Pharma industry has more in common with Martin Shkreli than it likes to admit
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This weekly column offers opinions on the latest pharmaceutical industry news.

With a theatrical flair, Martin Shkreli, the poster boy for sky-high drug prices, once again captured the public imagination as he appeared last week before a congressional committee. The former hedge fund manager smirked his way through the hearing, where he asserted his Fifth Amendment right not to answer questions. And he later tweeted that the committee members were “imbeciles.”

Of course, executives at other drug makers — big and small — don’t behave this way. And that is something that the rest of the industry is struggling to emphasize. At a recent health care conference, Merck chief executive Ken Frazier appeared onstage shortly after Shkreli and insisted that “he is not us.” The pharmaceutical industry, Frazier explained, invests in research, develops innovative medicines, and seeks to find cures. Shkreli, he insisted, is an aberration who exists to exploit pricing in order to make a quick buck.

But while Shkreli and the rest of the pharmaceutical industry are, indeed, a study in contrasts, the differences may be lost on the American public.

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Like it or not, this is a problem for every drug maker. And there’s a simple reason — prices for many medicines are rising.

Of about 3,000 brand-name medicines, prices more than doubled for 60 products, and at least quadrupled for 20 of those, since December 2014, according to Bloomberg News. The analysis also found that the cost of many drugs rose at annual rates of more than 10 percent.

“This is why most people don’t differentiate between Shkreli and other companies. And that’s the elephant in the room,” said Paul Argenti, a professor at the Tuck School of Business at Dartmouth College, who studies corporate reputation. “It’s not enough to say that he’s worse when your own prices and profits are going up. That argument isn’t working. Most people lump them together.”

And blaming a few outliers, such as Valeant Pharmaceuticals, which has been skewered for buying medicines and jacking up the prices by hundreds of percentage points, fails to tell the whole story.

More than a decade ago, seniors began packing into buses to buy their medicines in Canada. Oncologists have openly railed about the prices charged for new treatments. More recently, some state Medicaid agencies placed restrictions on patient access to expensive hepatitis C treatments in order to protect their budgets.

Indeed, the pricing dilemma really took off two years ago when Gilead Sciences, an established biotech and a Wall Street darling, began charging $1,000 a pill for its Sovaldi hepatitis C treatment. Since then, hepatitis C drugs have been a flashpoint in the debate over the cost of medicines.

The reality is that price hikes are pervasive and the entire pharmaceutical industry shares responsibility for its poor reputation. And the problem is not going to go away with a few speeches, television ads, or programs to provide patients with discount medicines — not while there is virtually no transparency in pricing.

“The industry needs to convince people that the money they make goes into innovation,” said Michael Barnett, a Rutgers Business School professor who specializes in stakeholder management. “But that’s also the party line they’ve been telling for a while.”

Indeed, drug makers may find it difficult to argue that rising prices fuel the profits needed for R&D. A recent study by Deloitte and GlobalData found that big drug makers are “more likely to return cash generated to shareholders via a combination of dividends and share buybacks than they are to invest in company acquisitions, product licenses and internal R&D.”

In doing so, companies hope to fulfill their fiduciary responsibility to stockholders. Ironically, pleasing shareholders is the same rationale that Shkreli repeatedly used to explain why he raised the price of a Turing Pharmaceuticals drug by 5,000 percent.

One industry veteran, John LaMattina, a former head of R&D at Pfizer, argued that many big drug makers are trying to preserve the level of their R&D investments, despite shareholders’ demands for them to prop up stock prices. But he also noted there is sufficient blame to go around for the pricing controversy.

“The public isn’t sophisticated enough to distinguish between a Shkreli and a Frazier. They just see a pharmaceutical CEO and price gouging,” he said. “But it’s also true that all these price increases we’ve seen are pretty damning in their own right.”

Shkreli may be a convenient whipping boy, but the controversy over high prices began simmering long before he targeted pharmaceuticals as a pot of gold. At some point, drug makers may have to acknowledge that they have more in common with Shkreli than they care to admit.

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