Martin Shkreli is a Jerk—But He's Not the Only One Jacking Up Outrageous Prices on Life-Saving Drugs

Shkreli's company increased the price of a drug from $13.50 a tablet to $750 a tablet—raising the cost for a full course of treatment to $63,000.
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Publish date:
September 24, 2015
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medication, Perscription Drugs, Terrible People

This weekend, social media exploded with the story of Martin Shkreli, CEO of Turing Pharmaceuticals, which just made the decision to increase the price of a drug from $13.50 a tablet to $750 a tablet—raising the cost for a full course of treatment to $63,000.

The unrepentant Shkreli took to the Internet to dismiss critics, brag, and belligerently hassle those who questioned the decision, insisting that it was justified on the grounds of the benefits to the company's shareholders. Within days, he was backtracking on the announcement, claiming on Tuesday that he would lower the drug's price by an unspecified amount in response to the outcry.

Martin Shkreli, large and in charge.

He's an easy man to vilify. But this is actually about the drug industry as a whole.

The drug in question, Daraprim, is a first-line treatment for toxoplasmosis, a potentially life-threatening parasitic infection that can ravage people with compromised immune systems, such as people with autoimmune disorders, HIV/AIDS patients, and people with cancer. For children born to people infected with the disorder, it can be fatal.

Ready accessibility of the drug clearly saves lives, and while the course of treatment wasn't exactly cheap before, it was manageable for many patients, especially with the help of insurance. Now, however, it's sky high—and while Shkreli is claiming that insurance will cover the cost, making it affordable for many patients, it's more complicated than that.

One thing Obamacare hath wrought is attempts on the part of insurance companies to meet the letter of the law while circumventing the spirit as much as possible. They may be obligated to cover certain services and conditions, and they may be required to take people with preexisting conditions, and they may be obliged to keep people on insurance plans (unless they can show cause for dismissal), but that doesn't mean they can't do things like jacking up copays, dropping medications from their list of covered products, and so forth.

When a drug is reasonably affordable, there's no reason to rock the boat. When the cost of treatment suddenly hits $63,000, however, insurance companies start to get nervous. Toxoplasmosis is a relatively rare disease, and they don't have many patients with the infection, but they'll take a hit when they do.

Expensive drugs—even when they're generics—tend to have higher copays, and sometimes they get dropped from coverage altogether. That leaves patients fighting if they want a given treatment, and even with support from a physician, it can take months to sort it out, which is a huge problem with a medication used to treat a potentially fatal illness.

The abrupt price increase for Daraprim isn't Shkreli's first entry into the waters of pharmaceutical pricing. In 2014, another company he owned—Retrophin—acquired rights to a drug used to treat kidney stones. It took the pricing of Theola from $1.50 per tablet to $30. Similar public outcry erupted. And in 2012, he was accused of stock manipulation in the biotech sector.

Pharmaceutical companies large and small justify these kinds of pricing decisions, in which the costs of older drugs are astronomically increased, as necessary for their shareholders. They're for-profit corporations, and they need to increase revenue. When a patent expires and a drug is available generically, they lose out on substantial revenues.

Which is why many are very adroit at patent protection tactics like reformulating pharmaceuticals so the FDA will treat them as entirely new drugs, which means an entirely new patent. The industry is quite aggressive with such strategies, insisting that they're necessary due to blockages in the pipeline—new drugs are taking longer to develop and they need to protect revenue—and the fact that many new drugs target a narrower range of patients. The industry is also notoriously suspicious of patent reform, convinced that it might affect the bottom line.

They also claim that higher revenue allows them to conduct more research to perfect drugs and speed the production of a generic version. Their patent sharking, in other words, is all for the good of patients and the public health.

Notably, so-called "orphan drugs" used to treat a small number of patients are particularly popular targets for this practice, but they're not the only ones. Doxycycline, a very common antibiotic, sold for $20 a bottle in October 2013. Six months later, it was selling for $1,849.

Radical increases of this nature make it hard for hospitals and pharmacies to keep them in stock, which can delay needed treatments. Drug companies may also switch to controlled distribution, making it harder to access medications—and, along the way, making it difficult for other firms to acquire medication in order to perform their own research so they can release a generic version. Daraprim's patent is 60 years old. Pharmaceutical patents filed pre-1995 expire after 20 years.

The practice of acquiring drugs and then promptly raising their prices is extremely common in the industry, and from a purely capitalist perspective, it makes complete sense. Drug companies need to make money, and while they're waiting for R&D to result in new drugs, acquiring medications from other firms can be an excellent way to diversify their portfolios. Patients, however, pay the price.

For patients with and without insurance, these kinds of eye-popping increases can mean that they can't access first line drugs. Physicians are forced to weigh cost considerations whether they're looking at what insurance will cover, or trying to save money for private pay patients.

Pharmaceutical price hikes like this are extremely common, and they've sparked complaints to the FDA, which effectively shrugs because it can't do anything about it. Members of Congress have also investigated the ongoing problems with drug pricing, the New York Times reports, and notably, one of the leads on the subject is Bernie Sanders—this week, rival Hillary Clinton is catching up and issuing her own statements on pharmaceutical pricing.

Theoretically, the government can step in to address drug prices, and the president has been pushing for Medicare to flex its considerable industry muscle (it's a major customer, after all) to force prices down. However, as numerous instances of shockingly high pharmaceutical prices illustrate, this is a problem that will not go away without Congressional regulation, and that's going to mean a fierce fight, thanks to Republican objections and the might of the pharmaceutical lobby.

Patent, copyright, and trademark law in the United States are incredibly broken, and this is one example of the issue. We urgently need reforms to intellectual property law if we actually want to promote innovation, and that includes in the biotech industry. At the end of the day, making drugs affordable is, yes, important for the common good, but it's also a good business practice. And the government should absolutely step in to address the problem.

If we want to see realistic reforms to the pharmaceutical patent racket, they need to happen in 2016—and with rising fury over pricing, it's possible that might happen. Shkreli might have just shot himself in the foot, so here's hoping he can afford the antibiotics he'll need to treat the subsequent infection.

Images: Takashi Hososhima, Dominique Godbout, Kiran Foster (Flickr/CC)