Two big drug flops show how health-care economics have changed
Sanofi and Amgen overpriced their new cholesterol treatments, and insurers balked.
For years, drug companies have enjoyed the freedom to charge high prices for their latest products. But when Sanofi and Amgen Inc. each marketed a powerful new cholesterol-lowering medicine, something surprising happened: High prices hurt sales. Sanofi's experience has been especially painful. The French company spent more than five years developing Praluent with Regeneron Pharmaceuticals Inc. before its launch in 2015. But Praluent never caught on. Now Sanofi is cutting its losses, getting out of the US market for the drug, and halting its heart disease research altogether in favor of more lucrative medicines for cancer and other diseases. "We're proud of our past, but it shouldn't dictate some poor investment decisions," Paul Hudson, Sanofi's new chief executive officer, told a group of investors last month. "We have to draw a line in the sand."
What went wrong with Praluent? The drug is one of several cholesterol-lowering injections known as PCSK9 inhibitors. It does a better job than earlier drugs of reducing the risk of heart attacks and strokes for some people. Yet this class of new drugs has failed to reach more than a fraction of its intended market. Praluent's disappointing sales are the result of insurance giants' reluctance to pay for expensive new pharmaceuticals that treat chronic disease when far cheaper drugs can often get the job done.
Praluent's disappointing performance shows how consolidation among insurers and pharmacy-benefit managers—the middlemen that handle prescription drug plans for employers and pension plans—has given them much more control over pricing and patient access to medicines.
When Sanofi introduced Praluent, it seemed destined to become a hit. Heart disease remains the top killer in the US, responsible for 1 in 4 deaths each year. With its proven ability to dramatically lower "bad" cholesterol, or LDL, Praluent, its promoters argued, would quickly grow into a multibillion-dollar-a-year blockbuster. Biotechnology specialist Amgen thought so, too, and invested in a competing compound, Repatha. The drugs were intended to serve a sizable segment of patients who can't tolerate or control their cholesterol with widely used statins such as Pfizer Inc.'s Lipitor and for those who have a genetic condition that puts them at risk for early heart attacks and strokes.
The drugmakers badly miscalculated their pricing strategy, however. Sanofi and its partner Regeneron introduced Praluent at $14,600 a year in mid-2015. Amgen priced Repatha at $14,100 annually a month later. Compared to the multimillion-dollar price tags for genetic drugs that cure rare diseases, the cost wasn't unreasonable, company officials say. But unlike those one-time treatments, the new cholesterol drugs are intended to be taken for a lifetime.
While the companies argued the medicines would provide billions of dollars in savings by keeping patients out of hospitals and reducing the need for more intensive cardiovascular care, insurers balked at the potential cost of these long-term treatments. They pointed to research that suggested giving Praluent and Repatha to all eligible patients would be responsible for about a $120 billion increase in annual health-care spending in the US—a finding the manufacturers doubt. And since generic statins cost as little as $40 a year, insurance companies constructed barriers that made it virtually certain few patients would get the new drugs. "PCSK9s had the potential to be for a very large population," says Harold Carter, a senior director of value-based pricing solutions at Cigna Corp.'s Express Scripts unit, which manages drug-benefits plans. "We knew it could break the budgets of health plans, so we made sure that only patients that absolutely needed it got access."
The strategy employed by Express Scripts and its counterparts proved effective. Half of all patients prescribed a PCSK9 inhibitor in their first year on the market were denied approval for coverage, according to the Duke Clinical Research Institute. Many of those who were approved by their plans often found they couldn't afford their share of the cost.
Things were particularly dire for seniors enrolled in Medicare, who could be on the hook for a quarter or more of the drug's list price. Debbie Hileman, a patient in Grand Tower, Ill., with a genetic condition known as familial hypercholesterolemia, was forced to pay more than $400 each month for Repatha through her federal drug benefit. "It left me with some difficult choices," says Hileman, 67, who often did without the drug. "I couldn't put my family in the poorhouse."
High-risk patients with the same genetic condition couldn't even get approved for the drug: 63% of their prescriptions were rejected, according to a 2017 study in the medical journal Circulation. As a result, sales of the drugs suffered. Sanofi's treatment generated a meager $307 million in 2018, while Amgen's fared better at a still-disappointing $550 million.
That's pushed the manufacturers to take drastic measures. In October 2018, Amgen cut its list price by 60%, to $5,850. Sanofi, which had already offered heavily discounted drugs to certain benefit managers, matched that in March 2019. The companies hoped the sharply reduced prices would encourage insurers to take down their coverage barriers while also lowering seniors' out-of-pocket costs. In other words, they were willing to trade profit margins for scale.
But their more moderate pricing failed to boost sales because of incentives peculiar to the drug industry. Drugmakers provide pharmacy-benefit managers discounts in the form of rebates to win preferred coverage status for their expensive medications. Throughout 2019, many drug middlemen ignored the lower-priced meds in favor of putting the $14,000 versions on their approved lists—which would give heftier rebates.
CVS Health Corp., for example, asked prescribers to provide one of two codes to request access to either the $14,100 product or the $5,850 product. Although it stated "the two products are the exact same and made in the same manufacturing facility," the company required a "documented clinical reason" to access the cheaper drug. Even with such a reason, CVS said it wouldn't make the discounted drug available. So doctors filling out forms essentially had only one choice: request the expensive option.
Troyen Brennan, chief medical officer of CVS Health, says the $14,100 product initially offered health plans the lowest net-cost because the company could pass them the rebate. However, Brennan concedes its demand for a "clinical" justification for the discounted product was inaccurate and unnecessary. "It was a business decision that should have been reviewed more deliberately," he says. After five months, CVS updated the form to eliminate that question and now covers the $5,850 version of Repatha. CVS and Express Scripts say they've since eased restrictions in the wake of new medical guidelines and recent data that show the drugs' effectiveness.
Even so, critics say the drugs are still hard to come by. "A model that prioritizes the more expensive product when a less expensive one is available doesn't serve the patients," says Scott Wright, a cardiologist at Mayo Clinic. "That discount has not changed the way the game is played."
Like Sanofi and Amgen, other drugmakers have struggled to introduce discounted versions of their treatments to improve affordability and patient access. Eli Lilly & Co. created a half-price version of its popular insulin Humalog last year after criticism over the drug's price. But a majority of diabetes patients still haven't gotten insurance coverage for it.
"It's extremely disappointing that that's the outcome we land on," says Lilly CEO David Ricks. "We've done what we can do. I guess insurance companies, pharmacy-benefit managers, and supply chain actors have showed their hand. They prefer the high list price, high rebate, to a low list price, low rebate."
Swiss drugmaker Novartis AG will take a different strategy. Late last year it agreed to buy Medicines Co. and its state-of-the-art cholesterol-bashing drug for $9.7 billion. Unlike Praluent and Repatha, which are self-injected twice a month, Novartis's injection is only needed twice a year. If the company doesn't overreach on pricing, the drug could be a highly attractive alternative.
Calling the battle between Praluent and Repatha for market share "a race to the bottom," Sanofi's Hudson, who became CEO in September, says he's done trying to negotiate with the insurance industry over Praluent. "We're all battle-scarred enough not to go there again." In the US, the company will return the cholesterol drug to Regeneron, which will manage commercial operations alone.
Amgen says it's in for the long haul. After more than a year of urging benefit managers to adopt their discounted drug, the high-priced version still accounted for almost half of its volume at the end of 2019. The company removed the more costly version from the market on Dec. 31 in an attempt to force the insurance industry's hand: Pay for our discounted product or don't pay for our product at all. "If you can get an insurer to supply a product, a doctor to prescribe a product, and a pharmacy to carry the product," says Murdo Gordon, Amgen's executive vice president for global commercial operations, "but the patient can't afford the product, then the health-care system is broken." —With James Paton
BOTTOM LINE - The latest cholesterol drugs were expected to be blockbusters. But forecasts that they'd add up to $120 billion annually to US health spending cooled insurers' interest.
Disclaimer: This article first appeared on Bloomberg.com, and is published by special syndication arrangement."