Regeneron Pharmaceuticals (NASDAQ:REGN) CEO Leonard Schleifer's frustration boiled over at Forbes Healthcare Summit in New York this week. The CEO called out his peers for driving their growth via price hikes rather than the launch of revolutionary new medicines.
"The real reason we're not liked, in my opinion, is because we as an industry have used price increases to cover up the gaps in innovation. That's just a fact," argued Schleifer during the conference's Pharma All-Stars: Restoring Pharma's Reputation panel.
Over the past few years, high-priced medicine has drawn widespread ire of payers, patients, and politicians. This anger has seemed to resonate more when it's been directed toward non-innovators that are padding their profit by acquiring old drugs solely for the purpose of jacking up prices ridiculously, or toward companies that have gotten far too comfortable expecting double-digit price increases year after year on their medicines.
Martin Shkreli became the poster child for the "buy-reprice-relaunch" scheme, but he was far from the only C-suite executive in biopharma to embrace growth strategies more reliant on price increases than new drug development.
Valeant Pharmaceuticals, for example, used the buy-reprice-relaunch business model to turn itself into one of the planet's biggest drugmakers and a Wall Street favorite. Mylan Inc. padded its sales and profit through a continuous stream of price increases on its life-saving EpiPen. Until recently, expectations for double-digit price increases to support growth were the norm throughout this industry.
In making his comments, Schleifer essentially throws the gauntlet down at the feet of his peers. What Schleifer appears to be saying is that if biopharma wants America to view them more kindly, then they need to earn it through successful drug development -- not unchecked price increases.
The innovation argument, however, wasn't applauded by everyone on the panel. Pfizer's CEO Ian Reed was quick to remind that drug prices as a percentage of healthcare expenses haven't moved much in the past 20 years.
Schleifer wasn't buying it.
"You're not entitled to a fraction of the GDP," retorted Schleifer.
The debate between these two big-time CEOs reflects an old school versus new school battle. Regeneron Pharmaceuticals is one of biotech's brightest shining stars. Since 2010, the company's shares have returned a jaw-dropping 1,043%. At the same time, patent expiration on Pfizer's $13 billion per year cholesterol drug Lipitor has weighed on its sales, profit, and share price. Over the same period, Pfizer's shares are up 123%.
Regeneron's performance has stemmed largely from the kind of innovation that Schleifer says is lacking in his industry.
In 2011, his company launched Eylea, a therapy that improves the vision of patients with a condition called wet age-related macular degeneration. A growing addressable patient pool as a result of aging baby boomers has turned Eylea into a $4 billion-per-year drug. Regeneron's share price has also increased because of other innovative drugs, such as the recently launched cholesterol-buster Praluent, as well as the rheumatoid arthritis drug sarilumab and the eczema drug dupilumab, both of which are currently awaiting an FDA decision.
Companies like Pfizer aren't sitting on their laurels, but it takes a lot of innovation to move the needle at companies that size. Pfizer's new cancer drug Ibrance is quickly reshaping patient care, but the company's return to growth in the post-Lipitor era has made it more dependent on price increases than its smaller and younger competitors.
Regardless, Schleifer's argument that growth through innovation is what's needed to restore pharma's reputation is a good one. Innovation benefits patients and investors more than inflation does, and it's far more likely that people will applaud new, game-changing medicines than they will price increases on drugs that work no better than they did five years ago -- when they were cheaper.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.
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