In a little more than 24 hours, through public shaming and a phone call with Pfizer CEO Ian Read, President Donald Trump convinced the U.S. drug giant to reverse dozens of July price increases—at least temporarily. The extraordinary move signals that pharma players are willing to cede to the president, even as Pfizer and Read have previously resisted limits on their pricing power.
Pfizer announced on Tuesday that it would roll back July 1 price hikes—it raised stickers on about 40 drugs, many by more than 9%—until the administration has a chance to implement its drug pricing blueprint. The company said it will return prices to their levels before July 1 “as soon as technically possible.”
Pfizer was essentially asking for it, not only with these increases but also with its resistance to pressure previously, one analyst said. In a note to clients, Goldman Sachs’ Jami Rubin and her team wrote that Pfizer’s hikes “represented a calculated risk in our view that did not succeed.” The analysts point out that many drugmakers have committed to only raising prices once per year. Pfizer has not.
It’s important to note that the rollback is only temporary. Pfizer says it will only raise them again when that blueprint goes into effect, or at the end of the year, whichever is sooner.
The Pfizer backlash began in the media, but the president made it official on Monday, tweeting that Pfizer and other drugmakers “should be ashamed” of their price hikes. The tweet came about a week after news that the company raised stickers on dozens of drugs, including best-sellers Viagra and Lyrica.
“They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere,” Trump wrote.
HHS Secretary Alex Azar also tweeted out an ominous message: The companies that “increased prices will be remembered for creating a tipping point in US drug pricing policy. The President’s noticed, I’ve noticed, and more importantly, the American people noticed. Change is coming to drug pricing, whether painful or not for pharmaceutical companies.”
Trump and Azar went directly to Read. And after an “extensive discussion,” Pfizer said it was backing down. In a statement, Read said the company is “encouraged that the President recognizes the value our industry brings to society and our ability to fulfill our mission to discover and bring innovative new medicines to patients.”
Pfizer’s increases may have angered the president because they belied his May 30 promise of “major” price reductions from Big Pharma in about two weeks. So when a big drugmaker like Pfizer decided to go the other way, he had an easy target.
Pfizer is among the Big Pharmas that hasn’t promised to limit its price increases as the heat on drugmakers intensified over the last few years. Some have pledged a 10%, once-a-year limit, while others, including Sanofi, have set healthcare inflation as their top bar.
Allergan CEO Brent Saunders started the pricing pledge trend back in 2015 with a manifesto on pharma’s “social contract.” He committed to once-per-year increases below 10%. Since then, many drugmakers have gotten on board with the pledge.
The Pfizer CEO has taken a different stance. Early last year, he said in a Reuters interview that the company has “always priced responsibly,” so he doesn’t “need to make that commitment.” He’s also argued that pharmaceuticals bring great value to the healthcare system, and that the industry has faced a reputation problem in the U.S. due to price hikes from Valeant, Mylan and Martin Shkreli’s Turing Pharmaceuticals.
Pfizer’s pricing reversal could represent a form of pharma price controls, according to Rubin. But she wrote that the more “realistic outcome” from the development “will be that companies will have to be even more conservative with their next round of price increases, and a 2nd round will essentially become verboten.”
Wells Fargo analyst David Maris has been writing for months that his team believes pharma is underestimating pricing and political risks. He wrote on Wednesday that Pfizer’s retreat is an “admirable step” and that pricing scrutiny is intensifying in Washington, D.C. He said the move will likely have a “chilling effect” on other drugmakers planning price hikes.
Pharma isn’t alone facing scrutiny, though. Maris pointed out that the entire supply chain is under examination from the administration and Congress.
Trump and Azar presented their drug pricing blueprint in May. The plan seeks to boost negotiations and competition, provide incentives for lower list prices and help lower patients’ out-of-pocket costs. It doesn’t propose major changes such as direct Medicare negotiations or importation. After the announcement, many experts and industry watchers said the plan won’t bring major changes to pricing right away. Maris, for his part, wrote that the administration is “actually trying to address some of the root causes of price inflation and lack of affordability.”