Being and Nothingness in Drug Pricing

  • by: Peter Pitts |
  • 11/16/2018
Pfizer has just issued a statement concerning it’s 2019 price increases. Here’s the headline of the company’s press release:
“Pfizer Provides Transparency on Drug Prices in the U.S. 90% of Company’s Prices Will Remain Unchanged”
When you separate the spin from the substance, here’s what the headline should be:
“Pfizer adjusts 2019 prices in order to achieve 0% net revenue growth”
That’s the truth – but it’s not likely to be reported (or tweeted by a certain someone) that way.
Here are the facts:
Effective January 15, 2019, Pfizer will increase the list price of 41 medicines (10% of its entire drug portfolio).  The increase in list price of this subset of the company’s portfolio will be 5%. The only exceptions are three products that have a 3% increase and 9% for Xeljanz due to the completion of two extensive development programs leading to new medical uses for unmet patient needs.
But just as you can’t measure risk without benefit, price increases must be considered relative to cost increases. These increases will be offset by higher rebates and discounts paid by Pfizer to insurance companies and Pharmacy Benefit Managers (PBMs) – resulting in a net effect on 2019 Pfizer revenue growth in the U.S. to zero.  According to the company’s statement, “Given the higher rebates and discounts, we expect that the healthcare system will share those benefits with patients, so they do not experience higher costs for their medicines. In 2018 the net impact of price increases on revenue growth is projected to be a negative one percent in the U.S compared with 2017.”
PBMs and insurers should explain what they will do with this enhanced revenue source besides holding it onto it for themselves
It’s also important to note that in 2016 Pfizer invested $7.8 billion in R&D, in 2017 that number was $7.7 billion and in 2018 its projected to be between $7.7- $8.1 billion. That’s billion with a capital “B.”  Innovation is hard. Today it takes about 10,000 new molecules to produce one FDA-approved medicine and only 3 out of 10 new medicines earn back their R&D costs. Moreover, unlike other R&D-­intensive industries, biopharmaceutical investments generally must be sustained for over two decades before the few that make it can generate any profit. The costs to bring a new cancer drug to market are about $2.6 billion. Risk/Benefit anyone?
The President, Health & Human Services Secretary Azar, just about every member of Congress, governors, members of state legislatures, policy wonks and media cognoscenti have weighed in on why our healthcare system is broken and requires change – some even have ideas on how to fix it. Per Pfizer Chairman and CEO Ian Read, “We believe the best means to address affordability of medicines, is to reduce the growing out-of-pocket costs that consumers are facing due to high deductibles and co-insurance and ensure that patients receive the benefit of rebates at the pharmacy counter.”  
The concept of “zero” is one of the most significant breakthroughs in the history of mathematics. It’s an equally important – and complex -- concept when it comes to pharmaceutical pricing.
When you make yourself into zero, your power becomes invincible. -- Mahatma Gandhi

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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