Why Are Drug Prices So High? Because Asshole McKinsey Consultants Figure Out Ways To Re-Patent The Same Drugs Over And Over

from the it's-a-scam dept

The House Oversight Committee recently launched an investigation into the giant consulting firm McKinsey, and its role in inflating drug prices as well as pushing opioids at every opportunity.

?Over the last decade, McKinsey & Company?one of the largest consulting companies in the world and a major U.S. government contractor?has engaged in a pattern of conduct that raises serious concerns about its business practices, conflicts of interest, and management standards,? wrote Chairwoman Maloney. ?The company?s support for drug companies pushing addictive opioid painkillers and raising prices for life-saving medications, even as McKinsey also advised the federal agency regulating their conduct, may have had a significant negative impact on Americans? health. McKinsey?s investments through an internal hedge fund?including in companies benefiting from opioid sales?also raise significant concerns about conflicts of interest.?

The opioid stuff is certainly scary, but more interesting to us at Techdirt is that the Committee also released a set of incredibly damning documents, of PowerPoint slides from McKinsey, presented to AbbVie execs about ways to jack up the prices on drugs, especially by bending over backwards to re-patent the same drug over and over again. Going through the slides is an exercise in observing pure evil. For all the talk of internet companies “putting profit over societal benefit” or whatever, these documents show deliberate planning by McKinsey to make sure that AbbVie drugs more or less bankrupt those who take them — often by blatantly abusing the patent system.

Some of the slides go back about a decade, at a time when the entire pharmaceutical industry was freaking out over its own failures to discover new and useful drugs that it could get monopoly rents over. Rather than building a nice sustainable business with nice sustainable margins, the pharma industry, over the last few decades, has focused on squeezing ridiculous monopoly rents out of the public by abusing patent laws. And, of course, you’ll hear that they need to do this to pay for all the research and development, and all the costs of trials and whatnot. Except nearly all those claims are bullshit.

Stories abound about the billions of dollars that it costs to develop a new drug — except studies have shown those numbers are massively inflated (a drug that the pharma firm claimed cost $1.3 billion to develop actually cost the firm only $55 million). Much of the actual costs (and research and work) are done by universities or through public funding from NIH and NSF. But all of the profits go to the big pharma companies.

But what McKinsey and AbbVie did with Humira is truly nefarious. As the presentations show, AbbVie (and its predecessor, Abbott) was terrified of facing any competition for Humira, a biologic drug that is used by many to treat arthritis, Crohn’s disease, and other diseases. Apparently it costs around $84,000 a year, though that link claims that if you’re lucky, perhaps insurance will lower that cost to just $60k. That same page claims the reason it costs so much is:

One of the reasons that Humira is so expensive is because it?s a complex medication to make. DNA technology must be used to create proteins for the drug?a process that can?t be replicated, unlike with synthetically manufactured medications.

Except, these internal documents from McKinsey tell a very, very, very different story. McKinsey and Abbott knew that other competitors entering the market would cut the price of Humira significantly:

The project was pitched as a way to assess this competitive threat and to look for ways to limit it, but throughout the report you see winks and nods towards abusing patent law to stop the competition, as well as pretending that biosimilar competition was somehow unsafe:

Note that the two items that actually might benefit the public: lowering prices and competing… are at the bottom of the list.

But what McKinsey really seems to love is this idea of “formulation change” to both extend the effective patent life of a drug… and to boost the cost, claiming that these “innovations” allow them to jack up the cost:

And, if you think maybe that doesn’t matter because the earlier version will go off patent, the way the scam works is that you get the pharma company to phase out entirely the older formulation a few years before the patent runs out, forcing patients to move onto the newer formulation. Thus, when the patent runs out on the earlier version, Pharma tells everyone that it would be a “step backwards” to go with a generic or biosimilar of the “earlier” formulation.

From there, the slides shift to a year later, when McKinsey is really all in on trying to find ways to reformulate Humira and extend the patent life (and the ability of Abbott to jack up prices). The slides make little attempt to hide the fact that this is all about protecting Abbott’s profits, not making anyone’s lives better. The presentation shows that McKinsey set up an internal incentive program to try to get various Abbott scientists to suggest any kind of ideas for how to patent new formulations of Humira to extend the patents covering it:

They don’t even hide the fact that this is entirely an effort to “broaden our Humira patent estate in response to Biosimilars.” It’s got nothing to do with improving things for customers. It’s about keeping drug prices high way beyond the expiration of the original Humira patents.

And what do Abbott/AbbVie scientists get for selling their soul and deliberately keeping prices of life-saving drugs way too high for most people? Apple devices. This is why they pay McKinsey the big bucks. They set up a program in which Abbott scientists would get an iPhone if they had an idea on how to extend Humira’s patents, an iPad if those ideas turned into an actual patent applications, and (yup) you’d get a Mac computer if the patent was actually granted:

There’s much more in the presentation, and Tahir Amin from I-MAK Global has an even more in-depth Twitter thread about this nonsense.

And… in an interesting bit of timing… just a week or so after the House Oversight Committee released these incredibly eye-opening documents, the Institute for Clinical and Economic Review released a big report detailing how recent US drug price increases are not supported by new clinical evidence. And guess which drug tops their list of the drug price changes having (by an order of magnitude) the most impact on how much people had to spend? Humira.

The report shows that because of unsubstantiated price increases on Humira, Americans spent an unnecessary extra $1.4 billion on Humira, thanks to a 10% increase in net price on a drug that a decade ago everyone (including Abbott and McKinsey) knew was facing the expiration of its patents, as well as expected competition from biosimilars.

As ICER noted in its release, in other countries, where Humira is actually facing biosimilar competition, prices are falling:

?While prescription drugs continue to arrive in the US with increasingly high launch prices ? often not aligned with those therapies? ability to improve patients? lives ? year-over-year price increases have slowed considerably since ICER began issuing these UPI reports,? said David Rind, MD, ICER?s Chief Medical Officer. ?However, there remain many high-cost brand drugs that continue to experience annual price hikes, even after accounting for their rebates. The most extreme of these is Humira, with an ever-escalating US price that contrasts starkly to its falling price in every country where Humira currently faces biosimilar competition. Even more concerning, several of these treatments have been on the market for many years, with scant evidence that they are any more effective than we understood them to be years ago when they cost far less.”

To McKinsey consultants and AbbVie scientists: were those iPhones worth it?

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Companies: abbvie, mckinsey

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Comments on “Why Are Drug Prices So High? Because Asshole McKinsey Consultants Figure Out Ways To Re-Patent The Same Drugs Over And Over”

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That Anonymous Coward (profile) says:

So they had to snatch a company that provides "advice" because it was to expensive to buy the whole FDA?

Something something former insiders running the FCC & benefiting corps bottom lines not people.

But Congress had a whole photo op where they walked out of a store with vials of insulin to show us the bad times were over.
I mean it was the shitty dangerous kind of insulin & no one looked at the lock step price hikes making the good insulin cost as much as an iphone each month.

Shocked, just shocked… I’m guessing PHARMA missed some donation goals.
I expect nothing to change, because it never changes.
Our government is bought & paid for and helping us isn’t even in the top 1000 things they care about.

ECA (profile) says:

this is big but

Can we add the new insulin?
As for some reason they Wont make the old version that was working for Lots of people, and the new one is synthetic and causing TONS of problems for people?
After changing over, a friend of mine is having complications, and multiple cancers.
AND we cant import the old stuff back into the USA.

And this game has been going on allot longer then 10 years.
Most of the work the Chemical corps do, is buy Out those people, university, Who ever made it. And if these drugs cost as much as they SAY, then we would have some very rich ‘Other people/companies’ Making the stuff.

This country is getting real silly. As the regs and laws change to the point that Corps can take advantage of the people the system and enough money to take over the gov., and little of this has anything to say the INTERNET CORPS DID IT.

didnt TD do a story about how the Pharmaceutical corps take advantage of generic companies?

Coyne Tibbets (profile) says:

The reason companies exist

We are surprised…

  • …a company would charge the highest price the market will bear?
  • …a company would act in its own interest to the exclusion of all others?
  • …a company would twist the law and influence regulators to its best advantage?

We should not be surprised: today, maximization of profit is the sole and only reason for a company’s existance. If the company did not do these things the board would throw its officers out.

When the original companies (e.g the Hudson Bay Company) were licensed, the license required them to benefit the public. Until we get back to mandating that, this is the behavior we should expect to get.

This comment has been deemed insightful by the community.
Derek Kerton (profile) says:

Re: The reason companies exist

Yes, but the part that kinda goes without saying is:

Capitalism may need some guard rails. And where the regulations now seem to work in favor of this style of business, maybe they shouldn’t? Maybe Intellectual Property rights are being bent out of shape to harm the general public. Maybe regs and laws should limit a company’s ability to succeed at this game, because, as you point out, of course they will do it if they can.

I mean, at some point, Techdirt should write something that is generally against abuses of intellectual property rent-seeking. But, until then, we’ll have to read between the lines.

ECA (profile) says:

Re: The reason companies exist

There is a trick that could of controlled all this.
But people seem not to get the idea.
DONT put more money into the system. Dont inflate the economy.
Its a F’ing game to them, and the gov created the rules, but they keep changing them to HELP the corps.
Help? Between the woulda/shoulda/coulda, the promises and the Failures. The only thing gained is? Nothing. The gov. isnt even forcing the contracts and promises made. How many of us have learned the problems with Signing a Contract? How many of us have HAD to deal with a contract. IF’ we sign a contract we have to live by it or ? Pay out the nose. The gov? Dont we wish we had the money that the gov has, to have contracts and promise and just throw money at the problem.
Give me 1 days wages for Any of the top 1%, and I could live the rest of my life and not worry about much of anything. $3000-5000 per hour, 24/7. And a place to hide it so I dont have to pay taxes? What could you do with $2-5 million in 1 month? I would think many of us could live a very good life. We could even afford medical bills.
The real problem tends to be if WE ALL had $1million, the prices of goods, would skyrocket. Only for them to have all that money back.

This comment has been deemed insightful by the community.
Mike Masnick (profile) says:

Re: Re:

University tech transfer offices divide up the money between the inventor, the university, and the company,

That must be why 87% of university tech transfer offices cost more than they brought in… https://www.techdirt.com/articles/20131122/01322825335/patenting-university-research-has-been-dismal-failure-enabling-patent-trolling-its-time-to-stop.shtml

So, no, the pharma companies definitely get the vast majority of the profits.

This comment has been deemed insightful by the community.
Chris ODonnell (profile) says:

I live this bullshit daily. Insulin costs about $1 per vial to produce. Retail cost for my wife would be $400 a vial if Virginia law didn’t limit it to $50 a month for insulin. That law just went into effect last year. The preceding two or three years, we hit her out-of-pocket maximum on a high deductible health plan in February each year, just from insulin and insulin pump supplies at retail.

Scary Devil Monastery (profile) says:

Re: Re:

Meanwhile in socialist Europe the cost of an EpiPen is about 1/10th of what it costs in the US. The US really did take a horribly bad turn with Reagan turning a nation with a vibrant socialist backbone and political influence into such a pariah that these days claiming tax money should be used for public benefit is seen as an unholy abomination to put down with fire and sword.

That One Guy (profile) says:

'Hundreds of deaths? Amateurs.'

As much as I rag on US police for acting like criminals and killing people on a whim you gotta hand it to the pharma industry to show what evil really is, deliberately keeping prices for drugs people need to live or at least not live in serious pain as high as possible because screw the peasants they’ve got another gold-plated toilet to buy.

As an added ‘bonus’ behavior like this really doesn’t help the non-sociopaths in the medical field convince skeptical people to trust the industry and as the ongoing pandemic is showing in abundance that can have deadly consequences so well done pharma execs, that body count of yours is likely to blow clean past any previous records by the time this is over.

Rekrul says:

While an investigation is good, I doubt anything will come of this. Even if they did plan to do something, as soon as republicans take over the House next year, any plans to do anything about drug prices will instantly be killed.

Remember the congressional hearing about drug prices a year or two ago where a republican had smoke shooting out of his ears at just the idea that maybe the government should look into why drug prices are so high?

This comment has been deemed insightful by the community.
Arijirija says:

casts validity of US patent system into doubt

There’s a general international rule that a nation-state grants other nation-states’ laws due faith and credit, unless otherwise indicated. An example would be a nation-state declaring all citizens five-foot high at age twenty non-citizens, which as it makes no sense, would be ignored by all other nation-states.

Here we have a major patent-issuing nation-state with such serious issues with its patent system, that no one can vouch for the validity and integrity of the "Intellectual Property" thus "protected". Much as the integrity and validity of the US banking system was cast into doubt by the derivatives crash of 2008, where the banks suddenly woke to the realization they could not guarantee their customers anything, let alone their own reserves.

I think India, for example, as a result of this new information, will be entitled to produce as much Covid-19 vaccinations as they need, without paying a shilling to the alleged IPR holders. Since this is fraud on a truly vast scale.

Anon says:


It’s the hundredth anniversary of the discovery of how to isolate insulin and use it to treat Diabetes Type I. By Canadians. In Canada. In a university lab not a pharmaceutical company. One of them got the Nobel prize for it. The other? He was a graduate student, and mere graduate students don’t get nominated for Nobel prizes, not when the guy making the call – the head of the university lab – could nominate himself instead. So Banting and Best "discovered" insulin, and Banting and McLeod got the Nobel prize.

After a hundred years, why isn’t this stuff just a low cost generic like aspirin? Gotta love big pharma…

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fairuse (profile) says:

Been There

1.Enbrel when introduced was powder; add adapter to vial, screw on syringe, slowly depress plunger to fill, swirl to mix, draw into syringe, unscrew from adapter, screw in needle, inject into leg, (I am keeping this simple by omitting usual sterile practice.) One doctor visit to insure everything is understood, NOT every week to doctor – BS is still BS.

  1. No side effects that were life threat.
  2. Enbrel sure click – side effects to stable compound.

Just wonder why TV ads for expensive Rx is permitted. Stupid ads in USA.

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