Personal Finance

It Happened Again! Another Drugmaker Got Caught With an Exorbitant Price Hike

Dollar signs inside pill packaging, representing overpriced medicine

If you thought that Martin Shkreli was the lone bad apple of the bunch, think again.

In September 2015, the so-called "Bad Boy of Pharma" was called out by regulators for acquiring rare-disease drug Daraprim through his privately-held drug company, Turing Pharmaceuticals. Shkreli and Turing then proceeded to increase the price of the drug by roughly 5,500% -- to $750 per pill from $13.50 -- overnight . What made the action more mind-numbing, and what really caught the attention of lawmakers, was that Daraprim was a 62-year-old drug at the time, and Turing hadn't altered its formulation or adjusted its manufacturing process. It merely increased the price of a rare-disease drug by roughly 5,500% because it could.

Dollar signs inside pill packaging, representing overpriced medicine

Image source: Getty Images.

It happened again!

So-called drug price-gouging has been highlighted by Capitol Hill on numerous occasions since. One would think that with regulators, and even President Trump, paying close attention to drug-pricing practices, the management teams of drug companies would go to considerable effort to remain off consumers' and regulators' radars. Privately held Marathon Pharmaceuticals did a very poor job of that this past week.

Last week, Marathon Pharmaceuticals received regulatory approval to market Emflaza (also known as deflazacort) in the United States as a treatment for Duchenne muscular dystrophy (DMD), a rare muscular disease that affects fewer than 15,000 children, teens, and young adults. The price tag for Emflaza? A cool $89,000 wholesale list price, which works out to $54,000 after rebates and discounts to insurers, according to The Washington Post .

But, there's one little snafu: Deflazacort is already being sold in Canada and in European Union countries for between $1,000 and $1,500 per year. In other words, Marathon is charging anywhere between 5,800% and 8,800% more for its medicine in the U.S. than in many other developed markets in the EU and Canada.

According to Marathon CEO Jeffrey Aronin, Marathon priced Emflaza the way that it did in order to recoup its significant investment in the drug, stating that even with an $89,000 price tag it would take years to recoup its investment. Aronin also suggested that if the drug became profitable, it would allow the company to invest more in DMD research, as well as other diseases.

Angry physician with his hands at his sides

Image source: Getty Images.

However, DMD patients and their parents don't see it that way. Until the marketing approval in the U.S. last week for Emflaza, U.S. patients had been able to import deflazacort for between $1,000 and $1,500 annually. The marketing approval for Emflaza would prevent these patients and their parents from seeking overseas medicines, forcing them to accept up to an $88,000 annual increase in costs.

This isn't Marathon's first rodeo

This pricing disparity drew the ire of two lawmakers: Sen. Bernie Sanders (I-Vt.) and Rep. Elijah Cummings (D-Md.) called out Marathon's exorbitant and "unconscionable" price, as Sanders put it, on Emflaza. As a result, Aronin and his team responded by cancelling the U.S. launch on Emflaza indefinitely, which will allow U.S. consumers to purchase deflazacort from overseas markets for the $1,000 to $1,500 annual price in the meantime.

But Emflaza is far from Marathon's first rodeo when it comes to drawing the ire of lawmakers. Even before Martin Shkreli became the most hated man in pharma, Marathon was ticking off lawmakers with its drug-pricing tactics. As noted by CNBC , in October 2014, Sanders and Cummings wrote a letter to Marathon requesting further information about price hikes they'd passed along on two cardiovascular drugs, Nitropress and Isuprel. Between November 2012 and September 2014, Marathon increased the price of both drugs by nearly 400%.

That's right, folks, these are the same two drugs that Valeant Pharmaceuticals (NYSE: VRX) acquired in February 2015, and increased the price of by 525% and 212%, respectively, without altering the formulation or manufacturing process. Then-CEO of Valeant J. Michael Pearson wound up testifying in front of a Senate committee last year that he and his team had made "mistakes" in the company's pricing practices on these cardiovascular products.

Ben Franklin's face on a hundred-dollar bill poking through a pile of pills

Image source: Getty Images.

This probably isn't the last time, either

Marathon's actions only fuel calls from consumers and select lawmakers that the drug-pricing system is broken and needs fixing. While this might be the last time Marathon finds itself in the limelight (one would hope its CEO wises up), it's probably far from the last time a drug company irritates the public or Capitol Hill with its pricing practices.

There are arguably three major issues standing in the way of lower drug costs.

First, the U.S. is essentially the only developed country without a universal healthcare plan in place. Without a universal healthcare plan, lawmakers have no power to control drug costs or to set caps on what drugmakers can charge. Unlike in the U.S., a drug approval from the European Medicines Agency requires the more than two dozen EU countries to each look separately at the newly approved medicine and negotiate reimbursement terms with the developer. That simply doesn't happen in the United States, allowing drugmakers to price their products with an exceptional amount of freedom.

Secondly, the patent period on drugs developed in the U.S. is exceptionally long (usually 20 years from the date of approval to begin human clinical trials), providing a long runway for branded-drug developers to avoid generic competition and to increase prices as they see fit. The orphan-drug designation, which covers therapies that treat diseases affecting 200,000 or fewer people in the U.S., provides even more protection to rare-disease drugs.

Pharmacist talking with customer

Image source: Getty Images.

Lastly, it's a simple case of supply and demand. Consumers in the U.S. demand more pharmaceuticals than those in any other country in the world, creating a perfect recipe for drugmakers to price their products aggressively in the U.S., to help subsidize the sale of those same medicines in emerging-market countries.

One possible fix suggested, which makes sense on paper, is to tie drug costs into benefits received by patients: Drugs that cure disease or provide substantial benefits would receive a higher reimbursement than those that provide minimal improvement. The issue with tying drug prices to benefits is that there's no concrete way to measure the benefit that a patient receives. Until there is, this scenario probably remains nothing more than a dream.

Marathon's actions have certainly given Trump and lawmakers more fuel for the fire when it comes to reviewing how drugmakers price their products, but a solution may continue to remain elusive for both Capitol Hill and the consumer.

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Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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