Eli Lilly’s Conservative Pricing Offers Protection From Political Pressure

Eli Lilly’s self-policing on drug pricing protects it from the most prominent political pushbacks.
Nov 06, 2018 | 03:15 PM EST
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Eli Lilly and Co. (LLY) is better off than many other drug makers ahead of contentious midterms that could provoke ramped-up regulation. The company touted its volume-driven earnings beat on Tuesday, noting that it chose not to spike drug prices despite the possible balance sheet benefit. “Pricing was a bit of a drag this quarter,” CEO David Ricks told CNBC. “Of course if we had raised prices it could have offset some of that.” The conservative pricing approach comes as the Trump administration and many liberal candidates favor regulation and transparency in drug pricing, a rare point of agreement. In the past, “gag clauses” kept pharmacists from telling patients when paying for prescriptions out-of-pocket would cost less than using their insurance. Ending gag clauses is the latest step in President Trump’s blueprint to stop unfair drug pricing. https://t.co/BFxNwoFjoT — The White House (@WhiteHouse) October 14, 2018 There’s no reason patients in Milan, Missouri should be paying more for their medicines than patients in Milan, Italy. Read more about the latest in Claire’s drug pricing investigation from @columbiatribune: https://t.co/rU40lOQNug — McCaskill Office (@McCaskillOffice) November 1, 2018 Health and Human Services secretary Alex Azar has been vocal in his denouncement of price gouging in the industry. “Our vision for a new, more transparent drug-pricing system does not rely on voluntary action.” Azar said in a statement. “The drug industry remains resistant to providing real transparency around their prices, including the sky-high list prices that many patients pay.” Ricks acknowledged that there is room to work with regulators, as its pricing progression suggests it is willing to do. “There are some things we like, where we could work with the administration to support free market principles and innovation,” he said, advocating for a hands-off approach. Though he quickly repudiated pricing controls and heavy handed interventionism as an inhibition to innovation. “There are some things we don’t like, importing price controls from Europe is high on that list,” Ricks said. Certainly, Ricks will not be the only industry voice to raise concerns on the import of such harsh regulation should a potentially “bluer” legislature look to work with Trump on a common interest. Pfizer (PFE) CEO Ian Read touched on the topic extensively in an earnings call on October 30. He suggested that the hot topic will die down in due time. “I expect that like most industries, we will look at our pricing situation in January and take decisions based on what the competitive set is and what our value proposition is in the new marketplace,” he said. “We’ve been working with the President on parts of the blueprint and I expect our approach by the end of year will be, what I would characterize as business as normal.” Business as normal in 2017 meant price increases charting at about 20% across 91 drugs, per the Financial Times. Such increases would likely draw more than simply angry tweets from the oval office and ire from legislators campaigning on the issue. The reining in of prices might well pinch margins for many of major pharmaceutical companies, but it might be necessary to maintain industry autonomy and ultimately provide enough profit to invest in R&D. The bright spot for Eli Lilly investors is that the company seems efficient at policing itself already. The drug-maker has proven itself capable of besting estimates and ramping research spend even without pumping up prices, an important ability amid possible price crackdowns.
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