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Big Pharma CEOs Met With Trump But They Won’t Give In to His Demands

January 31, 2017, 8:48 PM UTC

President Donald Trump sat down with a host of major pharma company CEOs Tuesday morning to address pressing issues like high drug prices, the future of the FDA, and where treatments are produced. But a number of his demands will have a hard time becoming a reality.

Meeting attendees included CEOs such as: Merck’s (MRK) Ken Frazier; Novartis’ (NVS) Joe Jimenez; Eli Lilly’s (LLY) David Ricks; Johnson & Johnson’s (JNJ) Alex Gorsky; Amgen’s (AMGN) Robert Bradway; Celgene’s (CELG) Mark Alles; and Stephen Ubl, head of the Pharmaceutical Research and Manufacturers of America (PhRMA) lobbying powerhouse.

Trump pressed the bigwigs to bring down drug prices, which he described as “astronomical.”

“We have to get prices down for a lot of reasons,” he said. “We have no choice, for Medicare and Medicaid.”

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He went on to insist that drug makers should bring manufacturing and production, much of which is done in countries like India and China, back to the United States. In exchange, Trump asserted that he would work to remove burdensome regulations, appoint an FDA director who will focus on speeding up drug approvals, and reduce the American corporate tax burden.

While several of the present CEOs responded optimistically to the meeting – praising the deregulation and tax reduction components in particular – and many of their companies’ shares rose on hopes that Trump won’t be as antagonistic toward drug makers as his recent comments that they’re “getting away with murder” on prices would suggest, don’t count on the wish list to come true. Here’s why.

Drug prices

There’s been a recent trend in biopharma where some companies, led by Allergan (AGN) CEO Brent Saunders’ new “social contract” with patients, are voluntarily pledging to limit drug price hikes and being more transparent about which products have seen price increases. But there’s more than meets the eye going on here.

The most outrageous price hikes – the ones that have drawn the most public attention – number in the 1,000%-plus range, have been imposed on therapies for vulnerable and niche populations, or both. However, it’s far simpler to do consistent, smaller price hikes on drugs used by a far greater number of people in order to make up for revenue gaps. These increases look far more reasonable than Martin Shkreli or Valeant-like shenanigans. But they add up to a pretty big chunk of change that can still put the squeeze on insurers, patients, and the broader health system.

Which brings us to the price increase-limiting pledges. Saunders has openly argued that pharma can head off more stringent drug price regulation in the U.S. (such as Trump’s suggestions of competitive bidding and direct negotiations in Medicare) by self-policing. The companies signing on to this technique have sworn annual hikes on branded products that remain in the single digits.

The question is: Why is a 9% price hike on an existing therapy reasonable, other than by comparison to far more outlandish price gouging? Inflation certainly isn’t anywhere near that high; the chemical compositions of the drugs themselves aren’t changing; existing therapies aren’t magically becoming more effective on a year-over-year basis.

So it’s not hard to imagine a scenario where Trump is mollified by companies swearing that they’re acting responsibly when, really, they’re mostly just redirecting how they conduct their price hikes. And the tactic isn’t all that surprising: big pharma’s return on R&D investments has been plummeting over the last decade, and price increases are an easy way to bolster companies’ bottom lines.

At the end of the day, drug makers are allowed to price their products however they want to in the U.S. Barring some of the regulatory reforms that Trump has previously proposed but have an extremely rocky path through a GOP-controlled Congress, it’s difficult to see the more subtle price hike dynamic change. (One possible exception: Novartis chief Joe Jimenez’s idea for tying drug prices to their demonstrated effects on health – a tactic that an increasing number of insurers are trying out.)

Domestic manufacturing

Trump’s advocacy for bringing wide swaths of pharmaceutical manufacturing back to the U.S. is even less likely to come to fruition for a number of reasons.

For one, big pharma’s supply chain is a global enterprise with global ambitions, and manufacturing is cheaper in countries like India and China. That’s why such a huge share of finished medications in the U.S. stem from outside the country (and the number’s even higher for generic therapies).

Furthermore, having these manufacturing footprints in emerging markets is tactically smart for drug makers that are trying to expand their presence in these countries, where a growing number of residents will be able to afford their treatments. Research and initial development, on the other hand, will always have a robust presence in the U.S. thanks to the plethora of academic and biopharma hubs here.

Speeding drug approvals

Of all the items Trump addressed (possibly with the exception of corporate tax reform), this has the best chance of becoming a reality. But the president’s own executive actions in recent days could make it a lot harder to pull off in a safe, effective manner.

Getting more therapies to the finish line is controversial among some scientists who worry that lackluster treatments will make it to the market. But it’s widely supported by lawmakers on both sides of the aisle who have faced intense lobbying campaigns by patient groups and the biopharma industry. That’s why the 21st Century Cures Act, which aims to streamline the drug approval process, was overwhelmingly approved by Congress last year and signed into law by President Barack Obama.

But actually implementing the massive FDA overhaul will require many new regulations, rules, and guidance from federal agencies. And that could hit a buzzsaw given Trump’s recent executive actions ordering a government hiring freeze and requiring agencies to nix two old regulations for every new one they propose.

It’s unclear how the FDA will go about honoring that regulations order on a practical level, especially as it gears up for big changes to the drug approval process. And the hiring freeze will make matters even more difficult seeing as there are currently 1,000 vacancies at the FDA, with many of them in the critical Center for Drug Evaluation and Research (CDER). (The Cures Act actually also called for a hiring push at the agency to help implement its provisions.)

A number of lawmakers have recently sent letters to Trump asking him how the freeze might hamper the FDA’s mission. “A hiring freeze at the FDA would conflict with and do significant damage to these bipartisan efforts to fill vacant positions and expand the scientific and technical workforce needed for a robust review of drugs and medical devices,” wrote Massachusetts Sen. Elizabeth Warren. “Patients and their families can’t freeze the progress of a disease while the FDA waits to fill critical positions.”