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

Daniel O'Day [via AP Images]

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After the market closed Thursday, Amgen and Novartis announced that they were dumping two pivotal programs underway with the Banner Alzheimer’s Institute on their BACE drug CNP520 (umibecestat) after an independent review of the data indicated that patients’ cognitive abilities were actually worsening at a faster pace than the placebo arm.

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Christi Shaw at JP Morgan 2019. Jeff Rumans for Endpoints News

Fresh out of Eli Lil­ly, Christi Shaw sur­faces as Daniel O'­Day's new CEO at CAR-T pi­o­neer Kite

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We found out Thursday evening that Christi Shaw has given up her top post as the head of the Bio-Medicines group at Eli Lilly for the helm at CAR-T pioneer Kite. New Gilead CEO Daniel O’Day, a Roche veteran, had made finding a Kite CEO a top priority on his arrival at Gilead. And he went right for a headliner.

O’Day was clearly excited about the coup.

“We conducted an extensive search for a new leader at Kite and we believe that Christi’s unique set of skills will allow us to continue to build on our leadership position in cell therapy,” he said in a prepared statement. “Christi’s vast experience across complex therapeutic areas, and particularly in oncology, will serve Kite very well. She is clearly a leader who will bring teams and individuals together and I am confident she will build upon the entrepreneurial spirit at Kite as we seek to help more people with cancer around the world.”

Christi Shaw at JP Morgan 2019. Jeff Rumans for Endpoints News

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In a statement put out Thursday morning, Lilly said that Shaw’s last day will come at the end of August. Patrik Jonsson, currently president and general manager of Lilly Japan, will succeed Shaw once he gets the paperwork sorted out.

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President Donald Trump at State of the Union. AP Images

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Janet Woodcock, AP Images

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Ex-DARPA di­rec­tor pur­sues all-in-one can­cer pill as NED CEO; Karyopharm los­es com­mer­cial chief ahead of drug roll­out

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