In response to intensifying criticism over drug prices, Allergan (AGN) chief executive Brent Saunders promised not to raise prices by more than single-digit percentage points. So far, no other head of a large drug maker has spoken publicly about this notion or agreed to do the same thing.
Yet some companies may adopt this approach quietly — and push the envelope in the process.
How so? One way is to raise prices on drugs by 9.9 percent. And this is what Valeant Pharmaceuticals did last week.
The drug maker, which has been widely vilified for buying older medicines and then jacking up the prices to sky-high levels, increased list prices for three eye medicines by exactly 9.9 percent, according to Wells Fargo analyst David Maris.
Of course, such a price hike pales in comparison to the 525 percent and 212 percent increases Valeant took on a pair of lifesaving heart drugs on the same day the company acquired the medicines in early 2015. But given the public anger over rising costs for prescription drugs, this kind of maneuver is a convenient way to avoid unpleasant scrutiny and still goose revenue.
The “9.9 percent increase versus an even 10 percent seems very odd and may be an attempt to stay under the radar of managed care plans and states looking out for double-digit price increases,” Maris wrote in an investor note.
He noted the three eye drugs represented just $1.2 million in combined sales in the second quarter, which is a small piece of $2.4 billion in company-wide sales. But the company is under pressure to jump-start revenue, suggesting more 9.9 price hikes can be expected. “While insignificant,” Maris opined, “we believe this may be a sign of things to come.”
We asked the company why it chose to raise prices by 9.9 percent and not 10 percent, but did not receive a reply.
The 10 percent threshold has taken on more than symbolic weight, though.
A bipartisan group of congressional lawmakers last week introduced a bill that would require drug makers to justify their pricing and provide a breakdown of their costs before raising prices on certain products by more than 10 percent. The legislation largely mimics bills that have been introduced in more than a dozen states, although only Vermont has passed such a law.
To some, such legislation may, in fact, actually be interpreted as an invitation to raise prices, but keep them below the 10 percent cutoff in order to avoid government red tape. Whether this becomes a regular practice remains to be seen.
The price hikes come as Joe Papa, the new Valeant chief executive, attempts to overhaul the company following pricing and accounting scandals. In the aftermath, Papa committed to end the reliance on huge price increases.
Valeant also vowed last April to provide discounts to hospitals for the heart drugs, although those discounts have not yet materialized, according to a recent survey of nearly two dozen hospital systems and medical centers surveyed by Bloomberg News.