A 'one-off opportunity:' Drug company hikes price of blood pressure drugs after competitors' drugs recalled
Ken Alltucker
When two generic drug makers scrambled last July to recall hundreds of lots of the blood pressure-lowering drug valsartan, a third company unaffected by the recall saw a "one-off opportunity" to significantly increase prices, a top executive told investors.
Teva Pharmaceutical and Prinston Pharmaceutical recalled the medications after testing revealed small amounts of a probable carcinogen. The same drugs produced by Alembic Pharmaceuticals did not show contamination.
In the wake of its competitors' recalls, Alembic last July more than tripled the price of 17 of its own formulations of valsartan.
Those price hikes ranged from 329 percent to 469 percent, according to data from the health care analytics firm Elsevier.
As the recall widened to include versions of the common blood pressure drug irbesartan, Alembic raised the price of its irbesartan, too.
Representatives of Alembic did not respond to questions from USA TODAY. But a top Alembic executive provided insight into the company’s strategy and tactics during a conference call with analysts in October.
Pranav Amin, managing director of the Vadodara, India, company, said it aims to "create a nimble supply chain that can react quickly to market opportunities.
"So we could respond very fast to the valsartan opportunity and we could ramp up our supplies and we could get on the market at a high price and that is what is sold," Amin told analysts and investors during the Oct. 22 call. His remarks were first reported by the Wall Street Journal.
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The strategy paid off for Alembic, Amin said. The valsartan price hike was among the primary reasons the company had "massive growth" in U.S. sales from July through September.
Companies that hike prices significantly in response to market changes represent a small but growing segment of the generic drug market, researchers at the University of Southern California reported in October.
The researchers found that companies doubled the price of 4.4 percent of generic drugs in 2013 from the previous year. Only 1 percent of generic drugs doubled in price in 2007.
Geoffrey Joyce, the USC School of Pharmacy professor who led the study, said the largest price increases occurred in less commonly prescribed drugs. Those price increases typically lasted three to five years, an indication that the manufacturers had the market to themselves.
"The only way you can price that aggressively is if you don't have a competitor who is going to compete on price," said Joyce, director of health policy at USC's Schaeffer Center. "The industry in some ways is vilified too much, and yet they do these things."
Pharmaceutical companies that develop new drugs are granted patent protection that allows them to control a drug's market and pricing for several years. But when the patent protection expires, competing drug companies can gain Food and Drug Administration approval to make generic versions of the drug that usually cost much less.
With retailers such as Walmart charging $4 for a 30-day supply of generics, companies that make the drugs typically don't earn big profits on individual dosages or bottles. They rely instead on selling in volume.
But when competitors drop out, makers of generics can take advantage.
"It's hard to know if it's market manipulation or if it's a competitive market with low margins and people just pull out of certain markets," Joyce said. "I do think there's a lot of scope for government regulation inside the generic market."
Drug companies recalled hundreds of lots of the blood pressure and heart medications valsartan, losartan and irbesartan after testing revealed the drugs had trace amounts of the probable carcinogen N-Nitrosodimethylamine, or NDMA.
Follow-up testing showed some batches of valsartan also contained another probable carcinogen, N-nitrosodiethylamine, or NDEA.
The recalled products are part of a large class of drugs called angiotensin II receptor blockers. ARBs work by relaxing blood vessels.
The FDA said last week the contamination likely stemmed from a change in how the blood pressure drug ingredients were made. The recalls were linked to manufacturing techniques used by factories that in China and India that supply ingredients to drugmakers worldwide.
Drugmakers who were not affected by the recalls could increase prices without fear of competition.
In his conference call, Amin spoke of eroding profits in the U.S. generic drug market, competition from other drugmakers and the influence of drug distributors and pharmacy chains.
“I think it really depends on the supply side," he said. "Companies keep up with the supplies and to be honest on the generic side we do see disruptions all the time and if we can react quickly to it, you can capture some opportunities."
Alembic was not the only company to hike valsartan prices during the recall.
MacLeods Pharmaceuticals increased prices on four valsartan products in August, according to the Elsevier data. The largest price increase was 305 percent for a 30-day supply of 40 mg tablets. The smallest increase was 212 percent for a 90-day supply of 160 mg tablets.
MacLeods, based in Mumbai, India, did not return messages from USA TODAY.
Insured patients who cover only a co-payment might not even notice the price increases, at least at first. Those costs are absorbed by health insurers, which may charge higher premiums the following year.
Some analysts believe drugmakers have a responsibility to price drugs fairly for consumers.
Peter J. Pitts is president of the Center for Medicine in the Public Interest.
"How do you convince them from a public health perspective to do the right thing?" Pitts asked. "I don’t believe any company that makes any drug, whether it is an innovative biotech cancer drug or a generic drug that’s been around for 50 years, should take advantage of the marketplace to a degree that causes significant financial pain for patients."