How Valeant Tripled Prices, Doubled Sales of Flatlining Drug

Why Schiller as Interim CEO Is Good for Valeant
  • Wellbutrin antidepressant gets new life with free co-pays
  • List price increased 11 times since 2014 to $17,000 a year

No wonder investors once loved Michael Pearson. In short order, he managed to double sales of Wellbutrin XL, the popular antidepressant, even though far cheaper generics were out there.

But behind that move is an untold story that illustrates how Pearson and his controversial company, Valeant Pharmaceuticals International Inc., vaulted to seemingly unimaginable heights before falling back to Earth.

On Wednesday Valeant named an interim chief executive officer to replace Pearson, who is on medical leave with severe pneumonia. But the Wellbutrin XL sales strategy, like those of other Valeant drugs, is drawn from the playbook that Pearson followed while building Valeant into one of the hottest pharmaceutical companies around. Now it may raise new questions for investors about how the company can sustain growth.

Wellbutrin XL was transformed into a top seller in part via a relationship with a specialty pharmacy -- an arrangement similar in some ways to the one that plunged Valeant into crisis when it first came to light last year. While the relationship may account for only a portion of Wellbutrin XL sales, it nonetheless sheds light on how Valeant has landed at the center of a drug-marketing flap by often picking up the cost of co-pays for consumers and then steadily increasing the prices to insurers.

Even as the number of prescriptions filled for the drug have declined, dollar sales of Wellbutrin XL, Valeant’s third-best seller in the third quarter, have kept climbing as Valeant raised the price 11 times over the past two years. Wellbutrin XL, a once-daily version of a 30-year-old antidepressant, costs $1,400 a month, compared with a $30 generic version. Sales were on track to exceed $300 million in 2015, as of the third quarter, up from around $150 million in 2013.

Wellbutrin XL price increases, moreover, appear to be part of a broader Valeant strategy. Of more than 250 brand-name drugs surveyed at several companies, only prices for 10 Valeant products rose at double-digit rates in each of the first three quarters of 2015, according to a Bloomberg Intelligence analysis. For Wellbutrin XL, the average quarterly increase was 21 percent. The retail price for a year’s supply of the 300-milligram dosage is now about $17,000.

Securing Reimbursement

One way Valeant has been increasing sales involves the specialty pharmacy, Direct Success Inc. It’s based in Farmingdale, New Jersey, not far from the one in Pennsylvania, Philidor RX Services LLC, that sparked questions about Valeant and left Pearson struggling to contain the damage.

Specialty pharmacies are nothing like your local drugstore. They have been around for years to handle expensive, specialized drugs for patients with complex diseases such as cancer or multiple sclerosis. But some, like Philidor, have recently become controversial for the lengths they go to fill prescriptions with brand-name drugs and then secure insurance reimbursement.

Health plans and other critics say some specialty pharmacies have evolved into little more than marketing extensions for Valeant and other drug companies to push ordinary brand-name drugs where cheaper generics may be appropriate. And it’s unusual in the drug industry for an old brand-name drug with generic competition to enjoy the sort of sales burst that Wellbutrin XL has had.

There’s nothing illegal about selling drugs through a mail-order pharmacy. And some doctors prefer to prescribe branded drugs, including Wellbutrin XL, over generics because they believe they may be more effective or have fewer side effects.

‘No Hassles’

Direct Success manages Valeant’s Wellbutrin XL Guarantee Program. It offers the drug to consumers for low co-pays, or for free, while assuring doctors that their prescriptions will be honored with “no hassles.”

“Wellbutrin XL is sold through many channels, including the commercial channel, Medicare, Medicaid and the Department of Defense,” said Laurie Little, a spokeswoman for Valeant. Sales of Wellbutrin XL through a marketing program involving Direct Success “accounted for less than 5 percent of Wellbutrin XL sales,” she said.

In a statement posted online Friday, Valeant said that Direct Success has “no incentive to maximize reimbursement” for the drug. Direct Success receives a discount on the product and a fee when a prescription is filled, “regardless of whether they get any money from insurance.”

Cheryl McDaniel, the founder of Direct Success, said the private company owned by her and her husband operates independently from Valeant. She declined to comment on what other drugs the company may sell.

“We are committed to the highest ethical standards,” said McDaniel. “Any broad comparisons between Direct Success and Philidor would be inaccurate.”

Unlike Philidor, Direct Success has handled mail-order marketing for companies other than Valeant. In response to concerns that Philidor’s prescription-filling practices were inappropriate, Valeant has severed ties with the pharmacy, which is closing.

‘Tip of the Iceberg’

Valeant’s marketing relationship with Direct Success "raises the question of whether Philidor was just the tip of the iceberg," said Mark Merritt, president and CEO of the of the Pharmaceutical Care Management Association. Such relationships tend “to get patients to buy a much more expensive product they don’t need,” said Merritt, whose group represents pharmacy benefit managers, the companies that operate drug plans for insurers and employers.

Web surfers who land on the Wellbutrin XL site, or are directed there by doctors, can click on a guarantee program that promises patients with generous commercial insurance will “pay $0” for "unlimited use." Consumers whose insurance pays less than $100 are charged $50 a month.

An enrollment page for doctors enables them to approve Wellbutrin XL prescriptions without generic substitutes simply by signing and initialing a one-page form. “No hassles and no need for call-backs -- guaranteed. Your prescription decision is never questioned by the pharmacy,” the website says.

‘Under the Radar’

Richard Evans of SSR Health, an investment researcher in Montclair, New Jersey, said that Valeant has been able to pass through price increases for old drugs such as Wellbutrin XL because they have not drawn the attention of insurers, who have tended to focus their cost-cutting efforts on the bigger-selling drugs. 

"They were under the radar and really had not drawn payers’ attention," he said. Now that Valeant has attracted so much scrutiny, insurers are likely to start refusing to pay a premium for drugs like Wellbutrin XL, he said.

Aetna Inc. continues to cover Wellbutrin XL in most of its plans, although it encourages patients to use generics, a company spokeswoman said. Express Scripts Holding Co. said most of its plans cover the branded drug only if a physician vouches that cheaper generics have not worked. CVS Health Corp. said that Wellbutrin XL is subject to its highest co-pay level in its main plan and is not covered at all in some plans.

Even if some insurers refuse to reimburse for drugs like Wellbutrin XL, it can be profitable for drug companies to pick up the tab for co-pays, often via coupons offered to patients. If enough insurers pay to cover such drugs, the manufacturers more than make up for those that don’t. Manufacturers can earn a 4-to-1 to 6-to-1 return on investment on co-pay coupon programs, according to the Pharmaceutical Care Management Association. SSR Health estimates Valeant last year received about half the list price for Wellbutrin XL.

Growth Spurt

The rebound in Wellbutrin XL sales appears to roughly coincide with a growth spurt at Direct Success. McDaniel, a 58-year-old graduate of Ohio’s Miami University with a background in direct marketing, founded the company two decades ago in her home. Her husband David, the co-owner, is a former business editor at the Asbury Park Press. In July 2014, her husband’s former paper re-published a press release proclaiming "an explosion in growth" that more than doubled the size of Direct Success over two years.

Last June, Direct Success opened a second operations center in central Ohio, which raised the pharmacy’s head count to roughly 140. The opening of the Ohio facility also coincided with the beginning of Wellbutrin XL’s third-quarter sales spurt.

"Drugs that have recently come off patent (LOE) have found a second life by using our pharmacy," according to the Direct Success website, referring to the loss of exclusivity a branded drug faces when generics enter the market.

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