Report: Drug prices skyrocketing, with no end in sight

Despite a wave of M&A deals aimed at increasing efficiency and lowering expenses in the pharmaceutical industry, drug prices continue to rise, with several drug companies nearly doubling the costs of key products over the last 7 years. That's the conclusion of an analysis prepared for Bloomberg by DRX, a California-based provider of health software.

According to the DRX analysis, Merck ($MRK), Novartis ($NVS), Eli Lilly ($LLY), and Pfizer ($PFE) are among the companies that have hiked prices by at least 75% since 2007. The cost of Lilly's diabetes drug Humulin was up an incredible 354% during the period, while Sanofi's ($SNY) popular Lantus rose 160%. Even Pfizer's former cholesterol blockbuster Lipitor, which went off-patent in 2011, was on the list--its price has risen 102% since 2007.

Drugmakers employ several strategies for boosting prices. The DRX analysis suggests that some companies are raising prices on drugs that are still under patent to offset sales of others that have gone generic. Others hike prices on newer drugs when rival products hit the market. In 2013, price increases on branded drugs accounted for $20 billion of the industry's sales growth, which made up for $19.3 billion in lost revenues from generics, according to a report Bloomberg cited from the IMS Institute for Healthcare Informatics.

Among the biggest offenders when it came to price increases were makers of insulin products to treat diabetes, according to Bloomberg. When presented with the DRX figures, a spokeswoman for Lilly told Bloomberg the company had equalized the per-unit price of the concentrated form of Humulin with less concentrated versions. Sanofi said it considered a variety of market conditions when setting prices, including pricing pressure from competitors.

There's no doubt the freedom to boost prices is paying off for some Big Pharma players. Even while slashing its workforce, Lilly has managed to boost revenues and beat analyst earnings estimates, thanks to strong sales in its diabetes franchise. In the third quarter of last year, for example, Humulin sales leapt 22% in the U.S.

It's not just diabetes that's driving up drug prices. The DRX analysis found huge price increases for some cancer medications, including Novartis' Gleevec to treat chronic myeloid leukemia, which costs $306.43 for a single pill this year--up from $118.78 in 2007. The price of Roche's ($RHHBY) lung cancer drug Tarceva rose 90% during the studied time period, while that of Bristol-Myers Squibb's ($BMY) leukemia drug Sprycel doubled.

While this all might seem a small price to pay for medicines that can save lives, the healthcare system is likely to suffer if drug spending continues to be out-of-whack with spending on other commonly purchased goods. As Bloomberg points out, while the prices of some drugs have been doubling, the consumer price index has risen just 12% since 2007.

- here's the Bloomberg story

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