DES MOINES, Iowa (Reuters) - U.S. Democratic presidential candidate Hillary Clinton proposed on Tuesday a $250 monthly cap on out-of-pocket prescription drug costs and other measures to stop what she called "price gouging" by pharmaceutical companies.

At a campaign stop in Iowa, Clinton rolled out a plan to encourage the development and use of generic drugs and to end pharmaceutical companies' ability to write off consumer-directed advertising as a business expense.

Under Clinton's plan, the monthly cap would limit what insurance companies could ask patients to pay for drugs that treat chronic or serious medical conditions.

"We need to protect hard-working Americans here at home from excessive costs. Too often these drugs cost a fortune," she said in Des Moines, adding drug companies keep the profits for themselves while "shifting the cost to families."

Clinton's comments came after the New York Times reported on how a startup biotechnology company, Turing Pharmaceuticals, raised the price of the 62-year-old Daraprim treatment for a dangerous parasitic infection to $750 a tablet from $13.50 after acquiring it.

"That is bad actors making a fortune off people's misfortune," she said.

In the face of sharp criticism of its action by patients, medical groups and Clinton, Turing's chief executive officer, Martin Shkreli, told ABC's "World News Tonight" on Tuesday that the price of Daraprim would be lowered "to a point that is more affordable."

"Good," tweeted Clinton in response to news of the planned price rollback.

The Nasdaq Biotechnology index closed down 1.7 percent on Tuesday after falling as much as 3.5 percent during the session. It had already fallen 4.4 percent on Monday after Clinton tweeted her intent to tackle high prices of some drugs.

The index, which had finished the last six years higher, is up 10.4 percent so far this year.

Citi biotechnology analyst Liav Abraham said that with 2016 presidential candidates taking on steep drug pricing, "companies with less differentiated, more concentrated product portfolios are likely to come under increased political scrutiny."

But the rhetoric may have "more bark than bite," he said, since the reforms would require approval by a Republican-dominated Congress that is unlikely to implement them.

While Clinton has maintained her front-runner status in the Democratic race, she has been under pressure to take more populist stances to widen her lead over U.S. Senator Bernie Sanders, her second-place rival who has also offered a plan to rein in prescription drug costs.

CONSUMER MARKETING CONTROVERSY

Critics of marketing drugs to consumers say it encourages the use of costly brand names over generics and can be confusing or misleading. A series of court decisions has determined the practice cannot be banned outright because it is a form of commercial speech protected by the U.S. Constitution.

Clinton said the government could get billions of dollars in additional tax revenue by no longer allowing pharmaceutical companies to deduct what they spend marketing drugs to consumers.

The largest pharmaceutical companies are collectively earning $80 billion to $90 billion per year at higher margins than other industries while average Americans struggle to pay for medicine, Clinton's campaign said.

Clinton also proposed a ban on "pay-for-delay agreements," in which the owner of a brand-name drug pays a generic competitor to keep its product off the market for a period of time, usually as part of a litigation settlement.

Clinton said she wanted Medicare, the U.S. government's health insurance program for the elderly, to be able to negotiate with pharmaceutical companies over drug prices and require more generous rebates.

Consumers would also be allowed to purchase drugs from other countries, where medicine is often less expensive, so long as sufficient safety standards are in place, Clinton said.

She said her proposals would augment President Barack Obama's healthcare law known as Obamacare. High drug costs had played a role in making families feel like healthcare costs were not coming under control, she said.

Clinton was expected to outline a separate set of proposals on Wednesday to address other out-of-pocket healthcare costs.

Traditional "Big Pharma" companies have long faced criticism for steadily raising prices of their prescription medicines in the United States, often by jumps of 10 percent or more.

Drugmakers are unapologetic about their five- or six-digit prices on new treatments for cancer, hepatitis C and high cholesterol. Sovaldi, a treatment from Gilead Sciences Inc, can cure hepatitis C but at a cost of $1,000 per pill.

Even more controversial have been eye-popping increases in costs for older drugs in limited supply, often after other drugmakers acquire them. They say the funds help cover research and development costs for new products.

For more on the 2016 presidential race, see the Reuters blog, "Tales from the Trail" (http://blogs.reuters.com/talesfromthetrail/).

(Additional reporting by Michele Gershberg and Sinead Carew in New York, and Peter Cooney in Washington; Editing by Lisa Von Ahn and Cynthia Osterman)