U.S. Markets closed

The Feds Finally Make a Move on Soaring Drug Prices

Eric Pianin

Federal and state prosecutors delivered an unmistakable shot across the bow of the U.S. pharmaceutical industry this week amid mounting concern that soaring drug prices are posing risks to the health of many Americans and blowing a hole in the budgets of federal and state health care programs.

Two of the worst offenders, Valeant Pharmaceuticals International and Turing Pharmaceuticals, were presented with subpoenas or letters by prosecutors investigating their pricing practices and other aspects of how they do business

Related: Extreme Rise in Some Drug Prices Reaches a Tipping Point

During a Senate hearing last summer, Sen. Claire McCaskill (D-MO) questioned former Valeant CFO Howard Schiller about the company’s February 2015 decision to increase the price per vial of Isuprel, a drug used to treat cardiac arrest, from $215 to $1,346. That same month, Valeant boosted the price of the Nitropress, a blood pressure medicine, from $257 to $805 per vial.   

Last month, Hillary Clinton called out Turing for boosting the cost of Daraprim, an older drug used to treat infections, from $13.50 to $750 a pill. Donald Trump called the company’s 32-year-old CEO, Martin Shkreli, a “spoiled brat.”

Now the eye-popping markups in the price of both old and new drugs is drawing intense interest from federal and state prosecutors. The controversy is turning into a perfect storm for the drug industry, with both politicians and state and federal prosecutors demanding justification for their drug pricing policies.

“I think what’s happened is that some of these companies … in a remarkable feat of poor political timing stuck their heads way, way out of the foxhole and raised prices seemingly unaware that we’re in the midst of a presidential election where there’s a lot more sensitivity about all of these things,” Joseph Antos, a health care specialist with the American Enterprise Institute, said in an interview on Thursday.

Related: Drug Company Profits Soar as Taxpayers Foot the Bill

“And if you would like to be made a subject of an investigation, this would be a great year to do that,” he added.

Few have done more to arouse public and government hostility to the pharmaceutical industry than Shkreli, a cocky former Wall Street hedge fund manager who purchased Turing and then jacked up the price of Daraprim by more than 5,000 percent after acquiring the rights from Impax Laboratory. Shkreli, who once worked as an intern for TV personality Jim Cramer, exuded arrogance and a healthy disregard for the well-being of sick Americans in numerous tweets on social media and appearances on television.

Shkreli ultimately announced that his firm would reduce the price of Daraprim, but without saying by how much. Roughly three weeks after making the promise under pressure from Clinton, Shkreli told Business Insider this week that it wasn’t clear when he would lower the drug and that he wasn’t paying attention to requests by government officials  for more information about the drug’s price.

This week, the New York Attorney General’s office said in a statement to the New York Times that it had launched an investigation into Turing’s operations. However, the probe wasn’t necessarily about price gouging per se – which is legal under current law – but for possible anti-trust violations that discouraged competitors from making a generic version of the drug. “While competition might ordinarily be expected to deter such a massive price increase,” antitrust bureau chief Eric J. Stock said in its letter to Turing, “it appears that Turing may have taken steps to prevent that competition from arising.”

Related: Wonder Drugs Blow a $1 Billion Hole in VA’s Budget

“Turing completely undercut the image of the industry as public spirited, and changed the political equation,” said John Rother of the National Coalition on Health Care. “Now there is little effort to defend abusive pricing like that, so [it] opened the door for federal action.”

The Wall Street Journal reported late Wednesday that Valeant had received two federal subpoenas seeking information on its pricing, distribution and patient support practices in which the company sometimes helps patients make their copayments. The subpoenas were issued by the United States attorney’s offices in Manhattan and Massachusetts.

Valeant said in a statement that it was reviewing the subpoenas and “intends to cooperate with the investigations.” Valeant sent a letter to McCaskill on Wednesday, noting that it had spent $544 million on patient assistance last year and anticipated spending $630 million this year.

McCaskill, the ranking Democrat on the Senate  Permanent Subcommittee on Investigations and the Senate Aging Committee, complained yesterday that Valeant CEO Michael Pearson “repeatedly failed to answer questions” about his company’s dramatic hike in the price of lifesaving drugs.

Related: Cash-Strapped VA May Start Rationing Some Treatments   

“It appears obvious to me that Valeant has been anything but responsive or transparent — it refused to take any action until served with federal subpoenas, and is still refusing to provide answers to many of the questions I’ve asked,” she said. “I look forward to continuing my investigation of drug pricing and plan to further explore Valeant’s inadequate response.”

Top Reads from The Fiscal Times: