By Linette Lopez


The pharmacy department drop-off station at a Safeway store in Maryland.

  • Mallinckrodt Pharmaceuticals is facing scrutiny over the price of its blockbuster drug Achtar, some say it wouldn’t be viable without an opaque distribution system.
  • The company depends on pharmacy-benefit manager (PBM) Express Scripts to distribute the drug, manage co-pays, and provide patients with assistance paying for it.
  • That role of PBMs in pushing drug prices higher is under scrutiny from Congress, they fear it pushes prices up, and that could threaten Mallinckrodt’s Achtar franchise.

Last Friday, Wells Fargo pharma analyst David Maris called a Wall Street huddle.

He held a call for embattled pharmaceutical firm Mallinckrodt, giving its CEO Mark Trudeau an opportunity to explain the uproar surrounding his company’s $38,000 blockbuster drug, Acthar.

You see, a very Wall Street thing has just happened to Acthar. Short sellers are circling, and people are now asking questions about what was once considered business as usual. For months, some in the market, like Citron Research’s Andrew Left, have been daring Mallinckrodt to test Acthar’s efficacy as a treatment for multiple sclerosis. They say it doesn’t work.

Worse yet, other short sellers say they think they know how Acthar gets away with not working. At a Las Vegas hedge fund conference in May, Jim Chanos accused the company of having a “murky alliance” with pharmacy benefits manager Express Scripts.

“This alliance may lead to performance-enhancing drug prices,” Chanos said, “but it could give investors the blues.”

Why? Because lawmakers are starting to realize that drug pricing and distribution is a black box. What happens to the price of a drug from the time it is made to the time it gets to a patient — who gets paid and how much — is something of a mystery. It’s something, it seems, the pharmaceutical industry would rather not share.

Maris’ Wall Street huddle call opened that black box just a crack, and what it revealed is just the tip of everything Washington is worried about.

Complicated but appropriate

To understand the Acthar uproar you have to understand the purpose of Express Scripts. Pharmacy-benefit managers, of which Express Scripts is the biggest, are supposed to manage formularies (lists of drugs worth paying for) for insurers, acting as gatekeepers to make sure prices are controlled. They also negotiate rebates with drug companies for buying drugs in bulk for their clients, the insurers.

Health Strategies Group

Critics of this model say that PBMs like Express Scripts actually serve the drug company, not the insurer. That’s because they often take a cut of the rebates for themselves. Under this payment system, the more expensive a drug, the fatter a rebate Express Scripts or any another PBM, (the other two biggest are CVS Caremark and Optum) can extract.

That’s one layer of opacity at work here.

Another is that, especially in Express Scripts’ case, PBMs have moved into other businesses in healthcare and become vertically integrated. Express Scripts not only manages formularies but it distributes and sells drugs. It also helps drugmakers manage their patient-assistance programs.

On the Wells Fargo call, Trudeau admitted that all of those Express Scripts businesses have a hand in selling Acthar. That’s the “murky alliance” Chanos was tal