Hillary’s Tweet Crushes Hopes and Dreams
Hillary Clinton has tweeted a teaser for her forthcoming proposal to lower prescription drug prices. Here it is:
This short tweet immediately hit biotech stocks, according to Bloomberg:
Biotechnology stocks fell Monday after Democratic presidential candidate Hillary Clinton tweeted Monday that she would release a plan to combat the high cost of prescription drugs.
The Nasdaq Biotechnology Index fell 3.4 percent to 3,606.07 at 12:16 p.m. in New York, the biggest intraday drop since Aug. 24, with most of the decline coming after Clinton’s comment on Twitter.
In other words, one ambitious politician’s price-fixing proposal will crush the hopes of patients worldwide who need newer and better drugs, as well as the dreams of scientists and entrepreneurs trying to develop those cures.
Yes, but the example above isn’t about new therapies. It’s an old generic drug. Granted, Mrs. Clinton was just getting a good sound bite out of the deal. Yet, if the FDA didn’t have a 4,000 application backlog, I suspect this type of huge jump wouldn’t be as likely to happen. There appears to be a new strategy of identifying niche therapies of little value with no competitors. The investors buy the drug knowing that the FDA will take two years to approve competing firms. That provides a 2-year window with high prices and high profits.
I doubt Mrs. Clinton understands the difference. Below, Bob Hertz has a link to a good article at Science explaining the business strategy.
This particular case is price gouging and it is outrageous.
John, your final sentence is articulate and generally true, but it does not fit this news item.
This kind of increase does not involve the dreams of scientists or the struggles of entrepreneurs.
It is about monopoly price gouging on something that was invented years ago.
In many areas of American life, there are antitrust laws and similar restraints. It makes no sense to give a free pass to this one industry.
Mrs Clinton may not be the best one to crack down. But your sentence would seem to ignore the problem.
I am always mystified by people who understand the perverse incentives resulting from monopolies yet advocate giving monopoly power to the government.
I doubt Mrs Clinton knows what she is talking about. We need a different solution to this generic business strategy than to patented medicines.
While an extreme increase, such as this is certainly unseemly, price fixing does not work as public policy and as John intimates, has broader effects than the specific companies involved in “price gouging”. This is an example of a politician pandering to sensibilities without considering the long term impact on far more people.
What about the effects of hyperregulation? We are seeing an epidemic of drug shortages (noted many times on this blog) because the FDA has clogged the pipeline and raised drug company costs not only for new drug development but also for production of standard generic medications, both of which limit competition and create opportunities for companies to raise prices when other drugs are not available. Note that the price for pyrimethamine is held constant for medicaid and some hospitals–doubtless resulting in cost shifting to private payors and others. There is, no free lunch, after all.
John, Dennis and Colleagues:
Whenever a politician says they will fix a problem, run for the hills. As this drug pricing situation is a multi-player, multi-factorial problem, it should be looked at that way. Nothing permanent can be changed until the FDA is modernized. That also means that the NIH should consider more carefully how it provides grants for particular lines of research, some of which are inherently costly. We don’t have politicians who think this way. Nor do academics want to do this thankless work. I’m looking forward to the formation of councils made up of advocacy groups who can collaborate on specifications for modernization.
Wanda Jones
San Francisco
Rather tough talk on this issue from Avik Roy in Forbes:
One thing is clear: the status quo is no good. Whether you’re a socialist or a capitalist, it’s objectively true that some bad actors in the pharmaceutical and biotech world are exploiting distortions in the marketplace to charge prices for drugs that do not reflect what their value would be in a truly free market.
One thing you hear from defenders of the status quo is that drug companies need to charge high prices in order to continue to produce innovation. Well that’s not true in the rest of the economy. Google and Facebook charge nothing for the core products—search engines and social networks—and yet they are two of the most innovative companies in the world.
In the real economy, innovators know that they have to make products that are affordable to consumers, because otherwise no one will buy them. Thanks to decades of health policy mistakes, drug companies haven’t been held accountable in the same way. Let’s get them started.
I have murmuring this kind of thing to myself for 10 years, and am delighted to see it in print. From a conservative, too!
That is a very good point. In other sectors, there is no FDA that holds up market entry. IF we reduced the power of the FDA, that would be a step in the right direction because patents would be out-competed faster.
One of the key differences between drugs and other products in the economy is that people buy drugs because they HAVE to, not because they WANT to. This is an important reason why egregious price gouging like we see with these generic price increases is especially obnoxious.
I wonder how easy or practical it would be to send couriers to other countries where these drugs are available for very low prices, get necessary prescriptions from local doctors, and buy however many pills are needed from local pharmacies for cash. Then fly home and deliver them to the patients who need them. The cost of the airfare and a couple of days in a hotel if necessary would be a relative pittance compared to the cost of the drugs at the newly outrageous U.S. price.
More biting comments from what I think is the best, fairest blog on the drug industry:
http://blogs.sciencemag.org/pipeline/archives/2015/09/21/martin-shkreli-has-one-idea-and-its-a-bad-one
I have also heard that rumor that the hedge fund guy behind the recent flap is now short selling the stock of the company he founded.
The article you cite has a very good explanation of the business strategy. Thank you.