Balancing a 5,455% Drug Price Increase with Innovation

By: Nawa Arsala

In a widely-criticized and controversial move, Martin Shkreli of Turing Pharmaceuticals increased the price of the drug Daraprim from $13.50 a tablet to $750. That is 5,455% more expensive than it was only two months ago. The seemingly overnight price increase has caused waves in the political arena, the pharmaceutical industry, and the financial market.

Daraprim is approved by the Food and Drug Administration to help prevent malaria and treat toxoplasmosis, an infection caused by a parasite. It is also used to prevent other kinds of infections, at the discretion of doctors. Although these uses are not explicitly included in Daraprim’s approved labeling by the FDA, doctors are able to prescribe as they see fit, which is known as off-label usage. Courts have deemed that off-label usage by doctors is permissible, and constitutes the practice of medicine. Some of these off-label uses include treating opportunistic infections of HIV. Moreover, Daraprim is also used on cancer patients on chemotherapy, whose immune systems are weakened and get infections. This can explain the outcry from patient advocates, claiming that Turing has raised the prices of a “cancer drug” or a “HIV drug.”

Martin Shkerli, CEO of Turing, has had a rocky and controversial history in the pharmaceutical industry. He began vilifying certain small drugmakers online, while simultaneously selling their stock short. This means that he’d profit if share prices fell. Many in the industry found this behavior as sneaky. In 2011, Shkreli founded the biotech firm Retrophin, which focused on medicines for rare, life-threatening diseases, and orphan drugs. Eventually, Shkreli was publically ousted and sued for arranging a series of backdoor deals using company cash and stock. Shkerli has since countersued demanding that Retrophin pay Shkreli more than $70 million reflecting company stock he’s owed and damage to his image as a businessman. 

In the case of Daraprim, Shkerli argues that the price is actually to the benefit of the patients in the long run because innovation is necessary. The Food & Drug Administration also tends to agree, granting market exclusivity to encourage innovation. Shkerli ascertains that only 2,000 people in the United States are prescribed Daraprim every year. Moreover, while many other life-saving drugs must be taken for life, Daraprim only needs to be taken for about six weeks. He believes this drastically reduces the cost for the drug because only one course is needed. Nonetheless, this could explain why there is currently no generic version, as there is not a substantial financial incentive to manufacture Daraprim to produce a drug that only needs one course, and for so few patients.

The pharmaceutical market has long been a hot-button political issue because it is where a free market economy and public health must agree. There is rising criticism over the cost of health care in general, and particularly drugs. With the upcoming presidential elections, many potential candidates are weighing in on Shkerli’s decision. Democratic presidential candidate Hillary Clinton said “price gouging like this in the specialty drug market is outrageous.” Vermont Senator Bernie Sanders took it a step further by sending a letter to Mr. Shkerli, requesting more information about the drug hike. Shkerli has yet to respond to the letter and Sanders believes he is “holding hostage the patients who rely on this lifesaving medication, as well as the hospitals that administer it, by charging unconscionable prices for a drug on which he has a monopoly just because he can.” Public outcry has called for antitrust laws to remedy the price increase. However, under U.S. antitrust law, a unilateral price increase, when done in agreement or not in response to competition, is almost never actionable.

Ultimately, after worldwide criticism, Shkreli promised to lower the price of the drug. To date, that lowered price remains unspecified. Ed Painter, a spokesperson for Turing Pharmaceuticals recently explained that more than half of Daraprim’s sales “continue to participate in federal and state programs such as Medicaid” and a drug discount program, that often lead to costs that are “as low as $1 per bottle.” Nonetheless, almost four weeks after Shkerli made this promise, the price remains the same. It is important to note that Turing is part of a growing trend of price increases in pharmaceuticals that include massive manufacturers such as Pfizer, Merck and Valaent. Shkerli’s latest response to the backlash was “there have been hundreds of companies that have raised [their drug prices] higher, and they’re not rolling back their prices, so why should we?”

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