Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices

By Jonathan D. Rockoff and Ed Silverman
The Wall Street Journal, 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.

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.

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.

“It seemed like highway robbery,” said Erin Fox, who directs the drug-information service at University of Utah Health Care.

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

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.…

It seems that everywhere you turn these days there are articles covering the skyrocketing prices of pharmaceuticals.

One factor used by the pharmaceutical firms to explain their price increases is the benefit patients receive from the drugs – benefits that the pharmaceutical firms claim are so valuable that the prices should be much higher than their costs of doing business. When you have a superior product, you sell it at a higher price, with the financial benefits accruing to the owners of the firm. That’s the way markets work.

This WSJ article describes an even more nefarious process of market manipulations of drug prices. Pharmaceutical firms are buying the rights to the products of other firms, often buying the firms themselves, paying very high prices for these rights. There are several examples in thus article, but an even more egregious example is the action of Gilead Sciences in buying up the rights to the newer, more effective Hepatitis C drugs, again paying outrageous prices for those rights. They are recovering this capital cost by charging $1,000 or more for each pill sold, when a course of treatment may be 84 pills.

Think about that. A massive amount of capital is paid out, requiring the purchasing firm to charge much higher prices for those drugs to recover the funds paid to acquire the drug rights. Who receives the capital paid out? The wealthiest tier – the tier that holds by far the largest percentage of shares in public and private corporations. Who is paying higher prices to compensate for the capital purchase of the drug rights at inflated prices? It is predominantly middle-income Americans in the form of direct drug purchases or indirectly through insurance premiums, taxes for public programs, or forgone wages to pay for employer-sponsored benefits.

Thus the pharmaceutical firms are compounding the inequitable shift of capital from the workers to the wealthy (described by Piketty, Saez and others). This is being done through financial constructs for which Wall Street is so infamous. As patients, we are powerless to impede this process. It is the responsibility of government to provide the appropriate oversight to correct these injustices. Yet what did they do? Through the Affordable Care Act they handed more power and control over to the insurers and the pharmaceutical firms, leaving us at their mercy, even though mercy is not a quality found in amoral corporations.

These injustices would not be tolerated in a single payer system.