Major drugmakers push back in U.S. price debate

By Caroline Humer
SAN FRANCISCO, Jan 15 (Reuters) - With a backlash brewing
over the price of medicines in the United States, drugmakers are
pushing back with a new message: Most people don't pay
retail.
Top executives from Eli Lilly and Co LLY.N , Merck (N:MRK) & Co
MRK.N and Biogen Inc BIIB.O said in interviews with Reuters
this week that the media focus on retail, or "list prices," for
branded medications is misplaced.
They stressed that the actual prices paid by prescription
benefit managers, insurers and other large purchasers are
reduced through negotiated discounts.
A couple of dramatic price hikes in 2015 exposed the whole
industry to ongoing scrutiny in Congress and on Wall Street.
Turing Pharmaceuticals raised the price of a generic
anti-infective drug called Daraprim by 5,000 percent, and the
larger Valeant Pharmaceuticals (N:VRX) International VRX.N raised the
price on a heart drug Isuprel by more than 200 percent.
The largest drugmakers quickly portrayed those cases as
outliers. But the industry practice of raising prices each year
for treatments used by millions of people is attracting new
attention.
Adam Schechter, Merck's president of Global Human Health,
said the industry needs to better explain the value of drugs and
how they can prevent healthcare costs down the line.
"We have to explain the difference between the list price
and the net price," he said in an interview.
Toward that end, two drugmakers at the JP Morgan Healthcare
Conference in San Francisco this week shared with Reuters some
limited information on actual pricing.
Eli Lilly said the actual average price increase on Humalog,
its injectable insulin used to treat diabetes, has been a modest
1 to 2 percent annually over the last five years. The company
declined to provide a list price.
Horizon Pharma plc HZNP.O , a small drugmaker, raised list
prices across its business about 7 percent for this year, Chief
Executive Tim Walbert said in an interview. But he said he
expects the company's actual price increases to be 4 percent or
less.
More recently, Pfizer Inc (N:PFE) PFE.N , one of the world's
largest drugmakers, raised U.S. list prices on more than 100
drugs as of Jan. 1, according to data from information services
company Wolters Kluwer that was published last week by UBS
Securities.
The list included a 9.4 percent rise for pain drug Lyrica
and a nearly 13 percent increase for erectile dysfunction drug
Viagra. Pfizer said in an email the prices don't reflect
"considerable discounts" to many payers, but did not provide
examples of net prices.
EXPLAINING PRICE
Drugmakers keep actual pricing details close to guard their
position in negotiations with commercial insurers and government
health plans like Medicaid. There is no centralized catalog of
U.S. list prices or rebates for medicines.
That drug executives at the San Francisco conference allowed
even a glimpse into their actual pricing strategies reflects the
intensity of the new attention being paid to their practices.
In meetings at the event, investors pressed pharmaceutical
executives for more transparency about pricing, said Les
Funtleyder, a portfolio manager for E Squared Asset Management,
which holds shares in Pfizer and Lilly.
"What they really want to know is, are you thinking about
this issue?" he said of the investors. "They are looking for an
acknowledgement on the management team's part."
E Squared expects the new scrutiny will have an impact,
projecting that drugmakers will raise U.S. list prices by 4
percent to 6 percent in 2016, less than half the rate in 2015.
The candor of some individual pharmaceutical executives
follows earlier messaging by industry advocates. In a November
blog post, the industry's main lobbying group PhRMA, reported
that list prices grew 13 percent in 2014, but actual prices
increased only 5 percent.
U.S. health insurers say that, even accounting for
discounts, drug prices are rising at an unsustainable rate, and
they are pressuring drugmakers for cuts.
"Whether it's a gross number, or a net number, it is still
astronomical," said Daniel Hilferty, chief executive of
Independence Blue Cross, which operates in Pennsylvania and New
Jersey.