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Sudden Price Spikes in Decades-Old Rx Drugs: Inside the Monopoly Business Model

Click HERE for a copy of Senator Collins’ opening statement

Click HERE for a copy of Senator McCaskill’s statement as prepared for delivery


WASHINGTON, D.C.—Senate Aging Committee Chairman Susan Collins and Ranking Member Claire McCaskill held a hearing today titled: Sudden Price Spikes in Decades-Old Rx Drugs: Inside the Monopoly Business Model. It was the second hearing in their ongoing bipartisan investigation.  

Today’s hearing took an in-depth look inside two hedge fund pharmaceutical companies, Turing and Retrophin, both formerly headed by Martin Shkreli, who dramatically increased the price of the drug Daraprim last year.  Together, these two companies have produced some 400,000 pages of documents in response to Committee subpoenas.  The Committee has investigated how these companies devised their business models to impose and protect egregious price hikes, and what policy changes are needed to respond to their actions. The hearing also focused on the close relationship that often exists between these companies and their investors and the role that investors play in encouraging these companies to focus on profit.

“Today, we heard the sworn testimony of three company insiders -- one who protested the business model and lost his job because of it, and two who stayed and helped to carry out the greedy scheme that caused hardship for patients and providers, prevented generic competition, and enriched the companies,” said Senator Collins.  “These decisions made by these companies did not play out in a vacuum. We also heard from the mother of an infant diagnosed with congenital toxoplasmosis, who, as a result of Turing’s actions, faced a price tag of $28,000 a month for the medicine she needed to save her infant daughter from death or a lifetime of disability.  Whether or not these companies’ actions are legal, their behavior harms patients, represents a market failure, and is a call to action.”

“What we’re seeing in these cases is Wall Street having turned its eye to healthcare because it has realized that here is a commodity, a product, with a stubbornly inelastic demand,” said Senator McCaskill.  “Yes, there is a price for everything at which people will no longer be able to pay for a product. But, what some investors have realized, much to their delight, is that they can keep squeezing the very people who depend on these drugs in order to line their own pockets.  This is disturbing. If this new breed of pharmaceutical companies is where our pharmaceutical industry is headed, we are in big trouble. Let me speak very clearly to the folks who believe that they can participate in this sick game of acquiring drugs, raising prices to ridiculous heights, and sticking it to patients – We are coming after you. We will shed light on this practice until we find the right prescription of public policy, and we will work together to stop it for the sake of patients, the healthcare system, and American taxpayers, and I’m proud to be working with Senator Collins to do so.”

Through their bipartisan investigation, the Committee has uncovered the monopoly business model these companies use to identify and strategically acquire drugs that they can then exploit at the expense of patients, health care providers, private insurance plans, and federal health care programs.  The business model operates like this:

  • First, the companies identify an older, brand name, sole-source drug.  They choose a drug whose patents have long since expired, which already has the field to itself, and which faces no generic competitor;
  • Second, they make sure that the drug is the “gold standard” for the condition it treats, so that health care providers can’t prescribe a substitute treatment or won’t feel comfortable in doing so;
  • Third, they select a drug that serves a small patient population. Fewer patients means less scrutiny and less incentive for a competitor to enter the market;
  • Fourth, they put the drug in a closed distribution system, or specialty pharmacy.  This move is key because it keeps generic companies from competing in the market because they can’t get the supply required to conduct bioequivalence tests needed for FDA approval.  As Martin Shkreli told potential investors in 2014, “We do not sell Retrophin products to generic companies.”
  • Fifth, they accomplish their ultimate goal.  In the same statement to investors, Mr. Shkreli predicted that the drug Thiola, which is used to treat a rare kidney disease, could generate revenue at a level 5,000 percent higher than it had produced for its previous owner.

The Senate Special Committee on Aging held the first in a series of hearings in response to the sudden, aggressive price spikes of decades-old Rx drugs in December 2015.  

Links to the witnesses’ official testimony are below:

Panel I:

Howard Dorfman, former Senior Vice President and General Counsel, Turing Pharmaceuticals, New York, New York.  Read Mr. Dorfman’s testimony HERE.

Adaora Adimora, M.D., M.P.H., Professor of Medicine, School of Medicine; Professor of Epidemiology, Gillings School of Public Health, University of North Carolina Chapel Hill.  Read Dr. Adimora’s testimony HERE.

Shannon Weston and Joshua Weston, parents of infant born with Toxoplasmosis, Whispering Pines, North Carolina.  Read the Westons’ testimony HERE.


Panel II:

Ronald Tilles, Interim CEO, and Chairman of the Board, Turing Pharmaceuticals, New York, New York.  Read Mr. Tilles’ testimony HERE.

Michael Smith, Co-Founder and Senior Director of Business Development, Turing Pharmaceuticals, New York, New York.  Read Mr. Smith’s testimony HERE.

Dan Wichman, Partner and Analyst, Broadfin Capital, New York, New York.  Read Mr. Wichman’s testimony HERE.