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At Allergan And Other Pharmas, Price Transparency Has Limits

Xconomy National — 

The first test of pharmaceutical giant Allergan’s promise to behave responsibly came last week. The firm acknowledged price hikes on several drugs that stayed—sometimes barely—under the 10 percent limit that CEO Brent Saunders pledged last September, in what he called a “social contract with patients.”

In an interview at the annual J.P. Morgan healthcare investment conference in San Francisco, Saunders reiterated that the high single-digit price hikes would only bring Allergan (NYSE: AGN) a two or three percent net increase in revenues after middlemen like Express Scripts (NYSE: ESRX) and CVS Health (NYSE: CVS), called pharmacy benefit managers, negotiate discounts and rebates.

Saunders also said that price transparency—explaining the factors that determine a drug’s cost—was an important part of regaining trust for an industry whose public reputation has scraped bottom for years. He chided other drug makers, particularly Biogen (NASDAQ: BIIB), which announced in December a $750,000 first-year price tag for nusinersen (Spinraza), a treatment for the rare disease spinal muscular atrophy. “Don’t just put the price out there without context,” he said. Nusinersen might provide value greater than the price tag, but without the justification, he said, “it looks ridiculous. We’re missing a common-sense gene in this industry.”

(When asked to explain nusinersen’s price last month, Biogen spokesman Matt Fearer told Xconomy that the company balanced “a number of important factors, including its clinical value, its impact to patients and the health care system as a whole, and the need for Biogen to fund further research and development to make the next innovation possible.”)

Saunders said Allergan would explain in detail the rationale behind list prices of newly launched drugs as they arrive. But transparency has its limits for Saunders and other pharma groups who were in town for the annual gathering. Saunders said Allergan would not reveal real-world prices, which drug companies negotiate in secret with insurers and their purchasing agents. One common estimate is that actual prices are, on average, 30 percent below list prices for private insurance plans. When presented with estimated figures, drug companies refuse to disclose actual prices, as Bloomberg reported last summer.

Revealing the discounts that stem from negotiations with middlemen “would put us at a tremendous competitive disadvantage,” Saunders said. “We’d sign on only if everyone did it.”
After Xconomy spoke with Saunders, Johnson & Johnson said it would soon publish the average increase in list prices for its products, as well as the average price after rebates—but, like Allergan, not the true costs of individual drugs.

Speaking on a conference panel Tuesday, Merck executive vice president Julie Gerberding, former director of the U.S. Centers for Disease Control and Prevention, said that the pricing system for drugs and other healthcare products was “capricious and obfuscated.” But she sided with Allergan and Merck, saying that revealing real-world prices for individual drugs would only benefit companies if there was “transparency across the board.”

Saunders made headlines last year when he wrote that Allergan, one of the drug industry’s most aggressive acquirers, would only raise prices once a year and only make single-digit increases. His company is best known for the cosmetic drug botulinum (Botox) that also has several therapeutic uses. It also has substantial businesses in eye treatments, gastrointestinal disease, mood disorders, and women’s health. Headquartered in Ireland for tax purposes, the company is mainly based in the U.S. It turned a $15 billion profit in 2015 and $10.7 billion profit in the first three quarters of 2016.

A few other companies were also “more or less exercising self-restraint” with similar increases, he said this week, citing new price data released last week by several analysts. Saunders was asked if the new pledge will require Allergan to expand its pipeline more aggressively and spread those smaller, once-a-year increases among more products to keep the income flowing.

“With few exceptions, the social contract has nothing to do with how we think about R&D,” Saunders said. “If we do our job right and source innovation for true unmet medical need, and we price the value of those medicines appropriately at launch, the social contract shouldn’t be an issue.”

Allergan has grown through a series of massive deals, although the biggest of all—its $160 billion merger with Pfizer (NYSE: PFE)—died before consummation last year. Saunders was widely considered to be the CEO-in-waiting of the combined company.

Before the merger was scuttled, Allergan began more pointedly touting its innovative side, not through a big internal research effort, but by partnering with smaller biotechs. This year and last year it has gathered biotech venture capitalists at J.P. Morgan to remind them of its potential acquisition interests. Allergan last year made a big push into non-alcoholic steatohepatitis, an advanced form of liver disease, last year with the purchase of clinical-stage Tobira Therapeutics and preclinical Akarna Therapeutics. New drugs from Allergan and competitors, if approved, could command premium pricing because of the growing number of advanced cases—often requiring liver transplant—driven by obesity and diabetes.

Two more deals Allergan announced Monday also showed a willingness to make selective investments in early-stage work. In one deal, Allergan took an option to buy Lysosomal Therapeutics, a developer following relatively new biological clues to develop a drug for Parkinson’s disease.

At ths year’s breakfast, attendees had as many questions about Allergan’s pricing stance and the outlook under a Trump administration and Republican-led Congress. “To have a Republican-controlled government for the next four years, or perhaps just two, is a net positive for the industry,” said Saunders, citing favorable tax changes and … Next Page »

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