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By Deena Beasley and Caroline Humer
SAN FRANCISCO, Jan 15 (Reuters) - The world's biggestdrugmakers face a new reality when it comes to U.S. pricing fortheir products as insurers use aggressive tactics to extractsteep price discounts, even for the newest medications.
Big Pharma executives acknowledged the depth of change thisweek during public presentations and interviews with Reuters atthe J.P. Morgan Healthcare conference in San Francisco.Drugmakers have long relied on their ability to charge whateverthey deemed appropriate in the U.S., the world's most expensivehealthcare system.
Industry advocates have defended those U.S. prices in thepast as a way to recoup the billions of dollars spent onexperimental drugs that fail and to offset discounts offeredoverseas.
"There has definitely been increased price competition ...if a product is viewed as a commodity," Derica Rice, chieffinancial officer at Eli Lilly & Co, said in aninterview. "Our goal is clinical differentiation."
Pascal Soriot, chief executive of AstraZeneca Plc,warned investors that the pressure exerted by health insurershas expanded from medicines used to treat common maladies to thespecialized fields, like cancer, where drugmakers have been ableto charge their highest prices.
"Payers will try to leverage their strengths to try and getpricing concessions because those agents are very expensive,"Soriot said.
Many say the tide shifted with a campaign by insurers andpharmacy benefits companies against Gilead Sciences Inc's $84,000 hepatitis C treatment Sovaldi. The drugrepresented the first effective cure for hepatitis C and quicklyraked in billions of dollars in sales within its first fewmonths on the market in 2014. Sovaldi's cost is based on a12-week treatment regime and amounts to $1,000 a pill. Bycontrast, the treatment costs about $57,000 in the U.K.
As soon as U.S. regulators approved Sovaldi's competitor, atreatment from AbbVie Inc, last month, the country'slargest pharmacy benefits manager Express Scripts Co dropped reimbursement for the Gilead drug.
Express Scripts said it had received a substantial discountfrom AbbVie, a departure from industry practice of pricing newcompeting drugs close to the incumbent for as long as possible.It didn't say how much the discount was.
Express Scripts said this week it sought similaropportunities for discounts in new cancer medications, and waslooking closely at a new class of cholesterol-fighting drugsaimed at millions of patients who can't tolerate or get enoughbenefit from widely-used statins.
Amgen Inc and Regeneron Pharmaceuticals Inc are two of the companies racing to bring the newcholesterol treatments, which target a protein called PCSK9, tomarket.
"It's not a worry. It's a reality that we will deal with,"Regeneron CEO Len Schleifer said of Express Scripts' goals. "Ithink there will be fair pricing and healthy competition in themarketplace."
A LESS CROWDED FIELD
When pressed on how they could counter the growing pressurefrom insurers, large drugmakers say they are relying onstrategies long employed in the marketplace, focusing researchon diseases that don't have adequate treatments and finding waysto differentiate their products from competitors in terms ofeffectiveness and convenience.
But some industry experts believe they will have to becomefar more selective even when entering a new treatment area. Thehepatitis C example shows how insurers have been able to playjust two competitors off one another to wrest a discount.
Gilead Chief Operating Officer John Milligan said that inrecent weeks, more health plans are asking the company to dropits hepatitis C drug price more in line with AbbVie in order tokeep both drugs on their reimbursement lists.
"Payers are starting to move beyond hand-wringing to realaction," said Glen Giovannetti, head of global life sciences atErnst & Young. "We are starting to see (pharmaceutical)companies deciding which therapeutic options they want tocompete in."
Nils Behnke, a partner with Bain & Co's global healthcareand strategy practices, noted that even for the most newpromising classes of medications, there are often three or fourcompanies pursuing similar development programs.
"Companies that were heavily into specialty indicationsthought they were immune, but it is now clear that they arenot," he said
Merck & Co CEO Kenneth Frazier acknowledged thatU.S. prices for diabetes drugs remain under pressure. "We needto identify a value proposition ... show that over time we canreduce costs," he said in an interview.
Smaller biotech Isis Pharmaceuticals Inc said it isalready taking into account potential competition when decidingwhich research programs to pursue. CEO Stanley Crooke said thecompany abandoned its PCSK9 program when it became clear thedrug would reach the market only after several others.
"We are working on diseases for which there are no realtreatments -- Parkinson's, Alzheimer's, ALS," said GeorgeScangos, CEO at Biogen-Idec. "In the future, we willsee more correlation between value that drugs deliver and theway they are reimbursed."
(Editing by Michele Gershberg and John Pickering)
