Atlas Shrugged: The Mocking

Monday, September 21, 2015

A Different Type Of Piggish Scandal

Yes, I said I was fed up with Megan McArdle. And I have work to do. But I could not ignore this story; many thanks to cynic for the link. From The New York Times:

Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.

The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

“What is it that they are doing differently that has led to this dramatic increase?” said Dr. Judith Aberg, the chief of the division of infectious diseases at the Icahn School of Medicine at Mount Sinai. She said the price increase could force hospitals to use “alternative therapies that may not have the same efficacy.”

Turing’s price increase is not an isolated example. While most of the attention on pharmaceutical prices has been on new drugs for diseases like cancer, hepatitis C and high cholesterol, there is also growing concern about huge price increases on older drugs, some of them generic, that have long been mainstays of treatment.

Although some price increases have been caused by shortages, others have resulted from a business strategy of buying old neglected drugs and turning them into high-priced “specialty drugs.”

 McArdle's solution for the hepatitis C high price tag was to have the government pick up the tab. That's an odd solution for a libertarian but obviously that just means McArdle contains multitudes. The government should do this because, as McArdle has always said, drug innovation depends on high US drug prices. She does not note that the company that owns the drug did not develop the drug itself; it bought the company that did, which used government-funded research.

So the optimal pricing strategy -- for everyone, not just pharmaceutical companies -- is to charge rich countries a lot and sell the drug at near-marginal cost in poor countries. If the rich countries insist that they should also get the drug near-marginal cost, then they benefit in the short term. But over the long run, the company loses money on its products, and then we don't get any new drugs.

See also:

The former hedge fund manager is Martin Shkreli.

This is not the first time the 32-year-old Mr. Shkreli, who has a reputation for both brilliance and brashness, has been the center of controversy. He started MSMB Capital, a hedge fund company, in his 20s and drew attention for urging the Food and Drug Administration not to approve certain drugs made by companies whose stock he was shorting.

In 2011, Mr. Shkreli started Retrophin, which also acquired old neglected drugs and sharply raised their prices. Retrophin’s board fired Mr. Shkreli a year ago. Last month, it filed a complaint in Federal District Court in Manhattan, accusing him of using Retrophin as a personal piggy bank to pay back angry investors in his hedge fund.

Mr. Shkreli has denied the accusations. He has filed for arbitration against his old company, which he says owes him at least $25 million in severance. “They are sort of concocting this wild and crazy and unlikely story to swindle me out of the money,” he said.

You can find more details of Shkreli's malfeasance here.

I think we can safely predict that McArdle's free market fairy tale will not change when confronted with any new and/or damaging information. Right now she is busy discussing Greece's need for more austerity and busy not discussing Greece's poverty.


Batocchio said...

I figured you'd catch this story. When I saw the clip of Shkreli proudly bullshitting on Bloomberg TV, I thought of McArdle, her free marketeer drug research BS, and how excited Shkreli must make her. (Perhaps she'll trot out another inane 'bold contrarian' piece defending him.)

Smut Clyde said...

I came across an informative thread at Boing Boing, and my first thought was "How will McMegan make hay of this?", with "How will Susan respond?"

It sounds like a narrow little loophole that Shkreli and others have discovered. Or rather, a bottleneck, allowing them to extract rent from those who needs pass through it. The drugs are out of patent; anyone can synthesise a generic equivalent. But to put that generic drug on the US market, the competitor must obtain a supply of the old drug (so as to test them in parallel and establish bio-equivalence). And Shkreli's companies control distribution so they won't sell it to potential competitors.

So all easily fixed. Apparently a Ms Clinton is proposing legislative changes to put an end to Shkreli's squalid little Kosovar-gangster-worthy racket. My *third* thought was "How will Republican presidential candidates come to the defence of Shkreli and his business model; how will they compete to out-praise his wealth-creating nobility?"

Anonymous said...

Anonymous said...

I forgot to mention this with the link above, but the person writing that article is Derek Lowe. He's the original person Megan cited years ago in her original pieces about who pays for Pharma.

Susan of Texas said...

McArdle will probably echo Lowe and tisk-tisk Shkreli's actions while defending drug companies in general.

Meanwhile my insurance company was soaked for artificially inflated colchicine and doxycycline. If insurance companies raise rates I bet McArdle will blame Obamacare.

I would say nationalize it all but the banks ripped us off for billions and the taxpayer paid for it so why should either party do something about this, once a couple of people are fined?

Susan of Texas said...

Shorter Derek Lowe: Shkreli will ruin the grift for everyone else.

"You have the ethical/humanitarian [arguments] obviously, but I can make a case without even appealing to those arguments – which is good, I’d say, because those sorts of arguments (as correct as they can be at times) rarely seem to make a lot of headway."

That's because they are fought tooth-and-nail by people like Lowe and McArdle.

"First off, they are horrendous for the reputation of the entire drug industry."

Yes, we wouldn't want Pharma to get a reputation for greed.

"Second, the awful publicity about these pricing strategies runs a serious risk of bringing the entire pricing structure of the industry under much heavier scrutiny and regulation."

Right. The problem with not enough regulation is that it might not be allowed to continue.