TRUMP PHARMA FEUD CONTINUES
Previous month’s developments in the US pharma sector clearly shows that the feud between US President Donald Trump and Pharma giants continues. This time it is New York based Pfizer Vs. Trump and the cause is once again the drug prices. Pfizer “modified” prices of 10 per cent of its nearly 400 products and Trump in his tweet strongly reacted against it saying that Pfizer and others “should be ashamed” for rising prices for no reason. His strong outrage was obvious since in May he had said that major drug companies would voluntarily make massive price cuts within weeks. But Pfizer partially proved him wrong as it had not only increased the prices, but in some cases among those 10 per cent products the prices have been reduced also. Another probable reason for President’s ire could be that Pfizer increased the prices second time in the year, the first time being usual annual hike in January when many other companies also hiked the prices. The current hike is reported to be over 9 per cent in most of the cases.
In a subsequent development, Pfizer declared temporary truce, not cancelling but deferring the price hike till the year end. Though Trump claimed it to be a victory of “successfully convincing the company to roll back the hike”, Pfizer has put a proviso that till then the President should implement drug pricing blueprint, which he had been talking a lot. Pfizer has conveniently put the ball in the administration’s court now.
Pfizer is not the only one on the tweet hit list of Trump. He had criticised some other companies also earlier for price hikes. Since the beginning of his presidency Trump has taken up the issue of high drug prices and the feud is continuing. In such a situation Pfizer’s insistence on drug pricing blueprint assumes lot of importance. The reason being there is no regulation in US for drug price fixing and it is totally at the discretion of the companies. Thus, such a blue print can prove to be indicting the administration’s thought process and precise expectations from the industry. That may probably help the industry too to frame its policies on price hike.
General perception over the drug price hike is that drug companies are taking disadvantage of the situation and exploiting the patients. But it is also true that the decreasing rate of return on investment year by year is compelling the companies to increase the prices. According to Deloitte report, 12 pharma giants just got 3.2 per cent return on their R&D cost in 2017 as against 10 per cent in 2010.
The companies also have to negotiate a lot over the list prices with pharmacies and health insurance companies. That creates a big gap between the list prices and the actual prices the patients have to pay. The negotiating middlemen pocket a part of this gap and partially pass it on to patients. Keeping this gap in mind the companies fix the list prices high keeping them a wide scope for negotiations.
Whatever may be the reasons, genuine or otherwise, some investors have objected to it. Investor members of the Interfaith Centre on corporate responsibility, in a letter to Pfizer have quoted Credit Suisse report that price hikes generated $8.7 billion in net income for top pharma companies last year. They claimed that Pfizer and few other companies generated all of their earnings growth on price hikes.
Sensing the Trump administration’s views, some companies put restrictions on themselves. For instance some said their rise would not be more than 10 per cent. Sanofi has restricted its price hike to the rate of medical inflation. Pfizer has not reportedly done that. However, its attempt in the latest skirmish compelling the administration to take definite stand and measures may change the course of this two-year old battle between Trump and the Pharma companies.