Seven executives of big pharma faced a grilling from members of the U.S. Senate Committee on Finance, as it looked into how to lower drug prices in the United States. CEOs from AbbVie (NYSE:ABBV), AstraZeneca (NYSE:AZN), Bristol-Myers Squibb (NYSE:BMY), Merck (NYSE:MRK), Pfizer (NYSE:PFE), and Sanofi (NASDAQ:SNY), along with an executive vice president from Johnson & Johnson (NYSE:JNJ), responded to the committee's sometimes heated questions.
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Big Pharma has been pilloried for decades but still flourished, not least because it keeps producing life-saving innovations needed by Americans, who are in aggregate getting fatter, older and sicker by the year. Still, the hearing marks a dangerous moment for the industry. Reforms may force big changes to a lucrative business model.
The reform efforts could lead to three changes, reckons Benjamin Isgur of pwc, a consultancy. One involves pricing. In October the Trump administration unveiled an “international pricing index” that would link the prices paid for a number of expensive drugs purchased by Medicare, a giant government health-care plan for the aged, to lower prices paid for those same drugs by other rich countries.
If implemented, this would force dramatic change. pwc estimates that it could lead to a loss of $500m in annual revenues at each of five big drugs firms, and losses of between $100m and $500m a year each at six others. Knock-on effects could push down prices for drugs not purchased by Medicare. This week pharmaceutical executives noisily objected to the proposal, arguing that a sharp cut in profits would inevitably reduce their research capabilities.
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