Biotech and Pharma

Johnson & Johnson lifts lid on drug pricing data, shows 3.5% net hike in 2016

Alex Gorsky, chairman and CEO of Johnson & Johnson.
Jodi Gralnick | CNBC

Johnson & Johnson, the world's largest health-care company, issued a new report Monday detailing data on its medicines' price increases. The message: We've been responsible, but the public hasn't been able to tell because of lack of transparency.

The report, which J&J says it plans to issue annually, comes as the pharmaceutical industry has once again become a national target for its pricing practices. And the message, that there's more to pricing than meets the eye, has been the industry's primary response — a response most visibly employed by Mylan Chief Executive Heather Bresch amid controversy over pricing of the EpiPen.

"We understand the concerns of patients, families and other stakeholders who are worried about health care costs, including the costs of prescription medicines," wrote Jennifer Taubert, J&J's company group chairman for pharmaceuticals in the Americas, and Anastasia Daifotis, chief scientific officer for J&J's Janssen North America pharmaceuticals unit, in the report. "They are calling on us to provide greater transparency about how we operate — including disclosing more information on our pricing and marketing practices, our patient access programs and our clinical trials."

The report focuses specifically on the U.S., where the 2016 presidential election included drug pricing as a key issue. President Donald Trump has continued his focus on drug prices since, saying the industry is "getting away with murder" for its pricing practices and vowing to bring pricing down.

U.S. Product Portfolio % Change vs. Prior Year

Year List Price Change-Average Net Price Change-Average

The industry has argued it's being unfairly maligned in the pricing debate, that there's more to the price of medicines than the list prices that are made public. And in response to pressure, many are providing more data on the discounts and rebates they pay into the health-care system, to government insurers and middlemen including pharmacy benefits managers.

J&J's report does just that, explaining the difference between list and net prices and the complicated path of drug payments through the reimbursement system. And it says over the last five years, its list prices have increased, on average, less than 10 percent, while its net prices, after discounts and rebates, have generally increased less than 5 percent.

In 2016, J&J says discounts and rebates on its medicines amounted to about $11 billion in the U.S., or a discount rate of 35 percent off the list price. And it says the net increase in the cost of its medicines, of 3.5 percent across its portfolio, is lower than the 4.1 percent rate of medical inflation in the U.S. last year.

Other drug companies have made pledges to limit list price increases. Allergan CEO Brent Saunders pledged, in what he called the company's social contract, to limit increases to less than 10 percent once a year. Novo Nordisk and AbbVie made similar commitments. J&J's data show it's generally already been doing that.

But Americans feel drug prices are a problem. Seventy-seven percent said prescription drug costs were unreasonable in a Kaiser Health poll in September 2016, at the height of the backlash over the price of the EpiPen, which rose fourfold in a decade. And many Americans support actions to keep costs down, the poll found, including allowing the federal government to negotiate with drug companies to lower prices for Medicare.

J&J focuses on that issue specifically in its report, arguing that the private insurers and PBMs that collectively administer Medicare Part D benefits already are "powerful negotiators with leverage to secure large discounts and rebates on behalf of Part D plans."

But Trump has supported Medicare negotiation as well. And with each one-off drug pricing scandal — from Martin Shkreli to the EpiPen to, most recently, a drug for kids with Duchenne muscular dystrophy — the scrutiny on the whole industry's pricing practices is reignited.