As power shifts hands in Washington, a top analyst predicts an unavoidable war over rising drug prices
The drug industry has two powerful reasons for bucking President Donald Trump’s campaign to cap and lower drug prices. As Bernstein’s Ronny Gal sees it, they have to keep drug prices moving upward to meet Wall Street’s expectations on their numbers.
Threatening to really shove prices north is also a good bargaining chip for the price negotiations to come in Washington DC, he adds. And the industry may soon have a longtime ally among the Democrats in a key position to influence any drug pricing legislation to come.
“The drug industry kind of has to come back to increasing prices,” Gal wrote in a note. “They will do so cautiously at first (eg CELG ‘medical cost inflation’ rate). If they don’t they will start missing numbers — in part because net average prices will actually drop if they don’t as patients gradually shift to low price channels (Medicaid, 340B).”
With the midterms now receding in the background, leaving the Dems in charge of the House, the biopharma industry has good reason to keep its powder dry as they try to stave off policy changes that really threatens their numbers.
“Politically,” Gal writes, “pharma does not have to be as nice to POTUS now that CMS has policy ideas that are antithetical to industry interest (the IPI, MA formularies). At the very least, threatening to raise prices gives industry a bargaining chip to negotiate some of these policies away.”
The tidal shift in power in Washington DC could come with a big bonus for industry lobbyists. Anna Eshoo, a California Democrat who has helped craft big compromises on the lengthy exclusivity period granted for biologics and more — to BIO’s immense satisfaction — is making a bid to become chair of the Health Subcommittee of the House Energy and Commerce Committee. And she has the seniority to get it.
Gal, though, notes that Frank Pallone is slated for the top seat on E&C, and he has indicated a willingness to work with Trump on pricing — not a pleasant prospect from the industry lobbyists’ perspective. In specific, Pallone has advocated a change allowing Medicare to negotiate drug prices — rather than put a “Medicare for all” provision up for a vote.
Just before the election Trump managed to rile up PhRMA with a proposal to essentially import overseas drug prices, forcing Medicare Part B to lower drug prices to conform with rates negotiated by single-payer nations like the UK. In part, that’s because Trump wants to force the industry to force other countries to pay more for drugs, taking some of the weight off the dominant US market. And in part it’s to lower drug prices after complaining for the last 2 years about the industry’s pricing strategy — which is to move higher on their portfolios year and year.
Pfizer moved the issue back onto the public stage just days ago with its decision to raise prices on 41 drugs, which represents 10% of its commercial offerings, by an average of 5%. While that would have been a model of restraint 2 years ago, it triggered an immediate backlash from HHS, which has been coming up with new price reforms for the president.