One win whets the appetite for another.
That certainly seems to be the case for the nation's two largest pharmacy benefits managers, Express Scripts (NASDAQ:ESRX) and CVS Health (NYSE:CVS). After scoring a victory in bringing hepatitis C drug costs down for their members, the PBMs now have their eyes set on the next pricing war -- new cholesterol drugs known as PCSK9 inhibitors. And CVS says this could be a $150 billion battle.
The shots heard 'round the world
For a while in 2014, Gilead Sciences cruised with its hepatitis C drug, Sovaldi. Gilead priced the drug at $84,000 per 12-week treatment. PBMs and other payers weren't pleased with the high cost -- but they still bought Sovaldi in droves. They were still unhappy when Gilead followed up by setting a steep price tag for its next hep-C drug Harvoni. However, the two drugs combined generated sales topping $10 billion last year.
Express Scripts had a game plan, though. Company executives stated early on that they would seriously look at going with another hepatitis C drug when one became available at a lower price. That's exactly what they did when AbbVie gained approval for Viekira Pak. AbbVie was in and Gilead was out with Express Scripts' main formulary.
Gilead appeared to be backed into a corner, with its stock plunging after the AbbVie/Express Scripts deal was announced. Sure enough, shortly after that point news broke that CVS Health had secured lower pricing for Sovaldi and was exclusively offering the Gilead drug as a hepatitis C treatment. The pricing war was waged quickly as other payers made their own deals.
While Gilead won more often than AbbVie in subsequent arrangements with payers, the real victors of the hepatitis C drug pricing war were Express Scripts and CVS Health. Now, both PBMs face the next pricing war -- and neither plans to wait long to enter the fray.
Express Scripts' CEO George Paz stated in January that his company will fight to control the prices of upcoming PCSK9 inhibitors. This week, CVS Health also threw down the gauntlet by declaring that it too will work to keep the new cholesterol drugs pricing at manageable levels.
They're both in fighting mode -- even though the FDA has yet to approve a PCSK9 inhibitor. However, the wait won't be long. Sanofi and Regeneron expect a decision on their drug Praluent by July 24, 2015. Amgen should learn the fate of its new cholesterol drug evolocumab by Aug. 27, 2015.
These drugs won't be priced nearly as highly as Sovalid or Viekira Pak. However, two factors make this next pricing battleground critical for payers. First, while the hepatitis C drugs cure patients and usually won't be needed after the first treatment, the cholesterol drugs could be required for rest of a patient's lifetime. Second, there are lot more patients with serious cholesterol problems than there are hepatitis C patients.
That being said, CVS Health's estimate of the market size at $150 billion seems heavily exaggerated. Not every person with high cholesterol will move from low-cost statins to the more expensive PCSK9 inhibitors. The market is likely much smaller than CVS suggests.
Expect Express Scripts and CVS Health to use some of the same tactics that proved successful in the hepatitis C battle. Both PBMs will likely dangle the potential for formulary exclusivity to wrangle the lowest price possible. It wouldn't be surprising for a similar outcome to what happened in the hep-C skirmish, with one big PBM announcing a deal with Amgen and the other with Sanofi/Regeneron.
Analysts project that the PCSK9 inhibitors from Amgen and Sanofi/Regeneron will bring in peak sales of around $3 billion annually. Regeneron could see the biggest impact in its stock price simply because, even with splitting profits with Sanofi, the added amount from Praluent will comprise a larger percentage of total revenue.
As with the hepatitis C pricing battles, though, the biggest winners of all stand to be the PBMs. Another round of pricey medications underscores the importance of the services offered by Express Scripts and CVS Health. Both players will no doubt negotiate effectively. They're hungry for yet another victory.