Martin Shkreli, the fresh-faced founder of Turing Pharmaceuticals, recently snatched up the rights to Daraprim, a 62-year-old generic drug used to treat malaria, toxoplasmosis, and symptoms of AIDS. He then raised the price from $13.50 to $750 per dose, because he could. Shkreli’s shameless gambit has been met with outrage. Shkreli has tried to justify this banditry—not that many people pay for prescriptions of the drug anyway; the profits will finance a newer, better version—but no one is biting. It’s clear enough that this resourceful young man is a morally rudderless scoundrel.
But that’s just capitalism, right? Shkreli’s seems to thinks so.
“There’s no doubt … I’m a capitalist,” he said in an interview with CBS. “I’m trying to create a big drug company, a successful drug company, a profitable drug company. We’re trying to flourish.”
This sort of capitalism is a godsend to capitalism’s opponents. This meme, alleging that capitalism rewards sociopaths, basically sums up the reaction in my social media feeds, which are heavy with left-leaning academics:
Shkreli is a gift to less ideologically zealous liberals as well. Dan Diamond of Vox, who favors heavier government regulation of drug prices, says Shkreli is a “national hero” because, “[w]e don’t get health reform without a catalyzing moment like this.” Hillary Clinton, the Democratic presidential frontrunner, bounced off the springboard of Martin Shkreli’s avarice proposing a new rule that would cap the monthly out-of-pocket cost of prescription drugs to $250 for Americans with serious conditions.
There’s no point denying that Shkreli is a sort of capitalist practicing capitalism as it actually exists in the United States. All market institutions are built around a political superstructure of law and regulation. The problem is that American pharmaceutical markets are so badly regulated that normal market mechanisms can’t function, creating opportunities for knaves.
Daraprim is a generic, which means that the patent on the drug—a government-granted monopoly meant to encourage innovation—has expired and the relevant chemical structure (it’s called “pyrimethamine”) is in the public domain. Anyone could in principle come to market with a pyrimethamine drug identical to Daraprim. So what is it that Shkreli bought when he spent$55 million for the right to sell Daraprim? Easy question. He bought Daraprim’s Food and Drug Administration (FDA) approval. But why is that so valuable?
Bringing a copy of Daraprim to market would require filing an Abbreviated New Drug Approval with the FDA. The new formulation would be tested to make sure it’s really the same, and as safe, as the previously approved generic. The FDA is notoriously slow and the process is expensive. Probably not $55 million expensive, however. Shkreli was willing to pay such a huge sum because he could see that no Daraprim copies were in the regulatory pipeline, meaning that, for a time, he would have a monopoly and could reap monopoly profits by callously demanding exorbitant prices from patients who have no alternative to the drug. The scandal of Martin Shkreli’s profiteering tells us very little about capitalism, per se, but it does tell us a lot about the perverse market incentives that overzealous regulation can create.
“It’s easy to see that this issue is almost entirely about the difficulty of obtaining generic drug approval in the United States,” writes Alex Tabarrok, an economist at George Mason University who specializes in the political economy of drug approval. “[T]here are many suppliers in India and prices are incredibly cheap. The prices in this list are in India rupees. 7 rupees is about 10 cents so the list is telling us that a single pill costs about 5 cents in India compared to $750 in the United States!”
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