Sanofi, Regeneron Pharmaceuticals Inc. and Roche Holding AG are doing something very un-pharma: They're leaving pricing power on the table.
Let's be clear: Sanofi and Regeneron are charging $37,000 a year for their skin-clearing drug Dupixent, and Roche is charging $65,000 a year for its Multiple Sclerosis (MS) drug Ocrevus, both of which the FDA approved earlier this week. That's not exactly chump change.
But both drugs will cost less than they might have, if these companies had followed pharma's traditional model of jacking up pricing for new medicines. Investors have been worrying for two years that the federal government might cap drug prices. And now it's happening without regulators lifting a finger.
Comparing the prices of these drugs to those of similar drugs shows how much money these three companies might be leaving on the table.
First, Dupixent: There's no competing atopic dermatitis drug to serve as a perfect comparison. But Eli Lilly & Co.'s Taltz, which treats a different skin condition, costs more than $50,000 a year, even though it was third to market behind Johnson & Johnson and Novartis AG.
As for Ocrevus, it is the first drug approved for a hard-to-treat subset of MS patients. Yet it will be more than $10,000 cheaper than Tysabri and Tecfidera, Biogen Inc. drugs for easier-to-treat patients. Biogen has substantially increased the price of both drugs over the past few years.
Instead of using strong trial results and first-to-market status to justify premium pricing, these companies have made concessions, in an effort to give their drugs an easy on-ramp to the market. Analysts expect these two drugs will combine for more than $5 billion in sales in 2020.
The new reality of drug pricing is that any new and expensive medicine will face major roadblocks from pharmacy benefit managers (PBMs) hoping to control spending for their clients. Improving on an existing medicine no longer guarantees a blockbuster launch; cost matters, too.
The roster of drugs PBMs won't cover because of price has ballooned, as have the discounts they're able to negotiate from firms. Few know this better than Sanofi and Regeneron. The companies have a cholesterol-lowering biologic that was expected to be a blockbuster. But PBMs have raised so many barriers to getting the drug that many doctors and patients simply give up trying. Sales have been so slow that consensus expectations for 2018 have dropped by more than $1.5 billion.
Preemptive discounting may help avoid such disappointment. Express Scripts Holding Co. has already suggested it does not plan to subject Dupixent to the kinds of restrictions typical for new and pricey drugs. If these drugs get off to a speedy start, then other drugmakers might emulate their approach to pricing.
But companies with older medicines, or those that arrive late to market, will likely suffer, being forced to discount even more to grab market share. Efforts to raise prices have already become less and less effective, eaten away by discounts amid political and payer scrutiny.
Any firm that tries to go back to the previous model, with prices that start sky-high and go higher twice a year thereafter, will open itself up to criticism and aggressive pushback from payers.
Some drugmakers can still win under a new pricing regime of preemptive discounting. And patients can certainly win by getting access to more drugs. But the fact that payer pressure is now crimping list prices of new and unique drugs may have a major long-term chilling effect on prices overall.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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