Is it Corporate Greed That Led to Turing Pharmaceuticals’ “Price Gouging” on Daraprim?

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Question: Is it corporate greed that led to Turing Pharmaceuticals’ “price gouging” on Daraprim?

Over the last couple of days, the media has been aghast as Turing Pharmaceuticals CEO, Martin Shkreli announced his plan to increase the price of Daraprim from $13.50 to $750 a pill. Daraprim was patented in the 1950s, and is used for treating parasitic infections in fewer than 13,000 people a year in the U.S.  Turing bought exclusive rights to distribute the drug in the U.S. from Impax for $55 million; drug sales are less than $10 million/year.  Impax itself bought daraprim several years earlier. It upped the price from $1 to $13.50/pill, causing the number of prescriptions to drop about 30%.

Shkreli’s assertion that the profits would be used to develop a better drug for treating toxoplasmosis was met with skepticism.  Shkreli is a former hedge fund manager, not a pharma veteran, and might not be aware that the new drug will have to be tested against daraprim itself. Testing against placebo would be unethical, given that daraprim is part of the treatment standard.  Showing superiority, in terms of effectiveness or side effects, is much more difficult against another drug than placebo. Indeed, given the small number of patients who need the drug, it might be impossible to show the “statistical significance” required by the FDA, since large numbers of patients can’t be tested.

Why, you might ask, can Shkreli price his drug so high and not fear that a generic competitor will undercut him? After all, the daraprim no longer has patent protection.

The answer: Turing Pharmaceuticals has a de facto monopoly, courtesy of the ever-increasing costs of gaining FDA approval, both for new drugs (over $1 billion and 11 years) and generics. Any generic company could make daraprim; its patent expired decades ago.

However, the FDA would require that the company demonstrate that its pill released the drug into the blood stream at the same rate as the original daraprim.  Coupled with the cost of setting up FDA-approved manufacturing facilities for the new drug, a turn-around time of a couple years or so due to regulatory red-tape, and the expensive clinical trials, a generic company would need to commit to spending many millions, perhaps tens of millions, even with the special exemptions that the FDA gives drugs that have small or “orphan” patient populations.  After jumping through all of these costly hoops, the competitor might be unable to take a substantial part of the market from Turing should it choose to lower its prices for the sole reason of preventing the competitor from getting a foothold.

The $750 pill might be considered an example of “corporate greed.”  However, Turing probably wouldn’t have even attempted such a price hike without high cost of FDA-mandated drug development, both new and generic, which virtually eliminated his competition.