Business as Usual or Profiteering? A Look at Recent Drug Price Hikes

By: Tyler Hood* | Staff Writer

Healthcare is notoriously expensive, and drugs are no exception. Drugs are notoriously costly, with some costing thousands, or even hundreds of thousands of dollars a year. Recently, we’ve all been inundated with news stories about companies drastically raising the prices of certain drugs. Generally, the most expensive drugs are those still on patent. Pharmaceutical companies sell new drugs for such high prices primarily to recoup research and development costs. In fact, taking into account the cost of failed candidates, a drug company spends approximately $5 billion to bring a drug to market. Once the patents expire, generic versions become available and the prices drop. However, recently developed drugs are not the only ones carrying a huge price tag. In some cases, obscure drugs that have been around a long time are subject to price increases if the market for the drug is small enough.

Photo by Sage Ross, CC by-sa

In one widely reported instance, Turing Pharmaceuticals acquired the rights to the drug daraprim, and raised the price from $13.50 to $750 a pill overnight. In prior years, the drug sold for only $1 a pill. Turing CEO Martin Shkreli gave several televised interviews, in which he defended the price raise. The drug daraprim is used to treat toxoplasmosis, a parasitic infection that can be very serious for those with compromised immune systems. How are such price increases possible? Daraprim was developed in 1953 by Burroughs-Wellcome (which is now Glaxosmithkline) as an anti-malarial agent. GSK sold the rights to daraprim in 2010 to CorePharma, and CorePharma sold it to Turing in 2015. Daraprim is not covered by any current patents, so one would think that generics would be available. Turing has reduced availability of the drug, in a move that Shkreli believes will make it more difficult for generic manufacturers to obtain the drug and produce a generic version.

The Daraprim price increase is not an isolated increase; there have been price increases by similar pharmaceutical companies for many similar drugs, even generics. The cost of tetracycline, a common antibiotic, rose 7,567% in two years, from six cents a pill to $4.60 a pill. The price of clobetasol, a steroidal skin cream, rose 1,496% to $4.15 a gram. This can be largely attributed to consolidation in the generic drug industry, with fewer major players competing to market less expensive generic drugs.

Photo by Sponge of my ritalin

There is a difference, however, between a company like Turing Pharmaceuticals and many of the larger, well-known drug companies. This difference is in spending. A company like Glaxosmithkline spends billions on drug development research, in order to discover and bring new medicines to market. Conversely, a company like Turing spends money to buy the rights to an existing inexpensive drug with a small market and no real generic competition, and then gouges that market for all it is worth. All Pharmaceutical companies strive to turn a profit, but there is a difference between those that contribute useful knowledge and new treatments to society and those that exploit the nature of medical care and the small markets for obscure drugs. With elections on the horizon and rising medical costs a large issue for many Americans, it should be interesting to see what legislation will be introduced to deal with these issues. Already, a Senate panel is investigating Shkreli/Turing and similar organizations about drug price hikes, hopefully these investigations give rise to some positive changes.

*Tyler S. Hood is a third-year law student at Wake Forest University School of Law.  He holds a Bachelor of Science in Chemistry from the University of North Carolina at Chapel Hill, and a Master of Science in Organic Chemistry from Texas A&M University.  Upon graduation, he intends to pursue a career in patent law.