Photographer: Andrey Rudakov/Bloomberg

Big Pharma Fights ‘Tooth and Nail’ Against California Drug Vote

  • Proposition 61 is state’s most expensive ballot fight of 2016
  • Polls find voters supporting price limits for state agencies

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 stop it.

“We’re fighting that tooth and nail,” said John Lechleiter, chief executive officer of Eli Lilly & Co., said Tuesday on 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 Medi-Cal and state prisons, from paying more than the price paid by the U.S. Department of Veteran Affairs. While Medi-Cal, 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.

Political Pressure

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 50-fold increase of an anti-parasitic’s price in the national spotlight. High-profile 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 Medi-Cal enrollees who are part of its “fee-for-service” program, not to the remaining 75 percent who are in the Medi-Cal managed-care system.

California’s Legislative Analyst’s Office says the potential for savings is unclear, given the uncertainty over how drug manufacturers will respond.

Pricey Proposition

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 two-thirds 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 e-mail. 

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.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE