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Pharmaceutical giant Pfizer vowed today to stop the time-tested habit of jacking up the list prices of its drugs each year and indicated it would also lower the prices of some of its products, such as the breast cancer drug Ibrance. The announcement came as the company is under scrutiny for its proposed merger with the company Allergan, which critics have alleged is a way for the company to save billions of dollars in taxes by relocating its headquarters abroad.
In a press release, the company said that over decades, list price increases ranging from 5 percent to 20 percent per quarter have caused total price increases of over 50 percent for many medications above their initial launch price. Last quarter alone, the company increased the list prices for 105 treatments.
“For many years, we have calculated our initial drug prices by linking them to high research and development costs or to their market value. We have also had a policy of increasing prices over what is needed to stay above inflation,” Pfizer chief executive Ian C. Read said in a statement. “Our new analysis reveals that these price increases have made many of our products inaccessible, so we are planning to walk prices back toward a more reasonable figure.”
Increasing the list price of brand name drugs is a standard practice in the industry. Richard Evans, of investment firm SSR Health, has estimated that until very recently, such price increases have been fundamental to the industry's business model. But he has also noted that more recently, as pharmacy benefit companies have negotiated more aggressively, the real increases in how much insurers and patients are paying for drugs has fallen.
In a research note last September, Evans wrote that even as list prices have continued to increase, the actual prices paid for drugs after rebates and discounts are negotiated grew just 0.7 percent in the second quarter of 2015, compared with 4.4 percent a year earlier.
That means the move may have less impact than it would have a few years ago, but may be part of a larger discussion and re-evaluation of how to price drugs. Some companies are experimenting with attempts to link a drug's price to its value. Pfizer also said it would reassess how it determines prices in the first place.
Pfizer and Allergan revealed Wednesday that officials at the Federal Trade Commission had requested information about the pending merger.
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