The Race to Rein in U.S. Drug Prices

The fifth and final story in our series on escalating U.S. drug prices looks at the impact that presidential politics will have on the pharma industry.

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Listening to presidential hopefuls this primary season, you would think the 2016 elections were going to destroy the pharmaceuticals industry. While accusing drugmakers of ripping off patients and criticizing their influence over the U.S. Congress, almost every candidate has taken aim at drug company pricing tactics. What remains to be seen, however, is whether it’s all talk.

Democratic candidate Hillary Clinton’s tweet on pharmaceutical “price gouging” back in September prompted a sell-off in the broad biotech sector last fall, but that was just the beginning. The iShares Nasdaq Biotechnology ETF has fallen 25 percent this year, hitting a recent low of $240 a share, amid the broader market turbulence.

At the most recent Democratic presidential debate, February 4 in Durham, New Hampshire, both Clinton and her opponent, Bernie Sanders, upped the volume on their drug-pricing rhetoric, with the Vermont senator telling listeners that despite decades of inaction, he did not accept that “our government can’t stand up to the rip-offs of the pharmaceutical industry.” Republican candidates Donald Trump, Ben Carson, John Kasich and Marco Rubio have each eviscerated the sector in their march through the caucuses, with Rubio saying current practices threaten to “bankrupt our system” and Kasich calling for a review of the industry, which he says profits off of drugs based on government research “that the taxpayers already funded, that perhaps companies are marking up.” Ted Cruz is currently alone in assuming the mantle of the more traditional Republican pro-market position, calling for a “supply-side medical revolution” driven by a complete reform of the Food and Drug Administration.

Despite all of this big talk, Andrew Laperriere, head of U.S. policy research at Washington-based Cornerstone Macro, thinks the odds of either party taking significant action on drug pricing during an election year are very low. In fact, the more the candidates bluster, the less Congress can do without potentially hamstringing whichever presidential hopeful emerges victorious. “Democrats aren’t going to want to undermine Bernie or Hillary, and Republicans aren’t going to want to undermine their candidates,” he tells Institutional Investor.

Still, whichever candidate is elected president will have less impact than investors might fear, given the likelihood that both the House and Senate will retain significant Republican majorities. “If the Republicans sweep, we would be looking at increasing access to generics and other competition-based approaches at most,” Laperriere says. “If it’s a Democrat-controlled House, then there are a lot more possibilities in play, including negotiating prices for drugs the government pays for under Medicare.”

Jan Schakowsky, a Democratic Illinois representative, has already introduced a bill that would allow the Centers for Medicare & Medicaid Services to negotiate some Medicare Part D prices, her first act as a member of the Affordable Drug Pricing Task Force created last fall by House Democrats.

Maryland Democratic Representative Elijah Cummings, who is also on the task force, has been looking into the causes of high drug prices since 2011. As ranking member of the House Committee on Oversight and Government Reform, Cummings has taken a central role in hearings on drug pricing, which included testimony by Martin Shkreli, founder and former CEO of drugmakers Retrophin and Turing Pharmaceuticals, as well as the leadership at Valeant Pharmaceuticals International and Rodelis Therapeutics. Cummings warned listeners (including a smirking Shkreli) at a February 4 committee hearing that these “tactics are not limited to a few bad apples but are prominent throughout the industry,” and “there is significant bipartisan agreement on the need to address this crisis.”

This hearing was the most recent move in a campaign initiated by Senator Claire McCaskill, a Democrat, and Republican Senator Susan Collins to investigate these companies’ pricing strategies for previously low-cost generics. Their investigation of Turing uncovered incriminating internal e-mails, including one boasting that hiking the price of its antimalaria drug Daraprim would bring in nearly $375 million a year and “almost all of it is profit.”

Although the spotlight is unquestionably on generic price gouging right now, in January Democratic Representatives Lloyd Doggett of Texas and Peter Welch of Vermont instituted a task force to address broader drug-pricing issues. Welch spoke to Institutional Investor, sharing his very personal motivation for getting involved: “My wife died of cancer. But these drugs helped improve her quality of life immensely while she was alive. That said, the price of prescription drugs is starting to kill us.”

This new task force took its first major action January 11, sending a letter to the National Institutes of Health and the Department of Health and Human Services signed by 51 House members and urging the agencies to issue guidance on “march in” rights under the Bayh-Dole Act. In theory, Bayh-Dole permits federal agencies that fund scientific research to “march in” and demand a license to technology they helped develop if needed for public health and safety or if the product’s benefits are not available to the public “on reasonable terms.”

Wells Wilkinson, staff attorney for the consumer advocacy organization Community Catalyst, says if the NIH took action, it could “help establish some reasonable price benchmarks that industry would aim to stay below, to avoid any march-in.”

Terry Haines, senior political strategist and head of political analysis at Evercore ISI, believes Welch has what it takes to work across the aisle and effect real change in the sector — just not this year. Haines says investors should keep their eyes on the states, where federal legislators like Welch are fomenting state legislative action on drug-pricing transparency, physician information and drug price caps. “You could see a world in summer and fall where state AGs put pressure on drug manufacturers forcing them to self-regulate on prices,” he adds.

Haines reasons that Massachusetts attorney general Maura Healey’s call for Gilead Sciences to lower its prices on hepatitis C drugs Sovaldi and Harvoni could initiate action by other state AGs, setting off a potential firestorm. Healey wrote Gilead on January 22, saying its prices are so high they “may constitute an unfair trade practice in violation of Massachusetts law.”

“With the election, politics are going to swirl around, and we’re going to have to stay low and avoid the crossfire,” Welch says. “But the reality is, out-of-control pricing affects patients in red districts and blue districts alike.”

This is the fifth and final story in a series on the growing controversy swirling around the U.S. pharmaceuticals industry over drug prices. Also see “Drug Wars: The Battle to Put a Lid on Rising Prices,” “Aggressive Pharma Ads Yield Results — and Complaints,” “Specialty Pharma Drugs Raise Difficult Issues” and “AbbVie Enters the Battle of the Biosimilars.”

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