Price Gouging in Extremely Vulnerable and Captive Market

By 9:00 AM, the line of those waiting to enter Room 106 of the Dirksen Senate Office Building in Washington, D.C., had grown longer than the velvet rope gate established to organize such a line.

"What's being lobbied for today?" asked a congressional staffer who passed by the table covered with handouts of the witnesses' testimonies.

The topic of the morning was pharmaceutical "price gouging" from drug companies with effective monopolies within an "extremely vulnerable and captive market." Thus on July 24, 2008, Senator Amy Klobuchar (D-MN) opened the Joint Economic Committee hearing to discuss, "Small Market Drugs, Big Price Tags: Are Drug Companies Exploiting People With Rare Diseases?"

Even Before It Began

While a friend held my place in the waiting line, I was allowed to sit in one of the chairs at that press sign-in and handout-laden table. I asked the staffer sitting next to me, "Is this a larger turn-out than normal?" She laughed and told me that she had "never seen people line-up for a JEC hearing before."

From that chair, I was able to witness a public relations representative who arrived to leave fact sheets provided by one of the drug companies who was mentioned specifically. That company is Questcor Pharmaceuticals, Inc., who manufacturers the drug H.P. Acthar (r) Gel which is FDA-approved for the treatment of periodic flairs in multiple sclerosis. However, the drug is more commonly used in the treatment of Infantile Spasms (IS) which is a rare seizure disorder found in only an estimated 2000 infants each year in the United States.

The PR rep was told that someone else in charge would need to be asked, but I certainly asked to have a copy. After reading the fact sheet and when he returned to the table, I asked him some questions as well as introducing myself by name. But of course, he had no idea exactly how much I have researched Questcor's historical financial information.

Just a little later, a messenger from PhRMA, Pharmaceutical Research and Manufacturers of America, the industry's lobby firm, also came by the table with copies of a Press Release prepared to accompany today's hearing. Funny thing. She looked a lot like a drug sales rep. You know, that former cheerleader look.

But she couldn't stick around for the hearing as she was on her way to a different one, perhaps the one during which Medicare Part D Reform was discussed. Another funny thing about PhRMA - why is it that so many of their press releases tout "more than 300" drugs in development for name-the-disease-category, such as Mental Illness or Orphan Drugs.

Inside Room 106

A long conference table was facing Senator Klobuchar's seat upon which were three name tags, several bottles of water, and timing boxes which counted down the amount of time allotted for each witness to speak. I chose a seat on the second row so as to be able to hear the speakers better.

Joining me in attendance were 75-80 others in the room. Huge turnout I'm told for a Joint Economic Committee hearing. Staying to listen to the testimonies was Questcor's pr guy who sat a few rows behind me.

Senator Klobuchar opened the meeting by introducing the topic and thanking the three witnesses about to testify. On the docket were an academic economist from the PRIME Institute at the University of Minnesota, a physician who is the CEO/president of Children's Hospitals and Cinics of Minnesota, and a mother of an Infantile Spasm patient who was also in attendance.

Although I do believe that little Trevor slept for most of the event and only needed to be escorted out of the room once, upon returning he was happy enough with his bottle. Sitting next to his daddy and little baby brother was also Tobey, the big brother, who enjoyed some time on his Nintendo. Sorry, I didn't get a good look at what game he was playing.

Before excusing himself to attend another meeting, Senator Charles Schumer, Chairman of the Joint Economic Committee, presented a statement addressing the topic of the day. It is known that Senator Schumer has been "a staunch advocate of lower priced drugs and a competitive pricing market."

The Economist

Madeline Carpinelli, research fellow at the PRIME Institute which focuses its research on policy issues related to pharmaceutical economics and drug expenditures at all levels in the marketplace. Madeline explains that ordinary annualized price increases for branded drugs has been two to three times the rate of general inflation which has become routine.

"This rate of inflation is not necessarily acceptable, or even reflective of an economically efficient pharmaceutical market, but it has come to be expected in recent years."

The study at hand centers around drugs experiencing extraordinary price increases which was defined as "any price increase that is equal to, or greater than, 100% at a single point in time." This refers to a drug which doubles in price from one day to the next overnight. Primarily these drug products are not among the top 100-500 drugs on the market and the huge price increases may have been "flown under the radar" in small patient populations.

The Doctor

Dr. Alan Goldbloom is the president and CEO of Children's Hospitals and Clinics of Minnesota which is "the 7th largest pediatric heath care system in the nation." Dr. Goldbloom made clear that his testimony is not a rant against the entire pharmaceutical industry, but is focused on the practices of some specialty pharma companies and their questionable pricing of some older drugs now used in rare disease populations. His personal experience comes from two companies in particular, Ovation and Questcor, but notes that they are not the only ones and that this practice is not confined to pediatric pharmaceuticals.

Dr. Goldbloom discussed the drug indomethacin (Indocin) which was discovered over 30 years ago to be a safe and effective, non-surgical treatment of patent ductus arteriosus (PDA) found in some premature babies. Dr. Goldbloom testified that before Ovation purchased exclusive rights to Indocin (and several other drugs) from Merck in 2005, the cost of Indocin was just over $108 per unit, truly a low-cost alternative to surgery. But then in January 2006 the price jumped up 1278% to $1500 per unit.

"Indocin is an old drug. It has been on the market for more than three decades, so this dramatic price increase cannot be attributed to the high cost of research and development."

Presented was data on three other drugs which Ovation had purchased from pharmaceutical giant Merck and the amounts of price increases for these drugs which include Cosmegan (up 3437%), Diuril Sodium (up 864%), and Mustargen (up 979%). Please keep in mind that an extraordinary increase was previously referred to as being only 100%.

Dr. Goldbloom turned his attention to H.P. Acthar(r) Gel which experienced a 1410% increase in August 2007 from $1650 per vial to $23,269 per vial. I have previously discussed historical data related to Acthar and Questcor's justification for the rise in price.

After the close of stock trading today, Questcor released their 2nd Quarter Results in 2008 and held a conference call. I was unable to listen to the call at that time and will have to listen to the replay on their website later. Questcor reports Net Sales of $24.9 million and a profit margin of 91%. "We continue to successfully execute our Acthar-centric business strategy," said Don M. Bailey, President and Chief Executive Officer of Questcor in the Press Release.

It looks like Questcor had initially published a Statement Regarding the July 24 Senate Hearing on their website, but the item has been withdrawn and the link goes nowhere.

The Mommy

Danielle Foltz is mother to Trevor Foltz who at 7 1/2 months began exhibiting seizures which resembled "a newborn startle reflex." This was in November 2007 just before Thanksgiving. The Foltzes were preparing to return to their ministry work and home in Tanzania, East Africa when Trevor's jerky, odd movements were noticed. Danielle has shared their story on her blog Dear Trevor.

Originally the Foltzes insurance company denied coverage of Acthar stating that it is not FDA approved in the treatment of Infantile Spasms. Questcor filed an sNDA for that very indication in August 2006 but announced that they received a "not approvable" letter from the FDA in May 2007.

Mr. Foltz spent days on the phone with the insurance company fighting for coverage for Trevor. Mrs. Foltz called the Acthar patient assistant program but was told that it would take "a minimum of 3 business days" for the approval process and that approval was not guaranteed even in financial situations such as their's.

Ultimately treatment for Trevor was delayed six days before they were given the go-ahead to start treatment. Being quoted a price of $30,000 per vial the medication, and with a round of treatment for Trevor requiring 5 vials, the cost for medication alone approached $150,000 for their drug plan.

"Because ACTH must be injected into the thigh, a nurse had to teach us how to administer it once we went home. When she asked my husband if he was nervous about giving Trevor the shot for the first time, he answered that he was more nervous about holding $5000 in a single syringe. Or worse, dropping the vial!!"
Just imagine. With an insurance plan having 10-20% copays on medication, Trevor's treatment would cost $15,000-30,000 to the insured patient. Insurance policies can be structured in so many ways that it is very difficult to ascertain what the typical cost to the insured customer is. What I pay out-of-pocket is different from what you pay out-of-pocket which is different from what your neighbor pays out-of-pocket, all for the very same drug.

In Conclusion

It was fascinating to attend the meeting and learn a few things I didn't already know. It was a tiny bit frustrating to be sitting in the audience and know that I could supply much greater detail than was presented in such a short period of time. In fact, two of the drugs I take in relation to having multiple sclerosis were mentioned during the question/answer session.

• Effective Monopolies
• Vulnerable and Captive Markets
• Old Drugs - New Prices
• Orphan Designation
• Anti-competitive Behavior
• Price Gouging

These were the topics discussed today. Senator Klobuchar stated that this is only the beginning of the research to come. The Federal Trade Commission and the General Accounting Office have been asked to investigate further the business strategies and executive decisions which have led to such extraordinary price increases in recent years.

From 100% to 10,000%, drug prices in niche markets have soared
and ultimately we all pay for that. The question is - Who Benefits? and Who Suffers?

I look forward to following the developments of such research and the conclusions of the researchers.

After the hearing concluded, I spoke with Mr. Foltz before introducing myself to Ms. Carpinelli. Unlike the Questcor guy, she immediately knew who I was. "I've read your blog. It's great! And the research you've done... Going through and actually reading SEC filings... Impressive. I wouldn't do that. (lol)"

Well, then again. I'm an odd duck and heard for about the fourth time this week that I should start a secondary career. What do you think?

• Passionate Patient Advocate
• Financial Researcher and Analyst
• Strategy Consultant
  
• Freelance Writer/Author/Blogger

Which hat do you think might look good on me?

Transcripts and Video can be seen here.