(Bloomberg View) — In the mid-1990s, the American public turned against the tobacco industry. As documents emerged showing that tobacco executives had long known that cigarettes could kill even as they denied any link between smoking and cancer, the companies were buried under a blizzard of exposes, public opprobrium, and lawsuits.
The denouement was the 1998 Master Settlement Agreement, in which Big Tobacco agreed to pay 46 states billions of dollars annually, in perpetuity, while curtailing certain marketing practices. (The other four states cut their own deals with the tobacco companies.)
In the wake of the 2008 financial crisis, the American public turned against Wall Street. As people learned the degree to which Wall Street products — and Wall Street behavior — had caused the crisis, they demanded that something be done. Wall Street executives were hauled before Congress and lawsuits were filed against banks and investment banks by the Securities and Exchange Commission and the Justice Department. The end result was a dramatic tightening of financial regulation in the form of the Dodd-Frank Act.
It doesn’t take much imagination to envision the pharmaceutical industry one day facing the same kind of public outrage. One day soon, in fact. True, pharma companies don’t make death sticks, nor will they ever drive the country into recession. They make miraculous drugs that cure diseases and save lives.
But the cost of those drugs — $100,000 for a cancer drug that extends life an average of six months, a low-cost generic that suddenly costs 10 times more, a new drug with a price tag so high that insurance companies balk at paying it — have angered and frightened Americans.
Politicians such as Sen. Bernie Sanders have denounced the high cost of drugs. The Justice Department has been investigating a number of generic-drug companies for alleged price fixing. Even President Donald Trump has weighed in, accusing pharmaceutical executives of “getting away with murder.”
One difference between tobacco and Wall Street, on the one hand, and pharma, on the other, is that the pharmaceutical industry can see what’s coming, and is trying to get in front of it. Consider, for instance, the recent dust-up over Marathon Pharmaceutical’s pricing of its new drug Emflaza.
Emflaza is the brand name for deflazacort, a steroid that is used to treat Duchenne muscular dystrophy, a rare, terrible disease that afflicts about 15,000 boys in the U.S.
It’s aimed at a small population, which means that Marathon gets certain advantages under the law, including a seven-year monopoly window. Although deflazacort had not until this month been approved by the U.S. Food and Drug Administration, some families with children afflicted with the disease have been able to buy it from the U.K. for about $1,200 a year. Last week, the FDA gave Marathon approval to sell deflazacort in the U.S. The list price: $89,000 a year.
PhRMA declined to defend Marathon’s proposed price for Emflaza. (Image: Thinkstock)
PhRMA zips its lips
This egregious price, for a drug Marathon didn’t even develop itself, has caused it to become the latest poster boy for pharma greed, like Valeant Pharmaceuticals and Turing Pharmaceuticals (and its brash chief executive, Martin Shkreli) during the last few years. Sanders and U.S. Rep. Elijah Cummings sent Marathon a letter calling the price of Emflaza “unconscionable.” Much of the Dechenne community was up in arms. In the face of the criticism, the company’s CEO, Jeffrey Aronin, announced that Marathon would delay its launch of the drug.
The company has chosen to lie low. “We are focused on providing access to this important drug to every young patient who needs it,” was the one-sentence statement Marathon sent me. But I’m told that its executives feel badly burned by the publicity. They believe that they spent a great deal of money getting the drug through the FDA approval process, and that no patient or insurance company was likely to pay the list price because of rebates and access programs the company was setting up. (It’s a common pharma tactic to overstate the list price, knowing that rebates will bring the price down, and that the insurance companies can feel they’re getting a bargain while the drug companies can still make a large profit.)
“Put simply we expect patients will pay a standard copay of typically $20 or less per prescription,” the company said in a statement it released to the public this week.
In such a circumstance, you would expect pharma’s lobbyists to race to the company’s defense. But that’s not what happened. Instead, PhRMA, the powerful drug lobby (full name: Pharmaceutical Research and Manufacturers of America) essentially disowned Marathon. The company’s “recent actions are not consistent with the mission of our organization,” its chief executive, Steve Ubi, told Drew Armstrong and Caroline Chen of Bloomberg news in an e-mail.
He went on: “The leadership of the PhRMA board of directors has begun a comprehensive review of our membership criteria to ensure that we are focused on representing research-based biopharmaceutical companies that take significant risks to bring new treatments and cures to patients.”
You can translate that, can’t you? The drug lobby has concluded that to restore pharma’s reputation — and keep both government investigators and public anger at bay — it needs to join with the public in condemning companies like Turing and Marathon. It wants people to focus on all the amazing new drugs that companies are developing — and, implicitly, all the money they are spending in their research labs to create these medicines. Those are the drugs, in other words, that are worth their high prices.
Recently, PhRMA has begun a slick advertising campaign called “Go Boldly,” reinforcing the same idea. And it is going to be selling this notion at forums around the country. The first one takes place next week in Boston.
All of which is well and good. But there is another tactic that might work even better. Find a way to make drug prices reasonable.
Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune.
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