Amgen eyes spending caps to win payer nods on migraine prospect erenumab

Note to drugmakers negotiating with payers: It’s not the price tag that’s the problem, or at least not by itself.

So said Amgen’s Tony Hooper, EVP of commercial operations for the Big Biotech, in a recent meeting with Leerink Partners analysts. The number payers are really interested in is budget impact, or how much they’ll have to shell out every year to treat the patients they cover.

What does this mean for Amgen and partner Novartis, which are getting ready to launch a prospective migraine drug, erenumab? The company is considering approaching payers with contracts that would cap that budget impact, by committing to a per-member, per-month (PMPM) spending level, Hooper said, as cited by the analysts in a Monday report to investors.

That sort of deal is among several arrangements Amgen may put forth to payers if erenumab wins approval, Hooper told FiercePharma via email. The company is "looking at various options in our approach with payers, including potentially PMPM, which is a common practice, once the product is approved."

The company hasn't yet entered payer talks, however, Hooper said.

The importance of budget impact has always been obvious for rare disease drugs, the ultra-pricey treatments that insurers tend to pick up immediately because so few patients need them. If a drug costs more than $350,000 per year, but only one or two in a coverage population needs it, then the budget hit is relatively small.

But for diseases that are more common, big prices mean big spending. It’s that total that insurers care about--so the question is whether lower prices trigger higher demand, as a simple supply-demand analysis might suggest. 

For brand-new drugs, no one knows the answer to that question ahead of time. And lower prices with higher demand will take the same-size bite out of a payer’s budget as would a higher-priced drug used by fewer patients.

So, if a pharma company can offer payers some predictability about their spending, then they’re likely to win earlier, better coverage for their products—and “price per se should not be a material barrier to product adoption,” Hooper figures.

As Leerink analyst Geoffrey Porges wrote in the note, PMPM deals would work this way: If total demand among plan members is actually higher than the value negotiated, "the manufacturer absorbs the excess demand in that particular year,” and the next year’s negotiations takes that excess into account.

What does this mean for pricing on erenumab, which could be a first-in-class med, tackling migraine by inhibiting calcitonin gene-related peptide (CGRP)? Hooper hinted that Amgen might start out with a higher price, anticipating the need for discounting sooner rather than later, thanks to competition in the newly hot CGRP class field.

“Its initial pricing will have to take account of the increased competitive intensity (and likely discounting) that it will face within a year or so of approval,” Porges wrote.

Then again, that price can’t be so high that it cuts off access for patients. So, Amgen is looking at numbers that would make erenumab affordable for patients with annual household incomes of $60,000.

So far, in the race for a CGRP approval, the Amgen-Novartis med appears neck-and-neck with an Eli Lilly & Co, and ahead of hopefuls from Teva Pharmaceutical and Alder Biopharmaceuticals. Allergan has its own CGRP drug, purchased from Merck & Co. in a $250 million deal last year.

Erenumab posted another positive Phase III trial last week, and Amgen and Novartis are eyeing an FDA filing early next year.

Credit Suisse has suggested peak sales of erenumab as high as $2.3 billion, although analysts at Barclays Capital are much less optimistic, predicting a market share of 20% to 25% and peak sales of $800 million.

Meanwhile, Amgen has been facing other pricing difficulties elsewhere in its portfolio. After ginning up Enbrel sales growth by hiking prices in recently quarters, the company said with its Q3 results that the tactic won't be viable for much longer.

And Enbrel biosimilars are on their way. Though Amgen is fighting in court against a launch by Novartis’ Sandoz unit, that can only delay the pain. Volume is already on the decline, Porges said in a note after the company posted its quarterly results. “There is no reason to expect the volume trend to increase in coming periods,” Porges said, “and absent net positive price, Enbrel’s trajectory, and profit contribution, will be inexorably negative."

Editor's note: This story was updated to show that Amgen has not yet begun talks with payers on erenumab coverage.