Surge in Drug Prices Tied to Revenue, Million-Dollar Bonuses

(Bloomberg) -- U.S. lawmakers took aim at drugmaker Celgene for continually boosting the price of the cancer drug Revlimid at the start of a two-day hearing on Wednesday, saying in some cases the moves were designed to help company executives meet bonus targets.

According to a report by the staff of the House Committee on Oversight and Reform, Celgene more than tripled the original price of Revlimid to $719 a pill. The company raised the cost of the drug 22 times after it was approved to treat the blood cancer multiple myeloma in 2005, the staff reported.

The House panel has been probing drug pricing for 18 months. Its staff report highlighted executive communications tying price increases to revenue projections and bonuses. Meanwhile, Carolyn Maloney, the committee’s chairwoman, focused in her comments on how drug prices are higher in the U.S. than anywhere else.

“You made more money for this drug here in the U.S. than in every other country combined,” Maloney said in response to comments by former Celgene Chief Executive Officer Mark Alles about the cost of Revlimid.

In an early indicator of the partisan divide that characterized lines of questioning during the hearing, Maloney, a Democrat, also called for legislation to be passed by the U.S. Senate and signed by President Donald Trump that would allow Medicare to bargain with drugmakers on pricing.

Democrats on the panel criticized Trump’s record on drug pricing and hammered executives who spoke at the hearing about their companies’ pricing practices. Republicans defended the president and said they worried legislation forcing pricing changes could imperil the development of innovative new medicines.

The staff report was repeatedly cited by Democrats during their questioning of executives from Celgene, Bristol-Myers Squibb Co., which acquired Celgrene in November, and Teva Pharmaceutical Industries Ltd.

Revenue, Bonuses

At Celgene, the report found that more than half of the formula used to award executive bonuses was dependent on meeting earnings and revenue targets. Some years, according to the report, those targets wouldn’t have been met without Revlimid price increases.The year 2017 -- when Alles received a bonus of more than $2 million -- is cited as an example.

“Without three price increases on Revlimid that year, the Committee estimates that Celgene’s revenue would have been nearly $600 million lower and executives likely would not have achieved the revenue targets needed to receive their full bonuses,” according to the report.

Three years earlier, Alles, then a senior executive, discussed a desire to raise Revlimid’s price 4% in order to improve first-quarter performance. “I have to consider every legitimate opportunity available to us to improve our Q1 performance,” Alles wrote in an email.

Long-Held Principles

In his comments Wednesday, Alles said Celgene’s pricing decisions were “guided by a set of long-held principles that reflect our commitment to patient access, the value of a medicine to patients and the health-care system.”

He also cited the continuing push to find new drugs, new uses for existing medicines and the need for financial flexibility.

Meanwhile, Giovanni Caforio, the chief executive of Bristol Myers, which now owns Celgene, called Revlimid’s value to patients “truly immeasurable,” adding, “Revlimid’s patients should have access regardless of ability to pay.”

He said the company has assistance programs for patients but acknowledged they were an “imperfect solution to access challenges.” While Caforio said he supports reforms, he said they must protect the innovation that creates important new drugs.

Teva’s Copaxone

The hearing also focused Teva’s multiple sclerosis drug Copaxone. At $7,114, the price of a monthly course of Teva’s original Copaxone is now almost 10 times as much as when it came to market in 1997, according the committee report.

When asked about Copaxone’s price increases, Teva CEO Kare Schultz said he wasn’t aware of what happened at the company before he joined in November 2017, but that Teva hasn’t raised Copaxone prices since he’s been there.

Schultz added that Copaxone has had a net price reduction of more than 20% in both 2018 and 2019. Those changes occurred after the drug began to face generic competition.

Copaxone generated $1.5 billion in revenue last year, 16% of Teva’s total revenue. U.S. revenue from Revlimid in 2018 was $6.5 billion, 42% of Celgene’s U.S. revenue, according to data compiled by Bloomberg.

Teva executives also received bonuses tied in large part to company revenue, according to the panel report. In 2017, an unnamed executive told employees that generic competition for Copaxone had been delayed.

“Might be good for cash flow and debt pay down and some of your bonuses,” the executive wrote in an email obtained by the committee.

Law Change

Bristol Myers’s Caforio, who also is chairman of the industry lobbying group PhRMA, said his company would support changing the law to allow Medicare beneficiaries to take co-pay assistance and capping out-of-pocket costs for Medicare beneficiaries.

The efforts would reduce the cost of drugs to seniors but wouldn’t actually bring down the price of drugs.

Patient assistance programs also emerged as a point of contention over the course of the hearing. Drug companies have long said they make expensive drugs more affordable for patients. But the programs have been criticized as short-term measures that only subsidize some patients’ out-of-pocket expenses while financially benefiting the companies when health insurers pick up the rest.

Caforio said that about $20 million was spent on providing copay assistance to patients for Revlimid last year, and noted that the company provided expanded patient assistance at the start of the pandemic for those who had lost health-care coverage along with their jobs.

But for Teva’s Copaxone, internal documents included in the staff report described patient assistance of about $81 million as providing returns from commercially-insured patients of about 450% on average.

Rashida Tlaib, a Democratic representative from Michigan, highlighted another internal Teva document released by the committee in which grants for those with prescription coverage through Medicare Part D were described as an “investment.”

She said documents found by the committee “suggest that these programs actually serve drug companies’ own financial interest,” Tlaib said. She went on to call the programs “just another scheme by your corporation to make money off of sick people.”

On Thursday, Amgen Inc., Mallinckrodt Plc. and Novartis AG executives will testify.

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