Insulin Drug Makers Accused of Price-Fixing Plot

(CN) – Diabetes patients filed a class-action RICO suit against the three major manufacturers of insulin, claiming they schemed to inflate the cost of the life-saving medication for their own profit.

Novo Nordisk, Eli Lilly and Co., and Sanofi U.S. are the three primary makers of insulin, a drug that diabetic patients need on a daily basis to survive. Patients filed a 171-page lawsuit against the pharmaceutical companies Thursday in New Jersey federal court on the heels of another action filed in Boston earlier this week.

Insulin was first synthesized for human use in 1922, and the first synthetic insulin was produced in the early 1960s. Little has changed about the drug since.

However, despite little to no costs for research and development, the price of insulin has skyrocketed over 150 percent in the last five years, and tripled in price from 2002 to 2013, patients claim.

Drugs that used to cost $25 now cost between $300 and $450. Some patients pay almost $900 per month for their medicine, according to the complaint.

Price-gouging by pharmaceutical companies frequently made headlines in 2016, and President Donald Trump pledged to address increasing drug prices in his campaign, saying the industry was “getting away with murder.”

Public outrage followed Martin Shkreli’s decision to increase the price of a drug to treat toxoplasmosis 5,000 percent from $13.50 to $750 a pill, and Mylan Pharmaceuticals CEO Heather Bresch was likewise called before Congress to explain the sixfold increase in the price of the Epipen used to treat severe allergic reactions.

The alleged price-gouging of insulin has a far wider impact than these prior scandals, as an estimated 29 million people in the U.S. suffer from the disease.

“Increased benchmark prices [for insulin] are the result of a scheme and enterprise among each defendant and several bulk drug distributors,” the complaint says. “In this scheme, the defendant drug companies set two different prices for their insulin treatments: a publicly-reported benchmark price – also known as the ‘sticker’ price – and a lower, real price that they offer to certain bulk drug distributors.”

The three biggest pharmacy benefits managers, or PBMs – Express Scripts, CVS Health, and OptumRx – are the biggest of these bulk distributors, controlling more than 80 percent of the market with $200 billion in annual revenue.

As compensation for their role in negotiating the drug prices paid by insurance companies, PBMs pocket a percentage of the difference between the reported benchmark price, and the real price they secure – a price that is protected from public disclosure as a trade secret.

“Taking advantage of these realities, drug manufacturers competing with the same therapeutic class have begun to offer the PBMs higher benchmark prices instead of lower real prices,” the complaint states. “In other words, instead of marketing lower real prices to PBMs, they market the spread between prices. The drug manufacturer with the largest spread between benchmark and real price is more likely to secure a PBM’s preferred formulary position, and, as a result, the business of that PBM’s clients.” (Emphasis in original.)

A Bloomberg analysis shows Sanofi and Novo Nordisk increased their benchmark prices in 2014 in lockstep, strongly suggesting to diabetes patients that the companies acted in concert to inflate insulin prices.

Patients claim the impact of the drug companies’ conduct has been financially devastating.

“Patients’ out-of-pocket payments for their medications are typically based on their drugs’ reported benchmark prices, not their concealed real prices. As a result, defendants’ benchmark price arms race has saddled individuals living with diabetes with crushing out-of-pocket expenses,” they say.

Some class members claim they are forced to go without insulin and directly threaten their health because they cannot afford the drug’s steep price increases.

“I often cry, and I think, have I done something wrong that I can’t afford to take care of myself?” one unidentified diabetes patient was quoted as saying in the complaint.

Another expressed anger, saying, “I feel so taken advantage of; now, I can’t afford my medications, and for what? All so some drug company can profit from my sickness?”

In Europe, insulin costs about one-sixth of what it does in the U.S. because the government is directly involved in negotiating drug prices with the pharmaceutical companies, according to the New York Times.

Patients are not the only class alleging the drug makers engaged in an illegal scheme to inflate prices. Novo Nordisk shareholders filed a securities class action against the company two weeks ago, claiming it colluded with Sanofi and Eli Lilly to set the prices for insulin, thereby falsely inflating its share price.

The patients’ class action seeks damages for violations of the federal RICO Act, and makes claims under all 50 states’ consumer fraud statutes. They are represented by James E. Cecchi with Carella, Byrne, Cecchi, Olstein, Brody & Agenello in Roseland, N.J., and Steve Berman with Hagens, Berman, Sobol, Shapiro in Seattle.

Gregory Kueterman, an Eli Lilly spokesperson, said in a statement, “Lilly disagrees with the allegations reported to be in the lawsuit. We conduct business in a manner that ensures compliance with all applicable laws, and we adhere to the highest ethical standards.”

Novo Nordisk and Sanofi also issued statements denying the allegations.

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