Price hikes aren't always sustainable: Just ask Mallinckrodt about Ofirmev

Here's a cautionary tale for drugmakers eyeing big price increases, and it has nothing to do with political backlash or public-relations nightmares. It's about a strategic misfire.

Mallinckrodt CEO Mark Trudeau

As Bloomberg reports, Mallinckrodt ($MNK) saw an opportunity to swell sales of an injectable version of acetaminophen, Ofirmev, after it snared the drug in its $1.3 billion Cadence Pharmaceuticals buyout last year. It more than doubled the price of that drug, to $42.48 per vial from $17.70--and sales quickly leapt. They came in at $71 million during its fiscal first quarter, which ended Dec. 26, double the amount for the same period the previous year.

But the company's hospital customers didn't like the fact that their expenses rose along with Mallinckrodt's sales. The hospitals cast about for alternatives and were at least partially successful; some merely substituted acetaminophen pills, aka Tylenol and its generics. Volume dropped, and then flatlined, Bloomberg says, citing CEO Mark Trudeau. The drug's sales fell short for its fiscal third quarter, with analysts expecting 37% growth--and Ofirmev delivering just 17%.

Now, Mallinckrodt is trying to use data to show that Ofirmev really can be more useful than Tylenol pills and can even work in some patients who'd otherwise use opioid painkillers. But its traditional customers might not cooperate.

"We felt the drug is useful but that we had the opportunity to decrease the amount of usage IV and use it more appropriately," said Robert Press, chief of hospital operations at NYU Langone, which anticipated $1 million in additional costs because of Ofirmev (as quoted by Bloomberg). "We found out a lot of the use was really not necessary and we found we could give alternative products."

What this case shows is that not all price increases are created equal. Some amount to price-gouging. Some trigger an outcry when made public; consider Turing Pharmaceuticals and its 5,000%-plus hike on Daraprim, or Valeant Pharmaceuticals ($VRX) and its hikes on more than 60 drugs so far this year, including some that went up more than fivefold. Others pass through the system all but undetected, including the slow-but-steady increases in the price of diabetes drugs over the past several years. And some--including the latter--pay off in steadily burgeoning top lines. Others don't have quite the same staying power.

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