Turing’s Closed Distribution of Daraprim: Why Does It Exist?

“When Turing acquired Daraprim®, it also assumed the distribution channels, organizational decisions, and contracts that its predecessor, Impax, had put in place. Some of these decisions and operations were perceived to have limited, or at least changed, patient access to the drug.”

—Testimony of Nancy Retzlaff, Chief Communications Officer at Turing Pharmaceuticals, to the House Committee on Oversight and Reform, February 4, 2016

Turing Pharmaceuticals, by way of Retzlaff, claims that it inherited the closed distribution of Daraprim (pyrimethamine) from Impax Laboratories, the previous owner of the US marketing rights for the drug. While this statement may be technically true (and doesn’t reach the threshold of perjury), Retzlaff’s implication is that Turing had nothing to do with setting up the closed distribution of Daraprim. To go a step further, Martin Shkreli (ex-CEO of Turing) told Matthew Herper at the Forbes Healthcare Summit on December 3, 2015, that he and other Turing executives were actually surprised upon learning of the closed distribution of Daraprim, when the company acquired the marketing rights in August of 2015.*

Yet, several known and reported facts stretch the credulity of Retzlaff’s implication and Shkreli’s claim.

1) The closed or “controlled” distribution of Daraprim (Daraprim Direct for inpatients and Walgreens Specialty Pharmacy for outpatients) launched on June 15, 2015. A July 17, 2015, article at Pharmacy Times explained how hospitals and patients could no longer acquire the 62-year-old drug through the usual routes (ie, from wholesalers and a local pharmacy, respectively).

“For inpatient procurement, institutions can no longer order from their general wholesaler. Instead, they must set up an account with the Daraprim Direct program. Once enrolled, orders may be placed with the company until 6 pm Monday through Friday and will be delivered the next business weekday, because there is no weekend delivery at this time. To place an order through Integrated Commercial Services, institutions may call 1-800-554-6919 or email at daraprimdirect@icsconnect.com.

“For outpatient procurement, patients can no longer obtain the medication from their community pharmacy. All prescriptions must be transmitted to a single dispensing pharmacy: Walgreens Specialty Pharmacy. Upon insurance verification and co-pay collection, the prescription will be mailed to the patient’s home, and most prescriptions can be mailed overnight. Prescribers may contact Walgreens Specialty Pharmacy by calling 1-844-463-2727. The prescription and enrollment form can be downloaded from the Daraprim Direct website.”

Less than 8 weeks later, the US marketing rights for Daraprim were transferred from Impax to Turing on August 7, 2015, for $55 million. So one would have to believe that Impax established a closed distribution system for Daraprim independent of any ongoing negotiations with Turing for the marketing rights of Daraprim and less than 2 months before it actually completed the transfer of those marketing rights for the product. While this scenario is possible (I guess), it seems far-fetched, if not completely nonsensical, that a pharmaceutical company would exert the effort to set up a closed distribution for a product that it planned to sell in the very near future.

2) In fact, a memorandum from the House Committee on Oversight and Reform reveals that Turing had been attempting to acquire the marketing rights to Daraprim as early as the spring of 2015. And in an online interview with HIV activist Josh Robbins (approximate time stamp 13:10), Shkreli stated that Turing began discussions with Impax to acquire Daraprim in March of 2015.** So Turing was negotiating with Impax to buy Daraprim (and had plans to increase its price, per the House Committee memo) months before Turing acquired the US marketing rights to the drug in early August. Common sense would therefore dictate that the closed distribution of Daraprim was a Turing-demanded condition of sale. It was not something that was or should have been surprising to Shkreli or other Turing executives when Daraprim’s marketing rights were transferred from Impax to Turing in August. Moreover, Shkreli’s claim is refuted by information provided by the New York Times on September 22, 2015. Quoting an “early Retrophin investor, who saw the prospectus for the Turing offering [to Impax],” the NYT reported,

“A condition of the deal…was that Impax remove [Daraprim] from regular wholesalers and drugstores, which would make it harder for generic companies to obtain samples needed to develop generic copies. In June, two months before the sale to Turing was announced, Impax switched to tightly controlled distribution.”

In addition, an internal slide presentation at Turing (described in the House Committee memo, p 3) provides further evidence that Turing was motivated to set up (or have Impax set up) a closed distribution for Daraprim. The Turing presentation claimed, “Exclusivity (closed distribution) creates a barrier and pricing power.” So here the company reveals its rationale for setting up (or again, having Impax set up) the closed distribution of Daraprim. As is discussed next, Shkreli, as brief as his pharmaceutical career has been, is no stranger to the use of closed-distribution systems for his companies’ pharmaceuticals products.

3) It is notable that, outside of Daraprim, Impax does not appear to have a history of using closed-distribution models for its prescription products (eg, Rytary, Zomig, and many generics). However, the closed distribution of long-off-patent pharmaceuticals is THE brief-career business model of Martin Shkreli—both at Retrophin and at Turing. As Turing revealed in its slide presentation (quoted above), these kinds of closed-distribution models enforce a fabricated monopoly on long-off-patent prescription drugs and allow the marketer to raise the per-pill price to exorbitant, arbitrary levels. The intended effect is to curtail, for as long as possible, the acquisition of a substantial supply of the prescription drug by a would-be generic competitor. (Before a generic competitor drug can be marketed, the would-be competitor must perform FDA-required bioequivalence studies, showing that its product is comparable to the currently approved drug. These studies require a substantial supply of the currently approved drug–which, in the case of Daraprim, would have to be obtained from Turing.)

In fact, Jon Haas, head of Turing’s (ironically named) Patient Access Program for Daraprim, admitted as much to reporter Ed Silverman in October of 2015:

“…Haas acknowledged that a generic drug maker trying to order the pill would not be welcomed. ‘Most likely I would block that purchase…We spent a lot of money for this drug. We would like to do our best to avoid generic competition. It’s inevitable. They seem to figure out a way [to make generics], no matter what. But I’m certainly not going to make it easier for them.'”

Notably, Shkreli’s former company Retrophin*** currently offers 2 long-off-patent pharmaceutical drugs, both of which are used to treat rare conditions (cerebrotendinous xanthomatosis and cystinuria, respectively) and both of which must be accessed through a special company-directed distribution network (“Total Care Program”): Chenodal (chenodeoxycholic acid) and Thiola (tiopronin). In March of 2014, while Shkreli was still CEO of Retrophin, the company acquired the rights to Chenodal (after purchasing Manchester Pharmaceuticals) and raised the price 5-fold. In May of 2014, Retrophin acquired the marketing rights to Thiola and raised the price 21-fold, from $1.50 to >$30 per pill (for a source on these price increases, see the House Committee memo, p 3). In both cases, Retrophin removed direct access to the drugs through the usual pharmacy routes and established controlled-distribution systems, ostensibly to protect the price increases by delaying generic competition. As science blogger Derek Lowe wrote on September 11, 2014, while discussing the Thiola price hike:

“[Thiola] has no exclusivity left and is off patent. So what’s to stop someone else from filing an ANDA [abbreviated new drug application], showing bioequivalence, and competing on price (since there seems to be an awful lot of room in there)? Simon Lackner on Twitter sent me to this presentation from Retrophin on their purchase of the Thiola license. In it, you can see that their plan for this: ‘Similar to Chenodal, Retrophin will move Thiola into closed distribution’. Chenodal was the company’s previous brainstorm of this sort, when they bought Manchester Pharmaceuticals, details of which can be seen on this presentation. What they say on that one is ‘Closed distribution system does not allow for generics to access product for bioequivalence study. ANDA filings are impossible unless generic company illegally penetrates specialty distributor.'”

Unfortunately the links to the Retrophin presentations in Lowe’s post are no longer active. But they can still be found through the Wayback Machine here and here (the Internet never forgets). On slide 9 of the Thiola presentation, the company indeed presented, “Similar to Chenodal®, Retrophin will move Thiola® into closed distribution.” On slide 12 of the Manchester acquisition presentation, the company wrote, “Closed distribution does not allow generics to access product for bioequivalence study,” and “ANDA filings are impossible unless generic company illegally penetrates specialty distributor.”

In addition to Daraprim, Turing offers Vecamyl (meclamine HCl), another old drug, which it acquired from Retrophin (after Retrophin acquired it from Manchester Pharmaceuticals in 2014, along with Chenodal). This drug, like Chenodal and Thiola, can only be accessed through its respective “Total Care Program.”

4) The proposal here that Turing was fully aware of the establishment of the closed distribution of Daraprim (and, in fact, requested it) directly contradicts the surprise that Shkreli claims he experienced when learning of the closed-distribution program for Daraprim after Turing acquired the US marketing rights. But thanks to the recent hearing of the House Committee on Oversight and Reform, it is apparent that Shkreli is thoroughly capable of this kind of brash duplicity. For instance, on November 2, 2015, Shkreli publicly promised a price reduction of Daraprim (albeit not more than 10%) “in a few weeks” to HIV activist Josh Robbins (16:07). However, a newly released (redacted) email from Shkreli to a Turing investor indicates that, at approximately this time, Shkreli was actually considering a price increase on Daraprim.

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The issue of whether Turing’s closed distribution system for Daraprim violates antitrust law (by thwarting competition in the marketplace) is currently being investigated by the New York Attorney General, as well as the Federal Trade Commission. A recently available academic article, to be published in the Berkeley Technology Law Journal, thoughtfully examines this very antitrust issue–including a discussion of the Celgene/Lannett case mentioned in the Retrophin presentation, along with two other germane cases. The authors note that, because these 3 cases settled, “no final decisions on these issues were rendered. But the cases chart a potential path to liability for a brand manufacturer’s refusal to provide samples to generic rivals.” The authors also concluded, “Turing’s behavior warrants close antitrust scrutiny.”

* Shkreli furthermore justified the closed distribution of Daraprim by saying (and I’m paraphrasing here) that many expensive drugs are dispensed via closed distribution. How’s that for circular logic?

** Shkreli also stated that Turing initially offered Impax $30 million to acquire Daraprim, and the company declined (14:00).

*** Shkreli’s former company. Shkreli was ousted (or left) Retrophin in September of 2014. Retrophin is currently suing Shkreli civilly for $65 million, and this lawsuit is largely the basis of the federal indictment against Shkreli (and Retrophin’s former outside counsel, Evan Greebel).

02/09/2016 addendum: Apparently Retrophin never followed up on its development plans for Thiola. The drug, which is manufactured by the San Antonio firm Mission Pharmacal, remains available in a 100-mg tablet. Evidently no other dosages are offered, and no long-acting version has been formulated. (N.B.–Retrophin entered into a licensing agreement with Mission Pharmacal in May of 2014. “Mission Pharmacal” remains on the label of the drug, per Daily Med.) Likewise, a once-a-day formulation of Chenodal has not been developed. The Chenodal label indicates that the drug is manufactured for Retrophin; however, it does not state the manufacturer. Turing’s Vecamyl is manufactured by Nexgen Pharma of Colorado Springs. Turing is designated as the distributor, and the company name is the only name on the label.