Martin Shkreli is currently one of the most hated men on the internet. The founder and CEO of Turing phamaceuticals has faced public criticism over his decision to raise the retail price of Daraprim (reported to be an “AIDS drug”) by $13.50 to $700 per tablet, an increase of just over 5000%. The current outcry is that Shkreli is a predatory capitalist who is engaging in price gouging, filling his own pockets at the expense of the vulnerable. Even presidential hopefuls Hillary Clinton and Bernie Sanders have had a pop at the man, yet I don’t feel the public narrative captures the entire issue; rather it compares one outcome of a price raise in a static fashion.
Scare stories about “big pharma”, predatory pricing and lazy R&D have been happening for a long time in the pharmaceutical industry, with scandals involving much bigger price hikes involving much larger and institutionalised firms such as Glaxosmithkline; yet I suspect this case is receiving so much media attention because of politicians’ public denunciation of the act and the “AIDS” label. Whilst AIDS is a sufficiently prolific and scary disease in the public sphere (not to mention intimidating enough to warrant being spelt entirely in capitals), the idea that Daraprim is an “AIDS drug” is a little misleading. The drug has been used since 1953 to combat malaria, but is also used in combination with a variety of other pharmaceuticals. The current focus is on its use to combat toxoplasmosis, which is a parasitical infection carried by millions of people, but seemingly only becomes dangerous in children, and adults with suppressed immune systems. The story should therefore more appropriately be read as “entrepreneur makes business decision over generic drug” rather than “robber baron holds back AIDS cure for the globe”.
The patent for Daraprim expired eons ago, and as such has been in a state of limbo, with various companies casually picking up the marketing rights, passing it around and selling it as just another drug. This, in combination with the fact that Daraprim has only been prescribed to around 12,700 people in recent years (presumably in the United States) suggests that is simply hasn’t had the attention or investment from a specific company to update it.
Even if you have qualms about “big pharma” and think that capitalism is a bad model for distributing and developing drugs, the pharmaceutical industry in the States isn’t exactly the epitome of a free market. As noted here, there is a huge problem of regulatory capture and legal complications in the entire sector, which makes Clinton’s supposed outrage at Turing really quite hypocritical and outrageous in itself, given her very convenient ties with top corporate entities. There is also the HUGE problem of FDA regulations – as I mentioned previously the “rights” to the drug come in the form of marketing and licensure rights.
As Tim Worstall notes here, even though the drug has been “approved” as safe, the FDA has a monopoly on which firm is allowed to sell what drug, and combined with the small market it’s no wonder price hikes appear. The supposed counter argument is that with the fixed costs associated with pharmaceutical production only one firm can make a profit producing it, so a competitive market is impossible. However this assumes one drug per disease, with only one source for each drug. Daraprim was often bundled in a package with complementary drugs and appears to have been “lost” as a standalone product, at least in the United States, so why can’t it be isolated for development by one firm, given availability elsewhere? If the market is free there may be alternate opportunities.
In terms of the justifications for profit-driven development of Daraprim itself, according to Shkreli the market price for the drug has been undervalued as its lack of attention and development has slackened activity. To reduce the supposedly toxic side effects of the drug, as it was made over half a century ago, it needs capital investment to combat ever changing and mutating diseases. Although Turing has raised $90m in venture capital, they need to be a sustainable and profitable company to innovate in pharmaceutical research, hence the price rise. If one is to co-ordinate activity to innovate in an expensive practice, price signals are needed to suss out which diseases require the most attention over a time period. With this considered there is still an artificial monopoly granted to Mr. Shklreli, but with this removed I don’t see the problem of capitalistic production in this sector.
Now don’t get me wrong, there is little doubt that Shkreli is a dubious character. Aside from his eerily calm tone and empty, almost psychopathic facial expressions, he has been involved in numerous scandals, notably harassing former employees and their family, and legal scandals. Yet does this really matter? Even if you assume that nobody is benevolent, the market system can weed out bad behaviour; the public outcry convinced him to reconsider his action and the profit motive harnesses negative character traits to produce for others. Even then, half of the drugs Turing gives out are for $1 a pop, and will supposedly supply drugs whilst insurance negotiations are going on. So can we really blame a man whose entire survival in an industry is contingent upon bad regulation which rewards negative behaviour? Don’t hate the player, hate the game.