How to Make Big Bucks Flipping Drugs

Buy the rights, hike the price, resell

Dealmakers have always flipped companies, but lately they’ve been flipping something else: aging pharmaceuticals, according to a Bloomberg report.

A typical scenario is the sudden popularity of Actimmune (interferon gamma-1b), developed by Genentech decades ago. In 2012, rights to the immune-disorder treatment were acquired by a company backed by private equity. The price jumped 434% in two years, and Actimmune was hot again. Investors sold the drug to Horizon Pharma for a $600-million profit.

In another example, Sebela Pharmaceuticals bought Miacalcin (calcitonin salmon), an injectable drug for hypercalcemia, from Novartis in August 2014. During the next eight months, the price of the drug rose more than 2,800% to $1,987 per vial from the original cost of $68. About a year later, Sebela sold Miacalcin to Mylan “for a substantial gain.” Since then, Mylan has hiked the drug’s price another 15% to $2,283.

Such maneuvers are perfectly legal, according to the Bloomberg article. But they reveal a little-known part of the pharma landscape where drug prices are not regulated.

Drug flippers tend to grab products that have little competition, Dr. Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota, told Bloomberg. “They’re taking advantage of a dysfunctional market,” he said.

The formula is simple: buy the licensing rights to a medication, boost the price, put the rights back on the market, and pocket a profit.

Dimitry Khmelnitsky, an analyst at Veritas Investment Research Corp., called the practice “financial engineering.” By buying up old drugs that have little or no competition, “you can fly under the radar” and jack up prices, he said.

Approximately 650 branded drugs doubled in price between 2011 and 2016, and prices went up 500% or more on about 100 of them, Bloomberg reported.

Source: Bloomberg; November 2, 2016.