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CVS Health has amped up pharma's U.S. drug-price wars

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(Bloomberg Gadfly) — The battle over U.S. drug prices just got tougher. But the new pressure is coming from CVS, not politicians. 

CVS isn’t just your friendly neighborhood pharmacy and snack emporium. It’s also one of the two largest pharmacy benefit managers (PBMs) in the country. A big part of its business is negotiating lower drug prices for employers and insurers, which includes refusing to cover some drugs that have cheaper substitutes.

CVS announced on Tuesday it’s going to refuse to cover 35 new drugs in 2017 and 131 in total, up from 124 in 2016 (some of this year’s exclusions will drop off next year’s list). It’s also excluding branded cancer drugs for the first time and favoring the equivalent of a generic version of a biologic drug over the original product. Both moves are unusual in the U.S. and, if adopted more broadly, could have serious impacts on U.S. drug prices. 

Related: CVS cuts coverage of dozens of drugs in exclusion expansion

CVS is excluding Xtandi — a prostate cancer drug made by Medivation that is drawing interest from Sanofi and other bidders — and Novartis’ blood-cancer drug Tasigna. Combined, the two drugs are expected to pass $2.4 billion in sales in 2016.

Cancer drugs have traditionally been treated with relative deference by insurers and payers, keeping price pressure at bay. CVS’s move means that may begin to change for a class of drugs expected to account for $79 billion in spending in the U.S. by 2020.

What’s more, CVS is excluding an Amgen biologic drug — one made with living cells instead of chemical processes — called Neupogen, in favor of a “biosimilar” copy from Novartis called Zarxio. It’s also excluding Sanofi’s Lantus — a diabetes drug expected to produce more than $6 billion in sales this year — in favor of Eli Lilly’s Basaglar. Lilly’s drug is considered a biosimilar by European regulators, but isn’t designated as such in the U.S.

CVS substitutes generic drugs for branded ones all the time. But these moves are more novel — the first FDA approval of a biosimilar drug only happened in March of last year, the second in April of this year. Unlike generic drugs, biosimilars are not identical copies. That, and other legal and patent complications, have made biosimilars less of a price factor in the U.S. than generic drugs.

CVS could change that. Biosimilar makers might expect to earn business from CVS by keeping prices low. That will start to add more pricing pressure on biologic drugs as more biosimilars hit the market.

Where CVS goes, others tend to follow. For example, it was the first PBM to produce an annual list of excluded drugs back in 2012. Makers of expensive cancer drugs and biologics won’t be able to avoid pricing pain much longer.


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