Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Things are about to get awkward for makers of drugs targeting multiple sclerosis.

On Thursday afternoon, House Democrats sent letters to prominent biopharma companies that sell MS treatments including Biogen Inc., Novartis AG, Roche Holding AG, and Sanofi, demanding a variety of information about the large and, according to the letters, often seemingly concerted price hikes they have taken as part of an "in-depth investigation." As would be expected, the news sparked a decline in the drugmakers' shares.

Under Scrutiny
Shares of companies that make MS drugs fell Thursday after a congressional investigation was revealed
Source: Bloomberg

The investigation will throw an unwelcome spotlight on these companies' pricing practices and force the release of a lot of documents they'd rather not make public. But this is a pageant we've seen before. As uncomfortable as it will be for the drugmakers, it may not result in much lasting damage. 

Behind the investigation? The fact that list prices for some MS drugs have more than doubled. One more than two-decade-old medicine from Biogen has seen its price jump by 889 percent since approval, according to one of the letters. 

Pharmaceutical companies usually respond to this sort of criticism by arguing that the rebates they give to pharmacy benefit managers and insurers make list prices essentially meaningless. But those rebates are negotiated in secret. And price hikes have more than made up for these discounts despite the advancing age of many of these medicines and heightened competition -- in come cases, propping up revenue after companies can no longer generate it with volume growth. It's clear why Congress might have a bone to pick. 

The Case
A congressional investigation is taking a look at big price hikes on MS drugs
Source: House Oversight committee
AWP estimates from Congressional letter

Lawmakers are seeking a wide variety of information and documents on profitability, those aforementioned rebates, pricing strategy, and sales and distribution practices -- and it won't be pleasant for drugmakers. But beyond the headline hangovers, will it hurt the bottom line? History suggests no.

A previous 18-month Congressional investigation into Gilead Science Inc.'s pricing of its life-saving hepatitis C medicines reached the less-than shocking conclusion that the company priced its medicines in order to maximize revenue. It led to negative headlines about Gilead and the release of unflattering internal documents on the sometimes bloodless calculus of pricing drugs. But the company didn't cut its list price. Only competition has managed to put a real crimp in Gilead's sales, not government action.

This is a different situation, of course. Lawmakers are looking at a bigger set of companies and both pricing of new medicines and increases on old ones. There may be more skeletons in a broader set of closets. But absent real evidence of wrongdoing -- remember that it's perfectly legal for pharmaceutical companies to raise prices ad nauseum in the U.S. -- the impact will be limited.

Gone Hiking
Price hikes have helped prop up sales of Biogen's lead medicine as volume has tapered off
Source: Bloomberg Intelligence/Symphony Health Solutions

After initially making noise on drug pricing, the Trump administration has shown little interest in intervening on this issue. It's unclear if any serious pricing measures could even get through a Republican-controlled Congress. Any ammunition gleaned in this investigation won't likely change that. 

There may be some impacts on the margins. As long as this investigation is running, companies may be extra cautious with pricing. But Biogen and other companies are already somewhat limited in their abiliity to benefit from further hikes. And the most recent medicine to hit the market, Roche's Ocrevus, somewhat pre-empted this investigation by pricing at $65,000, substantially cheaper than some older options.

The increased scrutiny is by no means good news. But as embarrassing as combing through the pricing past might be, there's little threat to these firm's futures. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net