Generic cream price spikes have experts scratching their heads

While the pharma industry has been criticized over the high cost of cancer drugs and alleged price manipulation of wholesale prices, it is the cost of generic ointments that is setting some consumers off and leaving some experts scratching their heads.

PR executive Jim Grossman tells The New York Times he was astounded when he discovered the antifungal cream he used to get at Target for $4 now costs $20 more. "I can understand why the price might go up, but not go up six times all at once," he said.

According to the newspaper, there has been a rash of price increases for generic ointments and creams during the last couple of years. Distributor Cardinal Health found prices up significantly on more than a dozen generic dermatology drugs since 2010. Pharmacy benefit manager Express Scripts says spending on dermatology drugs is up more than 18% through May of this year, primarily because of higher prices for individual drugs.

Most of them are made by Taro Pharmaceuticals Industries ($TARO), Perrigo ($PRGO) and Fougera. Novartis ($NVS) last month acquired Fougera for $1.53 billion to get its hands on the firm's dermatology portfolio.

Taro CEO James Kedrowski says the company does its best to offer fair prices, and he thinks the market will sort itself out as higher prices draw more players back. Brian Sheehy of IsZo Capital, a significant Taro shareholder, is less sure others are itching to get back in. He says some manufacturers fled the specialized business because of tougher oversight by the FDA. While that has led to some price increases, those who left don't think the challenges of the business are worth it. 

That said, Taro reported net income up 76% in its last quarter to $62.9 million from $35.7 million. In fact, the FiercePharma report on the Top 11 Fastest-Growing Generics Companies includes both Taro and Perrigo. And its dermatology expertise is one reason Sun Pharmaceuticals, which already owns two-thirds of Taro, says it wants the final slice. The New York Times says generic drug pricing ability has been at the heart of Taro's resistance to Sun's overtures. It rejected Sun's latest $367 million offer saying it undervalues its potential.

In the view of Les Funtleyder, who manages the healthcare fund of private equity investor Poliwogg, the idiosyncrasies of the industry often allow price spikes in corners of the market to go unnoted. Doctors don't consider cost when they write a script and insurance usually covers most of it for patients.

Still, Dr. Mark G. Lebwohl, chairman of the National Psoriasis Foundation's medical board, is appalled with what is happening. "I think it's outrageous that the cost of a generic cream--or any cream--exceeds the cost of a doctor's office visit," he told The New York Times.

- read the New York Times story 
- here's more from Bloomberg

Special Report: Top 11 Fastest-Growing Generics Companies

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