The drug industry wins pricing battle in California, likely to fare better with Trump

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The defeat of a ballot measure in California that sought to set limits on drug prices as well as the election of Donald Trump are expected to lessen the pressure on drug pricing that pharmaceutical companies had anticipated. 

The pharmaceutical industry aggressively opposed the California ballot measure, which was backed by groups like the AIDS Healthcare Foundation and AARP as well as individuals like Sen. Bernie Sanders (I-VT). As of November 2, the two sides had spent a combined $115 million on campaigns, with $106 million of that coming from pharma and industry groups. It was the most expensive ballot measure campaign battle of the year, according to Ballotpedia.

The defeat of Proposition 61 in California reaffirmed the power of the biopharma lobby, Jefferies analyst Brian Abrahams wrote in a research note. But he still cautioned that drug-pricing will remain a significant issue for the industry going forward into a non-election year.

See also: Drugmakers, facing pricing criticism, sell cures in new ads

“Even with a Trump administration, we do believe there is an overall shift towards greater pricing scrutiny that will continue to reduce potential revenue growth purely from price increases, and continue to make more innovative companies with fewer competitors more attractive,” Abrahams said.

The California Drug Price Relief Act, also known as Proposition 61, would have allowed state healthcare agencies to pay the same prices for drugs as the Department of Veterans Affairs. The VA reportedly pays up to 24% less for drugs compared to what other government agencies pay, according to Yes on 61, the organization that advocated on behalf of the measure.

Roughly 53% of voters voted against Proposition 61, with about 46% voting in favor of the ballot measure, according to the California Secretary of State's election tally.

“We are glad that voters recognized the flaws of Prop 61 and understood the devastating consequences it could have on veterans and patients across California,” a spokesperson for PhRMA said in a statement. “Conversations about the cost of medicines are important, but Prop 61's flawed policy was not the answer to the challenges people face accessing their medicines.”

See also: J&J exec calls California pricing measure 'misguided'

Joaquin Duato, worldwide chairman of pharmaceuticals at Johnson & Johnson, told investors during an earnings call in October that Prop 61 could create access issues for patients. “We think it's a misguided action,” he said. Eli Lilly CEO John Lechleiter described the measure as “bad legislation,” saying his company was “fighting tooth-and-nail in California.”

About a dozen states, including California, have introduced bills over the last two years that would require transparency about drug pricing, according to the National Conference of State Legislatures. Lawmakers and patients have become increasingly critical about how drugmakers price their therapies in the U.S., with presidential candidates from both parties publicly declaring that Medicare should be given the legal authority to negotiate drug prices.

Pharmaceutical companies have been slow to react to the criticism. New examples of industry bad actors continue to emerge, the latest example being Mylan and its egregious price hikes of allergy autoinjector EpiPen, from $164.98 in 2011 to $608 in 2016.

Still, small changes within some companies are underway. Allergan CEO Brent Saunders announced in September that the company would limit price increases on its drugs to less than 10% and only once a year.

See also: Mylan's branded ad spending on the EpiPen rose 357% — to $43 million in 2015 — over five years

During the call with investors in October, Duato acknowledged the complexity of the pricing debate and the need for the industry to evolve its pricing model. “Pharmaceuticals represent 14% of total expenditures and we understand that we need to work with different stakeholders in order to try to manage our healthcare cost,” he said. “And we have advanced different ideas in that area ... such as value-based contracting, and we need to work there in order to try to eliminate the regulatory barriers that do not help in that area.”

Experts say that the prospect of a Republican-led White House and Congress doesn't mean that the pricing debate will fade away. Owing to the continued furor, it will more likely remain top of mind.

“The Republican party has had a strong majority in both Houses of Congress for some time,” said Gil Bashe, managing partner of global health at Finn Partners, in an email. “The Congressional hearings on drug pricing, driven by industry outliers such as Turing, Valeant, and Mylan, were held during Republican majority. Pricing will not go to the back burner.”

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