Top executives from seven of the world's largest drugmakers were grilled by Congress today. It was the first time in more than two years that drugmakers were asked to answer to Congress about runaway drug prices.
During hours of discussion, representatives of AbbVie (NYSE: ABBV) , AstraZeneca (NYSE: AZN) , Bristol-Myers Squibb (NYSE: BMY) , Johnson & Johnson (NYSE: JNJ) , Merck & Co. (NYSE: MRK) , Sanofi (NASDAQ: SNY) , and Pfizer (NYSE: PFE) answered questions from members of the U.S. Senate Finance Committee. Here are five key takeaways from their appearance on Capitol Hill.
No. 1: Stop the shenanigans
Members of the committee called drugmakers on the carpet for bad behavior, particularly as it relates to using patent strategies to extend drug monopolies. AbbVie drew significant criticism for its tactics.
Specifically, members challenged the company's use of patents and legal wrangling to avoid biosimilar competition to its top seller, Humira, in the U.S., despite its matter-of-composition patent expiring in 2016. The soonest Humira biosimilars can launch in the U.S. is 2023, when licensees will be allowed by AbbVie to roll out their biosimilar alternatives.
The use of strategies to delay competition is a problem because specialty drugs, including Humira, are the most expensive drugs on the market, and they're comprising an increasingly larger share of the $330 billion Americans spend on medicine every year. Humira, the world's best-selling drug, generated sales of over $19 billion for AbbVie in 2018.
Humira, which has been on the market in the U.S. since 2003, already faces biosimilar competitors in Europe , and when those biosimilars launched, it led to significant price reductions. The argument to support increased access to biosimilars was, unsurprisingly, backed at the hearing by companies with biosimilar R&D programs underway, including Pfizer .
No. 2: Remove rebates
Every one of the companies present at the hearing laid blame for high prices on insurers and intermediaries, including pharmacy benefit managers engaged by insurers to negotiate rebates.
According to the drugmakers, the list prices they set are a starting point in determining the real price insurers pay. Intermediaries exchange favorable placement on reimbursement formularies for negotiated rebates that total in the tens of billions of dollars annually. The problem is that those rebates don't flow down to consumers. Instead, the intermediary or insurer pockets the savings. Patients' out-of-pocket costs, however, are still calculated using the list price, causing them to pay more for medicine than for other types of healthcare. According to Johnson & Johnson's global pharmaceuticals chief, Jennifer Taubert, patients pay about 13% of the cost of medicine but just 3% of the cost for hospital care.
In hopes of leveling the playing field, all the drugmakers said they support doing away with rebate schemes altogether. When asked if they'd commit to lowering list prices if rebates were ended, most seemed to indicate "yes," depending on the details. For instance, AstraZeneca CEO Pascal Soriot said his company is prepared to reduce list prices by similar amount to rebates if rebates disappear.
No. 3: Level global pricing? Not without a fight
Drugmakers don't charge every payer on the planet the same amount for their treatments. Prices in the U.S. are the highest in the world, and drugmakers appeared most concerned about a suggestion to tie U.S. prices to the average prices in overseas markets.
When asked if they turn a profit in other countries despite the lower prices, the uniform answer was yes. But the companies were quick to point out that the current system of global pricing is key to their ability to reinvest in research and development. In short, global drug development hinges on outsized profits in the U.S. Absent U.S. profits, less could be spent developing new cures and better therapies. To protect innovation, Sanofi CEO Olivier Brandicourt suggested the government shouldn't be in control of pricing.
Drugmakers also seemed reticent to admit that centralizing negotiating power could lower prices. When pushed, they conceded the Veterans Administration's ability to negotiate lowers the prices it pays, but they also pointed out that 50% of Americans are covered by employer-sponsored insurance, not government programs, and thus, centralized negotiating by government doesn't address pricing concerns for everyone.
No. 4: Value-based agreements are OK
One knock against recently approved medicines is that they're increasingly expensive. Their high cost is due to the complexity associated with creating them, according to these drugmakers.
These treatments are safer and more effective, though. So they're saving and extending lives. Drugmakers argue that their high price up front saves the healthcare system money over time. How? By eliminating or slowing disease progression that can cause hospitalization of life-threatening complications.
To accurately value the cost of these therapies, they argue, the total benefit to future healthcare spending should be considered. One way to do that is through value-based agreements that pay drug companies more money when their drugs work and less (or nothing) when they don't. Pfizer's CEO Albert Bourla said these deals could be valuable because they focus not on pills sold but on lives saved. Most of the other C-suite leaders appeared to offer their support for this approach, too.
No. 5: Drugs are useless if they're unaffordable
Drugmakers clearly indicated at the hearing that they support efforts to lower patient out-of-pocket costs to increase access. AstraZeneca's Soriot said medicines are useless without affordability. That message was echoed by others, including Taubert, who said medicine doesn't matter if people can't afford it. Taubert went on to say that patients today need access, and patients tomorrow need cures and better treatments.
Perhaps that's the biggest takeaway from this discussion: that any solution to curb prices has to ensure people get the treatment they need now while also making sure there's enough profit left to fuel future innovation at these companies.
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Todd Campbell owns shares of Pfizer. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .