Drug Goes From $13.50 a Tablet to $750, Overnight

The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

“This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business,” Mr. Shkreli said. He said that many patients use the drug for far less than a year and that the price was now more in line with those of other drugs for rare diseases.

Here’s the tie to gaming: The “former hedge fund manager” in question is Martin “Cerebral” Shkreli, the owner of League of Legends team Odyssey.

It should be noted that Shkreli isn’t the only scumbag to do this.

Cycloserine, a drug used to treat dangerous multidrug-resistant tuberculosis, was just increased in price to $10,800 for 30 pills from $500 after its acquisition by Rodelis Therapeutics.

In August, two members of Congress investigating generic drug price increases wrote to Valeant Pharmaceuticals after that company acquired two heart drugs, Isuprel and Nitropress, from Marathon Pharmaceuticals and promptly raised their prices by 525 percent and 212 percent respectively.

This looks to me as extremely wrongheaded. Push too hard and you risk price regulations, or patent denial.

I wonder if this has to do with the increase in insured patients (that is, a drop in uninsured buyers that promps a rise so that the drug remains competitive at the usual insurance/hospital discounts?). How does drug buying work with American health insurance?

The point is, ladies and gentleman, that greed – for lack of a better word – is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.

There should be a public commission with the power to break patents in egregious cases like this. With rights purchased by a capital investor, there’s not even the usual flimsy tendentious argument that research costs need to be funded by drug prices that are thousands of times higher than production costs. In this case, it’s profiteering and should be stopped by government action.

Moreover it should be forbidden to patent new applications for existing out-of-patent drugs.

That’s basically what it likely was: the company has a program to allow poor uninsured patients to get drugs at free or reduced rates (although, like I’m finding with similar programs and my gf’s ongoing health crisis, that’s hardly a silver bullet for the poor). And since most people just have a flat rate for prescription drugs through their insurance, they don’t “notice” when the drug price goes up by 50x, since their copay stays the same (or maybe jumps up to the next bracket, from Generic–Preferred $10 to Generic–Other $15, say).

So, his little pharmaceutical “startup” gets to have its lunch on insurers paying out the nose for a lifesaving drug that they themselves did not research, develop, or even market. Folks might see the massive increased cost, at best, as a small part of their annual Premium increase, since insurers have to pay for all that extra cost somehow (or, even better, insurers pressure doctors/patients to use less-effective, but still cheap, treatments).

The guy’s a complete shit, though. He’s been on twitter, lambasting people complaining about it, called a reporter asking about his reasoning a “moron,” etc.

The best part is his reasoning, as quoted by Telefrog above. Again, remember that he and his company invested none of the research or development into this drug (the typical Libertarian bullshit/fuck-the-poor reason for expensive drugs in the US). Basically, shouldn’t drugs that save lives cost so much money that plenty of people can’t even afford to take them?

Jesus, what kind of monstrosity of a person even thinks that shit?

I initially thought this was unfounded outrage, I thought that people were mad drugs are so expensive. Pill costs pay my salary. But, this is insanely wrong. The expensive pill prices are meant to offset the years and years (we are talking 10+ years and thousands of people’s salaries) in developing a drug. But, essentially, his company bought a drug that had already offset that cost, and then using an FDA loophole (which gives his company exclusive rights to the patent, making it impossible for other companies to create a generic version) he jacked up the price for an extra few free years of exclusivity and insane profits. He claims these profits are going in to fund future developments with his company.

This is basically how kickstarter works, you pay in advance for future development of goods. Typically companies take on all of the costs associated with the research upfront and from investors, and then it pays off when the drug is FDA approved and goes to market. He is basically claiming that the money that patients pay now will go into further research of the drug. That is complete B.S.

I would bet this loophole is closed quickly, especially with this asshole on TV doing his best (see above) Gordan Gekko impression. That looks bad, people don’t vote for people who support that guy.

Jon, what do you think about government offering bounties for drugs? Like $X billion for the first drug with characteristics Y to treat disease Z? They basically let the drug companies know the money is out there, and buy the patent once the trials are complete (or even at a discount, earlier in the process). It seems like government ends up paying a huge portion of the costs of the drugs (even in the US).

No one’s gonna make new drugs for you then.

The reality is, drug patents only last a few years, and then they become open for generic production.

I know that you want stuff cheaper, but people don’t just make stuff because you want them to.

I initially thought this was unfounded outrage, I thought that people were mad drugs are so expensive. Pill costs pay my salary. But, this is insanely wrong. The expensive pill prices are meant to offset the years and years (we are talking 10+ years and thousands of people’s salaries) in developing a drug. But, essentially, his company bought a drug that had already offset that cost, and then using an FDA loophole (which gives his company exclusive rights to the patent, making it impossible for other companies to create a generic version) he jacked up the price for an extra few free years of exclusivity and insane profits. He claims these profits are going in to fund future developments with his company.

The fact that someone paid someone else for a patent doesn’t really change anything though, does it?

I mean, the guy who originally invented the drug and sold the patent, was only able to do so because it guaranteed exclusive rights. Saying that the guy who bought it doesn’t have any right to do it is nonsense… of course he does… that’s why he paid for the rights to the patent. That’s how patents work.

I must be missing something here, if there is some special loophole that makes this patent special. Normally when you buy a patent, it doesn’t extend the original duration.

Yeah… just checked the article, and it was the same story I had seen previously.

My question on this is how is this drug still under patent? If the drug is 62 years old, then the patent should have expired ages ago. How is it not available for generic production?

Ah… so apparently the drug actually isn’t even under patent any more. It’s just that no one else is making a generic version?

Yeah, it’s true. Pretty much a core rule of how capitalism works to benefit people: that dangling carrot gets the donkey to move the cart forward. I could argue that the kindness of human nature may provide a bit of a slant for the cart to roll on anyway, but that carrot undeniably works. One could also say that socializing pharmacology might make sense and it would certainly feel morally right, but there are numerous pitfalls with that approach, as well. What makes this one case so egregious is that the individual in question decided to not chase the carrot and instead decided to twist around to the back of the cart and grab the whole bag of carrots that were sitting there. That’s not benefitting anyone but him and his company.

I don’t think people here are arguing that the companies who do the R&D and other associated legwork to formulate a drug and bring it to market shouldn’t be allowed to recoup their research costs and make a profit based on their work. Turing swooped in, bought exclusive rights to a niche drug (whose patent has already expired) that no one else is able to create – and with the costs of engineering a generic for such a small market it’s unlikely anyone will try – and then jacked the price up claiming he needs funding for future research.

Uh-huh. I’m sure.

The thing is, I’m not seeing how it’s even possible that he “bought exclusive rights” to this drug… the drug isn’t patented any more. Why can’t anyone else just go out and manufacture it?

From what I’m seeing, the only reason he’s able to jack up the production is that no one else is BOTHERING to make a generic version.

But the thing is… if you buy rights to a thing, that’s the exact same thing as doing the R&D and developing it yourself. That’s WHY you pay for those rights. There’s no logical basis for the idea “Well, it’s ok for someone who invents something to sell it… but not someone who buys the rights from the guy who invented it!” Of course that’s ok. There is absolutely nothing wrong with that. That happens all the time, with people selling patents to companies who have the infrastructure necessary to actually produce the thing they invented.

Still, in this particular case, it doesn’t even seem to be a case of patent law. It seems like this guy actually bought the factory and production facilities which produce this particular drug, and is jacking up the price. But again, I’m not seeing why this is somehow “bad”. It’s his stuff. That’s why he bought it.

Although, since he jacked the price up so high, that kind of is going to create incentive for some other manufacturer to get into the market and undercut him.

According to the article:

With the price now high, other companies could conceivably make generic copies, since patents have long expired. One factor that could discourage that option is that Daraprim’s distribution is now tightly controlled, making it harder for generic companies to get the samples they need for the required testing.

The switch from drugstores to controlled distribution was made in June by Impax, not by Turing. Still, controlled distribution was a strategy Mr. Shkreli talked about at his previous company as a way to thwart generics.

Some hospitals say they now have trouble getting the drug. “We’ve not had access to the drug for a few months,” said Dr. Armstrong, who also works at Grady Memorial Hospital, a huge public treatment center in Atlanta that serves many low-income patients.

I’m not going to pretend I know everything that goes into making a generic formulation of a drug but it sounds like even if the fixed costs of R&D and FDA approval were low enough that this niche market could cover it with generic pricing – less than 10,000 prescriptions plus whatever hospitals use – the ability to actually acquire the drug to reverse engineer it and make a generic is damn near impossible.

Shkreli and the other guys doing this aren’t idiots. They’re not buying these drugs and hoping that other guys don’t make generic versions. They’re picking drugs that are just niche enough that no one else is going to bother. The ROI just isn’t high enough for a competitor to go through the manufacturing and approvals process on their own.

It might be the case that the provision of very rare generic drugs is a kind of natural monopoly, like a sewer connection. In a free market, a sewer company with pipes already installed could charge as much as they want to take your waste, up to some limit depending on the cost and convenience of the best alternative. Sure, a competitor could move in an undercut them, but that’s unlikely because the cost of building a parallel sewer network is high, and even if they did, the monopoly sewer provider would just lower the prices and the newcomer would never get their capital investment back.

In the case of the drugs, the market might be too small compared to whatever setup costs there are to start manufacturing a generic. It’s just not a good investment when the incumbent can drop the price once there is competition. Especially if the incumbent’s setup costs were paid when the drug had a bigger market as an anti-malarial. This is just wild guessing though.

Like Dan, I think the incentive of benefits is certainly necessary to speed up scientific research. However, I also believe the health market should, while keeping profitability, be subject to stricter controls (or at least a stricter moral code) than other non-life critical industries.

That is, it’s ok for a drug to be expensive to recoup R&D costs and make the company a good profit. But once those are recouped, I would argue it’s inmoral to jack up the price of something that was profitable at $13.50 to $750. Not if the product availability (or lack of thereof) endangers the health of a citizen. Basically you go from reasonable profits to predatory ones, and while it might be that it is legal by the current market rules, I certainly believe it should not be so. And it’s immoral as heck no matter how you look at it.

Is Spain (which again, is what I know) medicine prices are negotiated with the pharmaceutical companies (I’m guessing by batch contracts). Basically, companies are limited to a maximum profit margin (with RD costs taken into account). That is, they need to justify the price they charge. Daraprim sells for 5 euros here. And that’s profitable.

I guess they could choose not to sell the drug here (but that would be losing income, since I doubt production is maxed out, and I somehow believe that’s not how this guy operates).

So what we’re seeing then is that the idea that “patents must be broken” is silly, because this case doesn’t really have anything at all to do with patents.

It’s merely the case that there is a super specialty drug, that only one company is bothering to produce, and so they are dictating prices. Other companies COULD produce it, but choose not to, because the market is so small.

What’s the specific problem then? What needs to be changed?

See above. Price regulation.

Since these guys are not even (currently) researching, it’s not like you stop ongoing developments by cutting down the profit to reasonable margins.

Would you be OK with all natural monopoly providers charging as much as they can get away with?

Who would you be considering a “natural monopoly provider”?

In a case like what we have here, the price is in fact limited… Because, like I said, at a point the price is so high that someone else will produce the manufacturing infrastructure in order to produce the drug, to get their cut of that sweet, sweet money.

To me, I generally only have a problem when a company actively tries to prevent competition in the market. Simply not having other competitors who choose to participate in the market doesn’t fall into that category.

Not being able to acquire the drug to formulate a generic gives any potential competitors little choice on entering the market. With distribution controlled, it would be fairly obvious to Turing that another company was trying to get into the market, at which point they could slash the price and bankrupt the other firm or at the very least make it insane from a cost perspective to continue the research.