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Internal documents show drugmakers’ reliance on US price hikes

Drug company executives' bonus pay tied to price increases

Chairwoman Carolyn Maloney, D-N.Y., presides during a House Oversight and Reform Committee hearing in August.
Chairwoman Carolyn Maloney, D-N.Y., presides during a House Oversight and Reform Committee hearing in August. (Tom Williams/CQ Roll Call/Pool file photo)

House Democrats are using the results of an 18-month investigation into prescription drug pricing practices to highlight the extent to which pharmaceutical companies take advantage of a lack of pricing limits in the United States.

Internal documents from several drugmakers, released by the Oversight and Reform Committee at a hearing Wednesday, show how the permissive U.S. pricing environment is central to companies’ global business models, and how price increases were key to meeting earnings goals and boosting executives’ pay.

The reports — one on Celgene Inc. and Bristol Myers Squibb, and another on Teva Pharmaceuticals — found numerous examples of the companies identifying the U.S. as a “highly favorable environment,” as Celgene put it, compared to Europe, where the company encountered “stagnated price growth.”

Executives at the hearing from Bristol Myers Squibb and Teva, and a former executive from Celgene, which was acquired by Bristol Myers Squibb last year, defended decisions to raise prices and emphasized that profits from top-selling drugs supported research in other areas.

Yet some of the internal documents helped fuel a notion that Democrats and some Republicans, like President Donald Trump, agree on in principle if not in approach — that the U.S. is being taken advantage of.

One of the committee reports showed how in 2006, the price for one cancer treatment pill was around $300 in both the U.S. and the European Union, but by 2013, the U.S. price for the drug, Revlimid, had climbed to $400 and the EU price was less than $350. Longer-term projections showed that the company expected the price to increase through 2018 in the U.S. and remain flat at around $450 through 2025. In the EU, Celgene expected the price to drop to $150 by 2025.

“I understand why you think it is highly favorable,” said Chairwoman Carolyn B. Maloney, D-N.Y.

The reports emphasized that for particular drugs — such as multiple myeloma treatment Revlimid by Celgene and later Bristol Myers Squibb, and multiple sclerosis treatment Copaxone by Teva — the companies methodically and consistently raised prices in order to meet earnings goals. When those goals were met, executive bonuses increased.

“In several different years, Celgene’s executives would not have met their bonus targets if not for their decision to increase the U.S price for Revlimid,” one of the reports said.

The hearings culminated from 18 months of investigations involving more than 1 million pages of company documents, the committee said. It was launched by the former Oversight and Reform chairman, Elijah E. Cummings, a leader on the drug pricing debate who died in Oct. 2019. A second hearing is scheduled for Thursday with executives from Amgen Inc., Mallinckrodt Pharmaceuticals and Novartis AG.

House Democrats used the findings to argue that legislation is needed to let the U.S. government negotiate prices through Medicare. House Democrats passed a bill last year that would do that for some of the drugs that cost the U.S. health care system the most. The Trump administration has also pledged to link Medicare reimbursements to the lowest prices paid abroad, but a long-awaited “most favored nation” proposal to do that has stagnated for years and never been formally released.

Both reports found that a key part of the business model for the companies was taking advantage of the fact that they could raise prices at will in the U.S. while rules prohibited them from doing so in European countries and elsewhere in the world.

Questions about industry’s talking points

Executives testifying Wednesday argued that the ability to increase prices in the U.S. made it possible to fund research and development and offset the cost of experimental drugs that ultimately didn’t succeed.

“The free market pricing opportunity in the US continues to drive much of the research and development and medical innovation for the world,” said Mark Alles, the former Celgene chief executive.

But the report on Celgene argued that the company’s pricing decisions “were divorced from its calculus regarding future R&D or recouping of past R&D expenditures.” While Revlimid generated $53 billion in worldwide revenue for the company, the report said the company only spent $800 million on the drug’s research.

The reports also cast doubt on some of the drug industry’s frequent talking points on price increases. Some companies argue that they are forced to raise prices because of increasingly large rebates they pay back to insurers and pharmacy benefit managers.

But the report found that from 2012 to 2017, the largest negotiated discount Celgene provided on Revlimid was 5 percent. The net price of the drug, after discounts, increased from $294 in 2009 to $598 in 2018.

Drug companies also typically provide assistance programs to patients, often providing drugs at lower or no cost to the uninsured, or providing coupons to help the insured cover their out-of-pocket costs associated with a prescription.

But the committee found an internal email from Celgene that showed how these plans were also part of a profit-maximizing calculation. The email questioned how high the price could be raised before the company would actually lose money from the free doses it would have to give out once patients could no longer afford the product.

The report on Teva’s drug Copaxone also highlighted the lengths to which companies go to protect the profits for a brand-name drug once it faces generic competition. As the patent for a typical 20 milligram dose of Copaxone reached its expiration date, the company increased the price to shift patients to a new 40 mg dose product that had a longer period of market exclusivity.

Copaxone’s price has fallen in recent years because of generic competition. But its yearly price is still $70,000, the report said, while the cost of producing the drug in recent years averaged between half a percent and 3 percent of that price.

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