Industry CEOs Testify at Senate Finance Hearing

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On Tuesday, February 26, 2019, the Senate Finance Committee held a hearing on drug costs and potential policy solutions to bring prices down. The hearing, second in a series, featured testimony from CEOs from seven drug companies including AbbVie, AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Merck, Pfizer, and Sanofi.

Opening Statements

During opening statements, Committee Chairman Chuck Grassley cited the Constitutional responsibility Congress has to be a check on the prices Americans are paying for their products and alluded to a belief that the pharmaceutical industry had lost the balance between innovation incentives and affordable prices. He called for increased transparency in the drug supply chain and said that the system should not be so complex that any one player could hide behind complexities to shield high costs.

Committee Ranking Member Ron Wyden used the bulk of his opening statement to call out testifying companies by name, citing to actions they had taken to raise prices and referring to “two-faced scheming.” He too mentioned the ongoing argument that it isn’t the pharmaceutical companies that are raising the prices, but instead, rising prices are a result of another link in the supply chain. He closed his relatively combative opening statement by saying, “Your profits are outsized compared to others in the industry, you receive a massive portion of your revenue from American taxpayers, and you bear none of the consequences of high drug prices. It’s past time to get beyond the excuses and make prescription drugs affordable.”

Witness Statements

As is typical in hearings like this, each executive had the chance to give a brief statement of their own before the back and forth questioning began.

AbbVie Inc.: Richard Gonzalez

Gonzalez testified that AbbVie had spent $50 billion in R&D since 2013 and that while there was no one-size-fits-all solution to high drug costs, Medicare Part D may be an area to target, including high out of pocket costs based on list prices and not reflecting rebates.

AstraZeneca: Pascal Soriot

Soriot also mentioned his company’s R&D amounts in his testimony, including $6 billion in 2018 alone. When discussing his ideas for reducing drug prices, he called for a move away from the current rebate system, stating it is not sustainable, but that eliminating rebates in the Medicare and commercial markets would allow his company to lower list prices. He pointed to value-based pricing as having the potential to transform how drugs are priced. He also mentioned biosimilar competition, noting that biosimilars gained 85 percent of the market share in Europe where fewer anticompetitive and commercial barriers exist.

Bristol-Myers Squibb: Giovanni Caforio, M.D.

Caforio defended his company in his statement, noting that the average net pricing of his company increased five percent or less in the last few years and that prices did not increase at all in 2018, and that 2019 would not likely see increases either. He expressed his support for the rebate reform rule from the Trump Administration, greater use of generics, and value-based purchasing agreements.

Johnson & Johnson: Jennifer Taubert

Taubert reported that J&J spent $8.4 billion on R&D in 2018, far exceeding what was spent in marketing. She also stated her belief that innovative drugs help lower overall health costs by keeping people healthier and reducing hospitalizations, and called drug list prices a “starting point” in negotiations. She posited that it is the increased enrollment in health plans that required consumers to pay more for prescriptions that created many of the rising prices and came up with some possible solutions.

Merck: Kenneth Frazier

Frazier reported an investment of $10 billion in R&D last year as well as $5 billion in capital investments in the United States over the last couple of years. He explained his belief that the current market incentives favor products with higher list prices and that the solutions to rising drug prices lies in encouraging a viable biosimilar market in the United States, among other things.

Pfizer: Albert Bourla, DVM, Ph.D.

Bourla focused on rebates, reporting that the company paid $12 billion in rebates last year, and proposed passing all rebates on to patients via a transparent system. In addition to other solutions, he asked Congress to reduce barriers to biosimilar competition.

Sanofi: Dr. Olivier Brandicourt, M.D.

Brandicourt touched on the gap in prices with Sanofi last year, with a 4.6 percent increase in prices last year compared to the 8 percent decline in net price. He used insulin as an example of the growing divide between list and net prices, noting that list prices alone will not be sufficient to lower out-of-pocket costs for patients.

Discussion

Pricing Decisions

Chairman Grassley asked witnesses a series of questions on how they set list prices based on a document obtained by the Committee during an investigation into Gilead Sciences. All of the witnesses stated that they consider the risk of negative public opinion when setting list prices, but do not consider the likelihood of Congressional inquiry. They also all said they take the federal government into account when setting prices.

They also said it would be hard for them to be able to cut their list prices in the United States without new legislation or policy changes. Frazier noted that under the current system, higher list prices actually help them compete with rivals for better insurance coverage, because they result in higher rebates paid to pharmacy-benefit managers and other middlemen. PBMs and insurers determine placements on preferred-drug lists, known as formularies, based on rebate negotiations.

Rebates

When asked by Grassley whether their companies would lower list prices if the federal government finalized the proposed rule to eliminate rebates in Medicare Part D, the executives all responded a little differently. Gonzalez was supportive of taking the discount to the point-of-sale; Taubert said J&J would support lower list prices but would need to see the final rule before making a commitment; and Brandicourt said any reform needs to be linked to better access and affordability at the counter. Soriot, Caforio,  Frazier, and Bourla said they would lower list prices if rebates were eliminated from both Medicare and the commercial market.

Supporting Innovation

In their testimony, most witnesses raised concerns about policies that may impact the drive to support innovation for difficult and rare diseases in the U.S. They also worried that possible solutions would impact the predictability of the market and risk potential investments. They stressed that increased innovation reduced the cost of care through wellness and decreased hospitalization.

Biosimilar and Generic Competition

Senator Wyden brought up the case of a Humira biosimilar that launched in Europe last year, but would not be available in the U.S. until 2023 due to “anticompetitive behavior.” Gonzalez explained that the patent portfolio was related to newly discovered uses for the molecule used in the drug, and that the company had licensed the patent portfolio to seven biosimilar competitors. The first patent in the portfolio expires in 2022, after which seven competitors will be introduced to the market.

When asked by Senator Robert Menendez if their companies had restricted access to samples to delay competition development, all witnesses answered no and expressed support for the CREATES Act.

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