Where does all the drug money go?

Published 1:31 pm Tuesday, September 27, 2016

There have been some revelations of late regarding dramatic (some might say criminal) increases in the prices of prescription drugs. Unfortunately, not enough revelations sufficient to prod Congress to actually do anything about the situation since most of our legislators are in the hip pockets of the pharmaceutical industry.

It’s highly probable that the entire problem began with the inception of Medicare Part D and the unwillingness of Congress to allow Medicare to negotiate drug prices, which have since spiraled out of control.

Even though exorbitant price hikes have been taking place for several years, the situation became most apparent in 2015 when Martin Shkreli, CEO of Turing Pharmaceuticals, bought out another drug company and immediately raised the price of a 62-year old drug from $13.50 per pill (already much too high) to $750 per pill! Shkreli quickly became one of the most hated individuals in the country and is now facing criminal indictment.

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In February 2015, Valeant Pharmaceutical bought rights to heart drugs Nitropress and Isuprel and raised their prices by 200 percent and 500 percent on the same day.

Later that year, J. Michael Pearson, Valeant CEO said “My primary responsibility is to Valeant shareholders. We can do anything we want to.” In other words, pay our higher prices or die.

In August 2015, Rodelis Therapeutics bought rights to the tuberculosis drug cycloserine and promptly raised the price from $500 to $10,800 for 30 capsules. Assuming that the dosage is one capsule per day, the new cost of this drug would cost the patient $129,600 per year. At these prices, patients may begin to wonder how much it’s worth to stay alive.

Most recently, Mylan, the producer of the EpiPen, a device that provides an injection to treat emergency allergic reactions, raised the price of a two-pen package from about $100 to $614. This price hike is especially egregious because many of the EpiPen users are children who experience allergic reactions from things as mundane as bee stings and peanuts. Parents are concerned about being able to afford this higher price. At the same time that this price hike was taking place, the CEO of Mylan received a salary increase from $2.5 million per year to $18 million per year (probably not even including all the perks that go with a CEO’s salary). The cost to manufacture an EpiPen is $12.

And it has recently been disclosed that Mylan changed the listing of its headquarters from the U.S. to the Netherlands, a move which benefits the company by being able to market and sell its product here and yet pay no corporate taxes here.

It is likely that, in days and weeks and months ahead, more stories will be revealed about the horrendous actions of drug companies. And those companies will complain about being in the spotlight and suggest that the high cost of developing new drugs justifies the high prices being charged. But the U.S. government subsidizes many development costs and the development costs of a 62-year old drug surely have been paid by now. Further, virtually all pharmaceutical companies spend huge sums of money simply advertising their products on TV and in print media, perhaps far more than what they expend on research and development.

And then of course drug companies are getting sued every day for the harmful effects of the drugs they market, which suggests that their research doesn’t go nearly far enough in proving the efficacy of a new drug in relation to its potential harmful side effects.