Drug industry adopts bunker mentality

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The drug industry is going on the warpath after a year of bad headlines and stinging criticism from both parties.

When hundreds of drug company executives gathered in Washington last week, they repeatedly heard the same warning: We are under siege.

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“Our industry has become an easy political target,” Kenneth Frazier, the president and CEO of Merck & Co., said in remarks for the annual conference held by the Pharmaceutical Research and Manufacturers of America (PhRMA).

The room remained silent as Frazier spoke with frustration about the “bad actors” he said have tarnished the industry’s image over the last year.

Frazier didn’t name names, but it was clear he was referring to the price-inflating tactics of both Valeant and Turing Pharmaceuticals, the latter of which has been defined by the unpredictable behavior of Martin Shkreli, its former CEO. Shkreli was criticized for appearing dismissive of lawmakers during testimony to a House panel last month.

While PhRMA represents neither company, the public uproar over their pricing practices has created problems for the industry at an important time.

Both parties’ leading presidential candidates — Democrat Hillary ClintonHillary Rodham ClintonTrump postpones Hispanic roundtable California governor: Clinton should be worried Labor leader: Clinton told me NAFTA should be renegotiated MORE and Republican Donald TrumpDonald TrumpTrump postpones Hispanic roundtable 'USA Freedom Kids' creator plans to sue Trump campaign California governor: Clinton should be worried MORE — have vowed to crack down on high drug prices. Clinton’s plan against “profiteering” companies would impose monthly caps on consumer costs and limits on company advertising. Trump would allow drugs to be imported and has hinted at government negotiation in Medicare drug pricing. 

Frazier, who leads one of the world’s largest biotech companies, said the “understandable outrage” at a few individuals is leaving the industry vulnerable to political attacks that could hurt entire companies down the line. 

“We’ve seen politicians from both sides of the aisle singling out our industry as the source of the problem,” he said. Then he warned: “It could very well shape the policy environment that we operate in.”

Minutes after Frazier’s speech, PhRMA’s new leader, Steve Ubl, came onstage and vowed that his group had “to go offense” to make clear the complex truths about drug pricing.

Ubl singled out Clinton for her tweet about drug pricing that he said prompted the industry’s market value to immediately drop $132 billion. But Ubl also suggested that his industry's rebuttal to the "myopic and misinformed" pricing debate wouldn't just be more hostile rhetoric. 

During his speech, Ubl unveiled a 10-page policy wishlist laying out priorities for federal regulations, like opening up data about drugs once they are in use and creating rules for patient adherence programs. Drug companies have long argued that those changes are needed to help drive down pricing.

It’s not the first time PhRMA has fought back since Shrekli began to make headlines last fall.

After weeks of remaining silent on the drug-pricing controversy, PhRMA began trying to correct the record about Clinton’s frequent attacks on Valent and Turing Pharmaceuticals.

In reporter briefings, PhRMA executives argued that health insurers, not drug companies, are forcing patients to shoulder more of the costs through higher deductibles and copays while also adding coverage restrictions. They argued that insurers have a stronger role in pricing because they determine what prices each patient will see on his or her bill.

One leading pharmaceutical consultant, ZS Associates managing principal Pratap Khedkar, said PhRMA has been too slow in trying to improve the industry’s image.

Khedkar, whose firm represents dozens of pharmaceutical companies, said insurers were “a lot more aggressive” than PhRMA in the controversy over the $1,000-per-pill hepatitis C drug Sovaldi.

While the drug has been criticized for its high cost and impact on state budgets, Khedkar noted that it also represents the first-ever cure for hepatitis C, which could eliminate billions of dollars in long-term healthcare costs, but that PhRMA failed to make it clear.

“This is the case that PhRMA has to make, and I don’t think they’ve made it very compellingly,” he said.

The Obama administration has sounded the alarm about the rising costs of drugs. Earlier this spring, the White House convened a daylong summit to address drug prices, inviting PhRMA executives, patient groups, insurers and providers.

Some Democrats, including Rep. Elijah Cummings (D-Md.), say it’s not just Turing and Valeant that are inflating their drug prices.

“These tactics are not limited to a few ‘bad apples.’ They are prominent throughout the entire industry,” said Cummings, the top Democrat on the House Oversight Committee. He cited a recent investigation that has produced more than 300,000 pages of internal documents from top drug companies, including several belonging to PhRMA. 

“These documents provide an insider’s view into how drug company executives are lining their own pockets at the expense of some of the most vulnerable families in our nation,” he wrote in a statement.

Just one day before the PhRMA conference, the Centers for Medicare and Medicaid Services (CMS) released a report that showed a 13 percent increase in drug spending. The Medicare agency also announced a major shift in payments to Medicare Part B drug costs.

Andy Slavitt, the acting head of the CMS, addressed the concerns about drug prices during a panel discussion with Frazier at PhRMA’s conference.

“This is America. We want to have our cake and eat it, too. We want innovation, but we also want to be able to afford it,” Slavitt said while repeatedly shying away from making specific policy recommendations.

Echoing a common PhRMA line, Slavitt said “there are a lot of things that happen” to a drug’s price after it is manufactured.

“There is a whole bunch of complexity. Nobody in the American public understands it,” he said. “We all have a difficult time understanding it.”

Updated at 11:41 a.m.