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WARNER-LAMBERT DILANTIN 185% PRICE INCREASE TO FSS IN 1991 LANDS ANTI-EPILEPTIC ON TOP OF GAO LIST OF PRICE RISES; REPORT SHOWS "BEST PRICE" INCREASES

Executive Summary

Warner-Lambert almost tripled the price of 1,000-capsule bottles of the anticonvulsant Dilantin (phenytoin) to the Federal Supply Schedule in 1991, according to figures included in a General Accounting Office report released Aug. 25. The GAO reports that the FSS price of a 1,000-capsule bottle of Dilantin climbed from $35.89 as of Dec. 31, 1990 to $102.30 on Dec. 31, 1991, an increase of 185%. The FSS price for a 100- capsule bottle increased 175%, from $4.78 to $13.15. AWP and direct price rose 20% during the same period, the GAO numbers indicate. The apparent elimination of an FSS "best price" in the wake of the passage of the Medicaid rebate law in 1990 was a key factor in the sharp six-year price increases for Dilantin cited by GAO. The government study singled out Dilantin as the product with the largest price increases among 29 drug products over the past six years. Dilantin's 348.7% increase to FSS over the last six years for 1,000-capsule bottles was the largest increase of any of the 29 drugs to a specific class of trade, according to the report. Dilantin 100-capsule bottles were second on the list, with a 334% increase to FSS. The bulk of the increase came in 1991: for the five years through December 1990, the FSS price for the 1,000- capsule bottles increased 54.7%. For the 100-capsule bottles, the FSS price increased a cumulative 57.8% between Dec. 31, 1985 and Dec. 31, 1991. The 1991 FSS prices for Dilantin still represent a 22% discount off of the company's reported direct price to retailers of $130.95 for 1,000 capsules and $16.83 for 100 capsules. From 1985 to 1990, FSS was receiving more than a 60% discount off direct price, the GAO numbers indicate. In ranking the price increases for the 29 products, GAO focused on "the maximum percentage price increase to a particular class of trade." Warner-Lambert also provided data on Dilantin's AWP, direct price and Department of Veterans Affairs depot price, all of which increased at lesser rates: 112.1%, 112.1% and 288.6%, respectively. (For a list of the 29 products and their maximum and minimum increases, see chart p. 12.) Warner-Lambert reduced its discount to the V-A depot, the GAO numbers indicate. After a cumulative 52.9% increase from 1985 through 1990, the price for a 1,000 capsule bottle jumped 154% in 1991, from $17.71 to $45. The V-A depot still received a 65.6% discount off direct price in 1991, according to the GAO numbers, down from discounts of over 80% in previous years. The GAO report, entitled "Prescription Drugs: Changes in Prices for Selected Drugs," was prepared at the request of Reps. Stark (D-Calif.) and Dorgan (D-N.D.). The 29 products were identified in a September 1991 Senate Aging Committee report as drugs priced substantially higher in the U.S. than in Canada. The GAO data, however, appear more revealing in the light they shed on the changes to deep discount accounts after the enactment of the Medicaid best price rebate formula. GAO obtained the data by asking companies to provide information by pricing category for each listed drug product, effective Dec. 31, 1985, 1989, 1990 and 1991; firms were also asked to cite reasons for price increases. The percentage price increase for each drug published in the study represents "the maximum percentage price increase to a particular class of trade including average wholesale price, list price to wholesalers, direct price to retail pharmacies, and V-A depot, federal supply schedule and government open market prices." The report notes that "prices for nearly all 29 drug products increased more than the percentage changes for all three consumer price indexes [all items, medical care and prescription drugs] for the six-year period." During this period, GAO said, the CPI increased 26.2% for all items, 56.3% for medical care and 67% for prescription drugs. The survey was conducted from November 1991 to April 1992. While the Medicaid rebate law appears to be behind the FSS and depot price rises for Dilantin, Warner-Lambert's pricing for the drug was also influenced by an unusual marketing situation. Bolar launched the first supposedly bioequivalent phenytoin formulation in 1985, then withdrew the product in 1990 when fraud was uncovered in the ANDA submission. A second generic equivalent, manufactured by Sidmak, was approved in 1986 only to be withdrawn in 1987 after therapeutic interchange problems were discovered. Since 1990, Dilantin has once again been free of "AB"-rated competition. The 112% increase in direct price and AWP for Dilantin is faster than the 67% increase in the Consumer Price Index prescription drug inflation rate cited in the report. However, brandname marketers traditionally have raised prices in the face of generic competition to offset market share losses. Warner- Lambert has raised the Dilantin AWP by 5% since Dec. 31. As of June 27, 1,000 capsules cost $164.99 AWP, according to the August Medi-Span pricing guide. The report states that "the Warner-Lambert company said that recent price increases for Dilantin resulted, in part, from changes in market conditions caused by the manufacture and sale of a fraudulent generic version of the drug and the withdrawal of another version due to therapeutic problems." The company added that "the U.S. Pharmacopeial Convention narrowed Dilantin's assay specifications to improve the product's quality and consistency, making it more difficult and costly to manufacture," GAO said. Wyeth Ayerst's Premarin (conjugated estrogens), a drug facing market conditions similar to those of Dilantin, is also part of the GAO survey. Like Dilantin, Premarin first faced generic competition during the 1985-1991 period and then regained its exclusive position due to bioequivalence problems among the generics. For the six-year period, direct price and list price to wholesalers for 100 .625 mg tablets increased 160.3%, from $10.17 to $26.47. V-A depot prices, which are exempted from Medicaid "best price" calculations, increased more slowly, up 60.1% from $3.33 to $5.33 for the period. The GAO report also indicates that the Medicaid rebate law affected Premarin's FSS price. According to GAO, Premarin's FSS price more than tripled from $6.12 on Dec. 31, 1990 to $19.85 on Dec. 31, 1991, a 224.3% increase. Wyeth-Ayerst did not report FSS prices prior to 1990 so that category was not included in GAO's six-year price chart. The report states that Premarin's "1991 FSS price increased because the 1990 FSS price was set close to the depot price and a new five-year contract was to begin in 1991, according to the company." According to GAO, Wyeth-Ayerst added that "in 1989 it began adjusting Premarin's price to all institutional customer classes to a level more representative of the product's clinical value" in light of newly-approved indications. DuPont Merck has three of the 29 products surveyed by GAO -- Percocet and two strengths of Coumadin. The firm was the lightning rod for early concerns about changes in "best prices" in response to the Medicaid law; both Percocet and Coumadin were specifically cited by Sen. Pryor (D-Ark.) in remarks on the Senate floor ("The Pink Sheet" April 8, 1991, T&G-3). The GAO report indicates that the congressional attention may have had an impact. "Although DuPont decided to continue providing low prices to federal depots, it initially did not make a similar exception for FSS sales. Due to congressional and V-A concerns, however, the company subsequently reinstated Percocet's 1990 FSS price of $1.07 [per 100 tablets] in September 1991," the report states. That price represents a 97.7% discount off list price. The company did not provide FSS data for Coumadin. Ciba-Geigy acknowledged that the Medicaid rebate law played a role in its FSS pricing for Lopressor (metoprolol). "Following enactment of OBRA in 1990, the company said, it reduced some of the discounts offered for government purchases from the FSS to ensure that they did not result in a decrease in profitability of its product lines," GAO reports. Ciba-Geigy raised the FSS price for 1,000 tablets of 50 mg Lopressor by 25.8% in 1991, the report indicates, and a total of 124.8% for the six years. The discount off AWP for FSS purchasers dropped from 64.7% in 1990 to 29.2% in 1991. A number of companies in the GAO report, including Warner- Lambert, cited increased R&D spending as part of their rationale for price increases. Warner-Lambert "said it had increased research expenditures by more than 16% each year over the past five years and recently committed $110 mil. to upgrade its research facilities," the report notes. According to Warner-Lambert annual reports, the company's total R&D spending increased 103% between 1985 and 1991, from $208 mil. to $423 mil. In his inaugural address in May, Pharmaceutical Manufacturers Association Chairman Paul Freiman (Syntex) argued that the industry should move away from using increased R&D costs as a defense against criticism about price inflation ("The Pink Sheet" May 18, p. 5). However, in the GAO report, several PMA member firms in addition to Warner-Lambert cited their increased R&D costs as explanations for price increases. PMA itself joined the refrain, citing industry-wide R&D spending as a point to be considered in judging pharmaceutical costs. Boots Pharmaceuticals, for example, maintained that its 143% increase in AWP for Synthroid was based on the fact that the marketer of the product as of Dec. 31, 1985 "was not a research- based pharmaceutical company." Boots acquired Synthroid when it merged with Baxter subsidiary Flint Labs in 1986. The company has since based Synthroid's price on "best business judgement as to the price that is appropriate to cost containment measures and to support the continued development by Boots of new drug therapies," the GAO report says. In addition to citing R&D costs, PMA noted that price increases as tracked by the Producer Price Index have moderated in recent years, dropping to 6.3% for the June 1991-June 1992 period ("The Pink Sheet" July 13, p. 18). PMA added that seven member firms have committed to holding price increases at or below the general CPI inflation rate. Data from the Hearst Corp.'s First DataBank half-year update on pharmaceutical price changes in 1992 show that from January to the end of June drug price inflation has continued to slow down based on listed AWPs. The average percentage price change for the 56,778 products considered in the survey was an increase of 2.8% in the first half of 1992 versus a 4.6% increase during the first half of 1991. The average price change was a 12.2% increase during the first half of 1992 versus an average price change of 16.6% during the same period last year. In addition, there were fewer products with price changes in the first half of 1992: 22.7% versus 27.5%. GAO notes that other factors cited frequently by firms explaining drug price increases were "expansion of manufacturing capabilities or changes in manufacturing specifications to improve product quality; prices for comparable therapies; increased product value due to new indications or uses; physician and patient education programs; increased exposure to product liability litigation; an accelerated approval process for generic drugs that shortens the period during which companies can recoup their R&D investments; and inflation." The GAO report also focuses only on brandname products without tracking the prices of the actual ingredients. For example, ICI's Tenormin is included in the report and noted as having over 80% increases in AWP, depot and FSS prices. The data do not evaluate the impact of newly-launched generic versions of atenolol -- by ICI itself as well as outside generic competitors. Generic atenolol prices to the trade reportedly have declined between 60% and 85% since January. Direct prices now being paid for 100-tablet bottles of atenolol 50 mg are below $20, with large volume purchasers receiving prices in the $8-$10 per bottle range, according to trade sources. However, published direct prices for generic atenolol products in the July RedBook update continue to hover in the $50-$55 per bottle range for the 50 mg strength, while AWPs for the same strength are listed in the $60-$76 per bottle range. In announcing the findings of the GAO report, Rep. Stark renewed his rhetorical attack on industry pricing. Calling the prices "outrageous" and an example of "unbridled greed," Stark dismissed the industry explanations: "I hope their pills are better than their economic arguments."
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