Part D Plans With Most Enrollees Getting Deeper Discounts In ’07 – Astra Exec

The Medicare Part D prescription drug plans that enrolled the largest number of beneficiaries in 2006 have generally been able to extract deeper discounts from manufacturers in the second year of the drug benefit, AstraZeneca U.S. CEO Tony Zook said in an interview with "The Pink Sheet."

Because neither manufacturers nor plans knew which plans would enroll the most beneficiaries, neither side was very aggressive in pricing negotiations in 2006, Zook explained.

However, with relative enrollment levels becoming more clear during the first year of the benefit, plans with higher enrollment have been able to leverage deeper discounts from manufacturers for 2007, he said.

On the other hand, some plans that enrolled fewer beneficiaries have not been able to negotiate discounts as large as in 2006, Zook added.

Pfizer took a more aggressive approach with regard to Part D contracting for 2006, focusing on securing preferred tier placement in plans it expected would enroll the most beneficiaries and in plans with the highest cost-sharing differential between branded formulary tiers (¹ (Also see "Pfizer Medicare Part D Negotiations Not Focusing On Dual-Eligible Plans" - Pink Sheet, 23 Jan, 2006.), p. 16).

Going forward, Zook, who characterized the Part D environment as "very competitive" for manufacturers, expects incremental increases in pricing pressure from Part D. However, increases in plan risk sharing in 2008 will not materially shift the Part D pricing trend, he projected.

Zook said AstraZeneca's Part D negotiations are "separated out" from commercial negotiations, although the firm tries to maintain "consistent" pricing between commercial and Part D plans.

The exec said that the drug benefit had a 2.5 percent to 3.5 percent impact on AstraZeneca's U.S. sales volume in 2006. The company's U.S. sales increased 16 percent to $12.5 billion in 2006.

The exec's estimate of the impact of the benefit on AstraZeneca is in line with analyst estimates regarding the impact of Part D on industry overall (² (Also see "Financial Analysts Roundtable: Medicare Part D, Big Pharma Diversification And The Outlook For M&A" - Pink Sheet, 5 Feb, 2007.), p. 21).

Zook said the advent of Part D was particularly beneficial for AstraZeneca's statin Crestor (rosuvastatin) and proton pump inhibitor Nexium (esomeprazole).

AstraZeneca reported U.S. sales of $1.2 billion for Crestor in 2006, a 57 percent increase over the previous year. Nexium's U.S. sales grew 13 percent year-over-year to $3.5 billion.

Nexium's performance is notable: the Prilosec follow-on has often been held up as a product that would wither under Part D (³ (Also see "“Lifestyle” Drug Coverage Will Be Federal Policy Issue Under Medicare Rx" - Pink Sheet, 31 May, 2004.), p. 28).

Zook said the positive impact on sales from Part D-related volume increases will likely taper off in 2007 as pricing pressure increases.

One policy change that could create additional pricing pressure is legislative proposals to give HHS price negotiating authority. Such legislation has already passed in the House, but will likely face a more difficult time in the Senate (⁴ (Also see "Medicare Part D Slated For Action On House Floor, Senate Finance Committee" - Pink Sheet, 8 Jan, 2007.), p. 3).

While AstraZeneca is opposed to granting HHS broad Part D price negotiating authority, Zook said the firm is willing to consider legislation giving the agency price negotiation authority on a more limited basis.

For instance, Zook said he could envision AstraZeneca supporting legislation that allowed HHS to negotiate prices in geographic regions where there is not significant plan competition or for products that have limited or no competition.

Other industry observers have suggested that HHS could be given the authority to negotiate prices for drugs that are priced high for Part D plans relative to other players (⁵ (Also see "CMS Price Negotiation Could Tackle High-Cost Drugs, Economists Suggest" - Pink Sheet, 15 Jan, 2007.), p. 11).

However, Zook emphasized that the benefit has "cost less than projections" thus far and, consequently, any such proposal should be carefully "vetted out" before becoming law.

- Andrew Kasper ([email protected])

[Editor's Note: The company subsequently clarified that "AstraZeneca remains a strong supporter of the private sector approach embodied in the MMA and does not support legislation granting HHS negotiating authority."]