Cost & Quality

Old Drug Turned ‘Cash Cow’ as Company Pumped Price to $40K a Vial, Emails Show

The CEO of Mallinckrodt Pharmaceuticals defended the price hikes of Acthar gel, an orphan drug that treats infantile spasms at a House Oversight Committee hearing on Thursday.
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For a dad whose infant son was afflicted with a rare seizure disorder, a drug invented in 1952 was indispensable for his boy. It was also indispensable to executives at the pharmaceutical firm that acquired the drug in 2014 — not because it was a cure, but because it was a “cash cow,” according to documents released at a House hearing Thursday.

The firm, Mallinckrodt Pharmaceuticals, got ahold of the venerable drug called H.P. Acthar gel by buying the company that owned it before, Questcor, for $5.8 billion in 2014.

According to the documents obtained and released by the House Oversight Committee in a broad probe of drug pricing practices, Mallinckrodt targeted Questcor primarily because of Acthar, a so-called orphan drug that helps 2,500 kids a year in the U.S. afflicted by infantile spasms.

Acthar was a “premium-priced product” with a “robust cash flow profile” that would help the company “achieve aspirational goals with a single transaction,” according to the company’s internal discussions.

The premium price when Mallinckrodt acquired the drug was $31,626 for a single vial, after Questcor had hiked it from around $100 in 2000, according to the committee investigation. Mallinckrodt continued the trend, hiking the price five times to ultimately reach $39,864.

That’s what it cost when the father had a doctor prescribe six vials for a six-week course for his son. The premium price was a shock, and his insurance company would cover only four doses.

He appealed to Mallinckrodt.

“We are in a serious bind here,” he said in a message that was among 140,000 documents obtained from the company by House investigators. “Your medication is extremely expensive and we are unable to afford the 80,000 dollars needed for the remaining 2 vials.”

The father is not identified in the committee documents.

A spokesperson for the company said it helped patients who reached out “get access to Acthar,” but did not specify what that entailed.

Mallinckrodt CEO Mark Trudeau told the Oversight Committee on Thursday that his firm “is steadfastly committed to knocking down barriers to patient access — that’s particularly true with Acthar gel.”

“We’ve also improved the ability of patients with a prescription to obtain Acthar through our robust free drug and commercial copay assistance programs, which lead to many patients paying nothing out-of-pocket,” he said, later testifying that the company is committed to lowering the “net price” of the drug to 2015 levels.

Yet, according to the documents, knocking down barriers or lowering prices has had little to do with the interest in owning Acthar. It was more about expanding the market for the drug, and profits for the company, as was the case with five other companies hauled before the committee over two days.

Indeed, Acthar was so important to the goal that executives preparing a presentation on the company’s 2018 prospects bluntly wrote: “Acthar Modernization Strategy defines the Future of the Brand as either a Growth Asset or Cash Cow.”

Trudeau told the committee that presentation was never made. According to the documents, even executives preparing the material seemed aware the words were too bald — but just barely. One junior executive asked in an email, “Do we really want to say ‘cash cow’ to the board?” The company’s chief commercial officer, Hugh O’Neill, responded, “Instead of ‘cash cow,’ I will replace it with profit maximizer.”

Committee Chairwoman Rep. Carolyn Maloney (D-N.Y.) quizzed Trudeau on the description, asking if it’s true “this is how you really see this drug, not as an innovative therapy?”

“That’s in fact not true,” Trudeau said. “That term is typically applied to products for which no investment is likely to be going forward, and, in fact, that’s exactly the opposite.”

He argued that Mallinckrodt had invested $660 million in improving manufacturing of the drug and in seeking evidence that Acthar works for many other uses that the FDA permits.

Rep. Jimmy Gomez (D-Calif.) said Trudeau’s answer misled the committee and he owed Maloney an apology.

“Replacing one term with another term, ‘cash cow’ with ‘profit maximizer,’ doesn’t change the intent of your company, which is to make as much money as possible,” Gomez said.

The “cash cow” document was about getting more patients, saying the strategy was to convince skeptics of Acthar’s other uses that it was not an “overpriced steroid,” and to overcome “lack of acceptance of academic opinion leaders” whose criticism “limits product penetration.”

Democrats on the committee argued that not only was Mallinckrodt’s intent to squeeze as much out of Acthar as it could, but also to get it from taxpayers through Medicare, where prices cannot be negotiated by law.

Rep. Harley Rouda (D-Calif.) pointed out that about 25% of Acthar sales went through Medicare when Mallinckrodt bought Questcor, and that share is over 60% now. Revenue from Medicare rose from under $50 million in 2011 to $725 million in 2018. Overall, the drug accounted for about a third of all the company’s net sales in recent years, Trudeau said.

The hearing was the second this week stemming from an investigation into sky-rocketing drug prices that the committee launched in 2019. Besides Mallinckrodt, the committee hauled in executives at Amgen, Novartis, Celgene, Bristol Myers Squibb and Teva.

“What we learned was shocking. Drug companies are hiking their prices higher and higher — and placing an ever-greater burden on the very patients who rely on these drugs to survive,” Maloney said.

“We also learned that claims by drug companies that their price increases are necessary for research and development are completely bogus,” she added. “The internal company documents we obtained show that drug companies hike prices almost entirely for selfish reasons — they do it to meet internal revenue targets, or to increase their own bonuses in some cases.”

Republicans on the committee were far less critical of the pharmaceutical companies, though many of them also complained that drug prices are too high and that Americans should be able to pay the lower prices available to people in other nations. Some argued that clamping down on pricing in the United States might inhibit new medicines from coming to market.

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Kaiser Health News is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser Family Foundation, which is not affiliated with Kaiser Permanente.

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