United We Stand Vs. Divide And Conquer: Pharma In The Age Of Trump

The pharmaceutical industry fared pretty well in the tumultuous first year of President Trump. But will the industry be able to stay united on key issues in 2018 – or succumb to the divisiveness of the era?

President Donald Trump is nothing if not a master of divisive rhetoric. He seems to relish chances to stir up passions. The significance of the issue doesn’t seem to matter, from the geopolitical crisis posed by a nuclear North Korea to the less consequential question of appropriate posture during the National Anthem, Trump has a gift for defining “us” versus “them.”

So perhaps it is appropriate that the pharmaceutical industry strategy in 2017 was, in many respects, to do the same.

First, the Pharmaceutical Research & Manufacturers of America did a little internal division, changing its membership criteria to help make it a bit easier to declare that companies built on acquiring and “re-pricing” old brands are not representative of the research-based industry. By the time the process was done, some of the companies making the most headlines for individual product prices (Marathon Pharmaceuticals LLC, Horizon Pharma PLC, Mallinckrodt PLC) were safely classified as “them,” not “us.” (Also see "Putting The 'Big' Back In PhRMA: New Membership Criteria Pares Ranks" - Pink Sheet, 9 May, 2017.)

At the same time, PhRMA embarked upon a clever campaign to re-define “transparency” in drug pricing to focus on the flow of money from consumers through the supply chain, and away from the internal allocation of resources in industry – and far, far away from the profit margin on individual brands.

Rather than defend its own profitability, the industry spent most of the year turning the microscope onto the relationship between list prices charged to consumers and net prices realized by manufacturers. That was almost wholly successful – at least if the metric is staving off legislation to curb manufacturers’ freedom to set prices.

But it was also inherently divisive, with the debate inevitably turning into finger pointing – and perhaps the strongest divide being drawn between the industry and the pharmacy benefit management sector.

That may become more dangerous territory. While there have also been tensions between PBMs and manufacturers, there is also a mutual dependence of sorts: both sectors have prospered together – and neither would benefit from a government-administered pricing alternative. Perhaps there is an analogy here with the “divide” between Donald Trump and Republican leaders in Congress, which flared up – and died away – several times in 2017.

As that analogy suggests, there is a danger in divisiveness. At some point, it goes too far. The industry – or at least individual members of it – need allies to carry the day in public policy.

In 2017, there were already signs that the “divisions” may be getting out of hand. There was the embarrassing episode of the President’s Business Advisory Council, when Merck & Co. Inc. CEO Ken Frazier resigned in protest of the President’s response to racially charged protests in Charlottesville – and Johnson & Johnson CEO Alex Gorsky remained a member even after Trump lashed out publicly at Frazier specifically and the industry more broadly. Gorsky ultimately joined a broader exodus of CEOs two days later – and Trump disbanded the council the same day.

PhRMA also was literally divided in what became the largest legislative achievement of the year, enactment of an overhaul of the tax system. Because global tax equity was a big part of the bill – and because PhRMA’s member base is internationally diverse, with corporate structures carefully engineered to capitalize on different global tax rates – the trade association for America’s research-based pharmaceutical companies did not formally engage on that bill.

And then there was Allergan PLC ’s attempt to fend off patent proceedings over its Restasis patents by licensing them to a Native American tribe. Allergan’s subsequent loss in a more traditional Hatch/Waxman case probably did the rest of the industry a favor by making the “sovereign immunity” issue moot – but the industry’s critics have a new talking point they will continue to use in 2018. (Also see "Allergan May Rue Mohawk Tribe Deal As Court Invalidates Restasis Patents" - Pink Sheet, 16 Oct, 2017.)

Allergan was and is a PhRMA member in good standing, and PhRMA gamely tried to defend the action by framing it in the context of broader concerns about the new patent challenge process. But it is hard to imagine a better way to undercut the tenuous success of the brand name industry in the pricing debates of 2017. The one point of consensus is that increased generic competition is a big part of the answer – and it behooves the brand name industry to help ensure that it is viewed as by far the biggest part.

It should be easy for the industry to stay united behind that idea for 2018.

From the editors of the RPM Report