Thursday, October 1, 2015

The Daraprim story

This is Joseph.

The drug Daraprim jumped in it's cost from $13.55 a pill to $750 per pill after it was purchased by a new company:
“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.

“This is still one of the smallest pharmaceutical products in the world,” he said. “It really doesn’t make sense to get any criticism for this.”
Aaron Carroll is skeptical:
“Trying to stay in business”? If the company couldn’t make money at the same price the old company was, then why did they buy the drug? And asking people to pay WAY more to fund other drug development seems like gouging sick people with no choice. I’m having trouble understanding the optics of this. 
The ability to boost the price dramatically was certainly a way to maximize profits, but it does so at the cost of increasing health care costs.  And because the drug is infrequently used, it is unlikely you will see a lot of competitors manufacturing the drug. This is especially true, here, with a closed distribution system being used.  If you can't get enough drug to do a bioequivalence study, then you can't enter the market.

How we navigate these issues is tricky . . .  That said, there is something to be said about competitive market failure if the barriers to entry allow one to increase the price by so much and yet you don't immediately lure competitors to get their share of the $749 per pill (or so) in profit. Similarly, blocking the proof of equivalence between two agents is also a complete barrier to entry and not necessarily helping matters at all.

EDIT: The company has dropped prices from the $750/pill level.  However, the underlying issue of market failure remains, unless we think that social media should be a way of enforcing market discipline on companies.  Usually, this only influences the most egregious cases. 


  1. There is no market failure here, because there is no market in health care. Never has been, never will be.

    The information asymmetries in health care, not to mention the enormous barriers to entry that are necessary for public safety reasons, preclude the development of a true competitive market for health care products and services. The people who are trying to manage the health care system based on market principles are on a fool's errand; they are blinded by neoliberal ideology.

  2. Clyde: I agree.

    Furthermore, some of the major barriers to free markets (e.g. professional licensing) are never discussed. Now I happen to think credentials are an important quality control measure in health care, but if you want truly free markets they are also an issue