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25 October, 2018

Drug Pricing: AMGN to PBMs: Game, Set, Match

In our view, Amgen's (AMGN) announcement to lower the list price of Repatha® by 60 percent is as much driven by the politics of the drug pricing debate as it is by Amgen's need to price the drug competitively. While Amgen's need to lower Repatha's list price has been an inevitability since Regeneron (REGN)/Sanofi (SNY) lowered the price of Praluent in May and cost Repatha placement on Express Scripts' (ESRX) largest formulary, Amgen's approach of lowering the list price puts PBMs on the defensive and essentially dares PBMs to not add them to their formularies. If PBMs stick with Praluent's rebate, it is an argument for the Trump Administration to move forward with its regulation of rebates. If PBMs shift to the lower-list price Repatha, we may see other manufacturers follow suit and the pressure to regulate rebates will subside. Investors should view this as a bullish move: Amgen is both undermining PBM's negotiating power by offering one list price to all purchasers, and placing the PBM industry on its heels in determining their next move. This strengthens our conviction that the pharmaceutical industry will ultimately win their war against the supply chain, and PBMs and wholesalers will need to begin to shift to non-rebate, alternative revenue sources they referenced on their 2Q earnings calls.