Nearly 80 percent of prescription drugs sold in America are generics. Federal law requires that they have the same ingredients that their name brand counterparts contain. Pharmaceutical companies are given 20 years after filing their patent to maintain exclusive rights to manufacturing. The patent protection is to give the companies time to recoup costs for research and development of the drugs, as well as any associated marketing costs. Once those patents expire, the market opens up to other companies to manufacture the drugs. The drugs are often lower in cost to produce, and there are no associated research or marketing costs.
Now pharmaceutical companies have discovered a way to reclaim the generic market and increase their profits.
Earlier this week, the New York Times published an article about Turing Pharmaceuticals, a new startup headed by 32-year-old former hedge fund manager Martin Shkreli. Turing acquired the drug Daraprim, which is used to treat toxoplasmosis, a dangerous and even life threatening parasitic infection in babies and AIDS and cancer patients. The drug is also an effective treatment for malaria. The 62-year-old drug has long been available in a low cost generic form. When Turing acquired the drug it was $13.50 per pill; Turing immediately raised the price to $750 per pill, a more than 5400 percent increase.
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The outrage was swift, forcing Shkreli to do series of interviews to justify the increase which did little to stem the anger. While he tried to offer many palpable reasons for the increase, such as research and development, he readily admitted it was about making the company profitable. It is a new opportunistic business strategy that has become a favorite of the industry and puts the most vulnerable at risk.
Physicians, pharmacies and insurance companies have noticed a sharp increase in the price of many generic drugs for the past four years. Pharmaceutical industry executives had been less than forthcoming as to why, offering explanations of supply shortage of raw materials and a natural contraction of the market. The attention given to the Daraprim debacle has highlighted the deliberate focus to reclaim generic drugs and increase their bottom line.
The New York Times explains how the process works:
Daraprim…was approved by the F.D.A. in 1953 and has long been made by GlaxoSmithKline. Glaxo sold United States marketing rights to CorePharma in 2010. Last year, Impax Laboratories agreed to buy Core and affiliated companies for $700 million. In August, Impax sold Daraprim to Turing for $55 million.
Daraprim cost only about $1 a tablet several years ago, but the drug’s price rose sharply after CorePharma acquired it. According to IMS Health, which tracks prescriptions, sales of the drug jumped to $6.3 million in 2011 from $667,000 in 2010, even as prescriptions held steady at about 12,700. In 2014, after further price increases, sales were $9.9 million, as the number of prescriptions shrank to 8,821.
Turing’s price increase could bring sales to tens or even hundreds of millions of dollars a year if use remains constant.
Yet, the subterfuge does not end there. While these medications are no longer patented, the companies that buy them strictly control the distribution, making it difficult, if not impossible, to get access to samples or the formula. When that doesn’t work, they use a misinformation against the competition.
In 2011, K-V Pharmaceuticals acquired a seven-year license to be the sole provider of Makena, a synthetic form of the hormone progesterone that first came on the market more than 55 years ago. In 2003 it was discovered that the drug was successful in preventing preterm births in women who had a history of delivering prematurely. At the time of acquiring the exclusive license, the drug was made in compounding pharmacies for a price of $10-$20 per dose and used by approximately 130,000 women each year. K-V immediately increased the price to $1500. This made the cost of the average treatment jump to $30,000.
Like with Turing, K-V suffered an immediate backlash. In response, the company offered price decreases of 40-50 percent over time. In an unusual move, the FDA announced that it would not investigate pharmacies that continued to make the drug, essentially refusing to enforce the exclusivity. Seeing their profits disappear and entering bankruptcy, K-V began telling doctors that the compound version was not as effective or as safe as their product. This was untrue, but it worked well enough for K-V to eventually increase sales by 2013.
While Congress has called for investigations and Democratic candidates have put forth plans to battle such tactics, reforms have been repeatedly shot down by the Republican-led Congress. The United States remains the only country that does not regulate drug prices and allows makers to market directly to consumers. For now, public awareness and outrage among healthcare providers has been the only recourse. At the same time the Daraprim story broke, another company announced it was returning their recently acquired tuberculosis drug to the nonprofit university they purchased it from. They, too, had come under scrutiny for increasing the price of the long-available drug from $500 per 30 capsules to $10, 800 overnight.
As for Turing, CEO Martin Shkreli buckled under the pressure and announced Tuesday evening that they would roll back the price increase within the next few weeks. He did not say what the new price would be, but it would allow the company to break even, or make a small profit.