Generic drug price gouging: How Shkreli and other monopolists cornered the market on essential medications.

These New Pharmaceutical Villains Keep Patients From Getting the Drugs They Need

These New Pharmaceutical Villains Keep Patients From Getting the Drugs They Need

Health and medicine explained.
Sept. 23 2015 4:31 PM

Cornering the Market on Essential Drugs

Generics companies were supposed to make drugs cheaper, but some have become the new villains of health care.

Only for the wealthy?
Only for the wealthy?

Photo illustration by Lisa Larson-Walker. Photo by iStock/Thinkstock.

A few months ago, I treated a patient for a case of pinworm, a parasitic infestation that affects roughly 400 million people worldwide, with 40 million of those cases occurring within the United States. Though pinworms can be found in middle-class suburbs, the parasite is common in settings of urban poverty, including the low-rise public housing complexes across the street from my East Baltimore clinic, where far too many people struggle to survive on less than $2 a day.

The diagnosis itself was relatively easy to make, and though my patient had no insurance, I sent her to the pharmacy confident that the right drug for her disease, albendazole, should only cost a few dollars to fill. After all, the drug had been  introduced in 1971, and by the 1980s its cost was so low and its use so broadly validated that it was added to the essential drugs list of the World Health Organization: a powerful medicine widely available for pennies a pill. When she returned an hour later saying that she could not afford the medication, I pressed for more detail. Sometimes even a few dollars can be too much for patients scraping to make rent or buy food for their families, and our staff has a limited ability to offer vouchers to help cover drug costs in times of need. Yet I was not prepared for the figure she showed me: The two pills of albendazole I had prescribed would cost her an untenable $330. As I soon discovered, the U.S. market for the once-generic drug albendazole had been cornered by a small pharmaceutical company called Amedra and retrofitted into a newly exclusive brand, Albenza, at more than $150 a pill.

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This week’s revelation that another small pharmaceutical company, Turing Pharmaceuticals, acquired the sole U.S. distribution rights to another antiparasitic drug on the WHO essential drugs list and boosted its price by more than 5,000 percent, suggests that the price jacking of albendazole was no fluke. After it came out that Turing, having acquired the 62-year-old drug pyrimethamine, suddenly raised its price of a single pill from $13.50 to $750, the topic went viral, prompting calls from Democratic presidential candidates Bernie Sanders and Hillary Clinton to control escalating drug prices. Turing’s brash and unapologetic CEO, Martin Shkreli, did little to diminish the story after confidently asserting in a CNBC interview that the new price of the drug should simply be borne on the backs of existing patients and calling one journalist a “moron” for contesting the ability of the drugmaker to set whatever price he wanted to.

It is possible that controversy and publicity is exactly what Shkreli was seeking—after all, this is the same hedge fund manager who famously called on the Food and Drug Administration to not approve a series of drugs because he was short-selling the manufacturer’s stock. Yet the markups point to an unsettling development in pharmaceutical pricing. Shkreli is a new sort of villain in the passion play of the pharmaceutical industry. He is not playing the well-rehearsed role of the Big Pharma executive, excoriated for charging exorbitant prices for blockbuster drugs that are barely superior to existing generic forms. Nor is he playing the recently developed role of the biotech executive who justifies pricing truly innovative medicines so stratospherically high that they threaten to bankrupt state Medicaid systems. No, Shkreli and his less visible counterparts at Amedra Pharmaceuticals come from a new tier of smaller pharma firms that employ retro-monopolistic strategies to corner the market on old cheap drugs that no other companies are producing and remake them as old expensive drugs. They represent a new mutation of the “little pharma” generics firms that—until very recently—were assumed to be a sort of moral underdog, producing cheap versions of old medicines and helping once-innovative medicines become more widely accessible.

This phenomenon is not limited to antiparasitic drugs. Other, equally distressing examples can be found in reverse monopolies for old and essential treatments for asthma, diabetes, gout, heart disease, cancer, and even the supply chain for interventions as basic as bags of intravenous saline. These commodities represent a vital infrastructure of our health care system that is eroding from shortage to shortage and price hike to price hike, as once-competitive generic markets give way to new oligopolies and monopolies of medical interventions.

It wasn’t supposed to be this way. When the essential drugs concept was formally articulated by the World Health Organization in 1977, its architects hoped to carve out a set of inexpensive interventions so central to the functioning of health care systems that they should be considered collective public goods instead of a set of private commodities. These agents were agreed to be “of the utmost importance, and are basic, indispensible, and necessary for the health needs of the population.” Ideally, their wide availability would be supported by strong government policies. Advocates of the essential drug program saw the generic industry as an ally: a “little pharma” that provided old drugs on the cheap.

And yet the history of the generic drug industry over the past five decades has demonstrated materially that generic firms are no more moral or immoral than members of the Pharmaceutical Research and Manufacturers of America or the Biotechnology Industry Organization: They are amoral actors that will move to maximize their revenues as much as any other private firm. That means, ironically, that a new form of generic pharmaceutical firm is now making essential medicines newly unaffordable to patients living in poverty.

With that in mind, Shkreli’s blustery defense may yet offer help to those interested in making essential medications more accessible within the borders of the United States. Turing’s decision to raise prices is only the logical extension of a pharmaceutical marketplace that allows firms with monopolies the absolute right to set their own prices with no constraints. Unlike many other countries, including Canada, France, Australia, Germany, and the United Kingdom, the United States has resolutely refused to give our government the ability to negotiate drug prices. Instead, we continue to pay what firms ask and hope that the invisible hand of the market will match supply and demand—and eventually bring prices down. We trust that generic firms remain an efficient private sector solution to the public health problem of drug access. In return, we are confronted with market failures, drug shortages, and price increases.

How many more essential medicines will become inaccessible before we revisit this equation?