High Priced Generic Drugs

The news has been abuzz regarding the drug Daraprim and the major price-hike by its US-distributor (Turing Pharma).  According to its website, Turing “acquired” Daraprim in August 2015 from CorePharma who had previously obtained rights in 2010 from GlaxoSmithKline.  When CorePharma bought rights, it increased the price from $1 to $13.50 per pill, Turing’s increase pushed the price up to $750.

My first thought was that the price-hike was likely backed by the exclusivity of patent rights. However, I then read that the drug has been on the market for more than 60 years and any patent rights associated with its sale and distribution have long expired.  Although the deal is not public, the rights purchased by Turing appear to include marketing rights (FDA right to market) along with related trade mark and trade secret rights associated with the manufacture, sale, and testing of the drug.

At this point, it is a straightforward process for a generic competitor to enter the market by filing an Abbreviated New Drug Application (ANDA).  However, that ANDA process is still expensive and was previously not cost effective because of the low number of Daraprim users. Turing is apparently now lowering its price, but if it remains high enough, a competitor will likely enter the market.

Outside of the U.S., the drug is sold generically for $1 per pill or less. However, foreign drugs cannot be directly imported and sold without first seeking and obtaining approval from the FDA through the ANDA process. In the meantime, the company with exclusive marketing rights can demand monopoly rents.

The situation should highlight the fact that patent rights are only a small-bit of the ‘game.’  The barriers to entry are such that – even in the generic market – drug pricing in the US will often have little relation to the marginal cost of production – with the exception being drugs used by millions of Americans.

 

 

 

60 thoughts on “High Priced Generic Drugs

  1. 15

    This news about a generic raising his price by 5000% is not going to “help” Pharma in its effort to achieve a carve out – something that already was not going well regardless of support by big Tech. Perhaps it is time for Pharma to consider an alternative path to ending IPRs.

    1. 15.1

      My post implicating the LACK of a cogent legal response from another routine contributor is edited out?

      WHAT type of reasoning can be put forth for such blatant censorship?

      I was not impolite.
      The comment was germane.

      What the F….?

  2. 14

    Yes, but you are forgetting that many drugs sold by pharmaceutical companies are heavily subsidized by volunteer labor. It is an established, verifiable fact, that basic research on most drugs is done by universities. It is also an established, verifiable fact, that basic research on drugs as conducted by universities is done by volunteer labor. This work is done by graduate students and by post-doctoral researchers. Although it is the case that these people receive some pay, it is also the case that the number of hours that these people are required to work compels the conclusion that their labor is “volunteer labor.” Alternatively, it is reasonable to characterize university researchers with the job title “graduate student” or “post-doctorate” to be a tort victim. The relevant tort is being forced to work for less than minimal wage. Either way, it is the case that many drugs are heavily subsidized by low-pay university researchers. Even if it was the case that university researchers were paid minimal wage, it would still be the case that their wage is far less than that paid by researchers at pharma companies. It is the case that Prof. Ed Penhoet, founder of Chiron Corporation, made the following statement at a lecture at University of California at Berkeley, circa 1990. He stated that pharma companies are “research brokers.” The implication of course is that the research is done by low-pay university researchers. Although it is a true fact that many drugs are subsidized by low-pay university researchers, I am not advocating higher cost drugs. No. I am advocating that the exploitive “education” system of U.S. universities increase their pay scale, to be at least 50% of the pay scale used at pharma companies.

    1. 14.2

      Rob, some APIs are first synthesized in university labs. But the real cost in bringing the drugs to market – to a small extent the scale up and the formulation chemistry, but principally, the clinical trials – is borne by private capital. As far as I know, no university has ever itself brought a new drug to market.

      Graduate school in chemistry and biology may (or may not) be exploitative, but if it is, it’s not the big pharma companies that are doing the exploiting.

      1. 14.2.1

        I think that one of the points here due to the “being borne by private capital” is that it is the masters of that private capital whom are manipulating the system (quite apart from patents) and are engaged in a level of G-g-g-grifting that makes Malcolm’s perpetual anti-software patent windmill chase really look Quixotic.

  3. 13

    “Outside of the U.S., the drug is sold generically for $1 per pill or less. However, foreign drugs cannot be directly imported and sold without first seeking and obtaining approval from the FDA through the ANDA process. In the meantime, the company with exclusive marketing rights can demand monopoly rents.”

    Wouldn’t the easy public policy fix for this be to permit the importation of generics?

    1. 13.2

      Andrew, the better fix would be to provide world-wide coverage for American Patents by treaty. That way, there would be no low-cost generics so long as the US patent was in force.

      1. 13.2.1

        Ned,

        You do realize that such “One World” views are championed by the same forces that want to weaken US patents, right?

        1. 13.2.1.1

          anon, in a way. But the harmonizers never seem to take the next step. If we have adopted the EPO system pursuant to the deal with the euros back in the day, and we have, why not go the next step and simply allow American patents full effect in EPOland, and, of course, vis-a-versa to EPO patents. That will save a lot of examination expense.

          Recall, Jefferson wanted to have a patent registered in every district court in the United States. That would have been expensive. It was defeated. I think we take that lesson extend it to a worldwide patent. Simply make the worldwide patent effective without registration. This will make patents a lot more like copyrights. Registration would only be required for lawsuits. Validity would be handled as a defense to infringement and would be binding on the patent owner through collateral estoppel just as it is now in the United States.

          1. 13.2.1.1.1

            One word gets in your way:

            Sovereignty.

            (we just don’t have a One-World-Government, and patent law is – and remains – a law for within sovereigns [notwithstanding treaties that extend the sovereign’s rules to outsiders, such rules are ALL still sovereign rules])

            1. 13.2.1.1.1.1

              anon, consider two independent states where each agree by treaty to recognize both the patents of the other and the judgments of the others courts regarding patents. Full faith and credit, and all that.

              The treaty might also provide a base rule that goes back to the writ scire facias: If two patents issue on the same invention in the treaty domain, the first to issue is valid and the second not.

              1. 13.2.1.1.1.1.1

                Need I remind you (too) that here in this sovereign, treaties are not self-enacting into law?

                We make law only for ourselves. You jump too quickly into a One World Order, of which, I say thee neigh.

                1. Treaties can be self-executing, and, if so, they are the law of the land.

                  (But of course, you knew this already.)

                2. But of course, you already knew that NO executive power of treaty will trump the constitutional allocation of authority on the Article I Section 8 type of law away from the legislature, eh?

                  Me thinks you need a refresher course good sir.

                3. Medellin v. Texas, 128 S. Ct. 1346 – Supreme Court 2008
                  link to scholar.google.com

                  This Court has long recognized the distinction between treaties that automatically have effect as domestic law, and those that—while they constitute international law commitments—do not by themselves function as binding federal law. The distinction was well explained by Chief Justice Marshall’s opinion in Foster v. Neilson, 2 Pet. 253, 315, 7 L.Ed. 415 (1829), overruled on other grounds, United States v. Percheman, 7 Pet. 51, 8 L.Ed. 604 (1833), which held that a treaty is “equivalent to an act of the legislature,” and hence self-executing, when it “operates of itself without the aid of any legislative provision.” Foster, supra, at 314. When, in contrast, “[treaty] stipulations are not self-executing they can only be enforced pursuant to legislation to carry them into effect.” Whitney v. Robertson, 124 U.S. 190, 194, 8 S.Ct. 456, 31 L.Ed. 386 (1888). In sum, while treaties “may comprise international commitments . . . they are not domestic law unless Congress has either enacted implementing statutes or the treaty itself conveys an intention that it be `self-executing’ and is ratified on these terms.” Igartua-De La Rosa v. United States, 417 F.3d 145, 150 (C.A.1 2005) (en banc) (Boudin, C. J.).[2]

                  Id. at 1356.

                  R. Ted Cruz, for Respondent (State of Texas)

                4. You realize that you are now just playing with semantics, right Ned?

                  is ratified on those terms” is effectively saying what I am saying – the Executive is NOT going to get away with writing patent law, hiding it in a treaty with a different sovereign, and then “slip” it into law on the mere signing of the treaty.

                  You do know what “ratification” means, eh?

      2. 13.2.2

        I don’t think we want to give drug manufacturers more power. As it is, their ability to influence doctors, standards of care, and patients (eg, through advertising) is beyond compare. And they already have massive influence in many countries. Look what’s happening with UK’s polypharmacy policies, for instance. Make them have power everywhere, and we’ll all be on drugs, from preschool onward. (Put it this way: my 9 year old is going to have her cholesterol tested soon. Why do you think this is?)

        1. 13.2.2.1

          PatentBob, more power? I think Pharma is simply trying to defend the patent system when others are trying to undermine it for their private benefit.

          A win for Pharma is a win for Progress in the useful arts.

  4. 12

    This is not the only drug that has experienced a significant increase. Levothyroxine has been since 1927 and its price has tripled in the past two years.

  5. 11

    …and to think (yes, think) that this topic was introduced on this blog a few days ago to make a point that seems for some to be unable (or unwilling) to grasp:

    G-g-g-grifting is NOT a patent condition.

    Let alone a software patent condition.

    (drive-by monologues notwithstanding – PatentBob comes closest to the mark)

    1. 11.1

      I went to a products liability seminar and in most of the discussions, the only way to know that it was about product liability trolls and not patent trolls was the use of the term product.

      I heard almost all the same things regarding alleged litigation abuses.

      1. 11.1.1

        I think it may be important to note that generic pharmaceutical companies are not liable (absent their manufacturing issues) for the products they sell. Product liability remains with the innovator even when the innovator exits the market and the only product on the market is the generic. See Pliva, Inc. v. Mensing, 131 S. Ct. 2567 – 2011

        1. 11.1.2.1

          Yes, and more specifically, uncontrolled discovery cost burdens.

          But, the initial subject here was huge drug price increases not due to either patents OR litigation.

        2. 11.1.2.2

          Silicone Valley Girl,

          Precisely NOT the takeaway lesson.

          How many people are drinking that Kool-Aid anyway…?

  6. 10

    I don’t think the post is quite right in identifying cost-related barriers to entry for other generics as the source of Turing’s current market power, and it certainly doesn’t look like “it is a straightforward process for a generic competitor to enter the market by filing an Abbreviated New Drug Application (ANDA).”

    Turing seems to be benefiting from an unintended form of market exclusivity, which comes from an ambiguity in the Hatch-Waxman scheme. In June, Turing’s predecessor switched the drug from drugstore distribution to a more controlled distribution system. (See, e.g., link to nytimes.com, about 3/4 of the way through.) This likely makes it difficult for generic competitors to get samples of the approved drug so they can do the bioequivalence studies necessary for an ANDA. If Turing’s current distribution system is sufficiently well structured, it may even be impossible for a generic competitor to file an ANDA. That would force any new manufacturers to go through the full (i.e., extremely costly) NDA process if they want to launch a competing product. By limiting access to its own product, Turing is essentially engaging in the same type of behavior as the defendants in the REMS antitrust cases, like the Mylan v. Celgene case in New Jersey.

    Because the ANDA system is premised upon generics showing equivalence to approved drugs, there must be some mechanism for generics to get the approved drugs for testing. But, at this point, there isn’t. That’s a gaping hole in the Hatch-Waxman Act’s structure that both branded companies and enterprising newcomers like Turing can (and do) exploit. If Congress is going to be taking another look at drug patents, as it seems to be doing with the proposals on IPR carve-outs, this issue should also be high on its radar.

    1. 10.1

      Daraprim is an oral, IR tablet. Bioequivalence should be easy. Why would you say that Turings distribution scheme would prevent a generic from asking and paying a reasonable price to Turing for samples? In fact, some might argue that if Turing fails to comply with a generic’s reasonable request, Turing might run afoul of antitrust laws!

    2. 10.2

      I confess to some confusion: (a) if the pills are available in the USA, why can’t a generic drug company simply pay a physician to write a prescription for the drug? (b) if that won’t work, my understanding is that GSK in the UK is still the sole manufacturer worldwide. Why can’t pills from Canada or Europe be used to establish bioequivalence?

      And of course, why wouldn’t individuals in the USA simply order the drug directly from Canada?

      1. 10.2.1

        (a) As I understand it, Turing’s controlled distribution scheme forces all prescriptions to flow through a single distributor, which delivers to the named patient. Chain of evidence is important for ANDAs, and controlled distribution makes that very hard – maybe practically impossible.
        (b) It’s not clear who the manufacturer(s) is/are: Turing hasn’t said who they get their product from. One blog reports that pyrimethamine (the drug itself) is available in India for as little as 3 to 7 cents/pill, which suggests an Indian manufacturer exists. And let’s suppose that GSK is the manufacturer of Turing’s pyrimethamine – it may well be that the agreement under which they divested it prohibits them selling to other than the NDA holder in the US.
        Anyway, there’s a real question as to whether any company would find it worthwhile to do the work required for an ANDA – as I understand it, pyrimethamine gets only around 10,000 prescriptions per year; so there’s not much money in it unless, like Shkreli, you propose to charge hundreds of dollars per tablet.

        1. 10.2.1.1

          Thank you Derek…

          “Anyway, there’s a real question as to whether any company would find it worthwhile to do the work required for an ANDA – as I understand it, pyrimethamine gets only around 10,000 prescriptions per year; so there’s not much money in it unless, like Shkreli, you propose to charge hundreds of dollars per tablet.”

          Q.E.D.

  7. 9

    Ps’d-off about the dark side of drugs in the US? And I don’t mean coke in the White House and heroin addiction in neonates; I mean Rx drugs. Pop over to HuffPo and read Steven Brill’s series on J&J’s knowingly poisoning kids with the tried and true off-brand prescribing scam in order to squeeze every last dime out of their patent for the antipsychotic risperidone.

    In China they execute CEOs for this sort of malicious, corporate conduct.

    I started my career in research neuropharmacology but it took a few years of reading bogus research papers to catch on to how crooks operating in the shadows keep the game going, although I had no idea then how institutionalized it was. What I saw was not so much the PhD bench scientists rigging basic research data as the clinicians getting paid heaps to conduct and hype bogus clinical research. Brill’s example is brilliantly told but just one of many. I changed professions figuring that if I have to deal with crooks, I’d rather deal with lawyers — the money’s better and at least you know up front the nature of the beast.

    And for those of you talkin’ about the cost of Lipitor below, within the next decade that statins story is going to end up as the biggest scam of all. It will make this risperidone scam and the VW scam look like kids caught cheating at hopscotch. I wouldn’t touch any of those statins, not even if I had cholesterol oozing out of my eyeballs.

    1. 9.1

      BabelBoy – Didn’t the FDA eventually approve of Respiradol for use in the off-labelly promoted adolescent population?

      1. 9.1.1

        xitan: Didn’t the FDA eventually approve of Respiradol for use in the off-labelly promoted adolescent population?

        They did for autism. As for use in elderly, J&J were hiding data showing huge increase in mortality in elderly. There is now a do not use label w/ respect to the elderly — which was once the main market, espc. the warehoused ones. The concerns in kids were less serious — most serious was gynecomastia, which is not an insignificant problem.

        Once the qui tam lawsuits started rolling in against J&J for soaking up Medicare funds for pushing the off-label uses in both elderly and peds, J&J seriously scaled back the off-label marketing to avoid felony charges.

        It’s still indicated for schizo. The clinical data on its effects vs autism etc. are so polluted with conflicts of interest and bad data that I don’t think it’s possible to say whether salutary effects on other conditions and other patient populations outweigh serious side effects. Somebody in the FDA should be sacked.

        J&J’s main point was that there is no coherent condition of schizophrenia that can be Dx w/, say, a scan or a blood test — it’s all a spooky collection of behavioral symptoms. So selling the drug to anyone who has one of the symptoms must be just fine and virtually all of the mental illnesses have overlapping symptoms, and many overlaps with purely neurological disorders.

        My position is extreme, but I think anyone who even holds a stock in any Big Pharma co. should be indicted under RICO. The entire industry should be nationalized, or at least put under price controls.

    2. 9.2

      Statins are already known to be a scam, by many people. See Dr. Malcolm Kendrick, Dr. Uffe Ravnskov, and many more. I personally think they are the second biggest scam every perpetrated on the human race (after the low fat diet, which is the biggest).

      The problem with drug research today is the drug manufacturers control everything. The are the ones who hide research that doesn’t go their way, who write the text of the studies, who control every aspect of the studies, etc. They also control who gets on the boards to recommend the drugs to everyone. Once the guidelines say a doctor must give you a drug based on some test results, then they must.

      The latest trend in drug research seems to be to top studies early. Say your study is going to run for X years (say, 5 years), then get such “great” results that you stop your study much earlier (say, 2 years). This is very detrimental, because the drug could cause cancer and other diseases that take a long time to develop, but stopping early means these cannot be determined. There could be side effects that take a while to develop. Furthermore, longer studies mean the result is less likely to be due to chance. I’ve seen three recent studies stopped early because of the “great” results. It’s bogus. It should not be allowed.

  8. 8

    “My first thought was that the price-hike was likely backed by the exclusivity of patent rights.”

    That confession still speaks volumes, even if patents aren’t the culprit in this particular instance.

    1. 8.1

      Yes.
      Yes it does.

      A contributor, no doubt, to a certain myopia that creates some rather deleterious perceptions.

  9. 7

    Pharmaceutical Industry rape of human health care is the best proof of the crony capitalism of the age. Carving pharma patents out of InterPartes Review is a stunning concept in modern law, but highly probative. Abrogating “first sale” doctrine to proscribe natural arbitrage is just another stop on the autobus route to the health care apocalypse, where the survivors will have nothing to do with it but physical repairs.

  10. 6

    Another example for your point: Muro 128, a very tiny tube of nothing but petroleum grease with 3% or 5% sodium. Commonly prescribed for years for dry eyes at night, which is a common problem in old age NOT patented, sold over the counter, and yet still costing about 14$ or more per tiny tube, which lasts only about a month. So it must be an incredibly lucrative high margin product. Only recently CVS started offering a copy, naturally priced only slightly cheaper. [I believe Muro 128 was acquired by B&L which was acquired by a Canadian investment company?]
    If you add up examples like this nationally, it is real money.

  11. 5

    At $750 a pill in the US and (virtually) free elsewhere, you don’t even need to import it to save money–it is cost effective to just go on vacation where it is sold, live it up for a month, and then come back with a years supply.

  12. 4

    Maybe we should enter some sort of agreement that would allow generic drugs approved by the Canadian counterpart to the FDA to go through a super-abbreviated process in the U.S. It looks like the price in Canada is around $1.50 to $2.00 per pill.

  13. 3

    Kudos to DC for naming the FDA as a major cause of artificial pricing (i.e. pricing resulting from interference with the natural market by force of law – govt), and almost correctly identifying government and its artificial economic systems/regulations etc. as the primary cause for the possibility of monopolies as such.

    1. 3.1

      almost correctly identifying government and its artificial economic systems/regulations etc. as the primary cause for the possibility of monopolies as such

      Better luck next time, Dennis!

      1. 3.1.1

        LOL

        Look, I know you and I do not agree much on anything but your comment made me laugh, and I am glad for it.

        Well done. I did leave you the opening… but you deserve the cred.

  14. 2

    Is this a reference to IPR? It isn’t clear from the post.

    “However, that process is still expensive and was previously not cost effective . . .”

  15. 1

    I’ve been taking a drug for a while now that’s been $10/3 months supply (without insurance). Last week, they told me the price is now $40/3 month supply. Why? This is a generic, well off patent, and prescribed a lot.

    1. 1.1

      As a recent emigres from the Soviet Union once said to me as I wondered out loud about why tuition at my university was being raised, “Vell….is Cap -a- tal- ism?”

      They are raising the price, because they can.

        1. 1.1.1.1

          Looks like a great opportunity to invent something…

          Silly anon. Don’t you realize that an invention starts with an idea — i.e., an abstract idea to which you add known elements. Under Mayo/CLS Bank, your invention is directed to the abstract idea and thus is nonstatutory. No patent for you. Come back one year. Next.

      1. 1.1.2

        That is true. So, I’m complaining, because I can. ;-)

        But seriously, there’s no reason for costs to explode to the point where you need to gouge people.

        If you want to talk about an area in need of serious reform, it’s drugs. The drug manufacturers control what doctors read and think and many times control the “guidance” (which doctors MUST follow) given to the doctors. Why do you think “limits” such as cholesterol and blood pressure keep coming down? It’s so we’re prescribed more drugs so the drug manufacturers make more money.

        It’s too bad no one is paying a blogger to protest these practices instead of protesting “cr ap” patents.

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