By Deena Beasley
LOS ANGELES (Reuters) - Express Scripts (ESRX.O), the largest manager of prescription drug plans for U.S. employers, is taking an increasingly aggressive stance in price negotiations with pharmaceutical companies after winning discounts on medications with a strategy introduced last year.
On Monday, Express Scripts said it lined up a cheaper price for AbbVie Inc's (ABBV.N) newly approved hepatitis C treatment and, in most cases, will no longer cover Gilead Sciences Inc's (GILD.O) rival treatments after trying for nearly a year to win a deeper discount.
The move threatens to undermine profits at Gilead, and was viewed by Wall Street as a sign that other major biotechnology players, including Amgen Inc (AMGN.O) and Biogen Inc (BIIB.O), will face steeper U.S. pricing pressure from insurers. Other drugmakers without potentially transformative new products, such as Shire Plc (SHP.L), Novo Nordisk (NOVN.VX) and Theravance Inc (THRX.O), may also be particularly vulnerable, analysts said. Neither Shire, Novo Nordisk nor Theravance responded to requests for comment.
Express Scripts will further expand the number of medicines it won't cover for 2016, including treatments for common illnesses such as diabetes, pulmonary hypertension and arthritis, said Chief Medical Officer Dr Steve Miller, in an interview earlier this month. In some cases, Express Scripts could drop coverage for newer specialty medicines in the biotechnology field, he said. The timing on specific drugs will depend on when new competing drugs with similar clinical benefits are approved for the U.S. market.
Express Scripts first began excluding drugs from its largest national reimbursement list for 2014, with 44 medications, and increased that number to 66 for 2015.
The prospect of having their drugs dropped from Express Scripts' biggest "formulary" list of covered medicines has prompted some leading pharmaceutical makers to discount their prices, Miller said.
Express Scripts is acting on behalf of clients who need to rein in healthcare costs, and estimates that the move has so far saved such employers more than $1 billion in annual spending, Miller said.
Employers "are by necessity asking us to take a more aggressive stance because the affordability of their benefits is really at risk," Miller said. "We are going to be opportunistic” in looking for savings in the future.
Gilead shares dropped more than 14 percent in Monday trading to $92.90. Shares in Amgen, Biogen and Celgene CELG.O fell more than 2 percent.
The second largest U.S. pharmacy benefits manager, CVS Health Corp (CVS.N), has said it will exclude 95 prescription products from its reimbursement list next year, up from 72 in 2014. It expects the practice will save its plan sponsors over $3.5 billion between 2012 and 2015.
The drugs most under scrutiny include more expensive, "me-too" products, in categories where several drugmakers compete for similar patients. Both Novo Nordisk and Sanofi SA (SASY.PA) are developing slightly longer-lasting insulins.
Amgen, AbbVie and Johnson & Johnson (JNJ.N), respectively sell Enbrel, Humira and Remicade - all rheumatoid arthritis drugs that work in a similar way. Companies like Teva Pharmaceuticals Industries (TEVA.N) and Actavis (ACT.N) want to switch patients to more expensive versions of their multiple sclerosis and Alzheimer's drugs, respectively, before the arrival of cheap generic competitors.
The effect is already being felt by such Big Pharma players as AstraZeneca Plc (AZN.L) and Sanofi. Both companies warned recently that the need to offer U.S. price discounts on some of their biggest brand-name medicines will hurt 2015 sales.
Insurers are pushing back against prices in other categories, including blood thinners and even HIV drugs and multiple sclerosis treatments, where there are multiple options for doctors and patients, observers said.
"The extent of this becoming a broader problem is tied to whether we get great new drugs for things like asthma, (high cholesterol), Alzheimer's and cancer," said Sanford Bernstein analyst Ronny Gal. "If there is a limited pool of money and a bunch of new drugs, the pressure on older drugs will increase."
In recent years, the introduction of far cheaper generic versions of medicines like Pfizer Inc's (PFE.N) Lipitor to reduce cholesterol and Merck & Co's (MRK.N) asthma drug Singulair helped insurers save on reimbursement costs. But that wave of patent expiries has slowed considerably.
In the meantime, a new crop of novel, and in some cases, highly effective treatments for cancer and hepatitis C are costing them tens of billions of dollars more to reimburse.
The influx of generics "allowed the system to actually see drug price deflation," said Asher Anolic, manager of Fidelity's Select Pharmaceuticals Portfolio. "At the same time, others are launching innovative new drugs ... Based on those dynamics I get more concerned. Where is the give in the system? It's on the legacy products."
Anolic said his Fidelity fund focuses on drugmakers with highly differentiated portfolios of treatments. Its top holdings as of Sept 30 included Actavis, AbbVie, Novartis AG (NOVN.VX) and Bristol-Myers Squibb Co (BMY.N).
"When you look at the industry as a whole, we will probably see less profitability," said Nils Behnke, a partner at consulting firm Bain & Co. "Mid-sized companies with a broader portfolio of little products, 'me-too' products - they will have a hard time."
Murray Aitken, vice president at healthcare information company IMS Health (IMS.N), estimates that 2014 spending on new and innovative brand-name drugs will total about $20 billion compared with about $3 billion in 2012.
Industry executives say newer health plans, whether purchased by individual consumers or offered through an employer, will further accelerate efforts to limit drug prices because they require patients to pay a higher share of prescription costs.
Pharmacy benefits companies like Express Scripts say they will cover an excluded medicine if that specific treatment is deemed medically necessary for a patient. Some groups have expressed concern that patient care might be compromised.
The Pharmaceutical Research and Manufacturers of America, a leading drug industry trade group, said such practices hurt patients by limiting access to a range of appropriate medicines and potentially discriminating against certain conditions.
But insurers say that the high price of new drugs set by manufacturers has already deterred some patients from following doctor's orders.
"Plan sponsors, because of the rapid rise in cost, are many times having to ask the consumer to pay more" for their medicines, said Express Scripts' Miller. "If you can't afford your healthcare, you don't take it."
(Reporting by Deena Beasley; Editing by Michele Gershberg and John Pickering)