Pharma trade group says price gougers are outliers, but then accepts two more

This weekly column offers opinions on the latest pharmaceutical industry news.

File this under “How ironic.”

For months, the trade group representing big drug makers has argued that Valeant Pharmaceuticals and Turing Pharmaceuticals, which was once run by Martin Shkreli, were outliers for brazen pricing practices that outraged Americans.

At every turn, the Pharmaceutical Research and Manufacturers of America has worked hard to convince lawmakers and the public that its members are not the equivalent of “hedge funds” that exist to set sky-high prices while failing to sufficiently invest in developing new medicines.

But earlier this month, the trade group made a curious move.

Among five companies that were just added to its roster, two of them — Jazz Pharmaceuticals and Horizon Pharmaceuticals — have also relied on excessive pricing to fuel their growth, while investing much less than other drug makers in research and development.

This is “intriguing given their pricing strategies and (the) PhRMA effort to distinguish its membership from sharp pricers,” Sanford Bernstein analyst Ronny Gal wrote to investors last week.

Intriguing is one way to describe it. Hypocritical might be another.

Consider Horizon.

In late 2013, the company bought the Vimovo pain reliever from AstraZeneca and, in January 2014, on the first day it could sell the pill, Horizon raised the list price for 60 tablets to $959, a 597 percent increase from $127, according to Truven Health Analytics. This is the same tactic for which Valeant and Turing were criticized. And Horizon has since boosted the price six more times; it’s now at $2,250.

There’s more. Gal also pointed out that Vimovo is actually a combination of two older medicines. So while the company sells the drug at expensive brand-name prices, patients could actually purchase the generic components separately at a more modest cost. The drug is Horizon’s second-biggest seller, by the way, and contributed 22 percent of overall sales last year.

The drug maker’s biggest-selling product is Duexis, a treatment for rheumatoid arthritis and osteoarthritis that similarly combines two older medicines. Horizon launched the pill in 2012 at $190 for a 90-day supply and, since then, has raised the price 10 times. The last price hike took place this past May, when the cost jumped to $2,250, according to Truven.

Meanwhile, Horizon spent 5.5 percent of sales on R&D in 2015. This is well below the nearly 18 percent of sales that the trade group likes to boast the pharmaceutical industry spent overall last year.

A Horizon spokesman argued that pricing is not “a key driver of our business,” and sales growth was due to more prescriptions written. He also maintained that 98 percent of commercially insured patients have copays of $10 or less due to assistance programs. And he added that, over the past two years, prices have remained flat or fallen due to rebates. Of course, any rebates would still be working off higher starting prices, so unless rebates keep pace, costs to payers still go up.

As for Jazz, 72 percent of its sales last year came from just one drug — the narcolepsy medicine, Xyrem. Over the past three years, most Xyrem sales were driven by pricing. During that time, the price of a 180-milliliter bottle rose to $4,455 from $2,707, according to Truven. Gal noted the drug sold for about $70,000 per patient last year, up from $35,000 in 2013.

Jazz was more willing to spend on R&D — 10 percent of sales were funneled in that direction in 2015, which was up from 7 percent during the previous year. But this was still well below the level touted by the trade group. We asked Jazz for a comment, but no one responded.

So what does the trade group say about this?

Nothing. PhRMA declined to put anyone on the phone to explain how it reconciles these practices with its repeated insistence that its members are not aberrant price gougers.

Perhaps the trade group needs the membership fees. Or perhaps, as Gal speculated, this is a sign that the industry is more confident it can deflect any legislative moves on Capitol Hill to rein in pricing.

“Whatever the reason, it’s certainly disturbing to see this sort of pricing behavior become legitimatized by accepting these companies as members,” said John Rother, who heads the National Coalition on Healthcare, a group of insurers and employers, among others, that object to rising drug prices. “And I think it undercuts the assertion this kind of strategy is only characteristic of outliers.”

Indeed, the pharmaceutical industry may find it easy to explain away egregious pricing when one or two companies are involved. But the trade group seems too willing to look the other way in this instance. And maybe after a while, there won’t be any outliers left.