Why the Free Market Is Not Responsible for the Guy Who Hiked the Price of the Anti-AIDS Drug
If you have a Facebook account, or even if you don’t, you no doubt have seen the story about the guy who bought the AIDS drug and jacked up the price 5000%, to $750 a tablet.
Judging by social media, Martin Shkreli, the 32-year-old chief executive of Turing Pharmaceuticals, may be the most hated man in America right now.
He’s been called a “morally bankrupt sociopath”, a “scumbag” a “garbage monster” and “everything that is wrong with capitalism.” And those are some of the tamer comments.
So how did a rap music-loving, former hedge fund manager suddenly become the target of online ridicule and even death threats?His company recently acquired the rights to Daraprim. Developed in the 1950s, the drug is the best treatment for a relatively rare parasitic infection called toxoplasmosis. People with weakened immune systems, such as Aids patients, have come to rely on the drug, which until recently cost about $13.50 (£8.80) a dose.
But Mr Shkreli announced he was raising the price to $750 a pill. The more than 5,000% increase and his brash defence of the decision has made him a pariah among patients-rights groups, politicians and hundreds of Twitter users.
The evil of capitalism shows its ugly face yet again! Except, as Joe Carter explains, not so much:
Some people believe this incident is an example of the failures of free market capitalism, and claim this is why we need more government intervention. But the exact opposite is true: This is an example of government failure which the free market could solve.
The price system is one of God’s most under-appreciated creational norms. Prices provide an ingenious way for humans to distribute both knowledge and resources in a way that, on the whole, tends to increase human flourishing. This is why, generally speaking, we want to avoid distortions in the price system that come with government intervention. In a free market that is free of distortions, the prices of products and services will shift as people clarify what values and priorities should take precedence in distributing resources.
But Daraprim is not sold in a free market. The pharmaceutical industry is largely a non-contestable market where a few large firms exist because of high barriers to entry, such as onerous government regulation. Added to this is the fact that Shkreli has a coercive monopoly on Daraprim, not because of patents (the patent on Daraprim expired long ago) but because few other firms want to make the drug since the government-imposed costs make it less than profitable.
What this means is that the prices of pharmaceuticals like Daraprim are not set by the free market. The free market isn’t the reason Shkreli was able to raise the price. In fact, if he had to sell his product in a truly free market environment the price would likely remain low. And even now, if he continued to keep the price high, some enterprising pharmaceutical company would start making Daraprim themselves, increasing the supply and lowering the cost.
(Ever wonder why LASIK prices keep going down and quality keeps going up? Lack of government intervention. The same health care system that gives us skyrocketing prices can do better, when government gets out of the way.)
Government will no doubt cite the episode of the super-expensive AIDS pill as an example of why we need government control over health care. This is what they do: cause problems and then offer you solutions to the problems they created — solutions that involve putting them in charge.
Ding.
Patterico (fecd9b) — 9/24/2015 @ 7:58 amSo what is stopping people from home brewing this drug?
Michael Ejercito (d74b61) — 9/24/2015 @ 8:01 amMy guess is Trump’s position on this mirrors Hillary’s. Which is great, since he’s not GOPe!
Gerald A (949d7d) — 9/24/2015 @ 8:05 amI agree that this is not a failure of the free market system. It is the gold medal with platimum and diamonds of the free market system. Obtain a monopoly for an indispensable commodity and squeeze every drop of profit you possibly can. When you’re rich enough, you can show your social conscience by advocating higher taxes for rich people like yourself, and by donating a tenth of your fortune to fighting AIDS in Africa.
nk (dbc370) — 9/24/2015 @ 8:19 amFree markets don’t work. And for proof, I’ll show you multiple examples of where government meddling broke the system. That means we need more government meddling.
John Hitchcock (e5f961) — 9/24/2015 @ 8:25 amrelatively rare parasitic infection
kishnevi (31ba4e) — 9/24/2015 @ 8:26 amI would bet that fact, much more than government regulation, is the reason other firms do not make it…not enough potential customers.
“The government is good at one thing. It knows how to break your legs, and then hand you a crutch and say, ‘See if it weren’t for the government, you wouldn’t be able to walk.”
― Harry Browne
Tanny O'Haley (c674c7) — 9/24/2015 @ 8:43 amHow was the previous manufacturer able to sell it at 1/55th of the bloodsucker’s price?
nk (dbc370) — 9/24/2015 @ 8:49 amI have the feeling that drug regulation – just the manufacturing regulations – must be much tougher than it was in the not too distant past, like twenty or thrity years ago, and that this is probably mostly unnecessary. We also have drugs going completely out of stock, because they get 0 manufacturers, or because some regulatory difficultly causes production to stop for a while.
People making regulations have to realize there is aprice to be paid for this. It surely is possible to come up with better regulations – that would address not just what should NOPT be done, but how somehting gets to be done, and that still manages to get all the benefits of regulation.
Eliminating regulations wholesale might just eliminate one regulation too many, or eliminate all4 of 4 redundant protections. Somebody neds to think of a better regulatory scheme, and always strive to limit this and not keep on adding things.
Jeb Bush had an article in the Wall Street Journal yeterday about reducing regulations,
http://www.wsj.com/articles/how-ill-slash-the-regulation-tax-1442961807
http://www.wsj.com/articles/jeb-bush-to-propose-rollback-of-regulations-1442919601
but it is just too vague and general, and doesn’t refer at all to phamaceuticals, or even oil refineries. He seems mostly to want to get rid of what was added last. Some of what was added latest might actually be necessary and a blanket retraction will just never fly because of that, and the problems with drug regulation go back years – more than 50 years for new drugs, and now for the 10 years at least, it’s impacting old drugs, and you don’t find any politicians – and certainly any Democrat – that has a solution.
This is aplace where regulations do make sense, and maybe each one individually has some sense, but the combination is too much and redundant, or maybe in certain cases could be replaced by amuch simpler regulation.
With regard to pharmaceuticals, one thing I thought of maybe any company that a good record of manufacturing 3 or 5 drugs will be given a presumption of doing it properly when they want to manufacture a generic.
Rght now it is probably very time consuming and expensive for anyone to go into competitn with a drug maker who charges astrononomical prices, and if someone were to compete, the monopolist might just drop prices back, so we have a big problem. It’s, of course, 100% caused by regulation.
Sammy Finkelman (2972ba) — 9/24/2015 @ 8:52 amIt was explained at the beginning, if you were to read what Patterico posted.
John Hitchcock (e5f961) — 9/24/2015 @ 8:53 amGreetings:
I can’t help but wonder about the demographics behind the fomentation of this bit of social justice hysteria. Last I heard, the many organizations, both NGOs and “non-profits”, that support the Intravenous Drug Abusers of America weren’t being all that effective and membership seemed to be on the decline.
Perhaps, the governmental organization with its fingers in this pie, the Centers for Disease Control can provide a bit of background. Many months ago, I read an article in the San Francisco Commicle about a CDC report on AIDS/HIV. The report showed decreases in new infection rates in many demographic groups over the study period. But down in paragraph 13 (of 14), the CDC reported that the new infection rate among young males homosexuals was increasing, not that this should be noticed or much publicized, or remembered because we sure wouldn’t want to do anything to decrease the rate of homosex new or otherwise.
BIg Aids Pharma is your wealth being redistributed all the way down as it was even before Obamacare reared its ugly head.
11B40 (0f96be) — 9/24/2015 @ 8:56 amAdam Feurstein, the biotech writer at thestreet.com, argues higher prices can be beneficial in cases like this:
Even Feurstein’s argument is not based on the free market but the mechanics of how drugs get marketed. It seems to me that they won’t be able to sell much of this drug at that price, unless it works in an almost miraculous fashion and there’s nothing else any good out there. And if they are able to sell a lot at that price, other companies will start jumping in, driving the price down.
Gerald A (949d7d) — 9/24/2015 @ 9:10 amI read the post three times, John. Show me where it explains why the first manufacturer could sell it for $13.50 where this leech charges $750.00.
Do you know the story of Esau?
nk (dbc370) — 9/24/2015 @ 9:13 amDude’s not a leech. And he didn’t sell his birthright. You have no point.
John Hitchcock (e5f961) — 9/24/2015 @ 9:14 amThe drug is $1/tablet in the UK. $2.50/tablet in Canada. I suspect that one could make quite a living smuggling Daraprim, even at the original $13 price. Of course, it IS smuggling, which should tell you all you need to know.
Any generic drug company could start making the stuff in a year or so, and at $750 a pill I’m sure someone will. At which point there is a price war bringing the price back down to sanity. At which point, if insurers have any sense whatsoever, they’d make an example out of Turing and shun their drug.
And THAT would be the free market.
Kevin M (25bbee) — 9/24/2015 @ 9:17 amNo, you did not understand the story of Esau.
Yes, Kevin. This drug is now generic. Which mean that the big-big costs, testing it and getting it approved, were born by the $13.50 guy. This Jacob only has to comply with quality control regulations, same as if he were making aspirin.
nk (dbc370) — 9/24/2015 @ 9:33 amThe government has actually protected these practices, and exacerbated their inflationary effects through entitlement programs, most recently Obamacare.
n.n (30a50e) — 9/24/2015 @ 9:41 amI don’t hear anyone telling me how much this new guy had to pay for the rights to a “generic” drug. Did he pay $1, or some rediculously “low” price? If so, why? If not, why? we are missing out on the cost of goods in some way, aren’t we?
felipe (b5e0f4) — 9/24/2015 @ 9:41 amI’m not talking about the research cost for the drug. I’m talking about the acquisition cost. From one entity to another.
felipe (b5e0f4) — 9/24/2015 @ 9:43 amAlso, I’m not talking about production costs. after all, the new uy has to make back the money spent on acquiring the rights/formula to the drug. All I’m saying is there is a lot of important information missing.
felipe (b5e0f4) — 9/24/2015 @ 9:45 amEsau was tricked by Jacob into selling his birthright. Jacob, with his mother Rebekah’s help, also stole the blessing Isaac had for Esau.
That episode was discussed by Paul in Romans:
Not only that, but Rebekah’s children were conceived at the same time by our father Isaac. Yet, before the twins were born or had done anything good or bad—in order that God’s purpose in election might stand: not by works but by him who calls—she was told, “The older will serve the younger.” Just as it is written: “Jacob I loved, but Esau I hated.”
What then shall we say? Is God unjust? Not at all! For he says to Moses,
“I will have mercy on whom I have mercy, and I will have compassion on whom I have compassion.”
It does not, therefore, depend on human desire or effort, but on God’s mercy. For Scripture says to Pharaoh: “I raised you up for this very purpose, that I might display my power in you and that my name might be proclaimed in all the earth.” Therefore God has mercy on whom he wants to have mercy, and he hardens whom he wants to harden.
Gerald A (949d7d) — 9/24/2015 @ 10:14 amrelatively rare parasitic infection called toxoplasmosis.
Actually, toxoplasmosis is endemic. According to Wikipedia:
Probably everyone who has owned cats for any length of time has been exposed. A better statement is that symptomatic toxoplasmosis is rare, and that most symptoms that do crop up are mild and temporary. The rare and serious instances of the disease occur with immune-suppressed individuals.
Kevin M (25bbee) — 9/24/2015 @ 10:24 amI can believe the price hike may have been necessary. I don’t know what kind of buyer’s market exists for the drug, but a company I worked for had to make a necessary medical drug under order by the FDA. Entire batches were made, thousands of doses. The batch, raw materials, in process material, and stability samples all had to be tested by the lab.
Then I find out that we shipped the drug to like 4 people a year. Moving more product through the lab than to patients.
Meanwhile we had another “Medically necessary” drug rejected by the FDA when out potency came in at 94% and the specification was 95% to 105% because the raw material wasn’t being made anymore. That drug was at least bought by people, but alas, the entire batch was destroyed.
Taking into account the costs of production, the pill very well could be that expensive if the current market for the drug is small.
Dejectedhead (152876) — 9/24/2015 @ 10:31 amEsau was starving and Jacob sold him a plate of lentils for his birthright. Should Jacob have done that? Esau was the stronger and supposedly the more uncouth but he did not smash in his brother’s head and just take the food even though he was starving. In the end, Jacob was the one to repent, to make amends and pay compensation with interest, and beg Esau’s forgiveness; and it was Esau who remained the better man and forgave him when he could have killed him.
I like Esau better than Jacob.
nk (dbc370) — 9/24/2015 @ 10:41 amOf course you do. Yet Jacob is Israel and Esau is not.
John Hitchcock (e5f961) — 9/24/2015 @ 11:31 amremember when this was a thing,
http://www.nytimes.com/2015/09/22/science/when-radiation-isnt-the-real-risk.html?_r=2
narciso (ee1f88) — 9/24/2015 @ 11:33 am1) The drug is primarily an anti-malarial drug. It produced in large quantities in other countries (thus the cheap prices for the drug in other countries).
2) In one of the interviews with this guy he let’s out the sales details, 2000 people use it per year in the US, an average of $1000 for a course of treatment. So we’re looking at $2 million in sales per year for the drug.
I don’t see how the previous manufacturers were making a profit on the drug previously, they must have been selling at a loss. $2 million may barely cover meeting the GxP compliance costs. It would be ironic if the new owner had to issue a recall because FDA standards weren’t met during the manufacturing. “We reviewed the records and discovered that Bob the pill press guy hadn’t had his mandatory yearly training in the past 2 years.”
Xmas (35fdcf) — 9/24/2015 @ 11:51 amhttp://www.breitbart.com/big-journalism/2015/09/24/obama-rolling-stone-climate-change-terrible-dare-not-tell-full-truth/
narciso (ee1f88) — 9/24/2015 @ 12:16 pmYet Jacob is Israel and Esau is not.
Which is why the Samaritan, not the priest nor the Levite, helped the traveler. And why the New Testament and not the Old Testament is the basis of my religion.
nk (dbc370) — 9/24/2015 @ 12:16 pmThe Bible, the whole Bible, and nothing but the Bible. Those who castigate the Old Testament are fools.
John Hitchcock (e5f961) — 9/24/2015 @ 12:33 pmActually the story of the Good Samaritan is just a parable, not a real event. All, Jew and gentile, are the same under the New Covenant.
Gerald A (949d7d) — 9/24/2015 @ 12:33 pmIt is an old drug as already referred to. It existed before AIDS and the associated opportunistic infections provided a new use for it. It was not especially expensive back in the day when it was first used for AIDS related infections. I am curious as to what alignment of factors gave rise to the idea that the drug could be priced so high.
I understand there are huge costs in bringing drugs to the market, and some HIV drugs were just expensive to manufacture requiring far more steps to synthesize than most,
but this is a drug that has been around for decades and relatively cheap for most of that time.
I wonder if he simplistically looked at the price of other drugs for toxo, some of which are quite expensive, and just picked a “competitive” but totally unrealistic price.
Just guessing, but it doesn’t seem reasonable to me.
MD in Philly (f9371b) — 9/24/2015 @ 5:33 pmPatterico is right about the regulatory environment, MD. This pill sells for $0.66 in the UK and for $0.05 to $0.10 in India. But it is illegal to just outright import those pills. They must comply with FDA regulations ranging from inspection of facilities (read all-expense paid foreign vacations for FDA inspectors), to US labeling requirements, to having a registered office in the US. It is the FDA and US Big Pharma in cahoots to control the prices of the bread and butter generics against foreign competition. Crony Capitalism with a Capitol(sic) Conspiracy.
Nonetheless, this guy bought all that FDA regulatory infrastructure. That is what is meant by “marketing rights” in the post. And the pharma company which sold them to him, even though it had a monopoly, had restrained its greed to $13.50 a tablet. He squeezed for all he could — $750.00 a tablet. That Hurricane Government provided the environment in which he could do it does not excuse him. Not one little bit.
nk (dbc370) — 9/24/2015 @ 5:49 pmthey should treat the pills like oreos to where we can make them in mexico and help hold the costs down so more people can afford to enjoy them
happyfeet (831175) — 9/24/2015 @ 5:53 pmOne of the reasons Blagojevic was impeached (may also have been criminally convicted) was that he tried to import cheap Canadian drugs for Illinois’s Medicaid patients without FDA and Big Pharma permission.
nk (dbc370) — 9/24/2015 @ 6:11 pmbetter to ask forgiveness than permission
unless you’re blago
or hillary
happyfeet (831175) — 9/24/2015 @ 6:18 pmI didn’t know you were Catholic.
nk (dbc370) — 9/24/2015 @ 6:32 pmWell, the free market will deal with the increased price of the drug by black marketers delivering it to those in need at a lower cost.
On another note, what if the cost of producing the drug is more than it benefits Turing, and they decide just not to make it anymore?
denver todd (b5e566) — 9/24/2015 @ 7:01 pmAccording to the BBC article, it costs him $1.00 per tablet to produce and his distribution costs are minimal because he only distributes it through Walgreens who buys it directly from him.
nk (dbc370) — 9/24/2015 @ 7:09 pmi’m more catholic than the poop
happyfeet (831175) — 9/24/2015 @ 7:40 pmWhich is complete nonsense. First, there are lots of companies making or developing pharmaceuticals. There are some very large ones, and dozens (perhaps hundreds) of smaller ones. Pharma and biotech startups are legion.
Second, the high barrier to entry is the enormous cost of pharma development. It’s hard – really hard. First, you pick a target illness. Then you try make a guess at what the mechanism of the illness is. Then you try to figure out a way to interfere with it. Then you test lots and lots of compounds to find one that does that in vitro. Then you test it to see if it works in vivo in animals. Then, finally, you get to test it on a few human subjects to see if it works on them. Maybe it does, some of the time, to some extent. Then you get to do a clinical study on a large patient sample, hoping that it will show benefits, and that it doesn’t kill or cripple too many of them. Oh, yes, at some point you have to find a way to administer the drug, so it gets into the tissues and cells to reach the chemical target.
At every one of these stages, most of the candidates fail, and all the money that went into the development is lost. Then comes the final stage, where the company has to demonstrate that the drug is safe and effective to the FDA. That stage is onerous, and many more drugs fail there. But without it, dangerous and ineffective drugs would enter the market, wasting billions of $ and harming many patients.
Drug makers are very strongly biased in favor of their products; they see benefits that may not exist, both because they have financial incentives and because they want to believe their work is valuable. Patients (and many doctors) are inclined to believe in the value of a drug because they want a cure. Someone has to be the gatekeeper.
But all this expense has to be paid for, and that is done by providing market exclusivity to the developer. This has worked well for novel compounds. Then some years ago it was noticed that there were important new uses of established compounds, but there was no incentive to find these uses. Stage III testing to demonstrate effectiveness and safety was still expensive, but there was no exclusivity. The FDA established a procedure for gaining exclusivity by demonstrating a novel use.
Shkreli abuses that procedure. He exploits a defect in one area of the system. That does not mean the whole system is wrong.
Rich Rostrom (d2c6fd) — 9/24/2015 @ 10:28 pmI have toxo. The doctors I have consulted never mentioned this medication. When I learned I had it, I enrolled in a graduate “special studies” course under a parasitologist and looked into the details. As of 2001 (D. H. M. Johnson and T. G. Wreghitt, Toxoplasmosis, A comprehensive clinical guide} Daraprim is not mentioned, so I have some doubts about the original article. In any case, the latest estimate I saw is that about 1/3 of the world population is infected, most without symptoms.
Most people have heard of Trichinosis, which infects pigs and creates cysts which are immune to conventional medicine. Toxoplasmosis behaves similarly, creating untreatable cysts, and can infect ANY MAMMAL, including cows and marine mammals. It can be contracted through eating rare meat from an infected animal. The penchant of French citizens to eat “steak tartare” is why 95% of a sample of Frenchmen tested positive for blood antibodies to toxo.
docduke (fc2cb8) — 9/24/2015 @ 11:11 pmAdam smith in the wealth of nation said he had never been in a room of capitalist where they didn’t try to fix prices. In movie chisum the capitalist tells john wayne you are a man who respects the law I am a man who buys it! The freedom in free market capitalism is an illusion as long as government exist to be bought by the highest bidder!
adam smith (93f164) — 9/25/2015 @ 1:39 amCorrection/update on treatment of Toxoplasmosis. The generic for Daraprim is pyrimethamine, and that IS given in Johnson & Wreghitt as part of a “coctail” used to treat toxo.
There are two major issues with toxo. First, as people get older (I am 74), their immune systems weaken, and symptoms of toxo appear, often misdiagnosed as something else, since it is difficult to detect when it has been around a long time. Second, even if correctly diagnosed, standard medical practice does not permit extended treatment with antibiotics (Bactrim is almost as effective ae the “coctail”), unless the patneit has been diagnosed with AIDS.
docduke (fc2cb8) — 9/25/2015 @ 11:33 am