Stories of sky-high drug prices for generic medicines has caught the attention of Presidential hopeful Hillary Clinton. After The New York Times ran an article titled Drug Goes From $13.50 a Tablet to $750, Overnight, Clinton, who is battling Vermont Senator Bernie Sanders for the democratic nomination for president, jumped into the drug-pricing fray on Monday morning, tweeting:
Price gouging like this in the specialty drug market is outrageous. Tomorrow I'll lay out a plan to take it on. -H https://t.co/9Z0Aw7aI6h— Hillary Clinton (@HillaryClinton) September 21, 2015
Profiting on patients
The Times article focuses on cost increases for Daraprim, a drug used to treat toxoplasmosis, a rare parasitic infection that affects patients with weakened immune systems, including babies and HIV patients. Daraprim, which won FDA approval back in 1953, lost patent protection long ago, but a small addressable market and previously low price, kept generic competition at a minimum, resulting in a de facto monopoly for Daraprim's manufacturer, GlaxoSmithKline.
However, it's CorePharma and Turing Pharmaceuticals that are to blame for Daraprim's soaring price, not GlaxoSmithKline.
GlaxoSmithKline sold Daraprim's rights to CorePharma in 2010 and CorePharma's price increases on Daraprim over the ensuing years led to annual sales of the drug that have climbed from just $667,000 in 2010 to $9.9 million in 2014.
After Impax Labs acquired CorePharma's product lineup earlier this year, it decided to unlock Daraprim's value by selling it to biotech startup Turing Pharmaceuticals for $55 million last month. After purchasing Daraprim, Turing then bumped up the drug's price yet again, sparking the frenzy that helped draw Clinton's interest.
While Turing is on the hot seat for its decision to increase Daraprim's price, it's far from the only drug company embracing this "what's old is new again" strategy.
For example, in 2012, the Times reported on how Questcor had revived a 60-year-old drug named Acthar Gel and turned it into a top seller by boosting its price from $50 per vial to nearly $30,000 per vial. A similar story has played out across the industry, including on the tuberculosis drug cycloserine, the heart drugs Isuprel and Nitropress, and the opioid pain medicine Nucynta.
Clinton's price plan
During Hillary Clinton's appearance on "Face the Nation Sunday," Clinton indicated her plans to announce a slate of potential changes to the healthcare system, including ideas "to control the cost of skyrocketing prescription drugs."
The changes are likely part of a strategy designed to tap into a groundswell of support that has sparked the Sanders campaign following the release of Sanders' own plan to halt runaway drug prices by giving Medicare the ability to negotiate with drugmakers. A plan to give Medicare more flexibility to negotiate was also pitched by President Obama this past February and it was met quickly with resistance by industry lobbyists and Republicans who typically shy away from policies that impeded free markets.
Clinton's plan could similarly back a change to Medicare or it could incorporate other schemes to control prices, including pay-for-performance, or greater price transparency, specifically in regard to prices charged to payers in other countries.
In August, a poll by the Kaiser Family Foundation found that 72% of Americans believe that drug prices are unreasonable and 74% believe that drug companies put profit before people.
Clearly, the public has a dim view of drugmakers' motivation, but 62% still do believe that drugs developed over the past 20 years have improved the lives of Americans and that's something that drugmakers are quick to point to when discussing how increasingly complex medicine is driving drug prices higher.
Because 90% of drugs entering human trials end up in the dustbin rather than on pharmacy shelves, there's little argument that drug development is incredibly difficult and thus costly. Drugmakers need to be compensated for taking on that risk of failure when it comes to developing new drugs; however, it's less clear whether such a profit incentive is warranted for companies that exist solely to relaunch long-used therapies such as Daraprim with stratospheric prices.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.