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Allergan CEO is shocked (shocked!) by insane drug prices

So it’s come to this: The chief executive of a major drug company is a hero because he won’t rip off customers any more.

Brent Saunders, CEO of Allergan, the company best known for making Botox, made headlines this week after posting an announcement on his company’s website that future price hikes will be limited to single digits and he’ll no longer jack up prices to crazy levels right before a patent expires.

“While we have participated in this industry practice in the past, we will stop this practice going forward,” Saunders said.

Excuse me for not drinking the Kool-Aid, but how is this different from a schoolyard bully patting himself on the back for saying he won’t beat you up any more? What about all the past beatings? Forgive and forget?

If Saunders deserves points for anything, it’s being the first CEO of a top pharmaceutical company to try to get out in front of scandalously high drug prices before lawmakers, riding a wave of public outrage, lower the boom with some hard-and-fast regulations.

“Some of the outrageous things they’ve done, jacking up prices tremendously, it’s coming back to bite them,” Walter J. Lane, a healthcare economist at the University of New Orleans, said of pharmaceutical companies.

In the past, he told me, patients were largely insulated from high healthcare prices because their insurance was more comprehensive. Nowadays, rising co-pays and deductibles mean families and individuals are bearing a much greater share of medical costs.

“People are feeling the prices a lot more than they used to,” Lane said.

No wonder, then, that recent episodes such as Mylan raising the price of EpiPens by more than 500% and Turing Pharmaceuticals boosting the price of a commonly used cancer drug by 5,000% have landed not with a whisper, but with a loud and reverberating thud on public awareness.

Into this eel-infested swamp waded Saunders, positioning himself as the industry’s one good guy who gets it.

“I don’t like what is happening,” he said in his blog post, adding that “it is hard to speak out publicly on this.”

Deep breath. Just tell us how you feel.

 “The healthcare industry has had a long-standing unwritten social contract with patients, physicians, policy makers and the public at large,” Saunders said. “Those who have taken aggressive or predatory price increases have violated this social contract!”

And even though Allergan once exhibited the same shoddy behavior, the company has seen the light. Saunders committed himself to a renewed social contract.

He said the company’s focus now is on pricing its drugs “commensurate with, or lower than, the value they create.” I’m not sure what that means exactly. How is such value determined?

Allergan sells 30 capsules of its Alzheimer’s drug Namenda XR for about $440, according to the price-comparison site GoodRX. The price was boosted by about 10% at the beginning of the year.

Twice as many tablets of the generic, older version of Namenda cost about $20. Is their value really that different?

An Allergan spokesman declined to address the topic.

Saunders, who received nearly $22 million in compensation last year, vowed that “we will not engage in price gouging or predatory pricing.” Um, thanks?

He said Allergan will limit annual price hikes “to single-digit percentage increases.”

That, I suppose, is an impressive commitment in light of the triple-digit increases that are becoming the industry norm. But consider this: The current U.S. inflation rate is 0.8%, so a price increase of, say, 5% represents a significant markup over living costs. Moreover, wages for many workers haven’t risen in years.

“You don’t see anything else going up 7%, 8%, 9% a year,” said Janet Schwartz, an assistant professor of marketing at Tulane University who specializes in healthcare. “Pharmaceuticals are far outpacing the rate of inflation.”

Saunders said Allergan’s social contract means the company “will work with policy makers and payers to facilitate better access to our medicines.”

Since fair prices would go a long way toward facilitating better access to medicines, I take this to mean that Allergan is committed to cutting out the hanky-panky as long as everyone else agrees to do likewise, which is a stretch.

U.S. spending on prescription drugs will climb 22% to as much as $400 billion annually over the next few years, according to the consulting firm IMS Health. It’s hard to imagine leading drug makers telling shareholders that they think this is too much and it’s time to put the cash cow out to pasture.

Timothy D. McBride, co-director of the Center for Health Economics and Policy at Washington University in St. Louis, said businesses are guided first and foremost by self-interest.

This suggests most pharmaceutical companies won’t walk back drug prices unless they have to. It also raises questions about Allergan’s motivation for trying to seize the moral high ground.

“If it’s in Allergan’s self-interest to do that now, why wasn’t it in their self-interest before?” McBride said. “And why would we think that they will change their behavior, or for all the right reasons?”

Maybe because they can afford to. Allergan, formerly based in Irvine, now enjoys Irish corporate citizenship — and considerably lower taxes — after a series of mergers that put Saunders in the captain’s seat.

Consumers, McBride said, should wait and see how this all plays out.

“It’s a bit like if one of your kids gets caught with their hands in the cookie jar, when they know they should not be there,” he said.

“They will say, ‘Dad, I won’t do that again, I promise.’ But any smart parent would be skeptical.”

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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