{"id":156621,"date":"2020-03-23T12:01:17","date_gmt":"2020-03-23T12:01:17","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=156621"},"modified":"2025-01-10T15:12:18","modified_gmt":"2025-01-10T15:12:18","slug":"banks-pressure-health-care-firms-to-raise-prices-on-critical-drugs-medical-supplies-for-coronavirus","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2020\/03\/banks-pressure-health-care-firms-to-raise-prices-on-critical-drugs-medical-supplies-for-coronavirus\/","title":{"rendered":"Banks Pressure Health Care Firms to Raise Prices on Critical Drugs, Medical Supplies for Coronavirus"},"content":{"rendered":"
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Reader Supported News<\/p><\/div>\n

19 Mar 2020 – <\/em>In recent weeks,<\/u> investment bankers have pressed health care companies on the front lines of fighting the novel coronavirus, including drug firms developing experimental treatments and medical supply firms, to consider ways that they can profit from the crisis.<\/p>\n

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The media has mostly focused on individuals who have taken advantage of the market for now-scarce medical and hygiene supplies to hoard masks<\/a> and hand sanitizer<\/a> and resell them at higher prices. But the largest voices in the health care industry stand to gain from billions of dollars in emergency spending on the pandemic, as do the bankers and investors who invest in health care companies.<\/p>\n

Over the past few weeks, investment bankers have been candid on investor calls and during health care conferences about the opportunity to raise drug prices. In some cases, bankers received sharp rebukes from health care executives; in others, executives joked about using the attention on Covid-19 to dodge public pressure on the opioid crisis.<\/p>\n<\/div>\n

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Gilead Sciences, the company producing remdesivir, the most promising drug to treat Covid-19 symptoms, is one such firm facing investor pressure.<\/p>\n

Remdesivir is an antiviral that began development as a treatment for dengue, West Nile virus, and Zika, as well as MERS and SARS. The World Health Organization has said there is \u201conly one drug right now that we think may have real efficacy in treating coronavirus symptoms\u201d \u2014 namely, remdesivir.<\/p>\n

The drug, though developed in partnership with the University of Alabama through a grant<\/a> from the federal government\u2019s National Institutes of Health, is patented by Gilead Sciences, a major pharmaceutical company based in California. The firm has faced sharp criticism in the past for its pricing practices. It previously charged $84,000<\/a> for a yearlong supply of its hepatitis C treatment, which was also developed<\/a> with government research support. Remdesivir is estimated<\/a> to produce a one-time revenue of $2.5 billion.<\/p>\n

During an investor conference earlier this month, Phil Nadeau, managing director at investment bank Cowen & Co., quizzed<\/a> Gilead Science executives over whether the firm had planned for a \u201ccommercial strategy for remdesivir\u201d or could \u201ccreate a business out of remdesivir.\u201d<\/p>\n

Johanna Mercier, executive vice president of Gilead, noted that the company is currently donating products and \u201cmanufacturing at risk and increasing our capacity\u201d to do its best to find a solution to the pandemic. The company at the moment is focused, she said, primarily on \u201cpatient access\u201d and \u201cgovernment access\u201d for remdesivir.<\/p>\n

\u201cCommercial opportunity,\u201d Mercier added, \u201cmight come if this becomes a seasonal disease or stockpiling comes into play, but that\u2019s much later down the line.\u201d<\/p>\n

https:\/\/soundcloud.com\/the-intercept\/cardinal-health-at-barclays<\/p>\n<\/div>\n

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Steven Valiquette, a managing director at Barclays Investment Bank, last week peppered executives from Cardinal Health, a health care distributor of N95 masks, ventilators and pharmaceuticals, on whether the company would raise prices on a range of supplies.<\/p>\n

Valiquette asked repeatedly about potential price increases on a variety of products. Could the company, he asked, \u201coffset some of the risk of volume shortages\u201d on the \u201cpricing side\u201d?<\/p>\n

Michael Kaufmann, the chief executive of\u00a0Cardinal Health, said that \u201cso far, we\u2019ve not seen any material price increases that I would say are related to the coronavirus yet.\u201d Cardinal Health, Kaufman said, would weigh a variety of factors when making these decisions, and added that the company is \u201calways going to fight aggressively to make sure that we\u2019re getting after the lowest cost.\u201d<\/p>\n

\u201cAre you able to raise the price on some of this to offset what could be some volume shortages such that it all kind of nets out to be fairly consistent as far as your overall profit matrix?\u201d asked Valiquette.<\/p>\n

Kaufman responded that price decisions would depend on contracts with providers, though the firm has greater flexibility over some drug sales. \u201cAs you have changes on the cost side, you\u2019re able to make some adjustments,\u201d he noted.<\/p>\n

The discussion, over conference call, occurred during the Barclays Global Healthcare Conference on March 10. At one point, Valiquette joked that \u201cone positive\u201d about the coronavirus would be a \u201csilver lining\u201d that Cardinal Health may receive \u201cless questions\u201d about opioid-related lawsuits.<\/p>\n

Cardinal Health is one of several firms accused of ignoring warnings and flooding pharmacies known as so-called pill mills with shipments of millions of highly addictive painkillers. Kaufmann noted that negotiations for a settlement are ongoing.<\/p>\n

https:\/\/soundcloud.com\/the-intercept\/cardinal-health-at-barclays<\/p>\n<\/div>\n

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Owens & Minor, a health care logistics company that sources and manufactures surgical gowns, N95 masks, and other medical equipment, presented at the Barclays Global Healthcare Conference the following day<\/a>.<\/p>\n

Valiquette, citing the Covid-19 crisis, asked the company whether it could \u201cincrease prices on some of the products where there\u2019s greater demand.\u201d Valiquette then chuckled, adding that doing so \u201cis probably not politically all that great in the sort of dynamic,\u201d but said he was \u201ccurious to get some thoughts\u201d on whether the firm would consider hiking prices.<\/p>\n

The inquiry was sharply rebuked by Owens & Minor chief executive Edward Pesicka. \u201cI think in a crisis like this, our mission is really around serving the customer. And from an integrity standpoint, we have pricing agreements,\u201d Pesicka said. \u201cSo we are not going to go out and leverage this and try to \u2018jam up\u2019 customers and raise prices to have short-term benefit.\u201d<\/p>\n

https:\/\/soundcloud.com\/the-intercept\/cardinal-health-at-barclays<\/p>\n<\/div>\n

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AmerisourceBergen, another health care distributor that supplies similar products to Cardinal Health, which is also a defendant in the multistate opioid litigation, faced similar questions from Valiquette at the Barclays event.<\/p>\n

Steve Collis, president and chief executive of AmerisourceBergen, noted that his company has been actively involved in efforts to push back against political demands to limit the price of pharmaceutical products.<\/p>\n

Collis said that he was recently at a dinner with other pharmaceutical firms involved with developing \u201cvaccines for the coronavirus\u201d and was reminded that the U.S. firms, operating under limited drug price intervention, were among the industry leaders \u2014 a claim that has been disputed by experts who note that lack of regulation<\/a> in the drug industry has led to few investments in viral treatments, which are seen as less lucrative. Leading firms developing a vaccine for Covid-19 are based<\/a> in Germany, China, and Japan, countries with high levels of government influence in the pharmaceutical industry.<\/p>\n

AmerisourceBergen, Collis continued, has been \u201cvery active with key stakeholders in D.C., and our priority is to educate policymakers about the impact of policy changes,\u201d with a focus on \u201crational and responsible discussion about drug pricing.\u201d<\/p>\n<\/div>\n

Read Our Complete Coverage: <\/span>The Coronavirus Crisis<\/span><\/span><\/a><\/em><\/p><\/blockquote>\n<\/div>\n

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Later in the conversation, Valiquette asked AmerisourceBergen about the opioid litigation. The lawsuits could cost as much as $150 billion<\/a> among the various pharmaceutical and drug distributor defendants. Purdue Pharma, one of the firms targeted with the opioid litigation, has already pursued bankruptcy protection<\/a> in response to the lawsuit threat.<\/p>\n

\u201cWe can\u2019t say too much,\u201d Collis responded. But the executive hinted that his company is using its crucial role in responding to the pandemic crisis as leverage in the settlement negotiations. \u201cI would say that this crisis, the coronavirus crisis, actually highlights a lot of what we\u2019ve been saying, how important it is for us to be very strong financial companies and to have strong cash flow ability to invest in our business and to continue to grow our business and our relationship with our customers,\u201d Collis said.<\/p>\n

The hope that the coronavirus will benefit firms involved in the opioid crisis has already materialized in some ways. New York Attorney General Letitia James announced last week that her lawsuit against opioid firms and distributors, including Cardinal Health and AmerisourceBergen, set to begin on March 20, would be delayed<\/a> over coronavirus concerns.<\/p>\n

Market pressure<\/u> has encouraged large health care firms to spend billions of dollars on stock buybacks and lobbying, rather than research and development. Barclays declined to comment, and Cowen & Co. did not respond to a request for comment.<\/p>\n

The fallout over the coronavirus could pose potential risks for for-profit health care operators. In Spain, the government seized<\/a> control of private health care providers, including privately run hospitals, to manage the demand for treatment for patients with Covid-19.<\/p>\n

But pharmaceutical interests in the U.S. have a large degree of political power. Health and Human Services Secretary Alex Azar previously served as president of the U.S. division of drug giant Eli Lilly and on the board of the Biotechnology Innovation Organization, a drug lobby group.<\/p>\n

During a congressional hearing last month, Azar rejected the notion that any vaccine or treatment for Covid-19 should be set at an affordable price. \u201cWe would want to ensure that we work to make it affordable, but we can\u2019t control that price because we need the private sector to invest,\u201d said Azar. \u201cThe priority is to get vaccines and therapeutics. Price controls won\u2019t get us there.\u201d<\/p>\n

The initial $8.3 billion<\/a> coronavirus spending bill passed in early March to provide financial support for research into vaccines and other drug treatments contained a provision that prevents the government from delaying the introduction of any new pharmaceutical to address the crisis over affordability concerns. The legislative text was shaped, according to reports<\/a>, by industry lobbyists.<\/p>\n<\/div>\n

As The Intercept previously reported<\/a>, Joe Grogan, a key White House domestic policy adviser now serving on Donald Trump\u2019s Coronavirus Task Force, previously served as a lobbyist for Gilead Sciences.<\/div>\n
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\u201cNotwithstanding the pressure they may feel from the markets, corporate CEOs have large amounts of discretion and in this case, they should be very mindful of price gouging, they\u2019re going to be facing a lot more than reputational hits,\u201d said Robert Weissman, president of public interest watchdog Public Citizen, in an interview with The Intercept.<\/p>\n

\u201cThere will be a backlash that will both prevent their profiteering, but also may push to more structural limitations on their monopolies and authority moving forward,\u201d Weissman said.<\/p>\n

Weissman\u2019s group supports an effort led by Rep. Andy Levin, D-Mich., who has called on the government to invoke the Defense Production Act to scale up domestic manufacturing of health care supplies.<\/p>\n

There are other steps the government can take, Weissman added, to prevent price gouging.<\/p>\n

\u201cThe Gilead product is patent-protected and monopoly-protected, but the government has a big claim over that product because of the investment it\u2019s made,\u201d said Weissman.<\/p>\n

\u201cThe government has special authority to have generic competition for products it helped fund and prevent nonexclusive licensing for products it helped fund,\u201d Weissman continued. \u201cEven for products that have no connection to government funding, the government has the ability to force licensing for generic competition for its own acquisition and purchases.\u201d<\/p>\n

Drug companies often eschew vaccine development because of the limited profit potential for a one-time treatment. Testing kit companies and other medical supply firms have few market incentives for domestic production, especially scaling up an entire factory for short-term use. Instead, Levin and Weissman have argued, the government should take direct control of producing the necessary medical supplies and generic drug production.<\/p>\n

Last Friday, Levin circulated<\/a> a letter signed by other House Democrats that called for the government to take charge in producing ventilators, N95 respirators, and other critical supplies facing shortages.<\/p>\n

The once inconceivable policy was endorsed on Wednesday when Trump unveiled a plan to invoke the Defense Production Act to compel private firms to produce needed supplies during the crisis. The law, notably, allows the president to set a price ceiling<\/a> for critical goods used in an emergency.<\/p>\n

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Lee Fang – <\/a>lee.fang@\u200btheintercept.com<\/a><\/em><\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n

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Go to Original – theintercept.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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