A small biotech that filed for bankruptcy shortly after Martin Shkreli took control late last year hopes to shake off his stigma by vowing not to engage in “price gouging” and also committed to disclosing all costs associated with getting its drugs to market.
As part of its plan, KaloBios Pharmaceuticals also said on Monday that it would not take “arbitrary price increases,” and would limit any increase to no more than the rate of inflation or Consumer Price Index. Moreover, the company committed not to raising prices more than once a year.
“We believe this is the right model for us,” said Cameron Durrant, who was recently named chief executive officer, and who expects the drug maker to emerge from bankruptcy by the end of June. “We want to provide reasonable and transparent pricing.”
No other drug maker has made such commitments, although KaloBios has not released further details. Durrant said this is largely because the company does not yet market any medicines and so costs have not been determined. As a result, though, pharmaceutical industry watchers reacted with caution.
“It could be a conversation changer,” said Judit Rius, who manages the access to medicines campaign in the United States for Doctors Without Borders. “It’s potentially very important, but right now, it’s only public relations. They’re clearly trying to change their image.”
Another industry watcher agreed. “This is, hopefully, a precedent the rest of the industry can consider,” said John Rother, who heads the National Coalition on Healthcare, a group of insurers and employers, among others, that object to rising drug prices. “But we’ll have to see what this entails and we can’t judge it until we do.”
The move comes amid intensifying controversy over the cost of prescription drugs, which escalated, in part, thanks to Shkreli. The brash hedge fund manager last fall generated a firestorm after buying a life-saving medicine used mostly by HIV patients and jacking up the price by 5,000 percent.
He attempted something similar late last year after gaining control of KaloBios, which then acquired a half-century-old drug for treating Chagas disease, a parasitic infection that can cause life-threatening heart problems. Shortly afterward, Shkreli disclosed plans to raise the price of the drug more than one hundredfold, which would have placed the price on par with expensive hepatitis C treatments.
The drug is standard treatment in Latin America, where the disease is most common. But in the US, no therapy has ever been sold. Shkreli sought the drug because he also hoped to get a big payday from a federal program that awards review vouchers to companies to develop certain neglected tropical diseases. These speed the regulatory review process or can be sold to other companies, increasing their value.
Shkreli planned to seek marketing approval from the US Food and Drug Administration this year. But he was forced out after he was arrested last winter on unrelated charges of securities fraud. KaloBios then filed for bankruptcy protection, but recently lined up $14 million in financing.
Durrant, who joined the company this past January, acknowledged that the potential value of a priority review voucher is “one of the reasons we think we can take this approach and create affordable pricing,” he said. “It would be very difficult to do without the voucher.”
Other drug makers that have been awarded review vouchers by the FDA for pediatric disease treatments later sold the vouchers for between $67.5 million and $350 million.
And so, Durrant is seizing on the possibility and the larger pricing controversy in hopes of undoing the damage to the company’s reputation.
As part of his strategy, he said the company eventually plans to disclose all of the costs associated with getting its drugs to patients — including manufacturing, development, regulatory filings, and marketing — a move that the pharmaceutical industry has vociferously resisted.
Drug makers have long argued that R&D costs, in particular, are very high, especially since so many experimental compounds fail in testing. One report estimated that the typical drug costs about $2.6 billion to get to market. The figure was researched by the Tufts Center for the Study of Drug Development, which is partly funded by the pharmaceutical industry.
In an effort to gain transparency into pricing, various bills have been introduced in several states calling for drug makers to disclose their costs. A hearing was held this morning in Massachusetts to review one such bill and another will be reviewed in California later this week. In fact, the Obama administration called for companies to disclose their costs in its recent budget.
The pharmaceutical industry, however, argues such disclosure is counterproductive, because costs can be difficult to isolate and that consumer prices are determined by insurance coverage.
“It’s really up to other companies to determine what they do in terms of pricing,” said Durrant. “It’s not for us to tell them. We’re not claiming to be self-appointed spokespeople for the industry.”