Investigating Sudden and Dramatic Price Increases of Off-Patent Drugs

Prescription drugs are vital to the health and well-being of all Americans, especially our nation’s seniors, 90 percent of whom take at least one prescription drug in any given month.  For many Americans, access to prescription drugs is not only critical to their quality of life, but can literally be a matter of life or death.
 
Unfortunately, there have been several examples in recent months of certain pharmaceutical companies suddenly and dramatically increasing prices for off-patent prescription drugs they have acquired.  The Senate Aging Committee, which I chair, launched a bipartisan investigation into these price spikes and recently held the first in a series of hearings on this topic.  Although our investigation is still in its initial phases, the Committee has already interviewed dozens of patients, doctors, and health care experts from around the country and reviewed thousands of pages of documents to better understand the causes and effects of these egregious price increases.
 
Four companies in particular have come to our attention and are the focus of our investigation thus far:  Turing Pharmaceuticals, Valeant Pharmaceuticals, Retrophin, Inc., and Rodelis Therapeutics.  Each of these companies abruptly hiked the price of off-patent drugs they recently acquired by twenty, thirty, or even forty times the initial price, at times putting these medicines out of reach for patients and the doctors who treat them.  Usually when the patent expires on a prescription drug, the cost goes down as generic versions are produced.  In these cases, even though the patents had expired years ago, there were no generics, and the companies that bought the drugs sent their prices skyrocketing.
 
In North Carolina, for example, doctors for a child diagnosed with toxoplasmosis were unable to obtain Daraprim, the drug needed to treat that disease, because Turing Pharmaceuticals had hiked the price of the drug from $17.63 to $750 per pill, an increase of more than 4,000 percent. This sudden spike forced the local pharmacy to drop it from its inventory.  As a consequence, the child had to be treated with an alternative that had not been rigorously tested in children.  Valeant, Retrophin, and Rodelis have imposed similarly outrageous price increases on off-patent drugs used to treat cardiac issues, serious kidney disease, and drug-resistant tuberculosis.
 
If we want new medicines to reach consumers who need them, the companies that invest in the research and take the risks necessary to develop these drugs must see a fair return on their investment.  At the same time, we cannot be blind to the cost of these drugs to individuals, health systems, and the federal government.  Americans are expected to spend more than $328 billion on prescription drugs this year alone. Of this amount, individuals will pay about $50 billion out-of-pocket.  The federal government will pick up another $110 billion in payments through Medicare, Medicaid, Veterans Affairs, and other programs, with state governments, insurers, other payors, and charity care responsible for the remainder of this vast sum.
 
For many decades, federal policy has sought to strike the right balance between maintaining the incentives needed to promote innovation and the development of new drugs and keeping medicines affordable.  One way we have done so is by granting pharmaceutical companies exclusive rights through our patent system to sell the prescription drugs they develop for approximately 20 years.  When these patents expire, other companies can seek approval to enter the market to offer generic versions of these drugs.  This increases competition and helps lower prices.
 
That balance we have struck never anticipated companies acquiring off-patent drugs and then raising their prices to enormous heights, and doing so, as one executive essentially put it, “because I can.”  But that is exactly what we have seen in recent months. 
 
Some of these companies contend they need the revenue from higher prices to finance research into new therapies or improvements to existing drugs.  Research and development is both expensive and essential, but these particular companies did not conduct the research and development and clinical trials on the drugs they bought.  Others have said that their price hikes will be absorbed by insurance companies and will never be felt by “real people.”  Of course, insurers ultimately pass on these costs to consumers by way of higher premiums, deductibles, and co-pays.
 
Our investigation is not about the legitimate incentives to create and market new drugs.  Just recently, I met with a small pharmaceutical company that may be on the verge of a breakthrough for treating a neurological disease and is spending a billion dollars on clinical trials alone.  We do not want to stifle innovation for potentially lifesaving drugs. We do not, however, want a company to be able to take advantage of a monopoly situation where there is no competition and no downward pressure on prices.  After the patent on a prescription drug expires, our system relies upon competition to bring more affordable generics to the marketplace.
 
I find it disturbing, and indeed unconscionable, that a company would buy up a decades-old drug that it had no role in developing and then would hike up the price to such egregious levels that it is having an effect on patient care.  Two goals of our bipartisan investigation are to understand why such companies can impose dramatic price hikes on off-patent drugs they have acquired, and what policies we should consider to counter this disturbing practice.