Novo Nordisk vows to limit price hikes, stepping up pressure on its pharma rivals

Novo Nordisk is taking the price-increase pledge. Three months after Allergan CEO Brent Saunders surprised pharma with a similar vow, the Danish drugmaker says it will limit list-price hikes to single-digit percentages annually.

Novo laid out its price-increase promise as one of several steps it plans to take amid a drug pricing controversy that has roiled the pharma industry for more than a year. So far, it is only the second major drugmaker to publicly commit to limiting price hikes.

“We recognize that people with diabetes are finding it harder to pay for their healthcare, including the medicines we make,” Novo Nordisk’s U.S. President, Jakob Riis, said in a post on the company’s website. “As a company focused on improving the lives of people with diabetes, this is not acceptable.”

Some parts of the company’s affordability blueprint involve dollar signs; it re-upped on its financial support for patients, including co-pay assistance, for instance. Others aim at broader targets: Like a chorus of its fellow drugmakers, Novo called for reform of “complex” drug pricing in the U.S.; like a few, it held up results-based payment deals as one path through that thicket.

But the pricing promise is the most unusual among Novo’s “tenets” unveiled on Monday, and it’s not likely to be repeated industrywide. In making that pledge, Novo added its voice to a pricing argument that first forced pharma to defend its practices and now has entered the industry itself.

Reactions to Allergan’s “social contract” and pricing promises were mixed after Saunders publicly unveiled them in early September. More recently—and more dramatically—Pfizer CEO Ian Read and Regeneron chief Len Schleifer got into a public shouting match on the subject last week, on stage at a Forbes conference. (They made up afterward, according to Business Insider.)

Now that Novo has made its own announcement, Saunders called on other drugmakers to come to Allergan and Novo’s side of the pricing line. “I hope more companies realize the importance of taking proactive steps to self-regulate on pricing so we can focus on finding cures and treatments for unmet medical needs,” he said via email.

The comments echo Saunders’ warning last week that pharma needs to take action to deal with pricing rather than taking for granted that the a Trump administration will back off of any action. Drug pricing remains a contentious public issue, and though some high-profile—and enormous—price increase by smaller, now-notorious drugmakers originally lit the firestorm, criticism has since spread to larger, household-name pharma companies and their repeated, if far less dramatic, increases. 

And that includes insulin makers such as Novo. As families struggling to pay for their back-to-school EpiPens put Mylan on the nightly TV news, other patients complained about the cost of insulin, whose list prices had been rising steadily, and in lockstep, for years. Last month, Sen. Bernie Sanders railed against insulin price hikes and called on the U.S. Justice Department to investigate Novo, and its chief diabetes rivals Eli Lilly and Sanofi, for possible price collusion.

Novo says payer rebates and discounts went up as insulin sticker prices rose, and the net increase to the realized price was far smaller—36% from 2010 to 2015, compared with a 353% increase in list price. But patients with high-deductible insurance plans and rising co-pays saw their own spending skyrocket.

“In our view, high-deductible health plans are becoming a greater part of the affordability issue requiring attention,” Riis wrote, adding that to his list of things to do about pricing.

Meanwhile, as payer pressure on drug costs ratcheted upward, Novo’s own finances suffered, Riis said in a separate online statement. It continued to raise prices to maintain a “sustainable” profit margin, and took its competitors’ moves into account when making its own decisions, he said.

“PBMs and payers have been asking for greater savings—as they should,” Riis wrote. “However, as the rebates, discounts and price concessions got steeper, we were losing considerable revenue—revenue we use for R&D, sales and marketing, education, disease awareness activities and medical information support.”

Other major drugmakers have similar expenses to cover, of course, but Novo has suffered more dramatically of late. Pricing pressure and formulary deals took a big toll on its U.S. revenue this year, and just as the third quarter wrapped up, it announced 1,000 layoffs worldwide to cut costs.

Soon after, in announcing Q3 financial results, the company cut its guidance for this year and next. It moved its “holy grail” R&D project, oral insulin, to the back burner, putting the expensive, tricky development program behind new diabetes fighters in the GLP-1 class, which offer a nearer-term return. In fact, it applied for U.S. approval of its new weekly GLP-1 injectable, semaglutide, on Monday.

Meanwhile, Novo’s longtime CEO, Lars Rebien Sørensen, is retiring, to be replaced by Lars Fruergaard Jørgensen, now Novo’s EVP of corporate development. Since then, it has signaled a departure from its history of relying on homegrown R&D projects and products, rather than growth by dealmaking. Any deals Novo does are likely to be outside its core diabetes area, however, Bernstein analyst Ronny Gal reported after a meeting with company executives, perhaps hematology or liver disease. “Something may happen soon,” Gal wrote in a note last month.

Riis himself is new to his job; he took the reins of the company’s North American business in September. Sørensen believes Novo is ready to take on the challenge, thanks to EU pricing pressures, but it's a tough assignment in any light. It will only grow more so as Eli Lilly and Boehringer Ingelheim launch the first biosimilar insulin, Basaglar, later this month, adding lower-cost competition to that field. Clearly—and now publicly—Novo won’t be able to rely on rising prices to put the business back on track. We’ll see if any other companies follow.