Merck CEO Frazier: Pharma needs to justify price hikes

Merck CEO Ken Frazier

Merck ($MRK) knows price hikes. It's taken them yearly on some drugs--including powerhouse diabetes treatment Januvia. But CEO Kenneth Frazier also knows that with all the scrutiny surrounding the strategy, if his company wants to keep those hikes coming, it's going to have to justify them.

As Frazier told The Wall Street Journal, "there's a challenge" surrounding pricing that the pharma industry is "going to have to think through." And that includes finding "new and better ways to link what we charge for the drug to the value that it actually creates in the marketplace," he said.

That's easier said than done, though, according to Frazier. As he pointed out, there are "barriers in the system" to sharing the risk with consumers. Merck, he says, is "actually very eager" to try outcomes-based pricing, but "the laws around what we can and cannot do in our pricing model were made for a different environment. They weren't made for performance-based contracting or risk-sharing or any of those kinds of experimental approaches to pricing."

Other drugmakers have managed to ink pay-for-performance deals with payers--albeit in a small way, and after considerable effort. Frazier didn't say which of Merck's meds might lend themselves to the idea.

In the meantime, the company plans to keep inching upward on price. But, Frazier promises, the company will continue trying to "be constrained in how we've done it, in a way we think doesn't prevent people from affording our drugs."

While Merck hasn't been taking the kind of huge overnight price jumps that have put pharma in the national spotlight lately, Januvia and other stalwart meds have steadily gone up. Januvia's price went up by 93% from 2010 to 2015, a study found last year, as reported by Newsday.

The drug is among a group of products--like Novartis ($NVS) leukemia blockbuster Gleevec--that have come into the pricing conversation lately. Drugmakers have long used price hikes to offset slower volume growth. And on older meds, price hikes can create a revenue spike before they fall victim to generic competition.

But with all the recent drug-pricing hullabaloo coming from Congress, presidential candidates, the public and even doctors, other CEOs have been more proactive about making sure their companies don't get caught in the fray. GlaxoSmithKline's ($GSK) Andrew Witty, for one, has been clear that the company's been bulking up in vaccines and consumer health--two traditionally low-margin businesses--to dodge pricing and access pressures that are dogging his Big Pharma peers. And Novartis CEO Joe Jimenez recently kicked off a restructuring centered on troubled eye unit Alcon, noting that the company needed to save money on operations if it wasn't going to be able to rely on the pricing power it used to enjoy.

Other companies have gotten into pay-for-performance pricing, too. Novartis is already blazing forward with such plans for new heart failure med Entresto, and two big payers--Cigna ($CI) and Aetna ($AET)--recently got in line to try them. Amgen ($AMGN) has successfully negotiated a value-based deal for PCSK9 newcomer Repatha with Harvard Pilgrim Health System.

And it's not just Big Pharma experimenting with outcomes-based pricing models. Last week, a Houston-based foundation said it would shell out $7.2 million to a variety of organizations to back research and field pilot projects that test particular setups.

- read the WSJ story (sub. req.)

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