Drugmakers pledge restraint, but prices will still soar

February 27, 2017 by Linda A. Johnson
In this July 30, 2013, file photo, people walk along a corridor at the headquarters of Johnson & Johnson in New Brunswick, N.J. Several big drugmakers are trying to quell the ongoing furor over high drug prices by revealing more information about their pricing and even pledging to keep a lid on increases. The latest drugmaker move came Monday, Feb. 27, 2017, when Johnson & Johnson, the world's biggest maker of health care products, issued its first public report on price increases for its drugs. (AP Photo/Mel Evans, File)

Several big drugmakers are trying to quell the furor over high drug prices by revealing more information about their pricing and even pledging to keep a lid on increases.

No one should expect to be paying less for medicine anytime soon, experts say, though the drugmakers' response to public pressure may help slow the rise in prices for some drugs.

The latest drugmaker move came Monday, when Johnson & Johnson, the world's biggest maker of health care products, issued its first public report on price increases for its drugs.

The political and public anger over drug prices has been stirred by a few factors: Sky-high prices for new drugs, enormous increases for many existing drugs, and changes in insurance coverage that make patients pay a bigger portion of the drug bill.

The drug industry's top two lobbying groups have been running advertising campaigns that reinforce a point the industry has long pushed: Medical breakthroughs that improve or save patients' lives are very difficult—and expensive—and high prices are needed to fund research into new treatments.

But now individual companies are making their own cases to the public in hopes of showing that at least they aren't as bad as some other guys.

Erik Gordon, a professor and pharmaceuticals analyst at University of Michigan's Ross School of Business said those drugmakers promising to hold future price hikes below 10 percent will be able to lock in substantial increases but still say they kept their pledge.

"If it works, it's brilliant," he says. "They're doing everything but the obvious, simple thing—just lower the price."

On Monday, Johnson & Johnson reported that over the past five years, the list price, or retail price, of its drugs rose less than 10 percent each year on average, while the net price, the payment it receives after discounts and fees insurers and other middlemen get, rose 5 percent or less per year.

That's far less than some of the eye-popping price increases that have been criticized over the past year, like the 547 percent jump over 9 years in the price of the EpiPen emergency allergy auto-injectors.

But J&J's increase is still more than double the U.S. rate of inflation, which means its prices rose far faster than prices for other goods and services.

Johnson & Johnson's disclosure is the latest in a string of similar moves.

Sanofi SA, maker of top-selling insulin Lantus, reported earlier this month that last year its list prices increased by 2.3 percent on average, but its average net price dipped 0.5 percent because insurers got discounts that averaged 50 percent. Merck & Co. in January reported its annual net price increase since 2010 has ranged from 3.4 percent to 6.2 percent, roughly half its list price increases, while its average discount to payers climbed to 41 percent in 2016.

Allergan CEO Brent Saunders kicked off the trend last fall when he announced the Botox maker had ended big list price hikes and would stick to single-digit increases. Novo Nordisk and AbbVie Inc. later followed suit.

Other companies, including GlaxoSmithKline and Takeda Pharmaceuticals, say they've been keeping annual list price increases below 10 percent, though they're not making pledges. And Eli Lilly is reducing prices for most of its insulins up to 40 percent for people who pay the full price.

These moves might translate to smaller price increases, according to Edward Jones analyst Ashtyn Evans.

"I think in the near term, we are certainly going to see smaller price increases. We've already seen that this year," she says. "But it's possible that if the headlines die down and the government doesn't take action, that they could creep back up again."

Frustration over high drug prices isn't new, but the latest uproar, the result of a series of extraordinary price hikes at a time when patients are paying substantially more for health care, has lasted far longer than in the past. Big pharmaceutical companies posted a net profit margin of nearly 26 percent last year, compared with the 10 percent average profit for the biggest 500 U.S. companies, according to FactSet.

Ed Schoonveld, a former pricing director at three drugmakers and now a managing partner at consultants ZS Associates, predicts "most companies will probably jump on board" because the industry wants to escape the pricing uproar.

Not everyone, though.

Pfizer Inc., the biggest U.S. drugmaker, says there's no need for such pledges. Like the industry trade groups, it blames the furor on a handful of "irresponsible" companies that raised prices many times over for older products, the way Turing Pharmaceuticals, Valeant Pharmaceuticals International Inc. and EpiPen maker Mylan NV have done.

Schoonveld said no matter what pledges companies make, overall drug spending will continue to rise as costly new therapies emerge and the population ages.

And high prices will continue to shock the public: Earlier this month Marathon Pharmaceuticals LLC triggered a huge backlash by announcing it would charge $89,000 a year for its muscular dystrophy drug Emflaza, an old steroid that some patients had been importing from other countries for roughly $1,000 per year. Marathon has since delayed Emflaza's launch while it talks with patients and advocacy groups about ensuring access to the drug.

Explore further: Johnson & Johnson to reveal average drug price increases

Related Stories

Johnson & Johnson to reveal average drug price increases

January 10, 2017
Johnson & Johnson plans next month to disclose average price increases of its prescription drugs, as the industry tries to calm the storm over soaring prices.

Prices skyrocket on drugs widely used by seniors: report

December 14, 2016
(HealthDay)—The prices of brand-name drugs used by many older Americans rose nearly 130 times faster than inflation last year, a new study reports.

Lawmakers question pricing of drug for genetic disease

February 13, 2017
Marathon Pharmaceuticals' pricing of a drug to treat genetic muscle deterioration in about 15,000 Americans, mostly boys, is raising concerns in Congress where lawmakers repeatedly have challenged drug companies.

Steep rise in price of older cancer drugs

October 7, 2016
(HealthDay)—Many older cancer drugs took a bigger bite out of Medicare and older Americans' wallets last year than five years earlier, a new analysis finds.

Valeant mulls sale of business tied to drug price hikes

October 19, 2015
Controversial pharma company Valeant signaled Monday it expects to dispose of a business associated with large drug price increases and foresees much more modest price hikes in the future.

Drug prices don't budge even after pressure from Congress

November 16, 2016
Congress's routine of publicly shaming drug company executives over high prices works no better than a placebo: It may make some people feel better, but it doesn't treat the problem.

Recommended for you

Drug overdose epidemic has been growing exponentially for decades

September 20, 2018
Death rates from drug overdoses in the U.S. have been on an exponential growth curve that began at least 15 years before the mid-1990s surge in opioid prescribing, suggesting that overdose death rates may continue along this ...

Anti-cancer drugs may hold key to overcoming antimalarial drug resistance

September 20, 2018
Scientists have found a way to boost the efficacy of the world's most powerful antimalarial drug with the help of chemotherapy medicines, according to new research published in the journal Nature Communications.

Probiotic use may reduce antibiotic prescriptions, researchers say

September 14, 2018
Use of probiotics is linked to reduced need for antibiotic treatment in infants and children, according to a review of studies that probed the benefits of probiotics, say researchers in the U.S., England and the Netherlands.

Recalled blood pressure drugs not linked to increased short term cancer risk

September 12, 2018
Products containing the withdrawn blood pressure drug valsartan are not associated with a markedly increased short term risk of cancer, finds an expedited analysis published by The BMJ today.

Sugar pills relieve pain for chronic pain patients

September 12, 2018
Someday doctors may prescribe sugar pills for certain chronic pain patients based on their brain anatomy and psychology. And the pills will reduce their pain as effectively as any powerful drug on the market, according to ...

A new approach for finding Alzheimer's treatments

September 11, 2018
Considering what little progress has been made finding drugs to treat Alzheimer's disease, Maikel Rheinstädter decided to come at the problem from a totally different angle—perhaps the solution lay not with the peptide ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.