Outraged by what they considered the unethical, immoral, inherently evil pricing model Turing Pharmaceuticals AG used last year when it acquired a 63-year-old orphan drug and then jacked its price nearly 5,500 percent, several members of the Senate Special Committee on Aging called the New York company a rogue biopharma player. But at least one senator saw Turing as representative of the entire industry.

The business model – followed by hedge fund manager Martin Shkreli at start-ups Retrophin Inc. and then Turing – involves acquiring a low-priced, sole-sourced drug for a rare condition, providing it through a closed distribution system and then jacking the price as high as possible.

In the case of Daraprim (pyrimethamine), which has been used since 1953 as the gold standard to treat toxoplasmosis, Turing raised the price from $13.50 a pill to $750, putting it out of reach of many patients who needed it to survive. (See BioWorld Today, Sept. 30, 2016.)

"Because the patient populations for these drugs are so small, they are not only unattractive to potential generics manufacturers, but they are also usually not an important or even desirable part of a traditional pharmaceutical company's portfolio," Ranking Member Claire McCaskill (D-Mo.) said Thursday in opening comments at the committee's second hearing to investigate drug pricing.

"So, traditional pharmaceutical companies are generally happy to sell these drugs to others when a good offer comes along," McCaskill continued. "This makes these drugs (and therefore their patient populations) vulnerable to being poached by a relatively new breed of pharmaceutical companies whose primary goal is to reap extraordinary profits, and who do not hesitate to pursue that goal despite risking patient access and people's lives."

Sen. Elizabeth Warren (D-Mass.) refused to let the rest of the industry off the hook. "This happens again and again," she said, noting that Novartis AG raised the price of cancer drug Gleevec (imatinib) from $26,400 a year to about $120,000 and that Amgen Inc. has increased the price of arthritis drug Enbrel (etanercept) by 88 percent over the past five years. Such increases show that the biopharmaceutical industry is not working for the patients, she added.

Outlier or not, Turing's actions likely will have repercussions for all of biopharma. Sen. Sheldon Whitehouse (D-R.I.) cited clear market failures that allowed Turing to engage in "mischievous, monopolistic or exorbitant pricing strategies." While Congress doesn't want to interfere in the free operation of the market, Whitehouse said if the market isn't working, lawmakers need to intervene.


In the industry's defense, Howard Dorfman, a 30-year biopharma veteran, said, "I don't believe we're dealing with a rogue industry." Rather than disrupting the process that's allowed the U.S. to lead the world in drug development, he urged the senators to identify conduct that won't be tolerated.

Citing the extraordinary cost of research and clinical trials, Dorfman said there are legitimate reasons for price hikes – but not in Turing's case. (He was fired as Turing's senior vice president and general counsel after he spoke out against the company's buy-and-hike business model.) However, he said, two factors can skew the market: a bogged-down generics approval system and orphan disease spaces where demand may be too low to trigger competitive market forces.

Warren described a broader problem that makes the biopharma market structurally different from other markets. The lack of transparency in drug pricing and the fact that patients are captive consumers prevent free market forces from working effectively in the biopharma market, she said.

The orphan space was a factor with Daraprim. Although the drug is critical for patients, only 2,000 to 3,000 people need it each year in the U.S., said interim Turing CEO Ronald Tilles. As a result of the low patient demand, Daraprim realized about $5 million in annual sales prior to Turing's acquisition last August, so no competing generics had jumped into the space.

Despite the hefty price hike, Tilles claimed that more than half of Daraprim sales are at a penny per pill through the government's 340B program. He also insisted that Turing is spending big time on R&D.

Michael Smith, a Turing co-founder and director of business development, repeated Tilles' claims. "The price raise was necessary to establish that foothold" for R&D, he said. In addition, Smith justified the new price as a way to increase access and utilization of an underused drug – an argument several senators found hard to swallow.

"We're not stupid," McCaskill said. She noted that Daraprim prescriptions had dropped from 3,000 in September, the first full month following the price hike, to 600 in December. Meanwhile, many patients were being denied the drug because of its cost.

Increasing price works against expanding utilization, Sen. Tim Kaine (D-Va.) argued with Smith. "It seems like this is a business model that is about patients as hostages, patients as profit centers," he said, noting that the pricing decisions were being made by people with no pharmacy background.

As the senators continued their grilling, Tilles and Smith repeatedly denied involvement in Turing's pricing decisions. Sen. Richard Blumenthal (D-Conn.) stopped Tilles in the middle of one such denial with: "You can't come to this committee and say, 'I'm Sgt. Schultz. I see nothing. I know nothing.'"

While the hearing at times seemed more like an opportunity for senators to vent, McCaskill said the testimony and the thousands of pages of documentation the committee has received will be used to form a policy that will stop hucksters from hurting patients without affecting real drug R&D. In a parting shot, she told Tilles, Smith and a Retrophin investor, "You'd better grab while the grabbing's good, because something is going to happen."


Earlier this month, McCaskill and committee Chairwoman Susan Collins (R-Maine) introduced the Increasing Competition in Pharmaceuticals Act, which would require the FDA to expedite review of generics for sole-source drugs and offer transferable priority review vouchers to incentivize development of some generics. The bill also would require a government study of risk evaluation and mitigation strategies, which some drug and biologics companies reportedly have used to prevent the development of competing drugs.

While the FDA doesn't fast track generic applications simply because of a price hike, it does expedite first generic applications, as well as those that could alleviate a potential shortage, the agency's Janet Woodcock told another Senate committee in January. She assured the Senate Health, Education, Labor and Pensions Committee that the current backlog of generic applications at the FDA contains no first generic applications or ones that would address the Daraprim price increase. (See BioWorld Today, Jan. 29, 2016.)

The FDA documented its practice of prioritizing the approval of first generics last week in its Manual of Policies and Procedures for its Office of Generic Drugs.