Good morning, Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Earlier this week, the Trump Administration announced another round of “most favoured nation” pricing deals:
(Source, The White House)
Australia’s very own CSL (ASX: CSL) was one of them.
(among nine other mid-sized pharmaceutical companies)
Under its agreement, CSL will give the US state Medicaid programs access to its medicines at lower prices.
… Benchmarked against what it sells products for in developed countries.
CSL has separately committed US$1.5 billion to expand its plasma-therapy manufacturing capacity in Illinois.
(Source, CSL)
Why does this matter?
Because for the biotech industry, the US market is the cash cow.
The US has less than 5% of the world’s population…
But has been estimated to account for three-quarters of global pharmaceutical profits.
My wife even asked me yesterday…
“Why does every company you write about want to go after FDA approval?”
It’s because the Americans have the biggest market…
AND
They pay the most.
The golden cash cow for the pharmaceutical industry.
From the American perspective, they look at this as effectively subsidising lower drug prices for everyone else.
But in reality, a big part of the problem is hiding at home.
The US pharmaceutical market is a maze of manufacturers, insurers, wholesalers, pharmacies and pharmacy benefit managers.
Everyone takes their slice.
And by the time the drug reaches the patient, it is almost impossible to work out who is paying what.
Or where all the money went.
I’ve been doing some research on another company in my Biotech 165 Challenge, Mayne Pharma (ASX: MYX)...
It’s complicated.
For example, Mayne Pharma reported A$383.7 million in revenue last year.
The gross number?
In the billions of dollars.
Where did the money go?
Me trying to understand the US pharmaceutical industry
It is the vertical integration of key players in the industry.
The rebate machinery.
Siphoning cash hidden in the complexity.
In Australia, we buy drugs through the Pharmaceutical Benefits Scheme, or PBS, where our government is the central buyer.
This means that we are “price-makers”.
One big buyer can set the price and have negotiating power.
In the US, it is a bit different.
Coverage deals are negotiated separately, and with multiple stakeholders.
Gross sales are reduced by “rebates and discounts” paid to retail customers, government agencies, wholesalers, health insurers and managed-care organisations.
Then there are returns, chargebacks, co-pay cards, cash discounts and shelf-stock adjustments.
Everyone takes a slice of the pie.
In my opinion, THAT is a huge part of why drugs cost so much in the US.
It needs to be priced in a way that looks after all stakeholders in the supply chain.
If you want to watch the best explainer I have seen on this topic, I suggest watching:
So…
Where does it leave us with Most Favoured Nation pricing?
In my opinion, this will be bad for international healthcare industries.
Drug makers will be incentivised to delay launches, limit supply or demand higher prices in other jurisdictions.
Why launch a drug in Australia, if its PBS price can be used to pull down the price in the US?
The canary in the coal mine is what happened in Denmark.
Amgen withdrew its cholesterol drug Repatha from the Danish market in February.
The company later pointed to US Most Favoured Nation policy and the threat of tariffs as the reason for the withdrawal of the drug.
(Source, EURACTIV)
Ultimately, Most Favoured Nation pricing is not good for the global healthcare landscape…
And it’s clear that the benefits of globalisation are eroding.
… just like we are seeing in the critical minerals industry.
This is spelled out in the same White House press release, where the US is pushing to stockpile critical active pharmaceutical ingredients.
Active pharmaceutical ingredients = ingredients that go into drugs.
UCB, Sun Pharma, Teva and Astellas have agreed to donate stockpiles of selected APIs.
They’ve even got a name for it: the Strategic Active Pharmaceutical Ingredient Reserve.
This follows Congress advancing a strict new bill to make it harder for pharma companies to acquire/licence biotech assets from China.
(Something that has been on the rise in the last 12 months)
(Source, Fierce Biotech)
Clear battle lines are being drawn.
The US no longer wants to be the cash cow feeding and subsidising the entire global pharmaceutical industry.
But the place where the cow is being milked most aggressively is at home.
Through the PBMs.
Through the insurers.
Through the wholesalers, pharmacies, rebates, chargebacks and discounts that make it almost impossible to work out who is actually paying what.
Untangling that incredibly complex web is the only sustainable way to lower drug prices.
Lowering US drug prices to match the rest of the world could simply make it harder for the rest of us to access new life-saving drugs.
… which is obviously not ideal.
Let’s dive in…
The Pulse Check
Telix Pharmaceuticals (ASX: TLX) completes enrollment in the Phase 3 BiPASS study for prostate cancer imaging. (TLX)
Vitrafy Life Sciences (ASX: VFY) enters the cell & gene therapy market with an agreement to deploy its technology at Charter Medical's North Carolina facility. (VFY)
AdAlta’s (ASX:1AD) partner received approval to provide BZDS1901 CAR-T therapy to advanced mesothelioma patients in China under the Special Access Scheme. (1AD)
Tissue Repair (ASX: TRP) resumes direct distribution of TR Pro+ in Australia and New Zealand, ending partnership with Advanced Cosmeceuticals. (TRP)
🪑 Distribution agreements always sound great… but if they don’t work, it can be an absolute milstone for the company’s growth.
Report: Germany becomes Europe’s largest regulated cannabis market (FT)
🪑 Interesting for two ASX-listed companies. First, Little Green Pharma (ASX: LGP), which has earmarked Germany as a major growth region.
Second, Breathe Life Sciences (ASX: BLS), which recently signed a $50 million deal with a German cannabis distributor.
Report: With 16 dental clinics across Australia, Dental Boutique is seeking a growth partner at a $500m-plus valuation. (AFR)
🪑 This article caught my attention as a valuation comp for a profit-generating clinical services business in Australia. 12.5x EBITDA.
Report: How do cancer vaccines work? (Healthy Innovations)
🪑 A great article that describes, in easy-to-read language, how Moderna actually managed to pull off a personalised cancer vaccine.
Cash Injection
Dimerix Limited (ASX: DXB) requests a trading halt pending an announcement on “non-dilutive funding arrangements”. (DXB)
🪑 They may have just pulled it off. Fully fund the trial, no dilution, while everyone thought they were raising money. Well done!
Melbourne-based biotech startup ENA Respiratory is awarded $3M via Biointelect Venture Funding to support a new study in Asthma Patients. (ENA Respiratory)
Argent Biopharma (ASX: RGT) cancels 5,502,532 convertible notes from Mercer Group. (RGT)
🪑This might look like a run-of-the-mill administrative announcement, but this is a big deal.
Namely because the convertible note cancellation was subject to several conditions precedent. With this announcement, it appears that those have been met and the US$5.5 million of convertible debt is legitimately cancelled.
See you all tomorrow,
The Armchair Analyst.
