Flash finding: Generic Daraprim manufacturers ride Pharma Bro pricing coattails
Remember Daraprim? How about “Pharma Bro”? Those were the good ol’ days, weren’t they? When you could increase the price of a drug from $13.50 per pill (actually, it started under $1 when Turing acquired it) to $750 per pill and call yourself “Robin Hood.”
We all know how this story ended. After jacking up the prices of old, cheap medications, while mastering the art of fulfilling the role of a classic 80s pro wrestling villain, Martin Shkreli was seared by members of Congress in 2016 when he was called to testify on his business practices, and he took one of the nastiest public relations beatings in modern history. He is now serving a seven-year prison term for securities fraud. His appeal to be released from prison to help research a COVID-19 cure was recently denied. The end?
Not even close.
After years of public outrage over the price hikes of Shkreli, the release of a generic version of Daraprim (pyrimethamine) has been heralded as a day of reckoning for the hedge-fund-exec-turned-felon.
Generic Daraprim finally hit the market in March, meaning competition should bring “bad news” to the legacy brand manufacturer, right? Cheap prices for all, right?
Wrong.
In our latest Flash Finding, now that generic Daraprim has hit the market, we started digging into the facts. Here’s what you need to know – in under 500 words.
What we found
Given that generic Daraprim’s list price is not public, we had to do some channel checks. So we picked up the phone, called a few pharmacies, and asked them for generic Daraprim’s Average Wholesale Price (AWP).
We learned that the generic manufacturers (Oakrum Pharma and Dr. Reddy’s) set the AWP of their 100-count bottle at just under $80,000 (i.e. $800 per pill!). While the AWP does not reflect the actual cost for these pharmacies to purchase the generic, recall that pharmacy benefit managers (PBMs) link their contract guarantees to AWP, making this a critical number for payers and patients when they purchase generic medications.
But wait, Robin Hood only priced Daraprim at $750; how can the generic be more?!? Well, that’s because $750 per pill is the brand’s Wholesale Acquisition Cost (WAC). For brand name drugs, the AWP is almost always set as a 20% premium to WAC, which means that brand-name Daraprim’s AWP is $900 ($750 x 1.2 = $900). So the generic’s pricing benchmark is cheaper for payers, but only by roughly 12%. This is not necessarily all that surprising to 46brooklyn-ites, given the extensive research we performed on generic drug launch prices in October 2019, which showed that nearly 80% of all generic drug launches carried a sticker price that was 0-15% less than the brand equivalent.
Generic Introduction AWP Discount to Brand Equivalent AWP
What we found (when we dug deeper)
We went back to our pharmacy sources and asked, what was their cost to acquire generic Daraprim? The answer is: ~$30,000 for a 100-count bottle of pyrimethamine (i.e. $300 per pill). Cheaper, yes. But if a company run by a self-proclaimed robber baron hadn’t sunk their talons into Daraprim, today its generic would likely carry a $3 per pill list price.
Don’t believe us? Here’s some math. CNN previously reported Daraprim to be $1 per pill in 2010. Let’s say Turing never bought Daraprim. Instead, it was acquired by some other company, who then proceeded to raise its price by 10% per year – an aggressive, yet much more normal rate of increase for a brand drug. Compound $1 at 10% per year for 10 years and you’ll get $2.59 today. Add a 20% markup to convert this WAC to an AWP and you get $3.11 per pill. If Dr. Reddy’s applied the same 12% discount, its generic would have an AWP of $2.74 per pill. But it doesn’t. Instead it carries an AWP that is 290 times higher.
Source: 46brooklyn calculations based upon previous reporting
FWIW
Brand price increases matter, even if the price increase is “returned” due to a rebate. This was the entire point of our launch price report. Pricing decisions made by brand drug manufacturers do not simply go away when the generic hits the market. The drug supply chain feasts on the inflated sticker prices, which are simply passed from one drug to another like a baton. Payers and patients then bear the brunt of this for years to come.