On December 21, a report was released by Senators Susan Collins and Claire McCaskill, the respective Chairman and Ranking Member of the Senate Aging Committee. The report, entitled “Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System,” is the culmination of several years of investigations into bad behavior surrounding a handful of specific drugs. By identifying common elements of the involved companies’ business models, this work by the Senators and the Committee can help lawmakers and consumer advocates move forward to address issues with a clear picture of the market.
Five central elements define the business model for off-patent, sole-source drugs identified for their price-gouging ability. They come from a sole manufacturing source, are the gold standard therapy for a particular condition, serve a small market, are controlled through closed distribution, and finally, if they meet those criteria, can be used to price gouge. Four companies are discussed in detail: Shkreli’s Turing, Retrophin, Rodelis, and Valeant (with four of its drugs studied in report).
It should be noted that the market structure for off-patent drugs is markedly different from innovative drugs; the report states, “...none of the four companies had invested a penny in research and development to create or to significantly improve the drugs...the companies faced no meaningful increases in production or distribution costs.”
One of the more interesting tidbits in the report is the importance of Wall Street to strategic planning in this market. “The business model,” the report says, “[has] been actively supported and promoted by investors...Many of the companies were headed by senior management lacking in pharmaceutical background and hailing from the hedge fund world...These companies may have been run more like hedge funds than pharmaceutical companies.”
Communications between Martin Shkreli and executives illustrate this point. One executive notes that investors will be more attracted to a product with a closed distribution system because it limits generic entry, allowing the company to simultaneously jack up the price and increase the product’s lifecycle. Other communications described price hikes as a way to make billions of dollars for investors, almost out of thin air. Employees who spoke up about the questionable ethics of unjustified price increases were shown the door.
Congressman Elijah Cummings said at the Mylan hearing in late summer that he worried nothing would come out of the hearing and it would be the same "rope-a-dope" pattern we’ve seen in the past. This report, which comes from the Senate side but addresses the issues Rep. Cummings was speaking to, finally gives Congress the tools it needs to act on important issues in the market for prescription drugs, rather than focusing on individual products.
Incidentally, while the report does mention Mylan’s EpiPen briefly, the findings overall should give consumers better perspective on the relative harm from different companies. EpiPen uses a patented injector pen delivery system that is the “real” product that should be focused on, not the epinephrine inside. Further, the price spike for EpiPen was about 500%. The companies profiled in this report increased drug prices up to 5,785%. The lowest percentage increase was 310% on the price of Valeant’s Nitropress, but that was an increase from $2,148.30 to $8,8808.80 for the listed course of treatment. Compare that to about $600 for two EpiPens after price increases.
The Senate Aging Committee offers a panoply of legislative solutions to address the problems identified in the report. These must be top priorities for the next Congress, especially as it takes up the Prescription Drug User Fee Act (PDUFA) for reauthorization. The legislation is outlined in the last figure in the slideshow. You can read the full report here: http://www.aging.senate.gov/press-releases/collins-mccaskill-release-committee-report-of-bipartisan-drug-pricing-investigation