12/31/2015
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`Inside The Secret World Of Drug Company Rebates - Forbes
`
`http://onforb.es/1yu08HG
`
`Matthew Herper Forbes Staff
`I cover science and medicine, and believe this is biology's century.
`
`PHARMA & HEALTHCARE 5/10/2012 @ 9:54AM 51,731 views
`
`Inside The Secret World Of Drug
`Company Rebates
`
`The free market is alive and well when it comes
`to drug prices – if you’re an insurance company
`or a government program. But not if you’re a
`consumer.
`
`Top-selling pharmaceuticals, protected by
`patents, often seem priced in a manner that has
`little to do with the laws of supply and demand.
`Want that new cholesterol medicine ($2,000 per
`year), that cancer treatment ($60,000 per year) ,
`or the medicine for your child’s rare disease
`($300,000 per year)? No negotiation. It’s your
`money or your life.
`
`But in fact drug companies are constantly
`negotiating, not with individuals but with payers
`– Medicare, Medicaid, insurers such as United
`Health Care and Aetna and pharmacy benefit
`plans such as Express Scripts. They don’t reduce
`the price of their medicines. Instead, the drug
`firms pay rebates after the fact. For Medicaid, the
`price decreases are mandated by law, but
`everywhere else, free market forces are very
`much in effect. Me too drugs and those facing
`patent expiration have to deal with bigger
`rebates. Drug firms annual price increases are
`partly a way to deal with all this rebating. Of
`course, if you’re a person without health
`insurance buying medicines at the counter of
`Walgreen‘s, you’re stuck with the list price.
`
`Rebates cut about $40 billion out of the drug
`industry’s sales every year, says Pratap Khedkar,
`a principal at pharma marketing consultancy ZS
`Associates. We know that because the drug
`industry reports both its gross sales (before the
`http://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/print/
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`12/31/2015
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`Inside The Secret World Of Drug Company Rebates - Forbes
`rebates) and net sales (after the rebates are taken
`out). The size of the rebate average about 30% of
`a medicines sales, Khedkar says, and can be as
`low as single digits or as higher than 50% of
`gross sales.
`
`“These may not be visible to the consumer,” says
`Khedkar. “But between the insurance company
`and the pharma company, it is a very efficient
`free market.”
`
`Drug
`
`Company reported
`U.S. Sales ($Bil)
`
`Estimated
`rebates (%)
`35%
`3%
`61%
`24%
`13%
`27%
`23%
`30%
`14%
`2%
`
`What Drug Companies Give Back
`IMS estimated
`U.S. sales ($Bil)
`$5.0
`$7.7
`Lipitor
`$6.6
`$6.8
`Plavix
`$2.4
`$6.2
`Nexium
`$4.0
`$5.2
`Abilify
`$4.0
`$4.6
`Advair
`$3.3
`$4.6
`Seroquel
`$3.5
`$4.6
`Singulair
`$3.1
`$4.4
`Crestor
`$3.2
`$3.7
`Cymbalta
`$3.4
`$3.5
`Humira
`Sources: IMS Health, company statements, analyst reports
`No company reports how much of the gross sales
`of an individual drug are being given back to the
`payers. But there is a way to peer into the hidden
`world of pharma rebates. Every year, IMS
`Health, the prescription data tracking service,
`publishes its own lists of the most prescribed and
`the top-selling medicines in the country. But
`IMS’ data capture gross sales at pharmacies,
`before the rebates happen. By comparing the
`gross sales reported by IMS to the sales the
`companies report to the Securities and Exchange
`Commission, it’s possible to get an idea of how
`much of a medicine’s gross sales are being given
`back in the form of rebates.
`
`Caveats: there are other factors that could be
`affecting the difference, including if drug
`wholesalers are buying up extra inventory of a
`medicine, temporarily boosting sales. But
`generally speaking, I think we can assume that
`the bulk of these differences are from the rebates.
`
`In the table in this story, I’ve calculated the
`difference between the IMS numbers and the
`numbers reported to the S.E.C. If U.S. sales were
`not immediately available, I took them from
`
`http://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/print/
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`reports from sell-side analysts. The resulting
`figures show how greatly the numbers vary and
`give some hints as to why.
`
`In the face of sudden generic discounts, Pfizer
`seems to have given a lot of rebates to keep
`Lipitor on insurance company formularies,
`giving up 35% of gross sales, up from 26% last
`year. (This matches up with reporting I did here;
`promotion of Lipitor is finally grinding to a halt.)
`By contrast, Bristol-Myers Squibb and Sanofi-
`Aventis, the makers of Plavix, only gave 2.6% of
`sales in rebates; Plavix was until now the only
`medicine of its kind, and competitors from Eli
`Lilly and AstraZeneca have been unable to unseat
`it.
`
`The most stunning discount is for Nexium, the
`purple pill for heartburn sold by AstraZeneca 
`and derided by many as the perfect example of a
`me-too drug. Astra is giving back 60% of gross
`sales, most likely in the form of rebates. IMS lists
`Nexium as the third-best-selling drug in the
`country based on gross sales of $6.2 billion. But
`AstraZeneca reports U.S. Nexium sales of just
`$2.4 billion, putting it more on a par with Eli
`Lilly’s cancer drug Alimta than behemoths like
`Lipitor and Plavix.
`
`Why? As much as people rail against me-too
`drugs, being a me-too med is actually bad for the
`company, too. Insurers may be using the fact that
`they could direct consumers to generic Protonix
`or over-the-counter Prilosec or Prevacid as a
`bargaining stick, forcing Astra to cede ground.
`
`Medicines in the same category seem to have the
`same level of discount. Astra’s Crestor, a
`cholesterol drug that competes with Lipitor,
`seems to be giving 30% in rebates. The
`antipsychotics Seroquel (sold by AstraZeneca)
`and Abilify (from Otsuka & Bristol) give rebates
`of 27% and 24%, respectively.
`
`AstraZeneca spokeswoman Stephanie
`Andrzejewski wrote via email that the company
`would not “discuss or disclose specifics around
`rebates” for Nexium. She added: “What I can tell
`you is that AstraZeneca is committed to helping
`people get the medicines they need and we
`understand our medicines won’t do patients any
`good if they can’t access them.” She said it would
`
`http://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/print/
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`12/31/2015
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`Inside The Secret World Of Drug Company Rebates - Forbes
`be “inaccurate” to say AstraZeneca gave a 60%
`discount “across the board” – which is true. That
`appears to be the average discount.
`
`The good news here is that, in the world of health
`insurers and drug giants, the free market is
`having an effect on drug prices. The bad news is
`that you have to be participating in this market
`by being insured in order to get those reduced
`rates. People who walk in off the street pay full
`price.
`
` 
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`This article is available online at: http://onforb.es/1yu08HG
`
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