The Real Villain In The $750-Per-Tablet Drug Price
Scott Gottlieb writes at the WSJ of the recent brouhaha over Turing CEO Martin Shkreli raising the price of Daraprim, a drug used to treat toxoplasmosis, AIDS, and cancer, $750 from $13.50 a tablet. The real villain here is government and government regulation:
Turing has been attempting to exploit a regulatory failure that is becoming far more prevalent as the Food and Drug Administration knocks older generic medicines out of production and barriers to entry make new generics costlier.Turing bought marketing rights to Daraprim from another company, along with access to a supply of the drug, so it didn't need to do any weighty regulatory work to market the medicine. It rebranded the pill and raised the price. But if another company wanted to compete to sell the same medicine, it would need to apply for a new generic drug approval, by submitting an "Abbreviated New Drug Application" to the FDA.
Filing one of these applications with the FDA used to cost as little as $1 million; today it can run as high as $20 million, sometimes more. This means that old but "niche" drugs may not have competition from other generic entrants, creating an opening for companies to extract windfall profits by driving up the prices of drugs like Daraprim.
The FDA has a backlog of thousands of generic-drug applications. And it takes an average of four resubmissions for a generic application to finally win approval, partly owing to shortcomings in the applications and poor communication between the FDA and generic drug makers. It may well be that competitors to Daraprim are in the FDA's large queue. On average, it takes about 50 months for the FDA to approve a single generic application.
The FDA's recent crackdown on the manufacturing process of prescription drugs has also led to the shutdown of U.S. drug plants. Whatever the merits of the FDA's heightened scrutiny, it has been done with little attention to how this manufacturing capacity would be replaced. The slow approval timelines, combined with closed manufacturing facilities, create temporary drug shortages and monopolies, which can be exploited by shrewd investors.
Other smart posts on this: Walter Olson and Alex Tabarrok, who mentions this:
I've long argued for reciprocity, if a drug is approved in Europe it ought to be approved here.
This should be the case with sunblock. Europeans aren't dropping dead from use of the more protective ingredients, yet because our government has only approved the sale of one of them over here -- Anthelios XL -- it's twice or even three times the price I've paid for it in France.
Competition would surely make it loads cheaper.
The backlog is a scandal, but so is this guy.
NicoleK at September 29, 2015 11:07 PM
Wait till the government takes over your health care. Backlogs for everyone!!!!
The backlog is a scandal, but so is this guy.
He's simply taking advantage of the situation as it is. That's not a scandal. This is what happens when you allow bureaucrats to formulate the rules. They make them complex to serve the needs of the rent seekers.
And then when they retire from government employment, they can go straight to either the ranks of those rent seekers, or go to work as lobbyists on behalf of those rent seekers, to lobby their former coworkers for more byzantine rules that favor the rent seekers even more.
That's the real scandal.
I R A Darth Aggie at September 30, 2015 7:01 AM
Martin Shkreli is a predatory sociopath who is intent on victimizing his customer base. If one of the people whose life he is trying to destroy took that $750, bought a gun and put a bullet in his head I would considering it self defense.
Matt at September 30, 2015 7:43 AM
Now is a good time to ask this question again:
How much money and technology should you be able to command to provide for your health care?
Radwaste at September 30, 2015 9:28 AM
"I've long argued for reciprocity, if a drug is approved in Europe it ought to be approved here."
Sure. What testing standards exist for "Europe"?
Radwaste at September 30, 2015 9:31 AM
I've long argued for reciprocity, if a drug is approved in Europe it ought to be approved here.
Why not let anyone buy anything they want?
Require drug companies to show what the drug is intended for, side effects, secondary uses, sell em over the counter and make it illegal to sue them for anything other than fraud or selling contaminated goods.
If someone chooses to use a pill wrong or ODs, fuckem - its not the governments job to protect you from yourself
lujlp at September 30, 2015 1:59 PM
I can't agree with you Matt. How about Mr Shkreli does what the FDA clearly wants and stops selling at any price? After all, the FDA shut down his competition.
Ben at September 30, 2015 2:00 PM
"Sure. What testing standards exist for 'Europe'? "
Y'know, that's a good question, and I don't know the answer. Of course, part of the reason we have this restrictive FDA regime is because of the thalidomide disaster in Europe in the 1950s, and the FDA gots lots of pats on the back for not approving thalidomide in the U.S., even though the reasons probably had as much to do with bureaucratic inertia and risk avoidance as they did with any safety concerns. That was half a century ago, and I'm guessing western Europe has learned a few things since then, but I don't really know what their regime is now.
We do have reciprocity with western Europe, namely EASA, in aviation safety. That works because there's a lot of cooperation between the European and American interests, and a lot of the standards are developed jointly. I have no idea if that occurs in the pharma industry.
Cousin Dave at September 30, 2015 2:10 PM
"Why not let anyone buy anything they want?"
Sure. Have some laetrile.
You don't need that money.
Radwaste at September 30, 2015 3:29 PM
Other countries regulate drug prices, letting companies recoup manufacturing costs, but not research costs.
The US enables companies to recoup all costs associated with creating the drug, including research. That means US patients and insurance companies are paying the research costs for the rest of the world to have medicine.
Some suggested solutions include:
__________________________________________
And what happens when an unknown side effect crops up - one that affects 0.02% of the population taking the drug? Is that fraud because the company did not disclose it (if they even knew about it)?
What about a drug that is effective in an off-label use? If you use it for that and you have a bad reaction, can you still sue?
And drugs are not as black-and-white as television would have you believe. Different drugs at different doses have different effects on different people. That's why anesthesiologists get paid so much and why doctors start you out on small doses to gauge the effect.
We'd like it to be as simple as "here, take this," but it's not.
Conan the Grammarian at September 30, 2015 4:04 PM
I've long argued for reciprocity, if a drug is approved in Europe it ought to be approved here.
Sure. Like Thalidomide. "Those who cannot remember the past ..."
Ron at September 30, 2015 5:39 PM
If the real villain is the FDA and not the venture capitalist masquerading as a CEO, then why didn't anyone else pull this stunt?
Plenty of car companies would like to bring "clean diesel" to the USA and capture the market. Only VW was dirty enough to rig the game.
Gog_Magog_Carpet_Reclaimers at September 30, 2015 7:14 PM
He's simply taking advantage of the situation as it is. That's not a scandal.
***
Yes it is. Taking advantage of the situation in this way is a scandal.
NicoleK at October 1, 2015 1:36 AM
"Taking advantage of the situation in this way is a scandal."
Okay. What if the price had gone to $15.00?
It's so easy to say what other people should earn... so, again:
How much money and technology should you be able to command to provide for your health care?
If you do not pay, you are not a customer - you are a commodity.
Radwaste at October 1, 2015 11:08 AM
@Ron: So the FDA got it right - simply on a hunch, not from superior science or drug testing methods - ONE TIME 55 years ago. Ever since, the FDA has been delaying the introduction of EVERY drug and medical device by several years, and making it economically impossible for many drugs for rare conditions to be introduced in this country at all. Probably tens of thousands of people have died from these delays; this harm greatly outweighs the good the FDA did that one time when it delayed the approval of thalidomide.
markm at October 1, 2015 6:35 PM
I'm an electrical engineer. The electrical industry is not regulated by a government agency, but by UL - a private testing lab - or one of its competitors. Some of these competitors are government organizations, but most of them are private, and a manufacture of electrical and electronic devices can choose between them. E.g., on my desk I have a calculator with a CE (European Economic Union) certification marking, a cell phone charger with a UL marking, and a cell phone with no marking at all. And every one of these devices is safer than a bottle of aspirin.
If a company wants to produce a device with a safety certification, it contracts with UL, CSA, or another nationally recognized testing lab to certify the device design, and the process that produces it. UL dominates the American market, but to keep that position it has to balance maintaining the safety of products against making certification too expensive or too slow. It does a quite good job of maintaining that balance; it has to, since it does not have a monopoly enforced by government agents with guns. If UL-certified devices got a reputation for catching fire or electrocuting users, no one would buy them and manufacturers would drop them in favor of a competitor with a better reputation. If UL certification took years and a million dollars, or required excessively costly designs, manufacturers would use a competitor. So UL keeps it's market by being quite good at what it does; it requires what is needed for safety and only what is needed for safety, it makes those determinations quite accurately and in a few weeks to a few months depending on the complexity of the device, and it charges enough to hire a top-notch staff, but because it doesn't drag the approval process out, it does not get too costly. If their staff wasn't great at their jobs, they would lose those jobs.
Contrast that with the FDA, where approvals usually take 5 to 10 years, cost $20 million, and yet bad drugs are often approved. They do have a more difficult job, but that's not the main reason their performance is so much worse than UL's. They have a government monopoly, so no one gets fired because ten thousand people died waiting for the new treatment to be approved, or because the drug wasn't even developed due to the high cost of approvals. Most of all, supervisors don't get fired for hiring idiots - if you've been educated far beyond your intelligence, agencies like the FDA are a great place to take your degrees and apply for a job. They probably won't get fired because they approved a bad drug, but it _is_ possible - and so they'll always do the "safe" thing and order more tests, never mind all the patients who are going to die waiting for that drug to come onto the market.
Don't just let drugs approved by other governments in; privatize the FDA. Let jobs be in jeopardy all the way to the top if doctors, patients, and drug companies find another certification agency that meets their needs better.
markm at October 1, 2015 7:24 PM
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