This article is #12 of the 12 most popular posts on Skeptical Raptor during 2015. Stay tuned, I’ll be reposting the rest of them through New Year’s Day.

It is a story about Martin Shkreli and Turing Pharmaceutical skyrocketing the price of pyrimethamine. Of course, he just got arrested for securities fraud, so it’s clear that Shkreli’s character is precisely what we thought it was.

Over the weekend, my newsfeed on Twitter and Facebook exploded with outrage and indignation about a story that was published in AddictingInfo.org and other outlets regarding skyrocketing prices of an anti-parasitic drug – pyrimethamine (trade name Daraprim) – which is used to treat parasitic infections, like toxoplasmosis and malaria.

Pyrimethamine is frequently used in AIDS patients whose suppressed immune systems allow frequent parasitic infections like toxoplasmosis. As opposed to the AddictingInfo headline, stating that pyrimethamine is a “60 year old cancer drug,” there is no evidence that it was ever a “cancer drug.” It may have been used as such 60 years ago, but today it is not.

So let’s review some of the issues around this drug, and what are facts, and what are most certainly not. But one more thing, does this price increase really matter?

The background

A small Swiss-based pharmaceutical company, Turing Pharmaceuticals, acquired the rights to Daraprim from Impax Laboratories, a US-based specialty pharmaceutical company. Specialty pharmaceutical companies generally focus in unique drug categories that have small markets, instead of broad markets like statins or other high volume drugs.

Daraprim would have qualified as the perfect drug for a company like Impax, but they weren’t focusing on anti-parasitics, so they sold the drug to Turing.

Just prior to the sale of the drug, Impax changed the distribution system of the drug from the typical wholesale distribution system to a smaller, and more tightly controlled, specialty drug distribution network. After the transfer of rights to Turing, the price was immediately raised from $13.50 a tablet to $750, a 5500% price increase.

I’m shocked, just shocked.

Now one thing about Turing Pharmaceuticals, not exactly a big name in the world of Big Pharma. It’s not run by a scientist, physician or long-term executive in the industry–it was founded by a hedge fund operator, Martin Shkreli.

For those of you who don’t follow these things, hedge funds are largely unregulated, highly-leveraged investment funds for very wealthy and sophisticated investors. In fact, the collapse of two Bear-Sterns hedge funds in 2007 may have contributed to, if not caused, the collapse of global markets, and subsequent recession in 2007-2012.

There is no evidence that Mr. Shkreli’s hedge fund was run in such a manner, but hedge funds live on the edge of ethics, something in short supply in investment banking in general. Apparently, Shkreli has taken his hedge fund strategies to the pharmaceutical industry–full steam ahead with maximizing profits.

Furthermore, Mr. Shkreli has been accused of urging the Food and Drug Administration not to approve certain drugs made by companies whose stock he was shorting . Shorting stock is the process of betting that a stock price will drop, so urging the FDA to not approve a drug in one of those companies would cause it’s price to drop.

Shorting stock is a legal stock trading strategy, although it is not for the feint of heart. Pressuring the FDA to block approval of drugs being developed by companies that he is shorting is probably way over the edge of proper ethics.

This is the kind of behavior of hedge fund operators that make me think that they’re kind of like the cockroaches of Wall Street, a low bar indeed.

And despite the ad hominem attacks that somehow Big Pharma is populated with unethical, immoral sociopaths, it generally isn’t. Anyone suggesting a 5500% price increase in a standard pharmaceutical company would probably be laughed out of the office. And fired.

Just the facts

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When I first saw the story, I was wondering if it was factual. Over the past few weeks, I’ve noticed a disturbing lack of fact checking by people passing along memes. I’ve gotten to the point that whenever someone makes a statement about something, I spend an hour researching it. It’s getting out of hand.

This story seemed ludicrous at first, but there is a lot of nuance to the story that does not remove all guilt from Turing Pharmaceuticals. Again, there’s the story, and then there’s the real story.

So let’s look at it.

1. Did the price really go up?

As far as I can tell, the 5500% increase in price is accurate. Moreover, Turing (or Impax) has made sure that Daraprim is now distributed through a single specialty distributor, which limits its supply and supports the high prices. This appears to be a solid fact.

2. How will this effect patients?

The answer here is much more complicated. First of all, this is not exactly a large volume drug. In 2010, according to IMS Health, a market research firm that closely monitors prescriptions of pharmaceuticals, there were only 12,700 prescriptions written in the USA. In 2014, after a sharp increase in prices, the number of prescriptions fell to 8,821, although there is no evidence that the fall in numbers was due to price increases or fewer infections.

In other words, the total market for this drug is tiny. For comparison, statins, the class of drugs that are prescribed to lower blood cholesterol, are prescribed millions of times a year in the USA (and millions of times more outside of the USA).

Furthermore, and this is critically important, Turing has agreed to participate in the US 340B Drug Discount Program.

For background, in November 1992, the US Congress created the 340B program which is codified as Section 340B of the Public Health Service Act. The law protected specified clinics and hospitals from drug price increases and gave them access to price reductions.

This law requires pharmaceutical manufacturers participating in the Medicaid program to enter into a second agreement with the Secretary of Health and Human Services — called a pharmaceutical pricing agreement (PPA) — under which the manufacturer agrees to provide statutorily specified discounts on “covered outpatient drugs” purchased by government-supported facilities, known as covered entities, that are expected to serve the nation’s most vulnerable patient populations.

In other words, Medicaid patients and hospitals who service those patients, are protected by Federal law from the burden of large increases like this. The 340B program is one of the most powerful contractual pharmaceutical pricing systems in the world to protect those people who are in need of expensive medications that are on those contracts. It’s far from perfect, and too many rare drugs for certain types of patients are excluded from the program.

However, for those readers who think that Big Pharma always hurts those in need, it’s not necessarily true. The Federal government does a fairly good job in protecting them against these prices, though as I stated, there are a lot of areas where the price protection doesn’t exist.

Moreover, Medicare and private insurance patients also have access to those prices if they can demonstrate need.

Thus, without completely dismissing the predatory pricing practices of Turing Pharmaceutical, the small number of patients who use Daraprim are mostly protected against the high prices. Without oversimplifying the economics, I’m willing to guess that the burden of these higher prices would be on wealthier Americans covered by platinum level health insurance. Not a perfect scenario, but far from the imagery of the screaming headlines of “5500% price increases..oh my!!!!!”

3. Enough about America, what about the rest of the world?

This does annoy me. The USA gets a 5500% price increase, but what about Europe, the home location of Turing Pharmaceuticals? In the UK, a 30 tablet pack of Daraprim costs £13.00. I don’t even have to convert £ to $ to see that the cost in the UK is 3% of what it is in the USA.

Similar pricing can be found in other EU countries, so it’s kind of ironic that a European company knows it could never push that kind of price increase in their home continent, but they run to the USA where there’s a fractured regulatory environment for drug pricing.

However, for the most needy, the US pricing is pretty close to the EU pricing, and considering the small market, it’s really hard for me to get upset for too long.

But still, it’s clear that Turing’s pricing strategies are cynical and improper.

4. Why isn’t there a generic?

After 60 years on the market, pyrimethamine has been off-patent since the mid-1970s. Technically, any generic pharmaceutical company could replicate the drug and start selling after FDA approval.

However, there are two significant reasons why this might not happen. First, because Turing controls distribution, a generic manufacturer cannot obtain sufficient supply of the original product to reverse engineer. Moreover, a generic manufacturer has to prove that it’s drug is essentially equivalent to the brand name drug to the FDA. Without supply of the drug, a generic manufacturer probably cannot show substantial equivalence to the FDA (or the regulatory authorities).

Now, there are ways around that restriction, and they can obtain the drug in other countries. I’m not sure of either the legality or regulatory efficacy of such a maneuver, I’ll leave that to experts.

The second, and probably more important, reason why generic companies avoid this drug is that the market is so small. There is an odd assumption that generic companies push some button, and suddenly the generic drug pops out of the machinery. Actually, the company has to invest in R&D of the new drug, regulatory approval, manufacturing design and development, regulatory approval of manufacturing, production, packaging and distribution.

This may make the generic pricing not much less than Turing’s predatory pricing, especially because of the small market. It probably doesn’t make sense for a competitor to enter the market, considering the expense of getting to the market.

Undoubtedly, both issues probably conspire to block generic manufacturing.

5. Are there other, maybe better, drugs?

Here’s the thing. There are better drugs out there for toxoplasmosis. Several antibiotics, including clindamycin, spiramycin, minocycline, and atovaquone, are prescribed, and many actually destroy the parasitic cyst which can shield the organism from most drugs.

Furthermore, most of these products are actually less expensive than pyrimethamine. Clindamycin ranges in price from $0.50 to slightly over $3.00 per tablet, depending on dosage. In other words, replacement drugs may actually be a better choice for pricing and clinical utility.

Martin Shkreli and the bottom line

Turing Pharmaceuticals is run by a person – Martin Shkreli – who is trying to corner the market on certain drugs. Of course, given the Turing CEO’s history of trying to short stocks of pharmaceutical companies who may have issues getting FDA approval, it’s not hard to see what he’s doing here.

Moreover, Turing is obviously trying to milk the US drug market for all its worth, because their pricing policy wouldn’t fly in more highly regulated markets.

But here’s the thing–the net effect of this price increase is pretty close to negligible. The total market is tiny. Most high risk patients without huge economic resources are protected from these prices. Finally, there are lower cost and better drugs available to patients.

The pricing behavior of Turing is unsupportable, that’s clear. The effect on needy patients, however, is small.

And maybe one could argue that “OK, maybe in this case, it doesn’t matter.” But the same facts apply across all drugs. At risk, needy patients are not going to lose access to these drugs. Medicare and Medicaid generally have the muscle to keep prices low. Although I cannot say this broadly, mostly those with boutique, expensive private health insurance will bear the burden of the price increases, but they can afford them.

Martin Shkreli and Turing is guilty on most points. But it might not matter all that much. I still think that their behavior is disgusting.

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