Seven top pharmaceutical executives gathered today in Washington, DC, for a Senate hearing on drug prices, bringing face-to-face two groups held in the lowest esteem possible by the American public.
Top executives from seven companies—AbbVie, AstraZeneca, Bristol-Myers Squibb, Merck, Johnson & Johnson, Pfizer, and Sanofi, which represent a combined $1.1 trillion in market value—stuck to the industry’s party line: Government needs to rein in insurance companies and their middlemen, but regulating drug prices directly would be bad for pharmaceutical innovation.
By the end of the highly anticipated grilling before the Senate’s finance committee, their strategy for taking on two major reform proposals by the Trump administration was also clear.
First, drug companies would love to see the middlemen known as pharmacy benefit managers (PBMs), who negotiate drug prices on behalf of insurers, kicked to the curb. The administration took aim at PBMs in January, floating a plan to pass the secretive discounts, or rebates, they pocket from drug makers directly to consumers. That’s one proposal the companies can get behind. But for now, the proposal would only apply to the government-run Medicare program. “If this rule goes to the commercial plans, it will be even better for patients,” said Pfizer (NYSE: [[ticker:PFE]]) CEO Albert Bourla.
Because the rebate system lets intermediaries grab their slice of the pie, drug makers say they have to start list prices high as the starting point for negotiations. “Everyone in the supply chain makes money off a high list price,” said Merck (NYSE: [[ticker:MRK]]) CEO Kenneth Frazier.
PBM representatives weren’t present at the hearing. Earlier, the committee’s top Democrat, Ron Wyden (D-OR), said that the PBMs would “have their day before the committee as well” but warned the pharma executives against “pointing fingers at the middlemen.” Wyden claimed that 40 percent of drugs “don’t even have a rebate.”
The executives all said they support “value-based” prices, which a few companies are trying to various degrees. Novartis (NYSE: [[ticker:NVS]]), for example, will refund the high cost of its cutting-edge CAR-T cell therapy tisagenlecleucel (Kymriah) if it doesn’t start working after one month.
(For more on the ins and outs of pay-for-results deals, here’s a Q&A with the chief medical officer of Harvard Pilgrim, a Boston-area health plan that has crafted several such deals.)
But the industry unanimously draws the line at what it considers “price controls,” including the popular idea that Medicare, with 44 million beneficiaries, should use that power to negotiate drug prices directly. (Current law forbids such negotiation.) While candidate Trump endorsed direct negotiation in the 2016 presidential campaign, the administration has proposed something different but equally infuriating for the drug companies: A formula for U.S. drug prices based on 16 foreign countries, including Canada, France, Germany, and Japan.
“The government should not control prices… or worse, outsource price decisions to other countries,” said Sanofi (NYSE: [[ticker:SNY]]) CEO Olivier Brandicourt.
The consensus on the panel: If rebates go away, we will lower list prices on our own. Promises of self-imposed reductions, however, were not good enough for Sen. Wyden: “I’ve heard a lot of happy talk today, how if you get rid of rebates, drug prices would go down. I’d like, in writing, an answer to this question: If rebates go away, will you support a black-letter law requiring you reduce list price by the amount of the rebate? After the happy talk is over, that’s what will help people at pharmacy counters.”
One example of hedging over lower prices came from Merck’s Frazier. Lowering list prices in the past, he said, has created a “financial disadvantage” for the company and hasn’t helped sell more products. Merck would do it if “no one company faced a disadvantage.”
No pharma executive wants the government to set prices, but at least two executives, AstraZeneca (NYSE: [[ticker:AZN]]) CEO Pascal Soriot and AbbVie (NYSE: [[ticker:ABBV]]) CEO and chairman Richard Gonzalez, acknowledged that healthcare costs are too complex for various industries to fix without government help. “The government has to step up and change the rules,” said Soriot.
With proposed bipartisan legislation known as the CREATES Act, the Senate wants to make it harder for drug makers to delay generic competition with tactics such as withholding drug samples from generic manufacturers. (All seven executives today swore that their companies had never done so, even though, as Stat pointed out, a few of their companies have been accused of the practice.)
Gonzalez was a particular target today because of AbbVie’s strategy to fend off competition for its best-selling anti-inflammatory drug adalimumab (Humira), which accounted for $12.3 billion in 2017 net revenues, nearly two-thirds of AbbVie’s total. Very few biosimilars—generic versions of complex protein-based drugs—have made it to market in the U.S., while they have an easier path to market in Europe and have created vigorous competition.
Gonzalez acknowledged today that Humira is sold at an 80 percent discount in Denmark, for example, and still turns a profit for the company.
Some type of government intervention on drug prices is feeling more inevitable each day, including rules to directly curtail them. Various forces are lined up against the industry, not least of which is
