Drug Companies Really Don’t Care About the Price Hike Backlash

July 14, 2016, 8:42 PM UTC
Various pills lying on a white surface
Photograph by David Malan — Getty Images

Big pharma’s widespread habit of regularly raising the price of their medicines has galvanized public outrage and given 2016 political candidates a convenient piñata.

But new data suggest that, so far, the outrage is still more bark than bite.

More than two-thirds of the 20 biggest pharma companies used price hikes to drive revenue growth in the first quarter of 2016, according to an analysis of corporate filings and earnings statements by the Wall Street Journal. The review also found that drugmakers have been relying on this tactic more and more and raising prices by higher amounts than before despite multiple Congressional inquiries into the practice and proposed reforms to tackle drug costs from President Obama, Hillary Clinton, Donald Trump, and others.

Some of the most notable price increases were lodged by companies like Pfizer (PFE), which raised U.S. prices for more than 100 drugs at the beginning of the year; Biogen (BIIB); and Amgen (AMGN). For example, Amgen admitted that a 24% boost in first-quarter sales for its flagship anti-inflammatory drug Enbrel was largely attributable to a higher “net price” for the medication, meaning the price after discounts and rebates to insurers are taken into account. Popular Biogen treatments like Avonex, Tysabri, and the multiple sclerosis therapy Tecfidera also owed sales growth to a combination of price increases and stronger volume.

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Drugmakers often argue that drug price hikes are standard industry practice meant to recoup money for past and future R&D, and that high list prices are misleading since they don’t consider discounts and rebates. But the fact that net prices have been on the rise puts a bit of a dent into that argument.

“Companies are very fond of saying, ‘No, no, don’t pay any attention to list price increases,’” Leerink Partners analyst Geoffrey Porges told the Journal. “The industry sort of hiding behind that is really a diversionary tactic.”

The findings underscore the enormous power that the biopharmaceutical industry maintains in a system where negotiations over prices and discounts are stratified across a decentralized mix of private insurers, government health programs, and drug benefit managers.

Insurers like Cigna (CI) and benefits managers like Express Scripts (ESRX) have been flexing their muscles and striking novel new deals that tie drug company payments to patients’ health outcomes. But these arrangements are fairly new in the U.S., and a true crackdown on high drug prices will require legislative reforms by Congress, which appears highly unlikely despite the anti-pharma fervor.

Earlier this week, President Obama proposed tweaks to his signature Affordable Care Act, including measures to make drug companies’ R&D costs more transparent and boost the federal government’s ability to negotiate prices and procure rebates.

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