A host of Big Pharmas have either promised to limit their price hikes or opened up info on their increases and rebates. But Pfizer isn't one of them—and that has some investors riled.
In the wake of a new round of price hikes reported by the Financial Times, investor members of the Interfaith Center on Corporate Responsibility are demanding a meeting with Pfizer. In a letter to CEO Ian Read, the investors said they are “distressed that Pfizer has responded to the intense scrutiny on pricing over the past year by continuing a relentless march forward on drug price increases."
The ICCR investors also questioned whether Pfizer is substituting price hikes for pipeline successes when it comes to building up its bottom line—and argued that relying on price increases is an "unsustainable" business model.
It's the latest skirmish in an almost two-year battle over pharma’s pricing, which has prompted several drugmakers to cap their increases to single-digit percentages. Multiple drug-cost measures are pending in Congress and a majority of Americans say pharmaceutical pricing should be a priority in Washington.
In the letter, ICCR members cited a Credit Suisse report showing price hikes created $8.7 billion in net income for top pharma companies last year, equivalent to the aggregate earnings growth across the entire sector. Pfizer was among the companies that generated all of their earnings growth on price hikes, according to the investors, who questioned whether the companies are using price increases to cover “gaps in innovation.”
They're not alone in advancing that idea. Speaking at a panel discussion in December, Regeneron CEO Len Schleifer said some drugmakers depend on M&A and price hikes to fuel growth, saying that's “not the business I want to be in."
“We as an industry have used price increases to cover up the gaps in innovation,” Schleifer said at the meeting, as quoted by Business Insider.
Pfizer's Read countered that different strategies work for companies of different sizes and focus, pointing out that the proportion of spending on drugs "has not changed in two decades."
That argument isn't winning over ICCR's investor members, though. They believe the company risks "further reputational damage" if it fails to correct its pricing behavior.
“As your investors, we view a business model that relies so heavily on drug price increases for growth as unsustainable and frankly, a material risk to those investments,” ICCR's letter states.
A Pfizer spokesperson declined to comment on the ICCR letter but reiterated a previous statement that the company "has always priced responsibly" and that it believes "innovative medicines are one of the most valuable and cost-effective segments of healthcare spend and are an important part of the solution to growing healthcare costs."
As of the first quarter of this year, Pfizer's "weighted average net selling price" increase was 4% across its U.S. business, a spokesperson said. That statistic leaves out any second-quarter price hikes.
"We also have very comprehensive and extensive access programs for those that cannot afford or do not have good insurance," the spokesperson said.
It’s no secret that the drug industry has faced mounting criticism for its pricing ever since summer 2015, when a now-notorious price hike by Martin Shkreli’s Turing Pharma on Daraprim brought the issue to the fore. Multiple controversies since have focused attention on the issue, and several drug companies have responded by committing to limit their increases.
Takeda, AbbVie, Allergan, Novo Nordisk and Sanofi have pledged to limit their price hikes, while Merck, Johnson & Johnson and Eli Lilly have released high-level “transparency reports” showing the growing rebates and discounts to industry middlemen that are taking a bite out of pharma sales.
ICCR’s investor members wrote that they “believe these efforts are solid first steps toward allaying mounting public concerns about the role of drug prices in the cost of our nation’s health care.”
But, with news of recent price hikes at Pfizer, they believe the New York drugmaker is “increasingly out of step with leaders in the sector.”
It’s not ICCR’s first attempt to engage Pfizer on the issue, either. Last year, the group pressed the New York drug giant and more than a dozen top pharma companies to explain their price hikes on big-selling branded drugs. They requested shareholder votes on the issue, aiming to get the question into the companies' 2017 proxy statements. That effort didn’t get far, though; the Securities and Exchange Commission sided with the companies that excluded ICCR’s proposals from their proxies.
The SEC decision drew criticism from Sens. Richard Blumenthal and Bernie Sanders, who last month urged agency Chairman Jay Clayton to reverse it. In their letter to Clayton, the senators said the move was “completely at odds” with two previous SEC decisions in 1998 and 2015 and with the agency’s “longstanding rules.”
A SEC spokesperson declined to comment on the senators' letter.