February 17, 2016
By Alex Keown, BioSpace.com Breaking News Staff
CHICAGO -- “The days of unfettered pricing are long gone.”
Those are eight of the most terrifying words pharmaceutical drugmakers could ever hear, Sean Williams, an analyst with the Motley Fool wrote this morning. The words were said by GlaxoSmithKline ‘s U.S. president Jack Bailey, during an interview about the state of the U.S. Pharmaceutical industry with Bloomberg Business. Bailey said companies like GlaxoSmithKline have to be ready to become more innovative all while being conscious of the bottom line.
Bailey’s eight-word warning comes at a time when the industry is under fire and scrutiny by lawmakers in Washington, D.C. and various statehouses, over the rising prices of prescription drugs, particularly older drugs acquired in M&A deals. The drug companies often suggest the price increases are necessary to support research and development. However, for some lawmakers, the prices have become enough of an issue to hold hearings this month in Washington, particularly focusing on price increases of older drugs acquired by Turing Pharmaceuticals and Valeant Pharmaceuticals . During those hearings, emails released by the House committee showed Turing and Valeant were the basis for revenue growth for those companies.
“From 2014 to 2015, Valeant increased the prices of more than 20 additional ‘U.S. Prescription Products’ by more than 200%. Valeant raised the prices of several of these products multiple times from 2014 to 2015, in some cases by as much as 800%,” the U.S. House of Representatives’ Committee on Oversight and Government Reform said in a memo it released prior to the hearing.
With the scrutiny though, big pharma is worried about how this could impact the bottom line, Williams said.
“[But] keep in mind that when drug developers price a product, they do so with the intention of recouping the costs for developing that drug, as well as the hundreds or thousands of drugs they’ve invested in at the discovery, preclinical, or clinical stages that cost time and money but never make it to pharmacy shelves,” Williams wrote.
The uncertainty has certainly transferred to the markets, with the plummeting S&P 500 Biotech Index, down more than 25 percent since the beginning of the year, and the Nasdaq Biotechnology Index, which is down more than 26 percent since the beginning of the year.
Despite the concerns from the public over high drug prices and Bailey’s warning about “unfettered drug prices,” Williams said it is unlikely that high drug prices in the U.S. market will be a thing of the past. Without a universal healthcare program in the United States, Williams said there is no entity set to control the cost of drugs. The drug approval process is different in the United States as it is in other parts of the world, including GlaxoSmithKline’s home base of England. In America, Williams noted that upon approval drugs can hit the shelves immediately, whereas in Europe there are still additional hurdles to overcome. Also, there is a high demand for pharmaceuticals in the United States, Williams said, higher than in other parts of the world.
Another important factor that Williams noted is the high standard of living in the United States. That high standard of living allows drug companies to charge high prices here, in order to “subsidize treatments in underdeveloped regions where they have little to no chance of being profitable.”
