Un­der pres­sure, drug­mak­ers di­lute price hikes, but noth­ing is set in stone just yet — re­port

Bio­phar­ma­ceu­ti­cal price goug­ing has long en­raged politi­cians and pa­tients alike — mount­ing pres­sure on drug­mak­ers to not ap­pear like they put prof­it be­fore pa­tients — which has led to a slow­ing in size and fre­quen­cy of price hikes, a Leerink analy­sis has found.

The analy­sis echoes the find­ings of an As­so­ci­at­ed Press in­ves­ti­ga­tion — pub­lished this Sep­tem­ber — which in­di­cat­ed that al­though there were 96 price hikes for every price cut, the num­ber and size of hikes de­creased in the first sev­en months of 2018.

Ge­of­frey Porges

Leerink’s analy­sis in­clud­ed 17 large bio­phar­ma com­pa­nies — Ab­b­Vie $AB­BV, Alex­ion $ALXN, Am­gen $AMGN, Bio­gen $BI­IB, Cel­gene $CELG, Gilead $GILD, JNJ $JNJ, Re­gen­eron $REGN, As­traZeneca $AZN, Bris­tol-My­ers $BMY, GSK $GSK, Eli Lil­ly $LLY, Mer­ck $MRK, No­var­tis $NVS, Pfiz­er $PFE, Roche $RHB­BY, and Sanofi $SNY.

The most price-de­pen­dent growth com­pa­nies be­tween 2013 and 2017 were: Am­gen, As­traZeneca, GSK, and Pfiz­er; and the least price-de­pen­dent were: Alex­ion, JNJ, and Re­gen­eron. Over­all, the num­ber of price in­creas­es slowed this year by 31%, and the av­er­age size of the price in­creas­es fell by 40% — both mea­sures falling to their low­est lev­el in five years, the re­port found.

“The slow­ing of pos­i­tive price ef­fects means that in­dus­try growth is like­ly to be be­tween 200 and 400 bps slow­er go­ing for­ward than in the 2013-2017 pe­ri­od. This slow­er growth, and its as­so­ci­at­ed ef­fect on mar­gins, prof­itabil­i­ty, and cash flow, may not be ful­ly re­flect­ed in sec­tor stock prices and mul­ti­ples,” Leerink’s Ge­of­frey Porges said.

The an­a­lysts al­so found that price con­tri­bu­tions to sales in the Unit­ed States have steadi­ly de­clined from 11% in 2014 to 4% in 2017 and 2% YTD in 2018.

Sig­nif­i­cant­ly, “the de­cline in the net pos­i­tive price con­tri­bu­tion to in­dus­try growth has more or less matched the de­cline in rev­enue growth over the same pe­ri­od of time,” Porges not­ed.

How­ev­er, the im­pact of slow­ing price in­creas­es will be pow­er­ful go­ing for­ward — be­cause it will stim­u­late the un­tan­gling of the cu­mu­la­tive ef­fect of com­pound­ing from pri­or year price hikes.

“Price in­creas­es are ‘the gift that keeps on giv­ing’, since one year’s 10% price in­crease then in­creas­es the base of sales that then ben­e­fits from the next year’s price in­creas­es,” ex­plained Porges.

The Leerink team there­fore set about cal­cu­lat­ing the im­pact of trail­ing price in­creas­es over the five-year pe­ri­od be­tween 2013 and 2018. Cu­mu­la­tive pos­i­tive US price has con­tributed ~$27 bil­lion to glob­al phar­ma rev­enue in 2014, ~$45 bil­lion in 2015, ~$59 bil­lion in 2016, ~$68 bil­lion in 2017, and $71 bil­lion in 2018.

Re­port­ed glob­al phar­ma rev­enue in 2018 is rough­ly $320 bil­lion YTD, which with­out US price con­tri­bu­tions from the pri­or five years would have been 22% low­er, or rough­ly $250 bil­lion YTD, they found.

In oth­er words, it looks like price growth alone has con­tributed on av­er­age 5%/year to in­dus­try growth over the last five years, and while to­tal rev­enue growth was on­ly 1% from 2017-2018, with­out the price ef­fect, the an­a­lysts found that rev­enue growth from 2017-2018 would have ac­tu­al­ly fall­en 6%.

Fol­low­ing the re­lease of Pres­i­dent Trump’s blue­print for low­er­ing drug prices in May, a pletho­ra of com­pa­nies pledged not to in­tro­duce their usu­al hikes in the mid­dle of the year — how­ev­er, whether this re­straint will con­tin­ue in the fu­ture re­mains to be seen. Since then the HHS has float­ed two pro­pos­als to thwart soar­ing prices for Medicare and its ben­e­fi­cia­ries.

Mean­while, Mer­ck raised the price of some of its ma­jor drugs in No­vem­ber, and Pfiz­er has an­nounced it will in­crease the price of 41 drugs next month.

“These com­pa­nies are like­ly to be fol­lowed by a flood of peers, and then by in­evitable re­spons­es and re­ac­tions from Wash­ing­ton. How this col­li­sion of in­ter­ests plays out is any­one’s guess, and the ad­min­is­tra­tion’s cre­ativ­i­ty and in­ven­tive­ness with re­spect to pric­ing pro­pos­als seem un­like­ly to be di­min­ished in 2019. Iron­i­cal­ly, the sub­ject of drug pric­ing is prob­a­bly one of the few gen­uine­ly bi­par­ti­san is­sues for both ma­jor par­ties, and fur­ther reg­u­la­tion or re­stric­tions on drug pric­ing and price in­creas­es seem like­ly in our view to set up a show­down be­tween Pres­i­dent Trump, Con­gress and the Bio­phar­ma in­dus­try rel­a­tive­ly ear­ly in the New Year,” con­clud­ed Porges.


Charts: LEERINK

Ven­ture Cap­i­tal as a Strate­gic Part­ner: Fu­el­ing In­no­va­tion be­yond Fi­nance

The average level of investment required for a biotech start-up to succeed is increasing every year, elevating the pressure even further on venture capital to make smart financial investments. Financial investment alone, however, does not always guarantee that exciting innovations can be transformed into real businesses that make a meaningful difference to patients.

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At Astellas Venture Management (AVM) – a wholly-owned venture capital organization within Astellas, headquartered in the San Francisco Bay Area – capital is just one of the ingredients we offer to add value to our biotechnology investments and partnerships. We generally take a strategic investor approach for companies in our invested portfolio, providing access to expertise, technology and/or resources in addition to the injection of finance. An equity investment from AVM can include access to Astellas’ research and development (R&D) capabilities and expertise, and a global network of partner academic institutions and biotechnology companies, to help advance and accelerate the start-up’s innovation.

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Vertex says that it’s doing its best to keep working its pipeline strategy, coming up with a plan “to enable virtual clinic visits and home delivery of study drug to ensure study continuity and medical monitoring, and to facilitate study procedures.”

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The company was slammed from several sides after Gilead reported that the FDA had come through with the special status, which comes with 7 years of market exclusivity, the waiver of FDA fees and some tax credits as well. Typically, everyone who can get orphan status lands it without much of a fuss, but Democratic presidential candidate Bernie Sanders, Public Citizen and other consumer groups were outraged.

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NIAID director Anthony Fauci has left no doubts that it takes 12 to 18 months to get a new vaccine tested and in commercial use, in the best of circumstances. But in times of a global emergency — like these — maybe there’s another, faster route to follow.

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The pharma giant reported Monday morning that it has decided to hit the brakes on most new study starts and pause enrollment for most ongoing studies. Lilly adds that it is continuing dosing for ongoing studies, “but with study-by-study consideration.”

The pandemic has severely disrupted healthcare systems around the globe, says Lilly, making it difficult or impossible to conduct studies at many research sites. And there’s no timeline for when it expects to get back on track.

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