Last week, Martin Shkreli got as close to being a household name as any pharma CEO has in at least the past few decades.
Shkreli is the CEO of Turing Pharmaceuticals, a new company that just bought the US marketing rights to Daraprim, a drug that fights parasitic infections.
Almost immediately, he hiked the price of the drug up by 5,000% — causing public outrage and placing political attention on other drugs that have made similar moves.
Even though Shkreli quickly backtracked and announced that he would lower the price, the pharmaceutical and biotech industries are still reeling.
Here's why:
Pharmaceutical and biotech companies are not usually transparent about how they price their drugs. There’s a ton of factors that go into drug pricing (researching and developing the treatment and operating costs, to name a few).
The attention to Daraprim’s price is unprecedented, and could lead to some major changes to the drug industry.
Drug companies make most of their money off new drugs that fall under a patent. A drug patent wears off 20 years after it is filed, at which point generic-drug companies can start making their own versions of the drug.
For drugs like Daraprim, for which only about 8,000 prescriptions are filled a year (a drop in the bucket by pharmaceutical standards), it simply isn't worth it for other companies to try to come up with generic alternatives. This allows for a price monopoly in which the drug manufacturer can set virtually any price it wants.
That is, until now.
In 2011, the relative interest in the search term "drug price" was about 25% in the US. Now the relative interest is at its highest level on record: You can thank Martin Shkreli.
But Daraprim isn't the only one.
Dozens of companies that own other drugs have done the same thing. Here are just a few (Doxycycline is an antibiotic, and Isuprel and Nitropress are types of heart medication):
The beginning of the end for drug-price hikes?
Shortly after two recent articles came out highlighting recent drug-price spikes, the two companies mentioned in those articles announced cuts to their prices.
Another company, Valeant, which markets the heart drugs Isuprel and Nitropress (in the chart above), hasn't had an easy time either. Democrats in the House of Representatives recently asked for a subpoena of Valeant for documents related to drug-price increases, Bloomberg reported recently. If their request is granted, Valeant will have to hand over information on how it prices its drugs.
Drugs meant for a just a few
In interviews, Shkreli called Daraprim an "orphan drug," meaning it was developed specifically to treat a rare medical condition and therefore wouldn't attract the kind of competition that would keep prices low.
But that's not exactly true.
The FDA defines orphan drugs as treatments for diseases or disorders that affect fewer than 200,000 people in the US and are not expected to make the drug company much money.
But the term orphan drug generally applies only to patented drugs. Daraprim's patent has expired — it is 62 years old. Plus, Daraprim is used to treat toxoplasmosis, a disease that mainly affects people with weakened immune systems (like people with AIDS) and pregnant women. Many who took notice of the hike said Shkreli was taking advantage of a vulnerable population.
The story even caught the attention of Democratic presidential candidate Hillary Clinton, who tweeted that the practice was "price gouging" and "outrageous."
—Hillary Clinton (@HillaryClinton) September 21, 2015
Raising prices now to develop a new drug later?
Shkreli justified hiking up the price of Daraprim by saying it would help his company develop a better version of the drug later. That business model is different from the ones used by most drug companies, who get funding from private groups for their research.
Sam Peltzman, a health economist and professor at the University of Chicago, says Shkreli's justification was bogus because it was backward.
"It's total hokum," Peltzman told Business Insider. "The sources of research funding are the attraction of getting a return on the research-funding investment. They do not come from someone making a lot of money and saying, 'I've got nothing else better to do with it, so I better do some research.' The economics is backwards in a statement like that."
Now, presidential candidates — mainly Clinton and Bernie Sanders — are coming up with plans to change how pharmaceutical and biotech companies price their drugs.
Coupled with an American public opinion of pharmaceutical companies that is turning even more sour, it is looking as if last week's news might be the spark that ignites a change to America's drug-pricing policies.
