Amgen, Inc. (AMGN +0.46%) recently released conclusive proof that its pricey new cholesterol-lowering drug saves lives. As hoped, results of a long-awaited outcome study showed that people taking Repatha were far less likely to suffer heart attacks and strokes.
Instead of lifting the stock as you might expect, the market shaved about $8.5 billion from the biotech's market cap on the day it released the news. If the negative reaction to the great news has you scratching your head, you're not alone.
Although markets do tend to overreact, the counterintuitive pessimism wasn't entirely unfounded. To understand why, let's look at how similar evidence hasn't done much to help a couple of recently launched drugs from Novartis AG (NVS +1.97%) and Eli Lilly and Co (LLY 0.18%) meet expectations.
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Benefits, schmenefits
Amgen's stock dipped largely because the risk reduction or cardiovascular benefit observed among patients treated with Repatha fell short of amazing. We've seen other drugs provide similar benefits, only to continue generating disappointing sales figures.
In July 2015, Entresto from Novartis became the world's first drug to show clear evidence of a cardiovascular benefit for a form of chronic heart failure that affects about 3 million Americans. In a head-to-head study versus standard treatments, those given Entresto were 21% less likely to be hospitalized because of the disease, and 20% less likely to die from cardiovascular causes.
With data like this, you might expect the pills to fly off the shelves. Well, you'd be wrong. Last year, Novartis recorded just $170 million in Entresto sales.
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Jardiance from Eli Lilly provides another upsetting example of lackluster sales despite outstanding data. Around half of all deaths among type 2 diabetes are due to cardiovascular disease. In the summer of 2015, Jardiance became the first diabetes medication ever to prove it provided a cardiovascular benefit. It turns out that adding it to standard treatments reduced the risk of cardiovascular death by a whopping 38%.
With at least 21 million type 2 diabetics in the U.S. alone, you would probably expect this to quickly become the best-selling diabetes drug ever. Again you'd be wrong, as last year Lilly recorded Jardiance sales of just $201.9 million.
Weak, only by comparison
When Amgen set out to prove a cardiovascular benefit for Repatha, it wasn't messing around. It gathered 27,500 patients with evidence of hardened arteries who couldn't get their cholesterol low enough using cheap generic statins. Then it waited until 1,630 people experienced a heart attack or several other events related to cardiovascular disease.
Adding Repatha to standard treatments reduced the risk of heart attack by 27% compared with patients receiving standard treatments and a placebo injection. A couple of short years ago, these results probably would have sent the stock climbing even higher. Compared with outcome data from Entresto and Jardiance, though, Repatha's cardiovascular benefit is roughly even.
At the time of their respective launches in 2015, all three of these groundbreaking treatments were widely expected to become multibillion-dollar blockbusters within a few years. At their present pace, though, that seems highly unlikely.
The new normal?
These disappointing commercial launches don't mean investors should entirely lose hope for Amgen, or its biopharma peers. They do, however, illustrate ongoing trends investors should remain mindful of.
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At its list price, a one-year supply of Repatha costs $14,100, while generic statins cost pennies per pill. In an attempt to meet in the middle, Amgen and other drugmakers have been toying with something akin to "money-back guarantees" if their products don't lower overall healthcare costs.
I've known too many healthcare providers to be optimistic about the future of innovative data-driven drug pricing, especially in the U.S., where most people receive coverage from several different insurers throughout their lives. It's deeply troubling, but you can hardly expect an insurance business to invest heavily for a medicine that's more likely to save money for a competitor than itself.
I don't have an answer for the sticky dilemma making it difficult for Amgen and its peers to fund development of lifesaving new drugs for the masses, but I can offer investors some simple advice. The next time you see a big peak sales estimate, bear in mind that end payers are going to fight tooth and nail to keep it from happening.
