The usual explanation for headline-grabbing price increases in pharmaceuticals is a lack of effective regulation, or maybe the absence of an ethical compass in the executive suite.

The explanation that makes the most sense, though, is an absence of competition.

With a little competition, a 32-year-old hedge fund manager-turned-pharmaceutical executive named Martin Shkreli wouldn't have been able to overnight raise the price of a parasitic infection fighting therapy for HIV patients from $13.50 per tablet to $750.

That was a jaw-dropping price increase, and it has gotten widespread attention. But it quickly became clear that what was noteworthy was just how clumsy Shkreli was. The strategy is certainly ­nothing new.

It's important to note that prices for all pharmaceuticals in the United States increased just under 11 percent last year, so doubling or tripling prices across the board is not common pharmaceutical practice.

A handful of examples of big price increases seem to show up time and time again in news coverage of pharmaceutical pricing, and one is an effective narcolepsy drug called Xyrem. It was acquired by Jazz Pharmaceuticals as part of its acquisition of Minnetonka-based Orphan Medical a decade ago.

Turing Pharmaceuticals CEO Martin Shkreli became the target of protesters.

Sales of this drug increased from $29 million in 2006 to about $780 million last year, helped along with what Bloomberg estimated was price increases of about 841 percent from 2007 through the first part of last year.

Xyrem is a branded drug, but pharma companies have also been boosting the prices for generic drugs, meaning drugs that have lost patent protection and that could've had multiple competing manufacturers to keep prices down.

The problem in the generics market, however, is that some of these drugs haven't had enough profit potential to attract enough competitors.

That's happened over and over again, said Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota's College of Pharmacy. The result for some drug manufacturers is what he called a "functional monopoly" for their product.

Pharmacy benefit managers, health care providers and insurance companies are supposed to be on the lookout for costly medications. But price increases on some of these drugs easily stick because they have such small volume — what Schondelmeyer called budget dust — that they don't quite grab enough attention.

Patients, of course, don't have a choice but have to go to the pharmacy and pick up what the doctor prescribed.

Looking for an under-the-radar drug like that to exploit was reportedly the business plan all along for Turing Pharmaceuticals' Shkreli, who decided to go on TV to defend his 50-fold price increase once it became public.

It was a $5 million per year product, he said, and it's all but impossible for any pharmaceutical manufacturer to make money at such a low level of annual revenue. His plan was to turn it into a $250 million a year product — and of course achieve that growth without shipping any more products.

The solution to this kind of pricing problem for patients, and the insurance companies and government programs that pay the bills, is streamlining the regulatory process for new competitors, said health care stock investor Matt Arens.

He's the founder of First Light Asset Management of Edina, and he explained that he avoids investing in pharmaceutical companies that only seem interested in raising prices, in part because they make themselves vulnerable to competitors jumping into the same niche.

That seems to be what's about to happen with a drug called H.P. Acthar gel. Patients who use that drug should be cheering — along with their insurance companies — for Minnesota-based ANI ­Pharmaceuticals.

H.P. Acthar has been around since the early 1950s, and is now prescribed rarely. A company called Questcor Pharmaceuticals reached the same conclusion with H.P. Acthar as Shkreli did with the drug he acquired, and one day in 2007 the price for H.P. Acthar hopped from $1,650 per vial to more than $23,000.

A single course of treatment for infantile spasms suddenly cost more than $100,000.

The drug is now a billion-dollar product, leading to the $5.6 billion acquisition of Questcor last year by the much bigger drug company Mallinckrodt.

When ANI announced in late September that it would be acquiring two drug applications from Merck, the news was completely missed here. ANI Pharmaceuticals isn't well-known here in the Twin Cities. It's based in Baudette, a town on the Rainy River more than 300 miles north of Minneapolis.

Mallinckrodt investors sure paid attention to ANI's announcement, though, as its stock tanked, wiping out nearly $1 billion of market value. The acquisitions from Merck will put ANI on a path to compete directly with H.P. Acthar.

This is an exciting development for what is still just a small company, too.

ANI has a big portfolio of other products, and one big driver for ANI's recent growth has been a hormone therapy product known as EEMT. In this drug, too, ANI is an interesting little case study in pharmaceutical pricing.

The gross margin for the company went from 68 percent in last year's second quarter to about 84 percent this year, and a main reason why, according to a quarterly filing, was price increases for EEMT.

On the conference call for investors after its announcement of its June quarter, CEO Art Przybyl described a plan to increase the price by about 10 percent every six months.

What's interesting is that the company need not worry about new competitors for EEMT jumping into the market and ruining its plan to raise prices. In fact, two competitors are getting out of this market niche.

ANI will update its shareholders this week when it announces its financial results for the third quarter.

It seems safe to bet that its plans will include some price increases.

lee.schafer@startribune.com • 612-673-4302