During the JPMorgan Healthcare Conference in San Francisco this month, Business Insider posed a hypothetical question to drug company executives: How would your job be affected if annual — or sometimes biannual — price hikes were not standard practice?
The discussion included executives from Eli Lilly, Horizon Pharma and Abbvie, among others.
Here are four ways drug executives responded.
1. Prescriptions drive growth — not price increases
Some drug executives said the change wouldn't affect their jobs or their companies since growth is largely driven by volume of prescriptions, rather than price increases.
2. Price hikes support innovation
Without price hikes, drugmakers would be forced to cut budgets for research and innovation, some industry leaders said. Routine price increases also keep investors interested in supporting research for new medications and treatments.
"There's a wellspring of innovation that needs to be fed coming out of the academic community in order for us have the foundation to build up the therapies of tomorrow," Scott Brun, head of AbbVie Ventures — the drugmaker's venture arm — told Business Insider. "You need people willing to invest in that, or they're going to invest in something else."
3. Drugmakers would just set initial prices higher
Other leaders argued companies would simply set higher initial prices on drugs to account for a lack of price hikes. The drug industry needs to pay more attention to where they initially set drug prices, said Sean McCarthy, CEO of CytomX.
4. Price hikes mainly benefit middlemen
Many drug executives highlighted the disconnect between rising list prices and declining or similar net prices and pointed out issues within the pharmaceutical supply chain. They said drug companies don't make a profit on price hikes since middlemen like pharmacy benefit manufacturers or distributors take a portion of the profits. Eliminating price hikes without making any other changes to the drug supply chain would lead to profit eroision for drugmakers, executives argued.
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