Pharma ‘vulnerable’ on drug prices in election year, admits industry leader

The issue of drug prices has risen up the US political agenda – and Hillary Clinton looks to be on a collision course with pharma as the elections approach. Andrew McConaghie reports.

After last year’s growing chorus of disapproval about the US pharma industry’s high prices, Merck chief executive Kenneth Frazier has admitted the sector is ‘vulnerable’ to attacks on its pricing model in 2016.

Frazier is also chairman of the US pharma industry association PhRMA, which hasn’t been able to contain the rising public anger against industry’s increasing prices. PhRMA has tried to distance its R&D-based members from opportunistic firms like Valeant and Martin Shkreli’s Turing Pharma, whose flagrant price-gouging made them the focus of anger in 2015, but few critics see much distinction in big pharma’s tactics.

The danger of political action to force price curbs and cuts on the industry is growing at the state level and in Washington. This is not least because the current favourite to become the next President is Hillary Clinton, who recently confirmed proposals to tackle high drug prices, and even declared herself an enemy of pharma.

Speaking at a ‘Goldman Sachs Healthcare CEOs Unscripted’ event on Tuesday, Frazier conceded that pharma was exposed to attacks on its prices – but didn’t admit any fault on the industry’s part.

Instead, he pointed to what he believed were two major problems in the system beyond pharma’s control. First, he said the 20% of the cost patients had to pay themselves (the co-pay), before their health insurance coverage began, was too high. Second he said the public frequently mistook a drug’s list price with the actual price paid, which, he pointed out, was always discounted.

“I think we are vulnerable because citizens can’t pay for their drugs. It is a real issue, it’s not a hypothetical issue,” he commented.

“People go to the counter [in the pharmacy] and have 20% of their drug bill as a co-pay, and they have to pay $5-10,000 before their insurance kicks in. That’s a problem, and we have got to deal with it as a country, and we have got to deal with that as an industry.”

However, the US public seems more certain about who is responsible – a poll conducted last year by the Kaiser Foundation confirmed that three quarters blamed pharma, while just 10% thought health insurers were the main culprits.

The cost of paying for medicines is frequently cited as one of the main causes of bankruptcies in the US, despite the expansion of health insurance under Obamacare. Many more patients have to scrape by through cutting costs elsewhere, such as missing out on holidays, or even by simply not filling their prescription.

The main reasons for this problem worsening is clear – companies across the board have repeatedly raised prices for drugs already on the market, while new drugs are increasingly high-cost treatments.

Recent Wall Street Journal analysis showed that, in the 2010-2014 period, the 30 top-selling drugs in the US had their list prices hiked by an average of 76% – amounting to a compound annual growth rate of over 15%. For six of the drugs tracked, the list price more than doubled over the four-year period.

Meanwhile, most new drug launches are speciality drugs, targeting a small population, and increasingly priced at $50,000 to $100,000 a year, or more.

These drugs include treatments for rare diseases, hepatitis C and cancer, such as Merck’s own Keytruda.

Interviewing Frazier was Jami Rubin, a senior analyst at Goldman Sachs. Sympathetic to pharma’s position, she nevertheless suggested the industry was losing the argument.

“It’s not just about Turing, it’s not just about Valeant. Every other day in the Wall Street Journal and the New York Times there is an article about the high cost of drugs.”

The biggest political headache for the industry is, without question, Hillary Clinton, who is currently runaway favourite to be confirmed as the Democrats’ presidential candidate in July.

She has already laid out proposals calling for an end to tax credits for pharmaceutical advertising, and also suggests curbs on investors focused purely on maximising returns, citing the Shkreli case. At the core of her plan is to give the government’s Medicare the power to negotiate costs with pharma and biotech – something it is currently banned from doing.

Speaking at a rally recently, Clinton said: “I know that there are so many problems with the way drugs are being priced now and the cost is going up and it is no longer sustainable.”

Frazier dismissed Clinton’s arguments, saying they haven’t changed since she first came to blows with the sector in the early 1990s, when pharma helped to defeat her plans to reform healthcare.

“It’s like déjà vu all over again, because I joined the industry in 1992 … during the so-called Hillary Care period, and it was exactly the same arguments being made.”

However the momentum behind pricing reform can’t be dismissed so easily, and things have changed greatly since the 1990s. Recent years have seen pharmacy benefit managers such as Express Scripts and CVS grow in power, and they are now extracting major discounts from pharma. Meanwhile, more and more cost-effectiveness reviews, such as those conducted by the independent Institute for Clinical and Economic Review (ICER), are influencing prices and debates on value.

A recent high-profile example concerned the new high cholesterol treatments, Sanofi’s Praluent and Amgen’s Repatha. Both drugs were launched with a list price of around $11,500, but conceded major discounts in negotiations with Express Scripts.

Clinton is currently also odds-on to win the Presidential race in November against any Republican challenger. This includes Donald Trump, despite the current success of his outrageous and outspoken campaign for nomination.

Even if Clinton does make it to the White House, she would also need the Democrats to seize control of Congress to have any chance of pushing the legislation through, which would be a tall order.

Aware of this problem, campaigners want new drug price laws to be passed at the state level. California looks set to hold a referendum on the issue, which will share a place on November’s ballot card. The pharma industry is already mobilising against the proposed California Drug Price Relief Act, just as activists are trying to spread action to other states, starting in Ohio.

Nevertheless, Frazier says he is confident that pharma won’t face a doomsday scenario.

“I believe that people will continue to pay for valuable drugs going forward. I believe that in Washington, people are smart enough to know that this is one of the few US-based industries that is a global leader. So I am hoping that we won’t see any draconian policies.”

As head of PhRMA, Frazier is choosing to rebut all criticism of the sector, but as chief executive of Merck, his approach is clearly more pragmatic. There are signs that pharma companies recognise that inexplicable, year-on-year price rises cannot go on, and higher and higher costs for new drugs won’t be tolerated.

Stephen Ubl took over as the new CEO of PhRMA in November, and has already met with Marilyn Tavenner, head of America’s Health Insurance Plans, with the aim of agreeing on some common ground.

These conversations will need to result in some concrete actions, or otherwise the industry could face a major backlash. Frazier clearly has a point about waste and inequities elsewhere in the system, but the drug-pricing question will undoubtedly be the focus in 2016.

Pharma will continue to oppose new pricing controls, but will need to work towards a reasonable compromise if it is to address an acute problem for US patients.

Next week sees all the industry convene at the annual JP Morgan Healthcare conference in San Francisco, which has become the leading place to promote new pipeline products and new biotech companies. The last few years have seen the sector ebullient with success and deal-making, but that mood may be slightly more subdued this year. Among the big pharma and the aspiring biotechs will be Express Scripts and CVS, presenting their own vision of an evidence-based and cost-contained healthcare system.

Read Hillary Clinton’s plan for lowering prescription drug costs.

About the author:

Andrew McConaghie is pharmaphorum’s Managing Editor, Feature Media.

He can be contacted via: andrew@pharmaphorum.com

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