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Former Merck CEO Prodding Industry On Drug Pricing

Dr. Vagelos
Souce: pasteurfoundation.org
Dr. Vagelos

I didn't post yesterday because I was in Philadelphia shooting a story for an upcoming episode of "The Business of Innovation" on CNBC.

It's a piece about big pharma and we went to Philly to interview the still very busy former CEO of Merck (two CEOs ago), Dr. Roy Vagelos.

Earlier this week, for example, he was quoted in a prominent story in The New York Times about a task force he chaired on the relationship between pharma and medical schools. Yesterday, though, Dr. Vagelos was delivering a keynote speech at the annual meeting of the International Society for Medical Publication Professionals.

For those in the industry who might be curious how the 78-year-old who was introduced as the "senior statesman of the pharmaceutical industry" is doing, he told me he runs about five miles four times a week--outside, by the way, not on a treadmill. He's also Chairman of biotech companies Regeneron and Theravance . Thirty years ago Dr. Vagelos ran the lab at Merck that discovered the molecule which led to the first statin or modern cholesterol fighter, Mevacor.

Anyway, his address touched on several issues facing pharma, but I wanted to pass along what he had to say about the thorny subject of drug pricing. He devotes a chapter to it in his book, "The Moral Corporation: Merck Experiences."

In yesterday's speech Dr. Vagelos said, "Most drugs are a terrific bargain." And he believes that high prices are justified if the drug offers high value. But value, of course, can be subjective. Dr. Vagelos was diplomatic enough not to identify the company from behind the lectern--you can probably figure which well-known biotech he's referring to--but he went on to say that he has a problem with the $50,000 price tag for a drug that adds four months of life.

"There is a shocking disparity between value and price and it's not sustainable," he said. "The industry will bring about government price controls which will be devastating for the industry," Dr. Vagelos added. And if the feds don't step in, he believes market forces will.

In answer to a question Dr. Vagelos said, "I don't care what the cost is, it's inappropriate. The industry has a black eye. And the market will correct that." Drug and biotech companies, including the one he's talking about, say they need to charge those prices to recoup their investment and to pay for research and development of something better.

In addition to lowering prices on certain drugs, Dr. Vagelos also thinks pharma needs to be even more philanthropic: "When important drugs are introduced companies will have to make arrangements to get them into the developing world."

Besides saving lives he believes the humanitarian gesture will generate goodwill in countries and regions that in the not-too-distant future could become lucrative growth markets for the industry. It would also go a long way, Dr. Vagelos argued, toward recovering and restoring big pharma's "credibility."

That's his word, not mine.

Questions? Comments? Pharma@cnbc.com

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