A tweet by Sen. Bernie Sanders of Vermont decrying the price of a cancer medicine made by Ariad Pharmaceuticals sent the drugmaker's stock tumbling last week.

Today, Sanders and Rep. Elijah E. Cummings (D-Md.) sent a joint letter to the company's chief executive requesting more information about the rapid price hike of Iclusig, a drug used to treat rare chronic myeloid leukemia. What rankles the politicians is that those hikes went into turbo mode after it was shown that the drug had safety problems and should be used only on a much smaller subset of patients.

Ariad released a statement, detailing the expenditures the company has made in order to bring Iclusig, its first drug, to market:

"We recognize oncology drugs are expensive, but we believe in the importance and efficacy of our products. Importantly, to achieve its mission, Ariad has invested more than $1.3 billion in R&D [research and development]  and accumulated losses of approximately $1.4 billion since the Company was founded, which have not been recovered," the statement said.

The lawmakers were spurred on by an article in the Street, which described how the drug's price had skyrocketed, particularly over the past two years. Iclusig was initially priced at $9,580 a month in 2012, when it was approved for patients with the rare leukemia. It was pulled from the market for safety concerns, but regulators eventually allowed the drug to be sold again in 2013 — this time approved with a much narrower label, only for patients who met specific criteria. Through subsequent price hikes, the drug has ended up at $16,561 a month or nearly $199,000 a year — though the drug is less safe than it once appeared to be and is now useful only for a much smaller group of patients.

The Street reported that Ariad's spokeswoman justified Iclusig's price by highlighting the tiny group of patients the drugs can treat — an “ultra-orphan patient population of around 1,000-2,000 patients per year.”

An orphan disease is one that affects fewer than 200,000 patients in the country, and a common justification for the high list prices of these drugs is that they serve a small market. An ultra-orphan drug treats an even rarer disease, and the market is thus an even smaller slice of the population. Under this logic, the drugs can theoretically support even higher prices. An analysis by LifeSci Capital of the orphan-drug market found that the scarcer the patients, the greater the pricing power of the drug company. The analysis found that most drugs targeted at diseases that afflict fewer than 10,000 patients carry price tags of $200,000 or more per year.

But Iclusig's price also shows how the rationale for a drug's price can be contradictory.

Carrie Bennette, an assistant professor of pharmacy at the University of Washington, published a paper this year in the journal Health Affairs that tracked price increases for two dozen cancer drugs after their launch. It found that the biggest price increases occurred not when drugs treated fewer people but when the target patient population increased. Getting approval for use for additional diseases happened to coincide with the biggest price hikes.

That flies in the face of the logic sometimes used to justify the prices of drugs for very rare diseases, but it made economic sense to Bennette. Increasing the demand and value of the drug by making it a more useful drug, capable of treating more diseases, would be expected to increase the price.

But the Iclusig example contradicts the pattern she has seen in other cancer drugs. The drug became useful for a smaller number of patients, carried serious safety risks and still got more expensive. What that suggests to Bennette is that the market just is not functioning like a normal one.

“It’s in the best interest of these companies, across the board, to be raising these prices as high as they can,” Bennette said. “I guess I just come back to: What's stopping them.”

The biggest countervailing pressure on drug prices may simply be the negative attention that comes from being called out on drug prices. A handful of chief executives have been dragged before Congress. When the stock of a company drops, that's a signal.

“It seems to be the only negative effect of raising prices right now is the bad publicity that goes along with it,” Bennette said.

This story has been updated.

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