Caught under a microscope over drug pricing, pharmaceutical companies are predicting 2019 will bring revenue totals noticeably lower than what Wall Street expected for the year ahead.
In recent days, Pfizer, Johnson & Johnson, AbbVie, Allergan and Amgen have all rolled out sales forecasts that have underwhelmed investors. The lackluster guidance makes for a wobbly start to the year for the sector, and raises some pointed questions for companies lacking clear successors to current top-sellers.
A few weeks ago, the industry was enjoying a J.P. Morgan Healthcare Conference enlivened by dealmaking from Bristol-Myers Squibb and Eli Lilly — on the surface, at least, a sign of C-suites ready to pull the trigger on hoped-for acquisitions.
Fourth quarter earnings, however, have brought a dose of doubt about how the year may unfold. While the reasons for disappointing guidance from companies varies, one common undercurrent is a shifting environment around drug pricing and how that translates into sales.
Pharma's forecasts disappoint Wall Street
|2019 sales guidance (at midpoint)||Wall Street estimate (billions)||Difference (billions)|
|J&J||$80.8 billion||$82.6 billion||-$1.8 billion|
|Bristol-Myers||Mid-single digit*||7%||Slight miss|
|Pfizer||$53.0 billion||$54.3 billion||-$1.3 billion|
|Amgen||$22.4 billion||$22.9 billion||-$0.5 billion|
*Bristol-Myers, AbbVie did not detail specific 2019 sales estimates SOURCE: Analyst reports, companies
"This is a significant change to the steady diet of low to mid single digit top line growth and high single to low double digit bottom line growth to which biopharma investors have become accustomed," wrote Leerink analyst Geoffrey Porges in a Jan. 30 note.
"The common culprits on these calls have been risk of rapid erosion of large brands facing either generic or biosimilar entry, and loss of positive pricing power on other products (particularly growth products)," Porges added.
Even as list prices continue to climb, at least four pharmas have noted they expect net prices after rebates to decline, either in the U.S. specifically or globally. That disparity is mostly due to the increasing amount drugmakers pay to insurers and pharmacy benefit managers via rebates, handed over in exchange for favorable coverage.
Data compiled by Iqvia found net prices for "protected brands" — defined as branded drugs on the market for more than two years — rose by 1.5% in the U.S. last year, below the rate of Consumer Price Inflation. Invoice prices, which track wholesale acquisition costs, increased by 5.7%, Iqvia found.
"Pricing is not going to be a growth driver for us now and, I think, in the future," said Pfizer CEO Albert Bourla on a quarterly earnings call this week, aligning the company's expected revenue growth with increasing volume of prescriptions for its medicines.
That's not to say Pfizer is eschewing price increases. Earlier this month the pharma put in place hikes it had announced late last year, raising the list price of 41 medicines — roughly 10% of its overall product portfolio.
Yet Pfizer expects net prices across its business in 2019 to remain flat in the U.S., and decline by low single digits globally.
J&J executives made a similar point, noting net prices for its products in the U.S. declined between 6% and 8% last year. The company expects net price declines to remain at "elevated levels" this year.
Lower net prices don't necessarily translate to a lesser hit to patient wallets, a point Health and Human Services Secretary Alex Azar has frequently made in calling for a halt to regular list price increases.
They do, however, expose drugmakers that rely on blockbuster older drugs to drive revenue higher. Nearer to the end of their patent life, such products typically see slower volume gains (or outright declines) and are more dependent on pricing to continue growing.
Amgen, for example, has leaned on its drugs Enbrel (etanercept) and Neulasta (pegfilgrastim), which together accounted for about half of Amgen's $17.4 billion in U.S. sales last year.
Both face competitive challenges, either from newer branded entrants or, for Neulasta, from biosimilar competition. Lower net selling prices have also weighed on sales of both, even as Amgen has continued to raise list prices.
Earlier this month, for example, Amgen increased the wholesale acquisition cost of Enbrel by 6.2%.
Overall, the biotech expects net selling prices to decline by mid-single digits in 2019 — a trend that will put particular pressure on drugs like Enbrel and Neulasta.
A recent analysis by Leerink found that higher pricing accounted for all of the nearly $2 billion in U.S. revenue growth Amgen realized from the two drugs between 2014 and 2017.
Without those pricing tailwinds, Amgen will have to find revenue gains elsewhere. "Our strategy for growth will be driven by volume, not price," said Amgen CEO Robert Bradway this week.
The challenge, of course, is having a portfolio of new drugs benefiting from accelerating prescription volumes. But that's not a given in an industry struggling to develop blockbuster hits.
In part because past top-sellers have had such commercial success, several companies' prospects for maintaining consistent growth appears to be now more in question.