Shortly before the onslaught of public condemnation forced his company to backtrack on a 5,000-per-cent price increase for a potentially life-saving drug, Turing Pharmaceuticals CEO Martin Shkreli went on national television to defend himself, incredulous at the outcry.
"We're certainly not the first company to raise drug prices," he said.
And he was right. For years, thanks to a lesser-known U.S. government regulation, what Mr. Shkreli's company did was not an anomaly, but a fairly common business practice.
The state of the U.S. pharmaceutical industry became the focus of worldwide attention this month after news broke that startup drug company Turing Pharmaceuticals had purchased the rights to a drug called Daraprim, which is used to treat a life-threatening parasitic infection.
After acquiring the drug, Turing immediately raised the price from $13.50 (U.S.) a tablet to $750.
The move to increase the cost of a 60-year old drug by more than 5,000 per cent drew widespread condemnation. But the wave of outrage temporarily overshadows a simple fact about the U.S. pharmaceutical market – massive, overnight price increases happen all the time.
Perhaps the most important factor behind many of the price increases is a quirk in the Food and Drug Administration guidelines, particularly those involving older medications.
Almost a decade ago, the FDA decided to focus more energy on bringing older drugs into its normal drug approval scheme. For years, certain drugs were essentially "grandfathered" into the FDA approval process. To remedy this, the FDA offered pharmaceutical companies an incentive: In exchange for doing the legwork of putting in a new drug application for an old medication, a company would receive from the FDA a kind of limited exclusivity for the new drug. The FDA would remove the older, grandfathered treatment.
Many companies saw a potential gold mine. With limited testing (and often limited risk), a company could quickly gain exclusive rights to an age-old drug – and, perhaps most importantly, charge whatever it wanted.
Drug-makers argue the benefits to the public outweigh the costs. By acquiring older drugs and selling them at higher prices, the companies argue they can use the proceeds to develop safer, more accessible versions of those medications. Nonetheless, there has been no shortage of examples of drugs that, seemingly overnight, saw their prices skyrocket.
In 2011, a compound known as 17-hydroxyprogesterone caproate, a medication to prevent premature birth that had been in use for about half a century, jumped from $10 a dose to $1,500 after the FDA approved a branded version.
More recently, a company called Rodelis Therapeutics acquired a drug called Cycloserine, used to treat tuberculosis. The drug's price went from $500 for a pack of 30 pills to $10,800. This summer, Valeant Pharmaceuticals acquired the rights to two heart medications and raised their prices by 525 per cent and 212 per cent.
Even Daraprim, the drug at the centre of the most recent controversy, used to cost as little as $1 a tablet. Well before Turing ever acquired the drug, it had already undergone a number of price hikes. According to IMS Health, a company that provides information and services for the health-care industry, Daraprim sales revenue totalled about $600,000 in 2010. Last year, that number was $9.9-million.
(After a public backlash, Turing announced it will lower the price of Daraprim, although it is still unclear what the new price will be.)
Not surprisingly, the staggering price increases – having become the subject of widespread attention during a heated lead-up to the 2016 presidential election – have morphed into a headline political issue, particularly within the Democratic Party.
Last week, seizing on the media firestorm caused by the Daraprim news, Democratic presidential front-runner Hillary Clinton unveiled her plan for drug reform.
Ms. Clinton's plan would, among other things, prohibit drug companies from using government grant money on advertising. Ms. Clinton is also in favour of allowing American consumers to purchase their drugs from outside the United States – something domestic drug-maker lobby groups have strongly opposed on safety grounds.
"If the medicine you need costs less in Canada, you should be able to buy it from Canada – or any country that meets our safety standards," Ms. Clinton said on the weekend, as she continued to push her proposals for drug pricing reform.
The industry has been quick to oppose Ms. Clinton's plan.
"The sweeping proposals outlined in [Ms. Clinton's] plan to regulate prescription drug prices would restrict patients' access to medicines, result in fewer new treatments for patients, cost countless jobs across the country and could end our nation's standing as the world leader in biomedical innovation," said John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America.
However, the recent uproar over the Daraprim price hike makes it likely that drug pricing will remain a major political issue, as more and more presidential hopefuls catch on to the popular appeal of taking a vocal stance against the practice.
Independent Vermont Senator and Democratic presidential candidate Bernie Sanders – who was among the first politicians to raise questions about overnight drug price hikes – also chimed in on the issue last week, touting a plan to decrease costs that includes many of the proposals also outlined by Ms. Clinton.
Seeking to bolster his credibility on the issue, Mr. Sanders ended his statement about prescription drug reform by touting a unique accomplishment from his political past.
"In 1999, I was the first member of Congress to take Americans across the border to purchase lower-cost drugs in Canada," he said. "Americans should not have to leave their country to get affordable medicine."