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'Staggering' Price Hikes Resulted In $5 Billion Payday For Ariad Pharma Investors

This article is more than 7 years old.

In October, Bernie Sanders tried to make Ariad Pharmaceuticals, a biotechnology company in Cambridge, Mass., the latest pharmaceutical villain, tweeting that Ariad was an example of the drug industry's "unbelievable" greed. A week later, he followed up with a letter, co-signed by Maryland Representative Elijah Cummings, asking Ariad to explain its "repeated and staggering price increases.”

At the time, Ariad shares sank. But this morning Ariad announced that it is being purchased by Takeda, the Japanese drug giant, for $5.2 billion. The $24 dollar-per-share purchase price represents a 75% premium to Ariad's closing price on Friday.

The lesson: drug price increase still pay off for companies and investors so long as they manage to weather the political storm. And that means that efforts by drug companies to self-regulate will have a hard time preventing egregious action.

As TheStreet's Adam Feuerstein explained before Sanders' tweet, Ariad initially launched its drug Iclusig in December 2012 as a treatment for patients with chronic myelogenous leukemia, a relatively rare cancer, who had been failed by Novartis' Gleevec. But in late 2013, Iclusig was briefly pulled from the market because of dangerous blood clots. When it re-entered the market that December, the Food and Drug Administration had restricted use to patients with a mutation that prevented them from responding to other chronic myelogenous leukemia drugs. Iclusig became a drug with a niche in a niche, cutting the number of patients who might take it substantially.

Ariad did what drug companies tend to do when fewer patients take a drug: it raised the price. A medicine that cost $115,000 a year when it was launched now costs $199,000 a year, with four price increases last year alone. This may seem backward, but it actually is simple economics: the patients who stay on the drug really need it, and it's more dear to them. But such increases also come into conflict with most people's (and senators') moral ideas about how the world should work. Let's be honest: a drug that causes dangerous blood clots should be worth less, right?

Not so here. And now its investors will lock in a big gain. People can demonize Martin Shkreli, or criticize Mylan Pharmaceuticals' chief executive Heather Bresch, all they want, but that by itself won't slow big price increases if they serve companies' bottom lines.