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Pharma pricing furor gaining steam

The furor over massive drug price increases is not likely to abate with this week's guilty pleas by two former executives of Heritage Pharmaceuticals Inc., which makes an antibiotic whose average price soared more than 8,000 percent over six months in 2013 and 2014.

The day after the former Heritage executives, Jeffrey A. Glazer and Jason T. Malek, were charged last month in U.S. District Court for the Eastern District of Pennsylvania, Pennsylvania and 19 other states sued six major drugmakers, including Heritage, of Eatontown, N.J., alleging widespread price fixing.

That antitrust case, filed in federal court in Connecticut, cast a wide net for targets including major players Teva Pharmaceuticals USA Inc. of North Wales and Mylan Pharmaceuticals Inc. of Canonsburg, Pa., which came under pressure last year for increases in the price of the EpiPen emergency allergy treatment.

Also last month, the U.S. Senate's Special Committee on Aging released a 131-page report called "Sudden Price Spikes in Off-Patent Prescription Drugs." The report focused on business practices at four companies, including Valeant Pharmaceuticals International Inc. and Turing Pharmaceuticals LLC.

Martin Shkreli, the former chief executive of Turing, in 2015 became the poster child for skyrocketing drug prices when he raised the price of Daraprim, a decades-old anti-infection pill no longer under patent, to $750 from $13.50 per pill.

Widespread and staggering price increases occurred "without any meaningful increases in the costs of materials or production costs or breakdown of factories or other disruption to the supply chain," said Alberto Thomas, a founding partner of Fideres LLP, a London consulting firm that has analyzed price increases in the U.S. generic drug market.

"That's what makes this very suspicious," Thomas said.

Fideres looked at all of the varieties of about 1,600 generic drugs and found more than 90 that had increases of at least 250 percent in the last three years and with multiple manufacturers increasing prices around the same period of time, Thomas said. The average increase of those drugs was 1,350 percent. The biggest increases happened in 2013 and 2014, he said.

The manufacturers with the most drugs in that set were Mylan, with 30, and Teva, with 27, according to Fideres, which provides economic research to law firms and their clients.

Michael Carrier, a professor at Rutgers School of Law in Camden and a specialist in antitrust issues, said there are several drivers behind the surge in extraordinary generic pharmaceutical price increases in recent years.

One is consolidation in the generics industry. "The larger you get, the easier it is to collude and to set prices," Carrier said.

Another is market opportunism, which was the case with Shkreli's increase of Daraprim and Mylan's increases on the EpiPen, Carrier said. "With these examples, it's less the fact that you have the consolidation and more the fact that they are just trying to take advantage of opportunity that they think they can get away with," he said.

Such examples were highlighted in the Senate report last month, which described a business model that enabled companies to "identify and acquire off-patent sole-source drugs over which they could exercise de facto pricing power, and then impose and protect astronomical price increases."

Additional criteria identified in the report were that the drug was considered the gold standard for treatment in a relatively small market, which meant that patient groups were too small to organize effective opposition.

Finally, in something that Carrier said is an antitrust issue, the model calls for a closed distribution system, which prevents potential generic competitors from getting samples to develop an equivalent.

Generics have made huge inroads into the U.S. pharmaceutical market, accounting for 88 percent of prescriptions and $75.4 billion in sales. They cost on average 80 percent less than brand-name drugs, the Senate report said.

"That  balance never anticipated companies acquiring off-patent drugs, for which they contributed not a single research and development dollar, and then dramatically increasing their prices in the absence of generic competitors," the report said.