If you thought drug makers might hunker down in the face of public outrage over pricing, think again.
Given the clamor over the cost of prescription drugs, most manufacturers were expected to avoid drawing attention to themselves by boosting price tags. But several companies have been hiking prices for their medicines at a rate that one Wall Street analyst found surprising.
“The price increases for established brands [sold by drug makers that he follows] have been substantial, indeed,” wrote Leerink analyst Geoffrey Porges in an investor note. He tracked price hikes on various drugs that are sold by several companies since the beginning of 2015.
During that time, for instance, Johnson & Johnson (JNJ) took cumulative price hikes on more than a dozen drugs ranging from 5 percent to 28 percent. The biggest boost was for Simponi, which is used to treat rheumatoid arthritis. Amgen (AMGN) raised prices on seven different drugs from 7.6 percent to 28 percent. The largest was for Enbrel, which is used to treat psoriasis and rheumatoid arthritis, among other ailments.
Similarly, Celgene (CELG) increased price tags between 10.3 percent and 27.9 percent on four medicines, while Gilead Sciences (GILD) raised prices between 10 percent and 16.5 percent on five drugs. And Biogen (BIIB) boosted prices for five drugs anywhere from 9.8 percent to 18 percent; the biggest price hike was for the Tysabri multiple sclerosis treatment.
Other companies have also raised prices in recent months. As an example, Pfizer (PFE) earlier this year raised prices on more than 100 of its medicines by as much as 20 percent. Overall, list prices for brand-name medicines sold in the United States climbed more than 14 percent last year, according to Truveris, a market research firm.
Of course, these are not the huge price hikes that have sparked the sort of outrage caused by companies such as Valeant Pharmaceuticals or Turing Pharmaceuticals, which used to be run by Martin Shkreli. In those instances, the companies frequently bought drugs and then jacked up the prices by hundreds and, sometimes, thousands of percentage points.
We should note that these are list prices, not the final prices paid by insurers after considering manufacturer rebates and other forms of givebacks. Nonetheless, the price hikes angered one organization that has been critical of pharmaceutical pricing.
“There’s no change in value here,” said John Rother, who heads the National Coalition on Healthcare, a group of insurers and employers, among others, that object to rising drug prices. “These are the same drugs that we’ve known for some time and the values were established at the previous pricing levels. It’s not related to market demand or any change in circumstances.”
We asked the companies that were tracked by Porges and will update you accordingly.
[UPDATE: A Johnson & Johnson spokesman wrote us two days later to say that “the Leerink analysis is fundamentally flawed in many ways and creates a false impression of Johnson & Johnson, and the industry in total, that we categorically dispute.” There is more from J&J toward the end of this post].
A Gilead spokeswoman wrote us that the company prices of its medicines “are in range with comparable HIV treatment regimens and, in some cases, lower,” although she did not offer examples. She added that revenue is invested in R&D and supports programs to provide discounted medicines in other countries. She also noted that many HIV patients receive Gilead drugs at discounted prices. For instance, the company froze pricing for state AIDS Drug Assistance Programs through this year.
There is another way of viewing these price hikes, though, and that is the increased revenue bolsters bottom lines. And that, in turn, can be a plus for investors. In this year’s first quarter, Porges suggested, the price hikes may have potentially boosted revenue per unit by 10 percent or more for many drugs.
Looking at the J&J price increases, Porges calculated that anywhere from 70 percent to 80 percent of the increases in list prices that were taken cumulatively over the last year may have flowed directly to sales reported by the health care giant.
This percentage can vary up or down, however, by drug and the deals reached with payers. But “at this stage,” he wrote, we believe this … should be a useful benchmark for investors to estimate the effect of list price changes on expected domestic sales for the industry.”
[UPDATE: The J&J spokesman also maintained that in the most recent quarter, “like most quarters, J&J’s Janssen (unit) had gross-to-net adjustments on several products to account for unused rebates. Though we disclosed those numbers on our conference call, they are not accounted for in this report.” However, he argued that using sales data from the IMS Health market research firm is an unfair approach.
“Since these adjustments are taken regularly, a straight comparison of IMS volume data and list prices just will not align, making the fundamental premise of the Leerink report invalid. There are also several other incomplete elements in their analyses that serve to further invalidate their conclusions, such as what is included in IMS data as a measure of sales volume and what is not.
“To be clear, of the 12.5% growth we reported in our pharmaceutical business, 90% of that was attributable to volume increases, indicating the value physicians, payers and patients see in our medicines.”
It is worth noting that IMS Health recently released a report that found that list prices for medicines rose 12 percent last year, overall, while the increases in net prices, after rebates, increased 2.8 percent. This would suggest that drug makers are keeping less of the money generated by price hikes.]