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23rd February 2016

In defence of Pharma-Bro Martin Shkreli

With the exorbitant costs of producing drugs and conducting research, sometimes the costs are high, so let’s not blame Shkreli for all the evils of the pharmaceutical industry
In defence of Pharma-Bro Martin Shkreli

Mr Shrekli is what Mr Monopoly would look like if the board game were re-released to reach the hip, younger crowd. The signature jig replaced by an enthusiastically unperturbed shrug. Perhaps the most ridiculed part of his face, his hair, is consistently coiffed to a firm yet natural side swoop, standing in dichotomy with his childlike countenance. His most fascinating feature though, is his eyes, which are all at once virtuous and malefic, depending on the lighting. When we first meet someone, we judge them by the impression their eyes give. Likewise, understanding Martin Shkreli’s price increase of Daraprim should start from his eyes.

Late last year, Swiss-based pharmaceutical company Turing Pharmaceuticals raised the price of a 60-year-old drug from £9.47 to £525 a pill after acquiring the marketing rights from Impax Laboratories. Daraprim is used to treat parasitic infections like toxoplasmosis and malaria, extending to AIDS patients whose stifled immune system enable frequent infections. Because it has a low prescription rate—12,700 written in the United States in 2010—it would be considered a speciality drug. Daraprim was and is not a “cancer drug”. Meaning that it is vital only in the sense that it is a drug and not because many people need it. Turing, founded and formerly chaired by Shkreli, focuses on unique drug categories that have small markets. Before selling it, Impax changed the distribution system from wholesale to tightly controlled. It is now distributed through a single speciality distributor, Turing Pharmaceuticals.

The 5500% price increase is just in the United States; Daraprim still costs 43 pence a pill in the United Kingdom. Low pricing is found in other EU countries due to the high degree of regulation that does not exist in the US. Because malaria is virtually non-existent in developed countries, it would just be people afflicted by toxoplasmosis in the US (which has already been established as not many) that would be affected by this.

The few patients who do need Daraprim will not pay the £525 because the United States Federal government protects its people against spikes in prices through the health care programs Medicare and Medicaid. Additionally, Turing Pharmaceuticals participates in the US 340B Drug Discount Program. Created in 1992 by Congress as part of the Public Health Service Act, it protects specified clinics and hospitals from drug price increases by giving them access to price reductions. By taking part in 340B Turing enters into the pharmaceutical pricing agreement, which is a second agreement with the Secretary of Health and Human Services to provide statutorily defined discounts on “covered outpatient drugs”. Expensive drugs are purchased by government-supported facilities to serve those unable to pay. 340B is one of the most powerful contractual pharmaceutical pricing systems in the world. People who need Daraprim will get Daraprim.

Turing Pharmaceuticals wasn’t taking advantage of a drug made in the 1950s. The patent ran out, its price fell, the market was small, and it still had to comply with FDA regulation. There was no incentive to produce it, but people still needed the drug. From a return on investment standpoint, £9.47 is too low to break even. Shkreli claims that £525 is exactly what was needed to turn a profit and invest in research. The people who need it, or at least the insurers that allow those people to acquire it, have to support the production line. The reason why Daraprim is so expensive is the same reason why there is no company jumping to produce a generic version: Not many people need it. A company would have to invest in research and development of a new generic drug, have it go through FDA regulatory approval, manufacturing design and development, regulatory approval of manufacturing, production, and packaging. It would be too expensive to enter the market and the generic pricing will be not much more competitive than Turing’s.

Martin Shkreli would like to improve on Daraprim so that patients just need to take one pill. It has only been a couple months since the acquisition, too early to tell whether he will follow through with funding research.

Healthcare costs will not rise because of Mr. Shkreli’s decision. Since the total market is so small, the net effect of this price increase is close to negligible. The US government does have to pay more but pharmaceuticals do not make up the largest part of healthcare, nor are they the fastest growing. Between 2010 and 2013, drugs have had sharp reductions in growth, shrinking in real per capital terms at a 1.6 per cent annual rate. Shrinking as in negative, less than zero. Again, this is because not many people are prescribed Daraprim. The gargantuan industry that is pharmaceuticals will be able to absorb this type of shock, as opposed to a drug that treated diabetes.

Mr. Shkreli is acting as the scapegoat for a heavily disdained industry and at least informed people of menacing pharmaceutical practices. As a by-product of his very public persecution, hopefully we will understand that some pharmaceutical companies negotiate with countries and insurance systems so that certain medicine is covered for as many patients as possible. The cruel reality of rare diseases like cystic fibrosis and muscular dystrophy is that unless treatment costs are exorbitantly high, patients will likely get no help at all.

As an impatiently patient Martin Shkreli sat in his congressional hearing, he piously recited: “On the advice of council, I invoke my 5th Amendment privilege and respectfully decline to answer your question”, to each question he was asked. Perhaps he is arrogant, but when you have a clear moral compass and an intimidatingly difficult agenda, you too would be irritated at trivial obstacles.


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