Ageing biologics franchises stumble on price worries

Only one biosimilar has been launched in the US so far, but the threat of more to come is starting to hit company earnings and forecasts. The common theme of massive valuation losses last week for Novo Nordisk, Amgen and Abbvie is that pricing pressure, including the threat of copycat competitors, is starting to erode sales.

While only Novo’s long-acting insulin Tresiba is expected to face an immediate biosimilar rival, Amgen is reporting that a more assertive stance from payers has prevented it from raising prices for the rheumatoid arthritis drug Enbrel, with some readthrough for Abbvie’s competing Humira. More than $30bn was wiped off the combined valuation of the three companies on a single day as the age of these franchises begin to show.

What could be most worrying for investors is that the invigorated payer approach could keep these companies from engaging in one of the sector’s tried and true tactics: big price increases in the build-up to generic competition. The FDA has approved biosimilars that will compete with all three products and will be launched when patent impediments clear, and time is ticking to maximise profits.

In addition, the three franchises under pressure are in disease areas in which Express Scripts, the biggest pharmacy benefits manager in the US, has implemented cost-control programmes (Where will Express Scripts go after it hits the easy targets?, September 9, 2016). Express Scripts may see these initial signs of success as justification for expanding into new drug classes.

Reining in expectations

The damage was greatest for Novo, which had to halve its long-term operating profit growth target to 5%, causing a 15% tumble in its share price on Friday. The Danish group blamed “the competitive environment in the US”, and specifically cited declining sales for the short-acting insulin NovoLog and intermediate-acting NovoMix, along with those for haemophilia treatments.

However, executives acknowledged that the premium pricing obtained for the company's newest insulin offering, long-acting Tresiba, would not continue into 2017. While Novo did not specifically name Lilly’s Basaglar, a biosimilar of Sanofi’s long-acting insulin Lantus, as a reason, the Lilly biosimilar is due to be launched in mid-December 2016, and some payers have already added it to their formularies (Biosimilars emerge as winners in annual payer muscle flexing, August 3, 2016).

Amgen, meanwhile, fell 10% on Friday after executives acknowledged that it would not be able to raise net prices on Enbrel in 2017 because of the need to keep the TNF-alpha inhibitor on payer formularies.

Based on this, there was some fear that Abbvie’s Humira, which also acts on TNF-alpha, would suffer, and initial numbers hinted at this – however, Abbvie executives said fluctuating growth patterns were to blame for third-quarter sales that were 3% below consensus.

Abbvie says it has not faced the same pressure as Amgen, and has the option to raise prices in its contracts in future. However, Bernstein analyst Ronny Gal expects a similar impact on Humira prices in coming years. This could be due to the introduction of new products in the inflammatory disease space that will allow payers to be more selective, he wrote.

Here they come

Novo is obviously most immediately threatened by US entry of a biosimilar, but the dates when other biological franchises could fall are approaching rapidly. Novartis’s Enbrel copy, Erelzi, is snarled in a legal battle, and a trial date has been set for 2018.

Amgen itself has a predator in this game, as its Humira biosimilar, Amjevita, has received FDA approval; it is not clear when this will be launched, but EvaluatePharma’s consensus forecasts US sales beginning in 2017.

The good times could not last forever. But as the negotiating balance has shifted in favour of payers in 2016, the ability to squeeze every last penny out of blockbuster franchises has waned. This should give the entire sector much to think about.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @ByJonGardner on Twitter