Close Close
ThinkAdvisor

Life Health > Health Insurance > Health Insurance

Fight over high-cost drugs to intensify after Catamaran deal

X
Your article was successfully shared with the contacts you provided.

(Bloomberg) — The deal UnitedHealth Group Inc. (NYSE:UNH) made for Catamaran Corp. (Nasdaq:CTRX) is going to build a bigger pharmacy benefit manager. It will also put even more pressure on drugmakers’ high prices for breakthrough medicines.

Once UnitedHealth’s $12.8 billion acquisition closes, 75 percent of prescriptions filled in the U.S. will be in the hands of three players, according to Pembroke Consulting Inc. UnitedHealth, along with No. 1 Express Scripts Holding Co. (Nasdaq:ESRX) and No. 2 CVS Health Corp. (NYSE:CVS), will have significant leverage.

See also: Rite Aid buys TPG’s EnvisionRx for $2 billion

Pharmacy benefit managers and drug companies have been locked in a struggle over expensive medicines for cancer, hepatitis and cholesterol, some already out and some coming to market this year. Bulking up will give PBMs like UnitedHealth’s OptumRx more patients and more clout in negotiations.

The combination “will make us a competitive force in the industry,” Optum Chief Executive Officer Larry Renfro told Catamaran employees Monday, according to a regulatory filing. “We expect to negotiate for lower prices and offer lower costs to our customers.”

Benefits managers like Catamaran help administer the drug coverage in health plans, working with employers and insurers to negotiate with drug companies and pharmacies. They also often oversee patients’ drug use, maintaining lists of covered drugs and handling mail orders or complex treatments.

OptumRx, UnitedHealth’s drug benefit arm, covers about 30 million people, while Catamaran represents about 35 million. That compares with about 90 million people for Express Scripts and more than 65 million for CVS.

Negotiating prices

“It definitely helps to negotiate down pharma prices, for sure,” said Steve Halper, an analyst at FBR & Co. “You’re negotiating with the manufacturers for rebates and pricing with a much larger base.

Express Scripts rose 3.7 percent to $85.41 at the close in New York. CVS gained 1.3 percent and UnitedHealth was up 2.5 percent.

Pharmacy managers have been willing to use those large volumes of patients to negotiate with drugmakers. Express Scripts ignited a price war for hepatitis C drugs last year when it excluded from coverage Gilead Sciences Inc.’s new drug that cost more than $1,000 a day. Instead, Express Scripts picked a competing medicine from AbbVie Inc. in return for significant discounts. Gilead struck its own agreements with CVS in exchange for price concessions.

Next targets

The next target for pharmacy benefit managers may be a new class of powerful cholesterol drugs expected to come to market this summer and cost as much as $12,000 a year. Also on pharmacy benefit managers’ lists are new psoriasis medicines that are likely to cost more than $30,000 a year, and $150,000-a-year cancer drugs that trigger the immune system to fight deadly lung and skin tumors.

‘‘When these competing therapies come out, that is your negotiating leverage point” to get better discounts, said Jim Yocum, executive vice president of DRX, a unit of Connecture Inc. (Nasdaq:CNXR) that provides comparison software for health plans. Part of the deal rationale “may be the need to get big to negotiate.”

Pharmacy benefit managers will also look for savings from “biosimilar” versions of expensive biotechnology drugs. A version of Amgen Inc.’s Neupogen drug made by Novartis A.G. won U.S. government approval early this month, the first biosimilar to be approved in the U.S.