Anyone who follows pharma knows payers have been squeezing the industry—sometimes painfully. Now, research from Leerink Partners analysts finds that the fight is confined mostly to a few therapeutic areas and that drugmakers are finding safer havens in oncology and rare diseases.
Analyst Seamus Fernandez and his team looked at five years of data on list prices and estimated sales after discounts for more than 160 medications from 22 drugmakers. Payers "have largely maximized their impact in areas such as insulins for diabetes, inhaled respiratory products for asthma/chronic obstructive pulmonary disease, and hepatitis C virus," Fernandez concluded.
Plus, payers seem to be taking a "rifle-shot approach," putting pressure on "large but perhaps less-preferred products" such as Amgen's Enbrel in autoimmune conditions or Celgene's Otezla in psoriasis. On the other side of the coin, the analysts predict pharma companies can have "sustained pricing leverage" in fields such as oncology and rare diseases.
That dynamic will continue to attract the industry to those therapeutic areas, he wrote, either via M&A or internal research.
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Comparing 2016 products at large pharma companies against their 2022 projected portfolios, Fernandez wrote that AstraZeneca will likely step up its presence in oncology and pull back from cardiovascular meds and inhaled respiratory agents. Merck will focus more on immuno-oncology and less on CV, the team predicted, while Sanofi boosts its work in rare diseases in an effort to lean less on diabetes, where pricing pressure is strong.
The large-scale examination of pricing dynamics comes as the industry forges ahead in the face of resistance from payers, criticism from the public and continued shots from Congress, including a multiple sclerosis pricing probe launched last August. After years of back-and-forth about drug costs, however, federal lawmakers haven't advanced any legislation.
Meanwhile, in response to the pressure, several pharma companies have released "transparency reports" on the size of payer discounts that take a big bite out of list prices. In 2016, Merck said it discounted 40% off its drugs' list prices on average. For Eli Lilly, the figure was 50%.
As costs rise and pharma continues to develop innovative new therapies, pharma and payers are increasingly jumping on value-based pricing as a new payment vehicle for expensive drugs. Under the setup, drugmakers collect payment when patients respond and when the drug adds value to the healthcare system.
One recent example lies with Spark Therapeutics and its pricing announcement for gene therapy Luxturna. It's now the most expensive medication in the U.S. at $850,000 for a one-time treatment, but payers praised the company's rollout plan, which offers rebates based on the drug's effectiveness and direct contracts with commercial payers rather than treatment centers. Spark is also working with the Centers for Medicare and Medicaid Services on ways to collect payments over multiple years.