As blockbuster drugs fizzle, biotech looks warily to the next big thing

Has the age of the biotech blockbuster come to a close?

Over the past year, a string of would-be best-sellers, expected to generate billions in sales, have wilted into commercial disappointments amid a fractious debate about the cost of medicine. Another highly touted — and highly priced — treatment won approval on Tuesday, and the industry may soon find out whether those failures were aberrant blips or a frightening glimpse of the new normal.

That test case: Dupixent, a powerful treatment for severe eczema that Wall Street believes will bring in more than $5 billion a year at its peak.

But the drug’s list price, $37,000 a year, could derail such bullish predictions. An increasingly powerful and pugilistic class of payers and middlemen has mobilized against biotech and its high-priced therapies, demanding rebates, rejecting prescriptions, and forcing the industry to recalibrate its expectations.

“A few years ago, just winning approval meant getting wide access” to patients, said Simos Simeonidis, a biotech analyst at RBC Capital Markets. “That’s definitely not the case anymore.”

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Instead, the path to profit now involves kowtowing to pharmacy benefits managers hired by employers to negotiate drug prices. That results in drug makers cutting their list prices by around 30 percent on average, according to the pharma industry, and makes launching a new treatment a plodding exercise. The process all but assures that overnight successes like Gilead Sciences’ therapy for hepatitis C — which brought in a record-setting $10 billion in its first year on the market — are a thing of the past, analysts say.

Yet expectations haven’t changed. Investors demand a return on the hundreds of millions of dollars drug companies spend to develop and advertise their products, and the market for biotech stocks relies on the idea that novel ideas will be handsomely rewarded when they come to fruition.

All that puts drug makers in an uncomfortable position when it comes to drug pricing. Charging too little could spark a shareholder revolt and put the CEO out on the street. But price a drug too high and you risk having doctors refuse to prescribe it or insurers refuse to pay for it. Egregious offenders might find themselves dragged before Congress and accused of price gouging, or even castigated in a presidential tweet.

And thus the industry’s eyes are on Sanofi and Regeneron as they seek to make the most of their newly approved eczema drug.

Pent-up demand for a promising drug

Dubbed Dupixent, the injectable treatment has shown sterling promise for patients with severe cases of eczema, kept awake at night with intractable itching and away from work with painful lesions. In clinical trials, nearly 40 percent of patients on the drug saw their eczema completely clear up, and half saw their rashes shrink by at least 75 percent.

“I have a list of patients that are literally waiting for it to come on the market,” said Dr. Jenny Murase, a dermatologist at the Palo Alto Medical Foundation in California. “They’ve failed all alternatives and are very anxious to have a biologic that is catered to [severe eczema] instead of psoriasis.”

That pent-up demand has stoked expectations that Dupixent will be an instant success, quickly reaching the estimated 300,000 US patients most in need. Analysts at the investment bank Baird expect the treatment to gain immediate traction among dermatologists, citing a survey in which doctors said they were eager to get their most severe patients on the drug.

But whether their prescriptions will get approved is an entirely different question.

Faced with high-cost drugs like Dupixent, payers often erect roadblocks to coverage, requiring doctors to prove patients have tried and failed other therapies in a process that can be arduous, time-consuming, and often futile.

“I hope the payers will — and I know this is kind of a naive comment — leave it to the physicians and the patients to decide what’s right,” said Julie Block, president and CEO of the National Eczema Association, which accepts funding from the drug industry. If insurers and benefits managers do stand in the way, the group is prepared to fight it out, Block said, plotting an advocacy campaign and sponsoring research to underline the effects severe eczema can have on patients’ lives.

When blockbusters go bust

Meanwhile, the industry is still processing the lessons of the last biotech blockbusters that weren’t.

In 2015, a pair of injectable treatments for high cholesterol — Praluent and Repatha — landed on the market with rosy expectations that they’d each bring in $3 billion in peak annual sales. But their list prices, roughly $14,000 a year, didn’t sit well with payers, who have since rejected roughly 80 percent of first-time prescriptions for the drugs, dashing hopes for any multibillion-dollar sales in the near term.

Read more: Amgen cholesterol drug cuts heart risks in a closely watched study

A similar story played out with Novartis’ Entresto, a treatment for heart failure that CEO Joseph Jimenez christened a “multi-blockbuster” before its approval in 2015. He projected a speedy launch and peak sales of more than $5 billion a year. But that forecast looks less and likely to come true, as doctors have been slow to prescribe the therapy and payers even slower to cover it — all despite Novartis’ willingness to offer insurers a money-back guarantee if the drug fails to keep patients out of the hospital. The company grossed just $170 million from Entresto last year.

Recent high-profile spats over drug pricing have also left the industry wary. This week, startup Tesaro declined to disclose the list price for its newly approved cancer drug, deciding to hold off until the treatment reaches the market next month in a move that smacked of political caution. And after a public outcry, Marathon Pharmaceuticals backed off plans to sell a therapy for Duchenne muscular dystrophy for $89,000 a year, instead selling the rights to to the drug to a second firm, which has yet to publicize a new price.

Dupixent’s price hasn’t created a similar uproar, and the drug faces different market dynamics than the other blockbusters interrupted. For one thing, there are far fewer treatments for severe eczema than for high cholesterol and heart failure. But at $37,000 a year, Dupixent could suffer the same fate if Sanofi and Regeneron can’t convince the industry’s gatekeepers that the drug’s price is reasonable.

Regeneron tried to get out ahead of the issue, meeting with payers before the Food and Drug Administration approved the drug. And some of the early results are positive.

Express Scripts, which negotiates drug prices on behalf of about 83 million insured Americans, told Forbes that Dupixent’s price seemed fair. And the Institute for Clinical and Economic Review, which studies whether drugs are worth their financial burden on the system, put out a draft report last Friday deeming Dupixent to be largely cost-effective, even at $37,000 a year.

But payers are not monolithic. CVS Caremark, another firm hired to negotiate drug prices, issued a somewhat wary statement noting that “the drug will be expensive.” CVS is drawing up programs that will ensure Dupixent is available to patients with “a demonstrated medical need” for it, the company said — wording that leaves plenty of wiggle room to limit access.

A high-flying company faces a crucial test

Regeneron CEO Dr. Leonard Schleifer said he’s optimistic his company can succeed in “setting a new paradigm” for cooperation with payers.

“But it ain’t over yet,” he added in a conference call with analysts Tuesday.

Read more: Regeneron CEO on drug prices: ‘a few bad actors are not the problem’

Beyond its macropharma effects, Dupixent is majorly important to Regeneron. The company, an oft-cited success story in biotech, needs another hit drug to sustain its momentum, as sales growth for its banner eye drug, Eylea, has gradually declined.

The debate around Dupixent was never tied to its approval but rather whether “it’s going to big enough to reignite growth at Regeneron,” Evercore ISI analyst Mark Schoenebaum said in a note to clients last month.

“We’re of the opinion that it probably is,” he said, “but I don’t have the confidence to tell you that in table-pounding fashion.”

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