While Turing Pharmaceutical’s 5000% price increase of a drug was particularly eye popping and led to significant outrage directed at CEO Martin Shkreli, this is an industrywide phenomenon. Firms raise prices frequently as they try to make as much money as possible before patents expire, recoup their investments, and make up for the high failure rate of pharmaceutical research.
Using data from Wolters Kluwer’s PriceRx database, a leading repository of drug price information, a note from analysts from Deutsche Bank shows why the implied threat of price controls has pharma investors running so scared. The note doesn’t cover every firm, but it gives a nice overview for branded drugs.
The average price increase for products made by specialty pharmaceutical companies, which concentrate on pricier drugs, was 16% in 2012, 29% in 2013, 22% in 2014, and 19% so far in 2015.
Valeant is the biggest standout. The Canadian company, a favorite investment of hedge fund icon Bill Ackman, has pursued a strategy of buying out other companies and drugs, slashing R&D budgets, and dramatically increasing prices. Its average price increase so far this year is 66%. Behind it are Allergan, Maltlinckrodt, and Mylan.
Here are the specialty pharmaceutical companies ranked by average price increase over the past three years, along with their biggest single price increase during the period:
Valeant had by far the biggest price increases. Two of them—a 535.7 % price increase for Isuprel, and a 236% increase for Nitropress, both recently acquired from other companies—may see the company’s officers subpoenaed to testify before a US congressional committee.
US based big pharma is a bit more circumspect, but has still substantially raised prices:
There are a few caveats worth noting. The prices listed are the wholesaler acquisition cost (WAC). These are list prices, and patients will pretty much never see or pay that full amount. Rebates, price cuts for government programs, and negotiations with large payers can push prices down pretty substantially. Moreover, companies frequently offer reduced payment programs to low income patients.
The analysis doesn’t account for how large a market these drugs impact, or how significant they are to the companies. It also doesn’t cover the increasingly common practice of hiking the price on generic medications, as was the case with Daraprim and Turing Pharmaceuticals.
This issue of price gouging isn’t going away any time soon, even though an actual policy remedy is unlikely.
“In our view, the debate (and headline risk) around this subject could continue through the election cycle and beyond,” analyst Gregg Gilbert and his team wrote.
The numbers make it easy easy to see why the mere prospect of reining in price increases has sent biotech, and companies like Valiant in particular, into such a spiral.