Download Drug Distribution Becomes Weapon to Block Competition

BUSINESS
Friday, March 4, 2016 | A9
www.TheEpochTimes.com
Drug Distribution Becomes
Weapon to Block Competition
AP PHOTO/CRAIG RUTTLE, FILE
By Matthew Perrone
WASHINGTON—The same
strategy that Martin Shkreli
used to get away with a 5,000
percent price increase on an
old drug is used by many other
drugmakers to maintain skyhigh prices on billions of dollars’ worth of medications.
Before the price hike that
made him infamous, the former CEO of Turing Pharmaceuticals had to ensure that
no competitor would be able
to launch a cheaper version
of Daraprim, the 60-year-old
anti-infection pill that is no
longer under patent.
Shkreli had the perfect
weapon: a tightly controlled
distribution system that would
make it virtually impossible
for a competitor to obtain
enough Daraprim to develop
its own version.
Shkreli, who resigned in
December, did not invent the
closed distribution technique.
And his former company,
Turing, notes that Daraprim
was already distributed under
such a system when it acquired
the drug.
Many larger drugmakers
have also turned drug distribution into a powerful tool
against competition. The strategy takes advantage of a simple fact: If generic drugmakers can’t get their hands on
the original product, they cannot perform the tests needed
to develop a generic version.
Typically, generic drugmakers purchase drugs in bulk
from third-party suppliers.
But when the original drugmaker controls the drug’s distribution, it can simply refuse
to sell.
The effect on patients is
higher prices for drugs that
would otherwise be available
as low-cost generics. Doctors
say these tactics “continue to
stand in the way of patients’
access.”
“The most effective way
to improve access and lower
prices is to ensure that generic
drugs get to market as quickly
as possible,” says Dr. Ameet
BRENDAN SMIALOWSKI/AFP/GETTY IMAGES
Pharmaceutical executive Martin Shkreli after a hearing of the House
Oversight and Government Reform Committee on Capitol Hill
on Feb. 4.
Activists hold signs with the image of Turing Pharmaceuticals CEO Martin Shkreli in front the building
that houses Turing’s offices, during a protest on pharmaceutical drug pricing in New York on Oct. 1, 2015.
The strategy
takes advantage
of a simple
fact: If generic
drugmakers
can’t get their
hands on the
original product,
they cannot
perform the tests
needed to develop
a generic version.
Sarpatwari, of Harvard Medical School, who has studied
the issue.
Distribution
At least 40 drugs worth an estimated $5.4 billion are sheltered from competition by
distribution hurdles, according to a study commissioned
by the Generic Pharmaceutical Association, an industry
trade group.
The Food and Drug Administration is aware of the misuse of distribution programs.
The agency said in a statement
it has received 100 letters from
companies that say they have
been blocked from obtaining
drugs for testing purposes.
The agency’s own regulations
prohibit drugmakers from
using certain types of distribution plans to block generic
access, but the agency does
not penalize companies for
the practice.
The trend began in 2007,
when the FDA began requiring risk-management plans
for certain drugs. The plans
often feature various restrictions to make sure drugs are
used safely, including limits
on who can distribute them.
But drugmakers realized
these measures could also be
used to keep their drugs away
from competitors. And even
drugs that didn’t require riskmanagement could utilize
the strategy.
Daraprim is an example of a
drug that has no major safety
risks and was previously available through various wholesalers and distributors. But last
June—three months before
its sale to Turing—Daraprim
was moved into a closed distribution program, allowing the
manufacturer to refuse sales to
competitors.
The effect for patients was
jarring. The drug—which
treats an infection mainly
found in people with HIV
and cancer—had previously
been available through local
pharmacies. Now it is distributed through a specialty division of Walgreen’s, which sells
the drug at Turing’s list price
of $750 per pill. In the months
after the price hike, some
patients faced co-pays as high
as $16,000 when trying to fill
a prescription.
“Mr. Shkreli set up a very
complicated system to ensure
profits and patients have really
suffered,” says Sean Dickson,
of the National Alliance of
State and Territorial AIDS
Directors.
Turing says it has improved
access to Daraprim, including
making it available through a
patient assistance program for
those who can’t afford it.
Drugmakers argue that
closed distribution simply
protects their interests, making sure drugs are shipped and
handled appropriately.
But generic drugmakers say
the tactics threaten their business model.
“It undermines the whole
generic drug approval process,” said Steve Giuli, an executive with generics firm Apotex Corp.
Apotex has repeatedly tried
to purchase two specialty cancer drugs sold by drugmaker
Celgene. Together the drugs,
Thalomid and Revlimid,
account for $5.2 billion in sales,
more than two-thirds of Celgene’s revenue for 2014. That’s
despite the fact that Thalomid
is a 1950s-era drug whose key
ingredient is no longer under
patent. Because the drug can
cause severe birth defects, it
is subject to a rigorous distribution program controlled
by Celgene.
“They will never freely sell
you the product, even if you
negotiate with them for weeks,
months, and perhaps years to
satisfy all of their onerous
concerns,” says Omar Jabri,
another Apotex executive.
A Celgene spokesman did
not return calls and emails
seeking comment on the riskmanagement program.
In one case, New Jerseybased Celgene went on the
offensive, suing Barr Labora-
tories for attempting to introduce a generic version of Thalomid. Celgene said Barr’s effort
would infringe on its intellectual property, since it had patented Thalomid’s risk-management plan.
When generic drugmaker
Lannett sued Celgene in
2012, alleging that the company’s tactics illegally blocked
competition, the companies
reached an out-of-court settlement. Details of the agreement were not disclosed, but
Thalomid remains unavailable as a generic.
Meanwhile, the FDA has
remained on the sidelines.
“The FDA is hesitant to make
a call on whether a manufacturer is actually intending to
delay generic competition,”
explains pharmaceutical attorney Kurt Karst.
With no apparent solution
from the courts or the FDA,
generic drugmakers and their
allies are seeking a fix from
Congress.
A bill introduced in the
House would direct the FDA
to impose stiff fines on drugmakers that refuse to sell
their products to generic
drugmakers.
Introduced last summer,
the legislation has made little
headway on Capitol Hill, but
Dr. Sarpatwari hopes recent
concerns about drug prices
will attract more attention to
the proposal.
“You’re getting Congress to
amend the system to require
that drug samples be shared
under the penalty of actual
sanctions,” he says. “That’s
ultimately where we need to
get to.”
From The Associated Press
Millennials Hire Computers to Invest Their Money
ACORNS VIA AP
By Ken Sweet
PHOENIX—Computers help
us decide what route to take
to the grocery store, who to
date, and what music to listen
to. Why shouldn’t they also
decide how we invest?
Younger investors, particularly those born in the early
1980s to late 1990s known as
millennials, are increasingly
adopting apps and what are
known as robo-advisers to
make their retirement decisions for them. In the last
year Betterment, Wealthfront, Acorns, and others have
brought in several billions of
dollars in assets that used to be
handled by traditional brokerages or wealth advisers.
In Betterment’s case, the
largest of the robo-advisers,
the company went from $1.1
billion in assets under management at the beginning
of last year to $3.5 billion
this year.
“In terms of the overall
wealth management market, robo-advisers are tiny, a
drop in the bucket. But their
disruption potential to traditional wealth advising is
massive,” said Alois Pirker,
research director at the Aite
Group, which studies wealth
management trends.
Robo-advisers are bro-
kerages that use computers
instead of a traditional wealth
adviser to allocate customer
funds across various types of
investments, similar to the
way popular funds targeted at
specific retirement dates allocate investments. The money
goes into low-cost exchangetraded funds that own stocks
and bonds. The system automatically adjusts the mix as
the person ages or if their
goals change.
“The issue is not that millennials do not have interest in
investing, it’s the perception
that investing is inaccessible,”
said Jeff Cruttenden, founder
of Acorns. “The universe of
investment options is too
huge. Too many stock mutual
funds. Too many bond mutual
funds. Too many ETFs.”
Cruttenden helped launch
Acorns, an app-based investing company, in 2014. Customers choose from five portfolios that range in approach
from conservative to aggressive, and Acorns invests in a
series of ETFs that matches
their investment style.
Acorns also helps customers squirrel away savings by
rounding each purchase a
customer makes with their
linked credit or debit card to
the nearest dollar and investing the change. So if you buy
a $4.25 latte at Starbucks,
A screenshot of the Acorns app that helps users with their investments.
Acorns takes the 75 cents
and put it into your investment account. Cruttenden
says Acorns’ customers set
aside $40 to $60 a month on
average this way.
Computers are usually
cheaper than people, so roboadvisers have been able to
attract customers both with
their simple interfaces and relatively low fees, Pirker says.
“These portfolios are priced
at a fraction of a traditional
wealth adviser,” he said.
Betterment charges customers on a scale based on how
much they have invested,
from as much as 0.35 percent of assets for less than
$10,000 to 0.15 percent for
more than $100,000. A person
with $20,000 invested would
pay Betterment $70 a year, for
example. Acorns charges $1
a month for balances under
$5,000 or 0.25 percent for
assets above $5,000.
This does not include the
fees charged by the ETFs that
the customer’s money is eventually invested in.
Still, wealth advisers, by
contrast, typically charge 1
percent to 1.2 percent of assets
to manage a portfolio, on top
of fund fees.
“Wealth managers are going
to have to figure out what
value they are bringing to keep
customers. Simple portfolio
planning is not enough anymore,” Pirker said.
On the other hand, investors who want to do everything themselves can open
an account at a discount brokerage like Charles Schwab
or Fidelity and pay only the
fund fees, which for some big
exchange-traded index funds
can be just 0.05 percent.
The majority of Betterment’s
customers are millennials,
said company spokesman Joe
Ziemer, but the older set is
buying in too. About 30 percent of the company’s clients
are over the age of 50.
Acorns has a similar demographic profile. Three-fourths
of its customers are under 34.
Cruttenden says the company advertises heavily on
Facebook.
“We are very proud whenever someone wakes up one
morning and decides to open
an account who didn’t plan on
investing,” he said.
Traditional wealth management isn’t going anywhere
anytime soon. Pirker estimates the amount of assets
managed by robo-advisers to
be roughly $40 billion to $60
billion. By comparison, Vanguard’s total market fund has
$385 billion by itself, and the
wealth management market
is measured in the trillions.
While growing in popularity, robo-advisers are not
suitable for everyone. Because
the portfolios are managed by
computers, investors are at the
mercy of the algorithms that
created them. Because they are
new, these algorithms have
not been tested in a recession
or a severely stressed market
like the one seen during the
financial crisis.
From The Associated Press