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Early 2020 drug price hikes track lower amid political pressure

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Early 2020 drug price hikes track lower amid political pressure

The pharmaceutical industry continued its tradition of annual price increases in January amid political pressure to regulate such practices, although experts and analysts said those increases are trending lower compared to prior years.

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Morgan Stanley Research analysts tracked 1,267 price increases Jan. 1, using a Medispan database — there were 1,422 increases on that day in 2019.

The average price hike was 5.2% for about 260 drugs representing 60% of U.S. market sales, Morgan Stanley reported, compared to 5.9% the year before.

By Jan. 5, with 2,167 price increases tracked, 95% of the increases fell below 10%, and almost half of them were less than 5%.

Notable companies that still have not raised prices — but took part in the January 2019 inflation — include Amgen Inc., Johnson & Johnson and Novo Nordisk A/S.

'Safety in numbers'

Washington University Associate Professor of Law Rachel Sachs said in an interview that the collective January increases protect the pharmaceutical industry from focused attention. Individual action to raise prices has stoked ire from government officials, including President Trump in the case of Pfizer Inc. in 2018.

"Any one company might make a decision for a particular reason, but in general, there is safety in numbers," Sachs said. "At this point, this is something everyone has come to expect, price increases in the high single digits annually or perhaps even more often than that."

Those with the most meaningful drug price increases on the first day of the year, according to Morgan Stanley, were Pfizer, Boehringer Ingelheim GmbH, Gilead Sciences Inc., Bayer AG, Sanofi and GlaxoSmithKline PLC.

The price of Pfizer's pneumococcal vaccine Prevnar 13, which had sales of almost $4.3 billion in the first three quarters of 2019, rose by 7.3% versus 4.7% the year before, but most of the companies' best-selling drugs either matched the prior year's price increases in the mid-single digits or fell below 2019 numbers, according to data collected by Evercore ISI analyst Umer Raffat in a Jan. 1 note.

Some drugmakers — Pfizer in particular — also significantly lowered prices on some of their non-blockbuster drugs, even if the overall impact on the industry was insignificant due to the smaller sales numbers on those products, healthcare research firm 3 Axis Advisors co-founder Antionio Ciaccia said in an email.

"It's an unprecedented level of price-cutting that we just haven't seen before," Ciaccia said. "Doubt it means much in the way of lower costs, but there must be some incentive that these manufacturers (mostly Pfizer) are chasing."

At the beginning of an election year, the pressure is mounting for lawmakers and the pharma industry alike. Both political parties want to show progress on lowering drug costs as drugmakers try to stay out of the spotlight, said Stacie Dusetzina, associate professor of health policy at Vanderbilt University.

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Stacie Dusetzina, associate professor of health policy at Vanderbilt University

Source: ICER

"Drug companies have not faced real penalties in the past for taking price increases, and in fact, their price increases are a bit lower than they have been in prior years," Dusetzina told S&P Global Market Intelligence. "So I think until there's real action, there's no reason for companies to behave differently than they have been behaving."

Dusetzina said price hikes of more than 10% would get Congress and the public fired up and likely result in a bigger push for legislative action. She added that, when companies feel more targeted, they are more modest in their price increases.

"There is a lot of strategy going on behind the scenes to make sure that they don't do anything that makes it look like they're intentionally ignoring the public's outcry and members of Congress's concerns over prices," Dusetzina said.

Price hikes according to value

Even as this year's price hikes in January track lower than usual, the average increase is higher than the U.S. inflation rate, which many pharmaceutical companies have argued is due to the cost of doing business in a competitive innovation market.

"I'm sympathetic to the argument that we can't cut spending on drugs to bare bones," Dusetzina said. "It's a high-risk endeavor to develop new treatments — it costs a lot of money and a lot of time, so I think we still have to pay handsomely for high-value treatments, but we need to do a better job of incentivizing the development of really novel treatments and stop paying for drugs that have limited benefit."

But access to medicine continues to drive the fight for lower drug costs in the U.S., particularly for drugs with a public health concern like HIV. Gilead, a leader in the HIV therapy market, raised prices Jan. 1 on its major products by 4.8%, up from 3.7% the year before.

"There are certainly drugs like HIV medication where you want to proceed with caution," Dusetzina said. "Drugs that are generally viewed as preventive or for public health are high-priority drugs for people to continue to afford."

Insulin — manufactured by market leaders Novo Nordisk, Sanofi and Eli Lilly — is another product that drives public demand for lower prices due to the widespread nature of the disease and the deductibles and co-insurance that require patients to pay a percentage out of pocket, Dusetzina said.

The professor, who is a member of the Institute for Clinical and Economic Review's independent voting committee, added that watchdog organizations like ICER could play a larger role moving forward to shape negotiations for a drug's price based on its value and overall benefit.

"Having groups that do independent assessment of the benefit of a drug relative to its cost and other competitor treatments is going to be useful information for payers and for the government to think about how we're spending our limited resources," Dusetzina said.