Nuggets of Wisdom

Friday, December 2, 2016

Martin Shkreli’s $150 Drug Made By Kids For Only $2

I’m sure most of you are familiar with Martin Shkreli, the young scumf**k of a CEO who charged $750 for Daraprim, a life-saving drug used for treating malaria patients.

Turns out that Australian high school students were able to recreate the exact same drug for only two dollars!

So if a bunch of high school students can create the same drug for just two dollars, why can't most other pharmaceutical companies do the same and give Martin Shkreli a run for his money?

Capitalism-hating leftists will argue, of course, that "Big Bad Pharma" is run by evil, greedy capitalists who want to squeeze poor patients dry through price gouging in order to make big bad profits for themselves.

Of course, libertarians (and other people with a basic understanding of economics) know the real reason: the FDA won’t allow it!
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.
To prove just how insane such regulatory capture is here in America, did you know that India sells the exact same drug for only ten cents? Ten cents! And yet you can't import that same drug here into America. Why? Because the federal government bans its importation!

Just imagine, if the FDA had less power to prevent the importation of such inexpensive drugs, let alone prevent other companies within the country from creating cheaper generic versions, we wouldn't have "drug cartels" like Shkreli holding monopolies within the pharmaceutical industry.

As always, the problem isn't the free market and "Big Pharma." It's Big Government and the lack of a free market!