Not the Answer to Martin Shkreli

When Turing Pharmaceuticals decided to raise the price of Daraprim by over 5000%, they had made an assumption about the market. Call it a gamble. The gamble was that no other pharmaceutical company would front the money to get FDA approval to sell a generic competitor, just to get into a price war with an established brand in a very tiny market.

This is not an unreasonable assumption. In order to market a generic version of a brand name drug that already has FDA approval, you still need to run some clinical testing. It’s not nearly as rigorous as the testing that you need to sell a novel drug. You don’t have demonstrate efficacy or safety. But you do need to demonstrate bio-equivalence, i.e. that if you take a single dose of your generic drug, it stays in your system for the same amount of time at at the same levels as the brand-name drug. As I said, it’s not nearly as involved as bringing a new product to market, but this is simply to say that it’s a couple-million dollar ordeal, rather than $2.6 billion dollar ordeal.

Add to the million dollar price tag the fact that the median approval timeline for generic drugs is between 3 and 4 years, meaning that if a hypothetical competitor started today, odds are they wouldn’t actually be able to get a drug on the market until 2019. It’s not hard to understand why Mrtin Shekreli would be pretty confident that no competitors would enter the market. After all, a lot can happen in 3 years. For example, Turing could decide it’s had enough of the PR nightmare, respond to government pressure, and decide to lower its prices (no less than a month after the story breaks).

Or you could get something like Imprimis.

Imprimis is the more interesting case. It is pharmaceutical company who announced plans to make the pyrimethamine (the active ingredient of Daraprim) available to compounding pharmacists for extremely cheap– as low as 1$ a pill.

How are the able to do this without getting on the bad side of the regulatory procedures? The answer has to do with the way they plan to produce the drugs, through a procedure called compounding.

Compounding is a throwback to an era before pharmaceutical products were mass produced. Back then, if you wanted medicine, you would go to your local pharmacists, who would actually make your medicine for you from the raw ingredients, mortar and pestle.

Nowadays, compounding is a niche practice. Not all pharmacists are licensed to do it, and those that are typically only do so to accommodate patients with special needs, who cannot take the standard dose of their medication, or who need multiple medications combined into a single dose. From Forbes:

For example, the branded product might contain an inactive constituent (called an excipient) to which the patient is allergic. In the case of children or adults with problems swallowing, liquid or suppository forms of drugs can be made that are only available in tablets or capsules. The compounding pharmacist can also customize the dose of a drug or drug combination that best suits a specific patient.

How does this dodge regulatory approval?

Well, remember, in order to sell a generic drug, you normally need to establish bioequivalence– that the active ingredient is absorbed and processed by the body at the same rate as the brand-name drug. One consequence of this is that you’re only able to sell generic drugs at the same dose as the brand name drug. A 50mg pill would not be pharmacokinetically equivalent to a 100mg pill. Likewise, a tablet may not be pharmacokinetically equivalent to a liquid formulation.

But what if you’re compounding a regimen to meet the specific needs of an individual patient? What if the patient needs a liquid formulation of a drug that is FDA approved to be sold as a tablet? Obviously the regulatory burden need not apply– you wouldn’t expect the custom dose to be bioequivalent to the standard, mass manufactured dose.

“The drug products made by a compounding pharmacy aren’t themselves specifically approved for safety and effectiveness. The consumer relies on the original drug approval process for that.”

What this means is that making the product available to compounding pharmacists allows you to bypass the regulatory hurdles that would prevent other people from bringing a generic product to the market.

So where are we now?

First, it looks like Turing pharmaceuticals lost their gamble, not because some other pharma company decided to cough up the millions of dollars to run the bioequivalence trials, but because another company found a legal loophole that let them market and sell the product without going through the regulatory process. So we get to see some egg on Martin Shkreli’s smug face. Huzzah!

But second, and neglected in the jubilation about this development in social media, is commentary this drama provides on US pharma regulation.

Remember, there’ a reason why we stopped having pharmacists custom make treatment regimens for us. Compared to mass production, compounding is time and labor intensive and introduces the possibility of human error. For example,

In a veterinary case reported by the FDA in May 2015, horses were overdosed with a pyrimethamine combination drug due to a calculation error by a Kentucky compounding pharmacy. The FDA received 10 reports from Kentucky and Florida of horses experiencing fevers and seizures, including four deaths.

This isn’t to say that all compounded medications are unsafe, but it should be clear that compounding is not the best way to scale up drug production. There are reasons why the industry has switched to mass manufacturing, chief among them so that we don’t have to worry about killing people because a pharmacist made a calculation error.

The CEO of Imprimis is trying to cast himself as a hero for the free market, helping curb pharma company greed.

In fact, [the CEO] says that working cooperatively with policymakers is key for compounding pharmacy to make an impact on outrageous drug pricing.

“We don’t need price-fixing or price controls. This is a market-based solution. We can reach a pricing equilibrium using competitive practices.  And we’ve gotta work with policymakers on using compounding to counterbalance the influences on the other side.”

This is, as far as I can tell, absolute bullshit. The only way compounding pharmacies could compete with a manufactured brand is by scaling up production, enough to take a significant chunk of the market share. Is this legal? Maybe, maybe not. But the real question is, if you think that it’s safe to compound enough of a medication to make an impact on the market price, why not just let people manufacture it?

The only reason compounding pharmacists are in a position to curb price gouging is because the regulatory environment prevent drug manufacturers from doing so. Compounding Daraprim isn’t a victory for the free market. It’s not a way to control market greed, and policy makers should not work with Imprimis in order to do facilitate this. At best, Imprimis’s bid is a symptom of inefficient regulatory policy. At worst, it’s a danger to public health.


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