Vantage Point – Pricing battle shifts to states

Three years of pharma-bashing have yielded almost no US action on drug pricing, and even President Donald Trump, the occasional tweet or applause line notwithstanding, appears to have lost interest. The federal government’s major initiative has been to encourage competition in the generics sector, which leaves branded drugs largely unscathed and big pharma and its investors breathing easier.

But state-level action has sparked some worries, especially as California has enacted two laws that could affect pricing strategies. It is too soon to predict how many others might follow the Golden State’s lead, but with 2018 an election year for thousands of state legislative seats the drug-pricing battleground is shifting to state capitals.

Bully pulpit on the wane

Mr Trump’s power to affect biopharma shares has waned as his first year in office has progressed and promised action on drug pricing has failed to materialise.

Consider how on October 16, after Mr Trump’s comments that the sector is “getting away with murder”, the Nasdaq biotechnology index finished the day up a fraction and the S&P pharmaceuticals index fell less than 1%. Compare that versus January’s surprise announcement that the administration would focus on drug pricing, which erased 3% from both indices (Fickle Trump showers disappointment on biopharma's golden day, January 12, 2017).

With a congressional Republican caucus opposed to drastic action like direct Medicare price negotiation, national action cannot be expected anytime soon. “I think the odds of there being something significant are low,” says Rick Weissenstein, an analyst with Cowen Washington Research Group.

The states have been more active. Legislators introduced 178 bills addressing drug pricing or payment in 37 of the 50 states, and 18 passed, according to a database at the National Conference of State Legislatures – although none tried to set price limits.

California’s price transparency law has drawn much of the attention. The state is hard to dismiss, its population representing more than one tenth of America’s, so any law enacted there can have an outsized effect. The law requires pharma companies to give advance notice of any price increase greater than 16% over two years, and explain the reasons for the raise.

“It will give the lie to the claim that their price increases are justified,” says David Mitchell, founder and president of Patients for Affordable Drugs, which supported the law.

Mr Mitchell points to California’s transparency law, a diabetes-specific transparency law enacted in Nevada, and Maryland’s law cracking down on price increases of 50% or more for off-patent essential medicines as significant advances this year.

Less well appreciated is another California law that limits the power of pharma to offer discounts as part of patient-assistance programmes. Discounts would be banned for brand name drugs if a therapeutically equivalent generic drug is available at a lower price, which could have the effect of changing how innovative pharma companies manage the end of blockbuster lifecycles.

Six to 10

Looking ahead to 2018, Mr Mitchell says he believes advocates for drug price restrictions can win passage of legislation in between six and 10 states, specifically naming Washington, Oregon, Colorado, Michigan and Wisconsin as states where a bipartisan consensus was developing on the issue.

He also holds out hope of enactment of federal legislation requiring pharma companies to make samples of drugs available to potential competitors for bioequivalence testing; generics companies claim that drugs subject to risk evaluation and mitigation strategies are being held back.

The states are the most fertile ground, he says, in part because they have to pay for drugs in their Medicaid programmes and also, in many cases, are legally required to have a balanced budget. “Taking action to lower drug prices is both good policy and good politics,” Mr Mitchell says. “To be able to go back to your voters and say I did something for you on this problem is a good thing. It’s also good policy for states that have to struggle with paying.”

The transparency laws are now subject to court challenges, which means enforcement could be delayed. Beyond that, it could take some time to determine whether they have any effect on the sector’s ability to maintain and raise prices, which will in turn affect investors’ views and the sector’s political strategy.

“Right now the state actions haven’t been shown to have a real effect,” Cowen’s Mr Weissenstein says. “If any of them are proven to be effective in reducing drug price increases or taking a real bite out of any particular drugmaker then I think people will pay attention.”

To contact the writer of this story email Jonathan Gardner in Virginia at jonathang-us@epvantage.com or follow @ByJonGardner on Twitter

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