global pharma - credit suisse
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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01 May 2015
Global
Equity Research
Major Pharmaceuticals
Global Pharma ANNUAL
Rising US Rebates limit margin expansion
The reconciliation of gross to net US pharma sales from annual report
disclosures helps us understand the full promotional burden in the US. It shows
what proportion of the highly visible US list price rises has been retained by
innovators and what has been passed on to payers in the form of rebates. For
2014, our 20 company universe has shown net US drug sales of $202bn and
reported total rebates of $98bn. We conclude that in 2014 US rebates rose 24%
against just a 7% increase in net sales, reflecting continued formulary pressures.
We view rebates as the biggest single element of promotional spend available
to companies. We estimate that whilst traditional SG&A grew only 4% in 2014,
when this spend is combined with rebate expenses, overall promotional costs
rose 17%, well ahead of reported sales growth. This goes some way to explain
the lack of overall operating margin expansion seen for many companies
despite positive sales growth and recent significant restructuring.
AZN continues to show the highest level of overall rebates at 56.6% of sales
with GSK, Lilly and Sanofi all reporting a >5pp increase in rebates.
We believe that product uniqueness remains the best defence against
increasing rebates, with companies showing high or growing levels of
uniqueness being in the strongest position to withstand payer pressures and
sustain operating margins. Roche and Celgene remain the stocks with the
highest exposure to unique drugs. Lundbeck and UCB are the most levered to
continued US price rises.
Figure 1: Net Price as a key driver of 2014 net income growth
-50%-40%-30%-20%-10%
0%10%20%30%40%50%
Imp
act
of
'14 U
S n
et
pri
ce
ris
es
% chg from US price. % Chge- Other % chg in Net Inc
Source: Company data, Credit Suisse estimates
Research Analysts
European Pharma Team
44 207 888 0304
Jeffrey Bailin, CFA
212 325 6167
Vamil Divan, MD
212 538 5394
Tyler Harris
212 325 2056
Ari Jahja
212 325 0767
Terence McManus
44 20 7888 2102
Ravi Mehrotra PhD
212 325 3487
Glen Santangelo
212 538 5678
Anuj Shah
212 325 6931
Jo Walton
44 20 7888 0304
Matthew Weston PhD
44 20 7888 3690
01 May 2015
Global Pharma 2
Key takeaways
Rebates rising: Companies with the highest current overall reported rebates are
AstraZeneca, followed by Novo and Sanofi. Lilly and GSK saw the largest increase in US
rebates in 2014.
List prices still rising faster than rebates for most: Companies with the highest net
price rises in 2014 were Sanofi (+26%), Novo (+21%) and Actelion (+18%). Companies
with the lowest net price rises were GSK (+2%), Eli Lilly (+4%), Roche (+4%) and UCB
(+5%).
Rebate growth has more than offset reported declines in traditional SG&A:
Aggregate promotional costs have risen at least 10% between 2012-2014 for AZN and
UCB. We see a decline in overall promotional costs for Amgen, Actelion, Biogen Idec and
Shire.
The highest current level of uniqueness should provide protection from rebate
pressures: Celgene, Gilead and Roche have over 75% of current worldwide (ww) sales
rated as unique. Companies with the least unique portfolios include AZN, Bayer and GSK,
all with under 20% rated as unique.
Companies increasing their contribution of unique drugs by more than 10% include
Lundbeck and Biogen Idec. We expect Sanofi and Roche to see the biggest theoretical
loss in uniqueness.
Exposure to government funded Medicaid and Medicare Part D also raises rebate
pressures: IMS data suggest Novo, Lilly and Sanofi are the most exposed, reflecting their
diabetes sales. Oncology sales may also be weighted towards the elderly but are typically
funded via Medicare Part B.
Figure 2: Summary data on US drug sales, US drug price rises, rebates and uniqueness status
Company Rep. Rebates % chg '14 Net Inc
FY2014 1Q 15 FY13 FY14
from
price in total
Abbvie 10,764 54% 15% 16% 32% 35% 15% -9% 18% -5% 13%
Amgen 14,729 73% 8% 9% 27% 29% 11% 4% 49% -2% 16%
BIIB 6,684 69% 10% 10% 23% 23% 10% 44% 56% 14% 10%
BMY 7,716 49% 13% 11% 35% 35% 18% -16% 59% 4% 38%
Celgene 4,164 54% 7% 6% 14% 15% 6% 15% 92% 0% 16%
Gilead 18,520 74% 7% 1% 21% 20% 7% 279% 80% 3% 27%
JNJ 17,422 23% 10% 8% 30% 32% 4% 3% 27% -4% 24%
Lilly 7,860 40% 10% 15% 26% 32% 14% -47% 34% 2% 40%
Merck 14,215 34% 12% 14% 28% 32% 8% -10% 26% -6% 32%
Pfizer 19,073 39% 17% 16% 28% 31% 11% -16% 26% 8% 24%
Actelion 1,024 48% 13% 18% 18% 14% 17% 16% 45% -11% 8%
AstraZeneca 10,120 38% 17% 16% 55% 57% 15% -48% 12% 9% 24%
Bayer 3,628 6% 10% 13% 2% 5% 15% 7% 25%
GSK 10,732 28% 9% 9% 31% 37% 8% -24% 13% 5% 35%
Novartis 12,325 21% 12% 14% 28% 27% 7% -7% 44% 8% 26%
Novo Nordisk 7,688 49% 22% 24% 46% 47% 17% -10% 24% -6% 45%
Roche 17,387 33% 5% 5% 3% -1% 77% -11% 15%
Sanofi 12,640 28% 32% 23% 40% 45% 21% -20% 30% -14% 38%
Lundbeck 670 28% 16% 8% 12% -49% 44% 13% 20%
Meda 374 17% 5% 15% 0% 17% 22% 2% 21%
Merck KGaA 1,733 11% 16% 11% 5% 0% 22% 2% 10%
Shire 4,047 67% 10% 9% 33% 32% 12% 30% 46% 0% 21%
UCB 1,453 31% 17% 9% 28% -50% 22% 5% 30%
US & EU weighted avg 204,967 43% 13% 12% 27% 29% 10% 41% 26%
US total/weighted avg 121,146 50% 11% 10% 10% 43% 24%
EU total/weighted avg 82,796 32% 15% 14% 11% 37% 28%
2014 US Rx
sales $m
US sales
% of
Group
List price rises % unique in '14
and pp chg to
'18
% exp.
toMedicare/
Medicaid
Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 3
Rebates continuing to outpace US pharma sales…
Increasing rebate pressures go some way to offsetting the strong list price rises that
continue to be a feature of the US pharma market. In this report, we look at the longer-
term trends in rebates and pricing covering both speciality and primary care companies.
The very public exclusion of key drugs from important formularies effective from January
2014 and 2015 illustrated the growing power of purchasers to control physician prescribing,
using buying power to drive incremental rebates. This reinforces our view that companies
with a high degree of uniqueness in their portfolios are best positioned to defend against
incremental rebate pressures and sustain growth (see Figure 12).
In Figure 3, we show the annual disclosure of the percentage of gross US pharma sales
passed on in rebates for a selection of companies. This shows that, on average, rebate
levels appear to have risen in 2014 from 33.7% to 36.2%, and for the US companies from
a sales-weighted average of 31% to 35.9%. Unfortunately, not all EU-based companies
report the data, as it is only seen as a best practice requirement for reporting for
companies with US listings. Bayer and Roche are the two major EU companies that do not
report gross-to-net for their pharma operations. Overall, EU-domiciled companies have
reported a consistently higher level of reported rebates than our US universe and have
also shown a further increase in 2014 from 38% to 41.1%.
Figure 3: Rebate/discounts as a percentage of gross US pharma sales US Drug Rev. $m Rebate
Company 2014 2007 2008 2009 2010 2011 2012 2013 2014 inc.'14 -13
Branded
Abbott/Abbvie 10,764 24.5 22.6 25.4 26.0 29.3 28.6 32.1 35.1 3.0
Actelion 1,024 12.1 14.3 17.9 13.5 -4.5
Amgen 14,729 17.5 17.5 15.7 16.6 29.2 25.9 26.8 29.4 2.6
AZN 10,120 30.1 34.9 38.7 41.5 44.4 48.9 54.6 56.6 2.0
Bristol-Myers** 7,716 11.6 12.0 12.8 14.8 29.2 33.7 34.6 35.0 0.5
Elan/BIIB *** 6,684 8.4 6.0 6.3 15.9 19.5 23.1 23.4 22.7 -0.8
Celgene 4,164 9.8 12.2 14.2 13.4 13.8 14.8 1.0
Gilead 18,520 16.4 17.9 19.6 24.7 28.5 21.1 24.1 19.7 -4.4
GSK 10,732 21.6 23.4 26.3 29.2 28.1 30.8 30.7 36.8 6.1
Eli Lilly 7,860 10.7 13.2 15.0 16.5 21.4 21.0 26.3 32.3 6.1
Pfizer 19,073 17.1 21.7 29.1 24.0 27.5 26.5 27.6 31.3 3.7
Wyeth 23.9 29.4 - - - 0.0
J&J 17,422 19.0 22.5 27.0 30.1 30.5 28.7 30.4 31.5 1.2
Merck 14,215 12.6 13.2 13.8 21.5 24.5 25.8 27.6 32.4 4.7
Regeneron 1,751 6.6 5.9 6.0 0.1
Schering-Plough 19.2 19.1 - - - - - -
Novartis* 12,325 28.5 27.7 29.7 29.1 28.5 28.3 27.6 27.1 -0.6
Novo Nordisk 7,688 31.6 31.4 32.4 32.9 39.3 43.2 46.3 47.4 1.2
Sanofi 12,640 19.1 21.5 23.6 29.4 31.2 38.8 39.8 45.2 5.4
Shire***** 4,047 10.8 10.5 15.9 24.1 29.7 29.4 32.7 32.3 -0.5
Vertex 261 15.1 22.7 23.1 9.0 -14.1
Generic/OTC
Perrigo 927 53.2 50.0 50.0 50.0 0.0
Forest**** 19.2 19.2 19.9 20.7 22.2 26.2 29.1
Teva 10,461 39.9 41.4 41.4 41.2 49.8 8.6
Valeant 4,387 15.6 34.7 37.4 2.7
Full universe 197,508 20.9 23.1 24.1 27.8 30.2 31.6 33.7 36.2 2.5
Total Branded Sales 181,733 18.8 20.8 23.7 25.1 29.2 29.6 30.9 32.6 1.6
US domiciled brand sales weighted 16.3 18.2 21.5 22.9 28.9 28.7 31.0 35.9 4.9
EU domiciled brand sales weighted 24.2 26.3 29.7 32.2 33.9 37.0 38.0 41.1 3.1
*** Elan data to 2010, BIIB data from 2011 onwards
**** Valeant reports global data , CS assume 75% of global rebates accrue to the 55% of business in the US
Discount from Gross Sales %
** BMY disclosures changed from '07. Data provided seems to encompass all key elements of discounting
* Novartis data from 2009 US pharma only, prior data estimated to exclude Sandoz generics, vaccines
****** Actelion data is adjusted for change in rebate policy in 2013, so all data shown pre rebate reversals
*****Shire Aggregate data in the 10-K covers only selected discounts and does not include items such as wholesaler chargebacks, which are included in
other company disclosures, where they are significant items. We have not made any adjustment for this omission and assume that the trend of reported
disclosures shows the direction, if not magnitude of full rebates (Shire reported 67% effective discount from list price for Adderall XR and 38% for Vyvanse
for 2014)
Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 4
…but US list prices are still rising faster than rebates
In Figure 4, we look at the sales-weighted headline price rises for major companies. For
those companies that gain income for products that are not fully consolidated in sales, we
have also shown effective prices rises as they may still drive overall profitability.
There is no sign of list price rises easing, with 1Q15 continuing with the 11-12% overall
trend seen in 2013 and 2014. Novo and Sanofi continue to stand out as having the highest
list price rises in 2015, reflecting strong increases for Lantus and Levemir. However, we
know that a large element of this is rebated away, given Eli Lilly and Sanofi, two of the
three main insulin manufacturers, are also showing relatively high levels of incremental
rebates in 2014 (both over 5pp). Novo has high rebate levels, but with only a 1pp increase
in 2014 against a 22% list price rise, it appears to have been able to retain effective pricing
power in 2014. With higher rebates for key competitor Lantus from Sanofi in 2015, and no
expected trade up in effective price for Toujeo, we expect Novo to suffer further this year.
Figure 4: US list price rises; company data are sales weighted
2014 2015
Company data US Rx sales $m Q1 Q2 Q3 Q4 1Q 2Q 3Q Q4 1Q
Abbvie 10,764 14.3% 13.6% 14.4% 21.1% 13.7% 13.7% 15.5% 15.7% 15.7%
Actelion 1,024 8.9% 8.9% 12.2% 13.0% 7.9% 13.6% 13.8% 17.9% 17.6%
Amgen 14,729 7.9% 10.4% 8.3% 8.3% 8.5% 6.0% 8.2% 11.3% 9.1%
BIIB 6,684 10.8% 18.5% 12.9% 16.1% 14.2% 8.2% 11.5% 4.5% 10.4%
BMY 7,716 12.5% 13.0% 13.0% 12.5% 15.5% 12.1% 11.6% 12.8% 11.4%
Celgene 4,164 8.5% 8.5% 11.7% 5.6% 6.6% 6.6% 6.7% 9.7% 5.9%
Gilead 18,520 7.0% 7.0% 6.3% 6.3% 5.8% 7.0% 7.0% 7.0% 1.0%
JNJ 17,422 9.9% 10.3% 10.1% 11.2% 9.6% 9.5% 10.3% 9.4% 8.0%
Lilly 7,860 15.1% 17.2% 16.1% 14.6% 13.7% 8.4% 9.4% 9.3% 15.2%
Merck 14,215 10.4% 10.0% 12.5% 16.8% 12.5% 12.4% 13.6% 9.3% 13.5%
Pfizer 19,073 12.9% 13.0% 13.6% 13.6% 14.0% 22.3% 15.3% 16.4% 16.0%
AstraZeneca 10,120 12.9% 13.0% 13.6% 13.6% 14.0% 22.3% 15.3% 16.4% 16.0%
Bayer 3,628 6.2% 8.3% 6.2% 4.6% 8.3% 5.9% 12.0% 13.1% 12.8%
GSK 10,732 9.4% 9.9% 10.3% 9.3% 8.6% 9.1% 8.3% 9.0% 8.5%
Novartis 12,342 10.8% 10.7% 11.0% 9.6% 11.4% 12.2% 12.4% 12.8% 14.0%
Novo Nordisk 7,688 12.7% 15.8% 16.1% 20.1% 20.7% 24.9% 20.4% 21.9% 24.3%
Roche 17,387 3.6% 4.0% 5.0% 4.2% 4.9% 4.7% 5.0% 4.9% 5.0%
Sanofi 12,640 8.5% 9.5% 15.3% 22.4% 34.7% 40.0% 30.0% 22.9% 23.2%
Lundbeck 670 26.5% 17.0% 17.6% 17.6% 16.5% 16.5% 14.6% 18.0% 8.2%
Meda 374 12.1% 12.1% 7.6% 7.6% 3.9% 3.9% 5.4% 5.4% 15.3%
Merck KGaA 1,733 20.0% 14.6% 20.4% 24.4% 19.9% 19.9% 14.6% 7.8% 10.7%
Shire 4,047 9.6% 8.2% 10.7% 9.6% 10.3% 11.9% 9.2% 8.1% 8.9%
UCB 1,453 10.5% 12.4% 15.0% 15.6% 22.1% 19.4% 16.2% 10.5% 9.4%
US & EU total/weighted average 204,984 10.1% 10.8% 11.2% 12.3% 12.5% 13.6% 12.3% 11.8% 11.7%
US total/weighted average 122,170 10.6% 11.5% 11.3% 12.4% 11.0% 11.4% 11.2% 10.9% 10.5%
EU total/weighted average 82,814 9.3% 9.7% 11.2% 12.1% 14.6% 16.9% 14.0% 13.1% 13.5%
Other key products
Tudorza 0.0% 0.0% 0.0% 8.5% 8.5% 8.5% 17.7% 8.5% 19.2%
Onglyza/Bydureon 11.2% 15.2% 14.5% 12.6% 18.1% 11.5% 17.1% 17.1% 17.4%
Dysport (aesthetic) 11.5% 11.5% 23.2% 23.2% 10.5% 13.8% 3.0% 3.0% 3.0%
Orion/Novartis (Comtan/Stalevo) 20.6% 20.6% 14.9% 2.0% 13.7% 13.7% 15.0% 15.0% 14.9%
Xarelto 14.5% 14.5% 14.6% 14.6% 14.4% 14.4% 7.9% 18.6% 9.9%
2013 2014
Source: Wolters Kluwer, Credit Suisse estimates, for companies with no disclosure we assume average increase in rebates of 1.5%
01 May 2015
Global Pharma 5
Net US prices still a major contributor to EPS growth
In this section, we combine information from our pricing and rebate analysis to isolate the
effect of net US prices on sales and earnings.
In Figure 5 to Figure 7, we translate the impact of the effective net price rises we have
calculated to the reported net income and illustrate the % benefit we estimate to have
come for US drug pricing to group net income. We look at the universe of US and EU
companies over time and for individual companies for 2014.
Figure 5: Drivers of U$ net inc. growth for US universe Figure 6: Drivers of U$ net inc. growth for EU universe
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013 2014
% c
han
ge in
U$
ne
t in
com
e
Gwth from Net US Prices Gwth from Other
Net Inc Growth (US comps)
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013 2014
% c
han
ge in
U$
ne
t in
com
e
Gwth from Net US Prices Gwth from Other
Net Inc Growth (EU comps)
Source: Company data, Credit Suisse estimates for Abbvie, Amgen,
BIIB, BMY, JNJ, LLY, GILD, MRK, PFE
Source: Company data, Credit Suisse estimates. Actelion, AZN,
Bayer, GSK, Novartis, Novo, Roche, Sanofi, Shire, UCB
We have assumed an effective 80% contribution margin from price-driven incremental US
sales and taxed this at the effective corporate tax rate for each company. For companies
such as UCB the impact looks particularly high due to the low level of overall group
income as the group transfers from the "Keppra" years to earnings driven by Cimzia and
Vimpat.
Figure 7: Estimate of impact on 2014 net income of net US price rises
-60%
-40%
-20%
0%
20%
40%
60%
Imp
act
of
'14 U
S n
et
pri
ce r
ises
% chg from US price. % Chge- Other % chg in 2014 Net Inc
Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 6
Rising rebates offset declining SG&A; the real
marketing burden is rising
We know that reported rebate growth has been faster than sales over time and that overall
reported SG&A as a percentage of sales has fallen slightly each year since 2008.
However, the overall promotional budget that a company has to influence doctors
prescribing and to influence payers' formulary decisions arguably encompasses both
rebates and other traditional SG&A. If we look at this expenditure on an aggregate basis,
we see that it is rising as a percentage of gross sales. This is illustrated in Figure 8 which
indicates that the decline in traditional SG&A is less significant than growth in rebates.
Figure 8: Overall promotional expenses still rising, even if reported SG&A as % is falling
0%
10%
20%
30%
40%
50%
60%
2008 2009 2010 2011 2012 2013 2014
Exp
ense
as
a %
of
gro
ss s
ales
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates
In Figure 9, for the key companies, we illustrate our estimate of full promotional expenses
made up of traditional SG&A, assuming that US spending mirrors group spend and either
reported or Credit Suisse estimates of US rebates, all expressed as a percentage of gross
US drug sales.
Figure 9: Full 2014 promotional expenses. Traditional SG&A and rebates all as a percentage of gross US drug sales
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
% o
f '1
4 g
ross
sal
es
acco
un
ted
fo
r b
y re
bat
es
and
SG
&A
SG&A as % of Gross US sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 7
The rise of the co-pay card, an example of novel
rebating
In addition to growth in regular rebates, which are normally given to establish favourable
formulary positioning, we have seen growth in other forms of rebating often designed to
get around payer restrictions. In Figure 10, we use IMS Health data to show the growing
use of co-pay cards in the diabetes space. These can promise zero co-pays for eligible
patients and can completely negate a formulary positioning that encourages the use of
favoured products, for which a payer has promised high market share in exchange for
rebates, or for which a payer wants to encourage a generics first approach. The data
suggest that the new SGLT2 class is particularly affected. What is surprising to us is that,
until recently, there were only two US players: Invokana (JNJ) launched in April 2003 and
Farxiga (AZN) launched in February 2014. Looking at the product websites we can see
that co-pay assistance is clearly advertised and the data in Figure 10 suggest that a high
proportion of both drugs must have been used with a co-pay card. Jardience from
Boehringer Ingelheim/Lilly was launched as the third entrant in September 2014 and the
Jardience website shows the same sort of offer as for the other two drugs with zero co-pay
for eligible patients (with insurance but not covered by Medicare up to a value of $337 per
month) for one year, with the ability to re-enrol for another year. With only two players on
the market for much of this time, the level of co-pay assistance seems very high. What is
more surprising is that the same offer of zero co-pay is advertised on the Glyxambi
website. Glyxambi is the only combined SGLT2 /DDP IV on the market. It looks as if this
sort of rebate is designed to encourage/accelerate a trade up to a new class of drug,
rather than to gain share against similar competitors, as at this time Glyxambi is unique.
We believe that the cost of these programs is largely accounted for within rebates with
admin costs falling into traditional SG&A.
Figure 10: Co-pay card utilisation on the rise, example of diabetes care
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014
% o
f R
x f
ille
d w
ith
co
pay c
ard
Insulin GLP-1 DPP-4 SGLT-2
Source: Formulary Impact Analyzer (FIA), IMS Institute, Payer and Managed Care Insights
01 May 2015
Global Pharma 8
Portfolio uniqueness remains key
We continue to believe that the best defence against the price pressures from US
purchasers is portfolio uniqueness and we see a correlation between levels of uniqueness
and overall rebates (Figure 12). We believe that companies with higher levels of portfolio
uniqueness will be able to sustain higher long-term pricing, access to patients and thus
sales and profitability. For the 20 companies covered, we see no change in overall level of
uniqueness from 2014 to 2018, with an average in both years of 41% of sales. Companies
that we believe should sustain at least 65% of sales as unique throughout this period
include Celgene, Gilead and Roche. We expect the companies with rising levels of
uniqueness should include Bayer, and BIIB, while companies with the biggest decline in
percentage of unique drugs are Actelion, Roche and Sanofi, all of which decline by
around 10 pp.
Figure 11: % of economic sales rated as unique (2 or fewer direct competitors in each region)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% '
14
& '
18 w
w s
ale
s u
niq
ue
% unique 2014 % unique 2018
Source: Company data, Credit Suisse estimates
In Figure 12, we plot the ww percentage of unique drugs against 2014 reported rebates
and see the expected correlation with companies with the least unique portfolios in general
experiencing higher levels of rebates. Full details on the methodology are set out in
Appendix 4. Of note is the fact that we count all branded oncology drugs as unique,
assuming that prescribing decisions are based on clinical data and that price is secondary.
Figure 12: Relationship between product uniqueness and rebates
Abbvie
AmgenBIIBBMY
Celgene
Gilead
JNJ
Lilly
Merck
Pfizer
Actelion
AstraZeneca
GSK
Novartis
Novo Nordisk
Sanofi
Shire
UCB
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
de
cre
asin
g u
niq
ue
nss -
-->
2014 rebate % Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 9
Abbvie
Abbvie provides clear disclosure separating out Medicaid/Medicare, managed care and
wholesaler chargebacks, with the biggest increase in recent years in the wholesaler
chargebacks. Given that the anti-TNFs have seen some of the highest list price rises of
any of the major drug categories, it is perhaps not surprising that associated rebate levels
would also rise. Adding rebates back to reported SG&A suggests some increase in overall
effective promotional spending, but the overall expense seems in line with peers.
Humira is the largest product, which counts as discountable in our analysis in Europe until
2015 and in the US until 2017; after this it moves to substitution risk due to the potential
arrival of generic Remicade, although we only model biosimilar Humira effectively entering
the market from 2019. We assume that there will be three players with all oral combos in
hepatitis C by next year, so this category comes in as discountable and not unique. This
analysis is based on the portfolio of Abbvie- before the proposed acquisition of
Pharmacyclics, which will add a stake in a low rebate cancer drug Imbruvica into the mix.
(Note 2014 10-K for PCYC showed rebates as 11% of gross sales.)
Figure 13: Reported rebates as % of US gross sales Figure 14: SG&A and rebates as % of US gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
eb
ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 15: Components of US pharma sales growth Figure 16: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
20
30
40
20
07
20
08
20
09
20
10
20
11
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
20000
25000
30000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 10
Actelion
Actelion reversed some previously provided US rebates in 2013 and 2014, illustrating the
uncertainties in forecasting rebates particularly to government agencies (for which Actelion
reported there can be a long delay between accrual and payment). Disclosure improved
substantially in 2012 (covering the 2011 data) and we have made no estimates for prior
periods for which information was very limited. Rebate trends are interesting for Actelion
as they will be one lever the company can use to help shift patients away from the older
generation PAH drug Tracleer to the newer drug Opsumit and, in the future, to selexipag.
In 2014, we see no step up in accrued rebates despite c13% list price rises, suggesting no
price-based threat from competition from Adempas, which was launched by Bayer in 2014.
The level of uniqueness in this analysis falls first in 2013 from unique to discountable with
the launch of Opsumit, although with Tracleer and Opsumit both from Actelion effective
competition should be manageable. We use 2016 as the main year for Tracleer patent
expiry, but note that in Canada the first generic from Mylan has already been launched.
Figure 17: Reported rebates as % of US gross sales Figure 18: SG&A and rebates as % of US gross
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/R
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s
% o
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S
dru
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ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
-60
-50
-40
-30
-20
-10
0
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
eb
ate
s
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 19: Components of US pharma sales growth Figure 20: Change in uniqueness over time for pharma
-15
-10
-5
0
5
10
15
20
20
07
20
08
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
500
1000
1500
2000
2500
3000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 11
Amgen
In calculating the exposure of Amgen to US rebates, we assume that essentially all of the
rebate and chargeback expenses are US expenses and that the "other deductions" accrue
globally, based on the geographic percentage breakdown of sales. On this basis, rebate
levels have remained very stable over the period of this analysis from 2007, suggesting
that reported list prices are flowing through to the bottom line and are not being eroded by
increasing rebates. The aggregate rebate and SG&A spend declines in line with the
reported overall decline in SG&A as percentage of sales for the group (28% in 2012 to
22% in 2014).
The key unique products for Amgen are Prolia/Xgeva, Neulasta and Kyprolis. We deem
Enbrel, which is an Amgen drug in the US, to be discountable until 2017 when 2016 patent
expiries for competitors Humira and Remicade push the drug into the "substitution risk"
category.
Figure 21: Reported rebates as % of US gross sales Figure 22: SG&A and rebates as % of US gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
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ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
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ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 23: Components of US pharma sales growth Figure 24: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
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30
40
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07
20
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
20000
25000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 12
AstraZeneca
AstraZeneca has both the highest overall reported rebates in our universe and one of the
highest rates of increase in recent years. We believe that this reflects the lack of
uniqueness in the current portfolio and the requirement to rebate extensively in order to
sustain branded Crestor sales against the availability of generic Lipitor, and branded
Nexium against generic Prilosec, until effective US patent expiry in February 2015. We
assume that increased rebating was also key to the growth in market share for Symbicort
versus Advair in 2014. From 2014, AZN has consolidated the full sales of the BMY
diabetes JV products adding Bydureon and Onglyza rebates for the first time, in what we
know to be a high rebate category.
AstraZeneca shows one of the highest exposures to the "substitution" risk category. This
reflects the availability of broadly similar products such as generics. Symbicort and the
majority of the diabetes range remain discountable, in our view, with AZN only improving
its uniqueness score as and when the new oncology drugs begin to impact sales. AZN
continues to report strong list price rises in 2014, with +17% across the portfolio.
Figure 25: Reported rebates as % of US gross sales Figure 26: SG&A and rebates as % of US gross
-60
-50
-40
-30
-20
-10
0
2007 2008 2009 2010 2011 2012 2013 2014
% o
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US
dru
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s
0%
10%
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30%
40%
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80%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/R
eb
ate
s
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 27: Components of US pharma sales growth Figure 28: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
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30
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07
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% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
20000
25000
30000
35000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 13
Bayer
Bayer does not report specific US pharma rebate levels, but does report overall rebate
levels rising from 2.8% of group sales in 2013 to 3.4% of group sales in 2014. We assume
that this covers significant agrochemical and healthcare rebates as well as straight pharma
rebates. In the US, looking at the difference between IMS reported gross sales and
company reported net sales suggests that Betaseron rebates have been broadly flat at
c33% (in line with BIIB reported rebates). A similar analysis for Xarelto suggests rising
rebates from 14% in 2013 to 26% in 2014, presumably reflecting increased competition.
Mitigating this impact is a growing oncology business, an element of Bayer's contraceptive
business that is still self-pay, and a supply shortage for Kogenate, which should help net
pricing. Overall, Bayer has reported consistently below the peer group average US list
price rises, although we note stronger list price rises for Xarelto sold by JNJ, on which
Bayer receives a royalty, and which counts to US revenues/profitability.
We see a low overall exposure to substitution risk for Bayer. Sales of older drugs, such as
Adalat and Bayer Aspirin, for which one might expect generic substitution, are
concentrated in EM where brand loyalty is high. Our aggregate US pharma sales forecast
in Figure 31 shows a decline in 2016 driven by a slowdown in US Betaseron sales, which
more than offsets increased Xarelto royalties.
Figure 29: Reported rebates as % of US gross sales Figure 30: SG&A and rebates as % of US gross sales
No data available
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates
Figure 31: Components of US pharma sales growth Figure 32: Change in uniqueness over time for pharma
-40
-30
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-10
0
10
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ge
List price rises Change in discounts
implied volume/mix Sales growth
0
2000
4000
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12000
14000
16000
18000
20000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 14
Biogen Idec
Biogen Idec is showing revenue growth, with incremental sales for Tecfidera and, to a
lesser extent, Tysabri more than offsetting the decline in Avonex. A comparison of IMS
gross sales and BIIB reported net sales suggests low and stable discounts for both
Tecfidera and Avonex, which is borne out by the corporate level disclosure. The growing
sales for Tecfidera account for the growth in unique products for the group out to 2018.
We model no patent erosion over this time-frame with an effective patent life until 2024.
The slowing of sales reflects a maturing MS market and increasing competition, albeit with
different mechanisms of action
Figure 33: Reported rebates as % of US Gross sales Figure 34: SG&A and Rebates as % of US Gross
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 35: Components of US pharma sales growth Figure 36: Change in uniqueness over time for pharma
-40
-20
0
20
40
60
20
07
20
08
20
09
20
10
20
11
20
12
20
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
2000
4000
6000
8000
10000
12000
14000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 15
Bristol Myers Squibb
An analysis of historic data for BMY is of little help in predicting the future given the
profound change in the BMY portfolio as it moves from growth driven by Orencia, Yervoy,
Atripla, Sprycel and Abilify to an era driven by Opdivo. The company has restated levels of
rebates a number of times, in particular expanding the scope of reported discounts in 2012
(with restated 2011 data). This suggests that the 2010-2011 step up shown in Figure 3
and Figure 37 may merely reflect increasing management disclosure. In 2014 BMY
deconsolidated the US diabetes JV with AZN. Diabetes is a known high rebate area and
we note that, despite a mix shift away from diabetes towards oncology, overall rebate
levels as a percentage of sales have not changed over the past two years.
The high level of uniqueness reflects the oncology assets (Yervoy and Opdivo) and the
unique mechanism of action for Orencia in RA.
Figure 37: Reported rebates as % of US Gross sales Figure 38: SG&A and Rebates as % of US Gross
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
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S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 39: Components of US pharma sales growth Figure 40: Change in uniqueness over time for pharma
-40
-20
0
20
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20
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% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
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25000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 16
Celgene
Celgene has shown a steadily rising level of reported rebates, presumably reflecting the
growth in the price-protected element of the business to government programmes (c 15%
of operations based on IMS volume data). We note that reported list prices rose only 7% in
2014, and have been consistently lower than peers, suggesting that incremental rebates
should be accumulating quite slowly .
In this time frame, virtually the whole of the franchise is deemed unique, with the first
major patent expiry for Revlimid in the US only in 2019. In our analysis, the overall
promotional spend split between rebating and traditional spend has remained broadly flat
as a proportion of sales.
Celgene's recent co development deal with AstraZeneca for blood cancers with MEDI4736
(durvalumab) will increase exposure to unique products given we assess all cancer drugs
as unique.
Figure 41: Reported rebates as % of US Gross sales Figure 42: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
eb
ate
s
0%
10%
20%
30%
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50%
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2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
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% o
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ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 43: Components of US pharma sales growth Figure 44: Change in uniqueness over time for pharma
-40
-20
0
20
40
60
20
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08
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% c
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ge
List price rises Change in discounts
implied volume/mix Sales growth
0
2000
4000
6000
8000
10000
12000
14000
16000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 17
Eli Lilly
Steadily rising effective rebate levels for Lilly mirror those for other key diabetes players
Sanofi and Novo. Lilly also shows one of the higher exposures to government funded
programmes at c 40% of sales (see Figure 108). On our analysis, the growth in these
rebates effectively offsets the decline in traditional SG&A expense leaving the overall
promotional spend at around 54% of gross sales, high by US major pharma standards
(see Figure 9). In 2014, Lilly lost Cymbalta US exclusivity and looking at the IMS gross
sales data suggests that US rebates for Cymbalta rose from a stable 15% level in 2010-
12 to around 25% in 2013 ahead of patent expiry. For chronic therapies, we normally see
rebates fall in the immediate period ahead of patent loss as payors can see savings from a
switch to generics, and so do not fight brand adoption, so this is a surprising finding.
The key unique drugs in the portfolio on our analysis are Cyramza, Alimta and Forteo with
the majority of the diabetes franchise either discountable or at risk of substitution. We
illustrate in Figure 10 the growing use of co-payment cards in the diabetes space and note
that Glyxambi, the combo SGLT2/DPPIV joint development drug with Boehringer
Ingelheim, has recently launched with a zero co-pay card despite being a unique product
at this time.
Figure 45: Reported rebates as % of US Gross sales Figure 46: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
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ate
s
0%
10%
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2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
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% o
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S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 47: Components of US pharma sales growth Figure 48: Change in uniqueness over time for pharma
-40
-20
0
20
40
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20
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20
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% c
han
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List price rises Change in discounts
implied volume/mix Sales growth
0
5000
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2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 18
Gilead
The past few years have seen the transition of Gilead from an HIV focused company to
one driven by hepatitis C with the exceptionally strong growth of Sovaldi/Harvoni in 2014.
The 4.4pp decline in rebate levels in 2014 reflects the unique position of Sovaldi/Harvoni
at launch, and the lack of need to provide high levels of rebates. This is clearly changing
with the launch of Abbvie's Viekira Pak and the expected combo launch from Merck in
2016. Competitive launches together with payer controls suggest no sales growth in 2015
and a decline in US sales from 2016 onwards.
Across the HIV portfolio, rebates seem to have been quite stable with the difference
between IMS gross to net stable suggesting around 20% rebates for Atripla over the past
four years and for Stribild similar discount levels.
The speciality nature of the company is reflected in the low traditional SG&A spend.
Figure 49: Reported rebates as % of US Gross sales Figure 50: SG&A and Rebates as % of US Gross
-55
-45
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-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
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as r
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s
0%
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20%
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2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
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% o
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S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 51: Components of US pharma sales growth Figure 52: Change in uniqueness over time for pharma
-40
-20
0
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20
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List price rises Change in discounts
implied volume/mix Sales growth
-5000
0
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30000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 19
GlaxoSmithKline
GSK gives a detailed breakdown of rebates clearly identifying the components. This
shows that government programme rebates have increased from 15.2% in 2013 to 18.5%
of sales in 2014 and wholesaler chargebacks from 5.8% to 7.6%. Looking at IMS data
suggests that Advair rebates increased from a stable level of 22% from 2010 to 2013 to
c.38% in 2014. This is before the full year effect of increasing rebates in 2015 to regain
more favourable formulary access for Advair, and to secure favourable access for new
drugs Breo and Anoro. Adding rebates to traditional SG&A suggests a growing overall
promotional expense, not surprising given the increasing competition in the asthma/COPD
space.
GlaxoSmithKline has the second highest exposure (after Novo) to Medicare Part D and
the lowest exposure to commercial insurance of any of the companies in this report which
may also be impacting rebate levels. We see an overall continued decline in US revenues
until 2017 with no significant increase in portfolio uniqueness, to mitigate rebate pressures.
Figure 53: Reported rebates as % of US Gross sales Figure 54: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
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ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
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% o
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S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 55: Components of US pharma sales growth Figure 56: Change in uniqueness over time for pharma
-40
-30
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ge
List price rises Change in discounts
implied volume/mix Sales growth
0
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30000
35000
40000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 20
JNJ
The most important assets for JNJ pharma today are its biologics for RA (Remicade) and
psoriasis (Stelara) with expected long life cycles followed by JNJ's stake in the cancer
drug Imbuvica, at the beginning of its life cycle. Our analysis suggests that JNJ has a
lower-than-average exposure to unique products and that this will fall further to one of the
lowest levels in our universe of companies (see Figure 11). Of the group's major assets we
rate only Stelara and Imbruvica as unique, although we note emerging competition for
Stelara from drugs such as Cosentyx (from Novartis). JNJ has an average level exposure
to Medicare the other key indicator of rising rebate pressures (see Figure 108).
Figure 57: Reported rebates as % of US Gross sales Figure 58: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
eb
ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 59: Components of US pharma sales growth Figure 60: Change in uniqueness over time for pharma
-40
-20
0
20
40
60
20
07
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08
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09
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10
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11
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% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
20000
25000
30000
35000
40000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 21
Merck Inc
The key franchises driving growth today are patent protected but are largely in competitive
areas such as diabetes (Januvia) and vaccination (leading products, Gardasil and
Proquad). Merck has dominant positions in many areas which should give it a rebating
advantage. Overall rebates increased by 4.7pp in 2014 and looking at IMS gross to net
sales for Januvia suggests that rebates here have risen from c 17% in 2011/2012 to 28%
in 2013 and to 38% in 2014, confirming the high level of diabetes rebates we are seeing
across both oral and injectable products. Keytruda is the only unique asset in the top 10
drugs by NPV. Although competition is building in immuno oncology, we rate all cancer
drugs as unique as we see them driven much more by clinical data than price discounts.
The addition of rebates to SG&A reverses a steady apparent decline in reported SG&A to
a rising trend in overall promotional spend. Looking at both, the relatively low level of
uniqueness (Figure 11) and the relative high level of Medicare/Medicaid exposure (see
Figure 108), we might expect Merck to continue to see an acceleration in rebate levels
over the next few years.
Figure 61: Reported rebates as % of US Gross sales Figure 62: SG&A and Rebates as % of US Gross
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-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
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dru
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as r
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s
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30%
40%
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2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/R
eb
ate
s
% o
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ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 63: Components of US pharma sales growth Figure 64: Change in uniqueness over time for pharma
-40
-20
0
20
40
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20
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List price rises Change in discounts
implied volume/mix Sales growth
0
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30000
35000
40000
45000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 22
Novartis
Novartis pharma discounts have remained stable over time (the reported data explicitly
covers Rx pharma only and not Sandoz or vaccines) and indeed there was a small decline
in rebate levels reported in 2014. We believe that this stability reflects a current mix shift
away from primary care towards more speciality products where we believe that formulary
pressure is currently lower and physician flexibility to decide on prescribing is higher. The
loss of Diovan in primary care may also have freed up some rebates which are being
reinvested elsewhere, although we see no evidence of increasing rebates for either
Gleevec or Gilenya. At the group level, it is also notable that Novartis continues to have a
relatively low US branded drug exposure (31%) relative to the peer group average (40%),
and that US pharma exposure is further diluted by Alcon, Sandoz, and the GSK consumer
JV.
We expect to see an 8pp increase in exposure to unique drugs over the next four years
due largely to the addition of the GSK oncology portfolio and the growth of LCZ. This mix
shift should limit the need for incremental rebates although we note that LCZ will be sold
into a largely Medicare population.
Figure 65: Reported rebates as % of US Gross sales Figure 66: SG&A and Rebates as % of US Gross
-55
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-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
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dru
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as r
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ate
s
0%
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20%
30%
40%
50%
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70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 67: Components of US pharma sales growth Figure 68: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
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% c
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List price rises Change in discountsimplied volume/mix Sales growth
0
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20000
25000
30000
35000
40000
45000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 23
Novo Nordisk
Novo has shown an acceleration in overall rebates in recent years and given the strong
diabetes focus of the group, this must reflect increasing rebate pressure in this important
category. The three leading insulin companies, Lilly, Novo and Sanofi, have all shown an
increases in rebates, which we assume reflects a continued pay-away of high list price
rises for insulins to payers, and the high relative exposure to Medicare part D (Figure 108).
In 2011, Novo acknowledged that initial rebates for Victoza had helped drive adoption, but
Novo has more recently been vocal about resisting increased rebate pressures where it
feels that it has a unique product with superior properties (in the case of Victoza a simpler
dosing regimen than Byetta/Bydureon). However IMS data suggest a gradual increase in
Levemir discounts from c 30% in 2011 to 56% in 2014.
The growth in unique products in our analysis from 2017 comes from the launch of iDeglira
in the US. However from mid-2016 we also see an increase in substitution risk, as we
expect Lilly to be able to launch its biosimilar Lantus around this time.
Figure 69: Reported rebates as % of US Gross sales Figure 70: SG&A and Rebates as % of US Gross
-55
-45
-35
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-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
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les
as r
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ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 71: Components of US pharma sales growth Figure 72: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
20
30
40
20
07
20
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18
% c
han
ge
List price rises Change in discountsimplied volume/mix Sales growth
0
5000
10000
15000
20000
25000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 24
Pfizer
We have seen a gradual increase in rebate pressures with higher rebates offsetting lower
traditional SG&A expenses. Sales have been held broadly stable in the past two years
with effective price rises offsetting continued volume declines.
The largest NPV product for Pfizer is the Prevnar vaccine franchise, a unique long-term
portfolio, which is being evergreened firstly with an enhanced number of pneumococcal
sub-types covered.as Pfizer shifted from Prevnar 7 to Prevnar 13 and now with broader
use expanding to adults over age 65. The second highest NPV asset is the ex US Enbrel
franchise with sales expected to continue at a high level some years beyond first formal
patent expiry. Enbrel moves from discountable category to multi source from 2016 in our
analysis. The newly launched cancer drug Ibrance (palbociclib) helps to increase the
contribution of unique drugs and lift overall US sales growth to be positive until US Lyrica
patent expiry in 2019. Overall Pfizer appears to have slightly lower than average exposure
to Medicare and Medicaid (see Figure 108).
Figure 73: Reported rebates as % of US Gross sales Figure 74: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
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US
dru
g sa
les
as r
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ate
s
0%
10%
20%
30%
40%
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60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 75: Components of US pharma sales growth Figure 76: Change in uniqueness over time for pharma
-40
-20
0
20
40
60
20
07
20
08
20
09
20
10
20
11
20
12
20
13
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17
20
18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
10000
20000
30000
40000
50000
60000
70000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 25
Roche
Roche does not publish any rebate data. IMS sales trends for key drugs match the
company reported numbers closely, suggesting limited discounting beyond mandatory
340B programme discounts. For Lucentis, we assume that IMS data are not particularly
robust as the product is bought/dispensed by physician offices and thus IMS Health will
not be able to track sales via normal pharmacy samples. We assume that the launch of
Eylea will have increased discounting pressures. Published US list price rises remain
moderate at 4-5% per annum. Despite Boniva patent expiry in 2012 and Xeloda in 2014,
net US revenue growth has been positive in every year bar 2010.
Roche stands out as having the highest level of uniqueness in our EU major pharma
universe based on their strong focus on cancer sales. We see much more limited
formulary pressures in this specialty area with prescribing decisions too complex, and too
individualised to be amenable to centrally directed switches. In Figure 11 we see that
Roche's current level of uniqueness in theory falls by around 10pp by 2018 as the patents
for Herceptin and Rituxan expire, and we model the emergence of biosimilars. Roche
expects biosimilars to be launched first in 2H 2017. However we expect initial caution from
regulators and payers about interchangeability, such that in practice we do not expect US
oncology sales to be impacted before 2019 when we assume effective erosion of
Herceptin by biosimilars may start. We assume that sales of Rituxan in RA are impacted
from 2018 as this non-life threatening condition lends itself more to a generics first
strategy.
Figure 77: Reported rebates as % of US Gross sales Figure 78: SG&A and Rebates as % of US Gross
No data available
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/Re
ba
tes
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates
Figure 79: Components of US pharma sales growth Figure 80: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
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30
40
20
07
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08
20
09
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11
20
12
20
13
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 26
Sanofi
Sanofi has seen one of the strongest rates of increase in rebates in our universe. In
2011/12 we felt that a big factor was US generic Lovenox, where Sanofi retained sales for
some time despite a substitutable generic. From 2013, the key factor must have been
increasing formulary pressure in the diabetes space, with Lilly and Novo the key
competitors also reporting increasing levels of rebates. List price rises in 2014 (+32%) still
outstripped the rise in reported discounts to suggest a net positive price effect on US
sales. A comparison for IMS gross to net sales suggests Lantus rebates rising from 13% in
2013 to 29% in 2014, (31% in 2H14). Management has stated that price should not be a
barrier to adoption of Toujeo and guidance for a decline in the US diabetes franchise sales
for 2015 suggests further significant discounting this year.
Sanofi has one of the largest declines in the level of uniqueness in our universe as
competition builds for Lantus (Figure 11), and higher than average Medicare/Medicaid
exposure (Figure 108) suggesting that high rebate levels will remain an important factor for
the group. We believe that these discount pressures are already factored into company
guidance and analyst estimates.
Figure 81: Reported rebates as % of US Gross sales Figure 82: SG&A and Rebates as % of US Gross
-55
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-35
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-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
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as r
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ate
s
0%
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30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014
SG
&A
/R
eb
ate
s
% o
f G
ross U
S
dru
gs s
ale
s
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 83: Components of US pharma sales growth Figure 84: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
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11
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% c
han
ge
Change in discounts implied volume/mix
List price rises Sales growth
0
5000
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15000
20000
25000
30000
35000
40000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 27
Shire
Shire has provided detailed information on rebates for key ADHD drugs in addition to the
group-wide disclosure. For Adderall, where Shire has both authorised generics and direct
generic competition, we have seen reported rebates rising from 57% of sales in 2011 to
c.68% of sales in 2013 and 2014 despite no reported list prices (volatility in the quarterly
numbers reflects the level of sales to authorised generics which are included in Medicaid
calculations). In contrast, Vyvanse rebates have remained broadly constant at around 40%
from 2011 to 2014 despite list price rises averaging 9% p.a. over the past 4 years. This
product rebate disclosure covers all types of rebate, although the aggregate company
level disclosure in the Annual Report appears to be linked solely to government related
discounts/rebates, excluding significant additional wholesaler charge backs. IMS data
suggest 22% of sales from Medicaid/Medicare and 77% commercial insurance funding.
There has been a notable decrease in reported SG&A as % of sales for the group in
recent years as the business mix has shifted more to rare diseases, and the decrease in
traditional SG&A spend may be more significant than the increase in rebates, although we
can't be sure given we only have partial rebate information. The sales mix stays broadly
50% unique with the growth of new products, Gattex and lifitegrast. Overall US sales
growth remains very healthy at c 10% p.a. through 2018, a level which should be enough
to sustain further reported margin gains.
Figure 85: Reported rebates as % of US Gross sales Figure 86: SG&A and Rebates as % of US Gross
-55
-45
-35
-25
-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
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ate
s
0%
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20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014SG
&A
/R
eb
ate
s
% o
f G
ross U
S d
rug
s
sa
les
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 87: Components of US pharma sales growth Figure 88: Change in uniqueness over time for pharma
-40
-30
-20
-10
0
10
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30
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20
07
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11
20
12
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18
% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 28
UCB
UCB does not provide any rebate information, but with only two key drugs in the US
driving current sales, we can estimate the level of important discounts by looking at just
the product data for Cimzia and Vimpat. For Vimpat, we have seen the difference between
IMS gross sales to net reported sales expand suggesting rebates rising from c 4% in 2012
to 28% by 2014. The growing Vimpat rebate was effectively highlighted by the company in
2014. Commentary through the year highlighted an increasingly move towards
government funded healthcare programmes that require deeper discounts despite Vimpat
effectively having a unique mechanism of action.
For Cimzia the apparent increase is less marked from 5% in 2012 to 17% in 2014,
although IMS is clearly less reliable for Cimzia given both the self-administered and office-
administered formulations. The latter, typically, will not be well captured by the IMS audit.
Overall US list price rises seem to still be accounting for around 5% growth down from 10-
12% in prior years (see Figure 101).
Figure 89: Reported rebates as % of US Gross sales Figure 90: SG&A and Rebates as % of US Gross
-55
-45
-35
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-15
-5
2007 2008 2009 2010 2011 2012 2013 2014
% o
f gr
oss
US
dru
g sa
les
as r
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ate
s
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012 2013 2014SG
&A
/R
eb
ate
s
% o
f G
ross U
S d
rug
s
sa
les
SG&A as % of Gross Sales Rebates as % of Gross Sales
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 91: Components of US pharma sales growth Figure 92: Change in uniqueness over time for pharma
-40
-30
-20
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0
10
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30
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20
07
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11
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% c
han
ge
List price rises Change in discounts
implied volume/mix Sales growth
0
1000
2000
3000
4000
5000
6000
7000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sa
les $
m
Sustainable Brand Unique Discountable
Sub Risk Generic Risk Multi
Source: Company data, Credit Suisse estimates Source: Company data a, Credit Suisse estimates
01 May 2015
Global Pharma 29
Appendix 1: Rebates are a fundamental element of
the US system In Figure 93 we look at our estimates of the breakdown of rebates/discounts. This shows
that the largest contributor to increased overall rebates appears to be rebates to US
government and state funded programmes. We believe that this reflects:
■ The need to give best price discounts to certain government programmes.
■ The inability to retain price rises over CPI for sales into Medicaid programmes which
accounts typically 6-8% of US sales.
■ An increase in sales to US government programmes, as more patients access
healthcare through government subsidised programmes (Medicare Part D plus
Medicaid on average 26% of US branded sales), see Figure 108.
■ Increasing commercial pressures – particularly for undifferentiated products - in part
due to greater availability of effective generics which can push branded products to
second-line therapy.
Our analysis suggests that around $110bn of rebates were paid by the US and EU pharma
companies shown in Figure 3 to purchasers in 2014 from a reported US sales base of
around $205bn. The data show that rebates increased again in 2014 (+22%) outstripping
net sales growth of +9%, as companies moved out from the 2012/2013 patent cliff.
Government discounts increased from over $31bn to over $39bn (+25%). We assume that
a significant element of the increased rebates reflects the cost of pharma covering 50% of
the "donut hole" (see Figure 110).
Figure 93: Breakdown of US discounts by key categories
2007 2008 2009 2010 2011 2012 2013 2014
2014/
2013
CAGR 08-
14
Gross turnover U$M 196,920 194,346 211,180 240,229 256,653 265,446 278,178 315,261 13% 8%
US govt and state prog. 4.0 4.7 6.1 9.5 10.7 10.7 11.4 12.5
Chargebacks 7.2 7.0 8.7 9.0 8.3 9.0 9.8 11.0
Managed care 5.9 7.4 7.4 6.7 7.9 7.8 8.4 8.6
Cash discounts 1.3 1.2 0.7 1.1 1.0 1.0 1.1 1.1
Customer returns 1.6 1.6 0.9 0.9 0.8 1.0 0.9 0.9
Other 1.1 1.1 1.4 1.6 2.1 2.2 2.2
Total Effective discounts % 20.9 23.1 25.0 28.6 30.2 31.6 33.7 36.2
$m
US govt and state prog. 7,940 9,093 12,853 22,771 27,336 28,469 31,765 39,561 25% 28%
Chargebacks 14,176 13,585 18,388 21,698 21,183 23,878 27,282 34,650 27% 17%
Managed care 11,632 14,385 15,633 16,149 20,345 20,593 23,246 27,004 16% 11%
Cash discounts 2,631 2,400 1,542 2,538 2,514 2,695 2,954 3,320 12% 6%
Customer returns 3,080 3,194 1,899 2,135 2,060 2,697 2,439 2,783 14% -2%
Other - 2,147 2,415 3,328 4,160 5,456 6,091 6,951 14% 22%
Rebate total $m 196,920 45,210 53,321 68,012 77,387 82,403 90,723 110,474 22% 16%
Net Sales $m* - 149,135 157,858 172,218 179,266 183,043 187,455 204,786 9% 5% This data is taken for a wider universe of companies including generics than is used in the main part of this analysis where 20 companies are
reviewed in more detail. Where the breakdown of rebates is not provided by the company we have used average splits based on companies that
do provide data. Source: Company data, Credit Suisse estimates
We believe that this annual rebate flow is an integral part of the funding of the US
healthcare system. Our US colleagues covering the pharma wholesalers and PBMs have
kindly helped to illustrate the flow of rebates through the system in Figure 114 and in
Figure 115.
In Figure 94 we illustrate how formulary barriers have decreased the ability to access
patients quickly with new drugs using data from IMS Health. Barriers can be erected in a
number of ways ranging from formulary tiering, with differential co-pays to other barriers
such as high deductibles, step therapy, prior authorisation and quantity limits. Depending
on the precise barriers, companies can sometimes circumvent them using co-pay
assistance programmes, to offset differential co-pays at the pharmacy. Increasing use of
co-pay cards in diabetes is illustrated earlier in this report in Figure 10.
01 May 2015
Global Pharma 30
Figure 94: The evolution of contracted access: Expected levels of launch volume with
unrestricted formulary access post launch (2005-2015)
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
% T
Rxs
Months Post Launch
Historical Model (2005) Post-Part D (2008) Expected in 2015
Source: IMS Institute, Payer and Managed Care Insights
With PBM and wholesaler income linked to gross drug revenues, there are powerful
incentives for list price rises to continue as they drive profits of the key intermediaries
between the manufacturers and the patients. Unless the US system moves away from the
current cost-plus approach to a capitated system which would change incentives
significantly, we see no mechanism for change. In Figure 95 we illustrate both the list price
rises for branded drugs and the overall US pharmaceutical CPI. CPI is much lower at only
c1-2% as we are still seeing US generic drug price erosion that offsets the branded list
price rises, so that overall CPI for pharmaceuticals has typically been running at 3-4%.
Figure 95: US drug List price rises against background of US politics
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Lis
t p
rice
infl
atio
n %
SENATE
HOUSE
PRESIDENT
Democrat Republican Branded CPI list price inflation Overall price inflation (brand+generic)
Source: Company data, Credit Suisse estimates
Payers have been able to absorb costs of new product launches with savings from patent
expiries. With the "savings windfall" of the 2012 patent cliff now behind them, we expect
payers to continue to pressure manufacturers for ever larger effective rebates.
01 May 2015
Global Pharma 31
Figure 96: The importance of patent expiries across the US market in containing cost
growth
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
% c
han
ge t
o U
S b
ran
de
d p
har
ma
mar
ket
% from patent expiries % from volume % from price rises
% implied mix Overall growth %
Source: Company data, Credit Suisse estimates
Figure 97: Aggregate gross sales, net sales and CS estimates of US SG&A for 20 company universe $m 2008 2009 2010 2011 2012 2013 2014 CAGR 08-14
Gross US sales 234,369 247,897 250,090 264,042 258,179 268,939 301,196 4%
Rebates -45,781 -59,023 -61,421 -71,456 -72,438 -79,594 -98,989 14%
as % gross US sales 19.5% 23.8% 24.6% 27.1% 28.1% 29.6% 32.9%
Net US sales 188,589 188,874 188,669 192,587 185,742 189,345 202,207 1%
US SG&A -54358 -54436 -53001 -53673 -50772 -51908 -54232 0%
as % gross US sales 23.2% 22.0% 21.2% 20.3% 19.7% 19.3% 18.0%
SG&A as % of Gross Sales 23.2% 22.0% 21.2% 20.3% 19.7% 19.3% 18.0%
Rebates as % of Gross Sales 19.5% 23.8% 24.6% 27.1% 28.1% 29.6% 32.9%
Total effective mkting costs 42.7% 45.8% 45.8% 47.4% 47.7% 48.9% 50.9%
Aggregate SG&A/rebates -100,139 -113,459 -114,422 -125,128 -123,210 -131,501 -153,222 7% Source: Company data based on 20 company universe, Credit Suisse estimates
A large element of the traditional rebates is volume-related and we wonder to what extent
high levels of rebates for incumbent products act as a barrier to entry for new drugs in a
field. A company able to give a 20% discount on $1bn of existing sales on a drug to a
large purchaser can provide rebates of $200m. A new entrant with only $50m of sales
even with a 90% discount would only be able to provide rebates of $45m. With the US
system still apparently heavily reliant on elements of the delivery chain getting paid on a
percentage of sales, this may act as a real barrier to new entrants if they are not able to
offer franchise level rebates.
01 May 2015
Global Pharma 32
Appendix 2 :Methodology
In Figure 98 to Figure 103 we isolate the contribution to overall US branded drug sales
growth of list price rises, increased rebates and volume/mix. This shows that US list prices
are continuing to rising faster than rebates, suggesting that the universe of companies
covered still saw a net 9.7 pp of US price rises benefiting sales. Bayer, Roche and UCB do
not provide any rebate disclosures. We have made no estimates of rebates for Bayer and
Roche; however, for UCB, we have made an estimate for overall rebates based on the
difference between IMS reported sales and company reported sales for the key drugs
Cimzia, and Vimpat. We have found that the difference between IMS "gross sales" and
company "reported sales" has, in the past, broadly matched the rebate levels reported by
the companies in their annual reports (see Figure 104).
We see no material difference between Roche's reported product sales and IMS levels
suggesting limited discounting in the hospital channel, and for Bayer the complexity of the
business mix including Kogenate (factor VIII) for haemophilia, a range of oral and depot
contraceptives and Betaseon for MS make it very difficult to estimate rebate levels. We
note a degree of restatement of rebates by a number of companies over time, typically
showing restatements to higher levels of rebates. For GSK, 2013 US rebates were initially
reported at 29%, but the 2013 data were restated in the 2014 accounts to 31% for the
same 2013 period. For GSK, this reflects the exclusion of "established products" from the
included analysis, it is not always clear what is covered. We restate historic numbers
where possible to maximise the ability to look at the trend rather than absolute level of
rebates.
Figure 98: Implied contribution from US Gross Prices, %
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014
Abbvie 10764 10.3 11.9 15.9 14.6
Amgen 14729 3.1 7.2 8.7 8.5
BIIB 6684 12.4 18.8 14.6 9.6
BMY 7716 7.5 10.3 12.8 13.0
Celgene 4164 4.2 5.8 8.6 7.4
Eli Lilly 7860 13.1 15.6 15.8 10.2
Gilead 18520 7.6 8.0 6.6 6.7
JNJ 17422 11.9 8.0 10.4 9.7
Merck 14215 12.0 10.8 12.4 12.0
Pfizer 19073 11.2 10.9 13.3 17.0
Actelion 1024 3.1 7.4 10.8 13.3
AstraZeneca 10120 8.0 10.0 11.8 8.6 13.2 10.6 11.6 9.3
Bayer 3628 12.4 17.8 17.3 16.7 7.6 7.0 7.3 9.8
GSK 10732 6.1 8.9 6.3 4.4 6.8 8.2 7.3 8.8
Novartis 12342 8.7 8.5 9.3 11.7 12.1 12.2 7.7 9.5
Novo Nordisk 7688 6.6 7.9 5.4 11.4 11.5 11.6 16.1 22.0
Roche 17387 3.9 4.5 4.1 4.0 4.4 5.2 4.3 4.9
Sanofi, inc-Plavix 13819 8.0 9.5 7.7 10.6 10.1 11.0 13.1 31.8
Shire 4047 8.7 8.5 9.3 7.3 7.8 8.1 7.8 9.9
UCB 1453 10.0 9.0 12.0 13.0 15.1 14.4 16.9
Sales Weighted Avg 203386 7.0 8.3 8.3 8.5 9.2 9.2 10.6 12.1
** this includes the benefit of 50% of the impact of pricing for Plavix
Additional pricing information
Sanofi, ex-Plavix 12640 7.0 9.4 6.8 10.4 9.6 11.5 13.1 31.8
Plavix/Avapro 1180 6.5 2.0 16.9 12.9 14.7 6.0
Xarelto 5.1 14.5 13.8 Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 33
Figure 99: Reported level of discounts, %
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014
Abbvie 10764 24.5 22.6 25.4 26.0 29.3 28.6 32.1 35.1
Amgen 14729 26.0 26.0 28.5 29.7 29.2 25.9 26.8 29.4
BIIB 6684 8.4 6.0 6.3 15.9 19.5 23.1 23.4 22.7
BMY 7716 11.6 12.0 12.8 14.8 29.2 33.7 34.6 35.0
Celgene 4164 9.8 12.2 14.2 13.4 13.8 14.8
Eli Lilly 7860 10.7 13.2 15.0 16.5 21.4 21.0 26.3 32.3
Gilead 18520 19.0 22.5 27.0 30.1 30.5 28.7 30.4 31.5
JNJ 17422 12.6 13.2 13.8 21.5 24.5 25.8 27.6 32.4
Merck 14215 12.6 13.2 13.8 21.5 24.5 25.8 27.6 32.4
Pfizer 19073 17.1 21.7 29.1 24.0 27.5 26.5 27.6 31.3
Actelion 1024 12.1 14.3 17.9 13.5
AstraZeneca 10120 30.1 34.9 38.7 41.5 44.4 48.9 54.6 56.6
Bayer 3628 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
GSK 10732 11.6 23.4 26.3 29.2 28.1 30.8 30.7 36.8
Novartis 12342 19.2 27.7 29.7 29.1 28.5 28.3 27.6 27.1
Novo Nordisk 7688 28.5 31.4 32.4 32.9 39.3 43.2 46.3 47.4
Roche 17387 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sanofi 12640 19.1 21.5 23.6 29.4 31.2 38.8 39.8 45.2
Shire 4047 10.8 10.5 15.9 24.1 29.7 29.4 32.7 32.3
UCB (CS estimate) 1453 1.0 1.0 5.0 9.0 21.0
Sales Weighted Avg 202207 15.5 18.6 21.4 23.4 26.1 27.3 28.9 32.4
US domicile 121146 15.7 17.3 20.5 22.2 26.2 26.4 28.2 31.8
EU dom icile 81060 14.5 19.5 21.5 23.8 24.8 27.6 29.0 31.8 Source: Company data, Credit Suisse estimates
Figure 100: Change in discounts, pp ( -ve is an increase in discounts)
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014
Abbvie 10764 -2.8 -0.6 -3.3 0.7 -3.5 -3.0
Amgen 14729 -2.5 -1.2 0.5 3.2 -0.9 -2.6
BIIB 6684 -0.3 -9.5 -3.6 -3.6 -0.3 0.8
BMY 7716 -0.8 -2.0 -14.4 -4.5 -0.9 -0.5
Celgene 4164 -9.8 -2.4 -2.0 0.8 -0.4 -1.0
Lilly 7860 -1.9 -1.4 -4.9 0.5 -5.3 -6.1
Gilead 18520 -4.5 -3.1 -0.4 1.8 -1.7 -1.2
JNJ 17422 -0.6 -7.7 -3.1 -1.3 -1.8 -4.7
Merck 14215 -0.6 -7.7 -3.1 -1.3 -1.8 -4.7
Pfizer 19073 -7.3 5.1 -3.5 1.0 -1.1 -3.7
Actelion 1024 0.0 0.0 -12.1 -2.3 -3.6 4.5
AstraZeneca 10120 -3.8 -2.8 -2.9 -4.5 -5.7 -2.0
Bayer 3628 0.0 0.0 0.0 0.0 0.0 0.0
GSK 10732 -2.9 -2.9 1.1 -2.7 0.1 -6.1
Novartis 12342 -2.0 0.6 0.6 0.2 0.7 0.6
Novo Nordisk 7688 -1.0 -0.6 -6.4 -3.9 -3.0 -1.2
Roche 17387 0.0 0.0 0.0 0.0 0.0 0.0
Sanofi 12640 -2.1 -5.7 -1.8 -7.6 -1.0 -5.4
Shire 4047 -5.4 -8.2 -5.6 0.3 -3.4 0.5
UCB 1453 0.0 -1.0 0.0 -4.0 -4.0 -12.0
Sales Weighted Avg 202207 -2.7 -1.9 -2.9 -1.3 -1.7 -3.1
US domicile 121146 -3.1 -1.7 -4.1 -0.2 -1.9 -3.5
EU dom icile 81060 -2.1 -2.2 -1.2 -2.9 -1.6 -2.5 Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 34
Figure 101: Implied US net price growth, %
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014
Abbvie 10764 -2.8 -0.6 7.0 12.6 12.4 11.6
Amgen 14729 1.8 -0.9 -9.5 10.4 7.8 5.9
BIIB 6684 -0.3 -9.5 8.8 15.2 14.3 10.4
BMY 7716 -0.8 -2.0 -6.9 5.8 11.9 12.5
Celgene 4164 -9.8 -2.4 2.2 6.6 8.2 6.4
Eli Lilly 7860 -1.9 -1.4 8.2 16.1 10.5 4.1
Gilead 18520 -4.5 -3.1 7.2 9.8 4.9 5.5
JNJ 17422 -0.6 -7.7 8.8 6.7 8.6 5.0
Merck 14215 -0.6 -7.7 8.9 9.5 10.6 7.3
Pfizer 19073 -7.3 5.1 7.7 11.9 12.2 13.3
Actelion 1024 0.0 0.0 -9.0 5.1 7.2 17.8
AstraZeneca 10120 10.0 8.0 5.8 10.3 6.1 5.9 7.3
Bayer** 3628 17.8 17.3 16.7 7.6 7.0 7.3 9.8
GSK 10732 8.9 3.4 1.5 7.9 5.5 7.4 2.7
Novartis* 12342 8.5 7.3 12.3 12.7 12.4 8.4 10.1
Novo Nordisk 7688 7.9 4.4 10.8 5.1 7.7 13.1 20.8
Roche** 17387 4.5 4.1 4.0 4.4 5.2 4.3 4.9
Sanofi*** 12640 9.5 5.6 4.9 8.2 3.4 12.1 26.4
Shire 4047 8.5 3.9 -0.9 2.2 8.4 4.4 10.4
UCB** 1453 10.0 9.0 11.0 13.0 11.1 10.4 4.9
Sales Weighted Avg 202207 3.6 0.9 1.5 6.1 8.9 9.4 9.6
US domicile 121146 0.0 -2.7 -1.7 4.7 10.5 10.6 9.0
EU dom icile 81060 8.7 6.1 6.0 8.1 6.5 7.7 10.4 Source: Company data, Credit Suisse estimates
Figure 102: Implied US Volume/mix growth %
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014
Abbvie 10764 2.8 11.3 3.5 -7.3 -14.8 -5.9
Amgen 14729 0.0 0.2 -4.7 1.9 13.7 -1.1 1.8 -1.0
BIIB 6684 0.0 19.8 9.7 16.7 -2.4 -1.9 31.2 32.8
BMY 7716 21.1 18.1 12.9 8.1 16.6 -31.7 -30.9 -19.8
Celgene 4164 0.0 34.5 11.4 25.6 28.2 6.5 18.2 5.3
Lilly 7860 18.0 7.3 13.9 5.5 -8.3 -23.7 -5.9 -36.7
Gilead 18520 0.0 0.0 4.5 19.4 2.0 10.8 13.9 158.2
JNJ 17422 3.4 -4.9 -11.5 3.7 -9.9 -6.4 3.7 19.9
Merck 14215 9.8 -7.3 -2.5 -4.1 -9.4 -9.9 -23.4 -11.6
Pfizer 19073 -6.2 -9.9 3.7 -8.4 -14.9 -32.8 -17.0 -19.2
Actelion 1024 0.0 0.0 0.0 11.4 10.1 -0.8 -0.9 -1.3
AZN 10120 2.1 -8.8 24.1 -24.0 -10.1 -26.8 -14.9 -2.9
Bayer 3628 38.1 -18.8 -19.7 -28.1 -22.5 -0.3 4.1 -2.4
GSK 10732 0.0 -20.2 -15.8 -12.1 -11.9 -8.8 -5.7 -14.4
Novartis* 12342 -6.2 -10.1 7.9 9.8 -14.3 -9.6 -8.3 -13.8
Novo Nordisk 7688 21.2 10.9 9.9 12.3 13.2 11.4 4.4 -10.1
Roche 17387 20.2 30.1 0.5 -4.4 -2.9 2.6 5.4 2.2
Sanofi 12640 0.0 -12.1 -1.8 -19.0 -3.6 -3.8 -12.3 -18.7
Shire 4047 40.5 12.1 -12.0 10.3 26.6 1.5 5.7 11.2
UCB 1453 8.0 -20.7 -34.2 -31.0 -19.8 9.4 2.0 4.1
Sales Weighted Avg 202207 6.1 -0.6 1.7 -1.3 -3.6 -10.9 -7.3 -3.2
US domicile 121146 4.6 0.3 2.2 3.0 -2.1 -14.4 -9.3 0.1
EU domicile 81060 8.1 -1.9 1.0 -7.5 -5.8 -5.8 -4.5 -7.9
*Novartis impacted in 2010 by first time consolidation of Alcon Pharma Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 35
Figure 103: US pharma sales growth %, CS forecasts from 2015
Company
2014 US pharma
sales 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Abbvie 10764 10.7 10.4 5.3 -2.4 5.7 23.0 7.1 3.0 2.4
Amgen 14729 0.2 -2.8 1.1 4.2 9.3 9.6 4.9 6.9 2.9 3.6 -0.2
BIIB 6684 19.8 9.3 7.2 6.4 13.3 45.4 43.2 17.2 10.7 5.9 4.1
BMY 7716 21.1 18.1 12.1 6.1 9.7 -25.8 -19.0 -7.2 -4.1 12.5 11.0 2.2
Celgene 4164 34.5 1.7 23.1 30.4 13.1 26.4 11.7 23.9 14.9 13.2 9.3
Eli Lilly 7860 18.0 7.3 12.1 4.0 -0.1 -7.7 4.6 -32.6 -0.6 10.8 5.1 6.1
Gilead 18520 16.3 9.2 20.6 18.8 164 0.3 -3.2 -5.9 -26.5
JNJ 17422 3.4 -4.9 -12.1 -4.0 -1.1 0.3 12.3 24.9 -0.4 5.1 1.9 0.8
Merck 14215 9.8 -7.3 -3.1 -11.8 -0.5 -0.4 -12.8 -4.3 14.5 8.7 0.5 5.1
Pfizer 19073 -6.2 -9.9 -3.6 -3.3 -7.3 -20.9 -4.9 -5.9 -6.4 5.5 6.5 3.3
Actelion 1024 11.4 1.1 4.4 6.3 16.5 4.7 -4.4 4.8 4.7
AZN 10120 2.1 1.2 32.1 -18.2 0.1 -20.6 -9.0 4.4 -9.0 -5.4 -13.7 14.4
Bayer 3628 38.1 -1.0 -2.4 -11.4 -14.9 6.7 11.4 7.4 1.7 -5.2 -0.6 -1.1
GSK 10732 -11.3 -12.4 -10.7 -4.0 -3.3 1.7 -11.7 -1.9 -5.2 3.6 3.8
Novartis 12342 -6.2 -1.6 15.2 22.1 -1.6 2.8 0.1 -3.7 1.8 2.7 8.2 7.7
Novo Nordisk 7688 21.2 18.8 14.4 23.1 18.3 19.2 17.5 10.7 10.4 6.5 4.9 4.4
Roche 17387 20.2 34.6 4.6 -0.4 1.5 7.8 9.7 7.1 4.7 6.2 2.9 6.8
Sanofi 12640 -2.6 3.8 -14.1 4.6 -0.4 -0.2 7.7 -3.3 3.2 4.6 5.8
Shire 4047 40.5 20.6 -8.1 9.4 28.8 9.9 10.1 21.6 10.5 9.9 10.5 12.0
UCB 1453 8.0 -10.7 -25.2 -20.0 -6.8 20.5 12.4 9.0 15.8 11.9 13.3 11.8
Sales Weighted Avg 202207 2.9 2.7 0.0 2.2 -1.9 2.0 6.3 3.1 4.7 3.4 3.9
US Sales Weighted Avg 121146 0.3 -0.2 0.9 2.3 -3.9 1.1 8.7 4.8 6.9 4.1 1.5
EU Sales Weighted Avg 81060 6.8 7.4 -1.0 2.1 0.7 3.2 2.9 0.5 1.3 2.2 7.1 Source: Company data, Credit Suisse estimates
Rebate disclosures are typically made only annually by most companies at an aggregate
global or US level. However, we have found that a comparison of IMS gross sales
reported quarterly and actual reported net sales from company results give directionally
the same results as the more detailed annual company level data suggesting that
investors can usefully compare product level data which are available on a more timely
basis.
In Figure 104 we show that gross to net sales data for Advair comparing IMS gross sales
to company reported net sales compares well with the aggregate level of corporate
disclosure for GSK. The same can be said for Crestor and aggregate rebate data for AZN,
and for Januvia and overall Merck. For Lilly just looking at Humalog data would suggest a
much higher overall rebate burden increase than we see from aggregate Lilly data.
Figure 104: Comparison of reported overall rebate levels for companies and calculated rebates for key drugs from the
difference between IMS calculated gross sales and company reported net sales
0%
10%
20%
30%
40%
50%
60%
20
09
20
10
20
11
20
12
20
13
20
14
20
09
20
10
20
11
20
12
20
13
20
14
20
09
20
10
20
11
20
12
20
13
20
14
20
09
20
10
20
11
20
12
20
13
20
14
Advair ( GSK) Crestor (AZN) Humalog (Eli Lilly) Januvia/Janumet (Merck
Rep
ort
ed a
gg. c
om
pan
y r
ebat
es &
CS
calc
ula
ted
pro
du
ct r
ebat
es
CS calc (for product) Company reported (US pharma total) IMS estimate (for product)
Source: Company data, Credit Suisse research. CS calculation based on IMS Health NPA data IMS estimate is made using broader audit
information not all regularly available to the financial community. Company reported data reflects full US operations not just one drug.
01 May 2015
Global Pharma 36
Appendix 3: Pricing impact of the Medicaid trap
In Figure 110 we highlight the key features of the Medicaid and Medicare programmes and
in Figure 108 we use IMS Health data on the source of payment by drug to show the
exposure of our universe to these funding programmes. Overall data suggest that around
7% of branded drugs are purchased for cash, outside of some form of health insurance
programme. Whilst companies are able to price commercial contracts freely, there are
onerous pricing restrictions, particularly on sales to Medicaid (c 7% of total). We believe
that many Medicare plans have full price protection as a cost of formulary access, such
that all price rises are effectively rebated away.
There has been only a limited change in the source of payment between 2012 and 2014,
with our analysis suggesting that on average commercial insurance has fallen from 68% to
64% of funding. Medicare Part D shows a corresponding increase from 18% to 20% with
Medicaid stable at around 7%. On a full market basis, Medicare and Medicaid are more
significant players given their high use of generics. The data here reflect just the exposure
of the branded drug companies in our analysis (see Figure 108).
In Figure 105 we plot the level of rebates against exposure to Medicare. It seems clear
that in addition to rebates correlating well with overall product uniqueness which is
illustrated in Figure 12, we also see the expected link with exposure to the most price
conscious and restrictive access government funded programmes.
Figure 105: Exposure to Medicare and Medicaid and 2014 rebates
Abbvie
Amgen
BIIB
BMY
Celgene
Gilead
JNJ
Lilly
Merck
Pfizer
Actelion
AstraZeneca
GSK
Novartis
Novo Nordisk
Sanofi
Shire
UCB
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Med
icare
/m
ed
icaid
2014 rebate % Source: Company data, Credit Suisse estimates
Within Medicaid, companies are only able to inflate drug prices annually in line with the
Consumer Price Index (CPI). The resulting price is then used to calculate the “best price”
for Medicaid reimbursement, from which a mandatory 23% rebate is then added.
Companies with large products that have been on the market for many years will be
particularly impacted by the cumulative impact of annual price rises restricted to CPI
growth alone.
01 May 2015
Global Pharma 37
In Figure 107 we show that the effective US Medicaid price might well be >70% below the
list price for drugs more than 10 years old using Novolog for NovoNordisk launched in
2001 as an example. We estimate that a starting AWP of around $4.77 in 2001 is now
around $31.4 with a WAC of $26.2. Applying the cumulative CPI inflator for 14 years this
suggests a base WAC price for Medicaid rebating of around $5.86 a 78% discount to the
current AWP. From this base price there is a mandatory incremental 23% rebate taking
the overall price down to $3.42 against a typical WAC price for a cash customer of $25-26.
New presentations and delivery devices may allow for some resetting of prices but for a
basic product that has been on the market for more than 10 years the cumulative level of
discounts could now be well over 70%. We understand that some payers are very
resistant to new presentations being added to formularies, presumably in part to avoid
seeing this resetting of pre discount prices..
Figure 106: Sales of selected US drugs launched at least 10 years ago
Company Brand Name
Yr of US
Launch
2014 US Net
Sales ($m)
2014 IMS US
Gross Sales
($m)
CS estimate
of Gross to
Net
Dec 2006
AWP $ per
day/course
April 2015
AWP $ per
day/course
CAGR List
Price Rise
06-15
CS Calc
Medicaid base
price 2015 $*
CS calc
Medicaid base
price % vs. April
15
Abbvie Humira 2003 6,524 7,222 10% 786.6 1921.3 12% 996.4 48%
Abbvie Synthroid 1957 709 998 29% 0.5 1.3 12% 0.6 50%
Amgen Enbrel 1999 4,325 5,506 21% 196.7 437.1 11% 249.1 43%
Amgen Neulasta 2002 3,527 3,831 8% 3418.8 5622.2 6% 4330.8 23%
Amgen Neupogen 1991 838 839 0% 424.3 610.6 5% 537.5 12%
Amgen Sensipar 2004 807 925 13% 11.7 22.0 8% 14.8 33%
AZN Crestor 2003 2,918 5,848 50% 3.3 8.2 12% 4.2 49%
AZN Nexium 2001 1,876 5,931 68% 698.9 1113.9 6% 885.4 21%
AZN Synagis 2005 499 646 23% 1671.9 2962.4 7% 2117.9 29%
AZN Byetta 2005 199 321 38% 7.6 19.1 12% 9.7 50%
Bayer Betaseron 1993 500 730 32% 132.9 457.6 17% 168.4 63%
Bayer Mirena 2001 577 588 2% 0.3 0.5 8% 0.4 33%
BMY Abilify 2002 3,623 7,838 54% 15.9 35.7 11% 20.1 44%
BMY Reyataz 2003 689 892 23% 31.0 51.2 6% 39.2 23%
Eli Lilly Humalog 1996 1,628 1,674 3% 8.8 24.3 14% 11.1 54%
Eli Lilly Cialis 2003 1,040 1,383 25% 13.6 45.5 16% 17.2 62%
Eli Lilly Evista 1998 207 245 16% 3.4 7.9 11% 4.3 46%
Eli Lilly Forteo 2002 539 635 15% 27.2 75.4 14% 34.4 54%
Eli Lilly Strattera 2002 455 718 37% 9.5 24.2 12% 12.0 50%
Forest Namenda 2003 762 1,588 52% 5.4 13.6 12% 6.9 49%
GSK Advair Diskus 2001 3,254 4,813 32% 5.5 9.6 7% 7.0 27%
GSK Avodart 2005 426 499 15% 3.3 6.1 8% 4.2 31%
GSK Ventolin HFA 1969 541 811 33% 2.1 3.0 5% 2.6 12%
JNJ Remicade 1998 4,155 4,502 8% 699.0 1168.5 7% 885.5 24%
JNJ Risperdal Consta 2003 429 472 9% 10.5 14.6 4% 13.4 9%
JNJ Aciphex 1999 27 109 75% 5.3 16.8 16% 6.7 60%
Merck Zetia 2003 1,475 2,037 28% 3.2 8.6 13% 4.0 53%
Merck Nasonex 1997 576 1,184 51% 5.4 13.9 13% 6.8 51%
Merck Vytorin 2004 556 774 28% 3.4 8.9 13% 4.3 51%
Merck KGaA Rebif 2002 1,289 1,387 7% 160.7 543.4 16% 203.6 63%
Merck KGaA Gonal-F 2004 198 389 49% 556.5 792.0 5% 705.0 11%
Novartis Gleevec 2001 2,170 2,307 6% 137.0 368.4 13% 173.5 53%
Novartis Sandostatin LAR 2004 710 729 3% 2299.6 3668.4 6% 2913.0 21%
Novo Nordisk Novolog 2001 1,831 4,424 59% 10.9 31.4 14% 13.8 56%
Novo Nordisk Novolin 70/30 1986 359 787 54% 3.8 13.1 17% 4.8 64%
Novo Nordisk Levemir 2006 1,213 2,535 52% 5.4 14.9 14% 6.8 54%
Pfizer Lyrica 2005 2,314 3,087 25% 6.2 21.1 17% 7.8 63%
Pfizer Celebrex 1999 1,875 2,450 23% 2.1 5.6 13% 2.7 52%
Pfizer Viagra 1998 1,136 1,318 14% 11.9 41.5 17% 15.1 64%
Pfizer Lipitor 2000 242 261 7% 2.9 5.9 9% 3.7 38%
Roche Rituxan 1997 3,173 3,473 9% 59.4 86.9 5% 75.2 13%
Roche Avastin 2004 2,909 2,888 -1% 343.8 407.2 2% 435.5 -7%
Roche Herceptin 2003 2,162 2,193 1% 3047.2 4460.3 5% 3860.1 13%
Roche Tarceva 2004 704 654 -8% 120.6 268.4 11% 152.7 43%
Roche Tamiflu 1999 754 842 10% 8.4 12.2 5% 10.7 12%
Roche Pegasys 2001 213 319 33% 300.9 594.2 9% 381.1 36%
Sanofi Lantus 2001 5,615 7,870 29% 8.0 14.9 8% 10.2 32%
Shire Adderall XR 2001 383 840 54% 4.0 8.5 10% 5.1 41%
UCB Keppra 2001 201 253 21% 5.6 16.6 15% 7.1 57%
Sum/sales weighted average 73,132 102,565 29% 10% 37% Source: Company data, Wolters Kluwer Prices, Credit Suisse estimates
Drugs that have had particularly long effective patent lives with significant sales 10 or even
15 years after launch will have accumulated the highest regulatory rebates, some of these
are listed in Figure 106. Here we see c$73bn of net sales of drugs in 2014 all launched
01 May 2015
Global Pharma 38
before mid 2006 listed by marketing company. Comparing IMS gross sales to company
reported or CS estimated US company sales, we see on average a 29% gross to net
adjustment. Of note is the discrepancy between an average gross to net discount for 2014
for Lantus of 28% and a much higher gross to net adjustment suggested for Levemir of
52%. Data for the oncology drug Avastin show no discount at all with IMS sales slightly
lower than the sales reported by Roche. Our analysis suggests that for the Medicaid
population on average the base price from which the 23% Medicaid discount must be
added is already some 37% below the current list price. This suggests that the typical
effective Medicaid price for this cohort of drugs is c 48% of current list prices.
UCB showed a significant increase in effective rebates in 2014 for Vimpat and attributed
this to a marked shift in patients moving to government subsidised healthcare cover with
higher rebates. For Vimpat alone, our IMS data suggest that the percentage of sales via
Medicare rose from 29.5% in 2012 to 35% in 2014. However, at the US pharma divisional
level, the change was only from 18% to 20% given the stability of Medicare exposure for
Cimzia reported by IMS at c 6%.
Figure 107: Effective Medicaid price could be >70% below list price for older drugs
Novo Retail Commercial Medicare Medicaid Weighted Avg
Novolog 4 58 33 5 41
Levemir 3 52 42 3 22
Novolog mix 3 41 51 5 14
Victoza 2 72 24 2 22
Diabetes sales Weighted 3 57 36 4 100
WAC Novolog Apr 2015 26.2 26.2 26.2 26.2 26.2
CPI pricing adjustment 0% -78%
price for rebate 26.2 26.2 26.2 5.86 26.2
mandatory rebate ** 0% -23%
commercial rebate -2% -46% -46% 0%
effective price 25.68 14.15 14.15 4.52 14.20
-2% -46% -46% -83% -46% Source: Company data, Credit Suisse estimates ** mandatory Medicaid rebate moved from 15.1% to 23.1% in 2010
01 May 2015
Global Pharma 39
Figure 108: 2012 and 2014 Source of payment for US drugs
Company data Cash Medicaid
Medicare
Part D
Third
Party Cash Medicaid
Medicare
Part D Third Party
Abbvie 6% 5% 8% 81%
Amgen 3% 4% 12% 65%
BIIB 1% 2% 8% 90%
BMY 2% 13% 24% 60%
Celgene 0% 1% 15% 83%
Gilead 2% 10% 17% 71%
JNJ 3% 5% 19% 73%
Lilly 5% 14% 26% 55%
Merck 10% 4% 29% 58%
Pfizer 23% 3% 21% 53%
Actelion 2% 5% 3% 90%
AstraZeneca 23% 2% 14% 61% 23% 3% 21% 53%
Bayer 4% 23% 5% 68% 4% 14% 11% 72%
GSK 7% 6% 23% 63% 8% 5% 30% 57%
Novartis 4% 6% 22% 69% 4% 7% 20% 70%
Novo Nordisk 5% 6% 30% 60% 6% 10% 36% 49%
Roche 2% 7% 9% 82% 6% 5% 10% 79%
Sanofi 7% 10% 29% 54% 7% 11% 28% 54%
Lundbeck 0% 10% 0% 89% 1% 13% 7% 79%
Meda 3% 5% 17% 76% 4% 3% 18% 76%
Merck KGaA 3% 5% 6% 86% 3% 4% 6% 87%
Shire 1% 18% 2% 79% 2% 16% 5% 77%
UCB 2% 11% 18% 68% 2% 10% 20% 68%
US & EU weighted avg 7% 7% 19% 66%
US total/weighted average 7% 6% 18% 67%
EU total/weighted average 7% 8% 18% 68% 8% 7% 20% 64%
2012 IMS source of payment 2014 IMS source of payment
Source: IMS Health Audit Data Company data, Credit Suisse estimates
01 May 2015
Global Pharma 40
Figure 109: Payer Mix Highly variable sources of funding, examples from Lundbeck
Source: Lundbeck IR, Credit Suisse research
01 May 2015
Global Pharma 41
Figure 110: Key features of the Medicaid and Medicare programmes for pharmaceuticals Medicaid Medicare Dual eligibles Commercial
Entitlement for the poor for the elderly poor/elderly anyone - self pay/employer pay
Funding State /Federally funded program Federally funded program State /Federally funded program self/corporate
Rebates Flat rate rebates rebates linked to the donut hole program dependant rebates, no
overarching rebate
volume /mkt share related rebates
* list price less 23% (with a few
prompt payment adjustments)
OR * match best commercial price
BUT Best commercial price is
calculated as price at launch inflated
by CPI only for each year since
launch and is NOT ACTUAL best
price
Formularies States can ask for "supplemental "
rebates on top of the federal
rebates to maintain formulary
position, these can be sufficiently
high for companies to walk away
from Medicaid formulary access on a
state by state basis
Depends on the source of funding,
usually administered by a
commercial plan manager, and
formularies can be similar to
commercial formularies in positioning
and discounts.
all part D outpatient drugs provided
via Medicare Part D rather than
Medicaid.
Active management of formularies
with differential co-pays, rebates
earned for directing mkt shares and
achieving negotiated targets
Delivery often local providers - working with
individual state requirements
Medicare Advantage, FFS Medicare Advantage, FFS, SNP.
Note eligibility criteria are different
for each program and Medicare
eligibility takes longer to establish
then Medicaid, (who pays for initial
health screen?) legal requirements
on documentation are different for
Medicare and Medicaid, networks
are historically different - which ones
should be covered?
Contract timing Tends to be January
KEY SNP - Special Needs Plan
D-SNP = Dual eligible Special Needs Plan
FFS - traditional Fee For Service plans , largely unrestricted choice of doctors/hospitals
CMS Financial Alignment Demonstration, proposed development of 3 way contracts , Medicare/Medicaid/Health Plans to develop a capitated model
PACE - Program of All inclusive Care for the Elderly. This has a frailty adjuster for payments, only certain plans qualify for this
Pharma covers 50% of the cost of
drugs for beneficiaries whose total
drug bill was greater than $2830
(2011), up until it reaches $4550
(2011) when catastrophic cover
kicks in. Each year the donut hole
closes a little and the subsidy
provided by the
manufacturer/marketer should fall
as insurers pay to close the gap
Medicare Advantage: typically brings together part D (outpatient drugs) and part B (hospital) coverage for the elderly. Programs are funded with risk
adjustments and bonus payments for special circumstances (frail elderly/chronic mental illness/physically disabled under 65 etc.)
Source: Kaiser Health Policy Paper March 2013, Credit Suisse estimates
01 May 2015
Global Pharma 42
Appendix 4: Uniqueness Status
The data in Figure 112 to Figure 111 look at the level of uniqueness of a company's
branded pharmaceutical portfolio and is taken from our PharmaValues database. This
database allows us to categorise all drugs sold by our universe of companies in each
indication, in each region and in each year based on various rules to determine the level of
competition and thus indirectly the level of potential rebates pressure.
Unique: For all primary care categories and the majority of specialist categories, we
define a drug as unique if there are only one or two drugs with the same mechanism of
action in a given indication in a given region. For some specialist categories, such as
cancer, we assume that there are no directly substitutable drugs and so all cancer drugs
are deemed to be unique until the patent has expired or a generic for each specific product
has been launched. For cancer drugs, we assume no impact on any one drug from the
patent expiry of another drug with a similar mechanism. A good example of a unique
cancer drug would be Avastin from Roche, and examples of unique drugs in diabetes
would be Byetta and Victoza as GLP-1 drugs ahead of the launch of Bydureon in early
2012. From 2012, with three competing drugs, all three drugs moved into the discountable
category.
Discountable: These are drugs with patent protection, but where there are three or more
broadly equivalent drugs available, with the same mechanism of action. Good examples in
this category would be all of the angiotensin 2 antagonists up until the time of Cozaar
patent expiry. When one drug with sales of at least 20% of the category/indication in the
year of generic entry has gone off patent then all of the previously discountable drugs are
moved into the category of substitution risk. For future launches we only adjust the
uniqueness status where we ascribe new entrants to have at least a 50% probability of
approval.
Substitution risk: This covers patent protected drugs in categories where a “standard of
care” product-accounting for a least 20% of category/region sales has gone generic. We
expect effective price pressures to increase for other comparable products at this time with
evidence of therapeutic substitution impacting all drugs in a category. The best known
examples of this sort of “category killing” patent expiry would be in the statins. Up until the
patent expiry of Zocor in 2006, we classified all of the branded statins as discountable.
After 2006, all of the remaining patented drugs move to the substitution risk group. Up until
2015, both of the long acting basal insulins, Lantus and Levemir, were deemed unique but
after the patent expiry Lantus in 2015, then Lantus, the new formulation Toujeo and Novos
new generation Tresiba are deemed substitution risk.
Generic risk: This covers drugs where patents have expired but where regulatory or other
barriers have offered additional protection from generics. We have identified these drugs
as a separate group as our modelling suggests no change to the products status, but there
is a theoretical risk of unexpected generic competition. Examples in this class would be
Lovenox from Sanofi Aventis between 2007 and 2010, covering the period from the patent
rejection by the courts to first generic entry. A current example is Flovent from GSK, where
the patent expired in 2004 but where there is still no generic competition. We only classify
drugs in this group if there are “small molecules”, “biological” products beyond patent
expiry remain designated as unique/discountable or at risk of substitution.
Multi source: This covers drugs after patent expiry where there is generic competition.
Good examples of drugs in this class would be the early years post patent expiry of
Prilosec from AstraZeneca and Voltaren from Novartis, where both brands continued to
register significant sales despite widespread availability of generic versions of these
products. We have also classified all of the residual “tails” of unidentified products as multi
source for the purposes of this analysis. Where sales of drugs persist at least 5 years post
patent expiry in a region we classify them as sustainable brands and this is where residual
Prilosec sales are counted from 2005.
01 May 2015
Global Pharma 43
Sustainable Brand: This encompasses sales of prescription drugs sold on brand equity,
normally where the choice is highly influenced by the consumer, and where we think
patents are largely irrelevant to the pricing/purchasing decision. Examples include the
aesthetic drugs Dysport and Botox, which are self-pay and drugs which might otherwise
be classified as OTC such as Bayer’s prescription aspirin and all of the cough/cold drugs
and anti-diarrhoeal/laxative that we have in our database (e.g. Smecta for Ipsen). We have
also classified all branded drugs where we have individual sales forecasts in our database
more than 4 years post generic entry to be sustainable brands. Good examples of drugs
here would be Prilosec from AstraZeneca (effective patent expiry in 2001 but sales in 2011
outside of the US of $908m) and Voltaren from Novartis (effective patent expiry ex US in
1995 but sales in 2011 $794m). We have not included sales of drugs post patent expiry in
Japan as sustainable brands, as we believe that the drivers of growth in Japan are quite
different.
Figure 111: Global majors: Branded, economic drug sales by uniqueness status vs. forecast operating margins
0%
10%
20%
30%
40%
50%
60%
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20%
30%
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60%
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18
Abbvie AZN Bayer BMY GSK JNJ LLY MRK Novartis Novo PFE Roche Sanofi Takeda Average
Op
erat
ing
Mar
gin
(lin
e)
% B
ran
ded
Dru
g sa
les
Unique+sustainable Discountable Substitute risk Multisource HC Op Margin Source: Company data, Credit Suisse estimates
Figure 112: US biotech: Branded, economic drug sales by uniqueness status vs. forecast operating margins
0%
10%
20%
30%
40%
50%
60%
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20%
30%
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60%
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100%
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Actelion Alkermes Almirall Galenica Ipsen Lundbeck Meda MRCG Orion Recordati UCB Average
Op
erat
ing
Mar
gin
(lin
e)
% B
ran
ded
Dru
g sa
les
Unique+sustainable Discountable Substitute risk Multisource HC Op Margin Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 44
Figure 113: Global Speciality: Branded, economic drug sales by uniqueness status vs. forecast operating margins
0%
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30%
40%
50%
60%
70%
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Amgen Alexion BIIB Biomarin Celgene Gilead MDVN REGN UTHR Vertex Average
Op
erat
ing
Mar
gin
(lin
e)
% B
ran
ded
Dru
g sa
les
Unique+sustainable Discountable Substitute risk Multisource HC Op Margin Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 45
Appendix 5: US healthcare system, flow of rebates
The $76.5bn of rebates we have identified from the 15 companies surveyed is an integral
part of the funding of the PBM industry, although the increasing use of generics (typically
70-80% of volume usage) has lessened reliance on branded drug rebates. In Figure 114
we show how rebates flow between manufacturer and payers, both direct and via the
medium of the pharmacy benefit managers (PBMs). Figure 114 shows a schematic,
whereas Figure 115 attempts to illustrate typical payments for key categories of drug via
different distribution channels, with rebates central to most delivery routes.
We are grateful to our US colleagues who cover the US healthcare distribution space for
sharing the data with us (Glen Santangelo, Jeffrey Bailin, and Tyler Harris).
Figure 114: US Pharmaceutical supply chain ( via retail)
Source: Company data, Credit Suisse estimates
0
1 M
ay
20
15
Glo
ba
l Ph
arm
a
46
Figure 115: Fund flow for typical drug (prices and rebates) Comment
Typical list price AWP
formulary position tier 2- 5 tier 2- 5 tier 1 tier 1 tier 3- 5
patient payment
Typically tier 1 generic $0-5 per month, Tier 2 preferred brand $20-30,
Tier 3-4 higher co-pay levels, tier 5 % co pay rather than flat rate.
Employer pays the PBM
* AWP less negotiated discount
* claims processing fee
*Transaction fee
*dispensing fee
employer pays PBM AWP less 14.75-15.25%
PBM
( revenue - pre costs)PBM pays retail pharmacy
* AWP less negotiated discount
BRAND: PBM earns 3-5% from manufacturer for sale of pharmacy
informationBRAND: PBM pays retail pharmacy AWP -15-16.5% + $1 fee
SPECIALTY larger customers secure drug specific pricing on c 150
drugs
Pharmacy Pharmacy
typically 20% gross margin and 6% op margin
Wholesaler
Typically overall has 3.5% gross margin and 1.5% net margin
Generics - wholesalers offer contract prices which may have no relation
to AWP to large retail customers. A typical mark up for a wholesaler
might be 15%, PBMs /mail order may source direct from
manufacturers bypassing wholesalers
$397.1 $8.1 $18 $1,975 Manufacturer pays
3-5% to PBM for sale of pharmacy information
pays PBM /employers rebates for volume (in this example c 10%)
Effective PBM
margin from list price
6% 9% 3% 8.5% 6%
Effective
manufacturer revenue
from list price
65% 69% 17% 8.8% 79%
$1.4
$11.9
three months of treatment
<-$
1.5
adm
in/c
linic
al f
ee
$53.2
5
$10.5
one month of treatment
$190
<--
$162.5
(A
WP
-16%
)
$20- $60
one month of treatment
$162.5
BRAND- retail
<--
$159.6
(A
WP
less
15-1
6.5
% +
$1
dis
pensi
ng f
ee)
<--
$10.4
5 (
MA
C -
AW
P le
ss 7
8%
)
<--
$419.7
5 (
PB
M p
ays
whole
sale
r
AW
P le
ss 2
0%
-25-2
9%
less
5-9
%
whole
sale
r ch
arge)
<--
$127.7
<--
$8
contr
act
pric
ing -
-> $
10.0
4
(PB
M c
olle
cts
8-1
2%
rebat
e -
of
whic
h it
keeps
around 1
5-2
0%
and p
asse
s th
e r
est
on t
o e
mplo
yer)
- >
- >
$ 7
.6 (
3-5
% f
ee f
or
phar
mac
y in
form
atio
n)-
->
- >
$23 (
3-5
% f
ee f
or
phar
mac
y in
form
atio
n)-
->
a lo
t of
dire
ct s
ourc
ing f
rom
man
ufa
cture
rs
<--
$439.8
8
(A
WP
-22-2
5%
)
BRAND- mail-order
$575
$50-150
GENERIC- retail
$48
three months of treatment
SPECIALTY- mail-order
$2,500
one month of treatment
GENERIC- mail-order
$200
10-20% copay
$2,052.98
$ 4
7.5
->
(
80-8
5%
of
rebat
e p
asse
d o
n t
o e
mplo
yer)
$392.4
<--
$11.8
8
(A
WP
-78%
)
<--
$18 (
AW
P le
ss 9
0-9
2%
)- b
ut
in p
ract
ice A
WP
m
ay n
ot
be r
ele
vant
with
contr
act
pric
ing
0-5
$35.0
<--
$35
(A
WP
82-8
3%
)
$17.0
$123.8
Tiering determines patient co-pay made to pharmacist , determined by
each PBM with employers typically tier 1 generic, tier 2 preferred brand
, tier 3-4 higher co-pay levels
Employer/Insurer
(effective cost of Rx)
Manufacturer
(effective income)
<--
$2115.6
3
(A
WP
82-8
3%
)
$153.8
<--
$1975 (
AW
P le
ss 2
0-2
2%
)
may
be s
ourc
ed d
irect
fro
m
man
ufa
cture
r- m
ay a
lso h
ave a
speci
fic d
istr
ibutio
n f
ee f
or
$ a
ny
phar
mac
y re
late
d f
ees
for
speci
ality
dru
gs
like t
here
are
for
regula
r bra
nds
, none q
uote
d in
your
exa
mple
$13.1
3 r
ebat
e o
f 3%
reta
ined b
y P
BM
- m
ore
pas
sed t
o e
mplo
yer/
insu
rer
$ 6
2.2
5 -
>
(80-8
5%
of
rebat
e p
asse
d o
n t
o e
mplo
yer)
Wholesaler
<$123.8
<$407.1
5
Source: Company data, Credit Suisse estimates
01 May 2015
Global Pharma 47
Appendix 6: Example Rebate disclosure
The disclosure of reconciliation from gross to net sales for US pharmaceuticals arose for
US listed companies whose principle business is in pharmaceuticals under Sarbanes-
Oxley rules disclosing key assumptions that may impact revenue recognition. Bayer is not
a pure healthcare company, and Roche, Merck KGaA, Lundbeck and UCB do not have a
full US listing and thus do not need to provide this disclosure, although we believe that it
would be best practice.
Different companies have different levels of disclosure but most give some breakdown of
data into various different elements of discount. We highlight what we perceive to be a
best practice disclosure from AstraZeneca PLC in its Annual Report and Form 20-F
Information 2014.
AZN 2014 Disclosure: Rebates, chargebacks and returns in the US
When invoicing sales in the US, we estimate the rebates and chargebacks that we expect
to pay. These rebates typically arise from sales contracts with third party managed-care
organisations, hospitals, long-term care facilities, group purchasing organisations and
various federal or state programmes (Medicaid ‘best price’ contracts, supplemental
rebates etc). They can be classified as follows:
Chargebacks, where we enter into arrangements under which certain parties, typically
hospitals, long-term care facilities, group purchasing organisations, the Department of
Veterans Affairs, Public Health Service Covered Entities and the Department of Defense,
are able to buy products from wholesalers at the lower prices we have contracted with
them. The chargeback is the difference between the price we invoice to the wholesaler
and the contracted price charged by the wholesaler. Chargebacks are paid directly to the
wholesalers.
Regulatory, including Medicaid and other federal and state programmes, where we pay
rebates based on the specific terms of agreements with the US Department of Health and
Human Services and with individual states, which include product usage and information
on best prices and average market prices benchmarks.
Contractual, under which entities such as third party managed-care organisations are
entitled to rebates depending on specified performance provisions, which vary from
contract to contract. The effects of these deductions on our US pharmaceuticals revenue
and the movements on US pharmaceuticals revenue provisions are set out opposite.
Accrual assumptions are built up on a product-by-product and customer-by customer
basis, taking into account specific contract provisions coupled with expected performance,
and are then aggregated into a weighted average rebate accrual rate for each of our
products. Accrual rates are reviewed and adjusted on a monthly basis. There may be
further adjustments when actual rebates are invoiced based on utilisation information
submitted to us (in the case of contractual rebates) and claims/ invoices are received (in
the case of regulatory rebates and chargebacks). We believe that we have made
reasonable estimates for future rebates using a similar methodology to that of previous
years. Inevitably, however, such estimates involve judgements on aggregate future sales
levels, segment mix and the customers’ contractual performance.
Managed-care and group purchasing organisation rebate charges increased by $812
million in 2014 (2013: $1,321 million; 2012: $160 million) mainly due to the impact of price
increases on price-protected business and pricing pressure resulting in higher negotiated
rates particularly in the Medicare Part D business.
Cash discounts are offered to customers to encourage prompt payment. Accruals are
calculated based on historical experience and are adjusted to reflect actual experience.
Customer Returns Industry practice in the US allows wholesalers and pharmacies to
return unused stocks within six months of, and up to 12 months after, shelf-life expiry. The
customer is credited for the returned product by the issuance of a credit note. Returned
01 May 2015
Global Pharma 48
products are not exchanged for products from inventory and once a return claim has been
determined to be valid and a credit note has been issued to the customer, the returned
products are destroyed. At the point of sale in the US, we estimate the quantity and value
of products which may ultimately be returned. Our returns accruals in the US are based on
actual experience. Our estimate is based on the preceding 12 months for established
products together with market-related information, such as estimated stock levels at
wholesalers and competitor activity, which we receive via third party information services.
For newly launched products, we use rates based on our experience with similar products
or a pre-determined percentage.
Source AZN 2014 Annual Report
Figure 116: Gross to net sales- US Pharmaceuticals
Source: AstraZeneca PLC Annual Report and Form 20-F Information 2014
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Companies Mentioned (Price as of 26-Apr-2015)
AbbVie Inc. (ABBV.N, $66.07) Actelion (ATLN.VX, SFr126.9) Alexion Pharmaceuticals Inc. (ALXN.OQ, $180.08) Alkermes plc (ALKS.OQ, $62.26) Almirall (ALM.MC, €16.98) Amgen Inc. (AMGN.OQ, $167.91) AstraZeneca (AZN.L, 4749.5p) Bayer (BAYGn.DE, €135.3) BioMarin Pharmaceutical, Inc. (BMRN.OQ, $120.28) Biogen Idec (BIIB.OQ, $401.71) Bristol Myers Squibb Co. (BMY.N, $65.8) Celgene Corp. (CELG.OQ, $118.71) Eli Lilly & Co. (LLY.N, $71.58) Galenica (GALN.VX, SFr890.5) Gilead Sciences Inc. (GILD.OQ, $103.7) GlaxoSmithKline plc (GSK.L, 1534.5p) Ipsen (IPN.PA, €48.04) Johnson & Johnson (JNJ.N, $101.08) Lundbeck (LUN.CO, Dkr132.1) Meda (MEDAa.ST, Skr143.2) Medivation (MDVN.OQ, $131.01) Merck & Co., Inc. (MRK.N, $57.6) Merck KGaA (MRCG.DE, €105.15) Novartis (NOVN.VX, SFr99.8) Novo Nordisk A/S (NOVOb.CO, Dkr390.3) Orion (ORNBV.HE, €30.17) Pfizer (PFE.N, $35.27) Recordati (RECI.MI, €18.18) Regeneron Pharmaceutical (REGN.OQ, $480.09) Roche (ROG.VX, SFr276.6) Sanofi (SASY.PA, €95.86) UCB (UCB.BR, €69.02) United Therapeutics Corp (UTHR.OQ, $186.69) Vertex Pharmaceuticals Inc. (VRTX.OQ, $133.2)
Disclosure Appendix
Important Global Disclosures
Vamil Divan, MD, Ravi Mehrotra PhD, Glen Santangelo, Jeffrey Bailin, CFA, Ari Jahja, Matthew Weston PhD, Jo Walton and Terence McManus each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return rela tive to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10 -15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 43% (53% banking clients)
Neutral/Hold* 38% (50% banking clients)
Underperform/Sell* 16% (43% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
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See the Companies Mentioned section for full company names
The subject company (BIIB.OQ, BMRN.OQ, AMGN.OQ, REGN.OQ, CELG.OQ, PFE.N, AZN.L, ROG.VX, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, JNJ.N, ABBV.N, UCB.BR, BMY.N, MRK.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (AMGN.OQ, REGN.OQ, CELG.OQ, PFE.N, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, ABBV.N, BMY.N, MRK.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (REGN.OQ, ROG.VX) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (AMGN.OQ, CELG.OQ, PFE.N, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, MRK.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (AMGN.OQ, REGN.OQ, CELG.OQ, PFE.N, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, ABBV.N, BMY.N, MRK.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (MDVN.OQ, BIIB.OQ, VRTX.OQ, BMRN.OQ, ALXN.OQ, AMGN.OQ, REGN.OQ, CELG.OQ, PFE.N, AZN.L, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, JNJ.N, ABBV.N, LUN.CO, IPN.PA, MRCG.DE, UCB.BR, BMY.N, GILD.OQ, MRK.N) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (REGN.OQ, ROG.VX) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (MDVN.OQ, BIIB.OQ, VRTX.OQ, BMRN.OQ, UTHR.OQ, ALXN.OQ, AMGN.OQ, REGN.OQ, CELG.OQ, PFE.N, LLY.N, JNJ.N, ABBV.N, BMY.N, GILD.OQ, MRK.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (BAYGn.DE, NOVN.VX, MRCG.DE, ATLN.VX).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the date of this report, an analyst involved in the preparation of this report, Vamil Divan, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common stock Pfizer (PFE.N). A member of the analyst's household is an employee of Pfizer (PFE.N).
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For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (MDVN.OQ, BIIB.OQ, VRTX.OQ, BMRN.OQ, UTHR.OQ, ALXN.OQ, AMGN.OQ, REGN.OQ, CELG.OQ, NOVOb.CO, PFE.N, PFE.N, PFE.N, AZN.L, ROG.VX, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, JNJ.N, ABBV.N, SASY.PA, LUN.CO, IPN.PA, ALM.MC, MRCG.DE, ATLN.VX, ALKS.OQ, RECI.MI, ORNBV.HE, UCB.BR, MEDAa.ST, GALN.VX, BMY.N, GILD.OQ, MRK.N) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
The following disclosed European company/ies have estimates that comply with IFRS: (AZN.L, SASY.PA, LUN.CO, ATLN.VX, ORNBV.HE, UCB.BR, BMY.N).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (AMGN.OQ, CELG.OQ, PFE.N, LLY.N, BAYGn.DE, NOVN.VX, GSK.L, BMY.N, MRK.N) within the past 3 years.
As of the end of the preceding month, Credit Suisse beneficially owned the following percentages of the voting rights of the subject companies: 1.0% or more of GALN.VX
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (Europe) Limited ............................... European Pharma Team ; Matthew Weston PhD ; Jo Walton ; Terence McManus
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
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