Drug firms fighting ‘tooth and nail’ 2016 10 26 IBJ .pdf
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Drug firms fighting ‘tooth and nail’ against
California ballot measure
October 26, 2016
Drugmakers are becoming increasingly vocal in fighting a California ballot proposition on drug prices,
concerned that the more $100 million in funding raised by lobbies opposing the initiative won’t be enough to
“We’re fighting that tooth and nail,” said John Lechleiter, CEO of Indianapolisbased of Eli Lilly and Co., on
Tuesday during the company’s quarterly financial call.
Merck & Co. CEO Ken Frazier also spoke of his “serious concerns,” warning on his company’s earnings call
that the law would “negatively impact millions of patients.”
Known as Proposition 61, the initiative intends to bring down the cost of prescription drugs by prohibiting
California state agencies, such as MediCal and state prisons, from paying more than the price paid by the U.S.
Department of Veteran Affairs. While MediCal, the state health program for the poor, already can negotiate
with drug companies, the national VA typically gets the best deal. VA rates may be about 20 percent lower than
Medicaid’s, according to Piper Jaffray analyst Joshua Schimmer.
The pharmaceutical industry has been under fire for how it prices its medications, with Mylan NV’s $600
EpiPen pack and Turing Pharmaceuticals AG’s 50fold increase of an antiparasitic’s price in the national
spotlight. Highprofile politicians also have weighed in: Hillary Clinton, the Democratic presidential candidate,
has pledged to crack down on what she has called outrageous drug costs. Vermont Senator Bernie Sanders, who
has lambasted specific drugmakers for their pricing practices, supports Proposition 61.
Opponents argue that the initiative won’t work as intended because drugmakers wouldn’t be required to offer the
drugs at the VA price, meaning they could decline to offer California agencies some treatments, or raise the VA’s
current drug prices. The law would apply only to about 25 percent of MediCal enrollees who are part of its
“feeforservice” program, not to the remaining 75 percent who are in the MediCal managedcare system.
California’s Legislative Analyst’s Office says the potential for savings is unclear, given the uncertainty over how
drug manufacturers will respond.
Proposition 61 has become the most expensive ballot measure battle in 2016, according to the nonpartisan
politics website Ballotpedia. Led by industry lobbying group Pharmaceutical Research and Manufacturers of
America, known as PhRMA, the opposition has raised more than $100 million for its campaign, compared to
$14 million by supporters.
Despite the heavy spending, the drug industry remains concerned about the proposition since two polls have
found California voters leaning toward passing it.
In an early September survey conducted by USC Dornsife and the Los Angeles Times, about twothirds of
participants said they would vote yes, 23 percent said no and 12 percent had no answer. A late September poll
by Field Research Corp. found half inclined to vote yes, 16 percent leaning toward no and 34 percent undecided.
“Nearly 200 groups including veterans, doctors, patients, taxpayers, seniors and aids/HIV groups are opposed,
along with every daily newspaper in the state,” Kathy Fairbanks, spokeswoman for the No on Prop 61 Coalition,
said in an email.
Representatives for the Aids Healthcare Foundation, which is the biggest backer of Proposition 61, didn’t
immediately respond to requests for comment.
If the initiative passes on Nov. 8, it’s not likely to have any “fundamental impact” on drug companies, according
to Michael Yee, an analyst at RBC Capital Markets. The industry’s main concern is “emboldening 49 other
states to look at these types of legislation to try to change prices,” Yee wrote Tuesday in a note to clients.
Piper Jaffray analyst Schimmer also questions the ultimate effect of Proposition 61 if it were to pass: “Will the
pharma industry really compromise profits, or simply find another way around this Act?” he wrote in an October
note to clients.
“The industry is wily—cost shifting, cost cutting or raising prices to the VA will be the likely end result.”