Big pharma losing leverage as payers raise pressure on price

Bloomberg

Being a big drug company isn’t what it used to be. The largest drugmakers are finding it more difficult to charge high prices for a range of medications, their latest quarterly results show. That’s raising the pressure to pump up sales volumes and find lucrative new treatments for niche markets.
“You had an environment in which you could just price your drug anywhere you wanted, and generally people were paying for it — that’s great,” Sean Harper, Amgen Inc.’s head of research and development, said in an interview in Boston. “But to my view, those days are coming to an end.”
The reason: The big companies that pay for drugs are getting
bigger. A series of tie-ups among insurers and pharmacy benefit
managers has left drugmakers negotiating with a handful of powerful players. List prices for medications are still rising, but drugmakers are forced to give large rebates to insurers and pharmacy benefit companies that bestow spots on their coveted formularies — the rosters of drugs covered by payers.
“We do have a payer environment that’s been consolidating, and with that consolidation, there’s better negotiating power against pharmaceutical firms on price,” said Damien Conover, analyst at Morningstar Inc.
The shift comes after years of outcry over rising drug prices. Executives from Mylan NV, maker of allergy shot EpiPen, and Valeant Pharmaceuticals International Inc. were brought before Congress to explain what they charge. The drugmakers’ trade group launched an ad campaign to highlight its scientific contributions and is reviewing its membership rules to force out gougers.
Payers are flexing their muscles against drugmakers, particularly when a cheaper drug, such as a generic, can easily be swapped for a branded version that sells for more. The result is more pricing pressure in crowded disease areas like diabetes. Merck & Co. became the latest drugmaker to report a slowdown for diabetes drugs, after Johnson & Johnson and AstraZeneca Plc both blamed price pressures for hurting sales in the first quarter. Eli Lilly & Co. also posted sales for a diabetes drug that were lower than expected.
“We’ve seen the pricing pressure and the pushback from the payers is even greater than what was initially expected,” said Ashtyn Evans, an analyst at Edward Jones & Co.