Limited 'Horizon'? PBMs may eliminate drug pair from formularies in 2015
By Randy Osborne
Word that a pair of pharmacy benefit managers (PBMs) may drop two nonsteroidal anti-inflammatory drugs (NSAIDs) from their formularies sent Horizon Pharma Inc. shares into a tailspin and caused onlookers to speculate about further pushbacks from payers and their agents against high drug prices.
Horizon, of Deerfield, Ill., said in an SEC filing that CVS Caremark and Express Scripts Inc. (ESI) have verbally told company officials that they could take Duexis (ibuprofen/famotidine) and the recently acquired Vimovo (naproxen/esomoeprazole magnesium) off their lists at the first of next year.
Shares of Horizon (NASDAQ:HZNP) closed Monday at $9.15, down $4.75, or 34.2 percent, after trading as low as $9.05.
As much as 30 percent of Duexis and Vimovo prescriptions could be affected, and more if other health care plans follow the lead of CVS and ESI. Earnings estimates for 2014 would not be hurt by the moves, the company noted, and guidance for 2015 will be provided in the fourth quarter of this year.
Meanwhile, Horizon will "immediately accelerate our patient and physician-focused commercial model to focus prescriptions through other channels such as our Prescriptions Made Easy program, continue working with many of the more than 60 other PBMs and evaluate price increases," according to the SEC filing. The strategy could mitigate damage done and even "enable further growth in the revenue of Duexis and Vimovo from current levels, particularly given our relatively nominal share of the NSAID market," in Horizon's view.
Late last year, Horizon gained U.S. commercialization rights to Vimovo for a $35 million payment to Astrazeneca plc, of London, partner of Chapel Hill, N.C.-based Pozen Inc. Under the terms, Pozen will continue to get a 10 percent royalty, but the Horizon deal adds guaranteed minimum royalty payments of $5 million for this year and $7.5 million for each year thereafter, assuming Vimovo's patent protection can block generic competition. (See BioWorld Today, Nov. 20, 2013.)
About the PBMs' warning, Horizon could not be reached. The specialty pharma firm was last heard from in March, when it disclosed plans to buy Dublin-based Vidara Therapeutics International Ltd. in a deal valued at about $660 million, adding a fourth marketed product and eventually moving its headquarters to Ireland for a better tax rate. (See BioWorld Today, March 20, 2014.)
PBMs, which help nail down contracts and put together formularies for insurers, have made known their plan to pare down the number of drugs they cover in each therapeutic class, which would cause pharma firms to work harder at differentiating their products to win positions on the lists. Coverage of expensive drugs has been especially an issue with therapies given orphan designation, but the rumblings by CVS and ESI suggest the protest has gone deeper. (See BioWorld Today, July 16, 2014.)
Horizon hardly has all of its eggs in one basket, as the SEC filing noted. In May, Piper Jaffray analyst Charles Duncan credited the company's diverse array of products with a satisfying first quarter "beating most top-line estimates handily." The firm also raised 2014 net revenue guidance from a range of $190 million-$205 million to a number between $270 million-$280 million.
But Duexis and Vimovo are significant contributors, noted Horizon CEO Tim Walbert during a conference call on the earnings. "The early performance of Vimovo, acquired in November of last year, has exceeded our expectations," he said, chalking up net sales of $34 million.
Prescriptions of Duexis jumped 36 percent in the first quarter of 2014 to 53,368 vs. about 39,000 in the first quarter of 2013. Net revenues for the first quarter of 2014 were $13.9 million vs. $4.9 million for the period last year.
Piper Jaffray's Duncan overall was pleased, though "a point of debate is the planned tax inversion [via the Ireland move] and whether it may or may not become a reality, and if any legislated tax inversions changes could be retrospectively applied," he wrote. "Horizon remains confident in the successful lowering of its tax rate from a projected high 30 percent (no inversion) to low 20 percent (with inversion), and we believe there is zero or limited probability of such legislation to gain traction."
Although industry figures might be tetchy and unwilling to talk about the PBM topic, analysts didn't mind weighing in, especially with regard to specific ones. Jefferies analyst Brian Tanquilut covers Express Scripts Holding Co., and wrote in a research report last month that "investor sentiment on the PBMs remains lukewarm and [ESI's] muted view on its selling season does not help drive renewed interest in the group, just as [health insurer Wellpoint Inc.'s] desire to renegotiate its PBM contract has created an overhang on the stock."
Tanquilut speculated that "while we see sentiment remaining low near term, we believe it will ultimately shift once the PBM sector demonstrates its ability to realize growth from specialty drugs and health care reform over the next few years."
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