This perspective, written by David Whitrap, was first shared in our Weekly View e-newsletter, which summarizes the week’s most significant drug pricing news. To subscribe, click here

This week, Bernstein’s biopharma analyst Ronny Gal published an investor note titled: “ICER Analytics – the ultimate pharma ESG tool? Which companies are most exposed to fair pricing legislation?” In it, he compares the leading federal policy proposals to address US drug pricing:

“There are only two long-term ideas that we are aware of that offer a systemic ‘solution’ to the problem of high US drugs prices. Those are the establishment of an international pricing index (IPI) whereby US drug prices are effectively set by prevailing prices in other developed markets and value-based pricing (VBP) where drug prices are set based on the value they provide to patients… Either solution would be difficult, but we would argue that IPI is unworkable. The US is the largest drug market and setting prices here based on prices in other countries would lead to price manipulation elsewhere to enhance US prices. Indexed pricing is also limited by the fact this is fundamentally ‘unfair’ in so far as it would not allow drug developers with forum to present their ‘case’. It also does not provide the flexibility for US to address specific societal concerns (e.g. the obesity epidemic), which may be a bigger concern here than abroad… A value-based pricing system would set prices for drugs based on the value they provide to patients relative to the existing standard of care… This approach has several advantages, including that it is transparent (the methodology is clear and made public), it offers room for participation from multiple interested parties in the room, and price determination is reviewable in the court system. We would argue that price setting based on some determination of value would have to be part of any long-term solution to US drug pricing.”

Bernstein also recommends ICER Analytics as a helpful scorecard for socially conscious investors:

“When it comes to the biopharma industry, the main industry-specific issue is drug prices in the US… In looking at the ICER database, we realized the data set can be used as an in-depth, independent, objective, and transparent, systematic analysis of how fairly individual companies set US prices. Further, the database offers quantitative targets to what prices should be. Thus, it offers an actionable decision-making tool for ESG investors and offers an alternative way to legislation to pressure the industry to control their prices (boards and CEOs care about their stock prices).”