The Great German “Generic Dronabinol” Scam

German companies are hawking dronabinol as the generic “cannabis drug” in the domestic pharmaceutical market. Instead, the markups they are building into the supply chain are name brand prices. This is problematic – here is why.
The Great German “Generic Dronabinol" Scam
Shutterstock

Here is the first nasty truth about this story – it has been developing for some time – in part because you must be both a patient and a member of the industry to even understand what is going on and be justly horrified by it not to mention have a certain sympathy if not understanding of what lies behind it (at least in a few cases) for the industry perps.

Here is the second. This is a strategy that has been developed by firms who are looking for a certain kind of “´financial return” – no matter what happens in the actual market, much less to patients. In other words, they are looking to increase their transaction price, per gram, in an environment where the government has begun to set prices (and rather sharply downward) and in an environment where most patients are only being half doses before they fall off the grid again and go to the illicit market (because this is all so expensive). The first lawsuit in the German system requiring that a patient receive dronabinol for a full year was only just decided in Germany late last year.

But this is far from a new story.  In the early days of the German market, for example, Canadian firms were selling wholesale flos to the market for as much as $17 (Canadian) a gram (according to data easily found in online corporate reports). Obviously, this is far from the reference price today. 

This is taking place in an environment where almost every firm has been hurt by Covid delays, if not other issues.

However, the downstream implications of the same are going to affect every firm who has built at least basic profitability if not managed to survive the already competitive environment. Remember that to even be in this position at all, you will have already had to spend about 1 million euros (if not more) to have a narcotics distribution license and infrastructure.

Regardless of how much sympathy for those in this position you might have, it is also clear that German doctors are getting “educated” to actually prescribe a form of the drug right now which is not only more expensive than flos, and most decidedly not a “generic”, but ends up costing patients and ultimately consumers and the healthcare system more – because it is being sold at prices that are approaching orphan drugs – and certainly very expensive name brand ones.

As a result, Germany is currently a cannabis market where potentially as many as one third of the prescriptions (ostensibly the “generic” in the market”) are being sold and compensated (or not) at a higher price than not only flower, but dronabinol in the United States. In other words, a supposedly “generic” compound – literally referred to in the industry as “dronabinol” or the “dronabinol API” is being sold as a very expensive drug – even an orphan drug. It is also highly deceptive medical marketing.

Understanding the Story So Far

Here is the first thing you must understand about this story. The German government set a reference price for flower under the tender bid of €2.30 (graduated down to (€1.87). Further it has now also set a reference price for the “retail” price of flos cannabis. Pharmacies are compensated (when the insurer has agreed to pay) around 9 euros a gram and considerably less when the patient obtains more than 15 grams a month. In other words, there is a decided discount built into the system the more the patient is prescribed.

That means that the entire supply chain must split about 7-8 euros a gram somehow to cover the considerable costs of compliance with a GMP supply chain. And that is not insignificant – particularly for a new industry. There is security, transportation, and compliance to adhere to and none of this is easy or cheap. As it is easy to understand, most firms not only also had to find flos, but must do it from a limited number of supplier companies (and even here not even always successfully). This is also taking place in an environment where pharmacies are a mandatory part of the chain—as the last mile delivery system and their costs must be compensated too.

If all of this is done equally, every party (distributor and pharmacist) split the difference between government required flos point of sale price to distributors and pharmacy sale price.

That pales in terms of what is currently going on behind the scenes when a doctor prescribes “dronabinol.”

The “Dronabinol API”

Dronabinol, for those who have never encountered it, is the globally, legally defined “generic” THC cannabinoid used just about everywhere as a Schedule III for pain, spasticity, and complications of AIDS. It was introduced in the early 1980’s as gay men began dropping like flies and the pharmaceutical community in the United States turned its gaze to making a non-flower “alternative” for all the same reasons that are still in use today. In certain parts of the biz, it is also called “sluice juice”—because it is the calibrating liquid that extractors must not only be able to produce but also calibrate their systems by. This is a global standard, set by the World Health Organization (WHO).

Dronabinol is made of either a synthetic or increasingly “real” THC isolate (i.e., from plants), and originally distributed only in pill form. Today and widely in the German market, it is also available in liquid form. The capsules, for those who have had to suffer through them, tend to deliver a punch that is too powerful for many people to digest and metabolize properly. In other words, it also does not have the ameliorating impact of CBD or other cannabinoids. In liquid form, at the pharmacy, the pure extract is mixed with a neutral oil. Patients can then also add to this with their own CBD extract.

However, here is what the public and patients are not being told in Germany (right along with doctors). 

Dronabinol is the only cannabinoid medicine specifically named in the German Narcotics Act, and further described as a “generic.” The liquid form currently being supplied to the market, is NOT a generic, in any way. Indeed, the prices it is being offered at (and by) are eye-watering. Distributors and pharmacies can vastly “up” their transaction price per gram invisibly.

Here is how. The “API” or active pharmaceutical concentration for “dronabinol” is a 96% percent concentration of THC. That compound, as a liquid, is currently (widely) going for anywhere between 80 and 100 euros per liquid gram at point of sale to distributors (i.e., sold to wholesalers and distributors by extractors). Distributors and pharmacies, between them, are then collecting about 700 euros per liquid gram by point of sale (and billing insurance compensation), with the vast benefit of the break going to pharmacies.

Assuming that distributors and pharmacies are splitting the costs between them, this means that they are looking at between €100-€500 (per gram) markup. For example, if a distributor buys a liquid gram of THC “wholesale” for €100 and sells it for €200 to a pharmacy, then the pharmacy sells it for €350 (reduced from €450 a year ago because of the recent agreement to lower a 100% required pharmacy markup formerly required by law). However, that “sale” at the pharmacy is not for a full liquid gram, but for half of one. This masks the fact that pharmacies in this model are selling liquid THC for about €500 per gram (if they buy it for €200 from distributors). 

This also means, if you do the required math, that it is much more profitable to be in the “dronabinol API” business than the flower one. Your price per gram is much higher. From this perspective, it is manna from heaven for many parts of the infrastructure that do not need any more bad news.

Tragically, however, it also means something else. It means that every patient who is prescribed the new “dronabinol API” as it is being referred to in the industry, is getting less of the drug, and costing the system more. A patient who needs a gram a day of flos is likely to be prescribed about half of that amount per month in liquid dronabinol medicine, but, and here is the really nasty thing, be charged twice as much for it. And while this price distortion is not unknown in the flower market (namely those without insurance approvals are being charged about €23 per gram), there is a reason for that. There was almost no flower in the market five years ago. That can not be said of dronabinol.

Worse, the “new” dronabinol liquid, which is being marketed as a generic, right down to packaging, is actually being priced, at point of sale, as well as all the way down the supply chain, as (at least) an “on brand” drug (the opposite of a generic), if not an orphan one (prescribed to a certain small percentage of the population for highly rare diseases and thus, not as susceptible to government price controls). Think Covid Pandemic medicines and you are generally in the right territory of the world.

Furthermore, doctors are also being trained by distributors right now to think that they are prescribing a “generic” when it really is not. And health insurers are also being asked to literally pay not for medication that ends up with the patient, but for a much more expensive supply chain that rewards the supply chain participants and punishes patients. And in the meantime, is being used by those unethical to use this as a raft to literally survive, if not make numbers in balance sheets that will not be defendable.

Not every firm is doing this – but it is clearly a trend – indeed the major difference for those on the edge of profitability or not.

But just like the other scandals before it, including the fact that flos in the German market was reaching it both out of spec and not properly labelled, are ones ultimately that the entire downstream supply chain and patients are having to bear – in part because doctors want something “prescribable.” And in part because companies cannot market cannabis as a drug, much less by brand name (although of course this is a unique escape hatch.)

It is not sustainable. And of course, in the meantime, German consumers if not the social system and patients beyond that, are being put on the end of all of this and being forced to pay for it in the name of “reform.”

Total
24
Shares
Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts
Total
24
Share