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Pricing, patent risks haunt strong Q3, but US FDA approvals offer silver lining

The battle over drug pricing is bound to loom large over what otherwise appears to be a strong third quarter as pharmaceutical companies get ready to report their earnings, with Johnson & Johnson out of the gate Oct. 16.

The third quarter saw companies such as Pfizer Inc. back down from the pressure of the Trump administration and other lawmakers in the lead-up to a hotly contested midterm election, as the pharma juggernaut declared that it would roll back previous price hikes and not raise drug prices for the rest of the year. Many of the world's biggest pharmaceutical companies, including Johnson & Johnson, Merck & Co. Inc., Novartis AG and Roche Holding AG, followed suit.

In a report released Oct. 10 from Leerink Partners, analyst Geoffrey Porges noted that companies with key drugs that had a majority of sales in the U.S. would see slower growth there due to pricing stagnation. In an examination of 45 of the largest pharmaceutical companies, Porges concluded that because drug prices contributed 60% to the large growth in U.S. sales, a slowdown on pricing would significantly erode revenue.

Three of the at-risk drugs Porges mentioned are AbbVie Inc.'s Humira, Amgen Inc.'s Neulasta and Enbrel, and Pfizer's Lyrica, all blockbuster drugs with more than $1 billion in annual sales.

But estimates suggest revenue was strong in the third quarter, with 16 of the top 20 companies demonstrating growth over the same quarter a year ago.

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And a Vantage report from Evaluate Ltd. shows that pharmaceutical companies have generally gained in the stock market from the beginning of the year with Eli Lilly and Co. leading the way. The Indianapolis-based company saw a 27% rise in stock price over nine months, followed closely by Merck and Pfizer, the latter of which named a new CEO as Ian Read plans to step down by year-end.

Besides pricing, another source of concern is the expiration of key patents down the road, which could put $251 billion of sales at risk, according to an EvaluatePharma report. Both Humira and Johnson & Johnson's Stelara have patents that will expire in 2023.

Set to impact future earnings for the better, though, is the U.S. Food and Drug Administration's approval of 21 drugs in just three months, which is one more than was approved in the whole first half of the year. The number of approvals was also far greater than in the same quarter of 2017, when the FDA pushed 11 through, and 2016, when only three drugs were granted approval.

Overall, the third quarter's approvals herald upcoming gains to begin to offset pricing and patent concerns that threaten past mainstays, demonstrating that pharmaceutical companies have been developing their pipelines in preparation for the years to come.

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Notable approvals include two more migraine drugs to join Amgen's Aimovig, which got the green light in the second quarter. Teva Pharmaceutical Industries Ltd.'s Ajovy and Eli Lilly's Emgality both passed through their FDA reviews and have since been going head to head for patient loyalty.

Alnylam Pharmaceuticals Inc. picked up a historic approval for Onpattro, which was the first RNA-based drug to be approved to treat a rare genetic disease.

In cancer, Regeneron Pharmaceuticals Inc. and Sanofi received the go-ahead from the FDA for a PD-1 inhibitor Libtayo, the first for cutaneous squamous cell carcinoma. Pfizer also gained an approval for Vizimpro for patients with non-small cell lung cancer, and Merck and Eisai Co. Ltd.'s Lenvima also cleared review for liver cancer.

Merck's Delstrigo and Pifeltro earned a nod from the FDA for HIV, and Johnson & Johnson's Symtuza also won an HIV approval.

Shire PLC, soon to be acquired by Japan's Takeda, sweetened the deal with an FDA approval for the swelling disease treatment Takhzyro.

As for generics and biosimilars, Teva was granted approval to market the first generic version of Mylan NV's EpiPen, while Pfizer won approval for a copy of Amgen's Neupogen.

The FDA announced in October that the regulator had again set a record for the number of generic drugs approved in fiscal year 2018, a record that was previously broken in 2017, and also in 2016.