UnitedHealth Changes Coverage Terms for Branded Drugs

Health insurer will no longer cover Sanofi’s insulin drug, Lantus, as of 2017

u1UnitedHealth Group Inc. (NYSE: UNH), the largest health insurer in the U.S., will stop covering several major branded drugs as of 2017, joining the growing trend of payers changing coverage terms to include lower-priced options. In a bulletin seeking client feedback by September 28th, 2016, UnitedHealth said that it would change reimbursement terms for long-acting insulin drugs. As part of these changes, the Company said that it will no longer cover Lantus, the blockbuster insulin drug sold by French drugmaker Sanofi SA (NYSE: SNY). Instead, UnitedHealth said that Basaglar, a cheaper biosimilar insulin sold by Eli Lilly and Co. (NYSE: LLY), would be covered under Tier 1. This in turn would lower costs for its members.

UnitedHealth’s move comes after rival CVS Health Corp. (NYSE: CVS) made a similar change in August 2016 to drop Lantus in favor of Eli Lilly’s new biosimilar. The sales impact of the Lantus exclusion for UnitedHealth would be lesser than that for CVS because UnitedHealth’s plan covers around 15 million people, while CVS’ covers 19 million people. Meanwhile, Sanofi has reaffirmed its sales expectations despite the exclusion of Lantus from the 2017 drug coverage. The Company is still predicting a 4% to 8% annual decline in diabetes drug sales over the next two years.

Additionally, UnitedHealth will move Levemir, produced by Novo Nordisk A/S (NYSE: NVO), from Tier 1 to Tier 2. The health insurer also said that it will exclude from its 2017 drug coverage u2Amgen Inc.’s (NASDAQ: AMGN) white blood cell-boosting drug Neupogen, and instead include Zarxio, a biosimilar sold by Novartis International AG (NYSE: NVS).

Tougher price regime for drug prices

Major drug companies are preparing for a tougher drug pricing environment in the U.S. in 2017, since government organizations are looking to clamp down on elevated drug prices, even while the rapidly increasing older population is intensifying pressures on the U.S. health system. While the new drug pricing would likely lead to a restructuring of the global pharmaceutical industry, drug makers will have to introduce new pricing models for their top-selling drugs.

Adding to the pricing pressure for drug companies is the advent of biosimilars, which are cheaper copies of protein-based biotech drugs such as Sanofi’s Lantus, which are no longer patent protected. They cannot be precisely replicated like conventional chemical drugs, but have been shown to be equivalent in terms of efficacy and side effects. Biosimilars are expected to generate revenue of $25 billion to $35 billion by 2020 according to industry experts. Globally, around 700 biosimilar molecules are undergoing various phases of development, targeting different therapeutic areas.

The advent of biosimilars is expected to benefit insurers, patients, and the medical community. Pharmacy Benefit Managers (PBMs) are expecting the launch of several biosimilars since the patient pool is set to rapidly expand owing to lower prices. PBMs are looking to work on securing pricing deals and benefits with companies that manufacture biosimilars.

For instance, Express Scripts Holding Company (NASDAQ: ESRX) expects to launch 11 biosimilars to save patients about $250 billion between 2014 and 2024, as per Bloomberg’s report on September 12th, 2014. Biosimilars will also lead to huge savings for patients covered within the Medicare and Medicaid programs. According to statistics gathered by the Congressional Budget Office, the savings from certain biosimilars will touch $25 billion during 2013-2020, owing to the Biologics Price Competition and Innovation Act of 2009. These savings will lower the cost of insurance, and PBMs will be able to provide competitive medicare premiums to patients.

Q2 FY16 financial highlights

UnitedHealth reported its Q2 FY16 earnings results on July 19th, 2016. Revenues grew 28% to $46.5 billion versus $36.3 billion in the year-ago period. Growth was broad-based, with all segments driving quarterly growth. UnitedHealthcare’s revenues jumped 14%, adding 2.1 million people over the past 12 months, including 320,000 people covered in Q2 FY16. Optum revenues soared 52%, with revenue growth by business ranging from 18% to 69%.

During Q2 FY16, earnings from operations grew 11% Y-o-Y to $3.2 billion. GAAP net earnings of $1.81 per share grew 10% Y-o-Y and adjusted net earnings grew 13% to $1.96 per share.

Stock performance

u3UnitedHealth’s stock ended the day at $139.72, slipping 0.56%, at the close on Monday, September 26th, 2016, having vacillated between an intraday high of $140.17 and a low of $138.90 during the session. The stock’s trading volume was at 2,636,458 for the day. The Company’s market cap was at $133.07 billion as of Monday’s close.

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