The real reason pharma raises prices “because they can”

Barry Werth, who has written two fine books about the biotech company Vertex,and  says the the reason pharma raises prices is simple: “Because they can.”.

Everyone knows about EpiPen, which Mylan bought in 2007 and transformed from a $200-million-a-year product into a $1.1-billion one largely by quadrupling the price. Though the EpiPen price hikes have resulted in government investigations, it’s really just a classic example of the “because they can” strategy.  Generics companies like Mylan become giants — Mylan’s market cap was $26.5 billion at the end of 2015, more than twice what it was three earlier — their goal shifted from selling drugs as cheaply as possible to selling them as expensively as they could get away with. And doing whatever else they had to do to generate revenue.

Then there is Cephalon, which held the Provigil patents, sued four generics companies, including Mylan and Teva, for patent infringement. That’s when things got fishy. Cephalon agreed to pay the four companies some $300 million — and they agreed to keep generic Provigil off the market for another six years. In other words, consumers, insurance companies and pharmacies would have to keep paying an exorbitant price for drug that, by all rights, should have been available in a less expensive form. Indeed, with no generics competition, Cephalon was able to turn Provigil into a billion-dollar-a-year drug by 2012. Seven years earlier, it had reaped $475 million in annual revenue.

Then there are the “annual” price increases, which have been woven into pharma’s annual strategy decks.  Patients need the drugs and it’s easier to blame the middlemen and say that the list price is not what insurers pay.

It all leads to one guiding principle “please Wall Street first and worry about patient backlash later”.  Not too long ago a client of ours refused to raise prices even though their own pricing people said that they were “leaving money on the table”.  I thought it was a courageous stand and to this day they continue to say that they want to increase revenue the “old way” through increased sales and lower costs.  How novel.

The warnings are there for the drug industry “change your business models or have change forced upon you”.  Will they listen?


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