Why has the cost of some drugs skyrocketed? That's the question the Joint Economic Committee explored at a hearing yesterday in which some specialty pharma companies were skewered for raising prices dramatically after buying meds from larger drugmakers.
Among those cited were Ovation Pharmaceuticals, whose ceo, Jeff Aronin, is a PhRMA board member. In her opening remarks, US Senator Amy Klobuchar, a Democrat from Minnesota, indicated she asked the Federal Trade Commission to investigate Ovation for allegedly exploiting a lack of competition to one of its products. Another company cited was Questcor Pharmaceuticals.
"When we have pharmaceutical companies like Ovation or Questcor increasing prices to astronomical levels because of the lack of competition in the market, their actions are able to exploit an extremely vulnerable and captive market," she said. "These staggeringly high prices, in turn, threaten the financial stability of middle class families relying on these drugs."
Alan Goldbloom, ceo of Minnesota Children's Hospital, testified that Ovation's Indocin is an example. The drug is used to treat patent ductus arteriosus, or PDA, a condition that can interfere with breathing in newborn and premature babies. Until January 2006, the drug cost about $108 per unit. A few months earlier, though, Ovation bought the med from Merck, gaining exclusive rights, and the price jumped to $1,500 – a 1,278 percent increase.
"Indocin is not the only drug Ovation has marked up in such a dramatic fashion," he continued. "Three other drugs that were purchased from Merck – Cosmegen, Diuril Sodium, and Mustargen have seen price increases of 3,437 percent, 864 percent, and 979 percent, respectively. Cosmegen is an agent used to treat a variety of pediatric cancers, Diuril Sodium is a diuretic used to reduce fluid overload in infants and neonates, and mustargen is used to treat brain tumors and certain lymphomas."
21 Comments
I was there. Very interesting indeed.
My post regarding the hearing can be found here.
I was there. Very interesting indeed.
My post regarding the hearing can be found here.
http://brassandivory.blogspot.com/2008/07/price-gouging-in-extremely-vulnerable.html
Congressman says: "When we have pharmaceutical companies like Ovation or Questcor increasing prices to astronomical levels because of the lack of competition in the market"
Isn't that what the patent system is all about? It creates a LEGALIZED monopoly allowing companies to make money on products that would otherwise probably loose money. Why do you think Merck sold it? It wasn't profitable. Another company buys the product and jacks up the price, and now it is profitable. It sounds like supply-and-demand is working just the way it's supposed to. Remeber: Rather than selling the product line, Merck could have simply discontinued it.
Nathan,
Please tell me-- then how does it justify the pricing range from the US versus other countries?
"Dr. Jobe also points out that the cost per milligram of Indocin is 30 to 60 times higher in the United States than other countries that have similar health care systems with little explanation as to why this occurs except for profit motivation.
The cost per milligram in the U.S. is $1,875 compared with $14 in Canada, $16 in Britain, $22 in Germany and Holland, and $11 in Australia."
I'll tell you exactly what it is going to lead to in the future-- control similar to the European model.
With an attitude like yours, pharma can just start dusting off the NICE profit models and go ahead and get ready to use it in the US.
If there is no restraint and common sense on the part of the industry that is exactly where it is headed!
I would hate to see the job loss that accompanies that and so would you so it is really time for pharma to quit acting like we are in pre-internet days and begin to selfpolice before the next president does it for you.
Pharma Hack -
1) The drug is off-patent. If these are such exorbitant prices, we have an easy fix for that here in the US: A generic company can easily start selling it for 1/10 the cost. Either it's profitable or it isn't. If it isn't profitable for a generic company to make it, then the prices aren't really exorbitant. 2) It's not clear to me that any laws are being broken. 3) My guess is that price controls in other countries prevent them from raising prices. Hence the discrepancy. They have to make up the difference in the US market. If the US were to institute price controls, the product may become unprofitable to make and it would just vanish from the market altogether.
PR Hack - I guess my point is that while "price gouging" is a great sound-byte, the actual DEFINITION of what constitutes "price gouging" is rather vague in a free-market economy. My feeling is we should let the free-market sort it out. If another company can supply the drug cheaper, it will. There are loads of generic companies always on the prowl for new ways to make money....
Nathan and Pharma PR Hack,
I invite you to read the historical financial data regarding H.P.Acthar(r) Gel available through Questcor Pharmaceuticals. This drug was one of those singled out during the hearing.
Perhaps you can share your opinions on my blog.
http://brassandivory.blogspot.com/2008/07/small-patient-population-big-drug.html
Nathan,
why is it that you and others feel it is okay for there to be price controls in every other country but the United States?
In a law of supply and demand- if you only made $11 as they do in Australia in every market, you would learn as a corporation to manufacture more efficiently, be more economical and not market on TV, trade journals with ooddles of reps per a territory because a) you are the only one in the market so there is no need and b) the price is fixed. You would cut and improvise until you became more profitable if there was no other market growth avenues. All businesses do to survive.
Let's call it what it is- why does pharma think the US should subsidize its desire for DTC and large sales forces to people who can't even buy the product? The blockbuster model is long since dead so you find every pharma trying to get that kind of growth in drugs that only work on small patient populations by skyrocketing the price in the US and acquiescing elsewhere.
Maybe pharma would learn to cut overhead and still be profitable regardless?
Hack, you are correct: as much as pharma companies moan about price and/or reimbursement controls, one of their little secrets is that ex-US affiliates are (with exceptions, of course) profitable. Why? the don't have the bloated sales and marketing operations as they do in the US.
Another effect of price/reimbursement controls is that you have very long market lives, including after patent expiry. If prices/reimbursement are fixed, there is no price competition among suppliers. That is beginning to change, however.
Nathan-
If we are going to continue to let pharma have the only country without price controls in the US and DTC to boot, then I really think it is time that pharma recognizes it by not continually shutting down manufacturing sites and moving R&D to Asia.
If this is the only market where they get to "make bucketloads of money" then we shouldn't be having meds made in third world countries brought to us here.
Those jobs and your job should be safe and pharma should do a lot less cost cutting here versus the price controlled countries.
Nothing burns me more than the simultaneously ravaging of the American public and the American Worker. for every cost cutting/shuttering/job loss story Ed posts, there are three detailing investment in China.
Hack- Its okay to throw hard working salesreps into the street, but not factory workers. You do realize that without reps your favorite restaurant will shut down, as will pizza, delis, storage units, and anything else dependent on pharma reps for money. The real problem is people in this country not being able to accept the fact that healthcare costs money, and that someone has to pay the bill. Nobody has a problem with sales reps in any other industry, who make good money, why are drug reps the focus of so much anger? Do you really think that prices will decline without drug reps? If anything fewer reps will lead to reduced volume, and a need to increase prices to make up for lost revenue
PR Hack - Just so you are clear, I'm not in favor of price controls in ANY market.
You write: "if you only made $11 as they do in Australia in every market, you would learn as a corporation to manufacture more efficiently, be more economical"
That may be true, or they may choose to stop selling the drug. I don't know the answer. I only know one thing: They will only sell the drug at a profit. If the net world market at $11 is not profitable, they will either raise prices in countries that allow them to raise prices (ie. the US) or they will simply stop selling. That would be ashame if it were the latter. You have to remember that economies of scale often do not work in the niche markets.
Bob writes: "one of their little secrets is that ex-US affiliates are (with exceptions, of course) profitable."
But remember, being profitable in the traditional sense means simply selling for more than it costs you to make. In the pharma industry, you should know that if we just sell for slightly more than costs-of-goods, then we cannot fund future development. 30 cents on every doller sold is sunk into R&D. Look at generics -- they are profitable. But are they profitable enough to start designing thier own drugs? No way.
Given the expansion into R & D by many generic houses (Teva, Ranbaxy, etc) that argument doesn't hold. The key is for a generic manufacturer to be successful on a fairly consistent way in securing the 180-day exclusivity across many products. Only after the exclusivity period expires do generics prices drop to commodity levels.
To another point, price discrimination among country markets is necessary both from a company's sustainability and for increasing social welfare. So, I'm not arguing at all for price/reimbursement controls nor do I endorse a single global or even regional price.
How about bringing this discussion back to the subject at hand - price gouging in specialty markets.
Examine the numbers of Questcor, a company which was actually singled out in the JEC hearing for the first six months of 2008.
Net Sales: $44.0M Cost of Sales: $3.5M (8.0%) R & D: $5.5M (12.5%)
Cost of Sales includes 4% royalty fees
Does that seem like the typical high cost of doing business?
The size of Teva's move into R&D would be an insignficant drop in the bucket of a major pharma. Plus, Teva's not doing R&D to develop a drug and then compete with other generic manufacturers. They're doing R&D expecting patent exclusivity and the higher profits that can bring, to justify the R&D risk.
Oh and I agree with Nathan...
I don't believe in price controls anywhere. And price controls aside, isn't this an off-patent medication (way off patent). Am I missing something there?
Lisa, to your point, there is little correlation between costs of goods and ex-factory price. Pricing is generally set close to that of other drugs or services. With no competition, monopoly prices will prevail in the short-term. Very few sectors do cost-plus pricing. There are occasions where generic drugs will be priced as though they were patented: a company can find itself as the sole producer and price opportunistically or, in a less desirable case, tie up ingredients' supply and become a sole producer.
I have no unique knowledge of Questor so you should take these as generalizations.
Jack2, your comments about Teva are accurate; however, the operating model of major pharmas is now based on leveraging risk by forming alliances with universities, niche pharmas and biotechs. The real spend nowdays is developemntal not basic research.
Bob I am not clear on point you are attempting to make. Yes price little direct correlation to COGs and agree major spend comes in D not R. Even with the stated operating model (vs doing all in-house R) pharma companies must pay a heavy premium to Unies, Nichers, and Bios to access their projects/technologies. Even with the R Failures risk more spread out there is no solid predictors of D then marketed/commercial success. Any way you cut it drug discovery and development is expensive and demands of increasing "shareholder value" as a constant pace conflicts with time frames R&D requires.
It's good that Teva (plus a few other Generics Co) are now reinvesting profits gained by "templating" others successful R&D (+Approval & Marketing) and personally wish they can provide new treatments. Side with Nathan & Jack2 as to earlier points IMO international price controls has created unbalance where US now pays more than fair share for supporting drug R&D because free market allows this. Most other countries do not have significant Generics penetration because the price controls weakens incentives.
I HAVE BEEN ON DESOXYN [METHAMPHETAMINE] SINCE 1980.THE PRICE HAS FLUCTATED OVER THE YEARS, THE DRUG HAS EVEN GONE GENERIC FOR 8 MONTHS. ABBOT WAS THE MANUFACTURER. I AM STILL TRYING TO FIND OUT IF THEY STILL MANUFcture THE DRUG OR SOLD EVERYTHING TO OVATION. IN THE PAST 2 YEARS I HAVE SEEN DESOXYN GO FROM $240. a month to the present $409. a month. I CANNOT GET A REASONABLE EXPLANATION FROM OVATION. BY THE WAY I HAVE NARCOLEPSY AND CANNOT DO WITHOUT THIS DRUG. PLEASE FIND OUT ANYTHING YOU CAN FOR ME.
It has been a while since that last post was submitted. It is now September 2010. I wonder how Jeff Aronin is sleeping these days. So much sorrow surrounds the drugs he and his companies produce for our most vunerable, our children. Drugs that he knows, are harmful, addicting, dangerous. Drugs that he is able to produce, which are listed as illegal for everyone else! Shame of Jeff Aronin and others of his ilk. He/they are no better than the corner drug pusher, no actually they are worse! They hide behind a veil of respectability even as they push "medications" like Desoxyn on those too young to just say NO. And they have the gall to sell their "medicines" at 1000% more than the same cost two years prior! How dare they market this way to frightened trusting parents who are only trying to do the best they can for their children! Yes. He is far worse than the corner drug pusher, far more dangerous! I wonder how he sleeps at all! I wonder if he hears the wail of our babies with their cracked "meth mouths exposing decayed teeth caused by his prescription for ADHD, and weightloss, and narcolepsy...methamphetimines the bain of our existence in 2010. How does he have the gall to announce proudly that his new companies are researching medicines to manage the addiction his first issues cause?? How does someone live with that? How does he face the families of premature infants whose medicines were recalled due to improper production? Rushing to make a profit causes our young and our old to suffer needlessly. All the while, I wonder if he is laughing all the way to the bank! Time is his enemy, I just hope we can survive until he is found out.