What keeps 88% of biopharma executives up at night? One guess, and it's pricing

Pricing questions have put drugmakers on the defensive. They’re making price-hike promises, unveiling rebate numbers, running multimillion-dollar advertising campaigns, backing an industry PR push, funding stepped-up lobbying in Washington and generally talking up their R&D spending.

Good reason for all that: Pharma and biotech executives are worried, big time.

According to a new study (PDF) by Lazard Partners, 88% of U.S. pharma and biotech executives say pricing and reimbursement is healthcare's biggest challenge.

That’s 32 percentage points higher than the next-in-line and perennial challenge of dealing with regulators and politicians—which itself only slightly beats another that’s directly related to the public pricing debate: the industry’s public reputation.

Related: The top 15 pharma companies by 2016 revenue

Anyone who’s been watching the series of drug-pricing scandals—and biopharmas' response to them—unfold over the past couple of years knows the basics. One after another specialty pharma company (or generics maker) has hiked prices enough to raise a red flag, followed by a public outcry.

Bigger drugmakers have since made public pledges to limit price increases—with Sanofi being the most recent, pegging its maximum hike to healthcare inflation—and have opened up numbers on their overall increases and net prices. Industry groups BIO and PhRMA, along with Pfizer, have rolled out direct-to-consumer ads and PR campaigns highlighting the long scientific road new drugs take to market and their benefits to patients, but without directly addressing the pricing issue.

Why are executives so worried about pricing? Politics, for one thing, and that’s a worry newly resurfaced for pharma leaders. U.S. politicians, including President Donald Trump and some leading figures in Congress, jumped on the pricing issue last year and have since been promising to tackle drug price increases and spending.

Now, 73% of pharma and biotech executives see the “political environment” among the top three drivers of pricing pressure, the Lazard study found. More than half also cited “insurers demanding discounts.”

And no wonder. Payers have ratcheted up the pressure for rebates and discounts, trading them for exclusive formulary deals. They’ve particularly targeted competitive drug classes, insulin and respiratory meds among them. That’s had a direct effect on sales, and it’s triggered a PR war between drugmakers and pharmacy benefits managers, which pharma has blamed for repeated price rises.

The Lazard study found that drugmakers are expecting the payer pressure to mount further, but executives are split on which drugs are most likely to suffer. Overall, executives appear to be expecting the biggest moves in cancer drugs, with 28% of respondents pegging oncology as the field at highest risk—but 21% saw oncology as the lowest-risk field.

Pharma executives and investors are split, too. Only 11% of investors are looking at cancer as the highest-pressure field. And while 16% of executives figure diabetes tops the charts for payer risk, 27% of investors do.

To handle increasingly demanding payers, several big pharma and big biotech companies have struck pay-for-performance deals with pharmacy benefits managers, with some of the biggest launches in recent history at the center. Amgen, for instance, has a series of value-based deals with payers on its pricey cholesterol med Repatha, and most recently inked a money-back guarantee with Harvard Pilgrim.

Novartis has a couple of arrangements with top U.S. insurers on its heart failure med Entresto, and its CEO, Joe Jimenez, has been a vocal proponent of value-based contracting as a way out of the pricing mess. Moving to a value-based system figured into executives' list of challenges.

The Lazard study showed it's an industrywide phenomenon that executives expect to transform healthcare. In fact, it may be more important over the next decade than innovation is, the respondents said. But drugmakers figure that change will be a long time coming—70% of biopharma executives figure a tipping point won't come until 2020 or later.

"We found surprisingly strong sentiment that the industry will be transformed over the next five to 10 years by the development of new pricing models broadly known as value-based care," Lazard said in a statement about the study, adding "Overall, the responses indicated that value-based care may have even more of an impact on the industry than will scientific breakthroughs."