Some of the biggest drug makers in America are choosing to keep prices in check to avoid federal intervention on its pricing structures.
According to a Health and Human Services report compiled by a senior advisor to the secretary for drug price reform, a threat to act on prices was sufficient enough for the industry to clean up its own act.
The research report states that there have been 60% fewer brand drug price increases from May 11 to August 15 this year than in the prior year. Furthermore, there were 54% more decreases in the same comparative periods.
HHS secretary Alex Azar was not naive enough to believe that the industry is cutting prices out of kindness to their fellow man.
"As the President said, there have been some really significant moves, because the drug companies and others in the system see the writing on the wall," he said in a cabinet meeting published by the White House on August 16. "The system is going to change, prices will come down, and they are skating [to] where the puck is going to be."
Azar also reported that 15 major companies have signaled their intention to make announcements regarding control over their drug pricing, calling Merck & Co. (MRK) and Pfizer Inc. (PFE) out by name.
However, Merck actually pre-empted the report's release by announcing its plan to pursue "responsible pricing" initiatives in July, pledging to not increase their net portfolio of drugs by more than the rate of inflation.
"They're trying to all get better at self-policing," Vamil Divan, senior research analyst at Credit Suisse told Real Money. "Merck, Pfizer, and Johnson & Johnson (JNJ) are definitely all vigilant on [pricing]."
Divan noted that Merck in the past year actually decreased its net portfolio cost overall in 2017, indicating it was not a problem even before President Trump's "blueprint" for drug cost reduction.
Divan said he thinks the industry can control itself, out of its own self-interest, making major pharmaceutical companies still highly investable.
For example, he indicated his own buy rating for Merck, which he stated still has much room to grow, with key drug approvals like KEYTRUDA coming just recently.
To be sure, a decrease in drug prices is sure to affect the margin of drug manufacturers. However, at the moment, drug companies are prepared to sacrifice margin to save autonomy in their industry.
