Bristol-Myers, Celgene and The Perils Of The US Drug Pricing Environment

Celgene has been vilified in the political realm for excessive price increases, which hasn’t helped its stock performance over past year and a half.

Bristol-Myers Squibb Co.’s agreement to buy Celgene Corp. for $74bn is mainly about expanding the big pharma’s portfolio in oncology and immunology. But deal also partly reflects the challenges posed by the ongoing political pressure on prescription drug pricing in the US.

Bristol and Celgene announced plans for the mega-merger Jan. 3. (Also see "Bristol/Celgene A Record-Setting Merger, If It Happens" - Pink Sheet, 3 Jan, 2019.) The transaction is slated to close in the third quarter.

Celgene accepted the offer after its stock endured a 15-month free fall that resulted in the company trading at the lowest price-to-earnings ratio among its peers. The stock declines were prompted by pipeline failures and concerns the company did not have a viable plan to sustain growth after the patent expires in 2022 for its blockbuster multiple myeloma treatment, Revlimid (lenalidomide).

Revlimid’s worldwide sales are on track to reach $9.7bn for 2018, representing around 64% of overall company revenues.

Investors have also been worried about public criticism aimed specifically at Celgene’s aggressive efforts to boost Revlimid’s sales through price increases. The fear is that blowback from the criticism will hamper future increases and negatively impact sales.

Pricing pressures factored into the agreement with Bristol-Myers “indirectly” by contributing to the decreased valuation for Celgene, Bernstein analyst Ronny Gal commented in an email. Celgene was a “bargain” due in part to “the negative perception [of Celgene] due to its pricing of oncology drugs.”

Celgene raised the list price for Revlimid three times in 2017, for a total increase of nearly 20%, according to analysts. In mid-2018 the company bowed to public pressure and pledged to rein in future increases, although the company left the door open for larger price hikes in certain situations.

Celgene said it would limit increases to once a year and at a rate that remains within expected healthcare inflation unless additional clinical or health economic evidence demonstrates a significant increase in the value of a drug.

Nevertheless, the company’s history of aggressive price increases for Revlimid became fodder for an advertising blitz in New Jersey during 2018 that opposed the candidacy of former Celgene Chairman Bob Hugin for US senator. Hugin, a Republican, was ultimately unsuccessful in his challenge of Democratic incumbent Bob Menendez.

Celgene’s price increases for Revlimid were harshly criticized in a multi-million dollar campaign sponsored by the patient advocacy organization Patients for Affordable Drugs. The ads portrayed the company, and Hugin, as heartless for raising prices for Revlimid “not once, not twice, but three times in one year.  Who does that?”

The campaign caused consternation within Celgene. "We are told that our name has become an epithet within the corporation," a spokesman for the advocacy group said. Patients for Affordable Drugs receives funding from the Laura and John Arnold Foundation, which has been a significant supporter of US private sector efforts to lower drug pricing. (Also see "Arnold Foundation Will Retain Drug Pricing Focus As Health Care Agenda Grows" - Pink Sheet, 17 Dec, 2018.) The patient advocacy group was founded by David Mitchell, a multiple myeloma patient and communications specialist.

Revlimid Price Increases Cited To Justify Part D Changes

Celgene’s price increases for Revlimid have also been called out by HHS Secretary Alex Azar in comments previewing the Administration’s recent proposal to give Medicare Part D plans more price negotiation leverage for cancer drugs and other products in the protected classes. As an oral drug, Revlimid is covered by Part D.

The Centers for Medicare and Medicaid Services is proposing to implement new exceptions to the protected classes policy in Part D, including one that would allow plans to exclude drugs in those classes with price increases that exceed inflation. (Also see "Part D Protected Class Management Tools To Save Medicare $1.85bn" - Pink Sheet, 26 Nov, 2018.)

It would also allow plans to use step therapy for protected class drugs, which in addition to cancer agents include treatments for HIV, anti-depressants, anti-psychotics, immunosuppressants and anti-convulsants. The proposal, if finalized, could lead to lower prices for cancer drugs but insurers are expected to be reluctant to impose access barriers in the class.

FDA has also put Celgene in the spotlight as one of the leading suspected abusers of the risk evaluation and mitigation strategies (REMS) program. The agency is publicly releasing the names of companies suspected of misusing such safety programs to block generic competition in the hopes of deterring such behavior. (Also see "REMS Abuse Website: Celgene, Actelion Top List Of Suspected 'Gamers'" - Pink Sheet, 18 May, 2018.)

But legislation is likely needed to most effectively address the issue. The CREATES Act includes provisions addressing REMS abuse and the legislation may gain momentum this year with the Democrats now in control of the House. The legislation failed in the previous Congress due to opposition from the branded biopharma industry.