This Is a Concern That Amgen Investors Shouldn't Take Lightly

Source: Amgen via Flickr.

Overall, Amgen (AMGN -0.19%) shareholders have had little to complain about since the end of the recession. Amgen shares have more than tripled in value, and the company is in the midst of an unprecedented growth spurt that has it scheduled to report late-stage data on 10 drugs between 2014 and 2016. Thus far five of these 10 products have received approvals or supplemental new indications as requested by the Food and Drug Administration.

There's more to drug development than clinical trials
But as we've learned from drug developers like Dendreon and VIVUS over the last couple of years, there's more to drug development than just clinical trials. Pricing a drug properly and building a cohesive launch strategy are required steps when making a drug successful and keeping investors satisfied. If one or the other is off, it can mean bad news for the innovating company.

Why bring this up? In just a matter of days (on or before Aug. 27, 2015) the Food and Drug Administration will offer its decision on whether or not to approve Amgen's next-generation high cholesterol injectable drug Repatha. As a quick refresher, the FDA's review panel in June recommended its parent agency approve the drug by a vote of 11-4, noting that its benefits outweigh its risks. Understand that while the FDA isn't required to follow the advice of its panel, it typically does. 

Source: Amgen via Flickr.

However, it's not the approval or denial decision that should be worrying investors. Instead, it's what price point Amgen could eventually slap on Repatha if approved.

In July, Regeneron Pharmaceuticals (REGN -0.09%) and Sanofi (SNY -2.27%) had their next-generation high cholesterol injectable Praluent approved by the FDA for the treatment of heterozygous familial hypercholesterolemia (HeFH), or patients who've had heart attacks or strokes and are already taking the maximum daily allowable amount of statins.

Praluent is in the same new and exciting drug class as Repatha -- PCSK9 inhibitors. PCSK9 is a protein that binds with receptors on the liver and reduces the liver's ability to remove LDL-cholesterol (the bad kind) from the blood. Drugs like Praluent and Repatha target PCSK9, reducing the number of receptors on the liver that are blocked and giving the body an opportunity to remove LDL-cholesterol from the blood. In the case of Praluent, depending on the dose and study, it led to a 36% to 59% reduction in LDL, which is huge for patients with genetic disorders or compromised cardiovascular systems.

But this new technology comes with a catch -- a monstrous price tag.

This concern can't be ignored
According to Regeneron and Sanofi, Praluent's wholesale cost is $40 a day, or $14,600 for a full year, regardless of whether it's the 75 mg or 150 mg dose. As a treatment for HeFH, a rare genetic disease with few treatment options, insurers are unlikely to raise a fuss about Praluent's price point. However, with PCSK9 drugs expected to expand to broader cholesterol-lowering indications in the coming years, the $14,600 annual price tag could be more than insurers are willing to bear.

Source: Pictures of Money via Flickr.

As reported by Investor's Business Daily, CVS Health may utilize a formulary exclusion strategy to coerce substantial discounts out of Regeneron and Sanofi. All the while, Express Scripts has suggested that PCSK9 drugs could "wreak financial havoc," and implied that it would only seek to approve the use of PCSK9-targeted therapies when absolutely necessary. Long story short, if PCKS9 drug developers aren't willing to play a little hardball and lower their wholesale costs, they could find their revolutionary therapies on the outside of the approved formulary list.

Of course, pricing for Repatha is going to depend on two key factors (assuming it's approved by the FDA). First is the potential for a discount war between Amgen's Repatha and Regeneron and Sanofi's Praluent. Both are likely to be willing to give insurers substantial discounts if it means their drug becomes a PBM's or insurer's high cholesterol therapy of choice.

Source: Centers for Disease Control and Prevention.

Second, in 2017 Amgen will report the results of its long-term cardiovascular outcomes study examining whether or not its PCSK9 therapy can actually reduce heart attacks and deaths. If the study confirms that Repatha can reduce the risk of heart attack and death in patients, then PBMs and insurers may lose their ability to control pricing in this class and the power may shift back to the developers.

For now, though, the point that needs to be driven home is that Amgen's chosen price point for Repatha could have materially important consequences to its sales potential out of the gate.

Still, it's important for Amgen investors to keep in mind that the company's pipeline is well-established and not dependent on a single drug. This doesn't mean that a potentially slower-than-expected launch for Repatha based on its pricing couldn't hurt Amgen's share price, for which investors have been factoring in substantial sales over the long run for this new class of cholesterol fighter. However, it also means that other pipeline catalysts could pick up the slack.

We should certainly know a lot more about Repatha and its wholesale cost very soon, so stay tuned.