Capitalism, like the software on your computer or iPhone, should periodically be updated. (Trevor Noah—paraphrased)

  • Our goals include: Fairness to those who strive, create, and manufacture.
  • Avoiding actions that are likely to inhibit innovation.
  • Changing a culture that encourages big Pharma to charge a lot and keep raising prices because no one is looking and people with small drug co-pays don’t seem to care,
  • Not rewarding manufacturers who spend billions acquiring other companies so they can control a promising new drug.
  • Not having our attention diverted by the outrageous antics of the gougers.

Where the market place works I would tread lightly.  Negotiations, talking, bargaining, and reaching a deal is sensible.  It’s how the VA and private insurers establish the price they pay.

The dollar amounts they agree on also determine what Medicaid pays.  A special law asks manufacturers who want to sell to Medicaid to give each state program “the best price offered to any purchaser… (The negotiated prices companies give to private insurers).  In return, manufacturers who sign on can sell all the drugs in their arsenal to every state’s Medicaid program.”The legislation put a cap on price increases.  The cost of drugs sold to Medicaid can’t rise faster than inflation.

And it contains a complex formula of rebates–money given to states.  I suspect the funds are an attempt to plug a loophole that allows companies to give “discounts and concessions” to some insurers.   The rebates to states were increased by the affordable care act (ACA).  The minimal kickback rose “from 15.1 percent to 23.1 percent.”

Medicare:  People over 65 paid a payroll tax all their working years.  That money (incompletely) underwrites Medicare A, hospital insurance.

Once insured by Medicare A, people over 65 must still pay for– or buy a policy that covers– out of hospital health care (Medicare B) and/or drugs (Medicare D).

To receive medications under “D” people need to enroll, pay a monthly fee, and sign up for a plan.

The plans “help cover the costs for prescription drugs, may lower a person’s prescription drug costs, and may protect against future higher costs.” Then again they may not.

The Medicare D drug co-pay + the money the government kicks in, probably exceeds the co-pay + the insurance company cost for meds used by young people who have drug insurance.

Private insurers bargain.  D plans are not allowed to negotiate drug prices.

Easily fixed, you say.  Only if people care.

Most generics:  there’s a vigorous marketplace.  The demand is worldwide.  We face intermittent shortages of some drugs.  The production of sterile intravenous fluids and injectables can be costly.

As long as there’s more than one manufacturer and there’s competition, price is a secondary consideration.  We need to worry more about the availability of some medications and sterile fluids.  I’d ramp up the FDA’s ability to inspect and certify production facilities abroad.  And (as with purchases of weapon systems) I’d find a way for government to guarantee minimal purchases of needed fluids and drugs at a negotiated price.  In return I would want manufacturers to agree to build needed, state of the art factories—hopefully in the U.S. and Puerto Rico.

Gouging:  The examples in my blog are merely the top of the iceberg.  We need hearings where congressional legislators do more than express their outrage.  They need to create a law.

A recent article that demonstrates an ongoing need (and perceived permission) to exploit:  “Painkiller that once cost $138 is now $2,979. — An Irish drug maker has jacked up the price of a painkiller to nearly $3,000 a bottle. The drug is 22 times more expensive than when the company acquired it in late 2013.” )

For brand name high priced medications I can’t think of anything short of regulation that will work.    I realize the word “regulate” to some, is as onerous as gun control.  It’s easy when you’re young and healthy to claim to have no appetite for government “interference.

My “regulation” proposal:  When a new, drug gets approved by the FDA and each year thereafter, the manufacturer will fill out an IRS LIKE form.  As with the income tax—most filings won’t be scrutinized.  If and when a company is audited they will have to provide evidence that their figures were honest.

On the form:

REVENUES:  manufacturers will estimate first year revenue based on projected price and sales.  Each subsequent year they will use actual prior year revenues.

COSTS AND PROFITS:  manufacturers will list the following on the form:

Cost of actual research+ development for this drug– paid by the company.

Cost of invested money:   The Tufts—industry quoted– study assumed invested funds, placed elsewhere, would earn 10% a year.  Sounds high, but for now let’s use the company number.

Profit:  say 10 percent per year—max.  (Remember companies use the results of research paid for by taxpayers; new drugs get 5 years of exclusivity.  Public monies are (at times) used to develop and run the initial tests on new meds; many a drug’s niche has been established by University based researchers.  The tax payer’s helping hand may fall short of “corporate welfare”…but should our craving for innovation be rewarded with extravagant profits?)

Promotion costs:  10 percent years one and two.

Contribution to company’s overall research:  If the company spends 8 % of its revenue on research, add 8 %.

Moneys spent when one company buys another company:  no deduction

Money spent on research using NIH or charitable money:  no deduction

CALCULATE:  Revenue (projected the first year- actual thereafter) MINUS costs and profits.

AND DIVIDE REVENUE MINUS COSTS AND PROFITS BY 5 years.  After the first five years divide by the number of years the drug is on the market.    (The really expensive–billion + dollar a year drugs earn back their costs very quickly.)

The formula would establish the maximum companies can charge for each drug.  If a medication doesn’t sell because it’s too pricey, manufacturers can, of course, charge less.

PRICE INCREASES:  As a result of inflation and subtle hikes in production and distribution costs, manufacturers should be allowed to raise drug prices a certain percent each year.  The amount of an automatic increase needs to be worked out by our legislators. Manufacturers should also be permitted to increase a drug’s price (amortized over a few years) when they update their factory or if the cost of raw materials goes up.

(There is currently no limit on drug price increases and most drugs have relatively little marketplace competition.  That has created problems.  We need a drug pricing formula that is reasonable and fair to both sides. —Prices don’t always go up. Cheap imports from Asia have pushed the price of many consumer goods down, and American wages have, on average, been flat for decades.  The U.S. went through a period of deflation in the early 1930 and we lived through inflation rates of or above 10 percent when Jimmie Carter was president.  During the last five years the U.S. inflation rate was 2.1 percent or less and that’s bound to change.  )

Forms will be signed by the CEO and submitted annually.  A few will be audited.  Fraud will be punished with jail time.

All formulas have flaws.  Please point mine out.  Let’s refine an approach so when and if our leaders decide to deal with the problem they will have a road map.


Shortages of drugs

Even if we’re unwilling to fix the high costs of many drugs we have to deal with the other problem plaguing the pharmaceutical industry: shortages of needed drugs—especially sterile injectables.  it’s been  happening for close to a decade and it’s a serious problem.

 Doctors who can’t get the therapies they normally use are winging it–using alternative medications.

There’s a grey market.  Nobody wants to run out of needed medications or infusions, and some facilities have paid a premium and stockpiled them.  That’s illegal you say.  Tell that to the person with a serious infection who needs the right antibiotic now.

There were 257 new drug shortages in 2011; then the number started going down.  And there have been 250 ongoing shortages annually between 2012 and 2015.  Most were for generic sterile injectable drugs.

“89 % of the drugs we in the U.S. take are generic.”  Some are made in the U.S. but many are made abroad.  “The U.S.’s top 5 sources of pharmaceutical imports by “value” (in 2015) were Ireland, Germany, the U.K., Switzerland and India.” –Indian companies produce large volumes of cheap generics whose U.S. patent protection has expired. “They now make up eight of 10 prescriptions filled in the U.S.”   These medications are relatively inexpensive and only “account for 22 percent of spending, hence they are low on the value list.  China doesn’t sell many “finished drugs” here but they produce 40% of the global chemical components used for our medications.

More than 50% of our generic drugs are supplied by one or two manufacturers. Some medications have “Thin profit margins…and that can lead to shortages, manufacturing delays, or decisions to discontinue a drug altogether.”

In the US, a year-long a shortage of benzathine penicillin G has made treating syphilis – a disease that is growing in prevalence – more difficult. In Brazil, a three-year shortage of the drug occurred when they were having an outbreak of syphilis, a disease linked to severe malformation in babies.May 21, 2017

The 2017 Hurricane in Puerto Rico, where mini bags for IV solutions are manufactured, led to temporary shortages.

In 2011 Bruce Chapner, an investigator at the national cancer institute, wrote about the scarce supply of “workhorse cancer drugs”,  various antibiotics, blood pressure meds, and electrolyte solutions.  Worldwide demand was increasing.

A number of the legal and bureaucratic hurdles were preventing large manufacturers from entering the market and keeping some of the drugs made elsewhere out.  The production of sterile injectables was also hampered by the FDA’s buy and bill rule.  “Reimbursement for injectable generics can’t be more that 6% higher than the average sales price the preceding quarter.”  So injectables were less profitable and, manufacturers made them “using older and less efficient production facilities.”  Contamination led to plant closures.  Cancer drugs made in the U.S. (he hypothesized) can be sold abroad for more money.  He didn’t say it’s happening, just that it makes sense.

Companies told investigators for the pew trust that “they needed incentives, either in the form of guaranteed-volume contracts or the ability to retain contracts, to mitigate the risks of making investments.”  They needed predictability.  Without accurate information about the expected demand for a product, especially low-volume, low-margin creations, companies were reluctant to invest in setting up additional manufacturing capabilities to protect against future shortages.”

In 2017, the top 3 generic manufacturers were Teva, an Israel based company with $9 billion in sales, and factories all over the globe.   Sandoz—a Swiss company that is  the generics division of Novartis: It has over $8.5 billion in sales, 25,000 employees worldwide, and 30 manufacturing sites.  And Actavis, a $70 billion company that is headquartered in Dublin Ireland and has 10,000 employees.

Trump promised to lower prescription drug prices.  His proposals seem to be mainly aimed at generics, even though,(according to the 2016  Government Accounting Office analysis) over a five year span—2010 to 2015– the price of “1441 established generic drugs “dropped about 10 percent and the price of “2,378 unique generic drugs” decreased 59 percent.   The report identified 351 established drugs that “experienced an extraordinary price increase”— 100 to 2000% .   (Some of the hikes were probably caused by higher manufacturing costs; and some were the result of a market system that allows companies to gain control of a medication and see what they can get away with.  The role of shortages was not discussed.)

Amidst the public outcry for lower drug prices, shortages could, at least theoretically, be affected by business difficulties.  In December 2017 Teva laid off 14,000 workers and closed a few manufacturing facilities.  Profit margins were falling and they were under pressure in the U.S. from “major chains, wholesalers and benefit managers who had gotten together and demanded discounts.”  To survive and be profitable they planned to discontinue some drugs and close or sell “a significant number of manufacturing plants in the United States, Europe, Israel and other markets.”

The suppliers of generic drugs and their facilities are scattered and can’t be regulated.  In 2015, acting on Obama’s executive order, the FDA published a number of rules to help alleviate the shortage problem.

Before companies stop making any or enough of a needed drug, (within the limits of the law) they have to notify the agency.  The government can then “determine if other manufacturers are willing and able to increase production”..The FDA “was told to expedite inspections and reviews of submissions from manufacturers attempting to restore production—and manufacturers who were interested in starting new production.

And the FDA was told to bend a few rules: “Exercise temporary regulatory flexibility for new sources of medically necessary drugs; help affected manufacturers identify the cause of the shortage; and develop risk mitigation measures, such as the use of sterile filters, to allow individual batches of a drug product initially not meeting established standards to be released.

As an example of the complexity and how it’s handled:

In 2017 “Due to the ongoing critical shortage of injectable drugs used in critical care” the FDA  reviewed Pfizer’s  stability data and extended the expiration date of a number of injectables.

According to the FDA approximately 20 million IV saline bags are used per month in the United States.  IV fluids are used to hydrate, as a vehicle for infusing medication, and much more.  In the U.S. they are largely supplied by:  Baxter, a U.S. company, B.Braun Medical–The American branch of a German company that has operations in 64 countries–, and Hospira (a Pfizer owned company).  the U.S. manufacturer, Baxter, has “15 manufacturing sites in the continental U.S., three in Puerto Rico, and eleven in Latin America and Canada.”   The supply of sterile solutions in the U.S. has been borderline for years.  In 2017 there was a shortage, and the FDA acted.  The agency can’t require a manufacturer to make more. But in March they “checked out Fresenius Kabi’s Norway, saline producing facility.  It passed inspection and the agency “temporarily allowed Fresenius Kabi to distribute normal saline in the U.S.”  In April 2017 the FDA allowed Baxter to temporarily import normal saline produced in Spain.

Currently the FDA says it has 4 “officers” and others working on the problem.  They updated the ASHP—the American Society of Health System Pharmacists during a round table discussion in November 2017.  At the time the FDA was dealing with 170 newly reported shortages (down from 305 in 2012).  The typical drug remained the injectable product that was off patent and had few suppliers; shortages were still commonly the result of “quality problems during the manufacturing process.”

Most companies were notifying the FDA as required by law, and the FDA was encouraging, talking, strategizing—and increasingly relying on foreign inspection histories.  But the FDA was still toothless.  They couldn’t require manufacturers to do anything.

The conference ended with a number of recommendations (? To Congress; ? to the FDA’s rule makers)  They included “requiring” manufactures who faced impending shortages to establish contingency plans;  and creating “incentives” that would encourage drug makers to produce scarce products.  Then, noting that the numbers of generic manufactures were declining, the Pharmacists wanted the FTC– federal trade commission to “review drug company mergers and acquisitions.”


what can we expect in the future?  17 % of the 7.5 billion people on the planet live in India and 20 percent of them survive on, at most, $1.25 a day.  India’s large pharmaceutical industry (and their courts) seems to be more interested in serving the medical needs of locals than they are in enriching the coffers of big Pharma.   Drugs are relatively cheap and most are generic.

Newly created medications, some of which are major advances, are largely unavailable in their corner of the world during their first 5-7 years.  —After India joined the world trade organization in 2005, their government started allowing Pharma to patent drugs.  But their courts approach to the law is a bit different than ours.  As in the western world to be patentable an item must be new, useful, and non-obvious. The U.S. courts allow companies to patent new versions of drugs (long acting, capsule versus pill, different inactive ingredients.)  The courts in India tend to say changes of this type are not “new” thus not patentable.  They have also ruled that the recently developed drugs that cure hepatitis “are novel but similar to a known compound (sort of true) and that the new drugs didn’t show a significant improvement in efficacy. (wrong.)  Nonetheless when the U.S. patents expire, manufacturers in India tend to get to work.

18 % of the world’s inhabitants live in China.  Their pharmaceutical manufacturing sectors are also big and growing. No telling how the U.S. will solve it’s drug shortage problem in the decades to come.


Most Americans haven’t see drug costs as “their problem.”  They have good insurance, or they don’t have a costly illness, or they’re too proud to complain.  Then a few individuals got control of an old, little used drug and jacked up the price.  Newspaper headlines and T.V. commentators were on it.  And the average guy and gal was so incensed that Congress had to hold publically televised hearings..

Public enemy number one was Martin Shkreli.  When I started learning about him I expected to find a canary in a coal mine– the Edward Snowden of drug prices– an in your face rebel trying to force the country to stare hard at its absurd drug pricing system.  But that wasn’t what I found.  Martin Shkreli, the son of immigrants, went to business school and worked on Wall Street.  He allegedly (when young and new) exaggerated or lied to some of his hedge fund clients.  He insists the people who stuck with him all made a profit, so no harm done.  He later became the head of a pharmaceutical company and overpaid for a drug called Daraprim.

The medication was developed 75 years ago and was originally used to fight Malaria.  One of many drugs developed by research genius and Nobel Prize winner, Gertrude B. Elion, it was owned by Glaxo Smith Kline and couldn’t have been very profitable.

In 2010 Daraprim was sometimes used to treat Toxoplasmosis, a parasite transmitted by cats that can damage the eyes and brains of newborns.

In people with advanced AIDS, the parasite can cause serious brain disease—encephalitis and focal brain lesions.

HIV destroys T cells, immune cells that protect us from invaders. Over years untreated people with HIV have fewer and fewer of these defenders.  When their CD4 count drops below 200 the person affected has the full blown disease– “AIDS”.  Creatures that were harmlessly living in the person’s body multiply, and start wreaking havoc.  When the CD4 count goes below 100 the parasite causing Toxoplasmosis becomes a problem.

A little over a million Americans are living with HIV.  Most are taking drugs every day and their virus is suppressed, harmless.  15% of those infected are unaware.  A little over 6000 U.S. deaths annually are attributed to HIV.  I don’t know how often Toxoplasmosis contributes to their demise.

Daraprim, also known as pyrimethamine, is the treatment of choice for the brain diseases caused by Toxoplasmosis. Made in a few places in the world, it had long been available and cheap.  Glaxo Smith Kline couldn’t or wouldn’t raise the drug’s price for practical, philosophic, and public perception reasons.  So it was kind of a financial loser.  One of several drugs that was sold or dumped by GSK, Daraprim was briefly owned by a drug company called Tower holdings.  After a series of drug company acquisition/mergers the drug became the property of Impax of Hayward California.

The company (allegedly) claimed they sold $9 million dollars worth each year and made little or no profit.  In August 2015 they got rid of the product—convinced Turing Pharmaceutical to buy it for $55 million.  At the time Turing was a privately held company with offices in Switzerland and New York.  According to its linked in page, the company once had 50 to 200 employees.

After the drug was acquired, Turing tried to start campaign to make mothers aware of the possibility of transmitting Toxoplasmosis to their fetus.  I’m not sure why.  Toxoplasmosis in newborns is uncommon.  Of the 4 million children born in the U.S. each year, an estimated 400 have Toxoplasmosis.  That’s .01 percent.  When Daraprim (pyrimethamine) is fed to pregnant animals many of their offspring are born with abnormalities.  So we avoid giving the medication to pregnant women.

Turing’s CEO, Shkreli raised the price of Daraprim from $13.50 to $750 per pill.  A self professed Republican he chose to not explain the price hike.  It was legal.  Drug companies raise the price all the time.

“You can get away with high drug prices if you do it right,” Barrie Werth once said.  “If he had raised the price 30 times instead of 5,000 times, he could have gotten away with it.”

Because of its high price pharmacies and hospitals were reluctant to stock the medication, and it was hard to obtain on short notice.  The press started publishing stories of sick people who had difficulties getting the drug and who were outraged by its price.  Shkreli was vilified.  And he wasn’t contrite.  He appeared before a congressional committee and refused to answer questions.  He took the fifth.  He was interviewed repeatedly by Journalists and became infamous.  His company, Turing was sued by Impax.  They no longer owned the drug but, reportedly, still owed the government $30 million –for Daraprim related Medicaid requirements.  Impax wanted Turing to pay, but a judge found it wasn’t part of the contract.  The price rise was legal and Shkreli was not apologetic.  Then the department of justice decided to indict Shkreli for alleged misconduct as a hedge fund manager.  He was found guilty on 5 of 8 charges and he lost his job.  The company laid off a lot of people.

As Shkreli said on an internet talk show (edited) in life you can play the game or you can give up the fakeness and be yourself.  It has drawbacks.  We saw a major insider trading case that was settled by the SEC.  Big banks take millions in fines.  No one gets arrested.  There was a security charge that I manipulated stock price and another that I defrauded investors.  They all made money.

People with insurance or under Medicaid don’t pay for their drugs.  They pay co-payments.  (In other words, the cost of Daraprim, like most expensive drugs, is borne by the tax payer or it becomes part of the rising cost of health insurance.  And that wasn’t his problem.  He wasn’t a rebel.  He had no cause.)

I don’t know what Daraprim costs today.  Shkreli, who was out on bail was rearrested for a stupid internet prank, and the judge had him imprisoned.  I have no idea what makes him tick, but I know his antics have little to do with the high cost of drugs in this country.


When Heather Bresch appeared before Jason Chaffetz’s congressional committee in September 2016, the congressmen and women probably assumed she would quietly accept their outrage and verbal reprimand, then continue “getting filthy rich at the expense of their constituents…and have no remorse.” As a leader at Mylan Pharmaceuticals she was in charge of a product, EpiPen.  Her company had purchased the contrivance from Merck in 2007. There was a marketing campaign.  The awareness of the device’s importance as an emergency treatment for severe allergic reactions had grown.  The company “had pushed through legislation that made EpiPen a main stay in schools.”   And the sale and price of EpiPen grew dramatically.

The Autoinjector, the device that automatically squeezes the drug into a person’s body was invented in the mid 1970’s   The FDA approved its use in 1987.  It is presumably no longer patented.

The drug, epinephrine, was first synthesized in 1904, and has long been the antidote for a severe allergic reaction.  When a susceptible individual senses his or her body reacting to an allergen—when they develop hives, wheezing, or become faint because their blood pressure is dropping– if they are severely allergic to bees, have just been stung, and are starting to react–they take out their device, remove the top, put the needle end against their thigh, and press a button.  A sharp painless needle bursts out of their syringe, pops through their clothes and skin, and enters their thigh muscle. Then the “plunger” automatically pushes the drug into the person’s body.

At the time of the congressional hearings two prefilled syringes sold for over $600. (Between 2007 and 2016 the list price of a two-pack went from $94 to $609, an increase of 500%.)  A congress person derided company’s “simple corrupt business model.  Find an older cheap drug that has virtually no competition and raise the price over and over—taking advantage of the monopoly.  EpiPen generated $184 million in net sales revenue in 2008, and Mylan thought they would take in $1.1 billion in 2016.  That was a fivefold increase in gross income.

Bresch was repeatedly asked how much of the money was profit, and she kept changing the subject.  The FDA representative sitting next to Breach said the agency would review new applications for epinephrine injectors within 10 months.

The rapid rise in price had created a stir.  Representatives and reporters needed to express their indignation.  And they did.  The publicized outrage also alerted a few entrepreneurs who were watching or reading about the hearing.  Some saw a way to earn a quick buck.  If EpiPen could bring Mylan hundreds of millions in profits each year, and if there was nothing keeping other companies from making and selling an identical product, why not get a piece of the action.

A few companies joined the fray and by the summer of 2017 EpiPen must have been feeling the heat.  In Canada and the U.S. the price of EpiPen and a recently approved self injecting epinephrine Allerject sold for $130 a syringe.

CVS Health had a deal with epinephrine syringe provider Impax Labs, and was selling their authorized generic product, Adrenaclick for $109.99 for a 2-pack.

And a fourth epinephrie auto injector Symjepi, produced by San Diego’s Adamis company had been approved but had not yet been priced.

Bresch may have been unashamed, but the massive price hike opened a few eyes and they saw gold in them their syringes.


In October 2010 GSK (Galaxo Smith Kline) dumped/sold a loser–the U.S. marketing rights for albendazole.  Amedra, a small American drug company picked them up.  The details of the deal were not disclosed (or at least I couldn’t find them on the web.)

As part of the agreement GSK agreed to continue manufacturing the drug for the short run.   And they renewed their pledge to the world health organization.  They would continue to give the organization 600 million tablets per year as their contribution to the struggle to free the world from Lymphatic Filiariasis—an awful chronic disease.  GSK proudly proclaims their company “is committed to improving the quality of human life by enabling people to do more, feel better and live longer.”  (I suspect GSK didn’t seriously consider raising the U.S. price in part because they didn’t want to deal with the publicity such a move would engender.)

Albendazole was patented in 1975.  Invented by Robert J. Gyurik and Vassilios J. Theodorides and assigned to SmithKline Corporation, It was introduced in 1977 as an antihelminthic for sheep in Australia.  Humans used it after 1982.  (Helminths live in the intestines of 1.5 billion people. Usually acquired in childhood, the parasites are ingested with tainted food and water, by children who play in the contaminated soil, then eat, and by kids who go barefoot in certain parts of the world.)

Amedra is a subsidiary of Impax, a publically held pharmaceutical company that buys drugs.  In 2016 they purchased “a portfolio of 15 generic drugs from Teva and Allergan for about $586 million. Their website says they are “engaged in the development of propriety pharmaceuticals.”

People who live in places that have poor sanitation commonly carry worms in their intestine, creatures most modern day westerners never heard of—tapeworms like Cysticercosis and echinococcus—Nematodes like pinworms, ascariasis, and hookworms.

The parasites are so common in the guts of U.S. bound refugees that the center for disease control recommends we treat these newcomers presumptively with Albendazole and other drugs.  In India the medication commonly sells for $18 and, according to Wiki, in some countries it costs a penny to 6 cents a dose.

With the U.S. rights in their pocket Amedra raised the price pretty dramatically.   In late 2010, the average wholesale price for the medication was “$5.92 per typical daily dose”.  By 2013 it had jumped to $119.58.

Medicaid spent less than $100,000 per year on Albendazole in 2008, and more than $7.5 million in 2013.  Doctors in this country are prescribing it more often because the CDC thinks we should presume that refugees that come here from poor countries have parasites in their intestines, and we should treat them.  Part of the increased spending is the result of increased demand.

The year after Amedra bought Albendazole, Teva the generic drug company that later sold 15 drugs to Amedra, stopped manufacturing the drug’s only U.S. competitor,  Mebendazole (brand name-Vermox), for “business reasons”  That made Amedra the only U.S. player in the intestinal parasite business.

“U.S. antitrust laws protect consumers only from anticompetitive strategies such as price fixing among competitors. Manufacturers of generic drugs that legally obtain a market monopoly are free to unilaterally raise the prices of their products. The Federal Trade Commission will not intervene without evidence of a conspiracy among competitors or other anticompetitive actions that sustain the increased price.”

Amedra does have a program that supplies the medication to the impoverished, “but these programs often have complicated enrollment processes”  High-Cost Generic Drugs: Alpern et al, N Engl J Med 2014 Nov 13, 2014

The FDA has approved Albendazole as a treatment for—sorry if I bore you–: Neurocysticercosis (pork tapeworm; Taenia solium) and Hydatid disease (dog tapeworm; Echinococcus granulosis)*

It’s also used in most of  the world for a number of other parasites:  Ancylostoma caninum (eosinophilic enterocolitis); Ascariasis; Chinese liver fluke (Clonorchis sinensis); Cutaneous larva migrans (dog, cat hookworm); Enterobius vermicularis (pinworm); Filariasis (Mansonella perstans); Gnathostomiasis; Hookworm (Ancylostoma duodenale, Necator americanus); Microsporidiosis; and Visceral larva migrans (toxocariasis).  And it is also used by vetenarians.

Amedra as a corporation is a legal entity.  It has a duty to be profitable and enhance stockholder value.  Customers who take Albendazole are usually poor and powerless.  So if the leaders of Amedra don’t get too “ambitious”, don’t raise their prices too much, their price increase will probably be ignored.

A few years back a Philadelphia drug manufacturer got exclusive FDA rights (a 5 or 7 year U.S. monopoly) to a drug I had been using for 40 years.  The medication, Colchicine, is a plant extract that was used to treat gout before Jesus was born.  It is one of a handful of ancient cures that withstood the test of time.  The flower that produces the alkaloid was introduced to the new world by none other than Ben Franklin, an innovative guy who used the ancient remedy to treat his painful joints.  I learned about the medication in medical school, and have advised many to take it.  It has its share of side effects, and over the years has helped many of my patients, while making a few sick.  The books back then told doctors to give repeated doses to people with acute painful joints.  We didn’t stop till the pain subsided or the patient became nauseated or developed loose bowels.  That turned out to be too aggressive for a few of my patients, and I quickly adjusted my approach.

For centuries physicians have successfully used it, but no one did a double blind controlled study. Most docs would have thought withholding the drug from the control group would neither be necessary nor ethical.  Then, 23 years ago, doctors in New Zealand did the study.  Their 1987 paper was titled: Does colchicine work? The results of the first controlled study in acute gout. (Aust N Z J Med 1987; 17:301-304.)  Half the people with an acutely inflamed joint took the real drug; the other half a placebo (an inert look alike pill.)  People taking colchicine improved more rapidly and more completely.

In the company’s defense, clinical experience is sometimes misleading.  On occasion useful drugs fail or people get well in spite of us.  But colchicine has been used a lot over the centuries, and if the test of time means anything, the medication has always passed with flying colors.

The drug was available, cheap, on the pharmacy shelf.  No one had to go to the FDA to bring it to market.  Then some whiz kid figured out how his company could get exclusive rights to the old herbal remedy.  They ran a trial where neither the investigator nor the patient knew what substance was being used.  (Though, frankly, it’s hard to not know when the pill you are testing causes nausea and diarrhea at high doses.)  Colchicine, of course, worked.  The results were presented to the FDA and the whiz kid’s company got exclusive rights to sell the herb extract in this country.  “After the FDA approved Colcrys, the manufacturer brought a lawsuit seeking to remove any other versions of colchicine from the market; and it raised the price by a factor of more than 50, from $0.09 per pill to $4.85 per pill.”  Since this is a widely used medication they apparently stand to take in an additional 50 million dollars a year during the next 7 years.   (Outside the U.S. colchicine still costs 9 cents a pill.)

On May 6th 2018 the TV show 60 minutes explored Mallinckrodt Pharmaceutical’s decision to sell Acthar Gel for $40,000 a vial. (7 years earlier the same vial was priced at $40.)  The product is a pituitary hormone.  The pituitary is a small gland located at the bottom of the brain.  Some of the hormones it makes stimulate the thyroid or adrenal gland.  (Acthar induces the adrenal gland to make cortisol.)  ACTH—the hormone– is extracted from slaughtered pigs; it was used in the early 1950s as a means of giving patients cortisone. In 1955 prednisone became available and over many decades doctors largely stopped using Acthar.  The product was left with but two “accepted” indications:  It uniquely helped a rare seizure disorder– infantile spasm; and it was used to aid help diagnose the cause of adrenal insufficiency.  By 2001 doctors were only prescribing Acthar now and then, and it was a money loser.  But some kids needed it and its manufacturer, Aventis, apparently felt someone should keep producing it.  That year the French pharmaceutical company managed to sell the drug to Questcor, a California “pharmaceutical company” that was losing money.  Questcor paid $100,000 for the medication, raised the price, promoted the hormone for a few additional “indications”, and turned a profit.  In 2013 Forbes named Questcor the best small company of 2013; and in 2014 Mallinckrodt paid 5.6 billion for Questcor and its money maker, Acthar.

The Swiss take control


The Swiss take control 

“Pharma companies believe acquisitions are the only way to keep their revenues growing as fast as investors expect.  With today’s complex breakthrough medicines, it’s often cheaper for a company to acquire the next blockbuster drug than to develop it in-house.”

By 2009 the Swiss giant, Roche, had a 15 year history pharmaceutical company acquisitions–like Syntex in 1994 and Chugai Pharmaceuticals in 2002.  Their CEO was an Austrian born economist.  Married with three children he skied, hiked, and made movies in his spare time.  Initially thought of as shy he led the company when it plunked down billions and entered the cancer drug fray.   Buying California based Genentech for $46.8 billion the company acquired a lot of debt and three antibodies that were used to fight cancer:  bevacizumab, herceptin, and rituximab.

The cost of their acquisition virtually cemented their need to charge high prices and to sell a lot of these drugs.  If, at the time, some companies were uncomfortable charging a lot for anti cancer drugs, seems to me that they now no longer had much of a choice.  Their shareholders would (no doubt) expect little less than a $100,000 a year price tag for significant products

The entity Roche purchased, Genentech had started as a company that produced hormones.  The existence of these important proteins  was unknown before the 20th century, and before the 1970s they had been extracted from the glands of dead animals and human cadavers,then purified and manufactured.  Contaminants were always a concern.  In the 1970’s scientists at UCSF and Stanford discovered how to alter molecules of DNA found in bacterial plasmids.  (Plasmids are small molecules of bacterial DNA that are not part of the nuclear DNA.)  The Genentech founders figured out how to splice new genes into plasmid DNA and put the altered DNA back into the bacteria.  When everything went according to plan, the new gene survived and continued to exist in future generations.  The “right” Implanted genes could then tell  bacteria to make a desired protein or a hormone.  In the early decades of its existence Genentech made hormones and vital proteins.

At some point (according to one account) Genentech didn’t have a hormone or factor it wanted to produce, and had researchers who knew how to create antibodies.

In the wild (and in the lab) antibodies are made by white cells called B lymphocytes.  Much as millions of ear hair cells work together to create a unique sound, and much as millions of retinal photo receptor cells act in concert and allow us to discern subtle differences in color, the intensity of light, a face, butterfly— similarly “B” cells work as a team.  Each B cell has a unique sensor (membrane bound antibody) on its outer layer and can recognize one and only one protein complex.  As a group all the B cells in the body can recognize almost 10 billion foreigners.  After a B cell recognizes and bonds to a protein it makes antibodies and starts cloning itself—making large numbers of B cells that recognize the same protein and that make the same antibodies.

Man learned how to make our version of monoclonal antibodies in Cambridge England In 1975.  A researcher from Argentina and a German scientist injected an antigen into a mouse and waited for the creatures B cells to clone themselves and make antibodies.  Then they stuck a needle into the mouse’s spleen and removed blood.  It contained a lot of the B cells that were making the desired antibody.  They added cancer cells –myeloma cells—cells that don’t die.  And they poured in some polyethylene glycol.  Some of the B cells and myeloma cells fused, creating a hybrid.  They called it a hybridoma. The scientists then identified and collected the new breed of cells, and put them into a nourishing medium.  The cells survived, thrived, and they kept producing the desired antibody.

The Roche drug with sales in 2010 of $7.4 billion, Bevacizumab, Avastin, is a monoclonal antibody that slows or stops the creation and development of new blood vessels.  By so doing it interferes with the enlargement of some tumors.

It was developed by a Genentech researcher named Napoleone Ferrera.  Joining the company in 1988 he and his group spent years characterizing the protein and developing the humanized antibody that became the drug.   The years of research were costly and privately funded, and the company was ultimately richly rewarded.  The drug remains pricey and is not always covered by insurers.  Using it can create an additional burden for people who are living on a tight budget and have widespread disease.

In 2008 Roy Vagelos, the chief executive of Merck commented on the price trend.  His remarks were reported in the New York Times.  He said he was troubled by an unnamed drug (thought to be Avastin) that “costs $50,000 a year and adds four months of life.  He called it a shocking disparity between value and price.”

Vagelos was 79 at the time.  His attitude and remarks were influenced by what he did when he was the CEO of Merck in the 1960s.  Back then he was approached by a researcher on his staff named Mohammed Aziz.  Aziz had been in Africa and had seen people infected with the filariae that caused river blindness.  100 million Africans were at risk for the condition and the parasite had blinded 18 million of them.  The invading worm existed in two forms: adults, which can be 6 to 15 inches long and exist as lumps under an infected person’s skin; and the filaria, a small organism that infiltrated the skin and caused intense itching.  The black fly that lived in the river spread the parasites from one person to the next.

People who had the problem were constantly scratching themselves.  When kids scraped their skin, then touched their lids, the microfilaria got into their eyes.  The subsequent eye inflammation, lead to scarring and blindness.  In some villages 25% of the inhabitants couldn’t see.  In an attempt to escape, many moved away from the river to less fertile ground and suffered from malnutrition.

Ivermectin, a Merck drug that had been one of the large pharmaceutical company’s financial failures, destroyed the filariae that attacked horses.  Aziz suggested it might have an effect on the creatures that blinded so many Africans.

The company was, at the time, doing quite well.  It had started long before as a German company.  In its early days it made medicinal morphine and codeine; it had also been the birthplace of one of the first medical books for the masses, the Merck Manual.  In 1966 Roy Vagelos a physician and academic lipid researcher, became the company’s CEO.   Under his leadership the company developed Lovastatin and Simvastatin, the first drugs that limited the body’s production of cholesterol.  The company then sponsored studies that proved that the drugs lowered the risk of heart attacks and death.

At the same time scientists at one of the company’s labs discovered a drug that killed a number of the worms that attacked cattle, sheep and horses.  Called Ivermectin it was marketed as a means of preventing heartworm in dogs, but it didn’t do much for hookworm or the parasites that attacked man.  Its commercial value was limited.  Further research on the chemical was suspended.  It was shelved until the day that Aziz met with Vagelos and got permission to perform additional studies.

Merck produced a quantity of pills, and Aziz went to Senegal to study their effect.

Pinch biopsies of the skin of infected people showed huge numbers of the filariae.  Half of the people who were infected got a pill and the other half didn’t.  A month later a second biopsy showed the filariae had been eradicated from the people who had been treated.

Based on the positive results Merck spent years performing tests that proved Ivermectin was safe and effective.  Then they went to the African leaders and tried to sell it for a dollar a pill.  The government had no money.  OK, 50 cents a pill, a dme, the Merck representative said, but the government really didn’t have enough money.  The World Health Organization was spraying rivers with insecticides (though the black flies were already becoming resistant to the spray).  The WHO wasn’t interested. Officials in the U.S. State department and at the White House were excited but “the government was broke.”  (Ronald Reagan was president.)  The French were about to approve the drug. (There were cases in Paris that had originated in colonial Africa), but in the U.S. the FDA wasn’t interested.

Merck was in business to make money and to enrich its officers and stockholders.  But the drug was ready; these were the 1980s, and Roy Vagelos the guy in charge was a doctor as well as a business man.  Vagelos and others at Merck decided they would provide the medication free of cost to anyone who would use it.  They had spent millions to develop the medication.  Providing it gratis would cost the company (and its shareholders) tens of millions of dollars, but Vagelos made the announcement and waited to see how the stockholders would react.

He claims he received a lot of positive feedback but he didn’t get one negative letter.  For years, thereafter, the best of the best researchers in the country wanted to come to and work for Merck.  And Vagelos stayed on as head of Merck for an additional 6 years.

In his New York Times quoted speech he said the high prices charged for Avastin were, “not sustainable.”  He was wrong.

Keeping the price of Avastin high has been a struggle.  That year (2015) the British National Health Service and some insurance companies were disturbed by the thought of spending tens of thousands of dollars for the extra months of life the drug could provide.  Headquartered in Switzerland, Hoffman La Roche–According to “The Street’—had to resist an effort by many European countries to lower the price of their expensive, cancer fighting drugs.  “A bid to push down drug prices by the Swiss health ministry “infuriated drugmakers”.. and the company warned that such a move would hurt employment and would have a “negative impact on their future contribution to the Swiss economy.”  In the years subsequent to its release Avastin’s annual revenue always topped $5billion.

The second drug Roche acquired, herceptin, as also an antibody.  Once injected antibodies float through the body and recognize cells containing the targeted protein-the gene.  Most cancer causing genes “are sequestered deep in the cell.”  The gene in question, neu, by contrast, is connected to the cell membrane and “a large fragment hangs outside.”)

Genes are strings of DNA in the nucleus.  They direct the cells: make them grow, die, and function.  Every human cell has the same 21,000 genes.  One of Genentech’s scientists, Axel Ulrich made an antibody that targeted a previously ignored gene.  His target, neu, had caused cancer in the brains of rats.  It was discovered in the 1970s when a researcher (working with Robert Weinberg at MIT) had injected the “DNA from neurological tumors in rats, into normal mouse cells.  The injected cells had turned cancerous.”  After the gene was discovered it was seldom used and “more or less forgotten.” ”

Ulrich’s antibody would attach to neu and create an abnormal complex.  A macrophage, a white cell that “engulfs and rids the body of cellular debris” would float by.  It would sense the antigen-antibody combination, know it doesn’t belong, and clean up the “mess.”….obliterates the antibody and the cell that it’s attached to.

Once created, the antibody to neu, was intriguing, but not really useful. Ulrich talked about it when he gave a seminar at UCLA in 1986.  One of the attendees, Dr. Dennis Salmon was interested.  According to Mukherjee, Salmon thought he and Ulrich should collaborate.  Ulrich gave UCLA a DNA probe that identified neu, and Salmon checked his array of cancer samples and see if any of them were, perhaps, driven by the gene.  Until that time it had only been found in mouse brain tumors.  There didn’t seem to be much chance that it would turn up in a human tumor.

But it did.  The oncogene, now called Her-2/neu, was found in some breast cancers, and it turned out to be an important reason for their rapid growth.  Some breast cancers made and used it in large quantities.  Scientists implanted Her-2 containing cancers in a mouse and watched them grow wildly.  Traztuzumab, the antibody that inactivated Her-2 caused the cancer cells to die.

The scientific findings were intriguing, but it took a while before Genentech was fully committed to the idea of making a cancer drug.  It would be a first for them. Their prior monoclonal antibodies had produced something the body needed: insulin, clotting factors for hemophiliacs, growth hormone.  A drug that interfered with cancer was a reach.

Salmon kept working the project.  They shouldn’t use the standard mouse monoclonal antibody.  It could trigger an immune response.  They found a Genentech scientist who knew how to produce humanized monoclonal antibodies.  In the summer of 1990 he successfully created Herceptin.  Women with breast cancer became experimental subjects.  15 were studied in 1992.  900 were tried on the drug in 1996.  It kept making a difference.  When, in 1998, the drug application was submitted to the FDA it was quickly approved.  Its initial monthly price was $3,208.  It rose to $4,573 in 2013.

The research and development costs were part of the overall lab costs of Genentech.  Before Genentech found a useful antibody the company scientists probably produced a lot of duds.  So the overall cost of creating a new drug was significant.  Testing, development, and getting FDA approval costs a lot.   I suspect hundreds of millions of dollars were spent in the process.

But the reward, $6 billion plus a year, dwarfs the expenses.  The high price tag has little to do with research and development and much more to do with the way the market works.  The pharmaceutical manufacturer has a five year monopoly.  During that time they have no competition and can charge whatever they think they can get away with.  People with insurance don’t pay for the drug so there’s usually not much of a public outcry.  If one company charges less for a new cancer medication others might follow suit, and that might upset the apple cart.  To enhance stockholder value prices need to stay high.  And of course Roche had a need to recoup the $46.8 billion they paid when they bought Genentech in 2009.

When Roche announced their revenues in 2016, the third antibody they had acquired from Genentech, Rituximab topped the list.  With $7.3 billion in annual sales worldwide and $3.9 billion in the U.S., the drug was on fire.  In an unsubstantiated 2011 blog a person with rheumatoid arthritis said that one hospital charged $11,288 for his 6 infusions and another charged $18,544.

When pharmaceutical spokes people justify the high price of drugs they commonly invoke the cost of research, but are unable to supply details.   Rituximab provides a window into how much it really costs to create an innovative medication if researchers have a strong sense of where they are going and how they are planning to get there.

Approved by the FDA in 2012 the injectable antibody has revolutionized the treatment of some lymphomas.  It targets a unique protein on the surface of only one kind of human cell: the B cell.  Part mouse and part human (chimeric) in origin, the antibody was first tested for dose and toxicity in 1994.

The drug was developed by a San Diego start up called Idec.  Its founders included a San Diego immunologist and several Stanford university researchers.  From the start (1985) they were looking for a monoclonal antibody that could be used to treat B-cell lymphomas.  There are about 240,000 cases of the disease in the U.S. each year.  They were also trying to develop a monoclonal antibody that would improve some autoimmune and inflammatory diseases.  Their efforts consumed millions of dollars.

In 1991 they needed more money and had an initial public offering of stock.  The proceeds gave them enough to get through FDA phase one testing–(toxicity– dose) and phase 2—treating patients and seeing if the drug worked.  They had allegedly spent $80 million to this point.  They did not have the money necessary to perform the phase 3 studies the FDA requires before they approve a drug.  The startup couldn’t get the drug to market.

In 1995 their CEO, a former Genentech guy, signed a collaboration agreement with his former employer, Genentech.  The giant chipped in $60 million and acquired “a majority of the sales and profits that Rituxan would generate if it earned FDA approval.”

It was initially approved in 1997.  Out of the gate Genentech charged $3475 for a month’s worth of the infusion.  In 2002 $1.47 billion of the drug was sold.  Genentech got most of the money.  Idec got $370 million.  By 2013 the average 30 day cost of infusions had gone up to $5031.

Vis-a-vis the price having something to do with the cost of development, Idec spent $80 million and walked away with $370 million.  Genentech spent $60 million and hit the jackpot.  The cost of research, development and getting the drug to market was $140 million.  In 2017 it brought in over $7000 million—$7 billion.