Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

President-elect Donald Trump has attempted to be more conciliatory than he was during his campaign, signaling flexibility on some of his most extreme campaign promises. For example, Trump 2.0 has been downright cuddly to pharma after frequently criticizing its pricing practices during his campaign.

A health-care plan on his transition website has no mention of high drug prices, with only vague bullet points on supporting innovative research and softening the FDA. Biopharma stocks had plunged this year due partly to fears that a Hillary Clinton presidency might usher in drug-price controls; the Nasdaq Biotech Index was down as much as 26 percent for the year the week before the election. The index spiked 9 percent on the Wednesday after Trump won the election, its biggest jump since 2008. 

It's tough to read the bird entrails on a future President who radically alters policy positions on a regular basis. But even if Trump ends up being a pharma friend, it's worth remembering that some of the biggest pricing pressures the industry faces come from the private sector, and they're growing in severity. 

Trump Train
Biotech shares have soared as concern over potential drug pricing legislation has abated
Source: Bloomberg

As drugs get older, it becomes harder for companies to sell more of them. That happens rapidly when drugs lose patent protection, or more gradually as rival drugs hit the market. So how do you keep making money on them? Price hikes, of course! The pre-discount, or list price of the best-selling branded drug in the U.S. in the latest quarter, AbbVie's Humira Pen, has increased by 114 percent since 2012 according to data from First Data Bank. The list price of Pfizer's Lyrica has increased 105 percent over roughly the same period. But the golden age of pricing power might be over.

Pharmacy benefit managers (PBMs), middlemen in charge of lowering drug costs, have gotten better at using lists of preferred and banished drugs to play drugmakers against each other. If several drugs are relatively interchangeable, then whichever drugmaker offers the biggest discount can gain PBM favor and market share. More competition and more aggression from these middlemen is the perfect recipe for price wars.

A Bloomberg Intelligence report released on Monday, using pricing data from third-quarter earnings reports, finds plenty such wars. Even companies raising the list prices of their drugs give most of those price hikes back relatively quickly via discounts.  

That's definitely been the case in the diabetes market. The implied discount for Eli Lilly and Novo Nordisk's fast-acting insulins Humalog and Novalog, respectively, reached all-time highs in the third quarter. Humalog's discount has increased from around 21 percent in 2009 to 78 percent today, with recent increases wiping out a summer price hike, according to the BI report.

Price War!
Eli Lilly and Novo Nordisk have been forced to provide ever larger discounts to maintain market share for their insulins
Source: Bloomberg

The report also found rapidly growing price pressure for newer classes of diabetes drugs, anti-asthma therapies, and Hepatitis C treatments. Drugs that treat diseases such as arthritis and psoriasis are suffering, as well. That's a pretty huge deal; the three biggest prescription drugs in the class (Enbrel, Remicade, and Humira) are expected to combine for more than $30 billion in sales this year. 

Amgen's Enbrel has been a startling illustration of this trend. The company's gross sales continue to rise despite declining sales volume, according to BI data, as the company has raised the drug's list price. But post-rebate net U.S. sales reported by the company have noticeably flattened.

Gross to Nyet
Price hikes on Amgen's Enbrel appear to have had greatly diminishing returns as rebates to payers have increased
Source: Bloomberg/Symphony

This price crunch is happening as pressures are only just beginning to build for this class of medicines. The first generic version of one of these drugs, J&J's Remicade, is expected to hit the market on November 21. More copies and steeper discounts are coming, as are a wave of competing drugs that treat these diseases in different ways,  which add up to multiple price levers for PBMs. 

List-price hikes used to be a reliable revenue driver in the face of light volume. Now, with ever-growing rebates and payer scrutiny, they are likely to have diminishing returns and may have trouble helping some older drugs keep revenue growth stable, let alone positive. 

Absent a highly unlikely Donald Trump policy vendetta against PBMs, that's unlikely to change.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The difference between a drug's gross sales as reported by Symphony Health, a health care and drug data provider, and the U.S. net sales reported by the company. 

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net