Last week, U.S. Senator Amy Klobuchar (D-MN) called on the Federal Trade Commission (FTC) to investigate pharmaceutical companies for possible antitrust violations. What spurred her interest? “Turing Pharmaceuticals recently increased the price of an infectious disease drug by 5,000 percent,” stated Klobuchar, and “there are reports that Turing and other pharmaceutical companies could be restricting drug distribution in violation of antitrust laws.”
Background
While drug pricing has been a newsworthy topic over the last year, the past few weeks have been especially brutal for the pharmaceutical industry’s reputation. On September 20, the New York Times wrote an article entitled “Drug Goes From $13.50 a Tablet to $750, Overnight.” The drug Daraprim is used to treat toxoplasmosis, an infection caused by a parasite, and was acquired by Turing, a start-up run by a former hedge fund manager, noted the article. “Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars,” the article stated. A media frenzy ensued, capped by Hillary Clinton’s announcement to move forward on an official drug pricing policy.
The company’s chief executive, Martin Shkreli, defended his company’s decision: “the drug was unprofitable at the former price, so any company selling it would be losing money. And at this price it’s a reasonable profit. Not excessive at all,” he stated in a CBS News interview. “This is a disease where there hasn’t been one pharmaceutical company focused on it for 70 years. We’re now a company that is dedicated to the treatment and cure of toxoplasmosis. And with these new profits we can spend all of that upside on these patients who sorely need a new drug, in my opinion,” he added.
Shkreli has since pedaled back on the price after initially defending the company’s decision and weathering an onslaught of criticism, but the widespread coverage and backlash has already been enough to cause serious discussion about drug cost measures among Democratic presidential candidates in this election cycle. In fact, Bernie Sanders wrote a letter to Shkreli calling him to provide more information on the price hike. (See Sanders’ September 21 letter).
Klobuchar Joins The Ring
Now, Senator Klobuchar has called on the FTC to investigate the issue. “There are reports that Turing and other pharmaceutical companies could be restricting drug distribution in a manner that violates the antitrust laws established in the Federal Trade Commission Act,” she states.
“Some companies may be combining a substantial price increase for a prescription medication with a closed distribution system,” Klobuchar wrote to the FTC. “If the restricted distribution prevents or delays generic competition, it could subject consumers to unnecessarily high prescription drug prices. We urge you to investigate whether companies are using restricted distribution in a manner that violates the Federal Trade Commission Act. This issue is extremely important to consumers; access to affordable drugs and in particular generics is a necessary element of affordable health care.”
The full text of Senator Klobuchar’s letter to FTC Chairwoman Edith Ramirez is below:
Dear Chairwoman Ramirez:
We are writing to you regarding a troubling practice that may be harming American consumers. For years, some companies have purchased older drugs and imposed substantial price increases. Some companies may be combining a substantial price increase for a prescription medication with a closed distribution system. If the restricted distribution prevents or delays generic competition, it could subject consumers to unnecessarily high prescription drug prices. We urge you to investigate whether companies are using restricted distribution in a manner that violates the Federal Trade Commission Act.
As a public policy matter, this practice is disturbing, but as you know, the antitrust laws do not apply to unilateral price increases, no matter how unfair. Turing Pharmaceuticals’ 5,000 percent price increase on Daraprim, from which they have retreated, is the most recent example of this disturbing trend.
Such price increases could convince another company to seek approval for a generic version, enter the market, and lower the price for the product. This is how the free market is supposed to work. To conduct the necessary tests to receive approval from the Food and Drug Administration, a generic company would need a limited amount of the branded product. According to press reports, Turing, and perhaps others, are restricting distribution of their product. If a company were to employ this strategy to deny competitors supply for use in a generic application, it would be doing more than simply raising prices. It could be excluding competition from the market to the detriment of consumers and violating the Federal Trade Commission Act.
This issue is extremely important to consumers; access to affordable drugs and in particular generics is a necessary element of affordable health care. We believe there is sufficient concern for the Federal Trade Commission to thoroughly investigate whether Turing or any other pharmaceutical company has used restricted distribution practices to insulate a price increase from competition.