A Pledge to Limit Pricing: How have drug-makers been behaving?
Amid growing tensions surrounding price increases and a rapidly deteriorating public image worldwide, several biopharmaceutical giants have offered a compromise: a pledge to limit price increases. @Allergan was the first; in Sept 2016, its CEO committed to limiting annual price increases to a single digit percentage. @Abbvie and @NovoNordisk made similar promises shortly after. In April 2017, @Public_Citizen surveyed 29 pharmaceutical companies to ask if they would limit their price increases to below 10%. All but four companies declined the pledge.
How have these companies been behaving since then?
“ Many drug companies have grown conscious of the increased scrutiny on drug price”
Despite Public Citizen’s disappointing survey results, list-prices are stabilizing. Most companies have limited price increases in the United States to below 10% for 2017. @AbbVie raised the price of Humira by 8.4% several days after announcing its price pledge. @Amgen followed suit shortly after, increasing the price of Enbrel by the same percentage in January. Eli Lilly (@LillyPad) raised the price of its insulin Humalog by 7.8% in May. @NovoNordisk mirrored this with a 7.9% price increase for its competitor, Novolog. @Sanofi recently pledge to keep annual price increases below the rate of medical inflation – currently 5.4%. Johnson & Johnson, @Merck and @Biogen have also kept their price increases below 10%. Many drug companies have grown conscious of the increased scrutiny on drug price.
A notable exception has been @Pfizer; it has raised the price of 91 drugs by an average of 20% so far this year. Pfizer has declined the pledge to limit price increases. Despite its controversial tactics, Pfizer insists that the average net selling price for all drugs in the U.S. has only gone up 4% since last year. Other companies echo the experience: following the price increase on Enbrel, Amgen executives claimed, “payer discounts will eat up most, if not all, of its latest hikes” (@FiercePharma). Eli Lilly reported net price increases of just 2.4% in 2017.
Despite annual list price increases of up to 10%, drug companies are seeing smaller increases in their net prices. Data compiled by Bloomberg (@BW) shows that rebates and discounts are eating up increasingly larger portion of list prices. In the case of Humalog, the net price has declined despite a nearly doubling of list prices since 2012. A 2017 report complied by @CreditSuisse shows U.S. list prices for prescription drugs across the drug industry rose 9.8% in 2016. Net prices were up 6%.
“ Arguably, this is the most important issue for a Pharma investor today”
More importantly, U.S. drug price increases have been increasingly critical. "US drug price rises contributed 100% of industry Earnings-Per-Share (EPS) growth in 2016. Arguably, this is the most important issue for a Pharma investor today. Despite public scrutiny, we estimate US net price rises contributed $8.7 billion in 2016 to net income, 100% of sector EPS growth" (@CreditSuisse).
Drug companies are in a tough position – eliminating annual price increases would quickly half growth and erode into profit margins. But the industry is cognizant that continued price spikes could eventually culminate in the kind of regulatory change they’ve been fighting against since the 1950s. They are carefully toeing the line between social consciousness and their obligations to shareholders. It is unsurprising that manufacturers are looking to shift the spotlight onto pharmacy benefit managers.
The problem is that without transparency, it’s simply one’s word against the other | @heatinformatics