Sorry, pharma. Martin Shkreli's disgrace won't take the heat off your pricing

Pharma might think that bad boy Martin Shkreli's arrest will give the rest of the industry a breather. Though Turing Pharmaceuticals' now-ex-CEO triggered a public outcry about drug price hikes, he also served as a lightning rod for much of that criticism. And securities fraud charges give other drug CEOs--not to mention the trade group PhRMA--more evidence for their "he's not like us" argument.

Martin Shkreli

But pharma may find that the opposite happens: Now that Shkreli is further discredited, the spotlight could shift to other practitioners of the industry's pricing tactics. And not just to Valeant Pharmaceuticals ($VRX) CEO J. Michael Pearson.

In fact, the New York Times published an editorial over the weekend doing just that. The newspaper pointed out that "bottom feeders" like Shkreli--whose business model revolves around stratospheric price hikes for old meds--are simply the worst offenders. Pfizer ($PFE) and Eli Lilly ($LLY) have set sky-high prices for new cancer meds just because they can, the NYT suggests.

Meanwhile, as Bloomberg points out, a host of Big Pharma's staple meds have been increasing in price bit by bit, year after year. Though the one-time price hikes don't compete with Valeant's 500% jack-up on one of its newly purchased heart drugs, they add up. Merck & Co. ($MRK) has slowly raised the diabetes treatment Januvia's price to twice its sticker at launch in 2006, Bloomberg notes. Novartis ($NVS) has jacked up the price on Gleevec, its blockbuster leukemia drug, to about $120,000 now from $32,000 in 2001. And Pfizer has rolled out price hikes on 133 of its branded meds this year, the news service points out.

It's true that an enormous price hike on a 62-year-old drug is quite different from a premium price on a game-changing drug, such as Gilead Sciences' ($GILD) hepatitis C treatments. Drugmakers that sock billions into R&D every year have more justification for their price increases than the NYT's "bottom feeders" do.

Drugmakers point out that high list prices don't include the discounts they offer payers to win formulary placement, but another Bloomberg analysis showed last week that U.S. drug prices still beat those in other countries despite those rebates.

Meanwhile, politicians continue to investigate pharma pricing, with plans for hearings early next year. Shkreli's Turing and follow-up KaloBios ($KBIO) will come up for debate, and Valeant's Pearson will find himself in the hot seat as well. But a variety of other companies have used similar buy-and-hike methods, and Sens. Susan Collins (R-ME) and Claire McCaskill (D-MO) have made a point of saying that such moves aren't limited to one person or one company. And with a presidential election coming up, pharma is sure to capture more scrutiny from candidates on the stump.

The fact is that Shkreli baldly stated what most other pharma CEOs tend to soft-pedal--the industry operates by the maximize-shareholder-value principle, and price hikes grow sales when volume doesn't.

"No one wants to say it, no one's proud of it, but this is a capitalist society, a capitalist system, with capitalist rules, and my investors expect me to maximize profits, not to minimize them, go half, or go 70 percent, but to go to 100 percent of the profit curve we're all taught in MBA class," Shkreli said at a Forbes summit in New York (as quoted by Bloomberg).

That genie is out of the bottle, regardless of how "different" Shkreli and his ventures are from the R&D-focused end of pharma. The pricing questions won't stop now.

- see the NYT editorial
- get more from Bloomberg

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