JP Morgan 2017: Novartis CEO highlights subtle shift in biosimilar pricing environment

Among the myriad of topics CEO Joseph Jimenez touched on during Novartis’ breakout session at this week’s annual JP Morgan Healthcare Conference was what he believes has been a small not notable shift recently in the pricing environment for biosimilars in Europe.

Generics manufacturers have found themselves increasingly under fire, particularly in the US, due to a combination of factors including increased competition and notably downward pressure on the price of copycat small molecule drugs. A prime example of this phenomenon is Teva, which provided revised 2017 financial guidance this week that came in well below what the company had been calling for as recently as last summer.

Jimenez suggested that this pressure on profits may be having a direct impact on the pricing of biosimilars, where the pace of erosion seems to have slowed down considerably.

"In the EU it has always been said that biosimilars will launch at a 15-percent discount to an originator product, and then with up to five entrants the discount to the originator increases to about 50 percent. We are seeing a slowing of that based in part on the pressure the generics industry is under, where they are looking for ways to recover some level of pricing since they are no longer taking up prices in the US, so they have to make that up somewhere else," he said.

Some of the other issues Jimenez was prompted to offer feedback on during the session included Novartis’ approach to M&A in 2017, which he said would be a continuance of the company’s pursuit of bolt-on deals in the $2 billion to $5 billion range, though asset prices are such that it is increasingly being forced to look upstream to find value-adding opportunities.

"The issue is that for assets in later-stage or even mid-stage, bolt-ons are getting to the point where we can’t add value so we are going upstream, which means smaller deals to supplement the pipelines of different existing divisions," said Jimenez, adding that Novartis is already prepared for its existence post-Gleevec – patent expirations will have come and gone by the end of 2017 – such that "we are under no pressure to do a big transaction at this point."

Interestingly, Jimenez also suggested that time could be of the essence for acquisitive companies on the prowl right now as president-elect Trump’s tax reform plan, which includes proposals that would lower rates on corporate taxes and repatriated profits. This could mean a massive influx of cash would be made available to a lot of drugmakers that would then turn around and compete with one another for deals, thus pushing prices – and valuations – up across the board.

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