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Despite all the pushback Pope Francis has been getting from free-marketeers, two important stipulations are in order: markets are not equally good at solving all problems, and many of their best features can be undermined by the greedy or immoral. They can work miracles like nothing else, but they’re also somewhat dependent on flawed human beings
As David Sussman notes on the Member Feed, the Interwebs are currently awash with news of alleged price gouging by Turing Pharmaceuticals. The drug in question, Daraprim, was developed decades ago and is used to treat toxoplasmosis, a parasitic infection that’s a minor problem (at worst) for the healthy, but a serious one for the immunodeficient or babies whose mothers were infected while pregnant. The drug was developed decades ago and has a tiny market — currently, under 9,000 prescriptions per year. It had been available for as little as $50 per prescription as recently as five years ago. After being sold to another company, the price of the drug rose to $500 per prescription in 2011, then to $1,100 last year. Assuming everything remains constant, the same prescription under the newly-announced price would cost just shy of $63,000. I’m not sure about babies, but the Mayo Clinic reports that the immunodeficient may need treatment for life.
As Megan McArdle wrote a few weeks ago, drugs that are in fierce demand by a small number of people are an inherently difficult problem for markets — or, really, any system — to solve. When you also factor in the regulatory costs, the fact that most drugs are actually purchased by third parties, and the fact that drug manufacturing is relatively inexpensive, you’ve got what looks like a perfect storm of grossly unfair and exploitative price gouging. Even if it’s genuinely the best a market can do under difficult circumstances, it sure looks bad.
Still, this case doesn’t seem to quite fit the usual narrative. First, Daraprim’s already been developed, so some of the cost issues don’t apply in the same way they might to a new drug. Second, while the drug’s patent has long since expired, the information about testing and customers necessary to bring a generic to market are closely-held secrets, so even though other companies have the legal right to manufacture Daraprim, they lack the knowhow. Third, Martin Shkreli, the former hedge fund manager and CEO of the company that purchased Daraprim, looks like someone you’d cast as a heartless young tycoon if Jesse Eisenberg were unavailable. Fourth, his rationale — that the company needs to raise the price this much in order to fund future development — doesn’t quite add up.
On the other hand, the leftist calls for justice seem wildly misplaced. First, it’s noteworthy that about 4,000 fewer prescriptions were filled last year (after prices rose to $500/prescription) than they were a few years ago. I don’t know for sure, but I highly doubt all those people died because of an inability to pay; notably, there are at least four other antibiotics that can be used to treat toxoplasmosis (a good factual background is available here). Second, Shkreli has said that he will make the drug available to those who need it but can’t pay the full sticker price. In short, the chances of thousands of people dying on the streets in the near-term are next to zilch, and — over the long-term — the demand may spur competition from others.
Over the medium term, however there’s another solution: if Shkreli’s really just interested in making money, we can always just buy him out.