Fearing a Trump Attack, Drug CEOs Walk a Pricing Tightrope

First it was CEOs in the automotive, aerospace and industrial air-conditioning sectors. Now, CEOs of drug companies fear it could be their turn next.

istock-521624342-compressorHuddled this week at a major conference in San Francisco, many are treading carefully ahead of Donald Trump’s inauguration to avoid one of the president-elect’s signature Twitter tirades.

Johnson & Johnson yesterday said it’s planning to release a report next month detailing how much it has raised the prices of its prescription products. The industry must “act responsibly” on pricing, CEO Alex Gorsky told the JPMorgan Healthcare Conference.

Drug costs are still a key concern for voters outraged by revelations last year that several companies, such as Mylan and Valeant, dramatically hiked the price of often life-saving treatments. But companies say they risk squeezing profits and starving innovation if they can’t push through price increases as planned.

Trump spooked the industry last month by indicating to Time magazine that his view on the issue may not be that different from Hillary Clinton, who had proposed capping price increases on the campaign trail. “I’m going to bring down drug prices,” Trump said. “I don’t like what’s happened with drug prices.”

“Look, I’m extremely optimistic. I believe that obviously he is a very business-minded individual that’s very solution-oriented.

Allergan Pharmaceuticals, meanwhile, has just made good on CEO Brent Saunders’ “social contract” pledge issued in June to limit price increases to single-digit percentages just once a year—though it’s acted right at the upper limit of the pledge.

A widely circulated research report from Evercore ISI analyst Umer Raffat indicates that Allergan raised the prices of many of its drugs by 9% or 9.5% in the first days of 2017. “These price increases are consistent with our social contract,” Allergan said on Twitter in response to some public criticism.

In San Francisco on Tuesday, Saunders warned a panel discussion that companies that ignore public concerns about price rises do so at their peril. “If you think for a second our president-elect, soon to be president, isn’t going to use 140 characters and tweet viciously about it, I don’t think you know who is going to be president,” Saunders said.

At least one CEO is taking a more sanguine view. “Look, I’m extremely optimistic,” Mylan CEO Heather Bresch told CNBC. “I believe that obviously he is a very business-minded individual that’s very solution-oriented.”

Pharmaceutical CEOs have long argued they need to raise prices to help fund the innovation that’s required to invent new and better treatments—a view acknowledged last week by President Barack Obama that won’t be lost on a businessman like Trump.

But in the lead-up to his inauguration next Friday, and indeed during the first months of his presidency, any CEO thinking of pushing through a substantial price hike is asking for trouble.


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