With the news that Novum Pharmaceuticals has filed for bankruptcy, Scripta discusses a case study in how bad actors game our pharmacy benefits system.

Novum Pharmaceuticals, Inc. was a bad actor from the very beginning. The company was founded in order to take advantage of the way we deliver pharmacy benefits here in America, and their story offers an object lesson on how profiteering by drugmakers is driving up health care costs.

Novum is a privately-held company based in Chicago. Back in 2015, the company was founded with the stated purpose of (in part) providing patients with reduced out-of-pocket costs for branded therapies. The company had purchased exclusive rights to three drugs that same year. By the fall of 2016, Novum was in trouble.

The company made the news in the wake of senate subcommittee hearings focused on drugmaker Mylan’s manipulation of EpiPen prices. The Financial Times reported that Novum, too, was engaged in price gouging.

Novum had raised the price of the skin gel they had purchased, Alacort, by more than 3,900%.

A second drug, Novacort (a corticosteroid ointment) went from $4,186 to $7,142.

The third, Aloquin, had been available from the previous owner, Primus Pharmaceuticals, for $241.50 a tube. Just eighteen months later, that same drug — which is a combination of two cheaper therapies – was listing for $9,561.

According to reporting at the time, Novum Pharma defended the price increases by claiming that patients would pay nothing or a small amount for their drugs. Of course, that meant insurers (including self-funded employers) would be footing the rest of the bill.

EVERYTHING OLD IS NEW AGAIN

As Dr. Paul S. Bradley notes, it’s not as if Novum was in business to develop breakthrough therapies. There are other, more affordable drugs that effectively treat the same conditions.

Aloquin, to take the most egregious example, combines two cheaper ingredients. The first is a iodoquinol, which has been around for decades. You can buy it over-the-counter (albeit combined with hydrocortisone) for $40 to $50. The other is an extract from the aloe vera plant. Aloe vera cream costs a few dollars.

Novum marketed Aloquin for the treatment of acne, but it is more specifically used to treat eczema and parasitic skin infections. If it worked, it would make sense as an option when hydrocortisone is not appropriate (as the company suggested in its literature). But according to the FDA, Aloquin and Alacort were only “possibly” effective.

To put it another way, there was only ever limited evidence that the drugs were effective, and quite “possibly” some evidence that they were not.

GAMING YOUR PHARMACY BENEFITS PROGRAM

We have warned against coupons and other patient assistance programs before.

As Michael Hiltzik, writing for the LA Times, put it back in 2016, “The drug companies hope that by taking the burden of high prices off the little guy, they can continue to charge full price to payers.”

And so while most patients with private insurance paid nothing for Novum products, and those without insurance never paid more than $35, their health plans were always paying the full, inflated price for a “possibly” effective drug with cheaper alternatives.

High-deductible plans were intended to make us all better consumers. Coupons and other patient assistance programs, which Big Pharma spins as a form of philanthropy, have the opposite effect. It is Big Pharma’s way of undermining your carefully constructed pharmacy benefits program.

Employees are going to take the drugs they are prescribed – especially if they are free – and when it comes to prescribing them, Doctors do not know what drugs cost. Because of the way health care is structured in the United States, even if doctors do make the effort to understand drug prices, there is no way to know what any one patient might be paying for a given drug.

Doctors just want what’s best for their patients, and companies like Novum are relentless. Of the company’s 50 full-time employees, most are sales representatives. They won’t be out of work for long…

A BAD END FOR BAD PHARMA

Back in 2016, Novum spokesman Rand Walton complained of “the current broken system” in defending the company’s business practices. He claimed that the company offered a “creative approach to ensure that physicians and patients are not encumbered.”

Of course, it is payers who bear the burden in the American system.

According to reporting in the Chicago Tribune, Novum’s reasons for declaring bankruptcy include manufacturing challenges, “including one manufacturer that was shuttered by the U.S. Food and Drug Administration and another that couldn’t keep up with manufacturing demand for its products.”

More tellingly, again from the Tribune: “Novum has had a difficult time getting its drugs covered under health insurance plans. Industry middlemen, known as pharmacy benefit managers, have refused to include Novum’s drugs on prescription formularies, he wrote, which means insurance plans often aren’t covering the medications.”

Ironically, once the press alerted the industry to Novum’s price-gouging, rejection rates increased.

Now, just four years since it hung out its shingle, the company is bankrupt and will be selling off the same assets—three medications—that it purchased at its founding.

Good job, everybody.

Don’t let bad pharma’s price-gouging hit your bottom line. Call Scripta. We monitor every transaction, for every employee, every day.

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