Turing Pharmaceuticals: a glimpse into controversial drug pricing.

By Michel Saba

Introduction

In 2015, an act of greed hidden under the mask of good samaritanism backfired and resulted in the whole planet talking about controversial drug pricing. Martin Shkreli, the CEO of Turing Pharmaceuticals at the time, was under the spotlight of global media after he greatly increased the price of an antiparasitic drug prescribed to people with compromised immune systems (including those living with HIV). For several years, the story uncovered many flaws in the pharmaceutical industry. Although increased prices were attributed to crucial drug research that needed funding, the public quickly realized there was a missing piece to the puzzle. The scope of this controversy widened to Big Pharma which resulted in many bigger questions being asked.

Turing Pharmaceuticals

Turing Pharmaceuticals was a Swiss-incorporated company founded on the 24th of February 2015 by Martin Shkreli. Their first acquisitions were from Retrophin (a company previously founded by Shkreli): an intranasal formulation of ketamine, an oxytocin nasal solution, and Vecamyl. During the same year (August 5th), Turing raised millions of dollars in Series A funding (United States Securities and Exchange Commission, 2015a) which was presumably used to acquire the rights to Daraprim (pyrimethamine) from Impax Laboratories on August 7 (United States Securities and Exchange Commission, 2015b). Daraprim is an antiparasitic drug approved by the FDA in 1953 (AIDSinfo Database). It targets toxoplasmosis and is mainly given to patients with a compromised immune system. This includes HIV and cancer patients as well as the elderly. After its acquisition, Turing pharmaceuticals increased the price of Daraprim from $13.50 a pill to $750 (a %5455 increase). As a result, the cost of treatment using Daraprim increased to $336,000 or $634,500 (IDSA and HIVMA, 2015) depending on the patient’s weight (below or above 60 kg respectively).

The news media wave that was started by Healio (2015) and USA Today (Rushton, 2015) was instantly picked up by global media. What started off as the scrutiny of Shkreli’s decision extended to that of Pharmaceuticals’ drug pricing policies.

Stakeholders

Many groups were affected by this price hike. First and foremost, the patients who were dependent on this drug were those who were most affected. Although the disease is not very common in the US (only 2,000 patients), Daraprim is a generic drug and unfortunately the only one available with its function. This means that people in need of Daraprim either had to deal with the costs or turn to other alternatives that are not as effective. To make matters worse, individuals who do not have insurance usually have other barriers to healthcare (such as transportation and stigma) (Healio, 2015)

Consequently, this affected other groups such as insurance companies who cover those costs. Following such a price increase, those companies increase their rates and therefore society as a whole ends up indirectly paying for it via more expensive insurance plans. Moreover, the fact that the drug was less affordable meant that hospitals had low inventory for the drug and there was, therefore, high demand for it. This was a similar situation when considering assistance programs (Georgia Aids Assistance Program) which informed those who used their services that they lacked the supply of the drug.

Additionally, the stock market was also affected by Shkreli’s decision. After the news went viral, Hillary Clinton addressed the issue on Twitter, mentioning her intentions of taking on drug market pricing. This resulted in a decrease in biotech stocks, which affected multiple pharmaceutical companies (Egan, 2015).

Although Turing pharmaceuticals claimed they did not intend to decrease their prices, they stated that they were developing a corrective plan to ensure that patients had access to Daraprim (Healio, 2015). This included a 50% discount to hospitals treating patients with toxoplasmosis.

Price Justification

These events begged the question: what is the reasoning behind these price hikes? What is the justification?

Renowned biotech writers such as Andrew Pollack at the New York Times (2015a) and John Carroll at FierceBiotech (2015a; 2015b) not only questioned the actions of pharmaceutical companies but also criticized their “generic” responses. When asked why Turing Pharmaceuticals increased the price of Daraprim, Martin Shkreli (as well as other Turing Pharma representatives) explained that the money gained would be allocated to research and development revolving around the treatment of toxoplasmosis. While the statement itself makes sense, it seems that it was not an honest one but only the umbrella under which pharma greed stands under. Wendy S. Armstrong, the vice chair of HIVMA, said that “this is not an infection where we have been looking for more effective drugs”. The drug was already effective, requiring only one pill a day, and having very manageable side effects (Healio, 2015). On the other hand, Shkreli mentioned how Daraprim is underpriced relative to its peers and questioned why other companies were not being criticized for having done the same act. The issue with this response was that the peers Shkreli was referring to, were treatments to diseases such as cystic fibrosis and cancer. One cannot compare Daraprim to those drugs since the former is a generic drug (the patent expired in 1953) while the latter is still under ongoing patents. Moreover, these drugs are a product of recent research, while Daraprim has been very effective for many decades. No drug has yet been released as an alternative/improvement to Daraprim which further supports the hollowness of the argument given by Turing. It is becoming more apparent that such valuations of drugs might not be of pure developmental causes. This is supported by statements from Shkreli on twitter (Carroll, 2015b) and during a Forbes Healthcare Summit (Forbes, 2015): “This is a great business decision that also benefits all of our stakeholders”; “my shareholders expect me to make the most profit […] that’s what people [in healthcare] are afraid to say”. Although immoral, Martin Shkreli’s actions had a silver lining. Had he been political with his responses and had answered with the usual “no comment” or “our prices reflect the value we generate to our patients”, the events would have progressed very differently. There wouldn’t have been such an explosion of public outcry, and big pharma could have passed somewhat unnoticed. But Shkreli didn’t hold back and the public’s attention has since then been focused on the drug pricing process.

Inspecting other pharmaceutical companies, it is obvious that many treatments of serious diseases are quite expensive: Gilead Sciences produces a Hepatitis C drug that sells for $1,000 a pill; Kalydeco, a cystic fibrosis drug from Vertex, surmounts $300,000 in yearly treatments; Celgene’s Revlimid costs around $150,000 for patients combating cancer. These charges are staggering either because the company owns the patent and therefore is the only one capable of selling that specific drug (no competition means no decrease in prices) or because there is some sort of unspoken agreement between companies where they set prices at a certain level so that all companies benefit. The latter is best explained by an anonymous statement from a director of multiple sclerosis drug development: “we all look at each other and keep pace with each other”. Meaning that, aside from the obvious fact that there is a substantial amount of money being spent on research and development, valuations are set at what the market is willing to pay. Prices are hiked to the point of maximal possible profit where all companies would benefit while avoiding harmful public attention. This ceased to be the case when Martin flew a bit too close to the sun. When politicians started getting involved, initiatives to increase transparency of company expenditures began to gain traction. Both Clintons took their concerns to the public. As mentioned earlier, Hillary Clinton stated her desire to tackle big pharma followed by concrete actions to amend drug policies (Staton, 2015). Moreover, at a pharmaceutical event, Bill Clinton made a speech to executives in Philadelphia appealing for them to “explain, explain, explain and disclose, disclose, disclose”. He said this would allow the public to better understand pharma’s stand on high prices (given that pharma is granted the benefit of the doubt regarding R&D spending) but also allow better policy results. Consequently, multiple bills were put forth with the objective to increase cost transparency. This would allow the public, insurers and the government to examine and justify said spendings. This includes developmental costs, money spent on manufacturing and marketing, pricing history, profits, and assistance program funding (Pollack, 2015b). More importantly, these bills would not only require these reports but would also allow companies (i.e. insurance) and the government to act upon the information. That being, it would allow an insurance company to deny the purchase of a drug in the case of missing information, or even allow the government to set a maximum price for a drug. Although pharmaceutical companies are required to disclose payments spent on doctors to conduct research, give speeches and consult, these mentioned bills did not pass. Government officials stated the bills did not have sufficient support or that it was “not ready for prime time”. As ridiculous as that may sound, we cannot condemn big pharma without having concrete proof of funds misuse. What if, the information was indeed misleading? Since the developmental costs of drug research ignored the money spent on drugs that did not make it to market. Unfortunately, we cannot be sure until we get a glimpse behind big pharma’s closed curtains.

This brings us to a real head-scratching moment. In order to gain insight into pharmaceutical expenditures, we must use the law to gain access. That being, the government must be on the public’s side in order to have law reforms. In our case, the government is backing such bills yet is still failing to have them passed. As it turns out, there are people “above” the government: puppeteers that pull the right strings to get their way, big pharma’s way.

Political Lobbying

For around ten years, Big Pharma has spent around $2.5 billion to lobby the government regarding issues that include drug pricing (OpenSecrets, 2018). For instance, the industry supported presidents on the condition that lower drug prices would not be negotiated, or even made sure that Obamacare did not include any drug pricing reforms (allegedly; Morgan, 2018). Of course, this cost a lot of money. PhRMA (Pharmaceutical Research and Manufacturers of America) and BIO (Biotechnology Innovation Organization), which are trade associations representing the US’ largest drug manufacturers and biotech companies, were involved in $277 million spent in 2017 alone for federal government lobbying (OpenSecrets, 2018).

This is not limited to trade organizations as there are many individual companies that support the cause. For example, Mylan, an American drug manufacturer, lobbies issues regarding drug pricing in order to maintain profits. Their interests are reflected in their price increases over the past couple of year. Ironically, these increases are very similar to those of Turing Pharmaceuticals, yet were not covered as extensively by the media. This company had increased the price of an asthma drug by 4,014% over a year, the price of a heart medication by 573% over a year, the price of a cancer drug by 100% over two years, and the price of the EpiPen by 500% over seven years (Morgan, 2018). Again, the increased price of the EpiPen did not result in an improved product, even though company officials might say the money was allocated to the development of other drugs. Moreover, when considering such drugs that are required by law in schools, it is taxpayers that end up having to pay the price.

Drug pricing lobbying is a major issue in the united states. A study by CREW (Citizens for Responsibility and Ethics in Washington) found that there were around 153 companies lobbying drug pricing in 2017 alone (a four-time increase over the past couple of years; Morgan, 2018). Among the 153 companies, 22 were among Forbes’ top 25 largest pharma/biotech companies on the planet (including the previously mentioned Gilead Sciences; Jurney, 2016).

Conclusion

There is fortune in all misfortune. Although the increased price of Daraprim had wide negative consequences, it allowed us to take a step back and see the bigger picture. The public realized that the lawful drug increase was a symptom and not the disease. We find through evidence that with the use of large amounts of money, the U.S. government is being swayed by Big Pharma in order to subdue drug pricing bills. It is an ugly truth that needed to be known in order to start making reforms. Many government officials have taken a stance against such events but have not yet succeeded. As time goes by, there will certainly be some changes that could satisfy both parties. As a final note, citizens need to be more attentive of how large companies are involved in the government.

References:

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