All-Star CEOs Discuss Pricing, But Come Up Short On Solutions

"Unless we make changes in the system people won’t be able to afford" drugs coming out of our pipelines, Merck’s Frazier says; Pfizer’s Read contends competition is best way to curtail prices.

A panel of pharmaceutical executives tackled the hot-button issue of drug pricing with most agreeing that the system needs change to address the rising cost of health care spending. However, when it came to potential solutions, the executives came up short.

The CEOS of Merck & Co. Inc., Celgene Corp., Pfizer Inc., Regeneron Pharmaceuticals Inc. and GlaxoSmithKline PLC spoke at the Forbes Healthcare Summit in New York Dec. 3. The panel followed a question-and-answer session with Martin Shkreli, CEO of Turing Pharmaceuticals AG, whose 5,000% price hike of the antiparasitic Daraprim (pyrimethamine) has intensified the spotlight on the already controversial issue within the pharmaceutical industry (Also see "Turing’s Shkreli Tussels With Express Scripts About ‘Ugly, Dirty Truth’ Of Drug Pricing" - Pink Sheet, 4 Dec, 2015.).

Moderator Matthew Herper, editor of Forbes Media, noted that the prices of many drugs have doubled over several years and asked if the industry’s pricing strategy is sustainable or if the model needs to be changed.

Pfizer CEO Ian Read defended the industry’s practice, pointing out that Herper’s assertion assumes the drugs were priced correctly to begin with. “When you put a drug in the market, you’ve got relatively a small value base. As you continue investing it in the principal market, you generate new indications and you see its value and you should price drugs to their value.”

GSK CEO Andrew Witty responded, “The key question is whether or not the overall system is in the longer run going to service the best health care outcome for the best value for money for society.”

Witty added that it is difficult to say there is no room for improvement in the current system “whether it is things like the WAC [wholesale acquisition cost] to net price in the drug sector.” But he said many drug companies are probably accruing only 50% or less of what the perceived price is.

In addition, he said it is important to make sure the financial rewards are directed to the right drugs and criticized money going into an asset like Daraprim. GSK originally owned the drug and in 2010 sold the US NDA to CorePharma LLC, which subsequently was acquired by Impax Laboratories Inc. (Also see "Impax Buyouts Add Plant, Portfolio And Pipeline" - Pink Sheet, 9 Oct, 2014.). In August, Impax sold the product to Turing, and a month later, Turing raised the price from $13.50 per pill to $750 per pill [See Deal]. GSK retains rights to pyrimethamine outside the US and Canada, and Witty said the drug sells in Europe for $20 for a 30-day treatment.

“Let’s not use the individual cases to destabilize the system which has developed an enormous amount of innovation,” Witty said. “We do have to accept that society is uncomfortable with the status quo. There is frustration. Honestly, there is frustration in the drug industry as well.”

Matthew Herper, Kenneth Frazier, Robert Hugin, Ian Read, Leonard Schleifer, Andrew Witty

Photo by Brenda Sandburg

GSK’s Witty Advocates Tiered Pricing

Regeneron CEO Leonard Schleifer seemed most receptive to criticism of industry pricing. While touting industry’s achievements, he also admitted, “Of course, we did some crappy things. … We promoted off-label. We’ve done things we shouldn’t do.” He later acknowledged that some drug manufacturers probably have increased prices when they shouldn’t have.

“We have to think about a different pricing approach that’s a little bit more responsible,” Schleifer said. He also stated that the American public is paying a disproportionate share of drug costs.

Read pointed to the “tortuous cost of regulation” and asserted that the best way to control prices is through competition.

But Witty advocated that the wealthiest countries should pay more.

“The US is a pretty rich country so the US ought to be carrying above its weight within the overall global price positon,” he stated. “I think it would be wrong to sit here and say the US should be bargain basement of drug prices and the world will carry on.”

“Ultimately, there must be a model where we can have a sustained tiered pricing view of the world where the richest countries contribute the most, the middle the middle, the poorest” contribute the least, he said.

Witty reported that in the US, for the last five years the compound annual net price growth for GSK’s portfolio was 2.5% and for the last five years the net growth in the GSK portfolio was negative as prices have fallen at a net level.

Further, he said that for the last six new drugs the company has launched, he has priced them at parity or discount to the previous generation of branded product. “I think those are the elements of responsible pricing behavior,” he stated.

People Won’t Be Able To Pay For Drugs Without Change – Frazier

Merck CEO Kenneth Frazier asserted that individuals ought to be paid according to the value their organization provides to the system.

He said there is a view that the drug industry is driving the cost of the system but when you actually look at the data it doesn’t tell you if a dollar is spent on drugs, what costs are being avoided in emergency treatments, hospitalizations and doctor bills.

“We all have to be able to sit down at the table in a rational way and say if you were to design a system … what would it do and how would it provide value without destroying the parts of the system that allow us to come forward with these new medicines,” Frazier stated.

“We have to think about the fact that pretty soon if we don’t do something the tradeoffs are going to be not between one part of health care and another but do we want to have schools, do we want to have roads, etc.”

“The good news is that we are on the verge of incredible breakthroughs if we don’t kill this innovation engine. The bad news is unless we make changes in the system, people won’t be able to afford these wonderful things that are coming out of our pipelines,” he said.

While the panel discussion was devoted to drug pricing, the moderator questioned Read about Pfizer’s proposed acquisition of Allergan PLC and his public statement that it would be good for the country, despite the fact that it appears structured to avoid US taxes.

He asked if Read was worried that it could be harmful to industry in the short-term, adding more negative publicity to the industry.

“I think what we’re doing may fundamentally save the US industry,” Read said. He added that the deal may encourage other companies to make noise about the need for tax reform.

“If you get the hyperbole out of the conversation, there should be no damage,” he stated.

There has been an “accusation that somehow companies that are being more efficient in their capital allocation – which is a way of saying they’ve lowered their tax rate – is somehow unpatriotic,” Read said. “We don’t benefit any more from the US system than any other global company. All the spend we do in research in the US is for global good.”