“It is our job,” said Hillary Clinton at last week’s Democratic debate, “to rein in the excesses of capitalism so that it doesn’t run amuck and cause the kinds of inequities that we are seeing in our economic system.”
I have an example for her.
Valeant Pharmaceuticals International is a Canadian drug company with a business model that has brought it immense riches: buy other drug companies, jack up the prices of their portfolios of old prescription drugs, and sit back as profits and stock price soar. It’s and “acquisitive” business model
Such transactions are called “buy and raise” deals, and Valeant has done a number of them, most recently hoisting the price of two heart drugs it acquired, one by 525 percent, the other by 212 percent. So far this year, Valeant has raised prices on 56 drugs, approximately 80 percent of its portfolio, according to Deutsche Bank. Average price increase: 66 percent.
Valeant’s billionaire CEO, J. Michael Pearson, was quite clear on the reasoning. “[If] “products are sort of mispriced and there’s an opportunity, we will act appropriately in terms of doing what I assume our shareholders would like us to do,” he told analysts in a conference call in April.
In other words, no need for the time-consuming, expensive and risky business of researching and developing our own drugs. A classic example of what Bernie Sanders referred to in the Democratic debate as the “casino capitalist process.” And, as with casinos, the house — in this case, the drug companies — always seems to win.
Or maybe not. Right now, Valeant has a bullseye on its back: the feds are investigating its pricing practices, improper accounting has been alleged, and there are questions surrounding its relationship with a “specialty” pharmacy that dispenses high-priced drugs for rarer diseases. The stock has been tanking and the IRS is looking into the “tax inversion” gimmick by which the formerly American company headquartered in New Jersey bought a Canadian manufacturer, transferred its corporate address to Quebec in order to pay corporate taxes at the lower Canadian rate.
Headlines like ‘Valeant’s Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers’ haven’t helped, especially when they came in the wake of another drug company’s CEO, raised the price of a recently acquired 62-year-old drug to treat toxoplasmosis from $13.50 a pill to $750, a 5,000% increase. “Price gouging … outrageous,” tweeted Clinton who swore to do something about such practices if she’s president.
She’s not the first pol to weigh in on America’s laissez-faire approach to drug pricing. Sanders and others would allow Medicare, a huge drug buyer, to negotiate prices with drug companies, open the door to imports from Canada, where, like most other countries, a government agency regulates prices, and insist on some transparency in the way drug companies set their prices for the U.S. market. Congressional committees have sought to shine a light on how biotech company Gilead Sciences — the poster child for pricing overreach until Valeant came along — gets to price its hepatitis C drug Solvadi at $1,000 a pill for a 12-week course of treatment, almost 66 percent more than the developer, from whom Gilead bought the drug, had priced it.
No luck on any of these fronts so far. Drug companies continue to charge as much as they want because they can. Gilead’s newer hep C drug, Harvoni, costs more than Solvadi: $94,500 for a 12-week treatment. Generics, not covered by patents, are also on the increase, in some cases by 100% or more. Why? “A plausible explanation is that generic manufacturers, having fallen to near historic low levels of financial performance are cooperating to raise the prices of products,” an investment analyst told the Wall Street Journal in April. “All of the manufacturers — large or small — appear to be participating in the inflation.”
According to a Kaiser Family Foundation poll in August, close to three-quarters of the American public “feel that drug costs are unreasonable [and] that drug companies put profits before people.” An even higher percentage, “across the partisan spectrum,” support having Medicare negotiate prices with drug companies on behalf its members, and favor other proposals that would stem the tide. “Majorities also say these strategies would be effective,” says the poll.
Just in time for Campaign 2016.