You’ve probably heard about the CEO of a medical company who raised the cost of his lifesaving drug by 5,000 percent overnight. After he was called greedy and selfish, and a monster, the price will supposedly come down.
Still, is the anger against him justified or should it actually be pointed somewhere else?
This is a Reality Check you won’t see anywhere else.
This man, Turing Pharmaceuticals CEO Martin Shkreli, made international headlines a few weeks ago when he raised the price of a lifesaving drug by 5,000 percent. The drug, Daraprim, is used to treat a parasitic infection that affects people with compromised immune systems—mostly affecting people with AIDS and cancer.
The shocking part of this story: when Shkreli raised the price of one pill of Daraprim from $13.50 per pill to $750. That part you might have heard. What you might not know is the backstory.
Daraprim was first brought to market in 1953. Its patent expired in in the 1970s. In 2010, GlaxoSmithKline sold the rights to Daraprim in the U.S. market only. In October 2014, Impax Laboratories acquired the marketing rights to Daraprim. In August of this year, Impax sold the rights to Turing.
A month later, the CEO of Turing made his announcement.
“I can see how this looks greedy but it has a lot of altruistic properties to it,” Shkreli said. “Altruistic? How so? Absolutely. Well for one, this is a disease that hasn’t been focused on for 70 years. We are now a company that is focused on curing toxoplasmosis.”
Shkreli was eviscerated by the media and politicians, as well as consumer groups, who warned that this price increase would target some of the most vulnerable people in society. He has now said that he will reverse the price increase, though he has not said what the new price would be.
“There is no doubt that I am a capitalist,” Shkreli said. “I’m trying to create a big drug company, a successful drug company, a profitable drug company.”
Make no mistake; what Shkreli is describing here is not capitalism. Capitalism means that if the price of Daraprim is too high, three other pharmaceutical companies can make their own version tomorrow and the market would set the price based on supply and demand.
The demand for Daraprim isn’t very high. Only a small group of people use it. But the real story here is the supply, one that is controlled by a relationship between pharmaceutical companies and the U.S. Food and Drug Administration (FDA).
Let me explain how that happened with Daraprim.
Before Shkreil’s company bought the rights to Daraprim, Shkreil made sure wholesale market was starved of the drug, so that when Turing Pharmaceuticals completed its purchase of the rights there were no extra pills floating around.
Next, he set up an exclusive distribution network to block competitors from obtaining enough Daraprim to conduct clinical trials for the FDA.
With potential competitors blocked, and his monopoly enforced by the FDA, this set him up to gouge consumers.
Right now, even if another company had exactly the same drug, it would take at least three to four years to get FDA approval. During that time, Turing can charge whatever they want for their drug.
George Merck, son of the founder of the pharmaceutical company, once said that, “Medicine is for the people. It is not for the profits.” But that is not true anymore.
Consider this: Of 12 drugs approved by the FDA for different cancer indications in 2012, 11 cost more than $100,000 per year for patients to be treated. From 1965 to 2013, the monthly cost of cancer drug therapy has increased from $100 to $10,000.
The FDA grants pharmaceutical companies patents on their drugs. It also grants them exclusivity, meaning government-enforced monopolies on the drugs they create. The FDA is also slowing the release of generic drugs, which cost 60-90 percent less than what brand name drugs cost. The average approval time of generics is now 26 months, and of course the FDA only approves synthetic drugs. Anything natural is not FDA approved.
So what you need to know is that the story of Daraprim shocked people. But in actuality, it was just a microcosm of the entire drug industry where prices are skyrocketing, patients have fewer choices and the FDA is the muscle that seems to keep the system in place.
Would more competition in drug industry change anything?
Right now the price of drugs increases every year, and yet according to the Federal Trade Commission, “Drugs that eventually attract at least five competitors face a steep decline in prices.”
Supply and demand economics—it is the one thing that can actually fix this system.