Donald Trump's taking aim at drug companies that have increasingly found themselves in the hot seat because of sky-high drug price increases in the past. Last week, Trump likened the industry's history of price hikes as akin to "getting away with murder," and he hinted that significant changes to how government programs pay for medicine are afoot.
If Trump follows through on plans to crimp runaway prices, it could have a big negative impact on the makers of the planet's most expensive drugs. Read on to find out why Eli Lilly & Co. (NYSE:LLY), Pfizer, Inc. (NYSE:PFE), Seattle Genetics (NASDAQ:SGEN), Ariad Pharmaceuticals (NASDAQ:ARIA), and Novelion Therapeutics (NASDAQ:NVLN) could stand to lose out under Trump.
Last year, the insurance industry trade group America's Health Insurance Plans, or AHIP, put together a report that estimates the annual per patient costs associated with the country's priciest medicine. The report based annual price estimates on prices listed in the Federal Supply Schedule (FSS), which lists prices paid by government programs, including Veterans Affairs, and on REDBOOK prices, including average wholesale price, or the cost charged by wholesalers to retailers.
Overall, the AHIP report finds that while 90% of U.S. prescriptions are filled with low-cost generic drugs, new and increasingly expensive drugs could push U.S. drug spending from $337 billion in 2015 to $560 billion or more in 2020.
While the AHIP's report highlights spending on 150 high-priced drugs, these five drugs cost government programs over $100,000 per patient per year and thus could end up in Trump's crosshairs.
1. Eli Lilly: Cyramza
If Trump's hard-nosed stance on drug prices results in greater negotiating power for Medicare, Eli Lilly's colorectal cancer and gastric cancer drug Cyramza could come under pressure.
According to AHIP, the FSS annual patient expenditure for Cyramza is $183,600. That's nearly $70,000 higher than Avastin, which can be used in some of these patients, and it's substantially below Cyramza's average wholesale price of $220,320 per year.
In Q3, Cyramza represented just $159 million of Eli Lilly's total $5.2 billion in global revenue, so any drag on sales tied to negotiations could be muted. Nevertheless, Eli Lilly's been struggling to develop new drugs to spark growth, and since Cyramza's sales grew 43% between Q3 2015 and Q3 2016, any price concessions could create an unwanted obstacle to the company's goal of increasing revenue.
2: Pfizer, Inc.: Xalkori
One of Pfizer's fast-growing cancer drugs is Xalkori, a medicine that's used in patients with a specific genetic variation of non-small cell lung cancer, known as ALK+.
Xalkori's per patient annual cost of $143,100 per year to the VA based on FSS is a bit below that of another competing ALK+ targeting drug, Zykadia, but Xalkori is undeniably pricey medicine given its average wholesale cost is $193,908.
In Q3, Pfizer reported Xalkori sales of $140 million, up 14% year over year, and while that's chump change relative to Pfizer's $13 billion in quarterly, pushback on cancer drugs could have a wider-ranging impact on Pfizer's total cancer drug sales.
In addition to Xalkori, Pfizer markets the $550 million per quarter cancer drug Ibrance, and, thanks to a recent acquisition, it also shares in sales of the multibillion-dollar prostate cancer drug Xtandi. The FSS for Ibrance, which is used to treat breast cancer, is $116,424, and the FSS for the commonly prescribed Xtandi is $61,032. The average wholesale cost of Ibrance and Xtandi is $141,840 and $127,416, respectively, so there could be room for prices to fall.
3. Seattle Genetics: Adcetris
Seattle Genetics' Adcetris is used to treat Hodgkin lymphoma, and lymphoma drugs are historically among some of the costliest available.
Adcetris is used primarily in the tough-to-treat cases, but the average wholesale price of Adcetris is a stunning $337,632, which is far higher than the FSS price of $232,608. If Medicare can negotiate prices down to the FSS price point, then the company's top line could get dinged.
Adcetris sales were $70.1 million in the third quarter, and while the company has some intriguing drugs in clinical-stage studies, Adcetris is currently its own commercial-stage drug. Therefore, any price cuts to Adcetris could pose a big headwind.
4. Ariad Pharmaceuticals: Iclusig
On Jan. 9, Japanese drugmaker Takeda agreed to buy Ariad Pharmaceuticals for $5.2 billion, and if that deal closes as expected, and price pushback increases, then Takeda could find itself struggling to justify the cost of Ariad Pharmaceuticals' Iclusig, a leukemia treatment.
In October, Ariad Pharmaceuticals got unwanted publicity when reports surfaced that a series of drug price increases had lifted Iclusig's cost to $200,000 per year. At the time of AHIP's report, Iclusig's average wholesale price was already a heady $172,080 and its FSS cost was $136,044.
Now, it would seem that Iclusig is even more expensive. Granted, drugs for life-threatening indications like this are tough to develop, but with a price tag that high, it wouldn't be too shocking if it attracts unwanted attention again.
5. Novelion Therapeutics: Juxtapid
As a refresher, Novelion Therapeutics was formed in November when Aegerion Pharmaceuticals merged with QLT, a clinical-stage developer of opthalmic medicines.
Juxtapid is used to treat people with a specific genetic mutation that elevates their bad cholesterol levels, and ahead of the merger, Juxtapid accounted for about 60% of Aegerion Pharmaceuticals' sales.
According to AHIP, Juxtapid's annual average wholesale price is $415,944 and its FSS is $220,788.
That's an incredibly wide spread that could raise eyebrows, especially since a new class of cholesterol-fighting drugs known as PCSK9 inhibitors launched last year. PCSK9 drugs are cheaper, and they've been proven to be effective in some of Juxtapid's addressable patient population. Repatha, for example, is one of two PCSK9 inhibitors that's currently available, and it costs $14,000 annually.
The merger of Aegerion with QLT diversifies some of the risk of falling Juxtapid's prices, and Novelion does market another drug, Myalept, that could take away some of the sting if the FDA agrees to approve an important label expansion soon.
Nevertheless, since 85% of Juxtapid's $22 million in Q3 sales came from the U.S., any negative pricing pressure will present a major headwind for this company that investors should not ignore.
Todd Campbell owns shares of Pfizer. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.