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Trade association seeks to separate its members from the ongoing drug-pricing controversy
Drug pricing debates would probably be occurring regardless of the political scene, but the ramped-up election cycle this year is bringing even more attention to the topic. PhRMA, the trade association that represents many of the branded-pharma companies in Washington, is seeking to dissociate its members from the fracas developing over Valeant Pharmaceuticals, whose stock has been pummeled first by questions of the sustainability of its business model, then by news of subpoenas being issued by federal prosecutors, and most recently by the actions of a high-publicity short seller, Andrew Left of Citron Research, who claims that Valeant is essentially cooking its books by selling some drugs to a specialty pharmacy that it may or may not own.
In an Oct. 22 blog post, Robert Zirkelbach, SVP, communications for PhRMA, wrote that Valeant, even though it sells branded products, is “different” from the innovator pharma companies that PhRMA represents. “Valeant Pharmaceutical’s strategy is more reflective of a hedge fund than an innovative biopharmaceutical company,” he wrote, noting that Valeant’s recent average of R&D spending is 3% of sales, as contrasted with the 20% figure of its members. “Unlike Valeant and Turing [another company recently in the news with claims of price gouging], innovative biopharmaceutical companies have R&D at the core — and the numbers prove it.” he goes on to cite other press reports that posit that Valeant, which has been acquiring pharma companies at a torrid rate for several years, and then generally cutting down their R&D programs while selectively “repricing” drugs to significantly higher levels, can be likened to a special purpose acquisition company (SPAC)—essentially a shell to hold acquired properties.
Zirkelbach’s stance is notable for one part of the pharma industry casting stones at another part—high prices are an endemic issue for the industry. But it’s also something of a sideswipe rather than frontal attack: R&D all by itself is at best a cloudy differentiator between the companies performing marketing branded products and those selling generics only, or some combination of the two. Some PhRMA members have generic divisions; some generic companies are developing innovator products. The ongoing biosimilars evolution, with some innovator companies also preparing to offer bioisimilar products, further muddles the picture. The distinction between “high R&D” and “low R&D” could also be cast as “high marketing expense” and “low marketing expense” (branded pharma companies’ marketing dollars are roughly commensurate with their R&D dollars)—but that’s a slim defense for high drug prices.
On the other hand, PhRMA’s position fits neatly, in an unexpected way, with one of the proposals of presidential candidate Hillary Clinton, who, among other things, suggests that pharma companies pay a rebate back to government if their R&D investments fall below an agreed-on level. (Many of the other presidential candidates have been critical of drug pricing, but they haven’t put forward comprehensive positions on the issue.) One thing’s for sure: the debate between drugmakers and payers, as well as the judgment of Wall Street on drug companies’ prospects, will be intensified in the coming year.