Pharma Won't Be Able to Delay Drug-Pricing Reforms Much Longer: Bruce Japsen

This morning, Chicago Tribune health-care business writer Bruce Japsen makes some solid, and objectively verifiable, observations -- about the efforts of pharma, generally, and PhRMA, particularly -- to avoid fairer negotiations on pricing, and to avoid the fairer re-importation of brand name drugs. Do go read it all, but let's listen in, here [emphasis supplied]:

. . . .Some experts believe that imported brand-name drugs could be priced more like generics, which are generally 50 percent to 80 percent cheaper.

Supporters of importation say it makes no sense for U.S. consumers to pay more for the same pills made in countries where U.S. companies have foreign-based manufacturing plants that meet Food and Drug Administration standards. The difference in pricing can reflect lower wages paid in countries such as Ireland and India. . . .

So far, the FDA under Bush has blocked importation, and Congress has not changed the law to allow drugs to be legally moved across U.S. borders, with the effort largely bogged down in the Senate, where Democrats had held a one-vote majority.

Since the Democrats gained more congressional seats in the election, the pharmaceutical industry is preparing for battle.

"Clearly, we are getting prepared for anything and everything next year," said Ken Johnson, senior vice president of [PhRMA] the industry trade group, which has opposed allowing Medicare to negotiate directly with drug firms.

"The government does not negotiate prices, it dictates prices, and that impairs our companies' ability to be innovative with the ability to develop life-saving medicines. In the end, the real losers are patients."

One area where Congress and the Bush administration had been making progress was legislation to allow competition from lower-price versions of biotech drugs. . . .

First, contrary to Ken Johnson's PhRMA spun-sound-bites, the government does not dictate pricing. Mr. Johnson is simply suffering from the dementia induced by 30 years of not having to negotiate with "aggregated" large customers. This is precisely why pharma so fears group purchasing organizations -- pharma will no longer have a commanding negotiating hand -- at least as to price. And that will be good for the insurers, and eventually, all the uninsured patients -- even if universal coverage does not come to pass. Mr. Johnson has gone all "high-dungeon" -- over very little actual substance, here.

Next, Mr. Johnson once again offers the cannard that lower prices will be the death-knell of American pharma's innovation engine. Not one credible shred of evidence exists for this proposition. In fact, many innovative drugs come from Israel, Europe and from India, all places where drug prices (as Mr. Japsen correctly notes) average 50- to 80-percent of US price-levels. Innovation will be fine, Mr. Johnson. Serve us some steak with your sizzle, please.

Now -- my rather-belated Schering-related punchline(s), here: consider what will happen to Schering's margins, as the Obama Administration really gets into high-gear on even relatively modest health-care reforms, like allowing re-importation.

Schering, according to Credit Suisse, receives over 70 percent of all its revenue outside the US (at obviously lower margins than inside it). What happens when effectively 100 percent (or darn near it) of all Schering drugs are priced like Euro-drugs? That's exactly right: collapsing gross margins.

This effect is independent of, and before, the howling currency headwinds. This is also before we consider that US (state-by-state) formularies and Medicare and Medicaid are likely to seek price concessions from the Cholesterol Franchise -- that is, steep discounts, for the simple priviledge of keeping Vytorin and/or Zetia above Tier 4 -- off of the much-dreaded list that requires central office written pre-approval, before sale, for reimbursement.

In 2009, there is a strong probability that Schering's US margins will be slashed -- due to a confluence of most of the above factors. Chief among these will be having to once again compete on the "efficiacy for the price" dimensions -- a playing field on which Schering has long been a no-show -- since at least the waning days of Kogan's reign, in 2002 (think Claritin).