 billion in sales this year.
Amgen Inc., the maker of Enbrel — which Wall Street expects to near $5.8 billion in sales this year — conceded in its third-quarter earnings call in October that sales of the drug would not get much of a boost from price hikes in 2017. That's borne out by the data: By raising list prices, Amgen has managed to boost pre-discount sales numbers even as volume has declined, but post-discount sales have flattened:
