This weekly column offers opinions on the latest pharmaceutical industry news.
How much credit should we give Brent Saunders for trying to put a lid on drug prices?
The Allergan (AGN) chief executive last week issued a manifesto in which he vowed to avoid “price gouging” as part of a “social contract” with the public. And he promised that his company, which is best known for selling Botox, will limit price hikes to single-digit percentages each year — although he acknowledged that there may be exceptions.
His unexpected move came amid frenzied criticism of EpiPen pricing, which triggered a fresh round of national disgust with the pharmaceutical industry over the cost of its medicines.
“I understand the public outcry and add my voice to the condemnation of these behaviors,” Saunders declared.
No other drug company chieftain, however, has come close to taking such a step.
Instead, industry executives have spent the past year pointing fingers at a few price-hiking “outliers” — like Martin Shkreli — whom they say don’t represent the rest of the pharmaceutical sector. And they’ve defended their pricing with misguided explanations about high research and development costs and the need to support “innovation.”
But none of this has defused public outrage. And now, the threat of legislation or regulation now looms larger than ever.
This is why Saunders looks smart.
Not since 1993 has the head of a big drug maker attempted to get ahead of the curve and deflect outrage over pricing. That’s when former Merck Chief Executive Dr. Roy Vagelos promised to cap price hikes on individual drugs to no more than 1 percent above the inflation rate.
But that gambit eventually fizzled out, and this latest effort is likely to do the same. It may be good public relations to mimic Saunders, but the folks running those other drug companies are unlikely to do anything that would limit their ability to raise revenue. They have financial targets to hit, after all.
Just the same, Saunders may have already accomplished something.
If nothing else, he demonstrated that the pharmaceutical industry isn’t necessarily monolithic, and some executives will diverge from the party line. In doing so, Saunders appears to be signaling to lawmakers that they can work with some companies rather than shove new laws down the industry’s collective throat.
“It would seem he’s trying to avoid political catastrophe,” says Alan Sager, a professor at the Boston University School of Public Health. “There’s a bit of enlightened self-interest here.”
Indeed, before anyone crowns Saunders as a champion for consumers, let’s look at his record.
For instance, Allergan has its own checkered history when it comes to drug prices.
Since 2013, Allergan has raised prices more than once each year on roughly half of its 15 top products, notes Evercore ISI analyst Umer Raffat. Last year, the company boosted prices by more than 10 percent on three-quarters of those products. And in both 2014 and 2015, the average price hikes for the top products were 17 percent.
The company’s top-selling products include Botox, which is best known for smoothing out wrinkles, but is also used to treat muscle spasms, overactive bladder, and migraines. Other big sellers: Restasis drops for dry eyes and the Namenda XR Alzheimer’s pill.
Saunders also quarterbacked an embarrassing episode two years ago in which his company pulled an older version of Namenda from the market in order to switch patients to a newer, more expensive version before generic competition emerged.
The New York attorney general filed an antitrust lawsuit accusing the drug maker of abusing and manipulating vulnerable Alzheimer’s patients. Saunders ultimately lost the court battle and was forced to keep the older Namenda on the market.
And through a series of mergers, Allergan is now actually domiciled in Ireland, which means the company enjoys a much lower tax rate. This may help pay for the $21.6 million in compensation Saunders received last year — and perhaps blunt the effects of capping price hikes.
In any event, Saunders maintains that he is turning over the proverbial new leaf.
He promised to set prices that reflect value, avoid “major” prices hikes as drugs near patent expiration (unless the medicine has suddenly become more costly to make), and provide an annual review of pricing.
All of which does sound useful and even admirable.
“The drug pricing system is very complicated. Most people don’t understand how it is established,” says Adam Fein, who tracks the pharmaceutical supply chain. “If nothing else, he may get a dialogue going.”
The real question, then, is whether it’s just talk — or whether it spurs real change.