[Ip-health] Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices

Elizabeth Rajasingh elizabeth.rajasingh at keionline.org
Mon Apr 27 06:24:50 PDT 2015

New ownership can mean big price jumps for important prescription
drugs—even when the drugs are not improved at all by the change. Companies
are buying drugs they believe are “undervalued”—ones they can get a higher
price from—and raise the costs, knowing that they will stand to profit. A
Wall Street Journal investigation found that drugs can increase in cost by
as much as fivefold, as did a recent heart medication acquired by Valeant.
Laurie Little, a Valeant spokeswoman, said the company’s main duty “is to
our shareholders and to maximize” product value. “Sometimes pricing comes
into it, sometimes volume comes into it,” she said


Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices
​ ​
April 26, 2015​​

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.”

More pharmaceutical companies are buying drugs that they see as
undervalued, then raising the prices. It is one of a number of industry
tactics, along with companies regularly upping the prices of their own
older medicines and launching new treatments at once unheard of sums,
driving up the cost of drugs.

Since 2008, branded-drug prices have increased 127%, compared with an 11%
rise in the consumer price index, according to drug-benefits manager
Express Scripts Holding Co. Needham & Co. said in a June 2014 research note
there were as many as 50% drug-price increases during the previous 2½ years
as there were in the prior decade.

For drug companies, price hikes offer an easy way to boost sales without
years of costly, risky research to find new medicines.

Profits help pay for companies’ research, says Paul Howard, director of
health policy at the Manhattan Institute. Increases help bring the prices
more in line with the value the medicines provide to patients and
hospitals, and the returns pay for manufacturing the drug, “in marketing it
and even researching additional indications for the product that deliver
more value to patients,” he said.

So far, the impact on total health-care spending has been limited.
Prescription drugs still account for only about one-tenth of the country’s
health-care costs, and drug spending overall has risen relatively slowly
the past few years to $376 billion last year, because many of the
biggest-selling medicines lost patent protection and lower-priced generics
were prescribed instead.

But hospitals and drug-benefit managers increasingly worry about having to
absorb higher costs. There aren’t as many big patent expirations looming,
which will mean fewer cheap generics to offset the rising prices of
brand-name drugs.

Some payers and health-care providers complain they are already feeling the
hit from large and sudden price increases for drugs like Isuprel and

Cleveland Clinic says the price hikes for the two Valeant drugs is
unexpectedly adding $8.6 million, or 7%, to this year’s budget of roughly
$122 million for medicines administered at its hospitals. Like its peers,
Cleveland Clinic generally pays for drugs it administers, then hopes the
reimbursement it receives for patient care will cover the expense.
Hospitals typically pay a wholesale cost that is less than the list price
known as average wholesale price, but still experience the increases.

“We’re already under tremendous pressure to reduce costs because of
reimbursement changes due to health-care reform,” said Scott Knoer,
Cleveland Clinic’s chief pharmacy officer. He had hoped to lower his drug
budget by $10 million this year, but no longer expects he will in large
part because of the two drugs. “In one fell swoop, it eliminated nearly all
of the savings we projected we would achieve,” he said, adding, “We will
have to cut costs, but I don’t have a plan yet.”

The companies are paying up for the drugs whose prices they raise. Early
last year, Mallinckrodt PLC paid $1.4 billion for Cadence Pharmaceuticals,
though the Ofirmev pain injections that were the crown jewel of the deal
were projected to have just $110.5 million in 2013 revenue, according to a
Mallinckrodt conference call with analysts discussing the deal.

Three months later, the list price for a package of 24 Ofirmev vials jumped
almost 2½ times to $1,019.52, according to health-care data firm Truven
Health Analytics, which publishes average wholesale prices based on
information from drug companies.

“It seemed like highway robbery,” said Erin Fox, who directs the
drug-information service at University of Utah Health Care. After the
increase, three of the Salt Lake City health system’s four hospitals were
spending as much as $55,000 a month on the drug, up from $20,000 to $25,000
a month, Ms. Fox said. The system tried to steer doctors to alternative
medicines, but it still spends about $40,000 a month.

Ofirmev was losing money before its price was raised, Mallinckrodt said,
and even at the new price, hospitals using the drug save on patients’
hospitalization costs in the thousands of dollars.

The price increases can be very lucrative for companies. Horizon Pharma PLC
upped the price of Vimovo pain tablets after buying the rights from
AstraZeneca in late 2013. On Jan. 1, 2014, its first day selling Vimovo,
Horizon raised the list price for 60 tablets to $959.04, a 597% increase,
according to Truven.

Horizon raised the price again on Jan. 1 this year to $1,678.32 for the
tablets, Truven said.

Last year, Vimovo had $163 million in sales, up from $20 million in 2013,
even though there were fewer prescriptions for the drug last year, Horizon
said. In the first two months of this year, the drug had $50 million in
sales, according to IMS Health.

Horizon said one of the company’s “primary drivers is and always will be
ensuring a limited financial impact on the patient,” and about 97% of
Vimovo patients don’t pay any out-of-pocket costs due to the company’s

Companies don’t want to raise prices so much that hospitals or patients can
no longer afford the medicine, causing demand to plunge, said Mick Kolassa,
a former drug industry pricing official who now advises companies at
Medical Marketing Economics LLC. Yet companies must balance those concerns
with pressures they face to sustain their business and from shareholders.

When companies hold calls discussing drug costs with investors and
analysts, “I’ve heard them ask, ‘Why didn’t you price it higher.’ I’ve
never heard anybody say, ‘Why don’t you price it lower?’” Mr. Kolassa said.

The company leading the pack in drug-price increases is Canada-based
Valeant, which lifted list prices by at least 20% some 122 times since the
beginning of 2011, according to Needham & Co., in its June 2014 research

Isuprel and Nitropress, the heart drugs Valeant bought earlier this year,
have been staples of medical care for decades. Doctors use Isuprel during
procedures treating heart-rhythm problems, and give Nitropress to emergency
patients whose blood pressure has risen to life-threatening levels. Doctors
say there are few good alternatives.

Valeant was interested in the drugs in part because they hadn’t yet faced
generic competition even though they had lost patent protection, according
to a person familiar with the matter. Adding the drugs would also expand
Valeant’s portfolio of hospital-administered drugs, the person said.

After Valeant agreed to buy the drugs in early January, the company hired a
consultant to look at their prices. The consultant found the prices didn’t
reflect the benefits of the drugs to patients and the costs that hospitals
save by using the medicines, the person said. Valeant decided to raise the
price. The list price of a one-milliliter vial of Isuprel, a treatment for
abnormal heart rhythms, jumped to $1,346.62, up from $215.46, according to
Truven. Meantime, a two-milliliter vial of Nitropress, which combats
dangerously high blood pressure and acute heart failure, increased from
$257.80 to $805.61.

Pricing isn’t the main driver of Valeant’s organic growth, as the company
counts on higher prices and more sales, the person said.

Terms of Valeant’s purchase of the drugs from Marathon Pharmaceuticals LLC
weren’t disclosed. Isuprel notched $103 million in sales last year for
privately held Marathon, while Nitropress recorded $58 million, according
to Jefferies & Co.’s analyst David Steinberg. He expects the increases to
help Valeant to “very substantially exceed” that in 2015.

Ascension health system, which operates 131 hospitals across the country,
estimates the increases will triple its spending on the drugs this year to
$8 million. Richard Fogel, a heart doctor at Ascension’s St. Vincent Heart
Center in Indianapolis, said the lack of good alternatives in certain
clinical situations leaves him little choice but to keep using the pair.

“It is very frustrating, especially as we try to develop new systems to
take better care and more efficient care of our patients,” he said.
Elizabeth Rajasingh
Perls Research and Policy Fellow, Knowledge Ecology International
1621 Connecticut Ave. NW, Suite 500
Washington, DC 20009
*elizabeth.rajasingh at keionline.org <elizabeth.rajasingh at keionline.org>* |

More information about the Ip-health mailing list