2/8/2018
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`Inside The Secret World Of Drug Company Rebates
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`Pharma & Healthcare
`
`MAY 10, 2012 @ 09:54 AM
`88,470 
`
`Inside The Secret World Of Drug Company
`Rebates
`
`Matthew Herper , FORBES STAFF 
`I cover science and medicine, and believe this is biology's century. FULL BIO 
`
`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
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`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.
`
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`
`Rebates cut about $40 billion out of the drug industry's sales every year, says Pratap
`Khedkar, a principal at pharma marketing consultancy ZS Associates. We know that
`because the drug industry reports both its gross sales (before the rebates) and net
`sales (after the rebates are taken out). The size of the rebate average about 30% of a
`medicines sales, Khedkar says, and can be as low as single digits or as higher than
`50% of gross sales.
`
`Exhibit 1077
`ARGENTUM
`IPR2017-01053
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`Inside The Secret World Of Drug Company Rebates
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`"These may not be visible to the consumer," says Khedkar. "But between the
`insurance company and the pharma company, it is a very efficient free market."
`
`What Drug Companies Give Back
`
`Drug
`
`Lipitor
`
`Plavix
`
`Nexium
`
`Abilify
`
`Advair
`
`Seroquel
`
`Singulair
`
`Crestor
`
`Cymbalta
`
`Humira
`
`IMS estimated
`U.S. sales ($Bil)
`
`Company reported
`U.S. Sales ($Bil)
`
`Estimated
`rebates (%)
`
`$7.7
`
`$6.8
`
`$6.2
`
`$5.2
`
`$4.6
`
`$4.6
`
`$4.6
`
`$4.4
`
`$3.7
`
`$3.5
`
`$5.0
`
`$6.6
`
`$2.4
`
`$4.0
`
`$4.0
`
`$3.3
`
`$3.5
`
`$3.1
`
`$3.2
`
`$3.4
`
`35%
`
`3%
`
`61%
`
`24%
`
`13%
`
`27%
`
`23%
`
`30%
`
`14%
`
`2%
`
`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.
`
`https://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/#41d1b60e2b25
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`2/8/2018
`
`Inside The Secret World Of Drug Company Rebates
`
`/
`Pharma & Healthcare
`
`MAY 10, 2012 @ 09:54 AM
`88,470 
`
`Inside The Secret World Of Drug Company
`Rebates
`
`Matthew Herper , FORBES STAFF 
`I cover science and medicine, and believe this is biology's century. FULL BIO 
`
`Continued from page 1
`
`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 reports from sell-side analysts. The resulting figures show how
`greatly the numbers vary and give some hints as to why.
`
` seems to have given a lot of
`In the face of sudden generic discounts, Pfizer
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`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.
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`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 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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`https://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/2/#47b31faa3f3a
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