Turing Pharmaceuticals and its former CEO Martin Shkreli unwittingly shined a spotlight into the dark corner where the high cost of prescription drugs had been growing for years. As Dylan Scott reported for STAT News, Turing acquired an anti-parasitic drug called Daraprim in August of 2015 and promptly raised its price from $13.50 per pill to $750 per pill, a 5,000% increase. Eventually Shkreli resigned as Turing’s CEO, and the $750 pill price changed. GoodRx lists the cost now at over $46,000 for 60 tablets of Daraprim 25mg tablets; $767 per pill. By the way, it still costs $1 or $2 per pill outside the U.S.
But Turing is not a lone wolf pharmaceutical company ravaging the defenseless sheep of American healthcare consumers. Like wolves, pharmaceutical companies hunt in packs. EpiPens cost $100 for a standard two-pack in 2009. Now they cost $600. Valeant Pharmaceuticals came under fire for raising the prices of its 147 drugs by an average of 76% in 2014 and 2015. The average price of a Valeant drug was 33 times higher than comparable generics, according to STAT News. Many of the price increases went unnoticed until Valeant raised the prices on two life-saving heart medications by 525% and 212% on the same day.
Then there is Gilead Sciences and its line of hepatitis C drugs, priced at $1,000 per pill or more. Their aggressive pricing boosted Gilead from the 21st ranked pharmaceutical company by sales in 2013 to the 9th ranked company in 2014. At one time, Gilead had a 95% share of the U.S. treatment market for hepatitis C. With market competition, Gilead prices have come down, but not to the rate they negotiated with seven Indian drug companies in 2014 at around $100 per pill. The cost of Solvadi, the first Gilead hepatitis C drug to hit the market, costs $130 to $150 per pill to produce.
The New York Times reported in April of 2016 that Johnson & Johnson raised prices on several of its top-selling drugs, including a leukemia drug, a diabetes treatment, and an anti-clotting medication. Makers were raising prices on brand-name drugs by double-digit percentages since the start of the year, according to two major drug-benefit managers, Express Scripts and CVS Caremark. The chief medical officer at Express Scripts said: “It used to be the drug companies only took one price increase a year. . . . Now what they’re doing is taking multiple price increases multiple times a year.”
These are but a few examples of the actions by the Pharma wolves. And they aren’t all getting away with these tactics. Valeant has paid a heavy price for its actions. It became the target of congressional probes. Two top executives of the company resigned or were pushed out. Valeant’s stock price dropped from a high of $250 per share to less than $50. At the hearing, an influential board member expressed regret over the steep price increases, “it’s horrible. It’s wrong.” He pledged to have Valeant examine its price structure for the two heart medications, Isuprel and Nitropress. “You can expect from us within weeks and hopefully sooner a response to where we’re going to price these drugs and it will be significantly lower than where they’re priced now.” But even a 30% price cut meant they would be significantly higher than when Valeant acquired the drugs.
In response to the growing pressure over drug prices, Allergan promised not to raise prices by more than single-digit percentage points. In addition, the Allergan CEO pledged to not raise prices more than once per year. In his blog, he stated: “The health care industry has had a longstanding unwritten social contract with patients, physicians, policy makers, and the public at large.” He said that Allergan must keep this social contract in mind as they make business decisions that will ultimately improve wellbeing. “Those who have taken aggressive or predatory price increases have violated this social contract!”
Valeant’s response to this pledge by Allergan was to raise the prices of its drugs by 9.9% soon afterwards in September of 2016. A Wells Fargo analyst called the 9.9% increase “very odd,” and thought it may be an attempt to stay under the radar of managed care plans and states looking for double-digit price increases. STAT News asked Valeant why it chose the 9.9% and not a 10% increase, but didn’t get a reply.
The outrage has led to yet another Congressional attempt to regulate drug prices. The Fair Drug Pricing Act, cosponsored by Senator John McCain and US Representative Jan Schakowsky, would require drug makers to notify the US Department of Health and Human Services and submit a justification report 30 days before a price increase of certain drugs if the increase was more than 10%. The report would also require the companies to provide manufacturing and R&D costs for those drugs, along with net profits and marketing and advertising spending on the drugs. The hope, according to STAT News, is to bring greater transparency to the prescription drug market. Senator Tammy Baldwin said: “Drug corporations are sticking it to American taxpayers with soaring prescription drug prices.”
They are doing so because they received permission to do it from Congress when the Medicare Part D prescription drug legislation was approved ten years ago. Families USA reported that when Medicare Part D became law in 2006, it prohibited the Medicare program from bargaining with pharmaceutical companies to secure lower drug prices. It placed the responsibility in the hands of private drug plans. The failure of to deliver lowers prices with the implementation of Part D was evident within a year. Their analysis of the prices for the top 20 most frequently prescribed drugs to seniors showed that prices through the Veterans Administration, which can negotiate drug prices, were substantially lower than the lowest price charged by the largest Part D insurers. “The median difference was 58 percent.” For half of the 20 drugs, the lowest price charged by Part D insurers was ay least 58% higher than the VA cost.
Science Daily reported on a study published in the August 23/30 2016 issue of JAMA. Per capita spending on prescription drugs was higher in the U.S. than all other countries. Unlike these nations, the U.S. healthcare system permits manufacturers to set their own price for drugs. In countries with national healthcare insurance systems, drug prices are negotiated and sometimes rejected if the asking price is excessive in light of the benefit provided. The most important factor that drives high drug prices is market exclusivity, as was seen with Gilead Sciences and its ability to bring its hepatitis C drug Solvadi to market ahead of its competitors. The availability of generic drugs after patents run out is the primary means of reducing prices in the U.S. However, this can be delayed by a series of business and legal strategies by the drug companies.
In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. In the United States, prescription medications now comprise an estimated 17 percent of overall personal health care services.
The JAMA study, “The High Cost of Prescription Drugs in the United States,” related the standard Pharma justification for high drug prices—the research and development costs incurred by a company to develop new drugs. Their mantra is that if drug prices are regulated, the pipeline for developing new medications will dry up. Economic analyses favored by Pharma assert that it costs $2.6 billion in 2013 dollars to develop a new drug that makes it to the market. But the reality of this figure has been disputed.
First, innovations leading to new drug products are often done in academic institutions and supported by public funding of research grants from sources like the National Institutes of Health. “A recent analysis of the most transformative drugs of the last 25 years found that more than half of the 26 products or product classes identified had their origins in publicly funded research in such nonprofit centers.” Other analyses have pointed to the importance of smaller companies, which are often funded by venture capitalists.
Just one example of this would be the Gilead Science purchase of sofosbuvir (Solvadi) from Pharmasset, a small biotech company, for $11 billion. The drug development was based in part on federally funded research at Emory University. Gilead almost recouped the entire purchase price in 2014 with Solvadi, making $10.3 billion in the first full year it was on the market. In December of 2015, the US Senate Committee on Finance released a detailed report (United States Senate Committee on Finance. The price of Sovaldi and its impact on the US health care system) based upon its access to internal company documents that indicated Gilead’s intent was to maximize the prices it could charge for Solvadi and Harvoni. Senator Wyden said:
Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue, regardless of the human consequences. There was no concrete evidence in emails, meeting minutes or presentations that basic financial matters such as R&D costs or the multi-billion dollar acquisition of Pharmasset, the drug’s first developer, factored into how Gilead set the price. Gilead knew these prices would put treatment out of the reach of millions and cause extraordinary problems for Medicare and Medicaid, but still the company went ahead. If Gilead’s approach to pricing is the future of how blockbuster drugs are launched, it will cost billions and billions of dollars to treat just a fraction of patients.
Senator Wyden went on to say that if the cures for diseases such as cancer, Alzheimer’s diabetes and HIV are unaffordable to millions of people who need them, Congress will not have met its responsibilities to the American people. “I reject the idea that America has to choose between soaring, out-of-reach drug prices and one-size-fits-all government policies. Solving this challenge will take fresh, bipartisan thinking and political independence to bring people together.”
Returning to the JAMA study, the authors noted that most effective way to reduce prices would be to set them for the entire marketplace, like the approach of Sweden. Incidentally, Sweden’s per capita spending on prescription drugs was around $350 in comparison to the $858 per capita expenditure in the U.S. Another option would be to engage in international reference pricing, setting prices at levels found in other countries. “Taking such a step in the United States would have major marketplace ramifications and is not at present politically feasible, in part because of the power of the pharmaceutical lobby in Washington, DC.” The conclusion of the study said:
High drug prices are the result of the increasing cost and complexity of drug development but also arise in large part from the approach the United States has taken to the granting of government-protected monopolies to drug manufacturers, combined with restriction of price negotiation at a level not observed in other industrialized nations. Opportunities to address these problems include paying greater attention to potentially unjustified granting and extension of patent exclusivity, enhancing com- petition by ensuring timely generic drug availability, providing greater opportunities for price negotiation by governmental payers, generating more evidence about comparative cost- effectiveness of therapeutic alternatives, and actively educating physicians and patients about such choices to promote more value-based decision making. There is little evidence that such policies would hamper innovation, and they could even drive the development of more valuable new therapies rather than rewarding the persistence of older ones. Medications are the most common health care intervention and can have a major benefit on the health of individuals, as well as of populations, but unnecessarily high prices limit the ability of patients and health care systems to benefit fully from these vital products.
So the wolves are circling, waiting to see whether or not they can get away with continuing to raise their prices on prescription drugs. What needs to happen is action by Congress to drive back the Pharma wolves. But that may be difficult to attain. They will have to fight through a pack of Pharma lobbyists more numerous than the combined membership of the Senate and House of Representatives. And more daunting, then they have to turn away from the campaign contributions amounting to $272,000 per member of Congress in 2015. But there is some good news about patients needing Daraprim. Imprius Pharmaceuticals now sells an alternative compound with the main ingredient in Daraprim for $1 a pill.