An 18-month investigation into how Gilead Sciences arrived at then-record prices of $84,000 and higher for its sofosbuvir-based Hepatitis C medicines. The Senate investigation found that the company considered the remarkable effectiveness of the medicine whose rights it had purchased, looked closely at what the market would bear, and set the highest price it thought it could get away with.
In 2015, the U.S. Senate Finance Committee conducted
Gilead’s executives bolstered themselves for criticism. Once the drug was released, one company vice president offered a pep talk in an internal email. “Let’s hold our position whatever competitors do, or whatever the headlines,” he wrote in late 2013. “Let’s not fold to advocacy pressure in 2014.” They did remain steadfast, and that strategy combined with the take-it-or-leave-it nature of monopoly protection paid off: In the 21 months after the hepatitis medicines were introduced, the company collected $20.6 billion in revenue for them, fueling a breathtaking corporation-wide profit margin of nearly 50%.
The Wall Street Journal published an inside account of how Pfizer executives decided to set the price of a new breast cancer drug. As their Gilead counterparts did, Pfizer’s team ignored research and manufacturing costs, instead focusing on discovering the maximum price that insurers would be willing to pay, and at what price level physicians would balk at prescribing the drug. Worried about the intimidating nature of a $10,000 per month cost, Pfizer settled on the same approach that cause microwave ovens and flat-screen TV’s to so often carry price tags ending with 99 dollars or 99 cents. Executives decided that the new breast cancer drug would be sold at $9,850 a month.
Frances Leath no longer works in management for pharmaceutical industry giant Eli Lilly. After going back to school to complete her MBA at Cornell’s Johnson Graduate School of Management, Leath moved to Lilly’s business development and strategic planning division. In that role, she worked directly with senior management. In her decade and a half with Lilly, she had received regular promotions, a six-figure salary, and annual bonuses averaging more than $30,000. She had every indication that those numbers would only continue to rise. Yet, for the granddaughter of a United Methodist minister and chair of Staff Parish of her own Methodist church in Indianapolis, money could no longer keep her in the Lilly fold. “I was struggling, both emotionally and physically,” she says. “I felt like I was participating in things that conflicted with being a Christian.”
In clinical trials, its Xigris product was proving to be effective at treating severe sepsis, a complication from infection that was killing 225,000 people each year with no approved drug to fight it. Just two months after Prozac lost its U.S. patent, the Food and Drug Administration gave Lilly the green light to sell Xigris. The timing could not have been better. “Xigris may be just what the doctor ordered for Lilly,” the Wall Street Journal reported in September of 2001.
Lilly leadership had spent several months discussing a potential price for Xigris. Leath recalls a preliminary consensus forming around a price of about $500 per dose. That was no bargain: $500 was a hundred times more than the company’s manufacturing cost and at the higher range of the medicine’s class. But, with Prozac sales plummeting and the medical community’s excitement about Xigris rising, that price began to seem inadequate. “All of a sudden, the price everyone talked about was $10,000 per dose,” Leath says.
Leath was stunned at the internal discussion of a $10,000 price for Xigris, which would make it the most expensive medicine on the market. When she realized that the only ones sharing her concern were colleagues in middle management, she raised her objections to her boss. The new price could not be justified by research or manufacturing costs, Leath said, even with a healthy profit added in. Her boss replied that justification based on company costs was irrelevant. “If Grandma is on the table, no one is going to blink at paying $10,000 to save her life,” he said. It was a phrase that came to be repeated in the Lilly executives’ pricing discussions from then on: “If Grandma is on the table . . .”
Raulo S. Frier, vice president of clinical services at pharmacy benefits manager Express Scripts Inc., told the Wall Street Journal much the same thing. After the rumored $10,000 cost for Xigris became public--the drug would eventually be priced at $6,500--Frier was among many in the medical community who said there would be no choice but to meet Lilly’s demands. "A lot of hospital pharmacy directors are going to be hyperventilating over the cost," Frier said. "But they will be under a world of hurt if they don't use it."
To Leath, the lesson learned from her experience in the pharmaceutical industry is that its leaders are now laser-focused on profits, along with the stock prices, salaries, and bonuses that are tied to them. No one should expect those executives to voluntarily restrain themselves from price-gouging on a lifesaving medicine they hold the rights to.
“I’ve concluded that there are some drugs that simply do not belong in the hands of a for-profit company,” she says. “They are driven by motivations that have nothing to do with the health of patients.”
https://www.commondreams.org/views/2019/07/01/if-grandma-table-no-one-will-blink-price-former-drug-company-manager-explains
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