Following the callous 400% price hike over a span of 9 years on life-saving EpiPens that thrusted pharmaceutical greed into the spotlight (again), Mylan has offered more substantive discounts after massive public criticism. It was evident that probably the only reason for any action by Mylan was their stock prices falling by 11% though, and we are again reminded that the EpiPen fiasco, just like the Daraprim scandal, is simply one of many price increases drug companies make yearly — a revenue-generating tactic.

Interestingly, while practically every drug has seen a price hike, there is a marked difference between speciality and non-specialty drugs.

Specialty drugs: Daraprim, AIDS medication

Similar to the EpiPen absurdity, Turing Pharmaceuticals jacked up the price of Daraprim, the only approved medication for a rare parasitic infection that affects AIDS patients, by 5,000%. What was once US$13.50 per pill became US$750, and despite promises to cut prices after he became the “most hated man” in the US, Martin Shkreli’s company instead reduced what it charged hospitals for Daraprim by 50%, and left insurance companies stuck with the bulk of the tab, which in turn translated into costlier future treatments and insurance costs.

Non-specialty drugs:

Viagra, lifestyle drug

Lifestyle drugs are designed to improve a person’s quality of life by treating non-lethal and non-painful conditions like hair loss, wrinkles, weight loss, and of course, impotence. Sexual dysfunction related drugs take the lion’s share in this category, with Viagra among the most in demand. Pfizer is the big pharma behind Viagra, and raked in US$664 million in additional annual sales from price hikes of up to 72.1% last year. Over the past three years, 34% of Pfizer’s revenue growth came from relatively small price increases on existing drugs, with zero price reduction implemented. Viagra, which was a US$1.68 billion drug this year, currently faces patent expiration and is forecast to be a US$670.6 million drug in 2019.

Panadol, pain relief drug

We all know Panadol. It’s a common household drug made by pharmaceutical giant GlaxoSmithKline, and has been increasing in price over time – like many of GSK’s drugs. Over 2 months in early 2016, GSK increased its drug prices by 15% on 22 products, including Lamictal XR for epilepsy. In 2014, Panadol and Panadol Extra saw a 23% and 7% price hike respectively. To quote a vague GSK, “Price increases for some medicines are a reality… and we strive to handle them thoughtfully.”

The differences and why

It is rather apparent that only life-saving specialty drugs see outrageous price hikes, whereas non-specialty drugs tend to experience a gentler rise in price. The former account for less than 1% of prescriptions in the US, yet represent about 1/3 of total drug spending by consumers, employers, and the government in 2014. Here’s why:

Firstly, the lack of generic alternatives — most specialty drugs require more R&D and hence often have patents and strict standards for approval by the government. This essentially creates a monopoly that allows those with the drug to set whatever price they want. Viagra may not be a specialty drug, but it does have a patent that only expires in 2020, and hence can afford a 72.1% price hike. Meanwhile, paracetamol’s patent expired in 2007, and is unlikely to see substantial price hikes.

In Daraprim’s case, although the patent expired long ago, Turing’s manufacturing capacity and existing governmental approval still form high barriers to entry. Coupled with the small demand of about 8,000 – 12,000 prescriptions per year, there is hardly any financial incentive for other pharmas to compete with Turing.

Secondly, consumers can’t say no — when it comes to life-saving medications, the situation cannot be one of “take it or leave it”. These pharmas bank on the fact that most consumers will pay no matter how steep the prices are, to protect the lives of themselves and their loved ones. It’s essentially blackmail.

By: Chan Choy Yu