Tale of 2 CEOs: Merck chief treads carefully on pricing, while Pfizer's Read predicts more hikes

Two Big Pharma CEOs have sounded off on drug pricing, and what a difference between the two. Merck's Ken Frazier stayed in safe territory with his barbs against rebates, but Pfizer's Ian Read touched off controversy by predicting a return to price hikes.

During separate sets of remarks this week, Frazier took a line that's approved even by the price-fighting Trump Administration by criticizing the payer rebates that hack into net sales. Meanwhile, even after a public lashing from Trump on price hikes, Read said Pfizer's ready to return to "business as normal" in 2019, indicating that price increases are likely on the way.

Speaking at the New York Times Dealbook conference, Frazier said pharma faces a unique challenge because it’s “the only part of healthcare where the prices are really transparent." 

Challenged on that statement by interviewer Andrew Ross Sorkin, Frazier said drug list prices are “the only transparent thing in the whole” pharmaceutical pricing system. After Merck decides on a list price, the company has to offer up competitive rebates and discounts in order to win favorable formulary placement, and those are secret.

Across its U.S. portfolio, Merck is discounting its drugs by about 50% from list prices, Frazier said. That stat doesn't illustrate, however, the differences in rebates on newer or more expensive drugs versus older and perhaps less expensive brands.

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“We have to have a rational conversation about the supply chain,” Frazier added, striking a familiar—and noncontroversial—tone for the industry. In defending itself against pricing controversies, drugmakers have repeatedly pointed to the growing rebates they pay to middlemen. 

Frazier's comments have a sympathetic audience in the federal government, too. On several occasions, HHS secretary Alex Azar—a former Eli Lilly executive—has blasted confidential discounts and has suggested moving to a pricing system without rebates. 

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But the administration, and the public, will likely take a different stance on comments from Pfizer's Read, particularly after the company's pricing moves touched off an outcry this summer. Pfizer famously sparked criticism for its plan to raise dozens of list prices, including from President Donald Trump. After Trump slammed the company on Twitter, Pfizer agreed to delay the increases.

Now, it seems Pfizer may be nearly ready to raise prices again. Asked on Pfizer’s third-quarter conference call about future hikes, Read said he expects it will be “business as normal” for the company at the end of this year and early next. 

“We price to the marketplace,” Read added. “We price competitively, and we will make those decisions towards the end of the year and early in January.” The new year is a traditional time for drugmakers to roll out price increases.

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Read is stepping down as CEO on Jan. 1, handing over the reins to current chief operating officer Albert Bourla.  

The comments from Read and Frazier come as the federal government advances on several initiatives to control drug prices, including forcing lower Part B prices, approving more generics and requiring price disclosures in advertising.