Pharma Faces Fire as Senate Committee Questions High Drug Prices

Kerry Dooley Young

February 26, 2019

Leaders of major pharmaceutical companies told members of the US Senate Committee on Finance on Tuesday that they support federal efforts intended to redirect rebates from middlemen in the supply chain toward people enrolled in Medicare.

The committee held a roughly-3-hour hearing with witnesses including the chief executives of AbbVie, AstraZeneca, Bristol-Myers Squibb, Merck & Co, Pfizer, and Sanofi. Also appearing was Jennifer Taubert, executive vice president of Johnson & Johnson's Janssen pharmaceutical division.

The hearing focused largely on the high cost of medicines that put critical treatments beyond the reach of many Americans. Senators raised a variety of concerns, including the contribution of federally funded research to medicines that later generate significant profit for companies. They also touched on the role of the tax code in encouraging television ads for medicines.

But the hearing's most lasting contribution may prove to be the public statements of support that the members of the finance committee demanded for pending regulatory proposals and congressional bills.

The US Department of Health and Human Services (HHS) in January proposed an overhaul of rebates within Medicare's Part D pharmacy plans, seeking to address concerns about pharmacy benefit managers (PBMs) absorbing much of the program's rebate savings. HHS outlined plans to alter federal antikickback law to direct drug discounts toward patients and foster more fixed-fee service arrangements between drug makers and PBMs.

In written testimony and comments made during the hearing, pharmaceutical executives expressed support for this HHS plan. Near the end of the hearing, Sen. Ron Wyden of Oregon, the ranking Democrat on the finance committee, pressed for guarantees that consumers would benefit from such a change. He asked the pharmaceutical executives to provide written statements within 10 days saying that they would support a law that would require companies to reduce their list prices for medicines by the amount of the rebate.

"That's right at the heart of this issue and, after the happy talk is over, that's what's really going to help people at pharmacy counters," Wyden said.

Punished for Low Prices

The pharmaceutical executives told the committee that the current approach used by PBMs would punish a company that sought to lower its prices.

In most markets, a company selling a cheaper product can expect to gain market share. With pharmaceuticals, PBMs stand to gain from greater use of more expensive products, according to the executives.

Thus a drug maker stands to lose access to customers through PBMs' preferred formulary lists if it reduces its prices. Merck Chief Executive Kenneth C. Frazier told the committee that his company had tried to bring down its initial offers, or list prices, for drugs, without gaining new sales.

"If you bring a product to the market with a low list price in this system, you get punished financially and you get no uptake," Frazier told the committee. "Everyone in the supply chain makes money as a result of a higher list price.

"I understand the dissatisfaction with our industry. I understand why patients are frustrated, because they need these medicines and they can't afford them" Frazier added.

Like other pharmaceutical executives at the hearing, Frazier called for an overhaul of the pharmaceutical pricing approach.

"No one company can unilaterally lower list prices without running into financial and operating disadvantages that make it impossible to do that," Frazier said.

Pfizer Chief Executive Albert Bourla argued for a broader application of HHS's proposed approach for changing PBM rebates, which would apply narrowly within Medicare.

Consumers in commercial insurance plans also would benefit from a shift away from the current approach to rebates, he said.

"During the Medicare-only application, we pledge and we commit that every single dollar will go to the patients," Bourla said.

Rising Prices and Patents

The Tuesday hearing is part of what promises to be a major finance committee examination of the underlying causes of the high costs of medicines. Senate Finance Committee Chairman Charles E. Grassley (R-IA) and Wyden on February 22 announced a bipartisan investigation into insulin prices, signaling the possibility for a future hearing focused on this widely used medicine.

While the high cost of insulin was noted at Tuesday's hearing, another expensive medicine — AbbVie Inc's rheumatoid arthritis drug Humira — emerged as a chief target of bipartisan concern.

Humira is not an original product of AbbVie research. Instead, it arrived as a highly promising, late-stage experimental product acquired through a 2001 cash purchase of the Knoll pharmaceutical business for roughly $6.9 billion. Last year alone, AbbVie had Humira sales of almost $20 billion.

Over 6 recent years, the company doubled the price of a 12-month supply of Humira from $19,000 to $38,000, Wyden said at the finance hearing.

"Can patients opt for a less expensive alternative? No they cannot, because AbbVie protects the exclusivity of Humira like Gollum with his ring," Wyden said, referring to the famous character from the work of JRR Tolkien. "Thick cobwebs of patents, legal tricks, and shadowy deals with other drug makers, all to keep the cash flowing."

A conservative Republican also honed in on Humira's lack of competition at the hearing. An attorney who once specialized in defending doctors in malpractice suits, Sen. John Cornyn (R-TX) prefaced his Humira inquiries by stressing the need to preserve the patent system of the United States and the field of drug discovery.

"We want to maintain the most innovative pharmaceutical drug companies in the world, because we want to provide life-saving cures," Cornyn said to AbbVie Chief Executive Richard Gonzalez. "I get the idea that that's the purpose of the patent system, which is to protect the exclusivity of that drug, which you sunk a lot of money into the research and development for."

Cornyn asked Gonzalez about AbbVie's efforts to prevent competitors from selling their own copy of Humira, including legal battles with Amgen Inc. (The drug industry uses the term biosimilar to describe copies of biotech medicines instead of calling them generics. This nomenclature reflects challenges in replicating the proteins that serve as active ingredients of these drugs.)

In a regulatory filing last year, AbbVie said that while biosimilar versions of Humira have been launched in the European Union, similar competition is not expected in the United States until 2023.

"I support drug companies recovering a profit based on their [research and development] and their development of innovative drugs, but at some point, that patent has to end, that exclusivity has to end, so that the patients get access to those drugs at a much cheaper cost," Cornyn concluded.

Cornyn then suggested that the Senate Judiciary Committee, on which he and Grassley also serve, take a closer look at mechanisms that can be used to delay generic competition of medicines.

After the hearing, Grassley issued a statement about work that Congress should undertake to bring down drug costs. He called for new rules that would "curb abusive practices designed to stifle competition, require price disclosure in television Rx advertising and weed out other murky behaviors that prevent price transparency."

Grassley said he'd been disappointed at times during the hearing by the responses of the pharmaceutical executives.

"I had hoped they would come genuinely prepared to offer substantive solutions and not just shift the blame," Grassley said. "This hearing was their opportunity to shoulder some accountability and share solutions. Disclosing list prices for prescription drugs is a remedy that needs to be on the table, for example."

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