Senate Aging report

Senators wrap up Turing-Valeant hearings on price gouging

A preamble for a next round of legislating drug pricing?


Give Sens. Susan Collins (R-ME) and Claire McCaskill (D-MO), leaders of the Senate Aging Committee, an “A” for effort for completing a report on extreme price hikes for single-source generic drugs, released on Dec. 21. However, between the limited remedies that the report recommends, and how the inflamed debate over drug pricing across the board has expanded in recent months, the report might become a footnote in larger legislative actions in healthcare, or simply ignored by the incoming Trump Administration, whose stance on drug policy is noticeably thin.

On the other hand, the hearings that are summarized in the report, which played out during the latter half of 2015 and the first half of 2016, have already had a widespread impact. Those hearings and Committee testimony included CEOs Martin Shkreli of Turing Pharma and J. Michael Pearson of Valeant Pharma (among others); in their aftermath, Shkreli was fired from Turing, and Pearson resigned from Valeant, whose stock price plummeted. Skreli is under federal indictment for other financial matters, and Valeant’s later actions caused the shutdown of Philidor, a specialty pharmacy with questionable ties to what was essentially its sole provider, Valeant itself. Skreli’s answer to the question of why it raised a drug (Daraprim) by over 5,000%–“because I can”—crystallized the public’s sense of why drug prices continue to rise. (It’s also worth noting that, despite promises to re-evaluate their prices, no across-the-board price reductions have taken place even now.)

The Committee report characterizes Turing, Valeant and two other companies (Retrophin and Rodelis Therapeutics, which acquired and then divested a sole-source generic during 2015) as exponents of a “hedge fund” model of pharmaceutical commercialization: buying the rights to (“investing in”) a drug, then jacking up its price and collecting the increased revenue (the “return” on the investment). The hallmarks of this strategy, says the report, are:

  • Acquisition of a sole-source drug
  • “Gold standard” status of the drug as the preferred therapy
  • Small market status, such that the drug does not attract other suppliers, and have dependent populations unable to demand more-reasonable pricing
  • Closed distribution of the drug, in part through a small number of specialty pharmacies
  • Price gouging—the business payoff, as it were, based on the ability to raise prices without the need to invest in production or R&D.

Not mentioned as a hallmark of the hedge fund model—but one that figured in product marketing plans in some cases, is copay and patient assistance programs (PAPs). In the case of Valeant in particular, the report focuses on the motivation of the patient assistance to grow its market and to minimize critical media coverage. “Valeant repeatedly touted its PAP, the [Valeant Coverage Plus Program], in response to criticisms of its Cuprimine and Syprine price increases. But based on internal Valeant documents, the Committee believes that these programs were driven not by altruism, but by Valeant’s desire to extract monopoly profits and then conceal that fact from the public.” Elsewhere in the report, it is noted that “Properly structured patient assistance programs can help beneficiaries obtain drugs they might not otherwise be able to afford.”

Yet another component of Valeant’s planning was to assess how slowly FDA would approve a competing generic entry into the markets for some of its drugs (which is ironic if only because, prior to selling off its generic business to Teva Phama, Valeant was a leading generics manufacturer). FDA’s backlog of generic approvals, while shrinking, figures in a variety of legislative efforts to address drug pricing overall.

What to do?
The report concludes with six recommendations:

  • Enact the Increasing Competition in Pharmaceuticals Act, introduced by Chairman Collins and Ranking Member McCaskill, to incentivize competition to address regulatory uncertainty, small market size, and other factors that serve as limitations to generic entry
  • Encourage generic competition by ensuring the right to obtain samples and simplifying Risk Evaluation and Mitigation Strategies
  • Consider allowing highly targeted, temporary prescription drug importation to provide prompt price relief for major price increases in off-patent drugs
  • Take steps to prevent the misuse of patient assistance programs and copay coupons
  • Reinvigorate the Federal Trade Commission to take greater enforcement action on drug company mergers, operations, and drug market dynamics
    Improve transparency in the health care system

–most of which have been proposed in other examinations of the US drug pricing system. The Collins-McCaskill bill, introduced last spring, is in committee and chances of its passage in the current Congress are essentially nil, given that it didn’t figure in the recently passed 21st Century Cures Act (a law that in some ways will accelerate the approval of more sole-source drugs). That bill also picks up on a theme espoused by the Generic Pharmaceutical Manufacturers Assn., that the FDA REMS (Risk Evaluation and Mitigation Strategies) program has been abused by some manufacturers to restrict the availability of comparator drugs in the generic-approval process.

PhRMA, the industry’s trade association, was quick to dissociate itself from the hedge fund model, emphasizing that the lack of R&D investment by these companies differs markedly from its members, who spend billions developing new drugs; other generic manufacturers besides the four highlighted in this report are embroiled in a just-announced price-collusion scheme. So an argument can be made that existing legal systems, if aggressively applied, can keep a fair market structure in place

In its concluding remarks, the Committee report is almost wistful about the existing system of drug pricing in America: “Although antitrust enforcement may seem to be an appropriate tool to combat massive price increases on drugs, it is unclear whether the actions of the four companies examined by the Committee violated current antitrust laws. The evidence is mixed. It is possible that the business model pursued by the Valeants and Turings of the world was attractive in part because it was legal.”