Drug prices rise ahead of rebates

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Are drugmakers such as Indianapolis-based Eli Lilly and Co. taking a page from retailers’ playbook—raising prices just before staging a high-profile sale?

The folks at Express Scripts Inc. sure think so, according to comments in The Wall Street Journal.

The pharmaceutical distribution company documented that drug prices rose faster last year than they have in a decade—just in time for big rebates the drug industry promised as part of the health reform law.

Prices rose 9.1 percent in 2009, according to St. Louis-based Express Scripts, compared with recent price hikes in a range of 6 percent to 8 percent.

Steven Miller, Express Scripts’ chief medical officer, told the newspaper that the price increases were “exacerbated by the health care reform debate.”

As part of the year-long legislative effort, the pharmaceutical industry agreed to give larger rebates to patients covered by the federal Medicare and Medicaid programs. For Lilly, which sells its bestseller Zyprexa to many Medicaid patients, the rebates will sap as much as $400 million in sales this year and $700 million next year.

The Journal noted that some companies have raised prices even more in early 2010. Lilly, for example, raised the price on its antidepressant Cymbalta by 13.6 percent in the first quarter, according to research by Credit Suisse. President Obama signed health reform into law March 23, making the larger drug rebates retroactive to Jan. 1.

However, a Lilly spokesman told the newspaper that Lilly’s price hikes were made independently of health reform, based on “market conditions and recovery of our R&D costs.”

The larger rebates forced Lilly on Monday to reduce its profit forecast for the year by 25 cents to 30 cents per share. The company also recorded $85.1 million in extra taxes because the new health law shrinks the tax deduction for Lilly’s prescription drug coverage for its retirees.

During the first quarter of this year, Lilly earned $1.25 billion, down 5 percent from the same quarter last year. Lilly’s revenue for the quarter rose 9 percent, to $5.49 billion, slightly below analysts’ expectations of $5.54 billion.

Lilly CEO John Lechleiter said in a statement, “As a result of the new legislation, Lilly will incur substantial costs to our business.”


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  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

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