Allergan CEO swears off big price hikes in manifesto on pharma's 'social contract'

Allergan CEO Brent Saunders has made plenty of pronouncements during his tenure: His company is a “growth pharma,” never a “Big Pharma.” 

But today, he released his most dramatic decree yet.

“We will limit price increases,” Saunders promised in his CEO blog Tuesday, becoming the first chief executive of a major drugmaker to do so. When prices do rise, they’ll go up only once a year, and “they will be limited to single-digit percentage increases.”

At a time when some drugmakers are under fire for hikes of 100%, 200%, 400% or more, that’s a significant promise. The EpiPen scandal, burning strong for more than two weeks now, has Mylan scrambling to make up for a 400% increase in price since 2009, and it’s just the latest in a string of notorious price increases, from Valeant Pharmaceuticals, to Turing Pharmaceuticals and more. The drug-pricing scrutiny has analysts wondering which company’s big price increase will catch fire next.

Big Pharma companies have themselves decried these price hikes, blaming “bad actors” that aren’t part of the innovative pharma crowd. Mainstream drugmakers spend big sums on research to develop life-saving or life-changing therapies whose prices are justified by their benefits, they say.

Saunders echoes the rest of the pharma world in outlining a “social contract” between the pharma industry and the public: Drugmakers invest money, time and effort to develop treatments that are then priced in a win-win-win way--accessible for patients, effective at reducing the societal burden of disease, sufficiently profitable for drugmakers to continue investing in new meds.

“Those who have taken aggressive or predatory price increases have violated this social contract!” Saunders said.

But Saunders’ single-digit pledge doesn’t only beat the quick-and-dirty three-digit increase. It also beats the quote-unquote normal price hikes common across the drug industry, such as those pushed through by Pfizer, Amgen, Gilead Sciences, and many others. Amgen’s price on the anti-inflammatory drug Enbrel went up by 28% last year, and another 9.9% as of July 1. According to the Wall Street Journal, Biogen has raised the price on its multiple sclerosis drug Avonex 21 times over 10 years, an average of 16% per year. Eli Lilly increased the stick price of its insulin Humalog by twofold from 2010 to 2014, the Journal noted. And a Bloomberg analysis found that Pfizer’s Lyrica went up by 51% over three years, while Viagra went up by 12.9% in 2015 alone.

In his blog post, Saunders goes on to explain his interpretation of that social contract, “despite the fact that it is hard to speak out publicly on this.” And it’s true that in addressing the pricing issue head-on and in detail differs from the more oblique comments of other pharma executives and advocates. PhRMA, for one, plans millions of dollars in advertising for the industry, focused on the life-saving benefits of pharma discoveries. Pfizer recently launched an image campaign that highlights a drug’s journey from brainstorm to lab work to clinical testing to market.

But if the response on Twitter is any indication, Saunders’ manifesto was a risk worth taking. 

Former Pfizer R&D chief John LaMattina quickly chimed in.

And at a time when Democratic presidential candidate Hillary Clinton has promised to push a slate of changes to keep drug prices in line, other Big Pharma CEOs might take note. Industry leaders are skeptical that Congress will go along with Clinton’s plans--rightfully so, given the dollars shelled out on lobbying every year--but pharma’s power on Capitol Hill may have met its match in public outrage.

Clinton wants to zero in on “outlier” price increases, by sifting data on a quarterly basis. She wants to promote generics by spending more on FDA staffers who can clear a backlog of applications and cracking down on pay-for-delay patent settlements. She wants to mandate R&D spending targets. She wants to push through Medicare price negotiation--a popular measure that Wells Fargo analyst David Maris sees as “hard to oppose.” She wants to stop the tax deduction for direct-to-consumer advertising. And the list goes on.

“Based on a preliminary read of the proposals ... this plan could have significant negative effects on industry profitability as it aims to manage profit levels and dictate R&D spending levels,” Maris wrote in a Tuesday investor note.

Clinton’s proposal is “extremely unlikely” to be enacted in its entirety, Maris noted, but if it were, “we believe this plan would have significant and negative consequences to drug industry profitability, innovation, and perhaps the entire healthcare system.”

Saunders echoed that risk in his blog post. The pharma world depends on the expectation that it can fund future R&D while delivering profits that keep shareholders happy.

“This ecosystem can quickly fall apart if it is not continually nourished with the confidence that there will be a longer term opportunity for appropriate return on investment in the long R&D journey,” Saunders wrote.

Explaining that return could be important as well. In February, as Valeant’s Congressional hearings were playing out, Merck CEO Ken Frazier suggested that drugmakers find ways to justify their price increases. Pay-for-performance deals with payers might be one way; Novartis CEO Joe Jimenez is a big proponent, with heart failure drug Entresto at the center of several, and Sanofi, Regeneron and Amgen have all inked results-based deals with payers on their PCSK9 drugs.

Converting to that sort of system would be slow, however, and in the meantime, Frazier said, "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.”

- here's the post

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