When presidential candidate Hillary Clinton blasted Martin Shkreli on Twitter for hiking the price of an old drug called Daraprim by 5,000% in September 2015, biotech stocks plummeted. Clinton tweeted that such price hikes in the drug market were “outrageous” and that she planned to “take it on.”
So when she unexpectedly lost the election last week, it’s little surprise that shares of drug companies rallied, with the Nasdaq Biotech Index jumping 9% the day after the election—its biggest one-day spike in 8 years. The biopharma sector enjoyed a further boost from the failure of California’s Proposition 61, an effort to control drug prices by requiring that state agencies pay no more for medicines than the Department of Veterans Affairs does.
But it may be premature for investors to put on their party hats and pile into pharma and biotech stocks, many analysts warn. Private payer pressure on prices will only continue, and other voices are joining the chorus of calls for overhauls of the U.S. system. Just this week, the American Medical Association urged a "fundamental" change to drug pricing that would link cost to value.
And Proposition 61's knockdown may not be as sweeping a repudiation of price regulation as biopharma might hope. Analysts at Barclays say the measure's rejection is a sign that the public is generally opposed to regulating pricing in a way that restricts access to drugs, but they also point out that Trump was vague on the issue during his campaign. The president-elect expressed criticism of Shkreli-like price hikes and support for price negotiation, but didn’t lay out any concrete plans for dealing with the controversy.
Others are even less optimistic that Big Pharma is out of the woods on the pricing issue. “Relief rally aside, we do not think the drug pricing debate is over, just diminished, and it will still be an important topic in 2017 and beyond,” wrote Wells Fargo analysts in a note distributed November 14.
The reason for such caution? Plenty of private-sector forces are still at play, and they will continue to put pressure on drug companies to lower their prices, from pharmacy benefits managers (PBMs) that negotiate deep drug discounts to generic competitors. And then there are the angry patients and family members speaking out in unprecedented ways, à la the tweeting moms who were so essential to pushing Mylan and its massive EpiPen price hikes into the spotlight.
No doubt pharma companies were enjoying almost unlimited pricing power until the sector got caught up in the pricing rhetoric, which only escalated as the campaign season kicked in. The list price of AbbVie’s Humira pen, used to treat autoimmune diseases, has jumped 114% since 2012, according to First Data Bank figures cited by Bloomberg. The cost of Pfizer’s pain pill Lyrica is up 105%.
But PBMs are stepping in to pressure drug companies to lower prices whenever they can. A Bloomberg Intelligence report released November 14 revealed that discounts on two diabetes blockbusters—Eli Lilly’s Humalog and Novo Nordisk’s Novalog—soared from 21% in 2009 to 78% now, essentially negating the value of any price hikes.
Gross sales of Amgen’s rheumatoid arthritis drug, Enbrel, were $2.1 billion in the third quarter, but reported net sales came in at just $1.4 billion because of discounting, according to Bloomberg. And now Amgen is bracing for competition from cheap biosimilars. The FDA approved Novartis’ Enbrel biosimilar Erelzi in August, which Amgen is holding at bay with a patent infringement suit. But it can’t block the market entry of a biosimilar of Johnson & Johnson’s Enbrel rival, the hit rheumatoid arthritis treatment Remicade. Pfizer says it’s about to start shipping that biosim, dubbed Inflectra.
What’s more, the generics drug industry is now under fresh attack from the U.S. Justice Department, which has launched a criminal investigation into more than a dozen companies suspected of price collusion, Bloomberg reported on November 3.
Among the companies that have received subpoenas are Mylan and Teva Pharmaceutical, both of which saw their shares fall on the news. RBC Capital Markets analysts said in a note to investors that even though the news of the investigation pushed some stocks down, they wouldn’t advise rushing into the sector to buy on the drop, as the probe “represents another regulatory attack on pricing that will likely linger through year-end,” with the potential of criminal charges coming.
But that prediction of a year-end finish to the Justice Department’s generics probe—or anything involving controversial drug prices—seems a bit optimistic, especially considering that so much of the pressure is coming from the private sector.
On November 15, while pharma investors were still celebrating Trump’s win, the AMA put out an announcement in support of “changing the fundamentals of drug pricing.” The organization said that during an interim meeting of the AMA, physicians adopted a proposal urging that drug prices be tied to “an optimal balance” between benefits and costs.
The AMA suggests that value-based prices be set by independent entities based on data from clinical trials and other sources. When drugs have the potential to cure major public health threats, such as hepatitis C, direct-purchase agreements should be struck that will result in lower prices for patients and payers, in return for large-volume markets for drugmakers, the AMA proposes.
“The new AMA policy acknowledges the carte blanche approach to drug pricing needs to change to align with the health system’s drive for high-quality care based on value,” said AMA President Andrew W. Gurman in a statement.
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