I just returned from a family vacation and was going through my accumulated mail. I got a notice that the terms of my auto loan were being adjusted. Instead of paying $300 a month, I was shocked to find out that I would now be paying $16,667 per month. My car company (the lender) explained that it needed to increase my payments because it wanted to fund the development of some new, more fuel-efficient vehicles. My latest bill from my gas company also contained a surprise. Instead of paying about $95, as I did in August, my September bill was now $5,278. The utility explained that it needed the rate increase to pay for additional cleantech research in reducing pollution. If this wasn’t bad enough, I found out that my $120 a month family cell phone plan was being replaced by one costing $6,667 per month, with the extra money needed for company R&D to develop a faster network.
Actually, none of these astronomical price increases happened to me. However, if you are a patient suffering from toxoplasmosis and taking the drug pyrimethamine (Daraprim), you recently saw the price of this medicine climb by the same percentage as the ridiculous numbers I quoted above (it went from $13.50 per pill to $750), a greater than 55 fold increase. This price “adjustment” came soon after Turing Pharmaceuticals acquired the rights to the drug from Impax Laboratories. When news of the huge price hike exploded in the media, Turing CEO Martin Shkreli was anything but contrite, saying, “It’s a great business decision that also benefits all of our stakeholders.” This led to the well deserved public flaying of Shkreli as the very embodiment of greed.
This episode brings up an important question: When do drug price increases cross the line from fair to rapacious? Heeding the biblical injunction, “Let he who is without sin cast the first stone,” most biotech executives stayed on the sidelines and refused to publicly condemn Shkreli and Turing. The bad publicity led biotech’s trade association, the Biotechnology Industry Organization (BIO), to kick Turing out and return its membership dues, stating, “The company and its leadership do not reflect the commitment to innovation and values that are at the core of BIO’s reputation and mission.” I looked up BIO’s membership criteria and found out that membership “is available only to bona fide organizations that promote biotechnology research and support the growth and development of the biotechnology industry; and to organizations with public policy positions and business practices that are generally consistent with BIO’s reputation and its policies and principles in support of innovation, including intellectual property.”
BIO’s tossing of Turing under the proverbial bus made me curious. Are there other biotechs that operate in a similar manner? I wanted to know if companies with similar business models have also been excluded from BIO. After doing a little digging, I’ve been able to make a rough estimate of what criterion BIO might be using to determine when member companies’ drug price increases cross over the threshold into greed. Here’s what I found out:
I identified several companies that, like Turing, buy companies and hike drug prices, but aren’t members of BIO. I don’t know if they ever tried to join the organization. These include Rodelis, which raised the price of its cycloserine pill (used to treat tuberculosis) from $500 per 30 pills to $10,800 (a 21.6 fold increase) after it acquired the drug. This led to an outcry from the Purdue Research Foundation, the non-profit organization that provided it with the medicine, and as a result Rodelis returned the drug. Also a non-member is K-V Pharmaceuticals (now known as Lumara Health), which raised the price of its drug hydroxyprogesterone caproate (Makena, used to prevent premature births) from $20 to $1500 per dose (a 75 fold increase). Protests forced it to drop the price to $690 and institute a patient assistance program. Valeant Pharmaceuticals raised the prices of isoproterenol (Isuprel) five fold and more than doubled the price of nitroprusside (Nitropress) after acquiring them from Marathon Pharmaceuticals (a member of the trade group PhRMA), but Valeant belongs to neither PhRMA nor BIO. While these two drugs have gotten the bulk of the publicity, Valeant has raised the prices on 54 other medicines this year by an astounding average of 65.6 percent (which was the highest in the industry, according to Deutsche Bank).
I did find four BIO members, however, that appear to fit the Turing mold:
Horizon Pharma increased the price of the drug combo naproxen and esomeprazole (Vivomo), a pain medication, six fold the first day it sold the drug after buying rights to it from AstraZeneca.
Retrophin, which jacked up the price of its cystinuria drug tiopronin (Thiola) from $1.50 per pill to $30 (20 fold) after acquiring the medicine from Mission Pharmacal. I should point out that Shkreli was the CEO of Retrophin when Thiola’s price went stratospheric; Retrophin later fired him reportedly for stock irregularities. Biopharma blogger Derek Lowe called this price raise at the time, “The most unconscionable drug price I have yet seen.”
Catalyst Pharmaceuticals is apparently planning on increasing the price of its drug 3,4-diaminopyradine (Firdapse, which is used to treat a rare muscle disorder) to a level that, even though it hasn’t been announced, has already been decried by TheStreet.com’s biotech reporter Adam Feuerstein as “unconscionable.” While the sales price has not yet been announced, it is expected to be in the range of $60,000 to $80,000 per year. At present, patients can actually get the drug for free from Jacobus Pharmaceuticals.
Finally, there’s Raptor Pharmaceuticals and its drug Procysbi. This medicine is actually a “sustained release” version of an existing drug, cysteamine bitartrate (Cystagon), which is marketed by Mylan Pharmaceuticals. Dr. Ranjan Dohil, a pediatric gastroenterologist at the University of California, San Diego hypothesized that coating the pills would lead to the drug being absorbed more efficiently. Raptor licensed this discovery from the university and ran a 43-patient, six-week trial. The results led to FDA approval to sell a coated version of Cystagon as Procysbi. What’s the premium that Raptor decided to charge for this innovation? Cystagon costs about $8,000 per year, whereas Procysbi entered the market at a staggering cost of $250,000 per year (a 31.3 fold increase over the starting drug).
Though it’s a small sample size, it seems that drug pricing increases in the range of about two to thirty fold are perfectly ok with BIO’s policies and principles, but increases in the 50 fold range are clearly not (at least when the info becomes public). It appears that BIO hasn’t been too concerned with the pricing behavior of its members until the Turing overpriced-drug scandal hit the publicity fan. The situation reminds me of that classic scene in the movie Casablanca where corrupt police Captain Renault’s officers raid a bar and he exclaims, “I’m shocked, shocked to find that gambling is going on in here!” just as the croupier hands him a stack of bills, saying “Your winnings, sir.”
After being shredded by both mainstream and social media as the personification of greed, Shkreli promised that he would drop the price of pyrimethamine, although he refused to reveal what that lower price might be. BIO’s actions should point him in the right direction. Drop the drug’s price to a lowly $405 per pill (corresponding to only a 30 fold increase in the drugs price), and perhaps (once the media pressure dissipates and he has settled the numerous legal issues he faces) he can reapply for membership in BIO.
The Bigger Issue
It’s clear that biopharma companies need to charge enough for their medicines to make a solid profit, and that they should be rewarded for taking risk. However, Shkreli’s business strategy was not tantamount to making innovative discoveries. Buying a company with an existing drug merely so you can
