Today’s Managing Health Care Costs Number is 538%
The blowback against some of the financial engineering pharmaceutical companies, which buy up “old” drugs and dramatically increase the prices, continues.
The New York Times had two pieces on this over the weekend. The first article was an in-depth review of Valeant Pharmaceuticals, which has become a multi-billion company by purchasing existing companies, firing most of their staff, driving up prices, and watching the share price grow. The article starts with a patient who has been on Cupramine, a drug that treats a copper overload syndrome, for 55 years.
Gretchen Morgenstern provides a few key statistics about Valeant
· The company spends 3% of its revenue on research and development. The average across pharma is 15-20%
· Recent acquisitions include
· Medicis: Fired 750/790 employees
· Bausch and Lomb – fired 3000/4100 employees
· Salix- intends to fire 420 of 977 employees
Valeant’s move to Canada and decreased taxes has helped it turbocharge its acquisitions; even after losing a third of its value since its peak earlier this year, the stock has returned 25x the return of the Standard and Poor’s Index. It paid its five top executives about half as much as it spent in total on research last year.
James Surowiecki in the New Yorker has a name for the pharmaceutical industry increasing the cost of old, cheap, generic medications --, rent seeking. Essentially, the pharmas that do this are seeking to get payment when not providing any additional value. He notes that there are two potential approaches short of government price controls:
· Allow importation of foreign supplies manufactured in developed countries with robust regulatory infrastructure through regulatory reciprocity
· Prohibit closed distribution, where the manufacturing pharmaceutical company uses a very limited distribution network to make it difficult for a competing generic company to get samples of medication to do reverse engineering
Although all eyes have been on Turing Pharmaceuticals, where hedge fund maven Martin Shreki gained enough infamy to be parodied on Saturday Night Live by raising the price of a 62 year old generic antiparasite drug used in HIV treatment by 5000%, and Valeant. But the overall problem of affordability in American health care is affordability, and the mainline pharmaceutical companies have also been vigorously raising unit prices of their medications to increase their profit margins.
