Earlier this week, Hillary Clinton released a new campaign ad targeting Valeant Pharmaceuticals (VRX) and its drug price increases. “I’m going after them,” says the Democratic presidential candidate in the ad.
Clinton goes on to lament the plight of a woman standing nearby: “She has to take a brand-name drug, been taking it since the early 1980s,” the candidate says, explaining that the price of the drug has multiplied nearly 82 times in the decades since to $14,700 for a refill today. “This is predatory pricing,” Clinton says. “And we’re going to make sure it is stopped.”
The problem, though, is the predatory price gouging that Clinton references in the ad has already been stopped. You can currently get the same 10-vial package referenced by Clinton for just $104 at Walmart (WMT), according to GoodRx.
Clinton didn’t name the drug in her ad, but Valeant was quick to identify it as the injectable migraine treatment D.H.E. 45—which went generic in 2003, before Valeant even owned it. Contrary to Clinton’s assertion that the patient “has to take a brand-name drug,” the patient has for the last 16 years had the option to take a much cheaper generic version of it. In fact, the drug—now manufactured generically by Perrigo—may cost even less today than it did back in 1980.
While exorbitant drug price hikes by Martin Shkreli’s Turing Pharmaceuticals and Valeant have sparked outrage in Washington and tanked the stock prices of much of the pharmaceutical sector in the last six months, there’s growing evidence that the controversy may be more smoke than fire.
Often it turns out that the price increases by Valeant and Turing that have provoked the most criticism have been on drugs that are off-patent—meaning generic competitors are free to enter the market, typically bringing the price that most people pay for the drugs way down. It doesn’t always happen this way. The ongoing Congressional investigation of those companies has smartly zeroed in on price hikes of drugs that have no generic alternative. But regulations, business, and free market forces are increasingly taking over to usher in generics and steer patients towards them, effectively neutralizing the impact of Valeant’s price increases and its ability to gouge.
More health plans and employers are signing up with pharmacy benefit managers like CVS Health (CVS) and Express Scripts (ESRX), which control the list of drugs those insurance plans will cover, increasingly restricting patients from taking unreasonably high-priced drugs. “Those companies are turning into a gatekeeper to keep that from happening,” says Motley Fool portfolio manager Charly Travers.
Last week, for example, CVS said that prescription drug “hyperinflation”—defined as price increases of more than 100% and as much as 5,000%—contributed less than 0.7% to overall cost growth for its PBM clients. CVS said it achieved this in part by excluding Valeant diabetes drug Glumetza from its standard formulary, or the list of drugs typically covered by insurance, because a generic version of the medication was available. Indeed, 90% of Valeant’s drugs are either excluded from or have limited coverage under CVS formularies. Last week the company also reduced coverage for Valeant’s toe fungus treatment Jublia, saying that patients under its benefits programs should instead try a less expensive remedy.
When no such controls are in place, scenarios like the one portrayed in Clinton’s ad can happen. Part of the problem, though, is that the drug increases that Clinton complains about actually don’t fall to the consumer. Valeant, for example, said it approached the patient in the ad after being made of her situation earlier this winter, and offered her payment assistance. She apparently declined, saying she wasn’t bothered much by the price increase because her insurance plan covered the drug anyway, according to the version of events that Valeant posted on its website Tuesday. Coverage or not, Valeant said that less than 1% of patients still take Valeant’s branded migraine drug, with Perrigo (PRGO), which makes a generic, outselling the branded version 250 to 1. Only about 200 patients or fewer will take Valeant’s branded version of the migraine drug this year, amounting to less than $1 million in sales (about 0.01% of the company’s annual revenue).
Clinton may still have had the right idea in wanting to prevent companies from price-gouging patients on life-saving drugs. Indeed, five other Valeant drugs singled out in recent Congressional hearings are off-patent but have no generic competitors yet. That lack of alternative appears a major factor in Valeant’s calculus when it raised the drugs’ prices as much as 800% last year, according to a memo released last month by the House Committee on Oversight and Government Reform. “Although Valeant officials anticipated that both drugs would eventually face competition from generic manufacturers, the documents obtained by the Committee show that they sought to exploit this temporary monopoly by increasing prices dramatically to extremely high levels very quickly,” the lawmakers wrote.
A spokesperson for Valeant tells Fortune that it sets drug prices based on “the availability of substitutes or generics,” as well as what it paid to acquire or develop the drug and its need to finance its own manufacturing and other investments. The company couldn’t say whether its drug price increases have typically occurred before or after a generic version launches, but said that once a generic is available, it would expect to lose so much market share that it “needs to increase the price to keep production of the drug viable.” (Currently, there is a shortage of Valeant’s Nitropress, a heart drug that is off-patent but has no generic version—despite the company having tripled the drug’s price “overnight” last year, according to the House committee.)
Valeant wants to make sure it can afford to keep producing the branded versions of a drug, the spokesperson added, in case doctors or patients decide they prefer it to the generic. “We believe it’s important they have that choice,” the spokesperson said. (CVS could not immediately answer a question from Fortune about whether its formularies only exclude Valeant drugs that have a generic alternative—or whether patients taking a Valeant drug with no generic option could expect any insurance coverage.)
The Hillary campaign did not respond to a request for comment, but it’s safe to say that the presidential candidate would support patients’ choice. And this is ultimately Valeant’s best defense for its price hikes. After all, patients and doctors who choose Valeant’s drugs when an identical generic version is available are already volunteering to pay extra for the brand name. That hardly makes them victims of predatory pricing, any more so that someone who buys a five-figure Louis Vuitton, even though a department store knockoff is readily available. That would be silly, right?