Allergan CEO disavows 'predatory pricing'
- Allergan CEO Brent Saunders on Tuesday unveiled a sweeping promise to limit price increases on branded drugs and accused drugmakers who have taken a hyper-aggressive approach to pricing of violating the industry's social contract with patients.
- Saunders said Allergan would "not engage in price-gouging actions or predatory pricing," and would limit price growth to single-digit percentage increases taken no more than once per year.
- Perhaps just as importantly, Saunders also committed Allergan to providing an "aggregate view of the net impact of price" on the company's business. Pharma companies have been widely criticized for opaque pricing practices.
With a strongly worded blog post, Saunders took aim at "outliers" in the pharmaceutical industry who have drastically increased the price of their therapies. Outrage has mounted over the past year as a succession of pharma companies, from Turing to Valeant to Mylan, have come under scrutiny for steadily increasing prices of older drugs. That outrage has, in turn, sparked wider criticism of the industry and brought down federal investigations and lawmaker scrutiny on a number of companies.
"Lately, there has been a tremendous focus on the cost of medicines and some of it has been very appropriately targeted at those outliers who have taken dramatic price increases ... I understand the public outcry and add my voice to the condemnation of these behaviors," Saunders wrote.
Saunders took care to paint those drugmakers who have been tied to more aggressive pricing practices as outliers in an industry largely focused on bringing innovative new medicines to market. Other players in the industry, such as the major trade associations PhRMA and BIO, have also emphasized innovation in response to criticism over pricing. PhRMA, for example, has ramped up its "From Hopes to Cures" advertising campaign while BIO just launched "Innovation Saves."
But Saunders also staked Allergan to concrete commitments towards more sustainable pricing and greater transparency.
"We will take price increases no more than once per year and, when we do, they will be limited to single-digit percentage increases," Saunders said.
Allergan will no longer follow the industry's standard practice of raising drug prices ahead of patent expiration, except in scenarios where costs also rise correspondingly. And Saunders committed to providing "an aggregate view of the net impact of price" on Allergan's business at least annually.
It is unclear, however, what form that aggregate view might take. Some pharma companies already disclose the impact of volume and price on net sales in conjunction with quarterly earnings.
"Our expectation is that the overall cost of our drugs, net of rebates and discounts, will not increase by more than low-to-mid single digits percentages per year, slightly above the current annual rate of inflation," said Saunders.
That caveat "net of rebates and discounts" is important. Drug prices are often quoted in terms of list prices or "wholesale cost," rather than the net selling price drugmakers actually receive. In order to win favorable coverage on formulary lists, pharmaceutical companies often offer rebates and discounts to pharmaceutical benefit managers and insurers. In order to account for those discounts, wholesale prices are often raised steadily, giving pharmaceutical firms room to negotiate.
Mylan, a recent target for criticism due to the sharp increases in the price of EpiPen, pointed to this gap between list price and selling price in an attempt to defuse the growing outrage. Although a two-pack of EpiPen lists for over $600, Mylan has said the price it receives is actually $274, with the difference going to insurers and PBMs.
Saunders also acknowledged the role PBMs and insurers play in drug pricing:
"We commit to working with decision makers and intermediaries to make our products accessible to all people who need them. This often includes giving discounts and paying rebates. The current pricing environment is highly competitive with large payers making decisions that may limit patient access to our medicines in favor of a competitor based on the latter’s willingness to pay more rebates."
While it remains to be seen what effect Saunders pledge will have on the costs borne by patients and other payers, his public commitment to such practices is rare in an industry still scrambling to respond to criticism.
- Allergan Statement
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