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High drug prices driven by profits, House committee reports find

Aggressive pricing strategies target the U.S. market, according to reports from Democrats on the House Oversight Committee.
Bristol Myers Squibb CEO Giovanni Caforio testifies by videoconference during a hearing on unsustainable drug prices in Washington on Wednesday.Greg Nash / Pool via AP
/ Source: Kaiser Health News

Enormous drug company profits are the primary driver of soaring prescription drug prices in America, according to a damning investigation that Democrats on the House Oversight Committee began releasing Wednesday.

The first two reports in the investigation focus on Celgene and Bristol Myers Squibb's Revlimid cancer treatment, the price of which has been raised 23 times since 2005, and Teva's multiple sclerosis drug Copaxone, which has risen in price 27 times since 2007.

The costs have little to do with research and development or industry efforts to help people afford medication, as drug companies often claim, according to the inquiry.

"It's true many of these pharmaceutical industries have come up with lifesaving and pain-relieving medications, but they're killing us with the prices they charge," Rep. Peter Welch, D-Vt., said as the hearings began Wednesday. He added, "Uninhibited pricing power has transformed America's pain into pharma's profit."

The top Republican on the committee, James Comer of Kentucky, called the investigation a partisan attack. "These hearings seem designed simply to vilify and publicly shame pharmaceutical company executives," Comer said.

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Much of the drug industry's profits come at the expense of taxpayers and the Medicare program, say the reports, which say that they are used to pay generous executive bonuses and that they are guarded by aggressive lobbying and efforts to block competition, regulation or systemic change in the United States while the rest of the world pays less.

"The drug companies are bringing in tens of billions of dollars in revenues, making astronomical profits, and rewarding their executives with lavish compensation packages — all without any apparent limit on what they can charge," committee chair Carolyn Maloney, D-N.Y., wrote in a letter attached to the first two staff reports.

Rep. Elijah Cummings, D-Md., a former chair of the committee who died last October, launched the investigation more than a year ago. It has produced more than a million documents. CEOs of Teva Pharmaceutical Industries, Celgene and Bristol Myers Squibb were testifying Wednesday.

Officials of Amgen, Mallinckrodt Pharmaceuticals and Novartis were scheduled to appear Thursday.

Celgene CEO Mark Alles verified the accuracy of the documents obtained by the committee but stuck with the standard explanation that the company's pricing is entirely aboveboard and merited.

"The pricing decisions for our medicines were guided by a set of long-held principles that reflected our commitment to patient access, the value of a medicine to patients in the health care system, the continuous efforts to discover new medicines and new uses for existing medicines and the need for financial flexibility," Alles said. He said that in 2018, Celgene "committed to full pricing transparency by limiting price increases to no more than once per year," pegged to national health expenditures projected by the Centers for Medicare & Medicaid Services.

Teva CEO Kåre Schultz declined to address specific questions about much of the report, saying he took over only in 2017, in part to repair a company suffering after its Copaxone patent finally expired.

He also sounded the familiar refrain that prices are justified by research costs.

"In order for any pharmaceutical company to research and develop new drugs, or improve old ones, the price of successful medicines must reflect the significant cost of ongoing research and development projects," Schultz said. "The public only sees and pays for the drugs that are ultimately approved by the government, like Copaxone, but you have to expend a lot of resources and endure many disappointments before bringing to the market safe and effective medicines."

Maloney's letter called the exorbitant price hikes for vital drugs "simply unsustainable" and said she hopes the investigation spurs change.

Several themes common to pricing practices emerge in both reports, particularly aggressive pricing strategies that depend on the U.S. market and are divorced from the underlying costs of manufacturing or development.

In the case of Revlimid, Celgene hiked the price from $215 per pill to $719 per pill when Bristol Myers Squibb gained the rights to it last year. The drug now costs $763 per pill, or $16,023 for a monthly course — more than three times the original cost in 2005.

In the case of Copaxone, Teva raised its price from less than $10,000 for a yearly course in 1997 to nearly $70,000.

Such price hikes have been predictably profitable. Teva has banked more than $34 billion in net profits in the United States alone, while Revlimid spun off $32 billion from the United States from 2009 to 2018 for Celgene. Medicare paid $17.5 billion for Revlimid from 2010 to 2018.

According to emails released with the reports, executives raised prices at will to meet quarterly profit goals, unrelated to costs. In one such case in 2014, Alles, who was Celgene's executive vice president at the time, ordered up price hikes simply to juice flagging first-quarter numbers. "I have to consider every legitimate opportunity available to us to improve our Q1 performance," Alles wrote. The first of two hikes was carried out less than a week later.

The investigation also undercuts the pharmaceutical industry's claims that increased rebates, discounts and fees paid to pharmacy benefit managers drive prices. In the case of Revlimid, the largest discount Celgene ever paid in the commercial market was 5 percent, and the drug's average net price after rebates, discounts and fees rose every year. Celgene's Revlimid copay program cost just 0.16 percent of its net U.S. revenue from 2011 to 2018.

The average net price of Teva's Copaxone similarly spiked every year until 2017, when a generic finally hit the market. Indeed, while Teva touted its patient assistance programs as a cost driver and a way to help people afford the drug, internally it described the efforts as a marketing ploy that spurred sales. For instance, the $70 million Teva spent on "Private Insurance Financial Assistance" yielded a 451 percent return on investment, internal documents show.

The oft-mentioned R&D also doesn't account for costs. In the case of Teva, it's particularly glaring. Teva identified $689 million in development costs since 1989 — only about 2 percent of its U.S. profits from 2002 to 2019.

Revlimid stemmed from basic research done in government-backed studies of thalidomide and related compounds. Celgene swooped in after the research showed the promise of the compound that would become Revlimid. And as Celgene it justified price increases, its internal documents cited the value of the drug, not the costs to develop it. To prove the value, it cited numerous research studies, many of which were done by others, including the National Institutes of Health.

While offering spurious rationales for raising prices, the companies worked hard to protect those prices, the investigation found. The best-known are the aggressive lobbying tactics the pharma industry deploys.

But there are many others, including using the high cost of the drugs themselves as a deterrent by making it extremely expensive for generic developers to buy enough samples for their own studies. In one case, Celgene used a Risk Evaluation and Mitigation Strategy required by the Food and Drug Administration — which limits the distribution of risky drugs — to "prevent or delay 14 generic manufacturers from purchasing sufficient samples of Revlimid to obtain FDA approval," the report on Celgene said.

The single greatest step to curb prices, according to the report, would be to allow Medicare to negotiate prices. Both reports note how the companies highlight the noncompetitive U.S. market — specifically Medicare — as the means to ensure high profits.

For example, the report says, "internal Teva documents warned that the legislative reform that posed the greatest threat to Teva's future revenue was 'Medicare Reform: Removal of government non-interference.'"