Over the Pill
Welcome to “Over the Pill”, the Berenberg podcast where Kerry Holford & Luisa Hector lift the curtain on the messy reality of analysing pharma share prices. With over 30 years of friendship, Kerry & Luisa invite listeners into their regular debates on pharma strategy, drug pipeline prospects and commercial power.
Over the Pill
Episode 9
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Before heading on Easter break, the team discuss key takeaways from DrugBank and Rebate Round-up publications. Luisa and Kerry also touch on the latest clinical data readouts for AZN’s anti-IL-33 in COPD and the unfolding battle in rare genetic diseases (FSHD and DM1), between Novartis/Avidity, Sarepta and Dyne Therapeutics.
Hi, I'm Louisa Hector.
SPEAKER_00And I'm Carrie Holford.
SPEAKER_01Welcome to Over the Pill, the weekly podcast on the latest hot topics in pharma investing.
SPEAKER_00So we've been busy publishing research over the last week and two big pieces here. Firstly, our drug bank work, so 150 pages of Pure Pharma Data Joy. So we we've essentially run published our analysis here, as we do every year. Now that this is an ongoing project for us. We've got 770 drugs in the database now, covering 15 therapeutic categories and 200 diseases. So it's a huge piece of work. Key takeaways from this, we're now modelling more than $750 billion of global drug sales. So that's more than half the market. We're expecting the market to grow around 6% per annum up to 2029, and that's broadly the same growth rate that we've seen over the last four years. In the report, we look at our EV to NPV based valuation. On that basis, Salivy stands out as the most attractive deep discount here. And either probably not surprisingly screens as the least attractive on that metric. Significant premium to our equity MPV. And the last thing I point out just the split from a therapeutic category point of view. Oncologies, the largest category is more than a quarter of our total MPV, autoimmune number two, and metabolic syndrome number three, which is the fastest growing category, driven, of course, by obesity. So lots of data in the notes. Listeners, do let us know if you have any requests. We can run bespoke reports from Drug Bank. So do look out for that.
SPEAKER_01Yeah, and it links quite nicely with our top-of-the-pills, which we talked about a couple of weeks ago. So we've got like the top 50 drug brands by MPV, that's all coming from Drug Bank, $2 trillion of MPV in the top 50. So it's a pretty picture, but it shows you the kind of emphasis by therapy area and the dominance of obesity still. So you will see that it's sort of across many of our marketing slides. So we've read all the annual reports and highlighted all the new items that we spotted. But one of the uh data points that we take from each of these um 10ks, 20F's is the rebating numbers each year. So it's at the company level, total rebates. Normally we get the split for the US, so gross US sales down to net, which is the number we're all modeling. Sometimes this is done on a global basis, and we have to do a little bit more work to tease out the US. But we've now collated all of that. And this is that kind of hidden cost of doing business in the US that is maybe less hidden now that Trump has drawn attention to drug pricing, both at the gross and the net level. But we can see very clearly, can't we, with our 11? 12, we have 12 companies now in the analysis. Half of the gross US drug sales are given back in the form of rebates and discounts. So it's sitting at 54% of gross sales for the group on average. That's a two percentage point on increase on 2024. It's also a seven percentage point increase since 2020. So the trend overall is a rising one. Rebate levels are increasing. We can also see, Carrie, I thought think this is interesting. That gap, we used to have a big gap between US and Europe. So Europe paying higher rebates than the US farmer. That's right. That's now closed. So they're both sitting at about the same level. Um, the other thing we saw in the analysis this year was the biggest increases were at Bristol Myers and AstraZeneca, about a four percentage point increase, and then Novartis, three percentage points higher. Now there's different levels of disclosure on that. Um, for Bristol and Astra, there was discussion about the Part D redesign, so that cost share moving back onto uh the pharma companies. Um, that's part of IRA. We know that was happening. That was maybe less of a concern for Novartis.
SPEAKER_00Yeah, I think the Novartis increase probably relates predominantly to the label expansions that we've been seeing and the more sort of competitive environment ecocentrics in the chip.
SPEAKER_01Okay, and then we actually saw rebate percentage go down at Pfizer, minus two percentage points. There was no wording around that.
SPEAKER_00No, I suspect it sort of continues to be a flush out of COVID, but no, there was no explicit wording on one.
SPEAKER_01So we've been watching that goals. Yeah, but those COVID numbers have been big over the past few years and have certainly sort of impacted that gross to net calculation. And but then on vaccines, GSK had more of an opposite trend, didn't they?
SPEAKER_00Yes, we did see a check-up because we could you can back out the rebates by division at GSK. Um, and now the rebate ratio as a proportionate for gross sales in vaccines is broadly similar to the the wider specialty medicines group. So that's um the late 30s, so that has been tick up in vaccines, which is nice.
SPEAKER_01Okay. And then drug pricing as a risk for the sector. The concerns of EATS, we've had the deals with Trump at the end of last year, so we've got some I'm gonna call it visibility. I mean, we still don't really know what will happen with MFN international price points and matching those in the US. But from an investor perspective, we can move forward now, think more about the the drugs and the pipelines and how how different therapy areas are performing. However, you know, this work on rebates is important as we look forward. So I think we have now concluded in 2026, again, we would expect rebates to be creeping up, the trend is up, but we had this discussion, didn't we? There's so there seem to be more moving parts in the dialogue. It used to just be well, there's three big PBMs, they're putting pressure on pharma, and that's the balance of power. That's maybe shifting now. So, in addition to that sort of legacy uh pattern of behavior from PBMs, we've got new channels arriving, haven't we? So you're you're in obesity, particularly.
SPEAKER_00Exactly, that's evolving rapidly now. Um and with DTC, the companies are effectively delivering the drug direct to the consumer patient. So rebates through that channel should be zero, close to. So that's going to be influencing the overall mix, certainly for Novo and Lily most heavily. But of course, where these companies are now offering DTC through Trump RX as well, although we would expect the majority of that to be low volume.
SPEAKER_01Okay, but that effectively would would reduce rebate burden. Yes. You're still selling at a lower net price, say in obesity, but you're not paying away the rebate. So if we saw something like this with insulin in Lily.
SPEAKER_00Yes, exactly. And we did see that that tick down on total rebates for Novo in the following year after they essentially cut list to make it. Okay.
SPEAKER_01So cash channels bringing rebates down, but also this year, 26, we have got the first round of IRA negotiated prices in Medicare. So it was only 10 drugs, but these price points are coming down. So I think that's a bigger rebate effect for those drugs, and this will continue next year. We've got 15 drugs and so on. So that's another factor. Um, and then I just wanted to touch again, we mentioned it last week, but the Medicare access to obesity, is it called balance? Yes, balance. And you found some colour on how the pharmacies are going to be reimbursed while this sort of pilot program is taking place.
SPEAKER_00Yeah, so a direct billing system, effectively, um for the pharmacies to bill the government um as part of that bridging program. Um, and thereafter through the balance program, that should then go, I think, through the normal channels.
SPEAKER_01Okay.
SPEAKER_00Um evolving clearly. Okay, good.
SPEAKER_01And so then to conclude on the rebates, I mean, we know the guidance for 2026 revenues. Uh on average for the group, we're looking for 6% sales growth in line with what Drug Bank is telling us for sort of recent history and going forward. So 6% growth for the group, but obviously a big range there. You know, it's polarized by BC again. Novo sales minus 8% this year, Lilly plus 25%. So that's the range, 6% is the average. Um, so it feels like we're in a relatively comfortable base on rebates as we look out, certainly in the short term. And then we should touch on the IL 33 COPD data. Astra got this over the line, we're calling it the Midsummer Night's Dream, Oberon and Titania trials, two of them, both positive. We need to see the data, but that's great news. I know that you're watching GSK's new Carla launch in COPD.
SPEAKER_00Yeah, and so far, so good. Good update there. Um and GSK also has an IL 33 earlier in development. My senses they were very much watching and waiting for this data from AstraZeneca. Uh, before proceeding. Right. Okay, good. Anything else? Um, just a little bit on we've been doing a bit more digging on Novantes and the ability drugs following that $12 billion acquisition. Um, potentially we're going to see some phase one, two biomarker data for the first asset down BRACS in Q2. Um, but just over the last week we've seen some really quite positive data from Sereptor in that same space. So that bar, I think, is pretty high. Novantes has not yet committed to showing us that data, their base case is filing on phase three in 2028. Um, but there is the potential as a bit of team was targeting if the positive, if the biomarker data are positive to file for accelerated approval, let's see. Um, but I think as I say, that screptor data effectively raises the bar in FX HD. Um, so okay more to come on that. Good.
SPEAKER_01Right, well, we're gonna take a break for Easter for a week or two, but we will be back.
SPEAKER_00Absolutely. So, in the last um day before we head off on our holidays, let's get back to the desk, tie things up, and we would love to hear your feedback as ever. Um, if you do have that and request, please do email us at kerry dotholford or louisa.hector at berriboat.com. Thank you for listening.