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Sanofi CEO Olivier Brandicourt Photograph by Eric Piermont—AFP/Getty Images

This Drug Company Just Made a Huge Pledge on Its Prices

May 09, 2017

Add one more name to the new slew of pharma companies trying to counteract the public backlash to big drug price increases: France's Sanofi, a $126 billion firm known for its flagship diabetes and vaccines units.

Sanofi on Tuesday pledged to limit drug price hikes in the U.S. to a level below medical inflation. In effect, that means the company won't be raising list prices more than 5.4% this year—a step further than other companies like Allergan (agn), Novo Nordisk (nvo), and others who have promised to keep spikes in the single digits.

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Sanofi CEO Olivier Brandicourt said that his company would rely on the U.S. national health expenditures (NHE) growth projection to cap price increases other than for a "sound reason" (in which case the firm would disclose the reasoning behind the bigger hike).

"By limiting our price increases to the NHE growth projection, we ensure that Sanofi is not contributing to further medical inflation," he said.

The pledge addresses one of the main criticisms of the "single digit" approach adopted by other firms. After all, inflation (and even medical inflation, which tends to be higher than regular inflation) is well below 9.9%, meaning a year-to-year 7% or 8% increase on major drugs isn't necessarily justified by market dynamics. Allergan CEO Brent Saunders has previously told Fortune that the ultimate goal, however, will be to make net price increases—which are determined by rebates and discounts negotiated with insurance companies and pharmacy benefits managers—more reasonable.

To that end, Brandicourt also revealed that Sanofi's average list price increase last year was 4% while net prices actually declined by about 2%.

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