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MERCK AND COMPANY

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Drugmaker CEOs Testify Before Senate on Pricing -2-

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02/26/2019 | 04:46pm EDT

Sen. Bob Menendez, a Democrat from New Jersey, where many drugmakers are located, asked the executives whether their companies lowered the price of their drugs as a result of the tax overhaul that went into effect in January 2018.

None of the companies said the tax overhaul directly led to the companies decreasing drug prices. Several said they used the tax benefits on other things, such as investing in research and development. Mr. Bourla said that prices went down in 2018, which was likely a reference to the company's average net price of Pfizer's portfolio of drugs.

--Jared S. Hopkins

The Criticism Starts

Mr. Grassley kicked the hearing off with an opening statement that took issue with how drug companies have, in his view, shirked responsibility for growing cost of medicines. "Most members of Congress are sick and tired at the blame game," he said.

Next up was Mr. Wyden, who criticized the companies one by one.

He began with Abbvie Inc., and how Chief Executive Richard Gonzalez's compensation package is tied to sales of top-selling rheumatoid arthritis drug Humira. "AbbVie protects the exclusivity of Humira like Gollum with his ring," a reference to a character in J.R.R. Tolkien's Lord of the Rings novels.

Mr. Wyden awarded Pfizer Inc. "first prize for emptiest gesture on pricing" in 2018 for temporarily freezing planned price increases after criticism of the company by President Trump only to increase some drugs earlier this year.

On Merck & Co., Mr. Wyden criticized the company for announcing price cuts last year of drugs that provided "essentially no revenue" while leaving unchanged some of its top-sellers, including cancer drug Keytruda.

He said Sanofi S.A. was "wringing more and more cash out of people with an incurable disease," and was critical of how the drugmaker has priced its insulin products that are used by diabetic patients.

Then, Mr. Wyden called out how AstraZeneca's Mr. Soriot once said his $12 million annual salary made him, "the lowest-paid CEO in the whole industry" which Mr. Soriot said was "annoying."

For Johnson & Johnson, Mr. Wyden referenced the company's price increases earlier this year, just days after Chief Executive Alex Gorsky said the industry should self-police on pricing.

Finally, Sen. Mr. criticized Bristol-Myers Squibb for spending more than three times on dividends, stock buybacks, marketing, sales and administrative costs what it spent on research and development in 2017.

--Jared S. Hopkins

A Risk to Research

Responding to a question from Sen. Pat Roberts (R., Kan.) about what keeps him awake at night, Merck & Co. CEO Ken Frazier responded he is worried about the elimination of a "predictable market" that allows for capital to be invested -- and risked -- to develop drugs. ( Recent research from Massachusetts Institute of Technology found that just 14 percent of drugs in clinical trials eventually reach approval by U.S. regulators).

Mr. Frazier said he is concerned that when issues in drug pricing lead the public to think there needs to be "outrageous solutions" -- perhaps a reference to government price controls -- the future development of drugs could be jeopardized.

--Jared S. Hopkins

A Pointed Question From Wyden

AbbVie's Mr. Gonzalez said the drugmaker earns a profit on sales of its drugs in other countries even though drug prices are lower than in the U.S.

If that's the case, Mr. Wyden asked, why can't AbbVie charge lower prices in the U.S.?

"The fundamental issue is this: our system is built around a variety of pricing around the world," Mr. Gonzalez said. "The overall system supports our R&D model. If a market the size of the U.S. were to collapse to the lower end of that pricing model I can just tell you AbbVie would not be able to invest in R&D at the level it is today."

--Peter Loftus

Yes, But...

Sen. Grassley asked all seven executives if they consider public outcry when pricing a drug. All seven executives said they do, while several hastened to add they consider other factors.

None, however, admitted to considering the potential of a congressional investigation when pricing a drug.

--Charley Grant

The Criticism Starts

AstraZeneca Dangles Prospect of Steep Price Cuts

AstraZeneca's Mr. Soriot told senators that the company would be prepared to reduce its list prices by an equivalent amount to the behind-the-scenes discounts that it offers insurers and other middlemen, less the fees attached to them. That would be an extraordinary cut in prices.

Still, that promise would only hold under sweeping changes to the drug-pricing system, according to his testimony. Currently, the rebates the drug companies offer to insurers are a key part of their negotiating leverage. In the absence of such changes, Mr. Soriot said he supported a policy switch that would direct some of those rebates to funding a cap on out-of-pocket costs for patients.

--Denise Roland

High Interest From the Public

Demand for seats from the general public at today's hearing is much greater than the supply. Members of the public began lining up outside the Senate office building more than 90 minutes before the hearing was set to begin. For the vast majority of them, the waiting was for naught.

--Charley Grant

Merck Weighs In on Competition From Generic Drugs

Merck & Co. supports eliminating the use of drug company co-pay coupons when a branded drug faces generic competition, according to prepared remarks from Mr. Frazier, its chief executive.

"This slows the use of generics and violates the spirit of the Hatch-Waxman drug price competition law," Mr. Frazier said, referring to the 1984 landmark federal law that established modern generic drug regulation.

Health plans might steer patients to generics with lower copays, so manufacturers of branded drugs may try to counter this with copay coupons that bring down the price for patients. Drugmakers regularly provide the assistance, a practice that health plans combat using so-called "copay accumulator" programs. The accumulator programs limit the assistance applied toward a patient's deductible.

Some research has found coupons increase branded sales by more than 60%, through reducing generic sales, and that during five years following the entry of a generic, coupons increase total spending by consumers and insurers up to $120 million per drug.

In his prepared remarks, Mr. Frazier also said Merck supports ways to encourage generic competition, including a version of the Creating and Restoring Equal Access to Equivalent Samples Act, or CREATES Act, that has been re-introduced by Mr. Grassley and Sen. Patrick Leahy (D., Vt.). The legislation is designed to address several strategies that branded manufacturers use to deny samples of its drugs to generic companies looking to develop cheaper alternatives. In the past, the branded-drug industry had been opposed to the CREATES Act.

Addressing the slow development of the U.S. biosimilar market, Mr. Frazier said that Renflexis -- its biosimilar product to Johnson & Johnson's Remicade that launched some 18 months ago -- holds just "a tiny fraction of the market" despite launching at a 35% discount to the price of the J&J drug. Biosimilars, cheaper versions of branded biologic drugs, have faced an uphill climb unseating incumbents in the U.S.

Frazier said that Merck has a history of "responsible pricing." He said from 2010 to 2017, the company's average net price increase across its portfolio each year was in the low to mid-single digits, and that in 2017 fell by almost 2%. That same year the average discount for its medicines was more than 45% lower than the list price.

--Jared S. Hopkins

AbbVie CEO Mum on Humira Pricing in Prepared Remarks

AbbVie's Mr. Gonzalez is expected to propose changes in the Medicare Part D prescription benefit design to limit patients' out-of-pocket costs.

But in prepared remarks for his appearance at Tuesday's hearing, Mr. Gonzalez provided few details about AbbVie's own pricing practices.

His three-page statement makes no mention of the company's rheumatoid arthritis drug Humira -- the highest-selling drug in the world -- whose price AbbVie has raised repeatedly this decade.

Mr. Gonzalez argued in favor of passing on to patients the rebates that drugmakers like AbbVie pay to Part D plan administrators. Drug companies have said these rebates keep net pricing growth lower than list price growth, but that industry middlemen don't always pass along the savings to patients.

AbbVie is "prepared to step up and discuss how companies like ours can shoulder more of the burden of a patient's out-of-pocket expenses, as we do in other areas covered by commercial insurance," Mr. Gonzalez said in the prepared remarks. He said the government should also consider allowing Part D patients to purchase insurance to cover more of their out-of-pocket costs.

Mr. Gonzalez touted AbbVie's pricing of the hepatitis C drug Mavyret, which carries a lower list price than some competing drugs.

He is likely to face questions from senators about Humira. AbbVie has obtained dozens of U.S. patents that it expects will keep competing copycat versions of Humira off the U.S. market until about 2023, two decades after the drug's introduction. Critics have said AbbVie abused the patent system by taking out so many patents, but AbbVie has said it is protecting its investments in an innovative drug.

--Peter Loftus

Johnson & Johnson Details Price Increases

Johnson & Johnson said Tuesday it provided about $21 billion in discounts and rebates for its prescription medicines in 2018, amounting to a 47% reduction from its list prices.

(MORE TO FOLLOW) Dow Jones Newswires

02-26-19 1645ET

Stocks mentioned in the article
ChangeLast1st jan.
ABBOTT LABORATORIES -1.38% 81.65 Delayed Quote.14.46%
ABBVIE 1.10% 77.3 Delayed Quote.-17.06%
JOHNSON & JOHNSON 0.25% 128.02 Delayed Quote.-1.05%
MERCK AND COMPANY -0.19% 84.52 Delayed Quote.10.82%
PFIZER 0.00% 36.46 Delayed Quote.-16.47%
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Financials (USD)
Sales 2019 45 909 M
EBIT 2019 15 667 M
Net income 2019 10 952 M
Debt 2019 19 843 M
Yield 2019 2,60%
P/E ratio 2019 20,3x
P/E ratio 2020 16,9x
EV / Sales2019 5,15x
EV / Sales2020 4,80x
Capitalization 216 B
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Kenneth C. Frazier Chairman, President & Chief Executive Officer
Robert M. Davis CFO & Executive Vice President-Global Services
Sandy Tremps Vice President-R&D IT CIO
James H. Scholefield Chief Information & Digital Officer
Thomas Henry Glocer Independent Director
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