Amid pricing scrutiny, Amgen CEO predicts more value-based contracts
- Commenting on a challenging third quarter in an earnings call last week, Amgen CEO Robert Bradway weighed in on the overall drug pricing environment, predicting value-based contracts would become more common as backlash against price hikes continues to hurt the sector.
- "We would expect to see more and more value-based contracts arise as one of the ways of enabling more patients to gain access to the right innovative medicines for their ailments at the right time," Bradway said on the call.
- While Amgen's revenue increased by 2% year over year in the third quarter, product sales were flat and competition hurt the performances of several key drugs, including top-selling Enbrel (etanercept).
As the pricing environment in the U.S. continues to tighten, pharma companies have begun to raise warning flags about the impact to overall performance.
Danish diabetes drugmaker Novo Nordisk, for example, slashed its long-term profit growth target to 5% from 10%, citing a challenging market environment in the U.S. for its diabetes drugs. Novo now expects flat to low single-digit growth in operating profit for next year.
In another earnings update last week, McKesson, a major drug distributor, substantially lowered its profit guidance for its 2017 fiscal year, which ends in March. CEO John Hammergren attributed the guidance cut to "further moderating branded pharmaceutical pricing trends compared to previous expectations." McKesson stock fell in value by more than 20% Friday.
While Amgen raised the bottom end of its guidance range, company CEO Bradway used the earnings call to defend the company's pricing strategy.
"We price our products to offer a strong value proposition for patients, payers and providers. We believe the differentiated efficacy of our products enables us to take a leading role in our industry in structuring value-based partnerships for our medicines," Bradway said.
Bradway indicated he didn't believe the scrutiny of drug pricing would disappear anytime soon and pointed to pay-for-performance deals as one way to mitigate that pressure:
"We accept that our products need to deliver clear benefit for our customers and accept that we shouldn't be rewarded when they do not. We have value-based contracts in place with a number of payers already and expect to do more."
Amgen already has a value-based contract in place with the major insurer Cigna for its PCSK9 drug Repatha. On Friday's call, Anthony Hooper, head of global commercial operations for Amgen, also cited ongoing work with two other drugs, Prolia and Corlanor.
Biosimilar competition is a significant threat to Amgen, which has several top-selling biologic drugs at risk of being undercut by lower-cost copies. Novartis recently won U.S. approval for its biosimilar version of Enbrel and, although it has not yet launched on the market, could eventually steal market share away from Amgen. Novartis' other approved biosimilar, referencing Neupogen (filgrastim), has already spurred a significant drop in sales of that drug for Amgen.
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