Allergan Pledges Low Price Hikes as Clinton Threatens Federal Intervention
Policy + Politics

Allergan Pledges Low Price Hikes as Clinton Threatens Federal Intervention

REUTERS/Mike Segar

Pharmaceutical giant Allergan’s announcement on Tuesday that it would restrain future increases in the price of its branded products and end predatory marketing practices may prove to be an important turning point in the war on prescription drug price gouging.

Brent Saunders, the chief executive of Allergan, the maker of Botox and hundreds of other drugs, said in an online statement that his company will limit price increases to one “single-digit” increase annually and that the pricing will be part of a “social contract” to maximize value and minimize cost for consumers.

Related: Will Mylan’s $300 Generic EpiPen Packs Quell Pricing Firestorm?

“Lately, there has been a tremendous focus on the cost of medicines and some of it has been very appropriately targeted at those outliers who have taken dramatic price increases – or engaged in what the public thinks of as price gouging, especially on life saving medicines,” Saunders wrote. “I understand the public outcry and add my voice to the condemnation of these behaviors.”

Allergan’s announcement comes on the heels of growing public and political outrage over a series of unconscionable price increases for life-saving drugs such as Mylan’s allergy injection EpiPen and mounting threats of government intervention to contain or roll back prices.

Just last week, Democratic presidential nominee Hillary Clinton proposed creating a government commission with authority to compete with or penalize pharmaceutical companies that jack up prices for critically needed drugs that have been on the market for years.

The new panel, comprised of representatives from federal agencies responsible for health, safety and market competition, would be part of a comprehensive drive to toughen government response to soaring drug prices that have drained government and health insurers resources and hit many patients in the pocket book.

Related: Did Mylan Just Cut the Price of the EpiPen? Not Really

Big PhRMA has long defended its marketing and pricing practices by saying that they are necessary to underwrite the cost of tens of billions of dollars in research to develop new, cutting edge drugs to treat cancer, heart disease, the Hepatititis-C virus, diabetes and other serious diseases.

Yet in many cases, drug manufacturers have capitalized on a monopoly to raise retail prices on some new drugs or substantially jack up the price of other drugs that have been on the market for a decade or more after acquiring the patent.

While some drug companies, including Mylan and Valeant Pharmaceuticals, have apologized and taken steps to mitigate the cost of some of their life-saving drugs, Allergan appears to be the first to specifically pledge to embrace self-imposed price controls without government prodding.

Saunders said that his company will price its products “in a way that is commensurate with, or lower than, the value they create,” based on how much the drug improves a patient’s quality of life without the need for other treatment options.

He said that his company would beef up its financial assistance program to help low-income Americans or those with large deductibles in their health insurance policies and “will not engage in price gouging actions or predatory pricing.”

Related: EpiPen Maker Enters the Pharmaceutical Industry’s Hall of Shame

Saunders promised that his company would not raise prices on drugs more than once a year and that each increase will be no more than a single-digit increase. “Our expectation is that the overall cost of our drugs, net of rebates and discounts, will not increase by more than low-to-mid single digits percentages per year, slightly above the current annual rate of inflation,” he wrote.

The initial response has been generally positive.

“Given the public and political outrage over prices – not just for EpiPen – that’s been going on for the past two years, it’s remarkable it’s taken this long for at least one firm to respond,” said a top official of one consumer drug advocacy group who spoke on background. “The industry seems to have discounted the prospect of government regulation until recently. I think the announcement is quite significant.”

Kenneth Kaitin, director of the Tufts University Center for the Study of Drug Development, agrees that Allergan’s announcement is important – although whether it proves to be a turning point remains to be seen. “I think it’s critically important that the industry get in front of this instead of falling back on old arguments,” Kaitin told The Washington Post. “They really have to address this right now, and it is such a festering wound that I really do think that this is a good first step.

A handful of drug companies have come under blistering attack over the past two years for price gouging. Gilead Sciences, for example, was attacked by consumers and lawmakers for its retail pricing of Sovaldi and Harvoni, two biometric drugs used to treat the hepatitis C virus that cost as much as $100,000 for a full treatment. Valeant Pharmaceuticals acquired the rights to Nitropress and Isuprel, two heart and blood pressure medicines, and then raised their prices by 212 percent and 525 percent, respectively. And Turing Pharmaceuticals, previously headed by hedge fund manager Martin Shkreli, obtained the license for an anti-parasitic drug called Daraprim and then boosted the price by over 5,000 percent.

Related: Two Big Reasons Prescription Drug Prices Are So Much Higher in the US

Allergan, a global pharmaceutical company with headquarters in Dublin, Ireland, markets a broad array of leading brands for the treatment of the central nervous system, eye care, dermatology, gastroenterology, and women’s health. The company, which is attempting to merge with Pfizer, another mega-drug firm, reported strong fourth-quarter earnings in February.

Net revenues from Allergan's U.S.  brands, including Botox, the cosmetic drug used for removing facial wrinkles, helped achieve the positive financial results. U.S. revenue rose 37.5 percent to nearly $2.5 billion for the three-month period that ended Dec. 31, according to a company report.

Some financial experts say that Allergan’s new pledge to moderate price increases will do little to harm the company’s overall sales and earnings, while providing it with positive public relations.