Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Typically, the discovery that a product is less useful than initially thought does not cause that product's price to rise by more than 70 percent. 

But that's basically what has happened to Ariad Pharmaceuticals's blood-cancer medicine Iclusig, partly due to the sometimes-warped logic of pharmaceutical pricing. Vermont Senator Bernie Sanders has questioned Ariad's logic in this case, first in an October 14 tweet calling Ariad greedy, which hit the company's stock price by 14 percent. He followed up on Thursday with a letter demanding information about Iclusig price hikes, causing Ariad's stock to fall even further.

It's now clear Ariad will be the latest company in the drug-pricing stockade, and its travails will shine a spotlight on industry practices that have so far been mostly spared this kind of scrutiny. 

Fall-ing
Autumn has been rough for Ariad as Bernie Sanders has waged a one man crusade on its drug pricing practices.
Source: Bloomberg

Most public drug-price shaming has focused on specialty pharmaceutical firms, such as Valeant, that take extreme one-time price hikes on older drugs. Newer drugs for cancer and so-called "orphan" drugs -- medicines that treat small patient populations -- have mostly gotten a pass.

The government encourages orphan-drug development, and high prices are mostly accepted for new drugs in these areas, to make development risk worth it. And insurers don't care that much; far more of their spending goes to treating chronic conditions that affect large populations. So, yes, as odd as the logic sounds, the more narrowly useful the drug, the higher its price tends to be.  

But Ariad didn't originally develop Iclusig for 1,000 to 2,000 new patients a year. It was consigned to that future in 2013 after it became clear the drug wasn't safe enough for a broader population. Using that setback as an opportunity to justify a far higher price point for a vulnerable group of patients simply does not sit well. 

Probing Ariad's behavior in this case could open the industry's orphan-drug-pricing regime up to criticism. It seems unlikely Ariad is the only company to have taken this approach.

Another less-visible pricing practice Ariad is exposing is the method of raising prices not in one fell, Valeant-style swoop, but in many little jumps, which sure do add up:

WAC is Whack
Ariad has relatively slowly but very steadily increased the price of its blood cancer drug Iclusig
Source: Bloomberg

And there are other, sneakier techniques than outright increasing the price tag. For example, Ariad also reportedly stopped selling a two-month supply of its drug in favor of a one-month supply, yet kept the price exactly the same. 

Ariad's tactics are going to get a full and embarrassing airing. Sanders's letter requests a whole lot of data on the drug's pricing, strategy, and profit expectations. Want to know how damaging that can be? Just look at Mylan. Congressional attention about price increases on EpiPens has led to a cavalcade of criticism and a $465 million government settlement for overcharging Medicaid. Several Senators think the settlement doesn't go far enough

This is obviously rough news for Ariad, not least because its growth story depends in part on these price hikes.

What's scary for other drugmakers is that this is more evidence they're still being watched, even as a contentious election season winds down. It also means the universe of pricing behavior under scrutiny is expanding.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net