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Drug Prices

More Price Hikes on Obscure Medication

Get ready for some twists and turns here. I wrote back in September about the business model of Retrophin, a company whose plans (at least for the foreseeable future) were to find small-market drugs, buy them from their obscure producers, and then raise their prices into geosynchronous orbit. That particular story blew up in unforeseen ways, capped by the company’s CEO, Martin Shkreli, making a bizarre appearance on a public forum (Reddit), which was of a piece along with his often ill-advised activity on Twitter. Shkreli was ousted by Retrophin’s board a few weeks later, amid accusations of stock-trading irregularities.
He went on to form Turing Pharmaceuticals, whose business plan, by contrast, was (at least at first) to find some small-market drugs, buy them from their obscure producers, and raise their prices into geosynchronous orbit. As reported here by Adam Feuerstein, his first target was praziquantel (Biltricide), the antihelmenthic made by Bayer:

Shkreli is negotiating with the German drug giant Bayer to purchase marketing rights to Biltricide, a drug used to treat infections caused by worm-like parasites called liver flukes. A course of treatment with Biltricide typically involves taking six to nine pills in a single day and costs around $100.
If Shkreli acquires Biltricide from Bayer, he plans to raise the price of the drug to $100,000 for a single-day course of treatment, according to people briefed on Turing’s business plans. No other changes or improvements to the drug will be made by Turing. The extra revenue generated by Biltricide is expected to earn Turing a fast profit for its investors and help defray the cost of developing other, experimental drugs, sources said.

But that sale seems to have fallen through. Bayer is not an obscure producer, as opposed to the former manufacturers of Thiola (the drug I wrote about last September), and when Shkreli’s interest alerted them to the drug’s potential for a price raise, they decided to just do that on their own. Effective earlier this month, they raised the wholesale price by 3.5x, apparently because insurance providers won’t care much about such a low-volume drug. That (as Feuerstein pointed out on his on Twitter feed) is at least far less than what Turing planned. (The Thiola price hike was 20x).
But even that price increase by itself is still not the sort of thing that I (or anyone else) would like to see. As mentioned in my second Thiola post, pricing power is a weapon, for sure, but it’s one that if you keep using indiscriminately can be taken away. “Not many people will notice” is not much of a good reason to unsheath it, either.
Praziquantel itself is not in the same category as Thiola, as far as I can see, where there really does seem to have been just one supplier. Several foreign generic suppliers make the compound, and Merck Serono has a long-standing donation program in Africa. So this one is not putting on the screws as hard, not that that’s an excuse.

30 comments on “More Price Hikes on Obscure Medication”

  1. PharmaHeretic says:

    Derek,
    Why do you hate capitalism? The corporate behavior you are criticizing in this post is just an extension of what pharma companies, including the one you currently work for, indulge in.
    Pharma companies are in the business of making money, not new and safe drugs. It is always easier to raise the price and use lobbying to maintain monopoly than seriously trying to discover new and better drugs, especially of the novel first-in-class types.

  2. Anonymous says:

    I wish people would learn to distinguish two types of capitalism:
    1. Social capitalism: Create long-term value for customers with innovation, and then distribute the value created among all contributing stakeholders, including customers, employees, suppliers, distributors, payers & providers, tax payers, and yes, also managers and shareholders.
    2. Anti-social / psychopathic capitalism (aka greed): Screw everone and take value from others while destroying it, in order to make a quick profit for management and shareholders.
    There is far too much of the latter, and its rapidly destroying society as we know it. And ironically, managers and shareholders will also pay the price, ultimately, as part of the same broken society and economy.

  3. Am I Lloyd says:

    First paper out of Turing Pharmaceuticals: “On Noncomputable Drug Prices, with an Application to the Sophistry Problem”.

  4. Anonymous says:

    Seems like these posts misunderstand pricing and financial markets. Don’t companies have the responsibility to investors and shareholders to extract as much value out of assets as possible?
    Can’t bash Turing and make excuses for Bayer (why do you continue to refer to Shkreli directly yet don’t mention Bayer’s management?)

  5. Anonymous says:

    Seems like these posts misunderstand pricing and financial markets. Don’t companies have the responsibility to investors and shareholders to extract as much value out of assets as possible?
    Can’t bash Turing and make excuses for Bayer (why do you continue to refer to Shkreli directly yet don’t mention Bayer’s management?)

  6. Ted says:

    Praziquantel is ubiquitous in the aquaculture trade for treatment of skin and gill flukes, so this isn’t quite the ‘closed’ market of Thiola in many ways.
    I think of Shkreli the same way I think of other hematophagous organisms. There’s no sense in hating them, but I have no compunction against
    seeing them mercilessly crushed.
    -t

  7. hypnos says:

    If I was Bayer, I was very careful with these kinds of tactics. “Small-market drugs” does not only mean “not many people will notice”, but also: the total gain will be limited. It may make a difference for a small startup, but certainly not for a large pharma company.
    However, we already have a lot of concern in some markets about the (very high) prices of drugs like Sofosbuvir or Ranibizumab and their burden for payers. Using aggressive pricing for obscure drugs will only give critics of the industry more material for press campaigns. Do we really need more “this child had to die because of pharma greed articles”?

  8. steve says:

    #1,4 and 5, no it’s not a misunderstanding of pricing and financial markets. Your philosophy seems to be screw the public, the only one who counts are the shareholders. That philosophy is exactly why large pharma is in the state it currently is in – short term gain for shareholders has resulted in long term losses for companies. Assuming you live in the US, aren’t you tired of being the one who finances the cost of drugs for everyone else in the world?

  9. Hap says:

    I’m so happy Mr. Shkreli was able to find a job and investors with sufficiently limited consciences. Who says there are no second acts in American life, even if no one wanted to see the first?
    I wonder if Turing has an estate. I’d certainly consider the nomenclature worthy of a slander charge.

  10. biotechtoreador says:

    #8, “short term gain for shareholders has resulted in long term losses for companies”.
    Any data to back that up? I guess depending on what you mean by long term vs. short term you may be correct, but it looks to me that some big pharms are doing well over the past decade (if that’s what you mean by long term): PFE up 40%, MRk up 27%, BMY up 136%, GSK up 12%, 42%.
    You are correct that US consumers subsidize drug research for the rest of the world. It’s blantantly unfair to Americans, but we don’t seem to want to elect anyone who will change that and likely deserve what we’re getting.

  11. Hap says:

    I don’t think the “using the profit to develop other drugs” line is going to deflect much criticism, either; unless anger is a drug, I don’t think Mr. Shkreli’s companies have been active at developing any.
    @10: I guess it depends if the “outsource your way to greatness” plan for pharma works out; if they can produce more drugs that way, then drug scientists might be acceptable collateral damage. If not, though, then the sustained increase in stock value is coming from irreplaceable stores (essentially from money and reputation made by prior investors and workers), isn’t going to be replaced by anything, and will eventually stop and lead to tears for whoever is left holding the bag….err, stock.

  12. imarx says:

    “Don’t companies have the responsibility to investors and shareholders to extract as much value out of assets as possible?”
    No. See: “http://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/”
    Stockholders are welcome to sell Bayer’s stock if they feel Bayer is not extracting *enough* value out of its assets, but there’s no rule saying companies have to wring every last cent out of their assets. I’m guessing most Bayer shareholders felt just fine about the original pricing.

  13. biotechtoreador says:

    @10, I should add to my comment above that the S&P is up 85% over the past decade so by comparison, yes, big pharma is underperforming.
    “tears for whoever is left holding the bag….err, stock.”
    And by that you mean anyone who invests in mutual funds as part of their pension (rare, I know), 401k, or IRA? Not only do we refuse to elect politicians to change the drug pricing system, we also invest in it!

  14. anon the II says:

    @ biotechtoreador
    I’m glad you’re not my broker. The four companies you mention are trading at about the same as they were in 1998. And the percentages you quote are well below market performance for a broad domestic index fund over the same time period. As prices dropped in the early aughts, the dividends got pretty nice but then they got chopped also. Over the last 15 years, pharma has been a pretty crappy place to invest. The same goes for a decade. Over the last 5, not so bad.
    The data to back that up are pretty easy to come by (eg google finance), though I also got to see it up close and personal.

  15. Anonymous says:

    @12 if you invest $25M into a developmental stage private co. you cannot just sell stock, but you obviously want this company to have the highest valuation in order to increase ROI. Make sense?
    @8 Payors decide what is worth covering. If budget impact is less than 0.01%, which is likely true, your point is moot.

  16. johnnyboy says:

    The idea that public companies’ one and only responsibility is to maximize shareholder value, which is now predominant in today’s US culture (see above comments) is actually a fairly recent one. Look back 30-40 years ago and you’d find that major companies’ top priorities also included keeping one’s workforce happy and stable, and being a societal force for good. It’s the large manufacturing corporations that really built up a prosperous middle class in the fifties. These priorities were gradually tossed aside in recent years, starting in earnest with the eighties’ “greed is good” mantra. Caring only about shareholder value is really an amoral simpleton’s way of doing business; it’s the easiest thing to just shout “shareholder value” as a cop-out for pursuing truly evil business practices that are essentially bad for society, like Shkreli and other Makenas do.

  17. Anonymous says:

    LOL @johnnyboy, how does one fund the development of future medicines?
    By generating revenue and raising capital.

  18. John Wayne says:

    @16 I completely agree with your perspective. I can only hope that treating employees well will become the new management fad of the future. I can already see the PowerPoint slides that show improved productivity and reduced costs associated with staff turnover. Hey, maybe on the job training will become a thing again too!

  19. biotechtoreador says:

    @16, “large manufacturing corporations that really built up a prosperous middle class in the fifties”
    They may have had some help from Europe and a lot of Asia having had some “issues” the prior decade that reduced competitveness….
    Maybe people were better in “the old days”. Again, it’s important to realize that these amoral simpletons who demand higher returns ever quarter are everyone who has a 401k/IRA. This certainly includes me, and may include you also.

  20. milkshake says:

    I have no problem with “what the market will bear” when it is based on competition rather than monopoly and rent seeking behavior. This case is particularly jarring because the price hike is not justified by any new development cost – they are not running even one clinical trial. And the drug is very cheap to make… Basically their business plan is told hostage people with a nasty parasite and see at what price level they decide to go without treatment.

  21. FarmHand says:

    14 Anon II
    OK, here is the data I got from Google Finance as you suggested, going back a couple of decades. Prices were collected monthly and corrected for splits. Hard to get this table to line up in the comment window, but the bottom line is that Big Pharma in the aggregate seems to have more or less matched the broader market. You tell me if that’s good or bad, just keepin them honest.
    Start Date MRK GSK BMY PFE Pharma AVG S&P Index
    8/3/1992 11.32 11.34 6.78 3.44 25.01
    2/2/2015 58.3 47.03 59.55 34.41 193.99
    Gain 515% 415% 878% 1000% 702% 776%

  22. Farmhand says:

    @16 johnnyboy
    Sadly, I have to disagree. A myopic focus on profits and shareholder value has generally been the norm, not the exception. The post-war 50’s were an anomaly, when both industry and the workforce were anxious to regain a sense of normalcy and stability. Once the memory of war and depression faded by the 60’s and beyond, it was back to business as usual.
    All that aside, what is really sad is that during this same period big Pharma managed to be both profitable and among the most respected companies in the world (Merck folks will certainly remember the “most admired” days). That began to change in the 90’s, and really went down the toilet when direct to consumer advertising started. That changed the public perception( “drugs are just another consumer product like toilet paper but damn those little pills are outrageously expensive. Good thing my insurance is paying for them..oh wait, it’s not.”) and the way Pharma companies viewed themselves ( “we’re just another consumer product manufacturer, but damn, product development costs and timelines sure are long. Good thing we can charge whatever we want. Hey, we got expenses, ya know.”). It’s no wonder that the public is clamoring for increased regulation and price controls, which will surely dampen any future investment returns and prospects for employment. I’m not sure if that bad smell can ever be removed, but pricing behaviors like the ones discussed in this post definitely are part of the problem, not the solution.

  23. non-pharma chemist says:

    “Interesting” discussions of shareholder value aside, hasn’t this material been off-patent for ages and ages? Unless there’s some wrinkle I can’t perceive then this entire plan boils down to
    1). buying a generic drug’s marketing name
    2). insanely raising the price of that generic drug
    3). hoping/wishing/pretending/not believing that customers will then source that same generic drug from a sane supplier at a reasonable price
    4). profit
    I haven’t done a detailed patent search, but I quote from the World Health Organization :
    “In the 1990s, the expiry of the praziquantel patent has led to a proliferation of smaller manufacturers in developed countries. For example, about 10-20 German companies now produce praziquantel tablets on order. The patent expiry has also led to an increase in the number of distributors of praziquantel in Germany. Consequently, there is an increasingly active and complex market for both raw materials and final product for praziquantel. Even Bayer occasionally buys from the raw material market.”
    I guess Bayer felt too guilty selling this fool the “marketing rights” to aspirin.

  24. Ted says:

    Prazi has also been a key tool in fighting schistosomiasis. I believe there are significant ongoing commitments by Merck(?) to supply African countries with millions of low cost doses.
    -t

  25. A Nonny Mouse says:

    Merck is committed to increase substantially the amount of Praziquatel that it donates.
    Unfortunately, many of the Chinese suppliers (its and generic manufacturers’ main supply) have had to stop production due to cyanide pollution problems. This has resulted in a price increase from $80/kg to $140/kg, which is quite significant when it’s being donated for use in Africa.This could also have a significant impact on the development of R-praziquatel which is being investigated for paediatric use.
    The main use in the west is not for humans, but for animal treatment where the price for a single tablet can be $50+.

  26. kjk says:

    The solution is hyper-loops to get to Niagra and Mexicali for $20 round trip. These evil restrictions don’t extend to other countries, do they?

  27. Anonymous says:

    @1 If water went from 1 cent a gallon to $10 a gallon tomorrow, would you be so apologetic for capitalism’s sake?

  28. Meds not bombs says:

    @8 “Assuming you live in the US, aren’t you tired of being the one who finances the cost of drugs for everyone else in the world?”
    Dives and Lazarus eagerly await our answer.

  29. Meds not bombs says:

    @19, “it’s important to realize that these amoral simpletons who demand higher returns ever quarter are everyone who has a 401k/IRA. This certainly includes me, and may include you also.”
    Alternately, some of us may simply acknowledge that our education, training, and the growth of scientific knowledge in general wouldn’t exist but for societal largesse, and are more than comfortable with paying that back.

  30. Anonymous says:

    Am I missing something here? Triclabendazole is the drug of choice for treating liver flukes in humans. I just have a hard time seeing this working. Payers are pushing back against arbitrary drugs hikes and have started playing hardball. I would think that the PBMs would just take Biltricide off of their national formularies.

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