qotd: Rent seeking by drug barons

The New York Times
September 20, 2015
Drug Goes From $13.50 a Tablet to $750, Overnight
By Andrew Pollack

Specialists in infectious disease are protesting a gigantic overnight
increase in the price of a 62-year-old drug that is the standard of care
for treating a life-threatening parasitic infection (toxoplasmosis).

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.

Turing's price increase is not an isolated example. While most of the
attention on pharmaceutical prices has been on new drugs for diseases
like cancer, hepatitis C and high cholesterol, there is also growing
concern about huge price increases on older drugs, some of them generic,
that have long been mainstays of treatment.

Although some price increases have been caused by shortages, others have
resulted from a business strategy of buying old neglected drugs and
turning them into high-priced "specialty drugs."

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.

Doxycycline, an antibiotic, went from $20 a bottle in October 2013 to
$1,849 by April 2014, according to the two lawmakers.

Martin Shkreli, the founder and chief executive of Turing, said that the
drug is so rarely used that the impact on the health system would be
minuscule and that Turing would use the money it earns to develop better
treatments for toxoplasmosis, with fewer side effects.

"This isn't the greedy drug company trying to gouge patients, it is us
trying to stay in business," Mr. Shkreli said.

This is not the first time the 32-year-old Mr. Shkreli, who has a
reputation for both brilliance and brashness, has been the center of
controversy. He started MSMB Capital, a hedge fund company, in his 20s
and drew attention for urging the Food and Drug Administration not to
approve certain drugs made by companies whose stock he was shorting.

In 2011, Mr. Shkreli started Retrophin, which also acquired old
neglected drugs and sharply raised their prices. Retrophin's board fired
Mr. Shkreli a year ago. Last month, it filed a complaint in Federal
District Court in Manhattan, accusing him of using Retrophin as a
personal piggy bank to pay back angry investors in his hedge fund.

Daraprim, which is also used to treat malaria, was approved by the
F.D.A. in 1953 and has long been made by GlaxoSmithKline. Glaxo sold
United States marketing rights to CorePharma in 2010. Last year, Impax
Laboratories agreed to buy Core and affiliated companies for $700
million. In August, Impax sold Daraprim to Turing for $55 million, a
deal announced the same day Turing said it had raised $90 million from
Mr. Shkreli and other investors in its first round of financing.

Daraprim cost only about $1 a tablet several years ago, but the drug's
price rose sharply after CorePharma acquired it.

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.

http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html

***

W. W. Norton and Company
The Price of Inequality
By Joseph E. Stiglitz

The term "rent" was originally used to describe the returns to land,
since the owner of the land receives these payments by virtue of his
ownership and not because of anything he does. This stands in contrast
to the situation of workers, for example, whose wages are compensation
for the effort they provide. The term "rent" then was extended to
include monopoly profits, or monopoly rents, the income that one
receives simply from the control of a monopoly. Eventually the term was
expanded still further to include the returns on similar ownership claims.

Not all rent seeking uses government to extract money from ordinary
citizens. The private sector can excel on its own, extracting rents from
the public, for instance, through monopolistic practices and exploiting
those who are less informed and educated, exemplified by the banks'
predatory lending. CEOs can use their control of the corporation to
garner for themselves a larger fraction of the firms' revenues. Here,
though, the government too plays a role, by not doing what it should: by
not stopping these activities, by not making them illegal, or by not
enforcing laws that exist.

http://books.wwnorton.com/books/detail.aspx?id=4294967848

***


Comment by Don McCanne

The pharmaceutical industry has run amok, and we are all suffering as a
result. We are paying higher taxes and higher insurance premiums to
create "rents" for the likes of Martin Shkreli. (You'll understand what
this means if you simply read the excerpts above.)

We should all be outraged, not only with the barons in the
pharmaceutical industry, but even more with our own government, which,
as Joseph Stiglitz tells us, is "not doing what it should."

One of our candidates for president says that he "can't do it alone. We
have got to do it together through a strong grassroots movement. We have
got to think big."

Start thinking big.

(PNHP does not endorse any political candidates nor their political
parties, though some candidates do endorse policies advanced by PNHP.)