[Senate Hearing 114-854]
[From the U.S. Government Publishing Office]
S. Hrg. 114-854
SUDDEN PRICE SPIKES IN
OFF-PATENT DRUGS: PERSPECTIVES
FROM THE FRONT LINES
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HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
DECEMBER 9, 2015
__________
Serial No. 114-16
Printed for the use of the Special Committee on Aging
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
48-531 PDF WASHINGTON : 2022
SPECIAL COMMITTEE ON AGING
SUSAN M. COLLINS, Maine, Chairman
ORRIN G. HATCH, Utah CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois BILL NELSON, Florida
JEFF FLAKE, Arizona ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas JOE DONNELLY, Indiana
DAVID PERDUE, Georgia ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina TIM KAINE, Virginia
BEN SASSE, Nebraska
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Priscilla Hanley, Majority Staff Director
Derron Parks, Minority Staff Director
C O N T E N T S
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Page
Opening Statement of Senator Susan M. Collins, Chairman.......... 1
Opening Statement of Senator Claire McCaskill, Ranking Member.... 3
PANEL OF WITNESSES
Erin R. Fox, Pharm.D., Director, Drug Information Service,
University of Utah Health Care and Adjunct Associate Professor,
University of Utah College of Pharmacy, Department of
Pharmacotherapy, Salt Lake City, Utah.......................... 6
David W. Kimberlin, M.D., Professor and Vice Chair for Clinical
and Translational Research; Co-Director, Division of Pediatric
Infectious Diseases, Department of Pediatrics, University of
Alabama, Birmingham, Alabama................................... 8
Gerard Anderson, Ph.D., Professor, Health Policy and Management,
Medicine, and International Health, Johns Hopkins University,
Baltimore, Maryland............................................ 9
Mark Merritt, President and Chief Executive Officer,
Pharmaceutical Care Management Association, Washington, D.C.... 11
APPENDIX
Prepared Witness Statements
Erin R. Fox, Pharm.D., Director, Drug Information Service,
University of Utah Health Care and Adjunct Associate Professor,
University of Utah College of Pharmacy, Department of
Pharmacotherapy, Salt Lake City, Utah.......................... 39
David W. Kimberlin, M.D., Professor and Vice Chair for Clinical
and Translational Research; Co-Director, Division of Pediatric
Infectious Diseases, Department of Pediatrics, University of
Alabama, Birmingham, Alabama................................... 46
Gerard Anderson, Ph.D., Professor, Health Policy and Management,
Medicine, and International Health, Johns Hopkins University,
Baltimore, Maryland............................................ 51
Mark Merritt, President and Chief Executive Officer,
Pharmaceutical Care Management Association, Washington, D.C.... 59
SUDDEN PRICE SPIKES IN
OFF-PATENT DRUGS: PERSPECTIVES
FROM THE FRONT LINES
----------
WEDNESDAY, DECEMBER 9, 2015
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2:29 p.m., Room
G50, Dirksen Senate Office Building, Hon. Susan Collins,
Chairman of the Committee, presiding.
Present: Senators Collins, Cotton, Perdue, Tillis,
McCaskill, Whitehouse, Blumenthal, Donnelly, Warren, and Kaine.
OPENING STATEMENT OF SENATOR
SUSAN M. COLLINS, CHAIRMAN
The Chairman. The Committee will come to order. Good
afternoon. Before I begin my formal comments this afternoon, I
want to recognize that this is the last hearing for the
Committee on Aging Staff Director Priscilla Hanley. Priscilla
and I have worked together for literally decades as our paths
first crossed when we were both working for Senator Bill Cohen
of Maine. When I was elected in 1996, Priscilla was one of the
first people, if not the first person, to whom I turned and
asked her to come and work with me, so 19 years after that, she
has decided, for reasons I cannot understand, that she would
like to retire from the Senate, so I just wanted to thank
Priscilla for her leadership, friendship, and hard-work and
commitment to good Government and good policy all these many
years.
[Applause.]
Senator Donnelly. David, it is not for you.
The Chairman. Today is the first hearing in this
Committee's bipartisan investigation into the sudden and
dramatic price increases charged by certain pharmaceutical
companies for off-patent prescription drugs that they have
acquired.
Prescription drugs are vital to the health and well-being
of all Americans, especially our Nation's seniors, 90 percent
of whom take at least one prescription drug in any given month.
For many Americans, access to prescription drugs is not only
critical to their quality of life, but can literally be a
matter of life and death.
Developing these medicines is usually an enormously time-
consuming, expensive, and uncertain process. It often takes
more than a decade to bring a new drug from the laboratory to
the market, and estimates of the average costs of doing so
range from hundreds of millions of dollars to upwards of $5
billion.
Moreover, the chance that a new drug will succeed is highly
uncertain. Studies show that for drugs that do reach the
clinical trial stage, just one in seven will ultimately receive
FDA approval. If we want new medicines to reach consumers, the
companies that invest in the research and development and take
the risks necessary to bring these drugs to market must see a
fair return on their investment.
At the same time, we cannot be blind to the cost of these
drugs to individuals, health systems, and the Federal
Government. Americans are expected to spend more than $328
billion on prescription drugs this year alone, of this amount,
individuals will pay about $50 billion out-of-pocket. The
Federal Government will pick up another $110 billion in
payments through Medicare, Medicaid, the Veterans' Affairs
programs, and others.
For many decades, Federal policy has sought to strike the
right balance between maintaining the incentives needed to
promote innovation and the development of new drugs and keeping
medicines affordable. One way that we have done so is by
granting pharmaceutical companies exclusive rights through our
patent system to sell the prescription drugs that they have
developed for approximately 20 years.
When these patents expire, other companies can seek
approval to offer generic versions of these drugs. This
increases competition and helps to put downward pressure on
prices. That balance that we have struck never anticipated
companies acquiring off-patent drugs and then jacking up their
prices to enormous heights and doing so, as one executive
essentially put it, because I can, but that is exactly what we
have seen in recent months. Four companies in particular have
come to our attention and are the focus of our investigation so
far, Turing Pharmaceuticals, Valeant Pharmaceuticals, Retrophin
Incorporated, and Rodelis Theraputics. Each of these companies
has hiked the price of off-patent drugs they recently acquired
by 20, 30 or even 40 times the prior price, at time putting
these medicines out of reach for patients and for the doctors
who treat them.
Keep in mind that these companies did not bear the R&D
costs of developing these drugs. In fact, some of these
companies appear to do comparatively little or no R&D or
expensive clinical trials for prescription medicines. The
information this Committee has received in the initial phase of
our investigation is striking. For example, doctors at the
Cleveland Clinic have told us that the price hikes on just two
drugs supplied to Valeant increased that health system's total
drug costs by $8.6 million.
Erin Fox, who will testify today, has seen a similar impact
on the University of Utah Health System. As the director of the
hospital's Drug Information Service, she has told us that these
price increases have required her to literally put a critical
drug under lock and key, pulling it from crash carts where it
has long been available for emergency use.
In North Carolina, doctors for a child diagnosed with
toxoplasmosis were unable to get Daraprim, the drug needed to
treat that disease, because Turing Pharmaceuticals had hiked
its price by more than 40 times its original cost, forcing the
local pharmacy to drop it from its inventory. As a consequence,
the child had to be treated with an alternative that had not
been rigorously tested in children.
The Turing and Valeant price spikes have been egregious,
but these are not the only two companies to acquire the rights
to off-patent brand name drugs and then jack up the price.
Rodelis did the same with a medicine that has been on the
market since 1955 that is used to treat drug resistant
tuberculosis, and Retrophin did the same thing with a drug used
to treat serious kidney disease.
What explains these dramatic price increases? Well, that is
what our investigation is intended to answer, but one factor
each of these drugs has in common is that they are needed by a
relatively small number of people compared to so-called
blockbuster drugs that are taken by millions of Americans.
Another factor is that they have been off-patent for many
years, and yet, there is currently no generic competition,
likely because of the relatively small number of patients who
require these drugs.
This investigation is not about the legitimate incentives
to create, test, and market new drugs. After the patent on a
prescription drug expires, however, our system traditionally
has relied upon competition to bring more affordable generics
to the marketplace, but when competition breaks down, when
there has been a market failure, as may be the case here, the
discipline that keeps prices in check and protects consumers
can disappear.
Let me close by noting that some of the companies that have
been the focus of our investigation look more like hedge funds
than they do traditional pharmaceutical companies. As one
industry expert I recently spoke with put it, these companies
are to ethical pharmaceutical companies as the loan shark is to
a bank. One goal of our bipartisan investigation is to
understand why such companies can impose egregious price
increases on off-patent drugs that they have acquired and what
policies we should consider to counter this disturbing
practice.
I look forward to hearing the testimony of our Ranking
Member, Senator McCaskill, who has been extremely active in
this investigation, as well as the testimony of our witnesses.
Senator McCaskill.
OPENING STATEMENT OF SENATOR
CLAIRE McCASKILL, RANKING MEMBER
Senator McCaskill. Thank you, Chairman Collins. You know, I
have to think that my biggest challenge today is to not lose my
temper. The facts that are underlying this hearing are so
egregious that it is hard not to get emotional about it, but I
know that our witnesses that are here today are here to help us
understand why this has occurred and hopefully, enhance our
ability to look at this problem in a reasonable and rational
way that protects patients in this country.
Daraprim, a drug originally developed to treat malaria, is
the medicine doctors use today to treat toxoplasmosis, a
disease that affects about 22 percent of the U.S. population.
While the majority of toxoplasmosis cases do not require
treatment, the disease can be deadly for babies and those with
compromised immune systems like patients with cancer or HIV.
Daraprim was developed in the 1950's and has no current
patent or other exclusivity protections. In 2005, a patient
infected with toxoplasmosis could expect to spend $70 on a
typical course of Daraprim. In 2010, a company named
CorePharma, which was later acquired by Impax, purchased the
rights to Daraprim and raised the cost of a course of treatment
to roughly $900. That was in 2010. In August of this year, the
rights of Daraprim were once again sold, this time to Turing
Pharmaceuticals. The new price tag for the average course of
treatment, $50,000, an increase of more than 6,000 percent
since 2005. Nothing changed but the label.
At the time, Martin Shkreli, Chief Executive Officer of
Turing, declared the new price his company set for Daraprim
both reasonable and appropriate. More recently at a Forbes
health care summit last Thursday, Mr. Shkreli lamented that he
should have raised the price of Daraprim even more. I noticed
in the morning paper this is the same guy who thought it was a
great idea to pay millions of dollars for the only existing
album of the Wu-Tang Clan.
An almost 1,200 percent increase in 2010 was bad enough,
but an additional 5,500 percent price increase on a 62-year-old
drug shocks the conscience, and this type of price increase, in
the absence of any improvements to the drug whatsoever, is not
an isolated incident. In July, I had the chance at a hearing to
question another pharmaceutical executive, Howard Schiller of
Valeant Pharmaceuticals, about an 820 percent price increase
his company took in February 2015 after acquiring another off-
patent drug called Isuprel which is used to treat cardiac
arrest in a hospital setting.
When I asked Mr. Schiller at that hearing, in a different
committee, how Valeant could justify such an increase on
Isuprel, a drug to which no improvements had been made post-
acquisition, Mr. Schiller could only tell me that Valeant had
conducted a, "complex analysis" and had concluded that the drug
was previously, "significantly underpriced." He further
asserted that such a price increase on a Valeant drug was an
anomaly.
Following that hearing, I submitted questions for the
record to Mr. Schiller requesting additional information from
Valeant regarding the company's decision to hike the price of
Isuprel so dramatically, as well as information on Valeant's
312 percent increase on another off-patent drug called
Nitropress, which is also used to treat cardiac arrest. In
response, Valeant refused to answer my questions and instead
downplayed my concerns, noting that Isuprel and Nitropress are
only two Valeant drugs selected out of a portfolio of hundreds
of medications.
Unfortunately, over the past several months, we have
learned that Isuprel and Nitropress are not an anomaly, as
Valeant claimed. To the contrary, dramatic price hikes are
seemingly business as usual for Valeant. This year alone,
Valeant raised prices on its brand name drugs an average of 66
percent, about five times as much as its closest industry
peers. At the same time, as of October 2015, Valeant's research
and development expenditures for the past 12 months were
reportedly equal to only three percent of its sales.
The American pharmaceutical industry leads the world in
innovation and we rightly prize a system that allows discovery
of medicines that save and improve lives, but it is imperative
that we find out if that system is being taken advantage of by
companies or individuals that seek deep profits while
contributing little or nothing to advances in medical treatment
through aggressive research and development. To me, there is a
line at which these huge price increases on prescription drugs
go from rewarding innovation to price gouging.
In particular, when these price hikes occur without any
therapeutic change or improvement to the drug, it raised
troubling questions about whether companies like Turing and
Valeant are taking advantage of the patients who depend on
their products for survival. These price increases come at a
time when Americans are more worried than ever about the
affordability of prescription drugs, and what Daraprim,
Isuprel, Nitropress and the other drugs in our investigation
have in common is they do not have market competition from
generic alternatives. There is no market.
Therefore, they were ripe for companies and even investors
and hedge funds to swoop in and snatch them up and charge
whatever price they want regardless of the people who
desperately rely on these medications every day, so even though
these drugs no longer have a legal monopoly granted by a patent
under our law, they end up having a defacto monopoly in the
marketplace because if you need them, there is only one place
you can get them. This is a market failure and when there is a
market failure, the Government has a role in addressing it.
I hope that this hearing and the future hearings we are
planning can start the process of developing solutions to
safeguard the health care system, protect the taxpayer, and
ensure that patients have access to life-saving medications at
a reasonable price. I also hope to make clear that this is not
just an individual pocketbook issue for Americans. If our
health care system is being cheated, that has consequences for
all Americans in the form of higher premiums and higher costs
to Medicare and Medicaid.
We cannot sustain and improve these valuable programs if
some bad actors are taking advantage of the system and
extracting billions of dollars without adding value to the
lives of patients or the system overall. This sort of action
hurts the entire American economy.
Finally, I want to note that I am lucky to be paired with
Susan Collins on this investigation. First of all, she calms me
down, and the second of all, in my experience, quality
congressional work is far easier to do in a cooperative and
bipartisan fashion. When the price of your medication
quadruples, you do not care whether the folks looking into it
are Republicans or Democrats. You just want somebody to fight
for you. The best answers are likely to be found when many
people are asking questions, and Senator Collins and I both
think that this is an area that deserves more scrutiny from
Congress, the media, and the American public.
You can try to obfuscate, rationalize, or hide the truth,
but if this is just greed, we have a duty to figure out how to
protect patients who need this medicine. I thank the witnesses
for being here today and I look forward to hearing their
testimony.
The Chairman. Thank you very much, Senator, and now we will
turn to our panel of witnesses. First, we will hear from Dr.
Erin Fox, the Director of Drug Information at the University of
Utah Health Care. We will then hear from Dr. David Kimberlin,
Professor and Vice Chair for Clinical and Translational
Research and Co-Director of the Division of Pediatric
Infectious Diseases at the University of Alabama at Birmingham.
The University has also provided documents under subpoena about
a case that Dr. Kimberlin will discuss which I am noting for
the record, and we are protecting all of the patient
identification information in those documents.
Next we will hear from Dr. Gerard Anderson, a Professor of
Health Policy and Management, Medicine and International Health
at Johns Hopkins University, and finally, we will hear from
Mark Merritt, the President and Chief Executive Officer of the
Pharmaceutical Care Management Association.
I thank you all for joining us at this initial hearing and
we are going to start with Dr. Fox.
STATEMENT OF ERIN R. FOX, PHARM.D., DIRECTOR,
DRUG INFORMATION SERVICE, UNIVERSITY OF UTAH
HEALTH CARE AND ADJUNCT ASSOCIATE PROFESSOR,
UNIVERSITY OF UTAH COLLEGE OF PHARMACY, DEPARTMENT
OF PHARMACOTHERAPY, SALT LAKE CITY, UTAH
Dr. Fox. Good afternoon and thank you, Chairman Collins,
Ranking Member McCaskill, and distinguished members of the
Committee for holding this hearing. I am here today to provide
perspectives on how sudden price increases of off-patent drugs
have impacted our health care system. University of Utah Health
Care is the only academic medical center in Utah and it is also
in a region that comprises about 10 percent of the continental
United States, including Idaho, Wyoming, Montana, much of
Nevada, and western Colorado.
In 2013, University of Utah Health Care paid approximately
$50 for a dose of Nitroprusside and $50 for a dose of
Isoproterenol. Those were sold by Hospira to us then. Marathon
purchased those products from Hospira in 2014 and raised the
price of a vial of Nitroprusside to about $215, and for two
ampules of Isoproterenol to make one dose to about $440.
In 2015, Valeant purchased these drugs from Marathon and
prices again increased. Nitroprusside went from about $215 to
$650, and Isoproterenol, for a dose of two ampules, went from
about $440 to about $2,700. When we became aware of these new
price increases, we calculated the potential impact to our
pharmacy budget and we discovered that if we continued to
purchase the same amount of each drug, no increases, just the
same amount, it would cost our organization over $1.6 million
for just two medications compared to what we had paid for the
previous year, and actually, that $1.6 billion was just for
Isoproterenol. It would be almost $300,000 for Nitroprusside.
Recognizing that this type of arbitrary and unpredictable
inflation is not sustainable for our hospital, especially when
we receive capitated payments for most of our patients, we
began to explore how we could minimize costs without impacting
patient care. One of the key strategies that we used was to
remove Isuprel from our approximate 100 crash carts. We store
these throughout our system to make sure that essential
emergency medications are available in case of a critical
emergency, a cardiac arrest, or sometimes called a code.
Our physicians reported that during a code, this is not the
first medication they use. They do not always use this
medication, but it can be very important in managing a critical
emergency when a patient's heart rate is extremely low. With
that in mind, our physicians agreed that we could store
Isoproterenol just in our pharmacy backup boxes and take it out
of the crash carts. In this way, physicians could still have
access to the medication, albeit at some delay, but we would
not face the full burden of $1.6 million for just one
medication.
We have not found a way to drastically reduce the use of
Nitropress. For now, we are working on educating our physicians
on potential alternatives, when they are available, but in many
cases, Nitropress use is very clinically appropriate. Our
physicians are extraordinarily frustrated by having to make
decisions about whether to use these critically important but
extremely expensive medications in emergency situations,
especially when they have been using these medications for
years.
Why are there no generic competitors? I believe the reason
is the same as the reason behind the ongoing drug shortages
problem, namely, the supply chain for generic injectable, off-
patent drugs is incredibly fragile. Most of the injections used
in a hospital every day are manufactured by fewer than three
companies and those companies are currently at capacity. Many
of those companies are also still working through quality and
manufacturing problems that have slowed or even halted
production.
Our organization works hard to provide the highest quality
of care at the lowest cost. For the sixth year in a row,
University of Utah Health Care was recognized for quality
leadership and our organization continues to be ranked in the
top ten of all academic medical centers. In order to provide
this high-quality care at the lowest cost, our leadership team
is tasked with closely reviewing our budget. We work hard to
predict potential inflation for medications and assess new
medications coming to the market. What we cannot predict are
older, off-patent medications with exponential price increases.
Our ability to provide high quality clinical care to our
patients suffers with unpredictable costs.
Thank you once again for holding this hearing and for the
opportunity to appear before you to discuss how unpredictable
price increases of off-patent drugs have impacted University of
Utah Health Care. I look forward to learning more about
potential solutions to this problem and offer my service if I
can be of any assistance. I welcome any questions you may have.
The Chairman. Thank you for your testimony.
Dr. Kimberlin.
STATEMENT OF DAVID W. KIMBERLIN, M.D., PROFESSOR
AND VICE CHAIR FOR CLINICAL AND TRANSLATIONAL
RESEARCH; CO-DIRECTOR, DIVISION OF PEDIATRIC
INFECTIOUS DISEASES, DEPARTMENT OF PEDIATRICS,
UNIVERSITY OF ALABAMA, BIRMINGHAM, ALABAMA
Dr. Kimberlin. Madam Chair and members of the Committee,
thank you for the opportunity to address the impact of recent
changes in drug pricing for pediatric and adult health care.
For the past 21 years, I have been a pediatric infectious
diseases physician at the University of Alabama at Birmingham
and Children's of Alabama where I serve as Co-Director of
Pediatric Infectious Diseases Division and Vice Chair of
Clinical and Translational Research for the Department of
Pediatrics.
UAB is one of the top academic medical centers in the
country, ranking in the top 25 of all institutions and the top
ten of public institutions in NIH funding. That UAB Department
of Pediatrics practices in Children's of Alabama which is the
third-largest children's hospital in the country in physical
size and is consistently among the top pediatric programs
nationally.
I am the immediate past President of the Pediatric
Infectious Diseases Society which is dedicated to the treatment
and control of infectious diseases affecting children. I am
also the editor of the American Academy of Pediatrics Red Book
which is often referred to as the Bible describing infectious
diseases for pediatricians across the country and throughout
the world. The views I am expressing in this testimony are my
own.
I personally treat and provide advice to physicians caring
for babies and immuno-compromised patients who are infected
with Toxoplasma gondii. This is a parasitic infection that
causes life-threatening disease in patients whose immune
systems are not strong. Specifically, when pregnant women
acquire Toxoplasma infections, they can transmit the parasite
to their fetus resulting in brain damage, blindness, deafness,
and even death.
The Toxoplasma organism is carried by cats, and this is the
reason that pregnant women are not supposed to change the
litter box. Up to 4,000 babies are born each year in the United
States with congenital toxoplasmosis. Toxoplasma gondii also
can cause life-threatening brain and vision threatening eye
infections in children and adults with weakened immune systems
including cancer patients and patients with HIV.
The good news is that this infection can be successfully
treated with a combination of two very old and well understood
drugs, Pyrimethamine and Sulfadiazine. However, recently the
price of Pyrimethamine has increased more than 5,000 percent
and restrictions have been placed on where physicians can
obtain it for their patients. I am very concerned that these
changes will directly put the lives of patients with this very
severe infection at risk.
I first became aware of the sale of Pyrimethamine to Turing
Pharmaceuticals in late August. A pregnant woman at my
institution had just been diagnosed with toxoplasmosis. Knowing
that the baby would be delivered in early September, my team
and I began seeking access to Pyrimethamine and Sulfadiazine
for the baby. The barriers that we were facing, though, were
twofold. One, the massively increased cost of the drug
following Turing's purchase, and two, the fact that a liquid
compounded Pyrimethamine could not be acquired in the
outpatient setting through Turing's distribution system using a
specialty pharmacy.
The reason that the pharmacy issue was a challenge was
because babies cannot swallow pills, but Pyrimethamine is only
available in 25 milligram tablets. In order to get the medicine
into a liquid formulation, the tablets must be compounded in a
pharmacy. Prior to the Turing purchase of Pyrimethamine, the
outpatient community pharmacy that we use in Birmingham could
acquire the drug from the previous manufacturer. However, our
pharmacy cannot acquire the drug from the distribution system
set up by Turing due to restrictions in the sale of medications
from one pharmacy to another which threatened to block our
access to a liquid formulation that we would need.
When we contacted the specialty pharmacy, we had concerns
about its experience in doing--with compounding with
Pyrimethamine, so we were really facing a situation where we
might not be able to acquire the drug in a form that the baby
could take.
The other challenge that we faced was the price of
Pyrimethamine. Initially, my patient required four tablets to
make a 1-month supply of Pyrimethamine. Prior to Turing's
purchase of the drug, this would cost approximately $54 per
month. After Turing's purchase of Pyrimethamine, the cost is no
less than $3,000 per month and probably more. Babies with
congenital toxoplasmosis need to be treated for 12 months and
the dose of the drug increases as the baby grows, so the total
treatment cost before the Turing purchase was approximately
$1,200, but now is estimated to be no less than $69,000 and
probably significantly more.
Looked at from another angle, the total 12-month cost
before the Turing purchase now would buy less than 2 weeks of
Pyrimethamine at the new price. For HIV-infected adults with
Toxoplasma brain and eye disease who require two or three
tablets per day, the total cost now would approach no less than
$500,000; whereas, in mid-summer before the price increase, it
would have been approximately $8,500.
The key issue for this Committee, from my perspective, is
the order of magnitude of this change. On behalf of babies
being devastated by this infection, their mothers and families,
I thank you for your consideration of these challenges. Babies'
lives literally hang in the balance here and it is encouraging
to me to see the Senate take up this important issue.
The Chairman. Thank you, Doctor.
Dr. Anderson.
STATEMENT OF GERARD ANDERSON, PH.D.,
PROFESSOR, HEALTH POLICY AND MANAGEMENT,
MEDICINE, AND INTERNATIONAL HEALTH, JOHNS
HOPKINS UNIVERSITY, BALTIMORE, MARYLAND
Dr. Anderson. Thank you, Senator Collins, McCaskill, and
members of the Aging Committee for this opportunity to testify
this afternoon. I too share in your outrage. In 2007, I had the
opportunity of testifying before this Committee about the
millions of Americans who have chronic conditions, and
specifically the 15 percent of Medicare beneficiaries who have
five or more chronic conditions and take an average of 50
different prescriptions during the year. I did not have quite
as many attendees at that last hearing.
The problem today, of course, is that high drug prices
significantly restrict access to drugs leading to much poorer
outcomes. For many years, the generic drug market worked
reasonably well. Senator Hatch, a member of this Committee, did
a wonderful job in developing the Hatch-Waxman act, although at
Johns Hopkins for this year we are calling it the Waxman-Hatch
Act because Congressman Waxman is working with us at Johns
Hopkins.
Central to the whole issue of generic drugs is competition.
The empirical studies suggest that every time a new drug
company enters a particular market, the price goes down by
about 20 or 25 percent. The first indication we had of problems
in the generic market were not prices, they were shortages.
Hospitals were having serious problems filling prescriptions,
and you heard Erin Fox talk about this already.
The second manifestation that we are getting now is the
higher prices for certain generic drugs. These two are very
much related. They have the same root cause, a lack of
competition in certain parts of the generic market. It is
really hard to remember a recent month where we were not
hearing about generic companies consolidating. These mergers
and consolidations have resulted in less price competition,
higher prices, and shortages for certain generic drugs. Without
competition, companies like Turing can raise their prices
several thousand percent simply overnight, so I am glad that
you are taking a look at ways to increase competition.
What I would like to do is take this opportunity to suggest
two different ways that the Committee should consider. The
first one is to have the Department of Health and Human
Services establish priority reviews for plate times when there
is no competition. In the brand space, what you have are
priority reviews when there is a very clinical compelling
argument for a brand company, but what we do not have is
something for the generic market where there is not
particularly--it is not a clinical compelling market, it is
really an economic argument when they have raised the prices.
You could also make it much easier to do compounding where
there is competition. It is not an FDA thing, but we could do
compounding, and finally, as a last resort, we can take a look
at going to Canada and other places to import these drugs
because they are being sold at much lower rates in other
countries.
My second option is you have got to take a very close look
at how pricing works in the generic market, not just for these
drugs but broadly. The generic pricing market begins with a
generic company announcing a price that no one pays. It is much
higher than anybody pays and this behavior is peculiar to an
industry. I mean, why would your grocery store announce a price
that is ten times what anybody else would, in fact, pay?
The reason why they do this is the way most insurers
reimburse pharmacies. The insurers are trying to reimburse the
pharmacy the cost of acquiring the drug and then they pay them
a dispensing fee in addition to that. The problem is, the
insurers do not often know what the price that the pharmacy is,
in fact, paying because there are confidential agreements
between what the generic company is paying and the pharmacy,
and although insurers work very hard to get this information,
it is really difficult.
I was working with the State of Wisconsin, their Medicaid
program, and they had to go to veterinarians to find out what
some prices of certain drugs were because they could not find
it out any other way. The difference between what the insurer
pays the pharmacy for the drug and what the pharmacy pays the
manufacturer for that same drug in the industry is known as
marketing the spread. The greater the spread, the greater the
profit to the pharmacy, the more likely the pharmacy is going
to buy the drug from that particular drug company.
I have actually seen internal drug memos where they
essentially lower the price to the consumer and they raise the
announced price at the same time, so they are trying to
increase the spread in order to get their drug on the
particular pharmacy's market.
The obvious question is why do issuers not ask them and
some do, but insurers are under no legal obligation to tell an
insurer what the prices are. Fortunately, there is a data base
that allows you to do this, that reflects the true price. It is
called the average manufacturer's price and it is already being
calculated by the drug companies. It is already being sent to
the states' Medicaid programs because that is determined how
they get the rebates, so we know the actual prices that are
there.
The problem is that Federal law prohibits the states from
using these AMPs from being publicly available, so if this AMP
information was publicly available, we would know the actual
prices that are paid. We would have true price transparency.
Thank you very much.
The Chairman. Thank you.
Mr. Merritt.
STATEMENT OF MARK MERRITT, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, PHARMACEUTICAL CARE
MANAGEMENT ASSOCIATION, WASHINGTON, D.C.
Mr. Merritt. Thank you, Senators Collins, McCaskill, the
other members of the Committee. I appreciate you having me here
today in addressing this important issue. Just by way of
introduction, my name is Mark Merritt. I am President of the
Pharmaceutical Care Management Association, the PBM industry's
trade group, pharmacy benefit managers who administer drug
benefits for 250 million Americans to employers, unions, State
employee programs, TRICARE, FEHBP, probably most notably in
this town anyway, and across America, Medicare Part D. We work
for those who pay for the drugs and the patients they serve and
use our marketplace presence and expertise to negotiate lower
costs from drug companies, drug stores, and others in the
supply chain.
Like you, we are concerned about the recent spikes in some
drugs and the dubious practices that surround them. The most
egregious of these, as has been mentioned, are surrounding the
older off-patent brands that have no competitors and serve
small populations. Manufacturers typically avoid these markets
because they are unprofitable and the FDA approval process can
take three years or more to complete. As a result, the pricing
power of the one remaining drug in that space becomes so strong
that some hedge funds and others see a chance to acquire the
drug, resell it at ridiculously high prices, as we all know.
Although this is, fortunately, limited to a small number of
drugs and a relatively small population, and it is not
indicative of the overall marketplace, it is a real problem, we
take it seriously, and we are confronting it in real time. In
many ways, it is a corollary of the drug shortage issue that
was mentioned earlier that has been building up for several
years, and here is the basic problem. What most people would
see as a public health challenge, some see as a chance to
exploit the lack of competition to profiteer. Some companies
require the rights to resell these drugs, use abusive pharmacy
and distribution practices in order to subvert formularies and
other cost-saving tools that encourage people to start
treatment with generics or even lower-cost brands instead of
the most expensive product.
Some of these pharmacies also use fake names, alternative
pharmacy licenses, and other sketchy tactics to distribute
their products. In other cases where generic competitors are
available, some companies use pharmacies that operate with
bait-and-switch co-pay assistance programs to lure patients to
start on the most expensive brand by offering to pay their co-
pay, say $50, which is sometimes the only price people know,
but they do not pay the cost of the actual drug which may be
another $700 or $800 or $1,000, depends on what the drug is.
Those costs, hundreds, thousands, however much, are then
put on the back of the payers which, of course, leads to higher
premiums, and the same people who got the co-pay discount or
co-pay assistance end up paying for it through higher premiums,
and these co-pay assistance programs are banned in Federal
programs under the Anti-Kickback statute, but they flourish in
the commercial marketplace.
Now that I have outlined the problem and everybody else
here has as well, the key is what can we do about it. Well,
obviously, there is a role for the private sector and the
Government, policymakers as well. First, PBMs are working to
combat this in real time. A good example is with the Turing
drug Daraprim whose prices, as we all know, have skyrocketed.
Well, we have not found a silver bullet. We did recently find a
compounding pharmacy, one of our companies did, and now many of
those are companies who are using these. It sells the same drug
for one dollar and that now is providing access to thousands of
people around the country, or hundreds in this case.
We are also working to root out corrupt pharmacies and
distributors like Philidor from our networks, essentially
putting them out of business, and in that mode, I would like to
thank policymakers for resisting so-called any willing pharmacy
mandates that would force payers like us to include bad actors
like Philidor in our pharmacy networks, whether they are good,
bad or indifferent.
There is also an important role for Government. We all know
FDA needs to approve generics faster. There is a 3-year
backlog, 4,000 drugs there. That needs to be speeded up. I
think we all know that, and I agree with the notion that there
should be a special fast-track for ANDAs that are trying to
compete with these off-patent products. We need to get them in
the marketplace, we need incentives to do that for them because
businesswise, it is not going to make sense. If we wait for
that to happen, it is not going to happen, and also in the
interim, you might want to consider creating sort of a watch
list of every off-patent drug that faces no competition in its
class, just simply to let the owners of these products, the
owners of these rights who have the rights to these products,
and the potential hedge fund acquirers that are watching, we
know these are the targeted products. There is going to be a
lot of scrutiny on it and that they are going to have to deal
with that.
The hedge funds have these lists; the Government might as
well, too, so thank you for your time. I look forward to any
questions you may have.
The Chairman. Thank you very much. Dr. Fox, I want to start
with you and I want to ask you some questions about the
justifications, and I put that word in quote, or excuses that
manufacturers that are the subject of our investigation have
given us to justify these extraordinarily high price hikes.
Some of the manufacturers have claimed that these dramatic
price increases are necessary to offset their research and
development costs.
Well, I happen to know that in the case of Daraprim, that
it has been around since the 1950's and Turing was founded in
2015, this year, so it is hard for me to see how there could
possibly be a link between the R&D costs of developing Daraprim
and the price increases that Turing imposed, but talk to me
about the Valeant drugs that you mentioned, Isuprel and
Nitropress.
Dr. Fox. Thank you for that question. That is a really good
question, and I think one thing that is important to think
about is, we have a system of contract manufacturing in the
United States where one company makes a product or a medicine
and another company just puts their sticker on it, and that is
exactly what we have going on right now with those two
products. Isuprel and Nitropress are not manufactured by
Valeant. Valeant is not reinvesting in a factory. They are not
spending that money to have a high-quality manufacturing
system. They are simply putting their sticker on somebody
else's manufactured item.
The Chairman. That is very helpful. When I saw that some of
the drugs were older than the current company owning them, it
seemed hard to see how there possibly could be a link to the
R&D side. You gave us really extraordinary statistics on how
much the University of Utah pays per vial of Isuprel. You said
in 2013 it was $50 per vial; 2014 it was $440, which was a huge
increase, but then when Valeant bought the drug in 2013, it
increased the price to the current rate of, I think you said,
$2,700 per vial.
Let me ask you an obvious question here. Did anything
change about the drug during that short period of time? Was it
compounded differently? Were improvements made? Or is it the
exact same drug that you paid a lot less for just two years
ago?
Dr. Fox. To my knowledge, the only thing that has changed
is the label.
The Chairman. Thank you. Dr. Kimberlin, prior to Turing's
acquisition of Daraprim, and I know you used the scientific
name for Daraprim when you were giving your testimony, did you
ever have any problems with promptly acquiring Daraprim at an
affordable price?
Dr. Kimberlin. No, Senator. Pyrimethamine, or Daraprim, the
brand name for it, were readily available and we never had any
issues when we had an urgent situation of a patient needing to
start on it prior to this past summer. This is a new
phenomenon.
The Chairman. How important is it that you be able to
administer this drug promptly when it is needed?
Dr. Kimberlin. It is very important. The Toxoplasma
parasite destroys brain tissue, it destroys eye tissue, it can
cause, obviously, massive problems if your immune system cannot
keep it in check or if a baby is infected in utero, and the
sooner that treatment is started, the better the outcome, so
this is something--it may not be truly ours in terms of
urgency, but certainly within a day or two you want to be able
to start treatment instead of having delays while you are
working through these newly identified problems that we have
been having over the last handful of months.
The Chairman. You have been a real leader in infectious
diseases. You have headed an association, so you have had
contact with other physicians. Are they experiencing similar
problems?
Dr. Kimberlin. Yes, they are. The HIV Medical Association,
the Infectious Diseases Society of America, the Pediatric
Infectious Diseases Society have all, working together as
sister societies, queried members of those three groups and
asked, Are you having issues getting access to Pyrimethamine?
We have had more than 30 responses from at least 21 states. I
suspect that if not more than that now, there will be virtually
every State in the union affected by this. At least 30-plus
cases where people could not, in a timely fashion, get
Pyrimethamine given the new constraints on access as well as
the cost issues.
The Chairman. Dr. Fox, when the price of the two drugs made
by Valeant that your hospital uses went sky high, did you
contact the company to try to negotiate since you, as a
hospital, might have some purchasing power that you could
bring?
Dr. Fox. Yes, I did, and each time I called, I was referred
back to my wholesaler for the purchase price. Even after I saw
that Reuters had reported that Valeant might be decreasing the
price, that prompted me to call again, and each time the answer
was, talk to your distributor.
The Chairman. So no luck at all?
Dr. Fox. No luck.
The Chairman. Thank you. I have many more questions, but we
have many members here today.
Senator McCaskill.
Senator McCaskill. Dr. Fox, you will get a kick out of the
fact that when I asked Mr. Schiller at that hearing about the
cost of this drug he said, Well, patients do not pay back, the
hospital pay that, as if there was some magic fairy that took
care of the costs that land on your bottom line. I think he is
a sophisticated enough CEO, at least I would hope so, to
understand that when you have those costs, they must be passed
on and recovered. I am not aware of anybody who pays for that
other than the taxpayers of this country or the patients of
your hospitals. Are you aware of anyone else who would be
paying for it?
Dr. Fox. I am not aware.
Senator McCaskill. Okay. I am confused a little bit about
this restricting distribution to thwart generics. I want to
come back to you, Dr. Kimberlin, on the constraints on access
as it relates to the form of the drugs you could obtain for
babies, but Mr. Merritt, or Dr. Anderson, I do not understand.
Are they trying to keep this away from companies that can
figure out how to make the generic to compete with them?
Mr. Merritt. Yes.
Senator McCaskill. How are they doing that? Do I need to
figure out a doctor to write me a script for one of these and
get a bunch of them and give them to somebody so they can start
getting after Mr. Wu-Tang?
Mr. Merritt. You could try. I think it goes like this.
There a lot of pharmacies that work, and sometimes an
individual pharmacy, a small limited set of pharmacies, that
work on the very high potent specialty products where there is
a reason to have a good limited distribution network where they
can collect data and so forth.
What Turing appears to have done is made a contract with
Walgreens to be the exclusive distributor and not allow any
sales to those who would test the drug for, you know, to try to
get a generic approval. In other words, you can only get it at
Walgreens, if I understand it, through a prescription, so it is
kind of a weird--I have never heard of that contract provision
before, but it does seem as though it was an active effort to
keep a generic from coming onto the market to compete.
Senator McCaskill. Are you able to--you talked about
compounding. Are you able to work on compounding to provide
some competition to these drugs and does that--are there the
same barriers on compounding that there is on getting a generic
approved?
Mr. Merritt. No, because a compounder can just put out the
drug, and this is not our optimal way of doing things. This was
just an egregious situation that we needed to deal with quickly
because, as we have heard, people are getting hurt, and so we
found a way to get a compound pharmacy to sell it for one
dollar and, you know, that is what we do. We have 60,000
pharmacies in our network. We know what they all can do. We saw
an opportunity here and took it to help us get us through this
particular situation, but for compounding, they do not have all
the restrictions that FDA does. It would be great if they did
go through all that, but for this particular situation, we
simply monitored the sites, monitored how these drugs were
being produced for safety and so forth, for high standards, and
then made the decision to go forth.
Senator McCaskill. It would be important for this
Committee, through this investigation, to ferret out from--did
you say it was Walgreens that got this contract?
Mr. Merritt. I believe so, yes.
Senator McCaskill. It would seem to me that it would be
important for us to determine whether or not this restriction
has something to do with the safety of prescribing the drug and
making sure someone has education about how properly to dose
the drug or access the drug versus, ah-health, hedge fund finds
drug to buy, ah-health, hedge fund figures out way to keep
generics from being developed by artificially limiting access
through one of these specialty pharmacies. In other words, the
reason that Walgreens would be used here is not for safety of
the patient, but rather, to artificially keep the price of that
drug very high.
Mr. Merritt. Yes, and in Walgreens' case, I cannot speak
for them.
Senator McCaskill. I do not mean to be throwing Walgreens
under the bus here. It could be anybody.
Mr. Merritt. Yes.
Senator McCaskill. Really, if the company that is using his
specialty pharmacy, it typically would be because of the unique
nature of the dosage or the application that you would need as
a specialty pharmacy. What you are saying is it appears that
these specialty pharmacies are being used for other purposes.
Mr. Merritt. Yes. Some of these manufacturers have either
created pharmacies, illegitimate pharmacies, to serve as----
Senator McCaskill. As part of their company.
Mr. Merritt [continuing]. as part of their company to
distribute the drugs, and here is what a real pharmacy does,
for instance, if there is a generic available. You come in with
an expensive brand, there is a big co-pay on it, the pharmacist
says, Well, there is a generic alternative. Some of these
pharmacies will not do it. They will just try to push you right
to the brand and then they will use the drug company's
patient's assistance program to cover any co-pay and then dump
the rest of the cost on the insurer or the hospital.
I do not want to speak for Walgreens. I am sure they were
not as familiar with Turing as we all are right now, but from
what we understand so far and from the patterns we can see from
Turing, it looks like the kind of thing that they would do to
just try to prevent the competition from happening.
Senator McCaskill. I have lots more questions, too. Thank
you.
The Chairman. Senator Tillis.
Senator Tillis. Thank you, Chairman Collins. I have to go
off to another meeting. I wanted to come over here just to
underscore my own interest and concern with some of the
practices that we have seen out there, so I will just ask a
quick question for you all to respond to before I have to
leave.
When we are considering certain policies to deal with sort
of the hedge fund folks play, where I think they are very
clearly abusive, what advice would you give us in terms of
making sure that we do not overreact and then sweep in a number
of good players? I do not believe that we should cast all
pharmaceutical companies in the same light. There are egregious
practices. We need to have a thoughtful discussion about what,
if anything, we should do about it. What advice would you give
this panel as we are going through to be careful about
unintended consequences of overreaction? And we will start from
right to left.
Mr. Merritt.
Mr. Merritt. Well, I think we have to--this is a limited
problem, it is a real problem. It is not indicative of normal
manufacturer processes. We work with all the drug manufacturers
or work with billions of prescriptions. This is an anomaly. It
is a new development and it is just kind of vulture business
practices that we have not seen before.
I think the key is, I think we open ourselves up to these
kinds of hedge fund folks when there is no competition, when we
slow down competition through the FDA process, when we do not
provide enough incentives to see it as a national priority to
take care of these small pockets of drugs, small population
drugs that do not have any competition.
I see this as a problem limited particularly to that and
solutions in that regard about getting competing generics to
market faster to help bring these guys some discipline. One
other thing I might add is, the key is we do not want to bring
the price down if there is a Turing doing this. We want to pay
zero. We want to have people go to another drug that is just as
good and pay them a small part instead of paying Turing, you
know, some discount of what they are already doing, but you
cannot do that unless there is a competitor in the marketplace.
Thank you.
Senator Tillis. Thank you. Mr. Anderson or Dr. Anderson.
Dr. Anderson. Either one is fine, so essentially, when
there is competition, basically the system works. When there is
no competition, the system does not work, so we can tell you
which drugs have no competition. There is a number of ways to
do it. The FDA knows those and the Medicare and Medicaid
programs know those, too, so we know what the targets are that
the hedge funds are going to use to identify those specific
drugs, and then we have got to figure out what is the
alternative to that.
One of them, as I said in my testimony, is to try to give
an expedited review by the FDA because there is this backlog,
but that is going to take 6 months to a year to get that done,
so in the interim, you do more compounding, you allow
compounding to occur, and if we cannot figure out that or they
bought the compounding companies, then we might have to take a
look at getting some of these drugs in a very narrow market in
from Canada or someplace else.
Senator Tillis. Thank you. Dr. Kimberlin.
Dr. Kimberlin. Senator, my comfort with policy issues is a
bit more limited. I will say this, though. In terms of thinking
about different policy options, what I really would encourage
is that the patient, the individual child in my case, or adult
with my adult colleagues who were physicians taking care of
these patients, that those patients remain, first and foremost,
in everyone's sight. We need access to these drugs. We need the
distribution system to work and we need to have the price not
be a barrier or an impediment to trying to get these drugs to
the patients who so desperately need them.
Senator Tillis. Thank you. Dr. Fox.
Dr. Fox. I am not going to offer you advice on your policy
areas, but I would ask that you keep one thing in mind and that
would be around transparency. Right now our labeling laws do
not require the disclosure of which company manufactured a
product versus which company is labeling it, and so, purchasers
actually have no way to even avoid purchasing from a company
they would like to avoid because of that lack of transparency.
Senator Tillis. Thank you. Thank you, Madam Chair.
The Chairman. Thank you. Senator Warren.
Senator Warren. Thank you, Madam Chair. The system is
rigged in a lot of ways and this Committee is right to open an
investigation into drug practices, and we are very lucky to
have Chairwoman Collins and Senator McCaskill leading us on
this.
This is a no-competition problem. Drug manufacturers that
are the sole source of a medicine and patients who are
desperate for these medicines create market failures and a
recipe for disaster here. In fact, the Senate Finance Committee
published the findings of their bipartisan investigation of
Sovaldi, the $84,000 Hepatitis C drug, and found that the
manufacturer set the price solely to jack up profits with no
regard for whether families would be able to afford it or
whether patients would be denied a cure because they could not
afford it, so it is time for Government to step in on the side
of the American people to stop this extortion.
Dr. Anderson, I think we need to think broadly here.
Rapidly increasing generic prices are the initial focus of this
investigation and they are obviously a very serious problem,
but the majority of drug costs are not for generics. We have
seen price spikes across the industry, but more of the cost is
for brand name drugs, so what can Congress do? Let us focus
first to make sure that patients are protected from high drug
costs and high co-pays for both brands and generics.
Dr. Anderson. You mentioned that whole issue Sovaldi and
that is for Hepatitis C patients. There is about three million
of them in the United States. Only about 300,000 people with
Hepatitis C are right now getting that drugs because of the
high cost, so it is a problem of access in the brand area and
it is the problem that we are talking about today in the
generic area.
Senator Warren. We have a cure and 90 percent of the people
who have this disease cannot to get cured because they cannot
afford the drug?
Dr. Anderson. Well, there is a public side and a private
side. On the public side is Medicaid, the VA, DoD are having
trouble paying for the drug because the drug budgets is getting
exceeded. In the Medicare program, it went from--just taking
care of this it went from $300 million to $4.5 billion
essentially overnight.
Senator Warren. All right, so you were just going to give
us a couple of ways in which we can make sure that patients
stay protected here, things that we can look at.
Dr. Anderson. Well, essentially, we have got a whole series
of ways and it is very different for generics and brands, so in
the generic area, it is very important to have competition, and
we have talked about that a lot. In the brand area, it is very
important to take a look at the patents, when they are
appropriate, when they are not appropriate, and essentially how
long they should be.
Because right now--the patent law was originally
established during the George Washington administration and it
was originally for 14 years for two indentured servants. Now it
is 17 and 20 years and it is not reflective of the investment
that a drug company may make. Sometimes they invest a lot,
sometimes they invest a little. We need to support the
investments and we might want to figure out how to do that
differently.
Senator Warren. Mr. Merritt, would do you like to add to
that, please?
Mr. Merritt. Well, I think Government has a real important
role here. Obviously, it is a huge purchaser and we think the
role is more in ensuring competition, making sure that there
are safe products on the market, that people are getting the
products they think they are getting, insurance that they think
they are getting and so forth, and on the purchasing side, I
think the challenge that we see is that it is such a
complicated, fast-moving market. Just like what we did with
Imprimis, this little pharmacy, compounding pharmacy, we found
out kind of in real-time and helped drop the price of the
product significantly, and the challenge--I mean, if you look
at price controls or price inventions, direct negotiation,
there are kind of two ways to do it.
One you could kind of peg it to the market prices and then
get a discount on it, which does save money for public
programs, will increase costs elsewhere, or you can just kind
of try to make the price kind of drug by drug, and the danger
there, ironically, is you could end up overpaying as we saw in
this Turing thing. I know it is a temporary solution, but if a
drug is $5,000 a day, it might seem good to charge $2,500
tomorrow or maybe even 100, but little did anybody know you
could get the same drug basically for one dollar, and so, I
think we all want to find ways to reduce costs and there are
ways Government can help.
Senator Warren. You know, no matter how the drug industry
sugarcoats it, America pays the highest drug prices in the
world, and it is not impossible to fix and it does not have to
be partisan. Just last month, Congress passed legislation that
created a new Medicaid inflation rate for generic drugs, which
will require drug companies to rebate money when their prices
go up faster than the inflation rate, so we have got a lot that
we could be doing here.
I want to talk more about other countries. The Chairwoman
rightly is trying to hold us to our five minutes, so I will
just say thank you very much. You have laid out good steps,
things we need to investigate, and again, thank you for
starting this.
The Chairman. Thank you. Senator Casey.
Senator Casey. Madam Chair, thank you for the hearing. We
are grateful for the work that you are doing and Ranking Member
McCaskill. I wanted to start, Dr. Anderson, with you with
regard to the question of a priority review pathway, and I know
you point to that as a potential remedy here. We are talking
about a priority review pathway to speed the approval of new
generic competitors.
One of the basic defects here, or potential defects or
problems, is there is no or very limited economic incentives.
In light of that, but in light of the issue you raised with
regard to this pathway, how would you think that if we could
achieve that, that this kind of a pathway would help on the
question of competition?
Dr. Anderson. Well, essentially what you have is sometimes
a two or a 3-year waiting period to get the drug to market, so
I am a generic company. I want to engage in competition and I
have to wait two or three years. That is a long time. I do not
know who else is going to enter the market at the same time, so
there is a lot of uncertainty. Am I going to spend the million
dollars or so to try to go through the FDA to do it?
If I can find out very quickly that I am going to get
approval, because it is pretty routine to get approval, then I
am much more likely to engage in competition here, so saying to
somebody, if there is no competition and you want to have a
drug, go for it and we will get it through the system very
quickly. That, I think, would go a fairly long way to solving
this problem.
Senator Casey. I appreciate that. Senator Isakson and I
worked on a priority review strategy for another context, in
the context of young children, and we are working now to extend
that. We are going to be running out of time by mid-March, so
we are working on that together, but I appreciate that as a
potential remedy.
The other question I have for you, Doctor, was one of the
fundamental questions here is the issue of consolidation among
generic manufacturers. Describe for us, and I know you have to
a certain extent already, but describe for us what you think is
driving that.
Dr. Anderson. Well, essentially, if you have fewer
companies, you have less competition, so if I buy up all of my
competitors, I do not have any competition, so what you are
seeing is the number one company buying the number three
company and the number two company buying the number five
company, so the whole system has been predicated on having a
lot of reasonably small companies all wanting to get a share of
the market, and when these large companies buy them up, that
does not happen any longer.
Senator Casey. Dr. Fox, I was going to ask you, do you have
anything to add to that question about what is driving it?
Dr. Fox. I completely agree with Dr. Anderson. I would
suggest, when you are thinking about priority approvals, FDA
does not have a rubric right now for approving manufacturers
based on quality, and that would be something good because when
FDA spends their time to approve a product from a company and
then a year later has to do an import ban because that
manufacturer really was not doing a good job after all, it
wastes time in the system.
Senator Casey. I appreciate that. Dr. Kimberlin, I was
going to ask you, in the remaining time I have, about
compounding which is, for a lot of Americans, rather new. I
guess I would ask you as a physician, when would you choose a
compound versus a--I should say a compound version of a drug
rather than FDA approved drug. How would you assess that
determination?
Dr. Kimberlin. Well, there are a couple of different ways
that we are using the term, I think, this afternoon. The way
that I used it in terms of this particular patient is simply
taking a pill form and making it into a liquid form, so
essentially you crush it up, you add some liquid flavoring, you
get it suspended, and there are recipes or well-defined
stability testing that has taken place with the Daraprim
product for Pyrimethamine suspension preparation, so that is
done in the situation I described simply from a practical
standpoint. You cannot get a pill into a baby, and so you have
to make it into a liquid that then can be measured up in a
syringe and administered through the baby's mouth.
Now, the other way that we are talking about it is to take
a chemical, a powder, and put it into a capsule, and in this
case with the Imprimis, it also is adding Leucovorin, which is
a vitamin that is used to kind of offset some of the toxicities
that can occur with Pyrimethamine, so it is a different kind of
an approach, and it is not so much to get it into a liquid form
as it is being done, as I understand it from Imprimis, but
rather simply to get another product on the market.
Senator Casey. I appreciate that. Thank you.
The Chairman. Senator Donnelly.
Senator Donnelly. Thank you, Madam Chair, and thank you so
much for hosting this and having this hearing. I think it is
critically important. This is a tale of two worlds, it seems in
many ways. Some pharmaceutical companies spend billions to do
research and try and find cures for Alzheimer's, cancer,
diabetes, and now we are looking at companies that have done
little or no R&D, act as a hedge fund, and have essentially
jacked up their prices holding patients and health care
hostage.
We need to break loose from the stranglehold, not only for
our patients, but for our patients and the costs they pay and
for the costs the whole system pays. Mr. Merritt, one of the
questions I wanted to ask you about was in regards to
compounding as to when can you determine that this can be used
and cannot be used.
For instance, with Valeant you have Nitroprusside and
Isoproterenol. Can those be compounded as well? How do you make
that decision? When your organization decides to take a stand
like you did with the Turing drug, all of a sudden, the game is
over, so how do we make it game over on all these other
products?
Mr. Merritt. Well, sure. I am not a pharmacist so I do not
know the exact answer, but I do know there are lots of checks
you can do, lots of audits you can do to make sure that best
practices are being used in these pharmacies. Again, the ideal
is to go all the way through FDA approval, but right now that
is not an option in some cases, so I am not sure if a doctor or
anybody else would have any specifics on that, but there are
ways to ensure quality practices are taking place.
Senator Donnelly. Do you have, as an organization, like a
game plan to push back against this? More compounding?
Obviously, we are going to try to work with the FDA to help
change the way this moves forward, but do you have a game plan
where you look and you go, Here are the top ten abusers, here
are the top ten abused products, we have got to change this?
Then it also sends a message to anybody who is sitting in an
office right now thinking about doing this on another off-
patent product.
Mr. Merritt. Sure. On that particular issue, we are looking
into a lot of different options. That is an option that worked
right now, but in and of itself, it sent a strong message to
the rest of these guys that this is not a free ride, just to
raise prices as much as you want. Just like this hearing today
is doing the same thing, and that is why I mentioned the
importance of getting some sort of list or registry that you
keep of these off-patent brands that are going to be subject to
this kind of acquisition.
What we will do is go case-by-case. If we find competition
in the market, if we see that there are drugs in the same class
that can be prescribed, as I said, we will look into that, but
it will really be a case-by-case thing. This is really a pretty
new development that we have had to deal with rapidly and we
are really on the front end of it.
Senator Donnelly. I think that across the country, there
was a loud cheer when we read the article that you had found a
compounder who would do it for a dollar. People looked and
said, "You know, I am going to have a few bucks in my pocket
instead of being completely broke, and for the insurers, for
our own Government programs, the same thing." The real-world
consequences of this, not only on the financial end, but Dr.
Fox, you had mentioned this, how does this impact your patients
and your operations, that a patient looks and says, This week I
can afford it, next week I get sick?
Dr. Fox. Well, when patients cannot afford their
medications or when hospitals cannot afford to stock
medications, it basically creates a drug shortage, and so
patients may not be adherent to their medicines. They may not
get the full benefit if they cannot afford to continue taking
their therapy, and hospitals have to treat these high prices
exactly as they do a drug shortage and think about rationing,
think about stocking less, and think about the huge hours of
manpower it takes to manage those situations.
Senator Donnelly. Dr. Anderson, do you know if any of the
drugs currently under review for generic approval would create
a competitor for some of these single source drugs?
Dr. Anderson. We would not have access to that because all
that is confidential within the FDA, who has got the--who is
applying and who is not applying, so we would not actually know
that.
Senator Donnelly. Do you have any suggestions as to how we
can better expedite the review for generics with the FDA? You
have given some. Especially on those where there is little
competition.
Dr. Anderson. I think that is essentially--going through
the process takes about six months to a year, but if you have
to wait for two years, it is two-and-a-half years, so you are
not going to enter the process if you know you are going to
have to wait two-and-a-half years and you are going to enter
the process if you have to wait six months, so having a
priority review makes it much more likely for a company to
decide that they are going to be a competitor, because what you
do not know is how many other companies are going to enter the
market in that period of time. It is great to be the second
competitor. It is not so good to be the third, fourth, and
fifth competitor, so you want to make sure that your
competition, when the price was $13 and they raised it to
$5,000 or $3,000, you jump in, you do not want to it when it
was $13 and now it is going to be 10.
Senator Donnelly. Well, we want to continue to work with
all of you because we have a responsibility to taxpayers to not
pay $750 for a pill that should actually cost a dollar, and we
have a responsibility to the people of this country that they
can get the care they need to be able to stay in good health.
Thank you very much for being here.
The Chairman. Thank you. Senator Kaine.
Senator Kaine. Thank you, Madam Chair, and thank you all
for this important testimony, so we are dealing with market
failures and I am trying to kind to figure out the variety of
market failures we are dealing with. Traditional market theory
would be arms' length transaction between a disinterested buyer
and seller with perfect information.
It seems like maybe the first market failure that has
driven this is some geniuses realized patients equal hostages.
I mean, is that not kind of the sickening part of it, that it
is not an arms' length transaction between a disinterested
buyer and seller. It is people who are in these extreme
conditions. They are hostages.
I mean, they are not customers in the traditional market
sense, and so some of this, the opening comments of both the
Chair and Ranking Member kind of focused on a hedge fund
mentality. We are not talking about health care here. We are
talking about ransom to be paid by hostages, is what these
folks are doing, which is shocking.
It strikes me that a second market failure is this
informational transparency. I cannot remember which it was, it
was either Dr. Fox or Dr. Kimberlin, you talked about, oh, no,
wait, who cares about this? The patient does not pay the whole
cost. There is a cost, but we do have a system, the health care
system, that has not been transparent on the price side. I
noticed that, Dr. Fox, some of your testimony, written
testimony, you cite efforts that your hospital system is made
to increase transparency so that staffers are more aware of the
higher costs associated with services and medications.
Now, we wish the costs were not so high, but nevertheless,
you guys are trying to make folks more aware. Have you seen a
change of behavior in physicians and in practices at the
hospital, the more information that you provided, and are those
changes sometimes kind of negative in the sense that you feel
like patient care gets impacted?
Dr. Fox. Absolutely. Our physicians were appalled. They
were so frustrated to learn that these old medications that
they had been using forever had just skyrocketed in price, and
so they were very willing to sit down with us and think about
solutions, how to keep the patients safe, and one of the ways
was let us take this medicine out of the crash carts.
A part of me wonders and kind of wants the entire kitchen
sink available in a code and to have everything right there
ready, but our physicians said, "You know what, this price, it
is not worth it. You guys can bring it as a backup and it will
be okay." We have not been doing this for that long so I do not
have any data to see if any patients have been harmed. I am not
aware of any, but it is concerning when we have to make changes
based on cost alone.
Senator Kaine. Well, price transparency is something that I
am a big fan of across the entire system. Just trying to
understand a little bit more about the way the business works,
and this is for Mr. Merritt, I understand that insurance
companies normally share a portion of the price burden of
pharmaceuticals. How is the ratio of the insurance company to
the constituent determined? How much of the cost is
traditionally borne by the patient? How much of the burden
falls on the PBM companies and is that consistent across drug
categories or does it kind of vary?
Mr. Merritt. Well, I think generally speaking, the
employer, union, whoever we are representing will pay about
two-thirds of the cost and the patients will pay the other
third through premiums and cost-sharing, and of course, we will
have higher cost-sharing on products where there is a less
expensive competitor to try to encourage people to use that
less expensive competitor, but we look at a whole basket of
drugs. We do not look at just one particular drug. We look at
what is this going to cost the employer, what is it going to
cost the patient, and in terms of transparency, transparency is
important, but it has to be the right kind of transparency. I
think the best transparency is really what end price is and
getting the competitors in there to show us that. For instance,
with Turing, and Senator Collins asked, well, I guess there is
no R&D here, I think one way to measure whether there is any
R&D is if the drug is older than the founder of the company,
there was no R&D. That is what we have in this case, but
transparency, we know Turing's cost, they make no bones about
R&D. They did nothing, but they are still charging it, so the
question is what do you do. Going back to the doctor's point
and the point I made, if you have even--if there was a law that
put an expedited review for these particular products, even
before the first review is approved, it would put this whole
business practice out of business because nobody would want to
get in the business where they knew a generic was coming online
a year later.
Senator Kaine. I want to follow-up, so if there was a law
that said what, in the event of a price spike there would be an
expedited review to be able to develop a competitor, or how
would you set up the threshold in the law?
Mr. Merritt. I would say for off-patent drugs that do not
have any competition, there will be an expedited review at FDA.
Senator Kaine. I see.
Mr. Merritt. Then before that first review went through,
that business practice would basically fold. There would be no
point in it, because right now, they just see free rein and we
have seen some of the responsible statements where people just
see this as an arbitrage opportunity. They do not care. They
are not health care people.
Senator Kaine. The public health justification for the
expedited review, it is off-patent so we know what it is in it,
so you do not need the full review that you would need for a
first-time drug.
Mr. Merritt. No, and the good thing is, this does not get
involved in any of the innovation challenges that we have about
stifling innovation by lowering the patent years, although I do
think there should be a lower patent year for biologics down to
seven years which would improve access there, but this would
only affect drugs where there is no R&D. I think most
manufacturers--this is not common practice and I am not here to
defend the manufacturers. We cross swords with them all the
time, but they do not like this business either. This is not
the way business is usually done, so for this kind of outlier,
I think there would be support for something like that.
Senator Kaine. Great, great. Thank you. Thanks, Madam
Chair.
The Chairman. Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman. Like I think a lot
of Americans, I have been fuming at reading these stories about
these price hikes and I am really grateful to you for joining
with Senator McCaskill in leading this hearing. I think it is
really important.
I had written down the same word that Senator Kaine just
used in reaction to listening to this testimony which was
ransom. We have, it seems for starters, when you are dealing
with health issues, it is really not just open consumer choice
any longer. You really do have hostages and ransom. Second, you
have got the somebody-else-is-paying situation which also fouls
up this being a proper market decision.
Third, you have got these pricing strategies that are
designed not to meet competition because there is not any
there, but to maximize the ransom for the maximum number of
hostages you can let through, and then fourth, you have got the
strange problem that you mentioned about the co-pays where the
incumbent will reimburse the co-pay to the patient and sock the
payer, the insurer, the Government, with the rest of it.
It strikes me that that is not being done just out of a
charitable spirit. That is being done--I am seeing smiles and
nods. That is being done, it strikes me, as a way to deter
competitors from entering because you have found a way to make
every patient want to come to your product, so when you look at
that whole thing, it seems to me that the solution that most of
you are proposing is a challenging one, which is how does the
Government against a really determined incumbent who is using
every pricing strategy to defeat competition, create
competition against their wishes when they win by defeating
those efforts?
It seems to me that once a finding is made that there is
not competition for this drug, that there is some very old and
established techniques that worked when the railroads were
trying to crush American farmers, when the electric utilities
could jack up rates because there was only one wire that you
could afford to put out to the house, when Ma Bell still had
you buy wire and you could not have competition over phones,
you had simple price regulation, and the company came in and it
proved its costs and it was entitled to recover 100 cents on
the dollar of its costs and it made an argument about the kind
of risks that it took and it brought in experts to say, Here is
the rate of return suitable for our investment, and you would
get your costs back and a return for your shareholders.
It seems to me that if we were to go straight to that only
where there has been a finding of non-competitiveness, that
would take away the motivation for the hedge fund that is
playing in this market and arbitraging this market, to continue
to defeat competition. It is much simpler, it is really
established, everybody gets it. There is still regulatory
commissions all over the country, and it just seems to me that
that is an easier way to get at the problem than trying to
create competition against a powerful, focused, relentless,
clever incumbent who has all the strategies of price
manipulation to discourage somebody from taking that chance.
Even if you make it a short FDA procedure, they still have to,
at some point, come up against the hedge fund character who is
manipulating all the levers to try to keep them out and that
makes it a dangerous proposition.
If you take away the incentive for the hedge fund
arbitrager who is in there playing this game by saying, "You
know, when you create your perfect world of monopoly and you
can charge hostage prices, actually we are changing the rules
of the game at that point." We know how to handle that. It is
railroad regulation, it is utility regulation, it is phone
regulation, it is simple, you know, cost and rate of return
pricing.
Dr. Anderson. What you have to recognize is that for most
of these generic companies, the cost of production is pennies
per pill, so essentially, you would get pennies per pill as a
cost of production, and many of these companies are not even
producing the generic drugs themselves. They are hiring
somebody else to do it and it is done in a batch system, so it
is a very different model for generic companies than for
brands.
Senator Whitehouse. Do you agree that this is an analogy to
those traditional things, to when the railroads were first
breaking farmers by charging them super prices, when the--
actually, the oil companies bought some of the railroads so
they could put their competition out of business by not letting
them travel, the utilities. This is not new. The idea that you
take advantage of monopoly power to raise prices is as old as
market failure.
Dr. Anderson. Absolutely and it is just----
Senator Whitehouse. We have solved it before.
Dr. Anderson. You can and it is very easy to do that and
you could put out a list of drugs that there is no competition
for, because we already know those drugs there is no
competition for, so if you put up those lists and said
something like those prices should be stable for the next five
years, or something like that when there is no competition----
Senator Whitehouse. There is competition and you let the
market do its thing. I have gone over my time. I appreciate it,
Chairman. Thank you so much.
The Chairman. Thank you. Senator Cotton.
Senator Cotton. Thank you. I want to build on Senator
Whitehouse's points about monopoly power over pricing and also
on market failure. I know in prior questions we addressed the
question of compounding, instances where it has succeeded in
breaking that monopoly power, instances where it has not. Is
there anything Congress can do to create more of the former and
less of the latter to make compounding for these often very
small, small batch limited demand drugs available through
compounding pharmacists all around the country?
Mr. Merritt. It is an interesting question. We could look
into that and get back to you, and again, this is a new
development that we responded to quickly and aggressively.
Typically we would not use compounders for this, although they
play a very valuable role, and we would need to look and see
whether this is an interim solution or something that has more
potential, but we are still looking into all of that.
Senator Cotton. You basically--if you, you want the FDA to
approve these drugs because the compounding does not go through
the same rigorous testing that the FDA puts the generic
companies through, so it is, at best, a second-best solution,
but it is a solution in an emergency.
Dr. Kimberlin. I would just say that it is not a solution
for everyone, so if we take the Pyrimethamine or Daraprim
example, the babies that I treat, we still have to get a powder
or a tablet into a liquid formulation. We do not know what the
stability is with this new Imprimis, I think it is, compounded
material. We do know what it is and we know how long it is
stable with the Daraprim product, so we cannot simply just swap
out what we are adding the liquid to to make it a liquid
formulation in the case of treating little babies, so it can be
more complex.
Senator Cotton. Okay. Dr. Fox, do you want to add anything?
Dr. Fox. Thank you. I would add that compounding is not
perfect. Patients have been harmed by poorly compounded drugs,
but it also serves a very important option for some patients,
so it is definitely a balance. I definitely echo my colleague.
Senator Cotton. I asked about Congress and what about FDA.
Is there anything that FDA could do internally to say expedite
the use of compounding pharmacies in these kinds of situations
where you might have market failure?
Dr. Anderson. Again, it could, but I think it is just
better to have a generic drug in there, so what I talk about is
expedited review and putting that at the top of the queue for
the FDA when there is no competition, and that, I think, would
be better and really gives you those clinical safeguards that
you would like to have.
Senator Cotton. I am glad you raised that because I wanted
to return to the point you had made earlier about expedited
review. What could Congress or the FDA, for that matter, do to
accomplish what you are describing, to expedite the time for
approval of these generic drugs which have often been on the
market for a long time and have very limited demand so they
might have not have the same kind of priority as companies, but
if the regulatory process were simpler, it might move along
faster.
Dr. Anderson. Essentially, there is a queuing problem and
essentially if the FDA is essentially given that authority or
that responsibility to say that there is no competition for
this drug, we are going to put you at the top of the list to do
the expedited review, then we would have competition in six
months, but we would have competition, which was better than
two-and-a-half-years which would probably be today.
Senator Cotton. That is the scale difference you are
looking at then, six months versus, say, 30 months?
Dr. Anderson. Correct.
Senator Cotton. A pretty big difference. I would also like
to touch on the point of pricing. One common claim you hear
about pricing of drugs is the R&D costs that are built into
them. I know there is some dispute about how much the R&D cost
depends. There is a front-page story in the Wall Street Journal
about it today. Some companies have been acquiring the rights
to drugs.
Is there an economic difference between, say, a big
pharmaceutical company spending $100 million to develop a new
drug and then those costs being discounted into the price they
are going to charge versus a big pharmaceutical company buying
a company at $100 million price because that is the net present
value they expect from that?
Mr. Merritt. Well, yes. I mean, I think, obviously, you
want the R&D costs to be part of it, but I think from our
perspective, industries who get the transparency and so forth,
we do not care so much about the inputs. Everybody has a great
reason why they should be able to charge whatever they want for
the drug.
What changes things, you say, that is great. Now we have a
competitor in which every one of you gives us the best prices
on the formulary and the other one is out. That is how you get
prices down, and then we find that to be much more clarifying
and effective than trying to kind of figure out the cost of
certain inputs and then adding this or adding that because I
just do not think it would work.
I mean, if there is a competitor in the market and a drug
that is doing the exact same thing as the risk of not being on
the formulary, we do not say, "Here is how much to pay." We
say, "Whoever gives in the best offer wins, the other one
loses." That is how to get really deep discounts.
Dr. Anderson. There is a new system. We are talking about
generics, but in the brand side, there is the idea--normally
Pfizer does the research themselves and their own R&D, but
there are now companies out there that just buy companies that
are almost ready and have gotten all through the FDA process.
They buy the company and then they jack up the price there. On
the brand side, there is something that you are going to have
to pay attention to in that regard as well because they are
doing the same thing and they are essentially the hedge funds
of the brand side.
Senator Cotton. Okay. My time has expired, but I want to
thank the Chairman and the Ranking for calling this very
important hearing.
The Chairman. Thank you. Senator Blumenthal.
Senator Blumenthal. Thanks. Let me begin where Senator
Cotton ended and thank you for having this hearing. The subject
at hand here has absolutely sweeping ramifications because we
are talking not only about price spikes in some drugs, whose
names we can barely pronounce and that are used for very
narrowly felt or impacting diseases, but also the workhorse
drugs that are used in surgical suites and operating rooms
across the country and aesthetics that are in short supply,
Narcan, a life-saving drug, literally saves lives every day in
the State of Connecticut when overdoses occur, now widely
administered by police and firefighters.
I was absolutely astonished to learn that the prices of
Narcan have gone up by 50, 100, 150 percent so that local
taxpayers are paying that much more, but also those drugs are
in short supply. Very often, hospitals do a kind of triage, not
medical triage, but drug market triage, exchanging drugs with
each other, literally sending them to each other, and we are
talking here not about the Turing drug or about some of the
others that have been mentioned in the memo, Daraprim,
Nitropress, Isuprel, they are not those esoteric drugs.
They are the real workhorse medicines of modern hospitals
and health care and they are in short supply even though they
are generic, they are manufactured, not necessarily by one
company, but maybe by two or three, and the question for me is
what to do about the underlying market conditions that result
in short supply of those medicines, not the ones that appear in
the headlines. The newspapers have written about Turing, but
about some of our major drug companies that also do the same or
keep the drugs in short supply.
Now, they have a variety of explanations, but I think to
take Senator Whitehouse's very important and eloquent remarks
on this subject, it is not only regarding these manufacturers
as analogous to utilities, which produce something that is
essential, these drugs are essential, but also to regard their
products as we do energy and insurance, and the Government
itself is not only a regulator, but it is also a provider in
some instances. The railroads are regulated, but the Government
is also semi in the business through Amtrak. The Government has
a strategic oil reserve and it also, through the independent
system operator and FERC, Federal Energy Regulatory Commission,
has control over the grid. The Government is not only an
overseer and scrutinizer, it also is a provider in the case of
some of these essential services.
When I respectfully suggest, and I ask for your comment is,
should the Government play a more aggressive and proactive and
involved role in this area? I have wrestled. I did a bill with
Senator Burr, a bipartisan bill, that tried to address drug
shortages. We knew at the time it would be limited in effect;
it has been limited in effect and we need to do much more, so I
invite your comments on that idea.
Mr. Merritt. Well, I would say the Government has a huge
role to play even in this hearing, even though it is not
policy, it is very significant. It raises eyebrows. If I was a
hedge fund guy and I saw this hearing going on, I would say, I
do not think I want to buy one of those drugs and sell it at a
higher price, so that is very significant.
In terms of the railroad analogy--I am actually reading a
book on the transcontinental railroad, but I am not far long
enough in it to really follow-up on your eloquent remarks, but
I think the opportunity we have with drugs is, let us take the
railroad analogy. We can build a railroad right next to it run
by the competitor, and that is the difference, that if we can
get an expedited review of these products that do not have
competition, there is a product that is going to be on the
market in a year or so, that is something we can do that the
railroad folks could not do, and there is competition in most
drug classes, but when there is not, we are a sitting duck for
those off-patent products. Unless these hedge fund folks know
another drug is coming online, that is the problem we are going
to face consistently.
Dr. Anderson. There was a whole series of no competition
for the railroads for a period of time and now there is a whole
series of competition for them, other ways of transportation.
They are no longer in the railroad business; they are in the
transportation business, so essentially, the same idea here
would be where there is no competition, you have got to
intervene. Where there is competition, you probably do not have
to intervene because the system for generics is generally
working.
Senator Blumenthal. Thank you, Madam Chairman.
The Chairman. Thank you. Dr. Anderson, when I learned that
Turing was restricting the distribution network for Daraprim,
red flags went up for me. Could you comment in general about
whether this could be a means of making it more difficult for
generic companies to get enough of the drug to reverse engineer
it, essentially, and produce a generic? Do you think there is
any connection there? I am trying to figure out why Turing
would do that.
Dr. Anderson. Well, essentially, it is all about
competition, so they want to make it more difficult for
somebody to enter the market, and so they are going to do
anything they can do to make it more challenging for you to
enter the market, so that is one example. They could
essentially say, oh, we raised our price to $750, but if you
enter the market, we will drop it to a dollar, and as soon as
you do not enter the market, we will raise it back up to $750,
so they are going to use a whole series of things to try to get
at the most profit for the longest period of time that they
can, and that is just one example of efforts they are going to
use.
The Chairman. You also talked, in your written testimony,
about the administrative costs of going through the FDA generic
process. You earlier talked, in response to a question about
the length of time, but is the administrative costs and the
trials, the clinical trials that are necessary to show that it
is a bioequivalent also barriers to access to the market for a
generic, particularly one that is making a drug that is going
to serve a smaller population?
Dr. Anderson. It is unlike the brand companies which have a
huge undertaking for generics. It is a much more easier
undertaking. It probably costs about one million to two million
to actually go through the process, so that is a hurdle if you
think that the market is only a few thousand people and you are
only going to be able to charge a few dollars for the drugs.
It is a bit of a burden, but I do not think it is a huge
burden, and we have not seen the problem in the past and the
FDA has not gotten more difficult to work with over the recent
period of time, so this is a system that is different not
because of the FDA, not because of the regulatory burden. It
really is a change in the marketplace and these companies
finding this niche market where they can price gouge.
The Chairman. I would note that there is a big difference
between what the generic drug association says is the backlog
at FDA for processing generic drug applications versus what FDA
says the backlog is, so that is something we are going to try
to explore as well, but I have often thought, as I have learned
more about this, that if there were a monopoly in pork bellies,
they would be going after the pork belly market, that it truly
is almost commodity-driven rather than--and it just happens to
be life-saving, life and proving essential pharmaceuticals that
have caught the attention of these individuals.
Dr. Anderson. The one major difference is insurance.
The Chairman. Correct.
Dr. Anderson. Where for pork bellies you are paying for it
yourself. With insurance, you have an insurer that is paying
for it, and so they actually have an even better monopoly than
they would in other industries.
The Chairman. True, though I do want to emphasize the point
because one of the arguments that these companies have given us
is that, quote, real people do not pay these costs. Well, real
people are paying insurance premiums, co-pays, deductibles. I
mean, ultimately, as Senator McCaskill said, it either comes
back to the consumer or the taxpayer one way or the other.
I want, in my remaining time, just to touch on another
issue that has come up several times, and that is whether
compounding is the answer to this problem or a partial answer.
We have a wonderful compounding pharmacy that I am familiar
with in Maine that does the kind of work that Dr. Kimberlin has
described where they are tailoring the medicine for the needs
of a specific patient, but that is very different from what is
going on here with Express Scripts and Imprimis where they are
actually compounding two different drugs, the Daraprim plus the
vitamin that helps to offset the negative effects, and that is
a very different notion of compounding because it is not, I do
not think, going through the kinds of trials and studies that
would be required with a generic.
I want to ask our two medical doctors to comment a little
more on this issue. I would love if that were the answer, if
they are selling it for a dollar a pill, but I think we are
talking about two different things, so Dr. Kimberlin and then
Dr. Fox.
Dr. Kimberlin. Senator, I believe you are correct. These
are separate things. They are both equally important, but they
are not--I personally do not see the Imprimis compounding, at
least as I understand it right now, announcements as the
solution. Certainly not for the very young pediatric population
that I take care of. They need a liquid form and for us as
treating physicians to be able to ensure that they are getting
a stable liquid form, we have got to use the data we have
developed over many, many, many years with Daraprim. We cannot
simply move to a new compounding formulation, make that into a
liquid without doing those additional studies over again, so I
welcome it. I think it is a good move personally, but I do not
think it is the final answer.
The Chairman. Thank you. Dr. Fox.
Dr. Fox. Thank you, Senator. Compounding is really
essential for some patients. We heard great examples from Dr.
Kimberlin, but compounding should not be a blanket one-size-
fits-all solution. These medications have not been rigorously
tested and I really do not think it is a solution for many,
many numbers of patients. For the one patient, one or two
patients that need it, absolutely, critically important, but
not a one-size-fits-all fix.
The Chairman. Thank you. Senator McCaskill.
Senator McCaskill. I understand the points on compounding.
I know we have had some negative incidents that have occurred
around compounding in this country, but I glanced through Mr.
Shkreli's Twitter feed and I found it ironic that the very
person who is jeopardizing the lives of babies by hiking up the
prices of the drug he has a monopoly on, wants to cast
aspersions on Express Scripts trying to compound that drug, and
frankly, I think he is obviously not concerned about the safety
or he would not have done what he did in the first place.
What he is concerned about is competition, taking away the
monopoly that he has. I agree with you, Doctor, that we have to
be careful about compounding, but to me, this is a dire
circumstance. What are you doing now, Dr. Kimberlin? What if
you are presented--what if doctors call you from around the
country because of your expertise? What happens to the babies
right now that--and I do not really clearly understand why this
liquid form, why has Shkreli cutoff the liquid form? Obviously,
it must have something to do with making money, but why has he
done that? Why has he closed off the avenue for you to be able
to treat babies with a liquid form?
Dr. Kimberlin. Senator, thank you for the opportunity to
clarify briefly with that. There never was a liquid form of
Pyrimethamine or Daraprim. Rather, there was years of
experience within these pharmacies with turning it from a
tablet form into a liquid form.
Senator McCaskill. Right.
Dr. Kimberlin. That is where the recipe had been well-
developed and it works very well.
Senator McCaskill. Well, what happened to it, though? I do
not understand why it went away when Shkreli bought the
company.
Dr. Kimberlin. It has not. The challenge now is getting the
tablets in the first place.
Senator McCaskill. Oh, I see.
Dr. Anderson. That is where the----
Senator McCaskill. You cannot afford to get the tablets----
Dr. Kimberlin. Yes, ma'am.
Senator McCaskill [continuing]. in order to turn it into
the liquid.
Dr. Kimberlin. That is correct, and some pharmacies, this
is a new development. That is the reason I am sure you all are
bringing this before the American people now. Some pharmacies
still have on their shelves stock that they purchased prior to
the sale of the drug, so they have cheap medicine on their
shelves and therefore they can pass along a cheap price to the
patient or to the insurance company. What is going to happen a
few months down the road, though, is those stocks are going to
be depleted and then even for----
Senator McCaskill. I am surprised he has not gone out and
bought them.
Dr. Kimberlin. He is not going to go out and buy them from
hospitals.
Senator McCaskill. Oh, that is true. He could not get them
from there. Go ahead.
Dr. Kimberlin. Well, I do think that over time--we are in
kind of a window here where some people are really struggling
to get access to this, you know, the 30-plus patients in 21
states are good examples of that. My patient could be an
example of that, but it is going to get even worse, so this is
the right time to be having this conversation.
Senator McCaskill. When that moment comes, what will you
do?
Dr. Kimberlin. We will beg for getting access to these
drugs. As you guys have already heard, this is life-saving
chemical interventions for these patients, and as treating
physicians, we will do everything. We will fight tooth and nail
to get them for our patients. I hope the system is modifiable
in the meantime so that that struggle, the struggle to keep the
patient at the center of all of this so that that struggle is
easier for us.
Senator McCaskill. Well, I certainly want to put out a
public call to any doctors. I am tired of this. Well, we are
going to give away to people who really need it and we are
going to cut the price. That is all great as window dressing,
but in reality, we know that--I mean, you gave an example, Dr.
Fox. You called three times to try to renegotiate the price on
Isuprel and the other drug you needed for cardiac arrest.
I hope that this Committee will hear from doctors who are
faced with life-threatening disease and they are not able to
get this drug at a price that is even within reach of their
patients, because we need to know the real-life consequences to
this behavior.
Let me finish up about the watch list of patent drugs. It
seems to me a lot of what we are talking about today, and I
think, Dr. Anderson, you may have mentioned it or Mr. Merritt,
that hopefully this hearing may even have a deterrent effect.
We are paying attention. Let the word go out to investors in
hedge funds. We are paying attention to this practice, so if it
is a matter of making a list of the off-patent drugs, I think
that is a really good idea, and I am curious, does that list
not exist somewhere? Does somebody not already have that list?
Could we not get that list and maybe even publish it somewhere
so that everyone would know that if somebody else thinks this
is a brilliant idea, to create a monopoly at the expense of a
patient that needs health care in this country, that we are
going to be on it, so to speak?
Mr. Merritt. Sure, we can help you with that.
Senator McCaskill. I think that would be really helpful to
know. How many are we talking about? How many other potential
drugs are there out there that a hedge fund could buy, put a
new label on it, and increase the price 6,000 percent?
Mr. Merritt. We are trying to clarify the final number, but
it could be a couple of hundred with a small population, so it
is a significant problem, but it is a targeted----
Senator McCaskill. Yes, you have to hit on all cylinders.
Mr. Merritt. Yes.
Senator McCaskill. Right? It has to be off-patent, it has
to be a relatively small market that will not attract
immediately a generic competitor.
Mr. Merritt. Right, right, so it could be a couple hundred
drugs, but the population is still pretty low and manageable.
We will get you that information.
Senator McCaskill. That would be great, and the other thing
is, I think if we did the 6-month thing at FDA, that would be a
deterrent.
Mr. Merritt. Oh, yes.
Senator McCaskill. If these companies knew that a generic
could get approved within six months, that gives them a very
small window to skim the cream, so to speak, and rip people off
because it would not be enough time to recover the money they
would need to recover that all these people have invested in
this hedge fund.
Dr. Anderson. There is a book called the FDA Orange Book
which is approved drug products with therapeutic equivalence
evaluations, which says, you know, these are approved for this
drug, this drug and what companies are doing, so all you have
to do is look on that list to say, there is no competitor on
that list, so it is a fairly easy thing to do. In the
reimbursement side, it is called MACS and folds, maximum
allowable costs or folds where there is competition, these
things are established, so we have got a lot of ways to
identify these things if we can just stay one step ahead of the
hedge funds.
Senator McCaskill. That sounds great. I will try to help.
Thank you. Thank you. I want to compliment the Chairman. I
think this is--everyone gets a nervous when we take on subjects
that could have broad economic impact in our country, and I am
pleased to be able to serve on this Committee with the Chairman
who is--her first allegiance is to the people of Maine and her
second allegiance is to her fierce independence, and I am proud
to serve with her.
The Chairman. Thank you very much for those very kind
comments and for your extraordinary contributions to the
Committee and to this investigation in particular. The
Committee members will have until Monday, December 21st, to
submit additional questions for the record, so we may be
bothering you right before the holidays.
I do want to sincerely thank every member of this panel for
enhancing our understanding of this problem. I find it so
disturbing and, indeed, unconscionable that a company would buy
up a decades-old drug that it had no role in developing, did
not spend a dime on the R&D for it, and then would hike up the
price to such egregious levels that it is having an impact on
patient care. That is just plain wrong and that is why we have
begun this investigation. We do want to proceed in a careful,
thoughtful way.
Just recently I met with a small pharmaceutical company
that has the potential of a breakthrough on a neurological
disease and is spending a billion dollars on the clinical
trials alone, so there is a balance here and we do not want to
stifle innovation or stop that pipeline of potentially life-
saving drugs, but neither do we want a company to be able to
take advantage of a monopoly situation where there is no
competition and no alternative and no downward pressure on
prices.
It to me was so offensive when I saw some of the interviews
with some of these CEOs and to hear them essentially say they
were raising the prices, "because we can" and that is why we
are working so hard to find the right balance, to fine-tune our
laws, and I really appreciate the constructive suggestions that
you have made today and sharing the experiences of practicing
physicians, a hospital physician, a public health expert, and a
pharmacy benefit manager, so thank you all for being here. This
hearing is now adjourned.
[Whereupon, at 4:28 p.m., the hearing was adjourned.]
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APPENDIX
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Prepared Witness Statements
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