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Drug Prices

A “Moral Imperative”

Unfortunately, we have another example of “price of ancient generic drug shoots through roof”. Whenever this happens, the first thing to look at is the regulatory environment. After that you can go on about the greed of the company and its executives, the stupidity of the insurance companies, all the usual stuff, and you won’t necessarily be wrong about some of these. The statements of the latest CEO involved will make that easy (vide infra). But first look at how such price increases can even occur.

This time it’s nitrofurantoin, an antibiotic for bladder infections that’s been around since 1953. You don’t get much more generic than that. To be more specific, it’s the liquid formulation of the drug, and that’s what set off this latest spectacle. There are at least three generic companies that sell this product in this form, but the market has recently been disrupted by new FDA requirements for impurity levels. Manufacturers have had to pull their existing stocks and prepare new ones to the new specs, so there appears to be a (temporary) shortage, and one would expect the new liquid formulation to be more expensive once it’s back on the shelves, since it’s now harder to make.

I am not saying that the FDA’s new rules on this are wrong – not at all. But that’s the proximate cause of this latest increase. It’s worth noting that a bottle of the liquid formulation was not exactly cheap before all this, either – in the high-$400 range. (In case you’re wondering the price in the UK is similar). But Caspar Pharmaceuticals, one of the generic companies in this space, had taken their price up to $2,800. They did that quietly, though – did you hear about it? Has anyone out there heard of Caspar? What set off the headlines was a price hike by one of their competitors, Nostrum, who decided to come in at $2392 instead. (A quick note: people who work in drug discovery, which is what most people think of as “the drug industry”, will be saying “Who? What? Who are these people?” That’s because the list of small generic manufacturers is a pretty obscure part of the industry compared to the big research-driven companies, and operates on a different model (no research whatsoever, in general) and in a different regulatory environment. When this sort of thing happens, though, we’re all “pharma” in the headlines).

Nostrum’s CEO, Nirmal Mulye, has clearly been studying the Martin Shkreli Big Golden Book of Public Relations, because in response to questions about this new price he said that he was responding to the market, that their price was still below their competitor, and that it was “a moral requirement to make money when you can”. That gift to the headline writers having been delivered, the next step in the story was a response from the FDA’s Scott Gottlieb, who responded that “There’s no moral imperative to price gouge and take advantage of patients”. Whereupon Mulye declared that the FDA was “corrupt and incompetent” and likened their regulatory fees to highway robbery.

Definitely the look that you’d want for the drug industry these days – or any time at all, actually, since appearing greedy and pissed-off is a timeless classic that fits every occasion, right? But let’s break this situation down a bit:

  1. Mulye is basically correct that he’s there to maximize profits for his company. But his other comments undermine that position. Does it help the shareholders to call the FDA corrupt and incompetent? That’s like telling the state trooper who just pulled you over that you pay his salary.
  2. Gottlieb is basically correct that that there’s no “moral imperative” to take advantage of patients. But it would be more honest to admit the FDA’s role in causing shortages of some generic drugs at times, and in giving manufacturers ways (intended or not) to make insane price raises stick. To Gottlieb’s credit, though, he does seem to be addressing the latter problems (which are yet another set of regulatory issues).
  3. As Biocentury points out in that link above, there are several other manufacturers listed for liquid nitrofurantoin. and many of them have not (apparently) raised their prices. Keep in mind that they’re probably all getting the active drug itself from some supplier in China or India, and then working it up into the liquid formulation themselves (and now to the stricter FDA standards). One interesting detail is that there is a company (Amneal, whom I’d also never heard of) that seems to have had most of the market (>80%) for this exact product, but is “not currently manufacturing” it. Instant shortage. Did they stop because of the new FDA requirements, or was it something else? If you try to order the 230 mL bottles from the other suppliers at the listed $400-something, will they fill that request? Or back-order you, because no one ever orders it from them? Or tell you that the price is now $2500?
  4. How often does the liquid formulation have to be prescribed, versus the capsules? Because those are a lot cheaper (the manufacturing and QC for those hasn’t changed). It would be interesting to know what the shares of the nitrofurantoin market are by dosage form.
  5. It’s also worth noting that these price raises stick because insurance companies let them. They’re the real payers in the huge majority of cases. These small-volume drugs go through the roof, and it makes some small generic company or two a big profit, and the big insurance outfits just sort of roll their eyes because it’s not that big a deal to them, and would probably cost more to do something about than not. That’s a big part of how Mr. Mulye maximizes his profits.

So that’s how things stand. It’s not an uplifting thing to watch, for anyone involved – but that’s the state of the generic drug industry today. Let’s see if anyone does anything about it.

38 comments on “A “Moral Imperative””

  1. The Iron Chemist says:

    Having “a moral requirement to make money when you can” could technically be used to excuse pushing little old ladies down stairs to steal their purses.

    1. Derek Lowe says:

      For all we know, someone at McKinsey already has a slide deck on that.

      1. Anonymous says:

        The sooner you realize there’s only one business left in the world – the money business, just ones and zeros – the better off you’re gonna be.

      2. John Wayne says:

        Yeah, you just replace the ‘old lady’ with a payer people don’t like (insurance companies), the ‘push’ with a phrase like ‘market opportunity,’ and swapthe word ‘stealing’ with something like ‘maximizing shareholder value.’

        Please mail my MBA to my work address so I can get a pay raise.

  2. Dave says:

    Great recap of the issues.

    Are the specification changes public domain (or FOI)? Most bulk exceeds specifications by a lot, wonder if the changes requires all of it to be remanufactured?

  3. A Nonny Mouse says:

    There have been several instances of this happening in the UK in the last few years, but it goes largely unreported. The cases that I have seen is when a major has decided that a product is too small for them and hands the PL over to a smaller outfit which then pushes up the price substantially.

  4. A Nonny Mouse says:

    Pfizer Inc and Flynn Pharma won an appeal on Thursday against fines totalling nearly 90 million pounds ($120 million) imposed in 2016 for ramping up the cost of an epilepsy drug.

    It had taken action against the drugmakers after the UK price charged for 100 mg packs of the epilepsy drug jumped 2,600 percent from 2.83 pounds to 67.50 in 2012, before being reduced to 54 pounds from May 2014.

    Even the big boys are at it and getting away with it!

  5. Uncle Al says:

    “the FDA was “corrupt and incompetent” One must add “self-serving” and “uncaring.”

    Selamectin for cats (ecto- and endoparasites) in OEM packaging from Australia (including shipping), is 25% the US price. It does not require a veterinary prescription, nor is there a purchase limit. This not even human pharma.

    Having done materials and processes for intraocular lenses, human sight loss in the US is amplified byFDA intransigence mandating known defective technology and barring proven (in one case, substantially) superior product. Consider a million cataract surgeries/year at $5-8K cashflow each versus 5 ml of dispersed lanosterol eye drops. I have empirical evidence in support. Why would one crash an insurance-fueled $8 billion/year industry (plus false reimbursement claims at all levels)?

  6. RM says:

    Nostrum: A usually questionable remedy or scheme

    Nostrum: An ineffective but favorite remedy for a problem, usually involving political action.

    That about covers it, doesn’t it?

  7. Chrispy says:

    Well, I see that it is less than a buck a gram from Sigma, although at 97% purity you might want to recrystallize it.

  8. milkshake says:

    if I am not mistaken, Procter& Gamble was big in nitrofurantoin market (which was not so big to begin with because the antibiotic is fairly toxic)

    Anyway, this is super simple drug that is fully synthetic, no chiral centers, needs only couple of steps to make. So price gouging on it is particulaly egregious

    1. Resident says:

      It’s still considered first line for simple cystitis in many places. Its also used for prophylaxis. I’m not a big fan (due to the toxicity), but it does have the advantages of being urine specific and low resistance rates.

      I’ve never prescribed or seen prescribed the liquid (as beta lactams are typically used in children). I assume it’s typically used when given by feeding tube – utis are a common problem in the seriously mobility impaired.

  9. Mark Plummer says:

    We all know that costs of medicines have nothing to do with costs of materials. I for one am glad to see that an antibiotic has a relatively high price— maybe they all should. What is the value of the antibiotic even if it is from the 50’s if it saves you from hospitalization or saves your life?

    1. McChemist says:

      Arguing for value-based pricing for a generic drug? Seriously? Tell me, would you also enjoy value-based pricing of, say, food? After all, what is the value of food even if it is some bland chicken dinner if it saves you from starvation? Should you be paying way way more for food than you already are?

  10. lee sutherland says:

    We all know the costs of medicines have nothing to do with rational value outside of a regulatory capture monopoly- we should change that. Every dollar wasted on overpriced old drugs via a license monopoly and protected by a 3 1/2-5 year backlog on generic license reviews is a dollar that people will not have later on to save their lives down the road, educate their kids, or buy food.

    Time to allow the monopolies to be gutted to fertilize greater access and more innovation. Many drug companies could not survive in that environment, and really should not survive. Others will get on with the business of innovating. Drug companies should incentivized and hungry to develop new drugs for new needs, not encouraged to rest behind government laws that support irrational monopolies.

    Allow drug importation and actively promote policies and programs to increase entries into compounding formularies. It is in the public interest, which is the only reason to have an FDA in the first place. No other category of business could sustain the same corporate behavior as the drug industry for long without massive antitrust action or actively promoting diversification. It is a life and death issue on a par with national security and energy security.

    1. AVS-600 says:

      If you had read the original post, you would have noticed that the drug companies that develop new treatments and the drug companies that manufacture old generics are completely separate entities. You would have also noticed that there is no monopoly on the drug; multiple companies are selling it.

  11. cynical1 says:

    I briefly visited the Nostrum website. According to their website, they are privately held, so this is not a publicly traded company. I have no idea how many shareholders they have but for all I know there could be one guy who owns the whole company. So I am not even sure that they are forced to make a profit at all if they are not publicly traded. Granted, only the government is in business to lose money all the time.

    But they are also developing non-generic drugs on their own which appear to be mostly in-licensed NCEs. Clinical trials for non-generics are not cheap. Maybe they need the cash to fund their trials? Isn’t that exactly the excuse that big Pharma uses for why all their drugs are so expensive? It sounds like a double standard to me.

    Sounds like they also need a much, much better PR guy as CEO. I wonder if he either is or is related to a major “shareholder”. He should learn to be quiet.

  12. Eric says:

    A moral requirement to make money? that’s a new one.

    I feel quite immoral for those charitable contributions I’ve made over the years.

    1. Chrispy says:

      I think he might have meant “fiduciary responsibility.”

      1. Scott says:

        Yes.

        While he doesn’t necessarily have a moral responsibility, please repeat after the business major:

        Any CEO of a company has a fiduciary responsibility to make money for the owners of the company.

        1. tangent says:

          But the duty of loyalty is not specifically to make money for the shareholders, but to act in their interests, my corporate lawyer friends tell me. Unless the shareholders have an ethic of profit supremacy, nobody says the CEO has to make one up.

          After all the point of being a fiduciary is to say the CEO has to place the interests of the shareholders above his own. Placing the interests of the shareholders above those of third parties is not required (nor proscribed, it’s just out of scope).

          Now in this specific case if the company’s privately held and he’s also the owner there’s no fiduciary nothin’.

          1. Scott says:

            Pretty sure all the voting shareholders have an established policy of profit supremacy. Of all companies.

  13. Thomas Lumley says:

    I don’t know about US prescribing of the liquid formulation, but it’s not on the subsidy list in NZ — just the capsules

  14. Wavefunction says:

    I’m sure Mulye got instantly inducted into the Ayn Rand Society Hall of Fame for saying that.

    1. Bagger Vance says:

      If he thinks pandering to lolbertarians is going to save him he’s barking up the wrong tree.

      The current administration is populist. Populism is doing things for the people, not some abstract GDP numbers

  15. Chemjorber says:

    “a moral requirement to make money when you can” sounds like it could be the 12th rule of acquisition. Could Nirmal Mulye actually be a ferengi? He definitely has the name to match.

  16. RichBiotechDude says:

    I completely agree with Nirmal Mulye and if I was the patient, I’d be happily glad to pay the extra charges to support his extracurricular activities (partying at strip clubs, sniffing cocaine off butts, gang bangs, hanging out with the hombre mobs and biker gangs)

  17. n says:

    Is the liquid form absolutely essential? In NZ the 100mg tab is approx. $US0.25 (yes, under a dollar)

    1. Chris says:

      Re- Is the liquid form absolutely essential? In NZ the 100mg tab is approx. $US0.25 (yes, under a dollar)

      Often needed for disabled on PEG feeds.

      Nitrofurantoin has an interesting mechanism of action, it is thought bacterial nitroreductase converts nitrofurantoin to a highly reactive electrophilic species.

      1. Some idiot says:

        Peroxynitrates? 😉

  18. ken melvin says:

    Imagine a company that provides a good jobs for 1,000 workers and a fair income to its owners, keeps all in good repair and up to date, does diligent research, … and makes little or no profit.
    Not imagine if someone like Mitt bought it and demanded a fair return on his investment because that what the good book says, and shortly closes the planet for failure to provide the fair return?

  19. Anon says:

    Pick one: capitalism or moral integrity

  20. Isidore says:

    It’s easy to demonstrate righteous indignation and poke fun at capitalists who are out there to maximize their companies’ profits and increase shareholder value and, to be sure, company executives like Nirmal Mulye and Martin Shkreli make this very easy. But if, like most Americans, you have a pension plan or a 401k you should be thankful that they are trying to do so, and in the vast majority of cases without resorting to Caspar or Nostrum tactics.

    1. Hap says:

      Money is a societal agreement – it has value because a society it agrees it does, and because its establishment helps society to do useful things. If enough people decide that getting money however you can is OK, at the expense of others without being useful, then eventually the others will decide that they should get money however they can, too, generally involving guns and knives, and there won’t be any society or money to keep. Apparently Khruschev understood this better than lots of businesspeople.

      1. Isidore says:

        Sheesh! I simply point out that most of us, and not just in this business, benefit from company executives maximizing shareholder value, which can be and usually is done in ways having nothing to do with how Shkreli or Muley do business and you bring up Kruschev?!

        1. Hap says:

          It was mostly that there is a line (somewhere) between getting as much as you can and getting too much, and that assuming this is too much doesn’t mean that companies don’t have to get money at all. I imagine that smaller companies have less to lose seeing if trying to get more than people have tried to before will work, but if a tactic such as this works, it will become part of the expectations for obtaining shareholder value everywhere.

          There’s also the issue of which shareholders’ value you try to increase (short- versus long-term) – unless everyone is one or the other, “maximizing shareholder value” can’t be in all shareholders’ best interests, and generally people in charge take the choice that makes them more money or makes their job easier (for the time that they intend to be there). Acting in this might not be in shareholders’ best interest unless they get out before their CEO does.

    2. fajensen says:

      like most Americans, you have a pension plan or a 401k you should be thankful that they are trying to do so,
      Really? Even when pension plans and 401k are not keeping pace with the cost-of-keeping-onself-alive for long enough to enjoy the pension/401k!?

      Besides, “They”, the same kind of CEO, are scamming and gouging at pensions and investments too (f.ex. Calpers), so, it’s almost like most Americans are getting it from both ends and also must be Grateful for the service rendered!?

  21. Dominic Ryan says:

    Unfortunately drug pricing a mix of emotional, business and economic factors. Add to that the lack of transparency with insurance companies as the majority of payers as Derek says.
    I’ll pick on oncology for the moment but others could be pulled in. The price point for oncology medicines is generally one to two orders higher than for antibiotics. Society as a whole has not come to grips with what that means. Without addressing the correctness of the high cost side, what is clear is that with that differential there are fewer and fewer large companies investing in research, i.e. discovery, for antibacterial drugs. To alleviate that somewhat Carb-X is fostering more early ventures to pursue interesting and promising ideas.
    Even with that there are challenges ahead for getting the eventual drugs on the market.
    I fear that the emotional side of the problem is going to make finding a stable solution that builds a pipeline of effective antibiotics very difficult. A dispassionate approach might equate the value of lives saved across all therapeutic areas. Should an antibiotic that cures, permanently, a patient from a life-threatening disease cost the same as an ocology drug that extends life by 12 months? There would be a lot of resistance to that…
    To some extent antibiotics are a victim of past success. The trouble is that this past success, and the apparent ease of that success, is not a model for what it will take to keep society from having some real problems with infection.
    The other emotionalism that impedes this discussion is the tension between the imperative to push a profit felt by the CEO and the sense of greed felt by the patient who can no longer afford a drug (or surgery, let’s not forget that). When you add some grandstanding on twitter it hardly tamps down the emotional.
    I suspect that peeling off even 15% of what is spent on oncology drugs would make a huge difference to antibacterial pipelines of the future.

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