Recent price freezes and rollbacks are symbolic measures with little lasting impact.
But there’s less to those announcements than meets the eye. The gestures turned out to be largely symbolic — efforts to beat Trump at his own game by giving him headlines he wants without making substantive changes in how they do business.
The token concessions are “a calculated risk,” said one drug lobbyist. “Take these nothing-burger steps and give the administration things they can take credit for.”
Of the few companies that actually cut prices, for instance, most targeted old products that no longer produce much revenue — such as Merck’s 60 percent discount to a hepatitis C medicine that had no U.S. revenues in the first quarter.
Others volunteered to halt price increases for six months — in some cases, just weeks after announcing what is normally their last price hike for the year.
“A lot of this shit is meaningless to satisfy Trump,” said another drug lobbyist.
The industry’s deft response to Trump’s tweet shaming has also become a test of whether his administration is serious about following up with an aggressive crackdown on the companies or will simply declare victory based on token measures and move on.
“I think right now it’s a lot of noise, not a lot of substantial impact to the companies,” said Les Funtleyder, a health care portfolio manager at E Squared Asset Management, which owns shares in Pfizer. The prospect for meaningful change “is out there … but that will take motivation on the part of regulators and policymakers.”
Analysts are in broad agreement that the spate of recent concessions won’t hurt bottom lines, or rein in drug prices beyond this six-month period, because many companies already increased prices this year — in some cases, just weeks before publicly pledging to freeze them for the rest of 2018.
“There’s the glass-half-full and glass-half-empty interpretation,” said Walid Gellad, director of the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh. “Glass half full says we have never before seen pharma promise not to raise prices anymore. So this is a step forward — including for patients. Glass half empty is that these are token measures — either on drugs few people use, or drugs that just had their price raised, and that prices will just go up next year.”
Either way, Gellad said, “this is not the kind of structural change we want in the market so that prices go down.”
Drug prices are a fixation for Trump, who rants about them in conversations with aides and advisers, according to people close to the president. He sees the issue as a political winner, especially among his conservative — and largely older — base, which relies heavily on prescription drugs. And after facing huge hurdles moving his legislative priorities through Congress, he sees this as something he can win on by using his executive authority.
That has put huge pressure on Health and Human Services Secretary Alex Azar, a former top official of Eli Lilly and Co.
“They talk three times a week, and they never have a conversation where drug pricing isn’t a topic,” said one person briefed on the conversations, adding that Trump has also interrupted Cabinet meetings to encourage Azar to brief the group on the latest developments.
But even as Azar implements his 44-page blueprint aimed at lowering prices, Trump has grown impatient with the glacial pace of rulemaking and arcane details of drug policy.
His outlet is Twitter, where he can marshal the rage of his millions of followers in an instant. White House aides say he sees his Pfizer tweet as a warning shot to other drug companies — part of a public “shaming” campaign designed to pressure companies to take voluntary steps to lower prices.
That strategy diverges sharply from what Azar is saying publicly — raising doubts about how serious the administration is about cracking down on drugmakers.
The HHS secretary’s rhetoric often targets pharmacy benefits managers — the obscure middlemen who manage the drug side of patients’ health insurance benefits — not drug companies. And targeting the middlemen is a play directly out of pharma’s strategy book — drug companies have long sought to pin patients’ frustration with rising costs on PBMs. HHS has also signaled it wants to overhaul a drug discount program for hospitals that could put money back in pharma’s pocket.
Pfizer CEO Ian Read himself praised the president’s blueprint on the company’s recent second-quarter earnings call, just a few weeks after Trump’s Pfizer tweet.
“I don’t think the administration is gunning for [pharma],” said Ronny Gal, a financial analyst at Sanford Bernstein. Everything they are doing right now is “scratching around the problem,” he said.
“You can tell by the way the stock has performed that investors aren’t too concerned,” Funtleyder said. “They figure, ‘OK, the pharma companies waved the white flag for now, so they’re out of the cross hairs.‘”
Meanwhile, HHS and drug industry officials have worked closely to show Trump they are getting results, administration and pharmaceutical industry sources tell POLITICO.
In private meetings with drug officials, HHS officials ask what steps they’ve taken that they might relay to Trump to keep the president satisfied, said drug company sources.
“They’re also like, ‘Hey, don’t be stupid. If you’re going to do something you feel like we can mutually take some credit for, let us know. … If you can get a good tweet out of it, don’t be an idiot. Let us know [ahead of time],’” said one person familiar with the conversations.
“They’ve said: ‘What would it take for you to lower prices?’” said another top drug industry official.
“There is a real fear that Trump only understands things very simplistically,” said a lobbyist for several drug companies. “So they want to keep tossing treats for him or he will go after blunt instruments,” like government drug price negotiations — steps neither the conservative leadership at HHS nor the drug industry want.
Observers both inside HHS and outside the administration see Azar’s drug pricing team as a buffer for the drug industry.
“To be candid, the secretary is pro-patient, pro-innovation and pro-competition and, quite frankly, really standing in between the industry and some faster ways to lower prices that some would say are not pro-competition,” said HHS’ John O’Brien, a senior adviser to Azar, at a drug cost event one day after Trump’s tweet attacking Pfizer.
Azar prefers the industry and HHS work to make change together, rather than it being adversarial, according to people familiar with HHS’ strategy.
He publicly touts industry price freezes and reversals “in part to show Trump they’re making progress, but also to show the industry that you get recognized for playing ball,” said a person familiar with the discussions.
The White House, meanwhile, was thrilled about the industry’s recent price freezes, even as officials acknowledged the companies’ announcements are only a first step — and promised what one official characterized as a “deluge” of drug price-related regulatory action in the coming months.
“Nothing about what they do or don’t do is going to really turn the tide in a major, major way on a voluntary basis,” the official said of the drug companies’ actions, promising that the administration will take aggressive action.
In the meantime, the White House isn’t ruling out more Twitter shaming.
“You’ll see continuing of the tweeting and announcing different actors doing good or bad things in the market,” the official said.
That will get particularly tricky for the industry come January, when drugmakers would typically take their biggest price increases of the coming year — and when their public concessions sunset.
“They can live with the changes that were made — but they can’t live with not raising prices forever,” Gal said. “It’s a noose they put their head into. In January, we will see what happens with that noose. Does it tighten or not?”