(Bloomberg Opinion) -- Three pharma giants — Eli Lilly & Co., Pfizer Inc. and Merck & Co. — released first-quarter earnings results Tuesday that exceeded Wall Street estimates and prompted boosts to full-year profit forecasts. But problems lie beneath the beats.
Pfizer and Lilly reported muted top-line growth of 2 percent and 3 percent, respectively, reflecting weaker-than-expected sales for key drugs that are fighting for share in increasingly crowded markets. The lackluster revenue growth exposes a pricing problem for drugmakers that doesn’t have an easy solution.
Crowding has gotten acute as risk-averse drugmakers pick safer pathways. It’s increasingly common these days for multiple similar medicines to hit the market in rapid succession; Lilly’s migraine drug Emgality, for instance, was one of three drugs in the same class to get approved within six months.
Companies aren’t about to pull drugs from the market or cede share to rivals without a fight. Price competition and profit pressure is the inevitable result as the sector deliberately creates negotiating leverage for insurers and governments.
Lilly is part of the problem. The company has been something of a fast follower in the past few years, focusing on research avenues that have previously led to successful medicines. Some of its medicines may prove more effective or safe than rivals’. All of them will face or be forced to create pricing pressure.
Lilly felt that in the first quarter. Its key psoriasis drug Taltz and diabetes medicine Trulicity missed sales expectations, and the company repeatedly cited “lower realized prices” as a weight on its drug sales in its earnings release.
Pfizer returned to price hikes earlier this year after a pause last year that was prompted by public criticism from President Donald Trump. But even that couldn’t boost first-quarter sales of arthritis medicine Xeljanz and breast-cancer drug Ibrance past Wall Street’s targets. Both of those medicines compete directly with more recently approved rivals produced by Lilly on top of other challengers. The firm’s pipeline has a number of drugs aimed at already crowded markets.
Even Merck, which announced comparatively robust 8 percent sales growth and a more impressive boost to its forecast than its rivals, isn’t immune. The company’s lead cancer drug Keytruda — one of six medicines in its class on the market — also missed first-quarter sales estimates. Keytruda is the clear market leader in its group and its sales growth has been rapid. But rivals are nipping at its heels and Merck has been steadily ramping up R&D spending in an effort to stay ahead. That has weighed on its profitability. Other companies are matching those efforts, which may bring rare price competition to the cancer-drug market.
Investor fears about drug pricing are often understandably focused on American politicians as they continue to focus on the high cost of medicines. But they shouldn’t discount pharma’s other self-inflicted pricing issues.
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Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
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