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Congress Sets Bad Precedent With AVANIR

By Brian Orelli, PhD - Updated Apr 6, 2017 at 9:35PM

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What happened to free markets?

As if AVANIR Pharmaceuticals (Nasdaq: AVNR) investors needed another thing to cry about. The chairman of the Senate's Special Committee on Aging and three congressmen are questioning the pricing of the company's pseudobulbar affect drug, Nuedexta.

This seems kind of ridiculous to me. AVANIR got the drug approved for pseudobulbar affect, a disease for which there wasn't any other approved treatment. The company should be rewarded accordingly.

But investors shouldn't ignore the action in D.C. There's at least a small risk that AVANIR could be pressured to lower its average cost, which currently stands at about $4,365 per patient each year. Nuedexta is a mixture of two unpatented drugs. Compounding pharmacies were combining the two before the approval for 1/30th the cost.

KV Pharmaceutical (NYSE: KV-A) ran into similar problems earlier this year with preterm labor prevention drug Makena, which was also being compounded before KV gained FDA approval. The company subsequently caved and significantly lowered the cost of its drug.

Congress wants information about how much it costs to develop the drugs from AVANIR and another company, URL Pharma, which is in a similar situation. As if that should have any bearing on what price the market should pay for the drug.

It seems to me that Congress is setting a dangerous precedent that drug investors should keep a close eye on. It starts with already discovered drugs being expanded into new indications, but what's to keep it from extending to patented drugs. High-priced cancer drugs like Dendreon's (Nasdaq: DNDN) Provenge and Bristol-Myers Squibb's (NYSE: BMY) Yervoy could be the next targets.

Interested in keeping track of AVANIR as it battles with Congress over prices? Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on AVANIR.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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