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Drugmakers Defend Pricing Strategies in San Francisco

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Two years ago, fear that Donald Trump would clamp down on drug prices roiled the health industry’s biggest annual gathering.

Now, pushback on prices has become part of a new normal for which many pharmaceutical executives have developed a reliable script: Drug costs should reflect the value treatments deliver to patients, they say. Savings shouldn’t come at the expense of innovation. And the companies they run have been restrained and transparent in taking price increases.

(Related: Trump Goes After Pharma on Twitter as Companies Increase Prices)

In response, the Trump administration and Congress are gearing up for a renewed campaign to bring the companies to heel. The top U.S. health official said Wednesday that prices must come down, while lawmakers prepared to roll out new proposals to limit increases.

Meanwhile, drug costs are marching higher. Days ahead of this week’s J.P. Morgan Healthcare Conference in San Francisco — where a backdrop with a gold capsule and glittering, jewel-like DNA strand was draped behind panelists — pharma companies boosted list prices on hundreds of treatments, including widely used painkillers and cardiovascular drugs.

This week, prices of dozens more medicines were raised, according to the health-information analytics company Elsevier. Among them was Novo Nordisk A/S type-2 diabetes drug Victoza, which was boosted 5.9%. The company said in a statement that it’s kept annual list-price increases below 10%, in accordance with an earlier pledge.

Despite the current spotlight, some executives say the controversy is focused on the wrong issues.

“It’s not a real problem; it’s all politics,” said BioMarin Pharmaceutical Inc. Chief Executive Jean-Jacques Bienaime in an interview on the eve of the J.P. Morgan conference.

Washington has been watching the recent price moves with growing impatience. On Tuesday, Trump summoned his top health officials to the White House to discuss the increases, which he also lashed out at in a weekend tweet. Last year, Trump persuaded some companies to pause planned increases.

Sen. Bernie Sanders, the Vermont independent, and Rep. Elijah Cummings, a Democrat from Maryland, plan to introduce drug-pricing legislation Thursday, according to a person familiar with the matter.

The bills would authorize importation of cheaper drugs from abroad, let Medicare negotiate prescription prices and require the government to list “excessively priced” treatments. The measures also would permit generic-drug companies to sell lower-cost versions of medicines that still have patent protection if branded prices climb too high.

Cummings indicated on Wednesday that there would be public hearings on drug prices.

Industry figures say the price issue is more nuanced than the public debate. Several executives said this year’s increases have been modest. Others said companies should be compensated for taking risks that lead to treatments for once-intractable diseases.

“The price debate goes on, and those who are able to innovate will be rewarded for their innovation,” said Michel Vounatsos, CEO of Biogen Inc. “This is what this country stands for.”

Good Behavior

The Trump administration last year issued a blueprint for lowering pharmaceutical costs. The proposal included indexing drug prices paid by programs like Medicare to what governments in other countries pay. It also asked pharmaceutical companies to include prices in TV ads.

Variations on those ideas have been taken up by some companies. Eli Lilly & Co., which this week agreed to acquire cancer-treatment maker Loxo Oncology Inc. for $8 billion, said it would direct TV-ad viewers to websites with more comprehensive pricing information.

The administration also praised a handful of pharmaceutical giants for cutting prices.

“We’ve seen some good behavior from companies such as Merck, Gilead and Amgen, who announced lower prices for their drugs,” Health Secretary Alex Azar, a former executive of Eli Lilly, tweeted on Wednesday. “We need to see more.”

Azar said that the administration would continue to look for ways to push down list prices of drugs, adding “prices must come down.”

State and local governments are also pushing for savings. As the industry celebrated itself in San Francisco, California’s new governor proposed using the state’s bargaining muscle to negotiate lower prices. And New York City’s mayor floated a plan to spend $100 million to provide affordable health care to residents.

Innovation’s Cost

Some drugmakers at the J.P. Morgan summit drew a line between the high cost of innovative treatments for uncommon diseases and the steady drumbeat of increases for older products.

“What frustrates me the most when we talk about this issue, we’re often talking about the most impactful, innovative therapies. Those are a little fraction of the actual cost of health care,” said Douglas Ingram, CEO of Sarepta Therapeutics Inc., the maker of a therapy for a rare form of muscular dystrophy.

“The great bulk of expense that is potentially wasteful is not coming from innovative therapies that treat rare disease,” Ingram said on the sidelines of the conference. “It’s coming from, among other things, old drugs that continue to be given price increases without justification year over year over year.”

Many health insurers and plan administrators talk about the importance of giving patients “skin in the game.” They say patients should share some of the cost of health care, to encourage patients to help the best possible balance between the effectiveness of care and the cost.

(Related: Patient-Aid Charity Agrees to ‘Skin in Game’ Rules)

Some of the executives at the J.P. Morgan summit made a point of noting that patients themselves haven’t been spending their own money on the most innovative and expensive medicines, because insurers and other payers bear most of the cost. Spark Therapeutics Inc. Chief Business Officer Dan Faga said at the parallel Biotech Showcase conference that the company has shipped 75 vials of Luxturna, a new gene therapy for rare inherited blindness that is priced at $850,000, or $425,000 per eye.

“Not one patient has paid anything out of pocket,” said Faga.

New Equilibrium

In a presentation Tuesday, Amgen Inc. CEO Robert Bradway said the industry’s growth would be driven by the number of patients taking prescription drugs, not price increases for existing therapies.

“It’s not going to be feasible or practical” to grow through price hikes alone, Bradway said.

The head of the $126 billion biotechnology giant highlighted its growing biosimilar business. Biosimilars are akin to generic drugs, essentially lower-cost copycats of complex therapies like certain cancer treatments. But biosimilars have been slow to reach the U.S. market because of contracting strategies and legal skirmishes over intellectual property.

Such battles are likely to help keep the fight over pharmaceutical costs front and center for some time.

“Drug pricing is going to continue to be an issue going forward,” said Amgen Vice President David Piacquad. “You’re going to see a new equilibrium.”

—With assistance from Rebecca Spalding, James Paton and Bailey Lipschultz

— Read Price of Pitocin, Common Childbirth Drug, Doubles as Shortages Drag On, on ThinkAdvisor.

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