We just got a better idea of how much drug companies rely on price hikes, and it doesn't look good

We’re starting to get a better idea of how much drug companies rely on prescription drug price hikes.

According to Credit Suisse, list prices for prescription drugs across the drug industry rose 9.8% in 2016. Net prices — that is, what a drugmaker gets after it pays rebates to pharmacy benefit managers — were up 6%.

And those price increases played a critical role in drug company’s growth, Credit Suisse found.

“US drug price rises contributed 100% of industry EPS growth in 2016. Arguably, this is the most important issue for a Pharma investor today,” the report said. “Despite public scrutiny, we estimate US net price rises contributed $US8.7 billion in 2016 to net income, 100% of sector EPS growth.”

The note said that while drug companies needed to take price increases when patents expired in 2012 and 2013, the practice still drives growth. That spells bad news for consumers, who are likely to see further increases in the cost of their prescriptions, and it’s not a good look for the drugmakers.

The pharma industry’s price hikes have drawn political scrutiny over the past 18 months or so, but drugmakers have argued that they don’t rely on price hikes for growth.

Here’s how price increases related to net income growth for major pharmaceutical companies.

Credit Suisse said that net price growth made up at least 100% of net income growth for Biogen, Eli Lilly, AbbVie, Allergan, Merck, Pfizer and Amgen. On the other hand, BioMarin, Gilead, Novo Nordisk and Regeneron were the least reliant on net drug price increases.

The report also shed more of a light on the nature of rebates in the pharmaceutical industry. Rebates are going up, now at 37.5%, up from 35.7% in 2015. That varied by company, with those that had the least unique drugs paying higher rebates than those that had the most unique drugs.

While there has been more attention placed on drug price increases in 2016, Credit Suisse said that the practice of raising drug prices will likely remain a growth driver for years to come.

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