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Merck CEO discussed drug prices with Obama

Merck Chief Executive Ken Frazier said he discussed the hot-button issue of drug pricing in a recent meeting with President Barack Obama, and he believes many in Washington have a "rational" view of the situation.

Ken Frazier, president and CEO of Merck.
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Ken Frazier, president and CEO of Merck.

"I met with the president of the United States in his office and we had this conversation," Frazier told analysts and investors on an earnings conference call Tuesday. He said that as the leader of industry group PhRMA, "I tried hard to distinguish between innovative companies ... and a few companies that are under-represented in the industry."

Frazier, who took over as chair of PhRMA in April, was likely referring to companies like Valeant, which has been in the cross hairs in recent months in part for its strategy of acquiring drugs and then raising their prices. Another drug company, Turing Pharmaceuticals, drew national attention in September after it acquired the 62-year-old medicine Daraprim and raised its price by 5,000 percent.

Democratic presidential candidate Hillary Clinton used the Turing example as a springboard to announce her platform on drug pricing, calling it an outrageous example of price gouging. Her focus on the issue, as well as attention from rival Bernie Sanders, has helped push biotech valuations down 16 percent in the last three months.

PhRMA has sought to distance itself from Valeant and Turing, writing in a blog post last week that those companies' strategies are "more reflective of a hedge fund than an innovative biopharmaceutical company."

On Merck's Tuesday call, Frazier said the "current conversation around pricing fails to recognize that this industry is hardly homogeneous," and that Merck has "tried to approach pricing from the perspective of value."

"I believe that while there's a lot of noise out there, my experience in Washington is that people do recognize that this industry is important, that these innovations are critical to society," Frazier said. "That we, for example, need a disease-modifying agent for Alzheimer's. People see what these immuno-oncology drugs are doing and they see that's just the beginning of what we can do as an industry."

Biogen CEO George Scangos made similar comments on the biotech company's earnings conference call last week, saying the industry "is preparing a thoughtful presentation of a different perspective on drug prices and the value we bring to patients and the community."

In a telephone interview, Scangos acknowledged the industry "has not done as good a job as we can do in telling our side of the story," but said the situation is more nuanced than "mere slugging at drug prices."

"The thing that always frustrates me about attacking drug prices is, really, what the country should be worried about is health-care costs," Scangos said. "To the extent that we focus on that one component, we take our eye off what is a larger, more complicated problem."

Pfizer CEO Ian Read also addressed drug pricing as part of his prepared remarks on that company's earnings conference call Tuesday, saying attention on the issue is likely to continue through the presidential election.

"Ultimately I believe good public policy will prevail, ensuring the best outcomes for patients while preserving a market-based system" for developing drugs, Read said.

He also focused on the role of insurance.

"No individual should have to bear the full cost of treatment when they become sick," Read continued, saying that patients' copays are increasing as a result of insurers' "short-term focus" on costs, and that the system needs incentives "where insurance plans can be successful when they invest in long-term outcomes."

Biogen's Scangos also emphasized drugs' preventive role.

"Drugs are one of the ways and maybe the only way I see to head off some of the real serious issues that are facing us, like Alzheimer's disease, cancer and diabetes," Scangos continued. "It's going to be drugs that alter the course of the cost of treating those diseases and avoid the obvious human suffering of those diseases."

Scangos was speaking as the company announced it would lay off 11 percent of its employees in a restructuring aimed at saving $250 million a year, as it starts a massive late-stage clinical trial program of its experimental Alzheimer's medicine, aducanumab.

"We're not just sitting on piles of money here; we're having to make hard choices in order to fund those programs," Scangos said. "We do not want, as a country, to damage the innovation that will lead to new drugs."