(Bloomberg) — Early last year, drugmaker Mallinckrodt PLC spent $1.3 billion to buy a company that sold an injectable form of acetaminophen — essentially Tylenol in a liquid solution.
Within months, the new owner more than doubled the price of the drug, called Ofirmev. Revenue from the medication shot up, too, and hospitals searched for ways to absorb the costs — large hospital systems like Johns Hopkins Medicine and New York University Langone Medical Center say their expenses surged $1 million a year or more.
It’s the same story that’s been repeated throughout the health care industry, as pharmaceutical companies acquire medications and hike their prices to reflect what they say is the fair value of the drugs. That industry practice has come under fire in recent weeks from lawmakers in Washington.
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In this case, hospitals were able to fight back by seeking other options, cutting into Mallinckrodt’s projected sales growth. In the fiscal third quarter, which ended in June, revenue from Ofirmev came in at $62 million. While that was a 17 percent increase from a year earlier, analysts had been estimating 37 percent growth on average, according to BMO Capital Markets.
That and shortfalls for other drugs were part of a Mallinckrodt earnings report Aug. 4 that sent shares down 14 percent in a single day, their worst drop on record. The stock has slid an additional 38 percent since then amid a broader sell-off of pharmaceutical company shares as political scrutiny of the industry’s drug prices has intensified.
In a statement to Bloomberg News, the company said it has worked with doctors and hospitals to show the benefits of Ofirmev as an alternative to opioid painkillers. The company said an increasing number of hospitals are seeing the value of the drug, which is “driving positive momentum in Ofirmev volume.”
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A Mallinckrodt spokesman said the cost of an entire course of treatment of Ofirmev is $100, compared with a surgical procedure that may be in the thousands or tens of thousands of dollars. Since the company acquired the drug, a number of publications have shown the value of using Ofirmev and cutting the use of opioids, the spokesman said.
Mallinkcrodt said on an August conference call that it had expected a drop in Ofirmev volume after the price increase. The drugmaker has turned a “not particularly profitable drug” into a profitable one — part of a strategy that has been “very successful,” Chief Executive Officer Mark Trudeau said at a June investor conference.
Trudeau said on a conference call last week that Ofirmev demand is starting to turn a corner after hitting a low point earlier this year. He said revenue from the drug will decline year-over-year until the second half of fiscal 2016. That fiscal year just started and will end on Sept. 30.
Mallinckrodt’s experience underscores the risk for drugmakers that increase prices on medicine that doctors and health care providers are already accustomed to using. As expenses mount, customers will look for alternatives, no matter how popular or useful the product.
While acetaminophen has been around since the 1950s, Ofirmev is a relatively new drug, having hit the market in 2011 after approval by the U.S. Food and Drug Administration. The company that first sold it, Cadence Pharmaceuticals Inc., had acquired the exclusive rights to the drug in the U.S. and Canada in 2006 from Bristol-Myers Squibb Co., which had been marketing the drug in Europe.
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Cadence successfully sued to protect its patent for Ofirmev, fending off a challenge from Exela Holdings LLC in a 2013 ruling in U.S. District Court in Delaware. Mallinckrodt acquired Cadence soon after.