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Johnson & Johnson Is Dialing Down Crazy Drug Price Hikes

Woman holding Bach flower capsules.Woman holding Bach flower capsules.
Price gouging hasn't gotten the industry much love.Alice S. / BSIP Alice S. / BSIP

Is the pharmaceutical industry finally ditching its price gouging ways?

Well, sort of, depending on who you ask. On Monday, drug giant Johnson & Johnson (JNJ) pulled the curtain back on its own pricing tactics in a transparency report. The firm said that average list price increases for medicines were kept below 10% every year since 2012 (8.5% on average in 2016 with a net of 3.5% after taking discounts and rebates into account).

“We understand the concerns of patients, families and other stakeholders who are worried about health care costs, including the costs of prescription medications,” the company said. “They are calling on us to provide greater transparency about how we operate—including disclosing more information on our pricing and marketing practices, our patient access programs, and our clinical trials.”

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J&J is the latest company to unveil this kind of data in recent months. Rival Merck (MRK) made similar disclosures last month, though that firm’s increases were higher than J&J’s.

The two firms, alongside Japan’s Takeda and Danish diabetes specialist Novo Nordisk (NVO), have signed onto a “social contract” that was launched by Botox-maker Allergan’s (AGN) chief exec, Brent Saunders, last fall. The contract calls for transparency and sets a hard 10% upper cap on branded drug list price increases.

Allergan revealed that its own average gross price hike was 6.7% in 2016 with a net of 2.5% – roughly in line with overall inflation, which is Saunders’ long-term goal. The big pharma CEO told Fortune in a recent interview that President Donald Trump’s populist tendencies and tough drug industry criticisms make it necessary for biopharma to hold itself to account and self-regulate before lawmakers make any drastic policy changes. These measures could also set more responsible companies apart from the likes of noted price hikers like Valeant (VRX), AbbVie (ABBV), and Pfizer (PFE), several of which have used the increases to make up for dwindling sales volume.

“I didn’t pass this social contract, nor would I advocate for another company to do their own thing, because they’re worried about a [Trump] tweet or one bad action,” he said.

“I think the real issue is, the system we have today encourages capital money to be put at risk to try to to solve unmet medical need. If the government intervenes and takes over… I worry that the fragility of the innovation and the types of risks that we have to take will start to disappear.” (Read the full interview here.)

But another report released Monday underscores the reality that gross price increases may continue to significantly outpace inflation, which has hovered at around 2%. An analysis by Raymond James & Associates found that the median, rather than average, price increases announced in January (when many drug makers announce their price changes) was 8.9%, according to the Wall Street Journal. That’s basically the exact same figure as in 2016. And even if you lop off 60% from those hikes to account for rebates, it still amounts to a median increase of more than 3.5%, superseding inflation.

To be fair, medical inflation tends to be higher than standard inflation. And the most extravagant price hikes appear to have subsided considerably this year, with just 5.5% of the increases exceeding 10%. That’s almost a third of last year’s number and a quarter of the 2015 figure. But it could still be a long way before the biopharma industry’s epic new campaign to win back the public’s trust succeeds if patients continue to feel a pocketbook pinch.