US Rx net prices fall 4.8 percent y/y in 4Q18; 2019 net price declines may worsen with expansion of co-pay accumulator programs

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Richard Evans / Scott Hinds

203.901.1631 /.1632

revans@ /


March 18, 2019

US Rx net prices fall 4.8 percent y/y in 4Q18; 2019 net price declines may worsen with expansion of co-pay accumulator programs

  • US Rx brand net prices fell 4.8 percent y/y in 4Q18, as compared to a 2.1 percent drop a year earlier. List prices grew 4.0 percent in the quarter v. 5.3 percent in the year prior quarter (all growth rates throughout the note are real, unless otherwise specified)
  • List prices have slowed mainly because of political pressures, and are unlikely to accelerate ahead of the 2020 general election. Net prices have slowed mainly because of formulary exclusions and co-pay accumulators
  • Formulary exclusions are expanding in scope, with oral anticoagulants (e.g. Eliquis (BMY/PFE), Xarelto (JNJ/BAYER)) and GLP-1’s (e.g. Victoza/NVO, Ozempic/NVO, Trulicity/LLY, others) appearing to be newly impacted
  • Co-pay accumulators hit harder in 1Q18 than in 4Q18, which is evidence that some co-pay support programs have been adapted to mitigate accumulators’ effects. Nevertheless, accumulator effects were still significant in 4Q, which implies that not all brands have sufficient defenses in place. Because the number of persons subject to accumulators is likely to jump dramatically in the new benefit year, it’s likely that accumulator effects will increase more rapidly than manufacturers raise their defenses in early 2019, leading to a worsening of the net pricing trend
  • While formulary exclusions are a more or less permanent feature of the Rx benefit landscape, we believe that manufacturers eventually will be able to completely, or nearly completely, defend against accumulators
  • At the company level, only ABBV and BIIB had large positive contributions[1] to the overall market’s net price trend; ABBV because of Humira, and BIIB because of Tecfidera, Avonex, and Tysabri. JNJ, GSK, AZN, NVO, LLY and SNY all made significant negative contributions to the overall market’s net price trend; JNJ because of Remicade and Xarelto; GSK because of Advair and Breo Ellpita; AZN because of Symbicort, Bydureon, Farxiga, and Onglyza; NVO because of Tresiba, Victoza, and Levemir; LLY because of Trulicity, Basaglar, Forteo and Humulin; SNY because of Lantus and Toujeo
  • At the category level, HIV, non-opioid pain / inflammation, and MS all made large positive contributions to total market net price trend, though the non-opioid pain / inflammation gains may be an artifact of late-lifecycle strategy for Lyrica. Long-acting (LA) insulins, oral-anticoagulants, COPD combination inhalers, DMARD (anti-TNF) and HCV all made large negative contributions to overall market net price trend. The decline in oral-anticoagulants is new and appears to reflect formulary exclusions. The decline in DMARD (anti-TNF) category net pricing is isolated to the impact of biosimilars (PFE’s Inflectra, MRK’s Renflexis) on JNJ’s Remicade
  • At the product level, only ABBV’s Humira made a large positive impact on total market net price trend. Remicade, Lantus, Xarelto, and Advair all made large negative impacts


US prescription brand net prices fell 4.8 percent in 4Q18 as compared to a 2.1 percent decline in the year prior quarter. List price growth was 4.0 percent, a slowdown from 5.3 percent in the year prior quarter (Exhibit 1). Throughout this note, unless stated otherwise, all growth rates are expressed in real terms, and all values are calculated on a sales-weighted basis

The aggregate pricing trend reflects a balance of several forces. Companies generally are honoring a self-imposed pledge to keep list price inflation below a nominal 10 percent rate (Exhibit 2), a pledge that exists at least in part because of ongoing political attention to brand pricing. In select instances[2] manufacturers have lowered list prices in an effort to reduce patients’ out-of-pocket (OOP) cost burdens, though the sales-weighted impact of these actions on industry-wide list price trend is negligible. The gap between list and net rates of price growth reflects price limits in contracts between manufacturers and PBMs[3],[4], formulary exclusions applied by PBMs to select drug categories[5], and since the beginning of 2018, the impact of co-pay accumulators

Political pressure is unlikely to let up ahead of the general election in 2020, so we have no near-term expectation that list price growth will turn positive. Several more brands[6] may choose to lower their list prices in an effort to manage OOP levels in Part D, but we believe these instances will be limited, and will have no meaningful effect on the overall market’s list price trend. And, the proposed revision to the anti-kickback statute (AKS) safe-harbor provisions is unlikely to have a meaningful impact on market wide list pricing, since pricing strategy for the vast majority of US brand sales is dominated by commercial rather than public (Medicare, Medicaid) pricing considerations[7]

While the list price trend almost certainly is stable, the net price trend almost certainly will become more volatile, with co-pay accumulators being the driver. Accumulators had a major impact on 2018, largely responsible for the sharp worsening of net price declines versus prior years (Exhibit 3). Reliable estimates are lacking, but available data imply that roughly 1 in 6 employer-sponsored beneficiaries was in a 2018 plan that used co-pay accumulators. Because accumulators had a major beneficial impact on plan costs, we suspect that many more employers opted for accumulators in 2019, putting that many more employees’ prescriptions into these programs. And, accumulator impacts were limited in 2018 by the scope of pharmacy participation – recall that for accumulators to work, pharmacists must proactively alert a payor that a patient is using a co-pay card. If plans have succeeded in broadening the scope of pharmacy participation in 2019, this would serve to further amplify accumulators’ effects on net pricing. On the other hand, manufacturers have begun to adapt their co-pay support programs to mitigate the effects of accumulators, though we believe these adaptations are inconsistent at best. Some larger, well-funded brands such as Humira had indemnity[8] programs up and running before accumulators hit in 2018, and presumably were able to shunt ‘accumulated’ patients into these pre-existing programs during the year. Other manufacturers had no such alternative programs and will have had to create these on the fly – with varying degrees of success. The 2019 net price trend will be dominated by the balance between these two countervailing forces – expansion of co-pay accumulator programs on the one hand, v. adaptation of co-pay support programs by manufacturers on the other.

We believe risks are to the downside, i.e. that net pricing declines are more likely to worsen in 2019. Payors’ roll-out of co-pay accumulator programs is generally an annual event – if your plan didn’t use an accumulator at the start of the year, it’s almost certainly not going to add one during the year. Conversely manufacturers are free to adapt their co-pay support programs at any point – so if manufacturers were effectively adapting their co-pay support programs to mitigate accumulator effects during 2018, we should’ve seen an easing of net price pressures during the year. We saw a modest easing of net price declines sequentially during the year (Exhibit 1, again), but this may simply reflect normal quarter to quarter noise in net price estimates, as opposed to genuine adaptation. So the picture appears to be one in which manufacturers have made relatively modest progress in adapting their co-pay support programs to mitigate accumulator effects, as they enter a year in which the number of beneficiaries subject to (and potentially the number of pharmacies cooperating with) accumulators should sharply rise



HIV category net price growth was 3.9 percent v. 1.9 percent in the year prior quarter (Exhibit 4), and the category accounted for roughly one-fifth (19.5 percent) of total market net price movement in the quarter. HIV has been a top 5 positive contributor to total market net price change in 9 of the last 12 quarters

List price inflation was 4.0 percent, as compared to 5.9 percent in the year prior quarter. Total gross to net concessions were 24.8 percent versus 27.1 percent in the year prior (Exhibit 5); list price gains, coupled with this reduction in calculated gross to net, largely account for the category’s overall net pricing growth

List price inflation rates are very tightly grouped (Exhibit 6), with all brands in close range of the category average, and the category average closely tracking the broader market. Gross to net rates are more dispersed (Exhibit 7)

Brand level trends for net cost of a year or course of therapy are all fairly stable (Exhibit 8). At the risk of over-interpreting, we would note that trends for many of the GILD products (Genvoya, Odefsey, Desovy) are consistent with what we would expect to see for brands that were hit by, and then adapted to, co-pay accumulator pressure during 2018; and, we note that this pattern also is present in the total category’s 2018 price trend (Exhibit 4, again)

Pain, Inflammation (non-Opioid)

The non-opioid pain / inflammation class accounted for 11.7 percent of total market net price change in the quarter, with calculated net pricing growth of 11.8 percent. This is only the second time in the last 12 quarters that the category has ranked among the top 5 positive contributors to total market net pricing gains

Lyrica/PFE dominates with 73 percent of class net sales. The brand is going generic in June of this year, and it’s reasonable to believe that PFE may be reducing rebates and/or providing stocking incentives ahead of the LOE, either of which would increase net price growth on an as-calculated basis


4Q18 category net pricing growth was 0.7 percent, versus 6.4 percent in the year prior quarter (Exhibit 9). The class accounts for just 7.4 percent of total market net price change. Notably MS has ranked among the top 5 drivers of total market net pricing gains in all but 3 of the last 27 quarters. As is the case with the HIV category, the intra-year 2018 pricing pattern for MS is consistent with one in which co-pay accumulators had a large effect early in the year, followed by adaptive / defensive responses by manufacturers later in the year

When Ocrevus/Roche originally entered the category, we argued[10] that its substantially lower list and net prices would force net price declines onto other drugs in the category, particularly the orals (e.g. Tecfidera/BIIB, Aubagio/SNY, Gilenya/NVS). Exhibit 10 shows this hasn’t been the case – net pricing for the oral regimens has continued to grow, despite Ocrevus’ substantially lower price point. This implies either or a combination of two things: 1) patient selection criteria for Ocrevus and the orals are so distinct that they are not behaving as substitutes for one another; and/or 2) higher absolute dollar concessions on the orals result in higher average gross profits per claim for these drugs as compared to Ocrevus, which preserves the orals’ favorable formulary positions (Exhibit 11)


Long-acting (LA) insulins

The long-acting insulins made the largest negative contribution to total market net price trend, explaining 31.0 percent of total market net price change, marking the 16th straight quarter in which the category has been a top 5 negative contributor to total market net pricing. Net prices fell 27.3 percent as compared to a 24.8 percent decline in the year prior quarter. List prices grew 4.4 percent, as compared to no change in the year prior quarter (Exhibit 12)

Basaglar/LLY, the biosimilar to Lantus/SNY, continues to gain traction, reaching a 14.9 percent share of net sales in 4Q18 (Exhibit 13)

Class average net pricing is now lower than it was in 2Q10 (Exhibit 14), with annual net pricing for a standardized regimen of each brand except Tresiba/NVO having fallen below $2,000 (Tresiba maintains a relative premium by virtue of its clinical distinctions, in particular a lower risk of nocturnal hypoglycemia)

Half of category net sales are accounted for by Lantus and Basaglar, which are substitutable for one another; this and the potential for additional Lantus biosimilars points to continued net pricing declines for the category

Oral anti-coagulants

The oral anti-coagulant category showed net price declines of 23.8 percent, versus a net price gain of 1.5 percent in the year prior quarter (Exhibit 15). List price gains were 8.0 percent in 4Q18, identical to the rate of list price gain in 4Q17. The category made the second largest negative contribution to total market net price trend, accounting for just over one-quarter (26.7 percent) of total market net price change

Total gross to net concessions are accelerating in the class (Exhibits 16,17), which likely reflects increased competition between the category’s two brands. Co-pay accumulator effects are likely to be minimal, in that a slight majority of category patients are in government-funded programs, and thus ineligible for co-pay assistance

Average annual net costs of treatment are relatively modest (Exhibit 18); however rapid unit growth for the class (33 percent annual rate as of 4Q18) translates into large potential impacts on total benefit costs; because of this, we suspect formularies have targeted the class in an effort to mitigate its impact on total benefit cost, especially in Part D

COPD combination inhalers

The COPD combination category made the third largest negative contribution to total market price trend, accounting for just more than one-quarter (25.6 percent) of total market net price change. The class has been among the 5 largest negative contributors to total market net price trend in all but 3 of the last 20 quarters. Net prices fell 26.4 percent in 4Q18, as compared to a 13.2 percent decline in 4Q17 (Exhibit 19). List prices grew 5.1 percent in the quarter, as compared to 5.9 percent growth in the year prior quarter

Formularies have been excluding either Advair/GSK or Symbicort/AZN since 1Q14, forcing these brands to effectively bid against one another. The brands still control 53.2 percent share of net sales; this, combined with the potential entry of generics to Advair, points to continued net price declines for the category

Breo Ellipta / GSK (21.8 percent of category net sales), like Advair and Symbicort, is a combination of an anti-inflammatory steroid and a long-acting beta agonist (aka LABA), typically used in earlier-stage and/or less complicated patients. Breo Ellipta is used once daily as compared to Advair and Symbicort which are used twice daily. Breo Ellipta is positively differentiated relative to Advair and Symbicort, but is nevertheless at least somewhat interchangeable with these brands, and so is likely to follow the Advair / Symbicort net price trajectory

Anoro Ellipta and Trelegy Ellipta (both GSK) contain combinations (LABA + long-acting muscarinic antagonist, or ‘LAMA’; and, steroid/LABA/LAMA, respectively) that tend to be used in more advanced cases; as such these brands’ net prices should be at least partially insulated from the broader category’s net pricing declines (Exhibit 20)

DMARD (anti-TNF)

The anti-TNF’s made the fourth largest negative contribution to category trend, accounting for 15 percent of total market net price change with a 4Q18 net pricing decline of 5.1 percent, as compared to a net pricing gain of 3.0 percent in 4Q17

Category declines were driven mainly by Remicade and Simponi Aria (both JNJ; Exhibits 21,22). Remicade net pricing declines presumably reflect the impact of increased biosimilar competition from PFE’s Inflectra and MRK’s Renflexis. Simponi/Aria’s net price declines appear to reflect a decision to raise absolute dollar concessions (Exhibit 23); this strategy appears to be paying off, particularly when compared to Cimzia’s (UCB) more conservative rebating[11] strategy, as evidenced by the brands’ relative rates of unit growth (Exhibit 24)