Rough waters for pharma's U.S. pricing power, yes. Sea change? Nope

Print 24 September 2015
Tracy Staton / Fierce Pharma

This could go down in pharma history as the week that drug pricing met pop culture. Social media in an uproar, headlines on Gawker and TechCrunch--even women's magazines' websites. Television and radio, too.

But this week won't be remembered as the one when drugmakers lost their long-standing pricing power in the U.S.

That, at least, was the word from analysts and at least one top pharma CEO as politicians vowed a crackdown. Turing Pharma's 5000% price hike on a 62-year-old drug--and its loudmouthed CEO--may be perfect emblems for pricing pushback, but those efforts are doomed to fall short, they say.

Allergan ($AGN) CEO Brent Saunders was positive on that fact. "All of our intelligence says that it is going to be very hard for Hillary or any other candidate to really have a profound impact on drug pricing," Saunders told CNBCMonday, going on to trot out the usual R&D argument: "[K]eep in mind, we need to have good pricing to create innovation."

Evercore ISI analyst Terry Haines agreed, despite drug-pricing moves promised by Hillary Clinton--and legislation introduced by her Democratic presidential rival Sen. Bernie Sanders.

"The difference between a candidate of either party talking about any policy initiative during 2015 primaries and his or her ability to make that legislative change happen in 2017 or beyond should be kept well in mind: regardless of what any Democratic candidate says about drug pricing, his or her ability to make that a reality as president is close to zero," Haines, a government policy specialist, said in an investor note.

"[T]he worst outcome is unlikely," pointed out Bernstein analyst Ronny Gal in a Tuesday note. If the government moved quickly to cut drug spending, that would be a blow to pharma and its stocks, Gal acknowledged, but "there is no evidence that this will be the outcome of the debate."

In fact, history would suggest--indeed, current pharma-related legislation would suggest--that if Congress actually moves to address drug pricing, the industry would be closely involved. The 21st Century Cures effort "is specifically tailored to industry interests," Gal points out. The PATENT act reform "is specifically looking for ways to shield the industry" from a new legal maneuver for challenging patents.

"We would expect that if any steps would be taken, the drug industry will be part of the legislative debate and compromise would be reached," Gal figures.

Saunders painted Turing's enormous price increase on the toxoplasmosis drug Daraprim--from $13.50 to $750 per pill--as an outlier, unrepresentative of the usual pharma approach. An "egregious situation" that should be separated from "what really happens" in drug pricing.

Expect to hear that repeatedly as drugmakers and industry groups work to redirect the story. That may not be 100% effective, given the fact that patients are bearing a bigger share of their drug costs than ever. Many have experienced big price increases directly, via surprise bills at the pharmacy window.

Sen. Bernie Sanders

But the 24/7 inundation of news and social media posts virtually guarantees that another issue will capture the public's attention. Pharma has a powerful lobby in Washington and a big voice in the media; the industry has withstood storms of criticism before. Plus, the modus operandi on Capitol Hill isn't likely to change overnight. Business-friendly Republicans control both houses, and plenty of them would be willing to beat the innovation drum, not only to keep friends in pharma, but also to hit back at Clinton, Sanders and any other potential candidate.

Plus, drugmakers can take comfort in the fact that the reason for the recent pricing pressure is because of growing revenues in the industry. The big patent cliff that kept spending increases really low is past, and now, "as a result of innovation and very aggressive pricing, projections are for high single-digit annual drug cost increases," Gal points out. Even if pressures push that growth rate more in the mid-single-digit range, "it would still be a decent growth rate … and a slower but sustainable U.S. growth rate may not be a terrible thing."

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