Inside the Lobbyist War on Drug Prices: What Investors Need to Know

Source: Getty Images

Source: Getty Images

The pharmaceutical and biotech industries are notoriously tricky for investors. The industry is riskier than many others (such as basic materials or consumer goods), and companies’ successes are largely based on drug approvals, which can be difficult to predict given the complexity of the drugs involved, and the arduous process by which they’re developed. Often, investigational drugs are years in development before they are ever approved, and worse, some drugs, which may have initially seemed promising, are never approved at all, or fail in late-stage trials, dashing researchers’ best hopes for the medicine.

In spite of its downsides and higher risk, the pharmaceutical industry remains attractive to investors because of its potential to be incredibly lucrative, and the science behind investigational drugs seems only to get better and better — meaning that rare or complex diseases are finding effective treatments no one could have imagined even a decade or two ago.

Regardless, the industry, known for its complexity, is about to get even more complex: a lobbyist war is heating up in Washington between the primary lobbyist group for insurers, the American Health Insurance Plans, and the primary pharmaceutical industry lobbyist group, Pharmaceutical Researchers and Manufacturers Association. Last week, the two groups initiated a war of words in a renewed flurry of antagonism, with health insurers arguing that the staggeringly high cost of specialty drugs threatens the very sustainability of the healthcare system in the United States.

Karen Ignagni of the AHIP — a woman known for being one of the most powerful individuals in the healthcare industry — launched a public relations assault on pharmaceutical manufacturers last month, arguing that the cost of specialty drugs in America could cripple government healthcare budgets and bankrupt American families. She argued that pharmaceutical companies didn’t seem to see limits to the high cost of their medicines, claiming that the rising costs of drugs in the U.S. suggests that Big Pharma is utilizing “whatever they can get away with” pricing.

Big Pharma’s Take

Pharmaceutical companies argue that with the already high cost of developing effective medicines ever on the rise, high prices are necessary in order for businesses to remain viable, and to continue ongoing research and development efforts. Big Pharma’s arguments aren’t without clout by any means. The industry is facing a transformative era in which companies are being forced to re-focus research efforts on strongest therapeutic areas, and many companies are reorganizing in an effort to remain profitable and productive, as evidenced by the frenzy of pharmaceutical mergers in recent months.