Senate committee: Price hikes threaten to topple U.S. health care system

Print 21 December 2015
Jennifer Boggs / BioWorld

Implementing pathways to encourage competition and placing government regulation on generic drugs that lack competition were two suggestions offered during this week's Senate Special Committee on Aging to tackle a recent spate of off-patent drug hikes epitomized by Turing Pharmaceuticals Inc., which raised the price on a 62-year-old drug by nearly 5,500 percent and limited its access to specialty pharmacies.

The meeting, led by Chairman Susan Collins (R-Maine) and ranking member Claire McCaskill (D-Mo.), was intended to be the first in a series investigating recent instances of dramatic price hikes on prescription drugs. At the two-hour hearing, during which the committee heard from treating physicians and health care experts, the outrage was obvious, not least because the abrupt price increases threaten to skew even further the balance between innovation and profit, already under congressional scrutiny over Gilead Sciences Inc.'s pricey hepatitis C drug Sovaldi (sofosbuvir). (See BioWorld Today, Sept. 28, 2015.)

In her opening remarks, Collins acknowledged the "expensive and time-consuming" process to develop drugs and the slim odds of reaching market, so that companies that invest in R&D "must see a fair return on their investment. At the same time, we cannot be blind" to the costs. She noted that of the $328 billion spent this year alone, individuals are shouldering about $50 billion, while $110 billion comes through Medicare/Medicaid, the Department of Veterans Affairs and other agencies.

For several decades, public policy attempted to strike a balance but "never anticipated companies acquiring off-patent drugs and then jacking up their prices to enormous heights and doing so, as one executive put it, 'Because I can,' but that is exactly what we have seen in recent months."

Collins clearly was referring to Turing CEO Martin Shkreli, who has emerged as the chief villain of the piece. A former hedge fund manager, Shkreli, who previously helmed Retrophin Inc. – another firm being taken to task by the special committee, incidentally – drew public ire earlier this year when Turing purchased Daraprim (pyrimethamine), an anti-parasitic drug to treat toxoplasmosis, from Impax Laboratories for $55 million. At the time, the drug cost $13.50 per tablet; Turing promptly raised that to a whopping $750 per tablet.

Also under fire for unprecedented price hikes are privately held Rodelis Therapeutics and publicly held Valeant Pharmaceuticals International Inc. The latter, noted McCaskill, has raised its drug prices an average of 56 percent in 2015, yet its R&D expenditures equal a mere 3 percent. "To me, there's a line [at] which the huge price increases go from rewarding innovation to price gouging," she said. (See BioWorld Today, Sept. 23, 2015, Sept. 24, 2015, and Sept. 30, 2015.)

Firms such as Turing and Valeant also largely gained their drug portfolios via acquisitions, rather than investing in internal R&D, rendering moot the argument for return on investment. The companies "look more like hedge funds than they do pharmaceutical companies," Collins said.

But it's not just about price; it's also about patient access. Turing, for example, inked exclusive deals with specialty pharmacies, limiting the Daraprim's distribution, an outcome that has had real-world consequences, according to testimony from David Kimberlin, professor and vice chair for clinical and translational research and co-director of the division of pediatric infectious diseases at the University of Alabama at Birmingham.

He described the case of an infant with toxoplasmosis needing a liquid formulation of Daraprim. The drug is only available in tablets, so doctors would use compounding pharmacies to create the liquid version. Previously, compounding pharmacies would simply acquire the drug from the manufacturer; however, because of the specialty pharmacy agreements, they cannot acquire it from Turing, Kimberlin said.

And doctors seeking an equivalent drug on the market won't find one. As with Turing's Daraprim and Valeant's drugs such as Nitropress (nitroprusside) and Isuprel (isoproterenol), pharmaceuticals at the center of the price hike issue share two things in common: All are generic, yet none have competitors in the marketplace, likely due to the small numbers of patients who require the drugs.

CHANGING GENERICS LANDSCAPE

The best way to prevent those extreme price hikes, in the view of Mark Merritt, president and CEO of Pharmaceutical Care Management Association (PCMA), is to boost competition. To that end, tweaking the generic drugs regulatory pathway to resolve the current backlog at the FDA would be a good initial step.

Right now, Merritt told committee members, the FDA review of generic products takes roughly three years, and the agency has a backlog of about 4,000 applications. He also suggested implementing a fast track, or priority review, route for those generic drugs that would compete with off-patent brands, a suggestion echoed by Gerard Anderson, professor of health policy and management, medicine and international health at Johns Hopkins University.

Anderson also recommended the committee, during its continuing investigation, "take a very close look at how pricing works in the generic market." The challenge will be in creating incentives to get drug developers working on alternative generics to drugs that are already off patent, a market that most drug companies would not find economically compelling.

Even with an expedited pathway, the costs of developing a generic, while substantially lower than developing an innovative drug, are not negligible. Generics makers might have to only shell out about $1 million to $2 million for development, but "that's a hurdle if you think the market is only a few thousand people and you charge only a few dollars for the drug."

In cases where there is an absence of competition, increased regulation might prove effective. Committee member Sen. Sheldon Whitehouse (D-R.I.) referenced some "very old and established techniques" that were used to regulate railroads and utilities.

"You had simple price regulation," he said. If government is able to regulate pricing, "only when there's a finding of noncompetitiveness, that would take away the motivation" for the hedge fund-like firms "playing in this market."

Allowing for the importation of drugs from places such as Canada also was suggested, though that has met with continued resistance from many lawmakers.

And then there's drug compounding. In October, Imprimis Pharmaceuticals Inc. looked like a white knight for the health care system, when it said it could create a compounded formulation of Turing's Daraprim that cost a mere 99 cents per tablet, an announcement that prompted an influx of requests to the small San Diego-based company. (See BioWorld Today, Oct. 27, 2015.)

Compounders, however, have faced criticism, primarily because there is currently limited regulation from the FDA. Johns Hopkins' Anderson called it a "second-best solution, but it is a solution in an emergency."

In the meantime, PCMA's Merritt suggested that regulators create a "watchlist" of every off-patent drug that lacks competition. Going case by case, they can at least look to see whether there are any drugs in the same class that might offer less expensive alternatives. As he noted, the dramatic price hikes such as Turing's for Daraprim, 'is really a pretty new development."

It's also unlikely to go away any time soon, particularly given the recent trends toward consolidation in the generics drug industry. This year has seen Endo International plc snag Par Pharmaceuticals Holdings Inc. for $8.05 billion in cash and stock, Teva Pharmaceuticals Industries Ltd. pay $40.5 billion for Allergan plc's generic unit and Hikma Pharmaceuticals plc taking over the generics business of Boehringer Ingelheim GmbH for $2.65 billion. (See BioWorld Today, May 19, 2015, July 29, 2015, and July 28, 2015.)

That activity itself is changing the generics pricing landscape, since "the whole system is predicated on having a lot of reasonably small companies [all] wanting to have a share of the market," Anderson said.

All that adds up to a need for solutions, McCaskill concluded. "I also hope to make clear this is not an individual pocketbook issue for Americans." It also affects higher premiums, higher costs to Medicare/Medicaid and a system that cannot be sustained if "some bad actors" take advantage of it.

"This sort of action hurts the entire American economy."

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