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2,000 percent drug price surge is a side effect of FDA safety program

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(Bloomberg) — Colchicine, a gout remedy so old that the ancient Greeks knew about its effects, used to cost about 25 cents per pill in the United States. Then in 2010 its price suddenly jumped 2,000 percent.

That’s just one of the side effects of a U.S. Food and Drug Administration (FDA) plan to encourage testing of medicines that have been around longer than the modern FDA itself, and so have never gotten formal approval. Companies that do the tests are rewarded with licenses that can temporarily give them monopoly pricing power as most rivals are eased or kicked off the market. The result has been a surge in the cost of drugs used in treatments from anesthesia to heart surgery and eye operations.

It can bring big paydays for the producers. URL Pharma, the small Philadelphia drugmaker granted rights over colchicine, was bought for $800 million by Takeda Pharmaceutical Co. in 2012. Asia’s biggest drugmaker has since brought in $1.2 billion in revenue from the branded drug, Colcrys, which went on the market at a wholesale price of almost $6 a pill. Takeda says testing for FDA approval made the drug safer.

But patients and hospitals are feeling the pinch, and politicians have begun to notice. Hillary Clinton’s recent promise to address the issue sent pharmaceutical stocks plunging. Critics say the FDA plan lets entrepreneurs make windfall profits on drugs where there was never much concern about safety or efficacy.

See also: Old-drug price hike ‘perversion of the system,’ Biogen CEO says

In many cases, the program “almost had the opposite effect as intended,” said Joseph Biskupiak, a professor at the University of Utah College of Pharmacy. “The only drugs that got studied are the ones that don’t have a problem.”

The FDA’s rationale is that some drugs have never been measured against modern safety standards. The program “has been a success” that has removed dangerous drugs from the market, said Michael Levy, deputy director in the compliance office of the FDA’s drug evaluation unit.

The agency acknowledges that approving branded versions of old generic drugs may make them more expensive when a sole manufacturer remains to make a medication, but says that’s outside its remit. “FDA does not regulate according to economic factors, nor do we have control over drug pricing,” spokesman Christopher Kelly said.

The FDA program, which got under way in 2006, is only one reason why prices of old generic drugs have risen. Others include mergers that reduced competition, and a business strategy by some drugmakers of acquiring niche medicines and raising prices sharply, even without any rebranding.

‘Business model’

A price survey of more than 21,000 generic drugs for Bloomberg News by DRX, a unit of Connecture Inc. (Nasdaq:CNXR) that tracks drug prices, found that more than 3,500 have doubled or more since late 2007, ranging from basic chemotherapy medicines to old antibiotics.

John Lewin, director of the critical care and surgical pharmacy at Johns Hopkins Hospital in Baltimore, said in many cases there are no obvious benefits to offset the higher prices.

“We’re not paying for innovation, we’re not paying for fewer side effects, and we’re not paying for better care,” he said. “We’re paying for somebody’s business model to make a profit.”

See also: Pfizer raised prices on 133 drugs this year, and it’s not alone

Glenn Spann, a longtime user of colchicine for his gout, says he never paid more than $10 a prescription — until he was hit with a $300 bill when his insurer stopped covering the treatment after its price spiked. “There is no justification for it,” said Spann, a 55-year-old self-employed artist in Culver City, Calif. “There is nothing different except the marketing,” and the ownership.

Shares rise

Investors who bet on the industry have benefited from the sales increases. Since the end of 2009, a Bloomberg Intelligence index of specialty-generic drugmakers has almost quadrupled — gaining about four times as much as the S&P 500 Index.

It was outperforming this year, too — until last month, when Clinton tweeted that “price gouging” in some specialty drugs was “outrageous.”

Since then, shares in Flamel Technologies SA (Nasdaq:FLML) are down about 25 percent. The company won FDA approval in May 2013 for Bloxiverz, a brand-name version of neostigmine, used to reverse the effects of anesthesia after surgery. According to DRX, Bloxiverz costs more than six times as much as its unapproved predecessors, which have been removed from the market under what the FDA says was a voluntary commitment by their makers.

Products like Bloxiverz are designed “to produce cash flow,” Michael Anderson, Flamel’s chief executive officer, told investors in June. Flamel’s revenue soared to $49.8 million in the second quarter of 2015, from $4.3 million the previous year.

See also: Drugmakers say Pacific trade pact to stifle investment in cures

The price of Bloxiverz reflects the costs of getting it approved, including an FDA filing fee of more than $2 million, Bob Yedid, a Flamel spokesman, said by phone. “We’ve been very careful not to have what I’ll call ‘irresponsible’ price increases,” he said. Flamel uses its profit to invest in developing new drugs.

Vasopressin prices

Another drug to jump in price is vasopressin, a blood-vessel constricting agent used in emergencies. Vasostrict, a branded version approved last year and owned by Endo International PLC (Nasdaq:ENDP), costs $116 per milliliter wholesale, more than 10 times the wholesale price of unapproved versions three years ago, according to DRX.

Such increases are causing problems for hospitals. Johns Hopkins has set up a task force to identify which established drugs could be next in line for the FDA program.

Tenet Healthcare Corp. (NYSE:THC), the fourth-largest U.S. operator with almost 500 treatment centers, says it’s started refrigerating vasopressin because that can increase its shelf-life to two years from less than 12 months, so it doesn’t have to replace the drug as often.

Vasostrict was developed by Par Pharmaceutical Holdings Inc. (NYSE:PRX), which was bought by Endo last month. Keri Mattox, senior vice president at Endo, said in an e-mail that Par “invested significant time and resources to demonstrate the safety and efficacy of its reformulated product.” The company’s reformulation of the drug “corrected key overage and necessary refrigeration attributes of the old unapproved product,” she said.

Benefits of testing

In the case of colchicine, the FDA and Takeda say the tests yielded benefits. Unapproved versions had labels that recommended dangerously high doses or neglected potential side effects, the FDA’s Levy said. The approved version hit the market in 2009, and the next year the FDA moved to take the lower-cost versions off the market. The testing process has “significantly changed the manner in which colchicine is prescribed,” said Linda Calandra, a Takeda spokeswoman.

But Aaron Kesselheim, a researcher at Harvard Medical School, studied colchicine prescriptions before and after the FDA intervention, and found no difference in the rate of doctors prescribing the medication along with another drug that could have dangerous interactions. His survey was published in April in the Journal of General Internal Medicine.

“This is a good example of market exclusivity being given to a company that didn’t really deserve it,” Kesselheim said. The company tested “a dosing regimen that people already knew about — and showed it worked, which everyone already knew.”

Calendra said Takeda can’t comment on studies conducted by outside parties. She said the testing had produced new dosing and safety information.

Bringing drugs that predate the modern FDA under regulation isn’t a bad idea in principle, Kesselheim said. But “the trade-off you get, of ridiculously higher prices, I don’t think is a great trade-off.”


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