The pricing battle over the newest class of cholesterol-lowering medications is certainly getting more interesting, and investors in the space should be watching to see who blinks first.
Two new drugs that are known as proprotein convertase subtilisin/kexin type 9 inhibitors, or PCSK9, have recently been cleared for sale in the U.S., and they look to offer hope to millions of patients who have high cholesterol levels.
In clinical trials, Praulent, which is a PCSK9 inhibitor owned and marketed by Regeneron (NASDAQ:REGN) and Sanofi (NASDAQ:SNY), reduced LDL-cholesterol ("bad" cholesterol) levels by 58% among patients who were already using the current standard of care, statins. Repatha, which is the PCSK9 inhibitor owned by Amgen (NASDAQ:AMGN), showed a similarly huge drop of 54%-77% in the same group of patients.
A huge addressable market
Currently, these two drugs are only approved as an adjunctive therapy to be used alongside diet and statin therapy to treat adults with either heterozygous familial hypercholesterolemia (HeFH) or clinical atherosclerotic cardiovascular disease (ASCVD). Even though that sounds like the labeling for the drugs is very restrictive, the addressable market for these drugs already looks huge. Regeneron believes between 8 million and 10 million Americans currently fit this labeling today. Amgen estimates that the opportunity is slightly bigger, at around 11 million
When you zoom out a little further, the numbers get even more mind-boggling: An estimated 73 million Americans have high levels of LDL cholesterol today and could potentially benefit from a PCSK9 inhibitor if its label were expanded. You can imagine how staggering these numbers get when you add in the rest of the world.
Premium pricing for a premium product
Given the sheer size of this market, it should come as no shock that insurers and pharmacy benefit managers have been worried about how these drugs would be priced. There fears proved to be well placed, as the companies got aggressive with their pricing and announced that the wholesale cost for each drug would run north of $14,000 annually per patient. When you multiply that number by the addressable patient population, the numbers get big in a hurry.
Since $14,000 is more than 50 times higher than the annual price of currently available generic statins, and patients will likely be taking a PCSK9 inhibitor for the rest of their lives, you can see why there is big controversy over the pricing.
So big, in fact, that Express Scripts, one of the county's biggest pharmacy benefit managers, has even gone so far as to say that the costs of this drug class alone could exceed more than $100 billion each year. For perspective, in 2014, the U.S. spent a total of $374 billion on all prescription drugs combined.
Bring on the pushback
Understandably, numbers of this size have attracted a lot of attention, and many are asking at what price these drugs actually become cost effective. The Institute for Clinical and Economic Review, or ICER, published a detailed report that aimed to answer that exact question. The report stated that:
With a list price over $14,000 per year there are serious questions regarding the price at which these drugs would represent a sensible value to patients and to the healthcare system.
So, what price did the ICER report suggest as more realistic number? They stated that a price between $3,615 and $4,811 is more appropriate for these drugs.
Yup, you read that right. The report suggested that PCSK9 inhibitors are overpriced by roughly $10,000 per patient each year!
The report even went a little bit further to suggest that in order for these drugs to be cost effective for wide-spread adoption, a more appropriate price would be even lower, at $2,177. At that price point, the report stated that doctors and insurers would not have to try to limit patient use to keep overall healthcare cost growth within bounds.
With a market of this magnitude, it's no surprise that insurers and pharmacy benefit managers are sounding the warning bell about the cost that these drugs could incur on the healthcare system.
While the numbers are certainly huge, investors should keep in mind that cardiovascular disease is the No. 1 cause of death in the U.S., with an estimated annual cost of $315 billion. If PCSK9 drugs can bring down that number, even by a little, then the drugs could could prove to be a very cost-effective treatment.
For now, we won't know if the use of PCSK9 inhibitors will lead to lower rates of heart attack and stroke, but Amgen has an ongoing study to see if they do that is slated to be released in 2017. If they do show an ability to keep patients healthy and out of the hospital, then the pricing pushback will likely subside.
Investors in any of these companies will want to watch this story unfold, but given the huge medical need, I'm still willing to bet that PCSK9 inhibitors will prove to be blockbuster revenue producers for their owners, and both Regeneron and Amgen have certainly earned their spots on my watchlist.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns and recommends Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.