Price gouging? Low-cost, high-return 'pseudo-new drugs' and anti-monopoly

Recently, an Italian pharmaceutical company, Leadiant, was fined 10.3 million euros by Spanish regulators for increasing the price of drugs. In the past 2021, Leadiant has been fined a total of $23 million by the Netherlands for the same reason.

Leadiant's "dare next time" is obviously related to the lure of higher profits from raising prices. The market has always lenient the pricing of drugs for rare diseases, and Leadiant's mistake is to combine anti-competitive measures to maintain his monopoly and then increase the price unscrupulously — according to Spanish regulators, the drug is now selling for 1,000 times the price it sold in 2008.

Coincidentally, in the US market, where pricing is free, there is a similar "new bottle for old wine" story. After obtaining the monopoly production rights of daraprim in the US market, Turing Pharmaceutical withdrew its old drugs and reintroduced similar drugs to the market at a price increase of 5500%.

For a while, this business strategy became a skin bag for small innovations on the outside, but inside it became a tool for pharmaceutical companies to leverage high profits at low cost and exclude competitors. However, whether this strategy will lead to anti-monopoly investigations, in essence, depends on whether it has caused damage to the rights and interests of patients.

01

Monopoly and price increases

Located at the center of the Leadiant Fine Storm is a compound called chenodeoxycholic acid (CDCA), which can be used to treat a rare inherited metabolic disorder, cerebral tendon xanthelasma (CTX).

In fact, the drug was introduced to the market as early as 1983, mainly for gallstone treatment. While sales of the drug were eclipsed with the advent of a follow-up gallstone drug with better efficacy, by the turn of the century doctors had begun to use the drug off-label (CTX) in approved indications.

CTX is a rare disease among rare diseases. Or, to put it more bluntly, fewer than 300 people in Europe have the disease. CDCA is the drug of choice for the treatment of CTX, which can help prolong the life of patients to normal levels, and patients with CTX are highly dependent on CDCA.

According to a Dutch antitrust investigation into Leadiant, the company offered a CDCA drug called Chenofalk to the market in 2008 for a maximum price of 46 euros. In 2009, Leadiant renamed Chenofalk Xenbilox and raised the price to 885 euros.

From the perspective of subsequent developments, this price increase is only a prelude. In 2014, Leadiant launched a CDCA-based CTX new drug program. In order to support research and development, the company once again raised the price of Xenbilox, selling it for up to 3103 euros, which is already 60 times the original price.

In 2017, the story reached a climax. Leadiant successfully launched CDCA-Leadiant, which was approved for CTX indications, in the European market and obtained a 10-year market patent for the drug, while discontinuing the sale of Xenbilox. With the disappearance of the latter from the market, Dutch patients can only face CDCA-Leadiant, which is up to 14,000 euros, and have no choice.

In 2015, a similar incident was played out in the United States.

Turing Pharmaceuticals is targeting darapilin, a drug that can be used to treat immune system deficiencies in AIDS and cancer. Dalazilin has been produced since the middle of the last century and costs less than $1, perhaps because of thin margins and only one manufacturer in the United States makes the drug.

Turing Pharma acquired the pharmaceutical factory and asked to remove the old drug dalazilin from the market. After the acquisition, Turing Pharma packaged the old product, and dalazilin was finally reintroduced to the market at $750 per tablet. Because there is no alternative, patients are forced to accept this result.

02

Product hopping strategy

To encourage innovation, countries have developed patent systems accordingly. During the patent term of a new drug, the innovator drug manufacturer enjoys an exclusive position to ensure cost recovery and monopoly profits.

At this time, the high price is acceptable: first, the patent period is limited, and after the expiration of the patent, with the influx of low-cost generic drugs, the sales and sales of the original drug will decline sharply, that is, it will encounter a patent cliff; Second, such high prices can promote innovation and facilitate free competition in the market.

In the field of rare diseases, due to the small market, difficulty in research and development and high cost, the high price of rare disease drugs is rarely regulated. One example is that gene therapies have been priced at record highs in recent years, reaching as high as $3 million for the drugs themselves. It can be seen that the market has a certain elasticity for the price of the product itself.

In addition to raising prices to obtain more profits during the patent period, pharmaceutical companies also have many strategies to deal with the patent cliff - such as self-licensing the production of generic drugs, the so-called fertile water does not flow into the field; Make a "product jump"; Applying for second-generation patents, taking advantage of the time-consuming and expensive nature of patent challenges, prevents generic drugs from entering the market. (Reference: Before there is a data scandal, then there is an antitrust investigation, where should MNC go)

The so-called product jump refers to the modification of the old version of the brand drug before the corresponding generic drug is launched, and the new version of the brand drug is launched on this basis. On the one hand, this strategy can continue the market advantages of the original drugs, and even enterprises can increase prices on the grounds of "new version"; On the other hand, new drugs can compete with old brand generics.

In order to speed up the process of product jumping, pharmaceutical companies do not hesitate to stop selling and repurchase old versions of drugs, so that they completely disappear in the market. However, this kind of innovation often does not substantially change the safety and efficacy of drugs, and it is difficult to support its continued monopoly market.

The antitrust investigation of Leadiant revealed that before the launch of CDCA-Leadiant, Leadiant had recovered its research and development costs with the price increase on Xenbilox. Xenbilox is the same as the CDCA-Leadiant molecule and has the same efficacy and safety profile. In addition to removing Xenbilox from the market, Leadiant has signed exclusivity clauses with suppliers of CDCA active ingredients to prevent alternative drugs.

Monopoly markets create monopoly prices, and the crazy price increases of Leadiant and Turing Medicine are more or less like this.

Based on this strategy, the drug development cost is low, the risk is small, and the return rate is extremely high. It can be said that behaviors such as Leadiant and Turing Medicine are a mockery of the reality of "innovative drug research and development". If such behavior is supported, it is not only a disregard for the damage to the interests of patients, but more importantly, it undermines the industry's long-term innovation ability.

03

The key is anti-competitive

Given the pricing freedom in the U.S. market, there aren't many substantive penalties for product jumps, meaning that not all product jumps will lead to antitrust investigations. The key is whether it produces an anti-competitive effect, and TriCor, a brand-name drug used to treat high cholesterol, is one example of the penalty.

When the generic drug company Teva issued a "patent challenge" for the drug, the original research company Abbott began to erect barriers - changing the dosage form of TriCor, stopping sales and buying back the original dosage form of TriCor, and deleting the data of the original dosage form. After the first product jump, Teva quickly followed up by submitting generic applications for new dosage forms. Soon, however, Abbott embarked on a second product jump.

In this way, compared with Teva's unsatisfactory market share of generic drugs, Abbott has maintained the monopoly profit of the patent period. As a result, multiple parties filed charges and claims against Abbott, and in the end, Abbott settled with the parties in consideration of $184 million.

However, AstraZeneca's product jumping strategy against Prilosec evaded the penalty. Prilosec, a drug used to treat gastrointestinal conditions such as heartburn, quickly introduced to the market a new brand name drug, Nexium, which is very similar to the patent expiration. AstraZeneca promoted Nexium vigorously, while minimizing Prilosec's presence among the masses. By the time the patent expired and the Prilosec generic entered the market, patient stickiness had shifted to Nexium. As a result, sales of Prilosec and its generics have remained sluggish for quite some time.

Unlike Abbott, AstraZeneca has not withdrawn its old brand name from the market, which is a key point in whether the two are penalized. The court held that AstraZeneca did not deprive patients of their right to choose drugs, claiming that drug adjustments could be considered internal marketing decisions.

A simple increase in drug prices is not evidence of abuse of a dominant market position, especially during the patent period. But how drugmakers acquire and maintain market dominance is undoubtedly a concern. Because drugs are special commodities with specificity, necessity and irreplaceability, especially in the field of rare diseases, their supply and demand substitution elasticity is very small, and most patients can only passively accept corporate adjustments.

Of course, the way for pharmaceutical companies to maintain monopoly profits is not limited to product jumps, but whether it will lead to the loss of patient choice, that is, whether it disrupts market competition, is one of the important measurement points in anti-monopoly investigations.