Broken Bad: Exploiters and their Perverse Profits from the Opioid Epidemic

The pharmaceutical business is one of the highest margin, most profitable businesses in the world. Novel biopharmaceuticals represent the tip-of-the-spear of modern medicine. Examples abound, including the latest life-saving drug, Kymriah™, the revolutionary CAR-T therapy from Novartis that cures over 80% of children with certain aggressive blood cancers[1]. Such cutting-edge advancements have transformed humanity, turning diseases that were once a death sentence into ones that can be cured or managed as chronic conditions. The self-described recovering scientist turned early stage venture capitalist Bruce Booth noted that we can think of these tip-of the-spear companies as Innovators. “Yes, Innovators are profit-seekers — but we seek outsized profits in exchange for taking on the outsized risks, costs, and timelines of making new high impact medicines — that should be worth every penny to patients and society. Such risk-taking needs to be rewarded.”[2]

The pharmaceutical industry has a unique social contract with the public — in return for a limited period of market exclusivity for new drugs, in the form of FDA approval and patents, companies get to recoup their investments, and fund new research, by charging a premium for innovative new therapies. After a set period of time, generic medicines can enter the market, which should, in theory, lead to lower prices, and the fulfillment of the social contract.

If today’s biopharmaceuticals represent the tip-of-the-spear, then generics are the unheralded supply line — a trudging, unglamorous convoy of medicines that make up the bulk of medicines that we consume. Indeed, today at least 3 out of 4 prescriptions in the United States are filled using generic medicines,[3] which are much cheaper but bioequivalent forms of the original prescription products, which no longer have patent protection.

However, there are multiple ways that pharmaceutical companies and their generic competitors can game the system, including making minor changes to extend patent protection. Perhaps the most infamous recent example of this approach is Mylan’s EpiPen, where a $1 generic drug (epinephrine) packed in a unique $8 autoinjector was patented and sold for $700. Sadly, other examples are easy to come by. Say what you want about “Pharma Bro” Martin Shkreli and his 5000% price increase of Daraprim, but he was not an original thinker. As he has elaborated on in considerable (and accurate) detail online, he learned the practice of radically increasing the price of drugs from some of the largest pharmaceutical companies in the world.

In an efficient market, radical price increases for generic drugs should not happen. Yet, as Bruce Booth has observed, the market for drugs is not always efficient. He has called companies that exploit these market inefficiencies the Exploiters. “They’ve exploited the opaque, multi-layered and dysfunctional value chain around pharmaceutical pricing to their advantage, leveraging the FDA’s suboptimal regulatory approach to generics to create artificial, unwarranted, and inappropriate monopolies.[4]

Naloxone — the antidote for opioid overdoses — has become a perfect and tragic example of such exploitation. First approved by the FDA in 1971, naloxone has been shown to be successful in reversing overdoses in 98.8% of cases.[5] Drug overdoses now kill more Americans than traffic accidents or gun violence. In 2016, roughly 64,000 people in the U.S. died from drug overdoses.[6] Before the opioid epidemic blossomed into public consciousness, one milliliter of generic naloxone cost about $1. But as demand has increased, so have prices. Today, even though naloxone is a generic drug that has been widely used for decades, it is expensive, costing between $110–$4,000 as a nasal spray or autoinjector for use by nonmedical personnel. What’s more, its price has gone up as the need has risen — 95%-500% price increases over the past few years.[7] Indeed, the high cost of naloxone has led some city councils to propose canceling emergency responses to overdose cases, to “put fear” into addicts.[8]

Addressing market inefficiencies is a matter of life and death, and is urgently needed. One unique approach that holds great promise is public health-oriented direct competitors to Exploiters is a nonprofit pharmaceutical model, where nonprofit foundation funding is combined with drug development expertise to produce and sell products without a profit motive, could add new products and a healthy new competitive tension to the pricing and access of life-saving medicines. It could also help to deflate the ballooning prices charged by Exploiters for these life-saving medicines.

A nonprofit pharmaceutical business model may help to correct the runaway prices of some generic drugs that violate the social contract, helping to prevent Exploiters from thriving. By correcting the generic market and deterring future abuses, individual patients and the healthcare system will benefit. What’s more, capital can be freed up and more reliably deployed to the Innovators working to develop tomorrow’s cures.

Author disclosures:

Michael Hufford, PhD is the Co-Founder and CEO of Harm Reduction Therapeutics, a 501(c)(3) nonprofit pharmaceutical company developing an affordable retail naloxone delivery device and other antidotes to price-gouging. mhufford@harmreductiontherapeutics.org.

William Hoos is an Entrepreneur, Healthcare Venture Capitalist, and Consultant to Pharmaceutical Companies and Patient Advocacy Organizations. He can be reached at williamhoos@gmail.com.

[1] https://www.novartis.com/news/media-releases/novartis-receives-first-ever-fda-approval-car-t-cell-therapy-kymriahtm-ctl019

[2] https://lifescivc.com/2016/08/innovators-vs-exploiters-drug-pricing-future-pharma/

[3] http://www.npr.org/sections/health-shots/2011/05/16/135538006/3-in-4-prescriptions-are-now-for-generic-drugs

[4] https://lifescivc.com/2016/08/innovators-vs-exploiters-drug-pricing-future-pharma/

[5] George K. Avetian, Phillip Fiuty, Silvana Mazzella, Dave Koppa, Vivian Heye & Pratibha Hebbar (2017): Use of naloxone nasal spray 4mg in the community setting: a survey of use by community organizations, Current Medical Research and Opinion, DOI: 10.1080/03007995.2017.1334637

[6] https://www.nytimes.com/interactive/2017/09/02/upshot/fentanyl-drug-overdose-deaths.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

[7] The Rising Price of Naloxone — Risks to Efforts to Stem Overdose Deaths. DOI: 10.1056/NEJMp1609578.

[8] Official: ‘Put a fear’ in addicts by ending emergency response to overdoses. The Sacramento Bee, Don Sweeney, 6/22/17.