(Bloomberg) -- Express Scripts Holding Co. is trying to lay low as regulators scrutinize Cigna Inc.’s plan to purchase the company. After releasing first quarter earnings Wednesday afternoon, it didn’t even host a conference call.
That’s not to say it hasn’t been active. The pharmacy benefit manager (PBM) last week proposed a radical pricing shift for a new set of migraine medicines. And on Tuesday, it announced a deal with Sanofi and Regeneron Pharmaceuticals Inc. that will slash the price of a cholesterol drug.
You’d think these moves might soften regulators’ stance as they ponder the potential impact on consumers of the company’s $54 billion takeover by Cigna. But Express Scripts’ efforts to play the good guy may end up being good for appearances only.
It’s important to review how things work when it comes to drug pricing. First, few people pay the full list price for medicines. In competitive markets, drugmakers give discounts in the form of rebates back to PBMs in order to secure favorable coverage. The result is the real, or net, price. PBMs retain a slice of those rebates, which gives them a perverse incentive to favor firms that hike list prices and offer bigger discounts. Consumers who pay a portion of drug costs out of pocket lose. This dynamic has provoked heavy criticism of PBMs like Express Scripts — the No. 2 player in the U.S. after CVS Health Corp. — for their perceived role in encouraging escalating drug prices.
Here’s where Express Scripts’ pricing push comes in. The company told Reuters in April that it wants to avoid the rebate tango on a new category of migraine medicines by having drugmakers set lower list prices in the first place. As it stands, Amgen Inc.’s Aimovig is likely to be approved this month at a list price around $10,000. Teva Pharmaceutical Industries Ltd. and Eli Lilly & Co. have similar drugs in development and would likely set their prices based on this level. If Amgen agreed to start out at a lower price, the idea is they would, too.
It’s a nice thought; the market would be less distorted and patients would save money. But this plan would require unprecedented cooperation and sacrifice — in short, it would need a level of trust that doesn’t exist now between Express Scripts and drugmakers.
Amgen would have to give up much of the benefit from being first to market, and trust that Express Scripts wouldn’t push as hard as ever for discounts when competitors arrive. It’s more likely that instead, Amgen will price the medicine at the level it thinks will be most profitable — and Express Scripts knows it. The firm just wants to maintain the ability to blame drugmakers for high prices the next time it is criticized.
The reality is, Express Scripts squeezed more profit out of every prescription than its largest rival in the first quarter. The company cut its full-year EPS guidance on Wednesday, so it isn’t in a position to do anything that will hurt profitability.
As for the cholesterol drug, the situation is more concrete but doesn’t represent a pricing revolution.
Amgen’s Repatha and Sanofi and Regeneron’s Praluent were approved in 2015 with blockbuster expectations. But the number of patients with high cholesterol and the $14,000 a year price tag of the drugs prompted heavy restrictions from PBMs.
In an attempt to juice sales, Sanofi and Regeneron substantially cut their drug’s net price for Express Scripts so it would reduce those restrictions. Back-slapping followed. But this is just a louder and bigger version of something that happens all of the time: an exchange of a bigger rebate for more favorable coverage. If demand increases, Express Scripts benefits from a handsome rebate, and rising drug costs will largely flow through to clients. The list price is staying the same, and the majority of consumers will still be exposed. A few more patients will get Praluent, which is a genuinely good thing. And a pantomime of a dialogue about lower list prices is better than nothing. But at the end of the day, nothing really changes.
The biggest victor in all this may be Express Scripts’ public relations department.
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