Insurers are getting bigger—What does that mean for pharma's pricing power?
- There is a lot of M&A actvity among pharmacy benefit managers (PBMs) and other payers, including the recent a $37 billion of Humana by Aetna.
- According to Moody's Investor Service, as the M&A trend continues, insurers will focus on greater cost-control (after handling integration logistics).
- FiercePharma notes that Moody's believes the biggest pressure point will be on the cost of cancer immunotherapy drugs.
When Express Scripts purchased Medco for $29.1 billion in 2011, it became the largest PBM in the U.S. Since then, M&-driven consolidation among payers has increased. In addition to the recent Humana/Aetna deal, a potential merger between Cigna and Anthem is in the works, although Cigna has been busily rebuffing Anthem's offers. And on a smaller level, last week, Health Net and Centene agreed to a $6.8 billion merger.
The net effect of all of this consolidation will be growing downward pressure on pricing, according to Moody's, with a primary focus on immuno-oncologic drugs. This growing category is popular among drug companies determined to be part of a cutting-edge pharmacologic trend in a category where there is a persistent set of unmet medical needs.
This list includes companies such as Merck, Bristol-Myers Squibb, AstraZeneca, Pfizer, Roche, Novartis, Celgene, and others. Those companies are starting to get significant push-back from payers (not unlike the push-back against the cost of oral hep C drugs from Gilead and AbbVie), including requests for rebates, a move towards indication-based pricing and leveraging power by having companies compete against one another to provide the best pricing. In fact, Express Scripts' CEO explicitly noted that cancer (and specifically, immunotherapy) drugs would be the next major target for his cost-cutting spree.
This won't all happen immediately, however, because integration takes times. Nonetheless, the trend is clear and not necessarily positive for pharma companies' profit margins.