January 12, 2017 / 7:49 PM / 3 years ago

Pharma company executives debate drug pricing increases

SAN FRANCISCO (Reuters) - Grappling with a backlash against high U.S. prescription drug prices, more pharmaceutical companies are pledging to limit annual increases to under 10 percent - but the tactic is doing little to salve critics, including President-elect Donald Trump, who on Wednesday said drugmakers are “getting away with murder.”

A person holds pharmaceutical tablets and capsules in this picture illustration taken in Ljubljana September 18, 2013. REUTERS/Srdjan Zivulovic

The pharmaceutical industry is typically reluctant to talk about U.S. drug prices, generally the highest in the world due to a combination of market fragmentation and free market policies. But recent high-profile price hikes by Mylan NV (MYL.O), Turing Pharmaceuticals and Valeant Pharmaceuticals International Inc VRX.TO have raised the ire of consumers and lawmakers.

AbbVie Inc (ABBV.N) on Wednesday became the third global drugmaker to publicly promise to cap annual price increases at under 10 percent, following earlier pledges by Allergan Plc (AGN.N) and Novo Nordisk A/S (NOVOb.CO).

Allergan last week raised the price of two dozen of its drugs by between 7 percent and 9.5 percent.

“I do think that the industry is off to a good start in terms of good behavior,” Allergan Chief Executive Officer Brent Saunders told investors here this week during J.P. Morgan’s annual healthcare conference, the largest industry meeting of the year.

Mylan’s six-fold increase in the price of the EpiPen allergy treatment over less than a decade put the company front and center last year in the heated debate. Prices for four of the nation’s top 10 drugs increased more than 100 percent since 2011, Reuters found.

Mylan Chief Executive Officer Heather Bresch, answering questions at the conference, said capping price increases for brand-name drugs below 10 percent “is not the right solution,” noting that raising prices by 9 percent still adds a whopping $33 billion to the nation’s annual prescription drug bill.

“The pricing model has got to change,” she said. “If anybody is walking away from this conference thinking it’s business as usual, that’s a mistake.”

Other executives said future pricing power will likely hinge more on evidence that a particular drug is cost effective.

“I think we will see a bigger trend of outcomes-based pricing,” said Joseph Jimenez, chief executive officer at Novartis AG (NOVN.S), referring to studies showing how a drug can improve patient lives while cutting costs.

The Swiss drugmaker recently struck deals with two U.S. insurers for its heart failure drug Entresto under which payments are calculated based on any proven reduction patient admissions to the hospital, not on the number of pills consumed.

European regulators already require companies to demonstrate the cost effectiveness of new therapies.

“We already design studies to incorporate health economics for ex-U.S. regulators,” Perry Sternberg head of U.S. commercial operations at Shire Plc SHP.L told Reuters in an interview. “It is data that is going to become more and more important.”

It can be difficult to measure how patients fare on specific drugs, since results depend on patients following doctors orders, but drugmakers acknowledge that advances in technology are offering new ways to solve some of those issues.

Derica Rice, chief financial officer at Eli Lilly & Co (LLY.N), said in an interview that the drugmaker is “trying to find creative solutions.”

Drugmakers point out that prescription drugs account for only around 15 percent of U.S. healthcare costs and say other aspects of the healthcare system should be targeted for savings.

But those sectors, including hospitals and physicians, have been undergoing an evolution for several years now away from a traditional “fee-for-service” system toward a focus on quality, rather than quantity, of care.

“We have fewer tools to manage pharmaceutical costs,” said Steven Pearson, president of the Institute for Clinical and Economic Review, a non-profit organization that evaluates new medicines. “We still pay fee-for-pill.”

Reporting By Deena Beasley; Editing by Caroline Humer and Bernard Orr

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