Novo to Cap Price Increases as Drug Costs Face Growing Scrutiny

(Bloomberg) -- With drug companies under fire over high prices, the world’s largest insulin maker plans to limit increases and join competitors by introducing a model that ties the cost of medicines to the results they deliver.

Novo Nordisk A/S expects to make prices dependent on achieving certain outcomes or promising benefits to patients, Chief Executive Officer Lars Rebien Sorensen said in an interview at the company’s headquarters in Bagsvaerd, Denmark. That type of pricing should play a bigger role in contract negotiations with purchasers starting early next year, he said.

“It’s starting to arrive,” said Sorensen, who is retiring by the end of the year after 16 years as Novo’s CEO. “More and more companies will try to enter into valued-based pricing.”

The Danish drugmaker also will limit any potential list-price growth in the future to no more than single-digit percentages annually and seek partnerships aimed at reducing the burden of out-of-pocket costs on patients, the company said on its website. That may put pressure on competitors to follow suit. Allergan Plc said in September it would limit future price increases.

The cost of medicines has sparked controversy in the U.S., where rebates are negotiated in private between the companies and intermediaries in an opaque pricing system. Novo and competitor Eli Lilly & Co. were targeted by Senator Bernie Sanders last month over their insulin treatments, used by millions of diabetics, and the profits that they generate for the drugmakers. 

Credibility

Novo’s moves come after the company in October slashed its long-term profit-growth forecasts by half because of pressure on prices in the U.S., its largest market. Despite big increases in list prices, the amount Novo takes home has tracked inflation, the company says.

Data will need to be collected to demonstrate the value of drugs to patients and insurance companies, said Sorensen, chosen by Harvard Business Review as the best-performing CEO in the world for the past two years. Novo said it’s exploring continuous glucose monitoring and pen devices as well as apps, using cloud-based technology, to gauge results.

“We don’t want society to believe we are not offering value,” Sorensen said in the interview. “We’re going to be in the diabetes business 20 years, 30 years, 40 years from now. We’re coming back to the same customers again and again, so that credibility on the value of our drugs is very important.”

The industry has been shifting in that direction. Swiss pharmaceutical giant Novartis AG has a “pay-for-performance” plan in place for heart failure treatment Entresto, in which insurers spend more if the drug keeps patients out of the hospital and lowers associated costs. Amgen Inc. said last month it’s committed to working with payers through value-based contracts that protect payers from unexpected cost increases, or give discounts if patients don’t respond as expected.

For a class of diabetes medicines known as GLP-1s, which stimulate insulin production, prices could be based on blood-sugar control, blood pressure or potentially heart benefits, according to Sorensen. Novo has an experimental diabetes medicine in that class, semaglutide, along with its blockbuster Victoza.

To contact the reporter on this story: James Paton in London at jpaton4@bloomberg.net. To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net, Marthe Fourcade