CEO: Allergan will limit price increases for branded drugs
Allergan CEO Brent Saunders said the drugmaker will limit branded price increases for its drugs to once a year and those increases will only be in the single digits as part of a pledge to not engage in “predatory or price gouging” actions.
In a company blog post published Monday, Saunders said Allergan, which markets products like Botox and IBS drug Linzess, would not increase the price of drugs nearing patent expiration. “We will not engage in the practice of taking major price increases without corresponding cost increases,” he wrote.
This pledge is not a break from Allergan's strategy for 2016, or next year, according to Evercore ISI analyst Umer Raffat. Per his analysis, Allergan “never really engaged in ‘predatory' pricing to begin with,” and he noted that there “clearly appears to have been further tempering in list price increases in 2016.”
Saunders' comments arrive during an inflection point for the industry on this issue — a number of drugmakers have been recently criticized publicly over the dramatic price increases of certain drugs and lawmakers and presidential candidates have called for regulatory changes to address the price increases.
Valeant Pharmaceuticals kicked off the ire in 2015 by significantly raising the prices of heart drugs Nitropress and Isuprel one day after acquiring them. Turing Pharmaceuticals then followed, drawing criticism for its 5000% price increase of newly-acquired toxoplasmosis treatment for AIDS patients, Daraprim. Mylan is the most recent example of a company under scrutiny for its pricing practices. The company has come under fire recently over the twice-a-year price hikes of its EpiPen, an emergency treatment for anaphylaxis.
UBS Group has found that Pfizer, one of the world's largest drugmakers, increased the price for 133 of its drugs in 2015, as reported by Bloomberg. An analysis conducted by The Wall Street Journal found that more than two-thirds of the largest pharmaceutical companies reported that price increases boosted sales for some or most of their biggest products in the first quarter of 2016.
This pledge comes at a time when the pharmaceutical industry is under pressure to meet the demands of cost-conscious consumers and payers. This attention to cost has been a factor in recent industry consolidation as companies have sought new ways to improve efficiencies and lower research and marketing costs. Some drugmakers like Allergan have relied less on R&D and instead used M&A to bolster their pipelines.
Back in January 2015, Saunders, who was then the CEO at Actavis, told Forbes that the company's proposed $66 billion deal with Allergan was part of a larger strategy that he dubbed “growth pharma.”
“The idea that to play in the big leagues you have to drug discovery is really a fallacy. You have to do research, you have to be committed to innovation,” he said to Forbes. “...but discovery has not returned its cost of capital.”
Ousted Valeant CEO J. Michael Pearson took a similar approach, telling Bloomberg that research and development is a risky investment and that the company does not “bet on science, but on management.” Pearson would eventually step down from the role shortly after his company's executive team was brought before lawmakers to explain its price increases.