FTC charges in Shkreli case shed light on need for new generic drug development

Joseph Burns

About Joseph Burns

Joseph Burns (@jburns18), a Massachusetts-based independent journalist, is AHCJ’s topic leader on health insurance. He welcomes questions and suggestions on insurance resources and tip sheets at joseph@healthjournalism.org.

The Federal Trade Commission and State of New York late last month filed a lawsuit against Martin Shkreli, charging that Shkreli and Vyera Pharmaceuticals raised the price of the life-saving drug Daraprim by more than 4,000% and worked to corner the market for such drugs.

“The joint action accused Shkreli and Vyera Pharmaceuticals, formerly known as Turing Pharmaceuticals, of scheming to ‘illegally’ prevent would-be generic competitors from selling a version of Daraprim,” as Stat’s Ed Silverman reported on Jan. 27. After acquiring the drug in 2015, Shkreli, dubbed the “Pharma Bro,” and Turing raised the list price of the medication from $17.50 per tablet to $750, he added.

Daraprim, which has been on the market for more than 60 years, is the only U.S.-approved drug to treat HIV patients who develop the parasitic infection toxoplasmosis, the lawsuit said.

In announcing the legal action, the FTC called Daraprim a life-saving drug and the gold-standard treatment for patients with compromised immune systems, such as those with cancer, HIV/AIDs or recipients of organ transplants. Gail Levine, the FTC’s deputy director of the Bureau of Competition, said, “Vyera kept the price of Daraprim astronomically high by illegally boxing out the competition.”

The lawsuit puts a spotlight on the need for more companies to develop generic drugs for the U.S. market. Filed in the U.S. District Court for the Southern District of New York, the lawsuit names Shkreli and Vyera as defendants along with the Swiss company Phoenixus AG and Kevin Mulleady, an owner and director of Phoenixus and a former executive at Vyera.

In the lawsuit, the FTC and the New York State argue that Shkreli and Vyera knew the 4,000 percent price hike would attract rivals in the generic market, Silverman explained. To fend off any would-be rivals, they used various tactics to block lower-cost alternatives from coming to market.

“One method involved distribution agreements that ensured generic companies could not buy samples of Daraprim that would be needed for testing required for regulatory approval from the Food and Drug Administration,” he wrote. Even today, no generic version of Daraprim is available, he added.

The need for more generic drugs existed in the U.S. prescription drug market long before filing of the lawsuit, as evidenced by the work of Civica Rx, the state of California and ProvideGx, a division of Premier Inc.

At the Health Journalism 2019 conference in Baltimore, Martin Van Trieste, president and CEO of Civica Rx, spoke at a session on prescription drug costs, noting that his company was founded in September 2018 as a nonprofit manufacturer of generic drugs for hospitalized patients. We covered that panel in a post about why there’s no easy fix for high drug prices.

California Gov. Gavin Newsom

California Gov. Gavin Newsom

Since the panel, Civica Rx now has help from new deep-pocket association of health insurers. In addition, the hospital group purchasing organization Premier Inc. is working with drugmakers in a way similar to Civica Rx’s efforts to bring more generic drugs to the market. Gov. Gavin Newsom also has proposed that California get into the generic-drug-development business.

That health systems and philanthropies made the initial investments in Civica Rx is significant because 18 health insurance companies that are part of the Blue Cross Blue Shield Association now will spend $55 million to form a new subsidiary of Civica Rx. The division will develop alternatives to high-cost generic medications that haven’t come down in price, Bruce Japsen reported for Forbes.

The as-yet unnamed company will seek to lower the cost of generic medications by filing applications for high-cost, single-source generic drugs dispensed at retail pharmacies, Rachel Cohrs reported for Modern Healthcare. It plans to make its first drugs available by early 2022.

The BCBS insurers’ effort is different from that of Civica Rx, which primarily focuses on generic drugs used most often in hospitals that sometimes run short, making the products more sensitive to price spikes, Cohrs added.

Early last fall, Civica Rx delivered two antibiotics to hospitals that are part of its founding health systems: CommonSpirit Health, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, SSM Health, and Trinity Health. One such antibiotic was vancomycin hydrochloride, an injectable commonly in short supply, that went to Riverton Hospital, an affiliate of Intermountain Healthcare. In December, Civica Rx shipped eight other drugs, including heparin sodium, naloxone hydrochloride, dexamethasone sodium phosphate, and morphine sulfate.

In addition to financial support from the seven health systems, Civica Rx also received funding from three philanthropies: the Laura and John Arnold Foundation, the Gary and Mary West Foundation and the Peterson Center on Healthcare.

The nonprofit company now represents more than 50 health systems operating about 1,200 hospitals, according to another Silverman story for Stat.

Two other organizations also are working to bring more generic drugs to the market. One is ProvideGx, a subsidiary of Premier Inc., an alliance of more than 4,000 hospitals, health systems and other provider organizations. Early last year, Premier announced that ProvideGx plans to bring to market some of the more than 60 drugs it lists as commonly being in short supply.

Early in January, Newsom proposed that California would sell prescription drugs under a plan to reduce health care costs but declined to answer questions about how to fund the effort or how it would work, Sophia Bollag reported for the Sacramento Bee.

The plan is part of Newsom’s fiscal 2021 budget and would make California the first state to create its own generic drug label. Newsom also wants state agencies and commercial insurers to lower drug costs by negotiating drug prices together.

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