Zeroing Out Drug Prices

As we head toward the end of the year, biopharmaceutical companies are announcing their pricing strategies for 2019.

Merck & Co. raised the list price of five drugs, including its blockbuster cancer treatment Keytruda, in November — raising the price of Keytruda by 1.5 percent and its human papillomavirus vaccine Gardasil by about 6 percent. The other three treatments that saw increases were vaccines. According to Merck, the average net price of their drugs declined 1.9 percent in 2017.

Under pressure from President Donald Trump, many drugmakers, including Pfizer, Roche and Novartis, agreed to freeze price hikes until the end of 2018. Pfizer’s announcement is particularly detailed and instructive. Here’s the headline of the company’s press release:

“Pfizer Provides Transparency on Drug Prices in the U.S. 90% of Company’s Prices Will Remain Unchanged”

When you separate the spin from the substance, here’s what the headline should be:

“Pfizer adjusts 2019 prices in order to achieve 0 percent net revenue growth”

That’s the truth — but it’s not likely to be reported (or tweeted by a certain someone) that way.

Here are the facts.

Effective Jan. 15, 2019, Pfizer will increase the list price of 41 medicines (10 percent of its entire drug portfolio). The increase in list price of this subset of the company’s portfolio will be 5 percent. The only exceptions are three products that have a 3 percent increase and 9 percent for Xeljanz due to the completion of two extensive development programs leading to new medical uses for unmet patient needs.

Whether you’re Pfizer, Merck, Novartis, Abbvie, Amgen or Roche, you can’t measure risk without benefit. Price increases must be considered relative to cost increases. These increases will be offset by higher rebates and discounts paid by Pfizer to insurance companies and pharmacy benefit managers — resulting in a net effect on 2019 Pfizer revenue growth in the United States to zero.

According to the company’s statement: “Given the higher rebates and discounts, we expect that the healthcare system will share those benefits with patients, so they do not experience higher costs for their medicines. In 2018 the net impact of price increases on revenue growth is projected to be a negative one percent in the U.S compared with 2017.”

PBMs and insurers should explain what they will do with this enhanced revenue source besides holding onto it for themselves.

It’s also important to note that, in 2016, Pfizer invested $7.8 billion in research and development; in 2017, that number was $7.7 billion, and in 2018, it’s projected to be between $7.7 and $8.1 billion.

There are some tough but important basic principles when it comes to innovation in health care technologies.

Innovation is slow. As any medical scientist will tell you, there are few “Eureka!” moments in health research. Progress comes step-by-step, one incremental innovation at a time. Biopharmaceutical companies more often profit by improving existing molecules and making processes more efficient than by revolutionizing the whole field with new “miracle” products. Discontinuous innovation is the wonderful exception to the rule.

Innovation is hard. Today, it takes about 10,000 new molecules to produce one Food and Drug Administration-approved medicine. And if that’s not frightening enough, only three in 10 new medicines earn back their research and development costs. And here’s the kicker: Unlike other R&D-intensive industries, biopharmaceutical investments generally must be sustained for over two decades before the few that make it can generate any profit.

Innovation is expensive. In 2003, researchers at the Tufts Center for the Study of Drug Development estimated the costs to bring a new medicine to market at $802 million. Others suggest that the total cost is closer to $1.7 billion. And that number is on the rise.

Nonetheless, innovation is important. This is true for more than just biopharmaceutical industry profits. In the United States, increases in life expectancy resulting from better treatment of cardiovascular disease from 1970 to 1990 have been conservatively estimated as bringing benefits worth more than $500 billion a year.

In 1974, cardiovascular disease was the cause of 39 percent of all deaths. Today, it is about 25 percent. Cerebrovascular diseases were responsible for 11 percent of deaths back then. In 2004, they caused 6.3 percent of deaths. Kidney diseases were linked to 10.4 percent of deaths and now are associated with 1.8 percent.

There are many roadblocks beyond those of discovery and development. The complicated and conflicting dynamics of politics, perspectives on health care economics, friction between payers, providers, manufacturers and regulators, the battle for better patient education, and the need for a more forceful and factual debate over the value of innovation all create the need for a more balanced and robust debate.

The president, Health and Human Services Secretary Alex Azar, just about every member of Congress, governors, members of state legislatures, policy wonks and media cognoscenti have weighed in on why our health care system is broken and requires change — some even have ideas on how to fix it. Per Pfizer Chairman and Chief Executive Ian Read, “We believe the best means to address affordability of medicines, is to reduce the growing out-of-pocket costs that consumers are facing due to high deductibles and co-insurance and ensure that patients receive the benefit of rebates at the pharmacy counter.”

We cannot afford, in terms of dollars or lives, to continue the blame game. In order to deliver on the promise of affordable and quality health care for all citizens, all the players in the health care debate must work together. At the end of the day, we should unite against our common enemy — disease. And our most potent weapon is innovation.

As for the Pfizer announcement, the concept of “zero” is one of the most advanced concepts in the history of mathematics. It’s an equally important — and complex — concept when it comes to pharmaceutical pricing.


Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.

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