Remember the AIDS/Cancer Drug Whose Price Increased 5,000 percent Overnight? The Free Market Came Up With a Solution.
Acton Institute Powerblog

Remember the AIDS/Cancer Drug Whose Price Increased 5,000 percent Overnight? The Free Market Came Up With a Solution.

pharma-pills-and-moneyLast month Turing Pharmaceuticals felt the backlash after a medication they sold for $1 a pill in 2010 increased overnight to $750 a tablet.

Politicians like Hillary Rodham Clinton and Bernie Sanders were quick to claim that this is why we needed more government intervention in the healthcare system. But at the time I pointed out that the reason Turing was able to raise the price so spectacularly was not because of a failure of the free market but because of government intervention:

The free market isn’t the reason [Turing’s CEO] Shkreli was able to raise the price. In fact, if he had to sell his product in a truly free market environment the price would likely remain low. And even now, if he continued to keep the price high, some enterprising pharmaceutical company would start making Daraprim themselves, increasing the supply and lowering the cost.

And that’s just what happened. That enterprising pharmaceutical company turned out to be Imprimis Pharmaceuticals. The company announced yesterday that it will start offering customizable compounded formulations of pyrimethamine (the generic name for Daraprim) and leucovorin in oral capsules starting as low as $99.00 for a 100 count bottle, or at a cost of under a dollar per capsule.

In making the announcement Mark L. Baum, CEO of Imprimis, said,

It is indisputable that generic drug prices have soared recently. While we have seen an increase in costs associated with regulatory compliance, recent generic drug price increases have made us concerned and caused us to take positive action to address an opportunity to help a needy patient population. While we respect Turing’s right to charge patients and insurance companies whatever it believes is appropriate, there may be more cost-effective compounded options for medications, such as Daraprim, for patients, physicians, insurance companies and pharmacy benefit managers to consider.

Imprimis believes the new drug will earn the company a “reasonable profit.” But even more important will be the goodwill and PR value that will come with their decision to offer a low-cost option to Turing’s monopoly on Daraprim.

While this is an example of how the free market can benefit both businesses and consumers, it comes with a catch. Imprimis was only able to implement this solution by exploiting a loophole in current government regulations:

There’s a limitation, Baum said: The formulation is not FDA-approved, and can legally only be sold through a doctor’s prescription to a specific individual. The specific ingredients are FDA-approved, Baum said, and its compounding operations are FDA-inspected.

Filing for FDA approval of the compound itself would take years and millions of dollars, Baum said. By not filing, Imprimis can keep prices down and make a significant profit, even for less than $1 a capsule, Baum said in a Thursday interview.

You can bet that teams of pharmaceutical lobbyists are working right now to convince politicians to require such compounds to be FDA approved. That will give more power to both rent-seeking pharma companies and to the government that seeks to “protect” us by making medicine unaffordable.

The politicians will ignore the fact that it was only by not requiring direct FDA approval that the drug was able to be offered at a lower price. Instead, they’ll completely ignore the fact that much of the costs of the drugs is due to their federal regulations and they’ll propose the needed “solution” to lower the costs is adding even more regulations.

That’s the inevitable destructive cycle our current regulatory environment keeps us trapped in. But that’s a problem for tomorrow. For today, we can celebrate an example of the free market circumventing government and increasing human flourishing. It’s a small win overall, but it’s a significant victory for those in need.

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).