ViewPoints: Parsing industry’s immediate reactions to President Trump’s biopharma roundtable

Donald Trump’s decision to have a sit down discussion with biopharma executives this week suggests that change is coming – but what might this entail and will it be a net positive or negative for industry? The meeting took place just as quarterly earnings season opened up, meaning companies were inevitably asked for their thoughts on what to expect. Here are some of what was said by the likes of Eli Lilly, Merck & Co., Novo Nordisk, Pfizer and Roche.

In a general sense, Trump has made clear in statements on Twitter and to the media following Tuesday’s gathering that his primary concern is the “astronomical” price of medicines in the US. However, in an effort to make changes more palatable, he has indicated a willingness to pursue potential offsets like tax reform and a “streamlining” of the drug development process.

The fact is though that nobody is quite sure exactly how the president wants to go about achieving these goals, and he refrained from offering much in the way of specifics even in the non-character constrained environs of a post-roundtable press conference.

A prominent investor discussed his thoughts with FirstWord this week on what the new administration is really hoping to achieve, and how drugmakers can go about arriving at some constructive compromises, but what did companies themselves think of Trump’s comments and what changes could potentially be afoot? (See ViewPoints: The three arenas industry must find constructive compromise with Trump, according to buysider.)

It is clear that most companies are choosing to take an optimistic view of the situation, essentially pooh-poohing the possibility that Trump might pursue measures like freeing Medicare to negotiate Part D drug prices (let alone a more draconian form of centralised price controls) and instead focusing on the benefits that could be unlocked by slashing taxes and red tape.

Pfizer

Pfizer CEO Ian Read harped on the positive aspects of Trump’s remarks, such as his desire to drastically reduce regulation in a way that would allow shorter and cheaper development timelines, as well as the president’s consistent focus on bringing manufacturing – and ostensibly jobs – back to the US, which Read believes will be directly tied to lowering the corporate tax rate.

On the issue of drug prices, Read thinks changes in regulation to balance how much a patient has to spend out-of-pocket on drugs compared to a hospital visit, which he estimated as being 15 percent of the bill versus 3 percent, would be one step in the right direction.

“I think there are lots of ways [to impact drug prices], like changing regulations to allow value-based contracting between the industry and the health system, will also be very helpful. We have a regulation that was created for fee-for-service, and now we need regulations in a new world of value-based pricing. So I think there's lots of ways we can work with the administration to ensure that patients have affordable drugs – or more affordable drugs in the United States,” he said.

Merck & Co.

Kenneth Frazier, CEO of Merck & Co., was upbeat about the meeting with Trump, which he was in attendance for and characterised as being focused first and foremost on creating jobs and reducing the burden on patients. “We also are very concerned about the whole issue of pricing and affordability for patients. It's a significant one. It's been amplified in this year's political season. We find it unfortunate that a lot of times the focus is on affordability and pricing rather than the long term benefit that these therapies provide,” he noted.

On the company’s quarterly earnings call, Frazier acknowledged that the issue of high drug costs is not going away, but he believes that innovation will continue to command premium pricing.

“We think that going forward we don't think these environmental pricing pressures will ease, and that's why we continue to focus on our strategy of investing in innovative R&D for products like Keytruda because we think those are the kinds of products that will help Merck weather some of the pricing risks and pricing pressures that we will be facing as an industry going forward,” Frazier remarked.

Eli Lilly

More so than some of its peers, Eli Lilly provided some additional colour about several of the president’s lines of questioning, particularly as they pertained to finding a way to start bending the cost curve.

“We touched on lots of things, tax, regulation, as well as the healthcare repeal/replace discussion. So there are a number of follow-ups that were cited that will be happening through staff and on the Hill with key members of Congress,” according to David Ricks, senior vice president and president of Lilly Bio Medicines, who also attended the meeting. “The specifics on timing and so forth I'm not at liberty to share here, but I was encouraged overall by the sense that there will be changes made, likely rapidly,” he added.

Trump is “interested in finding ways to reduce and streamline regulation, both at the FDA side but also in healthcare markets that the government plays a role in,” said Ricks. When it comes to drug prices, he added, “I think we all understand the concern he's raising and of course others are that consumer out-of-pocket costs seem to be growing and growing faster than other payers in the system and how we can do a better job as an industry of getting discounts through to consumers, particularly those in high-deductible plans and government programmes.”

Ricks also suggested Trump seemed to recognise that reining in drug prices is easier said than done, even for the companies themselves.

In fact, the biopharma executives used the meeting as an opportunity to outline for the president one of the key hurdles for tackling healthcare costs, which is finding a way to move beyond the deeply ingrained fee-for-service model and reducing the amount being spent on middlemen.

“In terms of pharmacy benefit managers specifically, that wasn't a centrepiece of the discussion with the president. Of course, pharma has recently put out some work just to put some facts into the picture in terms of what the total drug spend is in the nation and how much of that is innovative, generic, or going into the channel, if you will. I think it's available on their website if you want to look at it. That was referenced in the meeting, and I think it always does surprise people that fully one-third of spending in the U.S. is not going to manufacturers but going to other entities. I think the president was interested in that,” noted Ricks.

Novo Nordisk

Novo Nordisk, which was not reported to have had a representative in attendance at this week’s meeting, struck a more cautious tone when discussing the potential ramifications of Trump’s focus on the drug industry, and went so far as to trim its 2017 sales projections based on what it said was the “increasingly volatile” environment in the US, which only adds to the competitive headwinds for the diabetes specialist.

Jakob Riis, who heads up Novo Nordisk’s North American business, said that his takeaway from the Trump’s meeting is that centralised negotiations of Medicare drug prices is not the “centrepiece” of the administration’s plan, which is a positive, but the high level of uncertainty is unsettling.

“It's just a little unpredictable,” he noted, with characteristic Danish dry wit. “The Trump administration acknowledges pharma being an important sector, also a sector that drives jobs and represents innovation in the US. So I think it's more of a general uncertainty that I think we can point to something specific from the administration that would drive a downside,” he said.

As with Eli Lilly, Novo Nordisk also pointed to the need to evolve away from the current fee-for-service model of healthcare in the US. This will of course take some time, but the company noted it is at the forefront of progress in this arena thanks to the availability of objective and quantifiable benchmarks to determine if a diabetes drug is having its intended effect.

“In the medium-term, I think we're going to see that the payments for products are going to a much larger extent reflect the result delivered for patients. It means that we get a vested interest in also further investing in digital health in ways to help the patients achieve glycaemic targets, get support in the everyday diabetes care,” said Riis.

Roche

Given its headquarters in Switzerland, and the fact that a majority of its operations take place outside of the US, analyst questions for Roche were focused primarily on the potential impact of tax reform. Interestingly, the company is taking a far more cautious approach than several of its peers, and suggested that the changes may end up being a net neutral.

“When it comes to tax reform in the US, let me first say that I think we are great citizen in the US. I said we have roughly 40 percent of our sales in the US, and we have 40 percent of our operating costs in the US. We have invested billions there, we have significant manufacturing in the US,” noted CFO Alan Hippe, who added, “we are also a pretty significant tax payer.”

As far as the impact of tax reform, Hippe said it is too early to say anything too definitive but he believes there would be a lot of similarities with how a similar situation is playing out in its home country of Switzerland, where a tax reform package has been agreed upon by parliament and will be voted on in a public referendum this month.

“Perhaps I can draw a parallel to what happened in Switzerland,” according to Hippe, who suggested “the impact will be that we paid a same or a little bit more and why is that because a lot of loopholes – a lot of benefits for certain industries were scratched out and it all was brought down to a transparent and standardised system. And I think when you think about the US, I think that's perhaps something which might happen there as well.”

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