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More Pain For Biotechs Ahead: Valeant's "Astronomical" Price Increases Take Center Stage; Pfizer Gets Dragged In

Tyler Durden's picture




 

Two weeks ago, the biotech sector imploded after a piece by the NYT'a Andrew Pollack drew attention to the 5000% increase in the price of a toxoplasmosis drug by specialty biotech firm Turing Pharma, whose CEO Martin Shkreli promptly became the poster child for greedy biotech executives who seek to profit on the back of people's misery by gouging the price of life-extending/saving drugs.

However, as we subsequently pointed out, what Shkreli did was merely an extension of the far more gradual if far more aggressive hiking in drug prices by every other company in the sector. Indeed, according to a Citron report in which the bearishly-focused research boutique "in the Twitter-storm furor over Turing’s recent one-drug price gouge attempt, the media has overlooked the reality that Martin Shkreli was created by the system. Shkreli is merely a rogue trying to play the gambit that Valeant has perfected."

Conveniently, Deustche Bank laid out just what the average wholesale acquisition cost increases by Valeant for its univers of drugs in the past 3 years.

We compiled the data to show that even as the US is supposedly drowning in deflation, Valeant had not gotten the memo, and its average annual drug price increase had risen from 21% in 2012 to a whopping 66% YTD.

 

In fact, as shown in the table below, Valeant had clearly put all its biotech peers to shame when it comes to enforced price increases.

 

Then late last week, after looking at Valeant soaring default risk as measured by the price of its blowing out CDS, soaring to over 30% even as its stock prices was surging, we wondered - does someone know something?

It appears someone may have known that this weekend, the same Andrew Pollack whose NYT article exposing Turing's 5000% price increase resulted in Hillary Clinton promising to cap specialty biotech prices if elected, has come back for round two and after taking aim at Shkreli and Turing, much to the chagrin of Bill Ackman, Pollack is now taking aim at the biggest culprit: Valeant Pharmaceutcals.

Here are some of the highlights from his just released article: "Valeant’s Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers" which is certain to put the biotech sector right back in the crosshairs of regulators and legislators, not to mention presidential candidates, just as the market was hoping the biotech pricing scandal was about to fade from collective memory.

J. Michael Pearson has become a billionaire from his tough tactics as the head of the fast-growing Valeant Pharmaceuticals International. And consumers like Bruce Mannes, a 68-year-old retired carpenter from Grandville, Mich., are facing the consequences.

 

Mr. Mannes has been taking the same drug, Cuprimine, for 55 years to treat Wilson disease, an inherited disorder that can cause severe liver and nerve damage. This summer, Valeant more than quadrupled its price overnight.

Yes, Mannes' out of pocket expenses will soar, from the $366 he paid in may to $1,800, but guess who will be charged for the balance of the price surge? Why you, dear taxpayers: "Medicare will now have to cover about $35,000 for the 120 capsules he takes each month."

Which is also why biotech companies have been able to get away with such prices hikes for so long: courtesy of "buffers" such as Medicare and Obamacare, their impact has been diluted on the back of everyone else.

Whom should US taxpayers thanks for this sad state of affairs, in which drug prices are literally hyperinflating? Two people. As we explained last week, most of the reason for soaring prices "devolves from a backroom deal cut when the Bush administration set in motion the Medicare Drug benefit and inexplicably (if you’re not a lobbyist) gave away the rights of the US Government - the nation's largest buyer of pharmaceuticals - to negotiate drug prices with suppliers."

The other person: well, the name Obamacare should give you a hint.

Back to the NYT piece which having laid out the strawman, next goes for the emotional angle:

"My husband will die without the medicine,” said his wife, Susan, who is now working a second part-time job to help pay for health care. “We just can’t manage another two, three thousand dollars a month for pills."

And then goes for the jugular:

Valeant’s habit of buying up existing drugs and raising prices aggressively, rather than trying to develop new drugs, has also drawn the ire of lawmakers and helped stoke public outrage against the growing trend of higher and higher drug prices imposed by big drug companies. This year alone, Valeant raised prices on its brand-name drugs an average of 66 percent, according to a Deutsche Bank analysis, about five times as much as its closest industry peers.

Just as we showed above. The bigger prolem is that now even Congress understands what is going on, and Valeant's "valiant" stonewalling of Congress where it has shown a dramatic determination to not testify, will fail in the coming days:

For example, after Valeant acquired Salix Pharmaceuticals this year, it raised the price of one Salix drug, the diabetes pill Glumetza, about 800 percent, in two steps.

 

“How can they just do this?” said Gail Mayer, a retired computer systems analyst on Long Island, who said her monthly supply of Glumetza went from $519.92 in May to $4,643 in August. For now, her insurance is covering most of that increase, but she is worried that it will stop covering the drug altogether, as others have.

 

“I’m sure it didn’t cost them $4,000 more to make,” Ms. Mayer said. “You don’t just go buy a bottle of milk and suddenly the supermarket charges you $100.”

The irony is that what Valeant and its peers are doing is quite logical in the framework of the broken US healthcare system, whose failure has only been compounded with the insurtance free-for-fall that is Obamacare.

Mr. Pearson has told analysts that it is standard industry practice to raise the price of a drug shortly before it faces generic competition, which Glumetza might face in February.

 

The drug industry argues that list prices are typically not what health plans pay after discounts and rebates are negotiated, and there is evidence that these discounts are increasing.

 

But even if patients are often shielded, the costs are paid by insurers, hospitals and taxpayers and lead to higher premiums and co-payments for everyone, critics say.

There is much more in the NYT piece but the kicker is the chart which will soon make its way to a Congressional deposition room and the latest kangaroo court in which Congress demands a corporate CEO explain how dare he take advantage of the idiotic laws passed... by Congress.

As the NYT calls it, the VRX price increases are "astronomical" - an adjective that will stick with the company throughout the now-inevitable congressional hearings:

For Prescription Drugs, Some Astronomical Price Increases - Valeant Pharmaceuticals has made a business of buying prescription drugs and raising their prices when possible. Now some members of Congress are demanding information from the company about price increases on two heart drugs, one of which is Isuprel. Some examples of price increases in Valeant’s drugs over the last several years:

 

What happens next: "last week, Democrats on the House Committee on Oversight and Government Reform demanded that Valeant be subpoenaed for information about big price increases on two old heart drugs that the company acquired in February."

After this NYT article, one can be certain that the House will get its subpoena, but the bigger irony is the following:

Hillary Rodham Clinton, who is seeking the Democratic nomination, called for efforts to control “price gouging” after a public outcry over the actions of Turing Pharmaceuticals, which abruptly increased the price on a drug to $750 a tablet from $13.50.

Yes, it will indeed be great to have Hillary involved because as we said two weeks ago, we are very curious "to see how Hillary's populist outrage at [biotech price gougers] will be explained when the public realizes that it is only thanks to the benefits of socialized insurance programs such as Obamacare, of which Hillary is a staunch supporter, that such price gouging was possible in the first place."

Finally, just in case the rest of the biotech and specialty pharma industry thinks it is safe and that Valeant will be the scapegoat for everyone's shadow price increases, here comes Bloomberg with "Pfizer Raised Prices on 133 Drugs This Year, And It's Not Alone"

Pfizer Inc., the nation’s biggest drugmaker, has raised prices on 133 of its brand-name products in the U.S. this year, according to research from UBS, more than three-quarters of which added up to hikes of 10 percent or more. It’s not alone. Rival Merck & Co. raised the price of 38 drugs, about a quarter of which resulted in increases of 10 percent or more. Pfizer sells more than 600 drugs globally while Merck has more than 200 worldwide, including almost 100 in the U.S.

Pfizer's saving grace: it's average price hike according to Deutsche Bank was 9%, or "only" 5 times more than core inflation.

Will this be enough to placate Congress which is finally realizing the Frankenstein pricing monster the broken US healthcare system has unleashed? The answer will be revealed in the coming weeks.

 

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Sun, 10/04/2015 - 12:50 | 6628388 heisenberg991
heisenberg991's picture

All these muthafuggas better stay out of my territory.

Sun, 10/04/2015 - 13:18 | 6628473 junction
junction's picture

The root cause for these drug price increases is the FDA, a corrupt agency run by degenerate criminals that bars the import of prescription drugs from Canada.  The same FDA that has allowed the sale of Paxil to teenagers when it knew 6 years ago, thanks to Britiish drug investigators, that Paxil causes teenage suicides and is useless for teenagers.  GSK bought off the FDA leadership.  The same FDA that is 2007 and 2008 allowed Sanofi Aventis to distribute the OSCS contaminated blood thinner Lovenox in the United States, made using Chinese sourced heparin.  Lovenox then was the number one hospital drug and it likely was the primary cause of death for thousands of hospital patients.  Contaminated Chinese pet food that killed cats and dogs got news coverage, not the patients dying from hypotension and anaphylactic shock caused by injections of poisonous Lovenox.  The FDA covered those deaths up to protect Sanofi-Aventis.

Sun, 10/04/2015 - 13:27 | 6628492 Never One Roach
Never One Roach's picture

My neighbors teenage daughter went to her college adviser for counseling. the counselor barely listened and after ten minutes wrote her a script and told her to come back in 3 months.

 

My gf and I told her to come over any time she wants to chat about anything and we won't tell her parents. Seems to help. Many times these yutes simply need to talk to someone who will listen even if they realize we can't do much much listen. It's the act of listening and feeling someone gives a dam about you.

 

Certain ages are more difficult to pass thru then others, as all ZH'ers know.

Sun, 10/04/2015 - 14:33 | 6628690 FlacoGee
FlacoGee's picture

As a caring listener, I would at least coach her on getting some good prescriptions with high value on the secondary market.

Consider it all part of her continunig education.

 

Sun, 10/04/2015 - 17:58 | 6629160 SuperRay
SuperRay's picture

It's all about empathy and a sense that people understand what you're feeling. Empathy - the greatest enemy of totalitarianism

Sun, 10/04/2015 - 13:52 | 6628571 trader1
trader1's picture

The FDA is governed by Congress, and so it's CONgress that has the accountability for all FDA (in)actions.  

Go write your CONgressperson...

Sun, 10/04/2015 - 14:25 | 6628677 boattrash
boattrash's picture

I'm all outta ink.

When, and only when, we see CONgresscritters, boardmembers, and CEOs air dancing under the lamp posts, will we have any change in this type of bullshit assraping...

Sun, 10/04/2015 - 18:56 | 6629268 g speed
g speed's picture

its congressmen that took the fucking money--they took the money and then voted on the bill (you name the bill/law --they are all the same money makers for TPTB) that gave away the store. Every fucking  single one of them has their hand out for a bribe or a revolving door job or a campaign bucket of cash--- They are the ones that get the profits from the increase in prices --they are the ones that don't "read the bill" before they sign it. They are the criminals in the organized crime family of gov't.   

Sun, 10/04/2015 - 15:49 | 6628860 Benjamin123
Benjamin123's picture

The FDA also raises development costs by requiring extensive drug testing in multiple phases, then rejecting approval.

Sun, 10/04/2015 - 13:35 | 6628521 mrdenis
mrdenis's picture

Check Bills trading account .....

Sun, 10/04/2015 - 12:54 | 6628404 The Pope
The Pope's picture

I've never heard of ANY of those drugs? Does that, unwittingly, make me a terrorist?

Sun, 10/04/2015 - 13:07 | 6628434 Lokking4AnEdge
Lokking4AnEdge's picture

In most other countries drug prices are regulated and price increases have to be approved.

See Canada for example.

US drug companies are taking generoug tax credits for developing drugs and than selling them outside the US for much lower prices than in the US....the American tax payer is billed twice.........

 

It is a matter of time before the public will see what is going on........the sheep on the way to the slaughter hoiuse......with no leader........

Sun, 10/04/2015 - 13:14 | 6628466 starman
starman's picture

The "biotech bomb" about to blow wall street to kingdom come!

In 3...2...1  

Sun, 10/04/2015 - 13:17 | 6628468 ThroxxOfVron
ThroxxOfVron's picture

"more than three-quarters of which added up to hikes of 10 percent or more. It’s not alone. Rival Merck & Co. raised the price of 38 drugs, about a quarter of which resulted in increases of 10 percent or more. "

 

This isn't considered inflation?

Many of these increases are hundreds fold.  

Pharmacological hyperinflation.

Weed and heroin and booze are not rising at such rates and thus self-medication, much of it legally prohibited, is becoming economically attractive when compared to the prices demanded for regulated pharma/drug sector.

IF people had to pay out of pocket there would be a higher usage of prohibited substances in lieu of pharma to treat a wide variety of troubles not least anxiety, insomnia, etc...

Sun, 10/04/2015 - 13:18 | 6628475 Jack Burton
Jack Burton's picture

Much of Biotech is fake. The Fed feeds trillions and it must find a home, so Biotech stocks get used as poker chip at the gambling table. The chips as stand alone wealth creators are dubious at best. In fact, do the research and see just how much wealth Biotech has produced. It will open your eyes!

Sun, 10/04/2015 - 13:20 | 6628479 Glasnost
Glasnost's picture

Stay away from the nailguns, Pollack.

Sun, 10/04/2015 - 13:21 | 6628485 Moe Hamhead
Moe Hamhead's picture

the "Free Market" at work.  I'm all for it, but "a life - for a life" is a little extreeme!

Sun, 10/04/2015 - 13:23 | 6628486 ebworthen
ebworthen's picture

Anyone see Hillary Clinton on Saturday Night Live last night?  Wow, talk about desperation!

She wouldn't do a damn thing about biotechs or unaffordable health insurance, it's all talk.

That crony Pyramid built by the D.C. Establishment and the Kleptoligarchy will collapse under its own weight - people can't afford it and it will be mortgage or insurance premium and staying alive.

Sun, 10/04/2015 - 13:50 | 6628559 Uranium Mountain
Uranium Mountain's picture

Nothing will happen to Hillary, Nothing.   The ones "questioning" her.  They're all in on it.  They all have their own game they're playing.  Everyone should realize they are slaves as long as they have debt.

Sun, 10/04/2015 - 14:21 | 6628665 H H Henry P P P...
H H Henry P P P Paulson's picture

Since biotechs took a hit after Hilary's tweet, does this prove that Hilary will unfortunately be guaranteed President? I assume biotechs wouldn't get hit like they did if Hilary had no chance of winning.

Sun, 10/04/2015 - 16:33 | 6628975 Chris Dakota
Chris Dakota's picture

It wasn't just Hillary, was Trump and Sanders as well.

Thu, 10/22/2015 - 08:28 | 6697754 tunetopper
tunetopper's picture

New G Speed has it almost exactly right: whenever Congress can be bought off- a criminal enterprise is begun.

Thu, 10/22/2015 - 08:56 | 6697784 tunetopper
tunetopper's picture

I was prescribed Zyclara for actinic keratosis ( common skin spots that are non-cancerous) by being given a coupon from my dermatologist. They said it would cost me a $35 co-pay. So I call the 800 # on the coupon and get an operator at Philidor. Within a few days I get the meds. I went on my Blue Cross insurance account website a month later and saw where they were charged $1100. This was for about 1oz of medicine ( actual amount not even clear on the label) . The drug is called Imiquimod (Zyclara). It's been around at least 15 years. I remember a few years ago I paid the full amount of the drug - like around $50. So somehow this system has become criminalized, and Philidor is somehow involved.
So the chart above doesn't come close to disclosing the full amount of price inflation on that single drug.. And BTW, it doesn't work on my forearms, which is what it was prescribed to fix. At the price BCBS of TN is paying , they and I are/am not getting a very good deal!

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