Prescription Drug Prices Often Spike When This Duo Shows Up
(Bloomberg) -- For at least the past three years, Todd Smith and Benjamin Bove have crisscrossed the U.S., offering a sure-fire fix for struggling pharmaceutical companies. And wherever they go, the price of prescription drugs tends to skyrocket.
While Martin Shkreli, nicknamed Pharma Bro, became notorious for sharply — and unapologetically — increasing drug prices, Smith and Bove have quietly plied their trade helping to kick-start drug company sales.
The Chicago-based duo has played important roles at no fewer than four companies that have raised prices on life-saving and other drugs by as much as 4,116 percent.
Their strategy is simple and, they say, good for patients: Thwart efforts by health plans to block access to drugs — and serve up what Smith calls their “special sauce” to get those meds into the hands of customers who need them.
The main ingredients include copays that are often zero, even for pricey drugs. Smith, 48, and Bove, 40, also offer the use of so-called specialty pharmacies — one of which they previously owned — to make it hassle-free for doctors and more affordable for patients. Yet critics point out that, over time, everyone might end up paying the price in the form of higher premiums.
“It’s totally a wrong way to frame the issue to say it’s free to the patient,” said Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. “It’s ripping people off.”
If nothing else, Smith and Bove’s business strategy illustrates a drug-pricing ecosystem that many agree is deeply flawed. President Donald Trump has accused drug companies of “getting away with murder,” and his Health and Human Services Secretary, Alex Azar, has vowed to bring drug prices down. Yet the system is averse to change because so many of its key players continue to profit from its complexity and lack of transparency. Patients, meanwhile, are faced with fewer choices and higher deductibles and insurance premiums.
“These sophisticated traps are designed to pay off certain members of the supply chain in a way that exploits the employer, the insurance company and the consumer,” said Michael Rea, chief executive officer of Rx Savings Solutions, which has an app that allows patients to find lower drug costs.
Bloomberg News interviewed 19 former employees from seven companies where Smith or Bove have worked or consulted. They spoke about the sales strategies and their interactions with the duo over the course of several years. All requested anonymity, either to protect professional relationships or because they signed nondisclosure agreements.
Both Smith and Bove declined requests for interviews.
Their “patient-access-centered model” is a “creative approach to ensure physicians and patients are not encumbered by the current broken system,’’ said Rand Walton, a spokesman for Novum Pharma LLC, where Smith serves as chief executive officer and Bove is an officer, records show.
Smith and Bove weren’t in positions to make pricing decisions at some of the companies, Walton said. The majority of the drugs that Smith and Bove have dealt with haven’t incurred significant price increases, he added. Walton declined to comment on Smith’s and Bove’s work as consultants.
A 2015 printed sales pitch, reviewed by Bloomberg News, was prepared for Kaleo Inc., a company that sells auto-injectors for severe allergic reactions and opioid overdoses. The document says Smith and Bove’s business model includes “proprietary” tools to increase the “fill rate” for prescriptions.
While many details remain murky, one former colleague from another company who is familiar with the business strategy said it involves using data analytics to identify gaps in the insurance system that might allow drugs to be covered, either through generous health plans or through insurers that tend to let price hikes on lesser-used drugs fall under the radar and get approved. They also target doctors likely to prescribe the drugs, former employees said.
“We absolutely do not and have never identified or targeted specific insurance plans,” said Walton.
Even so, once Smith and Bove arrived at a company, huge price increases often followed.
At Novum Pharma, the wholesale price of a tube of the skin gel Alcortin A jumped to $7,968 in 2016, from $189 in 2015, according to Connecture Inc., which tracks drug prices. That’s a 4,116 percent increase.
At Iroko Pharmaceuticals LLC, the cost of an arthritis drug called Indocin nearly tripled in January, to $2,550 for 30 suppositories.
At Kaleo, the wholesale price of a two-pack of a naloxone auto injector called Evzio increased to $4,100 in 2016, from $575 when it was introduced two years earlier at a lower dose.
At Horizon Pharma Plc, the price of a bottle of Duexis, an arthritis medicine, rose to $1,030 in 2014, when Smith left the company, from $140 in 2011.
Walton, speaking on Novum’s behalf, said the wholesale price has no bearing on the cost of its products because it doesn’t consider factors such as patient assistance and rebates. He said the company has improved patient access to its products, resulting in “very low profits,” about $18 per prescription.
Kaleo said Smith and Bove no longer work with the company, and it defended its pricing strategy. “In our view, the most important price is the price to the patient,” Kaleo said in a statement. “Since launching Kaleo’s enhanced patient-access program in 2016, more Americans can obtain naloxone for $0 today than ever before.”
Iroko didn’t return messages seeking comment.
Horizon officials declined to be interviewed.
Unlike many other countries, the U.S. doesn’t directly regulate the price of drugs, so companies can charge whatever the market will bear. Nonetheless, huge price hikes in recent years caused outrage among patients and lawmakers. Shkreli — the founder of Turing Pharmaceuticals who’s serving a seven-year prison sentence on unrelated charges — appeared before Congress, where he was asked to explain why his company’s medicine cost so much, as was Mylan NV Chief Executive Officer Heather Bresch and Valeant Pharmaceuticals International Inc. CEO Michael Pearson.
Smith and Bove, however, have maintained low profiles. They tend to work with smaller, privately held companies and rarely post on social media. Patients haven’t raised much of a stink about prices, either, because they pay little or no money at the drugstore to get their drugs.
Some of the largest insurers and pharmacy benefit managers have blocked Evzio and other high-priced drugs from coverage. Others allow exceptions or aren’t closely monitoring all claims. Smith’s and Bove’s approach depends on enough health plans covering the drugs to make a profit.
It was at Horizon that Smith and Bove appear to have honed much of their business strategy. Smith arrived in 2010 as a senior vice president after stints at a half-dozen other health-care companies, according to his LinkedIn page. Bove, a management consultant with two master’s degrees from Northwestern University, came on board the next year. Prior to working at Horizon, the pair played together in a recreational basketball league, according to another former colleague. Their arrival at Horizon coincided with a volatile time for the company. Its first product, Duexis, an arthritis treatment that combines ibuprofen and the active ingredient in Pepcid, was approved in 2011. But a public offering later that year fell flat.
Strapped for cash, Horizon more than doubled the price of a bottle of 90 Duexis pills in March 2013, to $502, according to one former employee and Connecture data. Under the oversight of Smith, who was by then the chief commercial officer, Horizon kept raising the price, the employee said. A bottle of Duexis now costs $2,482.
Horizon also bought the U.S. rights to Vimovo, a competing product, in 2013, and raised its price.
Bove, meanwhile, oversaw a program called Prescriptions Made Easy that sought to reduce hassles for doctors and costs for patients to mitigate barriers imposed by drug plans. It subsidized copayments and routed prescriptions through a network of specialty pharmacies.
Specialty pharmacies are often used for complicated and expensive drugs. Horizon, however, turned to them to move more ordinary drugs. These pharmacies tend to spend more time than traditional drugstores ensuring that a prescription is greenlighted for insurance coverage. They also often mail drugs directly to patients’ homes to make sure prescriptions are filled and refilled.
Horizon’s fortunes improved as it expanded Prescriptions Made Easy, and in 2015, CEO Timothy Walbert received a $93 million pay package. But Horizon’s tactics drew lawsuits and negative publicity.
One of the specialty pharmacies was Clybourn Park in Chicago, which Smith and Bove started in 2014 while working at Horizon, according to Illinois state and court records. They created the pharmacy specifically to handle Horizon prescriptions, according to the records. Schondelmeyer, the Minnesota professor, said the arrangement raises questions about whether the pharmacy was acting in the interest of patients or its owners.
An investor lawsuit against Horizon said the pharmacy instructed its employees not to discuss price with patients, and routinely refilled prescriptions without patient authorization. The lawsuit was dismissed earlier this year.
Smith and Bove sold their assets in the pharmacy in 2016, Walton said.
In November 2015, Horizon received a subpoena from federal prosecutors seeking documents related to its patient-assistance programs and interactions with specialty pharmacies. The investigation is ongoing, according to a Feb. 28 regulatory filing by Horizon. The company has said it is cooperating and remains confident in its programs.
Smith left the company in October 2014, and Bove followed later, according to LinkedIn and former employees. They started their own business, Novum Pharma, in 2015, along with a handful of financial and healthcare veterans.
Novum bought three skin gels, including Alcortin A, from Primus Pharmaceuticals in 2015, and soon thereafter increased the prices. Aloquin jumped to $7,968 by the fall of 2016, from $201 before the purchase, and Novacort rose to $5,952, from $122, according to Connecture. They also took their business plan on the road. It’s not known how many companies they signed up as clients. But one of them was Iroko Pharmaceuticals in Philadelphia, which sells pain-management drugs. Smith and Bove were brought on at the start of 2017 to run the company, according to three former employees.
The duo also began working with Aqua Pharmaceuticals in 2017. There, they monitored how prescriptions are filled and began implementing a specialty-pharmacy model, according to two former employees. No major price increases have yet been made.
Aqua didn’t return messages seeking comment.
The two men started working with Kaleo as consultants in 2015, according to former employees. “First and foremost … I am a sales person,” Smith wrote in an Aug. 14, 2015, email. “I have held many positions in pharma/biotech but sales is absolutely my passion.”
The company was started by twin brothers, Eric and Evan Edwards, who were afflicted with severe childhood allergies. After college, they set out to design a better way to inject epinephrine, the medication that counteracts such allergic reactions.
Their invention, called Auvi-Q and approved in 2012, was about the size of a credit card. Among the features that set it apart from Mylan’s ubiquitous EpiPen were audio and visual cues to assist users.
By the time Smith and Bove arrived, Auvi-Q was struggling against fierce competition from EpiPen. It was ultimately pulled from the market in 2015 by its licensing partner, the French drugmaker Sanofi, after a voluntary recall over dosage.
Evzio wasn’t catching on either. Too many patients were frustrated by the need for prior authorizations, high deductibles and other barriers imposed by health plans, the company said. In 2015, about two-thirds of prescriptions weren’t filled.
Smith proposed a “radical change in commercial tactics (sales force, price, copay),” according to the 2015 sales pitch.
He was named chief commercial officer, but it was short-lived because employees complained about conflicts with his other companies, Novum and Clybourn Pharmacy, the latter of which Kaleo used as a specialty pharmacy, the employees said. Smith went back to being a consultant.
Before the two men arrived, Kaleo’s sales force had been targeting a mix of patients, including those on Medicare and Medicaid, as well as those with addiction issues, former employees said. Under the new plan, Kaleo shifted its efforts to customers with private insurance. By 2017, they represented 75 percent of Evzio prescriptions, up from fewer than 50 percent two years earlier, according to data compiled by Bloomberg.
On Feb. 1, 2016, Kaleo increased the price of Evzio fivefold, a decision that “allows us to begin a large-scale reinvestment back into ensuring patients have access to Evzio at a low cost and without typical insurance and pharmacy hassles,’’ according to a Kaleo PowerPoint presentation from January 2016, reviewed by Bloomberg.
The new business plan put pressure on the sales staff to deliver. Quarterly bonuses could reach $100,000, but sales representatives were expected to reach goals in a dozen weeks. Turnover was unusually high, according to former employees.
Kaleo’s revenues grew to $56 million in 2016, from $21 million in 2014, according to financial statements. But those gains were offset by higher sales and administrative costs, and the company continued to lose money. Its higher prices also attracted attention. In February 2017, dozens of members of Congress demanded to know why Evzio’s price had spiked. The company responded by sending a letter addressing their concerns.
A bigger problem was competition from a new naloxone nasal spray called Narcan. Marketed by Adapt Pharma Inc. and approved by the FDA at the end of 2015, Narcan cost just $125 per dose.
Faced with this rival and growing resistance from insurers, Kaleo last year reintroduced Auvi-Q, its original epinephrine drug.
It relaunched the drug in early 2017. EpiPens — whose rising price had caused a national furor — then cost $600 for two. The price of Kaleo’s two-pack: $4,500.
— With assistance by Robert Langreth
©2018 Bloomberg L.P.