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The Pharma Industry Has a Branding Problem: Can it Be Fixed?

Former Valeant Pharmaceuticals chief executive Martin Shkreli may be the poster boy of price gouging run amok, but the heat is increasingly on for the rest of the industry to tamp down on drug price increases and base growth more on productivity and less on arbitrary hikes to please shareholders.

While industry executives are feverishly trying to distinguish themselves from Shkreli, who last year raised the price of a Turing drug by 5,000%, industry publication Stat said the differences “may be lost on the American public.”

“Like it or not, this is a problem for every drug maker,” Stat wrote. “And there’s a simple reason— prices for many medicines are rising.”

“Most people don’t differentiate between Shkreli and other companies. And that’s the elephant in the room.”

Indeed, prices more than doubled last year for 60 brand-name medicines and at least quadrupled for 20 drugs, Stat cited Bloomberg News. The analysis also found that the cost of many drugs rose at annual rates of more than 10%.

“This is why most people don’t differentiate between Shkreli and other companies. And that’s the elephant in the room,” said Paul Argenti, a professor at the Tuck School of Business at Dartmouth College, told Stat. “It’s not enough to say that he’s worse when your own prices and profits are going up. That argument isn’t working. Most people lump them together.”

Stat also cited a recent study by Deloitte and GlobalData found that big drug makers are “more likely to return cash generated to shareholders via a combination of dividends and share buybacks than they are to invest in company acquisitions, product licenses and internal R&D.”

Beckers Hospital CFO reported that industry trade group Pharmaceutical Research and Manufacturers of America plans to spend several millions of dollars in 2016 on radio and print ads that emphasize the pharmaceutical industry’s role in developing new drugs and advancing medical science, a 10 percent increase in spending from 2015. PhRMA is running many of the ads on Facebook, LinkedIn and Twitter to target federal and state lawmakers, policy analysts and others who wage political influence.

“The ads feature patients who have been helped by new treatments and scientists working on drug development, but don’t mention the prices of the drugs,” Beckers Hospital CFOwrote. “The campaigns come amid calls for the government to play a larger role in controlling drug prices, which has prompted a significant increase in PhRMA’s lobbying activity.”

In its marketing campaign, the industry is arguing that government price controls would actually be doing a disservice to the public, as it would stifle future innovation and efforts to cure diseases like Alzheimer’s, sources told Yahoo. They contend that expensive drug prices help fund research and development of new drugs and cutting those costs could be detrimental to future innovation.

Democrats Hillary Clinton and Bernie Sanders aren’t the only presidential candidates who are calling for some type of government intervention: Republican candidate Donald Trump last month told a New Hampshire crowd that “$300 billion could be saved” in the Medicare program by negotiating with drugmakers, according to Reuters.

In response to Trump’s comments, PhRMA responded to Trump by contending that significant price negotiation already occurred with the Medicare program.

“Proposals to fundamentally alter the structure of the program could jeopardize seniors’ and people living with disabilities’ access to affordable prescription drug coverage, driving up premiums, reducing choice and restricting coverage,” PhRMA’s senior director of communications Allyson Funk told Reuters.

Les Funtleyder, healthcare portfolio manager at E Squared Asset Management in New York, told Reuters that the other Republican candidates will have to also get into the discussion.

“If this message resonates on the Republican side, then biopharma will have both sides shooting at it, which is not optimal for investors,” Funtleyder said.

The Intercept reported that pharmaceutical executives have responded to “tough talk” by presidential candidates about price gouging by drug companies, by telling told investors that they are working actively to influence the political debate – and some are even saying that they have minimized price hikes in recent months to avoid attracting attention.

Speaking at the J.P. Morgan Health Care Conference in San Francisco last month, Biogen CEO George Scangos, who also serves as co-chairman of PhRMA, said his firm increased prices on three drugs recently, but at a “somewhat lower number” to avoid placing “a target on our foreheads.” He added that “it’s still possible to take price increases” but that he thinks “it’s wise to be a little prudent.”

McKesson CEO James Hammergren, also told conference attendees that the industry to hold off on price hikes to avoid attracting unwanted scrutiny.

“I would say that political discourse that’s taking place, and the congressional inquiries relative to pricing practices, I think are obviously going to have people at least pausing perhaps to consider whether now is the right time to take a price increase,” Hammergren said during a recent earnings call. In 2012, the firm paid $151 million to settle claims the firm deliberately overcharged Medicaid for reimbursements for some 1,400 brand-name drugs.

Alnylam Pharmaceuticals CEO John Maraganore on his company’s recent earnings call that recent talk of drug pricing is “political demagoguery that’s going on right now.” He conceded, however, later in the call that companies will need to “think about their growth based on productivity not based on arbitrary price increases.”



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