A giant drugmaker just set the strictest price increase caps of the industry

Thomson Reuters

Packet of diabetes drug Lantus SoloStar passes along the production line at a manufacturing site of French drugmaker Sanofi in Frankfurt

Drug manufacturers have been feeling the heat over the price increases they make on prescription drugs.

Sanofi, which makes drugs to treat diabetes, along with vaccines and heart medications, has been criticized in the past for the price of its insulin Lantus.

To counter that, the French drug giant has decided to make some of the strictest drug pricing commitments in the industry.

Among Sanofi's new pricing promises,

• The company committed not to increase the list price of existing drugs in the US by more than the rate of health inflation, as measured by the Centers for Medicare and Medicaid Services' National Health Expenditure. In 2015, the NHE rate is expected to be 5.4%, and it's expected to increase on average 5.6% through 2025 years.
• Sanofi also plans to launch new drugs with a lot of rationale around how it set the price.
• The company also decided to release its average list and net price increases going forward. It's something other companies have been doing as well.

The approach is a bit of a departure from other players in the pharma industry. In September, Allergan committed to only single-digit drug price increases (a line it closely hugged for some drugs). Novo Nordisk, another diabetes drugmaker, also committed to capping increases to single digits.

Cybele Bjorklund, Sanofi's head of global policy, said the company decided to use the NHE as a benchmark because it's independent and has some level of predictability. "Single digit is somewhat arbitrary," she said.

And if that inflation rate were to go down? "We're willing to live with wherever it goes," she said.

As far as the rationale goes for new launch prices, Sanofi will have to show why its drug is better than what's currently available. Bjorklund gave the example of Dupixent, a drug to treat atopic dermatitis. When the drug launched in March, Sanofi and its partner Regeneron made headlines for setting a price that was lower than expected.

As part of the new price policy, Sanofi began disclosing its average list price increases. On the whole, Sanofi's list price increased 4% in 2016, but after factoring in discounts and rebates paid to pharma middlemen, the net price decreased by 2.1%.

In part, that's because of its long-acting insulin Lantus, which hasn't increased in list price since 2014, but has been facing pressures from pharma middlemen.