Get ready to negotiate, drugmakers: Payers are armed for drug-pricing battle

If 2014 was the year of the emboldened U.S. payer, then 2015 promises to be the year of the pharma negotiator.

After months of promising a hard line on hepatitis C pricing, Express Scripts ($ESRX) wrapped up an exclusive with AbbVie ($ABBV) as the December holiday season began, leaving drugs from Gilead Sciences ($GILD) and Johnson & Johnson ($JNJ) off its national formulary. Analysts started scrambling to run the numbers on how the exclusive agreement might affect Gilead, AbbVie and Express Scripts finances. The pharmacy benefits manager's CMO Steve Miller called it "a huge deal." AbbVie wasn't commenting. Gilead told analysts it could be an opening salvo for its own pricing talks.

The agreement set off an avalanche of questions. How much will the deal hurt Gilead and J&J, and how much can it boost AbbVie? Does it augur similar hepatitis C arrangements with other payers? Could Express Scripts use the same tactic with other new classes of expensive drugs--PCSK9 cholesterol meds, for instance?

Thanks to almost a year's worth of results from newly exclusionary formularies, drug companies already know firsthand that PBMs can significantly swing sales. Object lesson No. 1: GlaxoSmithKline's ($GSK) respiratory franchise took a big hit after Express Scripts nixed the megablockbuster Advair from its 2014 national formulary in favor of AstraZeneca's ($AZN) Symbicort--and AstraZeneca reaped the benefits. Glaxo came back with an offer for 2015 to get back on Express Scripts' good side.

More pay-to-play is surely ahead, but it might get more complicated than discounts, rebates, volume guarantees and the like. That's because prices are only going higher. While analysts handicapped the AbbVie exclusive, market-watchers were still digesting the pricing on Amgen's Blincyto, its brand-new drug for a rare form of leukemia. At $178,000, it's among the most expensive single agents for fighting cancer. It's the latest step upward in a pricing climb that arguably began with Bristol-Myers Squibb's ($BMY) Yervoy, the melanoma immunotherapy that made its debut at a $120,000 sticker price. With more targeted cancer drugs in the pipeline--including much-anticipated immunotherapies--the climb shows little sign of abating.

Consider the fact that already expensive drugs such as Yervoy and Zelboraf, Yervoy's melanoma rival, are in testing alongside those PD-1 immunotherapies, and it's obvious that the quarter-million-dollar treatment course could soon be common in cancer.

And then there are gene therapies, which have been anticipated for years. The first, Glybera, a rare disease treatment from Chiesi and UniQure, just hit the market in Europe. At a price of €1.1 million ($1.4 million).

Obviously, a simple 10% or 20% discount won't cut it when the price is $1 million-and-up. With payers facing high-priced coverage on multiple fronts, number-crunchers are looking at new ways of covering meds, including annuity-based payments. While those creative payment approaches are brewing, drugmakers can expect to spend plenty of time at the negotiating table, across from their favorite payers. Sounds like job security for actuaries and analysts alike.

Special Reports: The top 10 most expensive drugs of 2013 | Pharma's biggest price hikes since 2007

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