(Bloomberg View) — In the mid-1990s, the American public turned against the tobacco industry. As documents emerged showing that tobacco executives had long known that cigarettes could kill even as they denied any link between smoking and cancer, the companies were buried under a blizzard of exposes, public opprobrium, and lawsuits.
The denouement was the 1998 Master Settlement Agreement, in which Big Tobacco agreed to pay 46 states billions of dollars annually, in perpetuity, while curtailing certain marketing practices. (The other four states cut their own deals with the tobacco companies.)
In the wake of the 2008 financial crisis, the American public turned against Wall Street. As people learned the degree to which Wall Street products — and Wall Street behavior — had caused the crisis, they demanded that something be done. Wall Street executives were hauled before Congress and lawsuits were filed against banks and investment banks by the Securities and Exchange Commission and the Justice Department. The end result was a dramatic tightening of financial regulation in the form of the Dodd-Frank Act.
It doesn't take much imagination to envision the pharmaceutical industry one day facing the same kind of public outrage. One day soon, in fact. True, pharma companies don't make death sticks, nor will they ever drive the country into recession. They make miraculous drugs that cure diseases and save lives.
But the cost of those drugs — $100,000 for a cancer drug that extends life an average of six months, a low-cost generic that suddenly costs 10 times more, a new drug with a price tag so high that insurance companies balk at paying it — have angered and frightened Americans.
Politicians such as Sen. Bernie Sanders have denounced the high cost of drugs. The Justice Department has been investigating a number of generic-drug companies for alleged price fixing. Even President Donald Trump has weighed in, accusing pharmaceutical executives of "getting away with murder."
One difference between tobacco and Wall Street, on the one hand, and pharma, on the other, is that the pharmaceutical industry can see what's coming, and is trying to get in front of it. Consider, for instance, the recent dust-up over Marathon Pharmaceutical's pricing of its new drug Emflaza.
Emflaza is the brand name for deflazacort, a steroid that is used to treat Duchenne muscular dystrophy, a rare, terrible disease that afflicts about 15,000 boys in the U.S.
It's aimed at a small population, which means that Marathon gets certain advantages under the law, including a seven-year monopoly window. Although deflazacort had not until this month been approved by the U.S. Food and Drug Administration, some families with children afflicted with the disease have been able to buy it from the U.K. for about $1,200 a year. Last week, the FDA gave Marathon approval to sell deflazacort in the U.S. The list price: $89,000 a year.
PhRMA declined to defend Marathon's proposed price for Emflaza. (Image: Thinkstock)
