Hospital pharmacy folk understand supply and demand and realize that when there is a shortage of the generic injectables drugs they routinely use, a big price hike is coming. What they don't get is why when another supplier jumps into the market, prices come down little, if any.
Like the dramatically rising prices of other kinds of drugs, this phenomenon has caught the attention of federal lawmakers, but because of the nature of the injectables business these days, it is unlikely to change.
Hospital pharmacy administrators like John Lewin at Johns Hopkins Hospital in Baltimore bemoan what they have had to deal with. He tells Bloomberg that once a shortage is resolved, prices may ease slightly, but it "never goes back to what it was."
Take the price of the surgery drug glycopyrrolate. Bloomberg says that Hikma raised its price more than 800% when it got the market to itself in 2012. And during a 6-year period in which Baxter International ($BAX) was the sole producer of the generic chemo drug cyclophosphamide, it pushed the price up more than 1,200% and saw its sales for the drug soar to $463 million in 2014 from just $8 million in 2007. A survey of the prices of 3,700 formulations of generic hospital drugs done for Bloomberg by DRX found in 8 years 10% of them have doubled and dozens have gone up at least 10-fold.
Injectable drugmakers like Hikma, Baxter, Hospira and others defend their pricing, often pointing to the cost of upgrades they have made to plants in recent years. For years, sales of generic sterile injectables was a low-margin business that drugmakers were loath to invest in. But that led to lots quality issues and drug recalls, which prompted the FDA under former director Margaret Hamburg to order companies to make improvements or close plants. Some invested, others like Germany's Boehringer Ingelheim, closed plants. In both cases, markets were disrupted, shortages arose and prices went up.
Hospira, now owned by Pfizer ($PFE), points to the $1 billion it invested in plant upgrades as one reason that prices have risen, like the 700% increase over 8 years for injectable papaverine, a blood vessel dilator.
But to shareholders, drugmakers often present a different spin on these matters. Before its buyout by Pfizer in September, Hospira said that its investment in a massive new plant in India would dramatically reduce its cost of doing business and improve its margins. The CEOs of Hikma and Baxter have pointed to their moves to take advantage of drug shortages as a sign of their company's business acumen.
In its H1 2015 earnings report Hikma said that "continued success in capturing specific market opportunities," had kept injectables revenue in line with expectations. It also pointed out that operating margin for the division rose to 42.4% in the first half of the year. It told shareholders that unit could expect a "robust adjusted operating margin of around 35%" for the year.
Market shortages and rising prices for sterile injectables have a caught the eye of some members of Congress. Four senators--two Republicans and two Democrats--have asked the FTC to investigate "possible illegal collusion" by saline solution manufacturers. They question whether manufacturers have used the situation not only to jack up prices on saline but to get hospitals to buy catheters and other equipment they could get cheaper elsewhere, to get the best price for saline.
Drugmakers have disputed that they have raised prices unreasonably and pointed to their efforts to boost production, even directing supplies from plants outside the U.S., to alleviate the shortage.
Erin Fox, director of the drug information service at the University of Utah, which tracks shortages, says one big problem is that hospitals don't know when prices will escalate. "There is just no transparency about who is making the drugs," Fox told Bloomberg. "All the manufacturers have been operating at capacity, so one line going down can make a significant national shortage."
- read the Bloomberg story
Senators want FTC probe to see if saline makers have profited unfairly from shortage
Hikma seizes on 'opportunities' for injectables growth
FDA looks at Baxter Mexico plant for more saline supply
Baxter adds saline production from Spain to U.S. supply
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