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Business and Markets

Market Exclusivity Is Sometimes Too Much

Readers might remember a small company called Catalyst Pharmaceuticals, who have had a business plan that goes something like this: take the known small molecule that’s used for the rare disease Lambert-Eaton Myasthenic Syndrome LEMS, 3,4-diaminopyridine. Rebrand it as “Firdapse”, and do the clinical work needed to get it officially recognized by the FDA (it’s one of those therapies that’s been grandfather in for many years). Oh, and charge a lot more than the current supplier, Jacobus Pharmaceuticals, who provide it for free. (It truly is a small market).
Well, that plan has been diverted somewhat. As mentioned in that 2013 post, Jacobus was planning a clinical trial of their own, and Catalyst was apparently taken by surprise when those results showed up last week in a poster presentation. Now no one’s sure who will file with (or get approval from) the FDA first.

Jacobus Pharma decided to conduct a clinical trial of 3,4 Dap in LEMS and seek FDA approval as a way to stop Catalyst from profiting off LEMS patients with Firdapse, Laura Jacobus said in a 2013 interview. Laura runs the eponymously named drug company with her father David.
“Firdapse is not a new compound. It’s the same drug we make. What Catalyst is doing is not the same as a company profiting from a new invention. What Catalyst is doing is making money off LEMS patients. They don’t want to help LEMS patients, they just want to make money. If I worked for Catalyst, I wouldn’t be able to sleep at night,” said Laura Jacobus.

She has a point there about new inventions. As mentioned in those posts I linked to in the first paragraph, and in several others here over the years, many of these cases are unintended consequences that the FDA unleashed when it asked for older drugs to be put through the regulatory system. But that doesn’t always have to be the case. Companies can buy up older approved drugs and just ram a new price home, because why not? That’s what’s been going on with Thiola, and this new piece at Pharmalot details a number of other recent cases.
Valeant, for example, seems to have a very predictable strategy: the day that they get the rights to an old drug, its price at least doubles, and can go up fivefold or more, depending on what they think the market will put up with. You sometimes hear companies like Catalyst talking about how now that the old drug under study has been taken under their regulatory and manufacturing wing, that it’ll be so much better quality, and be so much better for the patient community. Valeant doesn’t bother with any of that crap:

On Feb. 10, Valeant Pharmaceuticals International Inc. bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%.
Neither of the drugs, Nitropress or Isuprel, was improved as a result of costly investment in lab work and human testing, Valeant said. Nor was manufacture of the medicines shifted to an expensive new plant. The big change: the drugs’ ownership.
“Our duty is to our shareholders and to maximize the value” of the products that Valeant sells, said Laurie Little, a company spokeswoman. “Sometimes pricing comes into it, sometimes volume comes into it.”

Pricing power should come to those who have earned it, as far as I’m concerned. Do the work, conduct the research, take the risk, and you should be able to reap the rewards. Take over a smaller company that (from your standpoint) is just too dumb to realize that they could have put the squeeze on by cranking the price up by a factor of five? That doesn’t deserve so much of a reward. What I’d like to see is an easier path for generic competition in such cases. Let someone come in and compete on price, because there’s clearly room for it.
Whenever I write about these cases, there are always a couple of comments to the effect that hey, that’s the free market, dude – that’s what you like, isn’t it? But drugs are not generally sold under a free market system. No market in which a single supplier can raise the price by 525% overnight for no reason other than “Because we can” can be all that free, or all that much of a market, if by “market” we mean “competition between various firms for a share of the customers”. The market-exclusivity incentives provided by the FDA (through deliberate action or through regulatory barriers) are strong ones, but they should be handed out with care. As it stands, I think it’s too much of a reward, in these cases, for too little work.

65 comments on “Market Exclusivity Is Sometimes Too Much”

  1. anonymous says:

    Why do I have the feeling Biotech Capitalist is going to weigh in on this?

  2. molecular_architect says:

    Kudos to Jacobus. If Hell exists, there should be a reserved section for the predatory executives running firms like Valeant and Catalyst.

  3. Anonymous says:

    So much for “create value and share it”. Instead, it’s “take what you can get away with”. People with this philosophy should be locked away from society like any other thief.

  4. biotechtoreador says:

    Nope, not a free market at all for drugs, which is what makes it so spectacularly profitable. GILD employs hundreds, if not thousands, of chemists thanks to charging $87,000 for a course of Sovaldi. They could sell it a LOT cheaper, but then a lot of those chemists would have to give up their BMWs.
    Americans seem content with subsidizing the cost of drugs in the rest of the world. If Americans really wanted price controls on drugs, they could elect politicians to enact these. I’ll not hold my breath.

  5. Anonymous says:

    “chemists would have to give up their BMWs”
    …in some bizarro world where chemists have BMWs rather than 2004 Camrys.

  6. Moses says:

    @ 4, Biotechtoreador.
    You’ve got it the wrong way round. GILD has to charge for Sovaldi because they have been employing hundereds of chemists (and biologists, toxicologists, clinicians, etc etc) for many years, most of whom won’t be in the BW class at all.
    If you consider Sovaldi to be too expensive, read earlier colums here, or John LaMattina’s blog on Forbes. It’s a one-course drug, not a life sentence.

  7. John Wayne says:

    My car is 15 years old, and it’s not a beamer; where do I sign up for this gravy train?
    Trust me, very few chemists are getting rich off of the various antics that happen in pharma. For that, you need a different advanced degree.

  8. Derek Lowe says:

    #5, #7: pretty close. I get paid well, but I have a 2004 Honda Accord in the garage, too. That replaced a 1989, which I drove until it basically fell apart one day on I-91, north of New Haven.

  9. Slurpy says:

    Hell, I just spent two months and 4000 miles driving on the spare for my ’05 Accord, because I didn’t have a hundred bucks to buy a new tire (Cincinnati potholes). Although I am a polymer chemist, not in biotech, so maybe I’m just in the wrong industry. It’s admin that has the BMWs and Mercs and Audis, not the people that wear safety glasses.

  10. Ryan says:

    Up until a couple weeks ago, I drove a (third hand) 1999 Volvo Station wagon.
    That’s kind of like a BMW, right…

  11. Hap says:

    @4: You’d have probably been more accurate dropping smack on investors (most of us, with varying levels of responsibility depending on market investment) – as long as companies are encouraged to do whatever makes money (now) and have the ability to do so, they will. Of course, you’d have to also look at the level of control most investors actually have over the behavior of the people who run their companies (which is probably less than they do when voting in national elections – while my proportional strength is greater for elections/proxy votes, there doesn’t actually seem to be any effect on their actions, while with elections there is some change in consequences).
    Of course, for chemists getting paid, you’d have to assign more responsibility to the people running the show – their gravy train seems a lot longer and more lucrative. Their gravy train is also a lot more predictive of corporate behavior, since coming up with drugs tends to get companies acquired and chemists and biologists fired, while acquisitions and drugs (or their lack) get management paid, no matter what.

  12. Andy II says:

    Wonder who has developed these repackaging/rebranding of known drugs with premium pricing strategy. One of those MBA consulting companies? Executives are obsessed with premium price and say all these are for shareholders’ best interest.

  13. Anon says:

    The solution to America’s drug cost woes: go vegan and celibate.

  14. Brett says:

    Valiant didn’t need to defend it as anything other than extracting more value out of their rent-seeking, not when the Manhattan Institute guy was willing to make the generic “but the profits from this rent-seeking pay for more research!” argument.

  15. Aileen says:

    Perhaps this has been discussed before (or I’m a bit dense), but how does your business plan to charge a lot of money for a drug work if your competitor gives it away for free? Seems like there’s no incentive to purchase from you.

  16. anonymous says:

    In todays america, high drug prices are the norm. Even the routine generics are bloody expensive nowadays. Thanks largely due to the FDA.
    The FDA creates monopolies by taking TOO MUCH TIME TO approve generic equivalents. If the FDA can move fast – there will be more competition and the culture of high pharmaceutical prices wont set in.
    If generics can be so expensive, why wont INNOVATIVE drugs (oncologics and biologics) be ridiculously expensive ?
    Thankfully this price scam can only happen to Americans. the rest of the world is wiseand will extract fair pricing (innovative or generics)

  17. Anonymous says:

    Jacobus is selling (or giving away) a drug that is so old that it never needed to get FDA approval. If Catalyst gets FDA approval for their version of the drug, the FDA will give them market exclusivity preventing Jacobus from selling (or giving away) their version.

  18. Aileen says:

    Thank you, #17. I hadn’t realized that if you did the study, you got exclusivity.

  19. Nekekami says:

    Hmmm, a price hike on drugs for treating harmful conditions, and an explicit admission that there’s been no actual work done on the drugs, just an increase in profit? Quite reminiscent of the old kidnapping/hostage taking business plan… “Pay the ransom, or the persons will die”
    Sounds like Valeants HQ would be a suitable target for some Reaper drones.

  20. FedUp and Checking Out says:

    Long time reader, first time responder. A couple of points:
    1. Valeant and the like are the “new wave” of pharma – run by brash MBA CEOs who don’t care a bit about drug discovery – just profits, and would sell their mothers if it made money.
    2. Catalyst and most other biotechs (including the one I work at) are dedicated to getting Valeant and like to buy them so that we can all get out of this hamster wheel
    3. No self-respecting GILD manager would be driving a BMW – its all about the Tesla in the Bay Area….

  21. academic111 says:

    Allow me to ask the obvious: How can the FDA get involved given the apparent black and whites of this scenario? They swept in during the single patient and compassionate use issue on the Chimerix drug, why can’t they figure out a workaround here around their own loophole?

  22. Andy II says:

    #21 FDA has nothing to do with pricing or patent driven market exclusivity. It will review the application (NDA or ANDA or sNDA) to make sure the safety and efficacy for the patients. When a company intends to make a old drug to a “new” drug, it will submit an sNDA with changes in the “label” to claim the new one is different from the old one, which requires a clinical study to support it. If that new drug gets approval from FDA, it will get a regulatory exclusivity of 5 yrs. This exclusivity applies to the drug product, not the API. Therefore another company can use the API with a different formulation as another new drug or would sell the “old drug” as is. It is not infringement.

  23. a. nonymaus says:

    Behind every corporation, are people. Some people are hard-working folks who add value to the world as well as the firm. Others are parasitic rent-extractors that do not. To affect the behaviour of a corporation, one must incentivize the people who are driving those behaviours.

  24. supporters says:

    I am sorry but it’s not just MBA’s and CEO’s; people who buy stocks are also responsible.
    Also, it’s not just this or that company that is profit driven and greedy. Most humans and every other company are greedy as well.

  25. DCRogers says:

    Now that “corporations are people”, shouldn’t they be judged the same way we judge humans?
    — World Health Organization ICD-10
    — Manual of Mental Disorders DSM-IV
    [ ] Callous unconcern for the feelings of others
    [ ] Incapacity to maintain enduring relationships
    [ ] Reckless disregard for the safety of others
    [ ] Deceitfulness: repeated lying and conning others for profit
    [ ] Incapacity to experience guilt
    [ ] Failure to conform to social norms with respect to lawful behavior
    You can fill out this list yourself and see how closely the “psycopath” label fits.

  26. Anonymous says:

    If you go into the parking lot of most companies, it’s usually the scientists that have the most non flashy cars. Mostly older Hondas, toyotas, or other reliable imports. The business and sales people are usually the ones with the BMWs, Lexus, Audi, or other luxury brands.

  27. Anonymous says:

    The answer to your bullets is obvious. Our industry has been dysfunctional for a long while by now.
    The passion (aka love) required to do drug discovery the right way is not compatible with the current business-driven paradigm.
    The bean-counters will suck the industry dry of its blood. Not sure anything can be done.
    Let’s enjoy our 100K+ miles Toyotas while we have money to buy gas for them to run.

  28. Chemjobber says:

    ’02 Toyota Sienna checking in here. Yeeeaaahhh!!!!

  29. CMCguy says:

    #25 As Michael Corleone says in the the Godfather “It’s not personal, it’s just business” so corporations are not really people but businesses.

  30. Fat Old Man says:

    Hey Derek,
    The road N of New Haven wouldn’t happen to be that bumpy bridge by any chance? I had a car fall apart there too, shocks on both sides break right off the frame at the same time. Quite a ride back to Rockland County.

  31. flem says:

    #29 Tom Hayden said that to Sonny after his father was shot.
    We should control the sh%t out of off-patent molecules – use judgement to allow price increases only when justified – if there is no real innovation and no material risks/cost were expended..then limit prices.

  32. Where's my Beemer? says:

    2007 Mazda with 177,000 miles on it

  33. milkshaken says:

    “…the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
    Adam Smith, The Wealth of Nations

  34. Dr. Manhattan says:

    “The business and sales people are usually the ones with the BMWs, Lexus, Audi, or other luxury brands.”
    Yes, i have noticed that as well. The big rewards do not accrue to the people who actually create the products that propel the company sales. Reminds me of the line from Aaron Copland’s Lincoln Portrait:
    “It is the eternal struggle between two principles, right and wrong, throughout the world. It is the same spirit that says ‘you toil and work and earn bread, and I’ll eat it.”

  35. biotechtoreador says:

    “The big rewards do not accrue to the people who actually create the products that propel the company sales”
    True, the big rewards go to the ones who actually get people to pay for the drugs and who provide the infrastructure to make the drugs. It may not be nice that guys like VRX have figured out a way to skip the R&D step, but it’s pretty good business (at least in the short run, which is all most people care about when they get their 401K statements every quarter).
    So we have investors (almost everyone) who demand higher profits quarter after quarter and voters (almost everyone) who are happy enough with the current rules surrounding drug exclusivity that they keep electing the people who propagate the current system. Seems win-win!
    I assume people commenting on lack of BMW ownership simply haven’t had the time to stop by the BMW dealer….

  36. Ted says:

    Our handsome household compensation from a GILD chemistry job has netted us a 2004 Jetta. If I’d have realized how rich we were, we would have sprang for the Passat.
    Still, it beat the heck out of the ’88 Camry – and I suppose it is German…

  37. CMCguy says:

    #31 Actually you are correct Robert Duvall (Tom Hagen) said something similar to James Cain (Sonny) regarding why Don Corleone was shot in attempt to calm him down from brash retaliation. I looked this up and Al Pacino (Michael) has quote “It’s not personal, Sonny, it’s strictly business” when advocating he be the trigger man.
    Regardless to reinforce the point I think #25 was trying to make is that sometimes today’s corporations appear to act as psychopaths (or Mob organizations) placing profit (now calling it shareholder value?) above any responsibilities to people. Maybe I have rose-tinted glasses but do not believe business was always that way, particularly in Pharma where dedication was more to try to find drugs to help people (and expect generous return to follow to sustain new efforts).

  38. johnnyboy says:

    I realize that biotechtoreador is just a troll, but I have to call some of his (and others’) bullshit, about all this being the fault of small-time investors and retirement funds “demanding” the highest possible returns and not caring how these are gotten. This is just a cop-out for managers and other apologists, looking to justify their own unjustifiable behaviors: “we have no choice, investors demand it !”. Well I am a small time investor and contribute to retirement funds, and I don’t “demand” anything apart from some reasonable returns and as few losses as possible. I put my money in stocks for innovative companies, and I’ve made some pretty nice gains over the years, without ever having to invest in vulture companies. And if I had a real say on my retirement funds’ investments, the only thing I would “demand” would be for them to divest from corporate raiders like Valeant, Catalyst and all the other Makenas. And I’m pretty damn sure I’m not the only one who cares about where my retirement money comes from, hence the rise of ethical funds (and pressure for divestment of some public employee funds from the most egregious companies). So sorry Charlie, but don’t put Valeant on me – look in your own backyard first.
    Johnnyboy,Subaru Impreza 2006

  39. Anonymous says:

    What would be of drug research without Japanese cars…

  40. Anonymous says:

    My medchem career (and life stages) expressed in cars:
    ’78 Chevy Malibu Classic
    ’94 Ford Explorer
    ’05 Toyota Prius (current)
    But I did ride in a BMW once. Does that count?

  41. Anonymous says:

    My medchem career expressed in cars:
    ’69 Chrysler Newport (grad school)
    ’91 Honda Civic (first car of career)
    ’95 Volvo 850
    ’05 Porsche Cayenne (bought 14 yrs old)
    ’95 Volvo 850 (current)
    Some of you will identify me by my automobile fingerprint.

  42. american cars says:

    Not a single American chemist drives an American car? Interesting.

  43. Anonymous BMS Researcher says:

    First car I owned was made by GM in the 1970s, near its nadir of quality. Since then have owned cars from Honda, Subaru, and Toyota. Currently driving a 2000 Camry which I might replace around 2016 or 2017. Several times a year I drive a rental car; most of them are noisier than my old Camry which still rides smoothly and quietly.

  44. souls_at_zero says:

    ’95 Nissan Primera, beast of an automobile.

  45. Secondaire says:

    2006 Subaru Forester with a crack in the windshield.
    #42-and why do you presume all of the chemists here are American?

  46. Hap says:

    Particularly for small and medium-sized cars, American cars haven’t been very good. Saturns were decent, and had a fixed (and generous) profit margin and reasonable union cooperation, so of course GM had to nuke Saturn. Small- and medium-sized American cars (I think the Cruze is significantly better than the Crapolier, for example) are getting better, but there’s lots of other cars that are as good or better for similar prices. Add that many of the jobs have been shipped elsewhere (my first car – a Dodge – was Mexican), and the point of buying American cars for being American seems lost on me.
    I feel out of place, though. I have a 2012 Civic (though I had a 2002 Civic that I wouldn’t have replaced if it hadn’t been totaled), and my wife has a newer CR-V.

  47. alig says:

    Don’t hate the player, hate the game. Valeant didn’t write the law or issue the regulations. Congress and the FDA are to blame for bad laws and poor implementation.

  48. Hap says:

    I see no reason not to consider Valeant wrong and destructive for their actions – the fact that other people have allowed them to pact in such a manner doesn’t absolve them of guilt for doing so. It just means that they’re not solely to blame, and that the FDA and Congress should be blamed, too.
    Congress and the FDA can be blamed for bad implementation, but unless they intended it so, their wrong is not intentional. Valeant knows what they are doing and celebrates it, so they have chosen to commit conscious wrong, and deserve the contempt for it.
    Hate the player and the game.

  49. biotechtoreador says:

    “absolve them of guilt for doing so”
    What guilt would VRX need to be absolved of? Its a company that is seeking to legally maximize profits: they ain’t claiming to be Mother Teresa. Maybe it’s more virtuous to make money peddling erection pills or rebranding single enantiomers as expensive treatments for dyspepsia or pretending that RLS, PBS, or CDE (chronic dry eye) are diseases? How about spiffy shiny phones made by poorly paid laborers, is that an OK way to make money? Is it OK to buy products from companies that close their US plants to move production to Mexico? Pass me another Hershey bar!
    Charities are meant to be altruistic. Corporations are meant to maximize profits.

  50. NMH says:

    Definitely can see BTR’s point. Also, we, as consumers, do not have to support these sleazy antics by having healthy diets and exercising (so we dont have to go on expensive meds), and not buying the latest gismo (I myself don’t have a lap-top or a cell phone, and am using a phone produced sometime in the 1970’s).
    The problem is if you choose to avoid involving yourself with sleeze for your career, its becoming increasingly difficult to make a living. I wish the gov’t could do something about that.
    BTW, I drive a 2001 Corolla that’s falling to pieces (cant even open the drivers side door).

  51. Richj Rostrom says:

    No market in which a single supplier can raise the price by 525% overnight for no reason other than “Because we can” can be all that free, or all that much of a market, if by “market” we mean “competition between various firms for a share of the customers”.
    This is an argument for the abolition of patents. Monopoly pricing power is the reward to inventors for their work. Take that away in the name of “fairness” and the incentive to invent goes away.
    BTW, what is the difference between “raising the price 525% overnight” and “not cutting the price 80% overnight”, in both cases because there is no alternate source?

  52. Biotech Capitalist says:

    While I do agree with the sentiment that it is innovation and R&D that deserves the reward, if Catalyst is pursuing PhIII for market exclusivity, that must mean that a PhIII with the API has not been performed? Though the drug is on the market and given to patients, we all know that the results of a formalized PhIII are never to be taken for granted…

  53. Oliver says:

    If we are all starting a dick-measuring contest here:
    German Chemist
    2007 Merc A-Klasse 190 CDI

  54. Anonymous BMS Researcher says:

    “2001 Corolla that’s falling to pieces (can’t even open the drivers side door).”
    All the doors on my 2000 Camry can be opened. The only thing that no longer works is the clock, which died a few years ago and doesn’t seem worth replacing.

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