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.
“It’s easy to see that this issue is almost entirely about the difficulty of obtaining generic drug approval in the United States,” writes Alex Tabarrok, an economist at George Mason University who specializes in the political economy of drug approval. “[T]here are
many suppliers in India and prices are incredibly cheap. The prices in this list are in India rupees. 7 rupees is about 10 cents so the list is telling us that a single pill costs about 5 cents in India compared to $750 in the United States!”
- I said earlier that 'I have no respects what so ever for the medical community in US' - I guess this is not going to change my thinking
