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Biotech braces for price wars as AbbVie spars with Gilead

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(Bloomberg) – Anthem Inc. (NYSE:ANTM), the biggest provider of U.S. group health coverage, said it chose Gilead Sciences Inc.’s hepatitis C drug Harvoni as the primary option for group health plan patients with the most common form of the disease.

The deal is the latest in a series of agreements with the U.S.’s biggest insurers and drug benefit managers, in which the payers have pitted Gilead against AbbVie Inc. and its competing medicine in order to exact price discounts for the treatments, which can cost $1,000 a day.

“Recently, an agreement was forged with Gilead Sciences, effectively lowering Anthem’s hepatitis C treatment costs,” Anthem said in an e-mail. Under the deal, patients with the most common genotype of the liver virus will generally have to try Harvoni first.

Anthem said that “favorable pricing” from Gilead along with “clinical differentiators” such as simpler dosing were the reasons it chose Harvoni over AbbVie’s Viekira Pak. Harvoni is one pill a day, while AbbVie’s drug requires most patients to take four to six pills a day.

Market forces

Both Gilead and AbbVie introduced $1,000-a-day hepatitis C treatments last year. The companies said there wouldn’t be a price war over their breakthrough drugs. Instead, that’s exactly what’s starting to happen.

Anthem has become the third major benefits administrator to announce an exclusive deal with Gilead or AbbVie in exchange for better drug pricing.

Express Scripts Holding Co., the biggest U.S. managers of pharmacy benefits, said it wrung a price discount from AbbVie by agreeing last month to make its drug, Viekira Pak, the preferred choice for most patients for at least two years. Soon after, CVS Health Corp. and Anthem made deals with Gilead to use its drug, Harvoni, blocking AbbVie. 

See also: Gilead makes exclusive deal with CVS for hepatitis C drugs.

Gilead declined to comment, and AbbVie didn’t comment beyond a statement that it believed in broad access to its drug.

AbbVie’s medicine requires most patients to take four to six pills a day for 12 weeks, compared with one pill a day for Harvoni. Anthem cited Harvoni’s simpler dosing regimen in its decision to go with that drug.

AbbVie’s drug had 78 U.S. retail prescriptions in the week that ended Jan. 2, according to Symphony Health Solutions data. Harvoni, which was approved two months earlier, had 5,325 prescriptions.

Hefty price tags for new drugs have drawn criticism from insurers, lawmakers, and doctors. Before discounts, Gilead’s hepatitis medicine Sovaldi costs $84,000 for a 12-week course of treatment, and Harvoni, which combines Sovaldi with another medication, taken as a single pill, costs $94,500 for 12 weeks. Viekira Pak’s listed 12-week price is $83,31

Anthem’s decision likely affects about 17 million people covered by its business plans, according to Brian Abrahams, an analyst with Wells Fargo. Express Scripts’ drug lists covered by the deal with AbbVie account for about 25 million people.

Discounts

The question for Gilead, AbbVie and other biotechnology and pharmaceutical companies is whether the exclusive deals have emboldened insurers to demand bigger discounts in other top-selling categories, such as medicines for rheumatoid arthritis, heart disease, multiple sclerosis and cancer.

How far benefits managers can go to extract discounts is likely to be a major topic of conversation at the health industry’s biggest annual gathering next week, the JPMorgan Healthcare Conference in San Francisco, especially after a year of claims by Gilead and AbbVie that they wouldn’t engage in such a competition.

“It’s rare that pricing becomes a competitive differentiating feature,” Gilead President John Milligan said in September 2013. “The likelihood of people taking a substandard regimen, pricing it low in order to gain market share probably won’t work in this area.”

AbbVie Chief Executive Officer Richard Gonzalez, when asked if he would cut prices to take market share, said in April, “That’s not our strategy.”

Next target

“We are seeing the first price war in specialty pharmaceuticals,” said Roger Longman, chief executive officer (CEO) of Real Endpoints LLC, a Westport, Conn., company that analyzes drug reimbursement.

“We are going to see a lot more of this” in other drug categories, such as multiple sclerosis or rheumatoid arthritis, Longman said.

See also: Medicare patient chooses between mortgage and acromegaly drugs.

The next target for payers could be a group of experimental heart drugs that dramatically lower bad cholesterol. Amgen Inc., Pfizer Inc., and Regeneron Pharmaceuticals Inc. and its partner Sanofi are developing competing versions of the therapies.

Express Scripts is watching the drugs’ development. While the “ideal situation” would be “to have lots of options at low cost,” Chief Medical Officer Steve Miller said in an interview this week that he would “definitely not rule out” signing an exclusive deal for one of the heart drugs if it resulted in much better prices.

Excluded

In response to rising costs, drug benefit managers have been gradually ratcheting up the number of medicines they exclude. Besides the hepatitis C deal, Express Scripts is excluding 66 brand name drugs this year from its list of covered drugs, up from 48 last year. Meanwhile, CVS is keeping 95 drugs off its main drugs list in 2015, up from about 70 last year.

Miller said that the benefit manager’s decision to exclude Gilead’s Harvoni from its main list of covered drugs pressured the biotechnology company to lower the price for other big pharmacy benefit managers.

“This is how the free market is supposed to operate,” Miller said.

Only time will tell whether these exclusive deals will lead to lower drug costs in the long term. In the past, biotech companies have often been able to make up discounts they have had to give to benefit managers to get on formularies by taking regular price increases, said Brian Skorney, a biotechnology analyst at Robert W. Baird.

“The big question in the sector is, is that dynamic going to change?” Skorney said.

Drugmaker power

Tactics that exclude or threaten to exclude a big-selling drugs will only work for diseases where multiple competing drugs have similar efficacy and side effects, said Doug Paul, a partner at MME LLC, in Oxford, Miss., which advises drug companies on pricing.

“This is not a tsunami that is going to take over the rest of the market,” said Paul.

Miller said Express Scripts is still “in the early innings,” of finding ways to save money on high-priced drugs. His company is paying close attention to rheumatoid arthritis and multiple sclerosis, and is also studying better ways to compare the effectiveness of cancer drugs, one of the biggest areas of drug spending.

“You gotta go where the money is being spent,” he said.