Blame the system, not Martin Shkreli

Toxoplasma gondii is a parasite that causes opportunistic infection in helpless people. It may have met its match. The cost of treating toxoplasmosis, a rare but extant infection, just shot up exponentially. Drug-resistant strain, you ask? Have physicians in infectious disease gone mercenary, you wonder? No. A change in ownership.

Daraprim (pyrimethamine) is a nifty drug that kills parasites. It’s been around for eons. I still recall its name from my medical school pharmacology exam. The price of Daraprim, whose production barely costs a dollar, may rise from $13.50 a pill to $750 a pill, after the rights to distribute the drug were acquired by Turing Pharmaceuticals.

Why? The answer is best told by Martin Shkreli, the CEO of Turing, and former hedge fund manager. The reason why Shkreli has acquired a generic drug lying in a forgotten backwater, and raised the price of a magnitude more suited to the hyperinflation of the Weimar Republic, is to make profits. Lots of profit. If this answer seems inane, ask yourself why a former hedge fund manager would be interested in a rare disease of devastating consequences. Penitence is the wrong answer.

Shkreli was shocked that people were questioning his decision to raise the price of Daraprim. He is not the only one to have taken advantage of the asymmetric power in drugonomics, he protested. Compared to Sovaldi, which fetches a $1,000 a pill, Daraprim is a bargain, he reasoned. It is not his fault that the drug had been underpriced relative to the fair market value. And then, with nearly a straight face, Shkreli said that the price increase was for the good of patients. You have to admire the lad’s chutzpah. It’s either audacity or utter disdain for the proletariat.

Shkreli says the markup will be used for research and development (R&D) of new products, which will be more effective and less toxic than Daraprim. I’d hazard a guess that when Turing’s scientists discover the ground-breaking, me-too drug for toxoplasmosis, it won’t be cheaper than $750 a tablet. The trouble is that no one is screaming for new products for toxoplasmosis.

Usually, pharma justifies the markup on the drug by the R&D costs incurred. Shkreli, in a move of sheer brilliance, is justifying the costs on promissory research — research that hasn’t happened and may never happen and if it does happen may never yield anything useful.

Imagine you’re dying of thirst in Death Valley and this guy selling tap water for $100 a glass says, “I’ll be using the $100 profits to make safe water, safer than Evian.” You might say, “I don’t want Evian, tap water is good enough. I’m dying.” In health care good enough is not a virtue. There is no end to the potential of reducing human suffering marginally, and no bounds to the price we will pay for that marginal reduction. Shkreli knows that, as do others in this industry.

Seizing the day, Senator Hillary Clinton, who has been awfully silent recently, unveiled a bold proposal where she’d make sure pharma spent their profits appropriately on R&D. She’d hold them accountable. That’s really mighty, Senator. I can hear Shkreli quaking in his boots.

I understand why the price of the drug is more than the sunk costs of R&D, the cost of production and the cost of the CEO’s private yacht. I understand patents and intellectual property. I get that if pharma doesn’t enjoy monopoly, even temporarily, there’d be little incentive to innovate. But this logic has been extended to such a nonsensical level that any perturbation of the status quo, such as importing generics, leads to the threat that pharma won’t innovate.

(Incidentally, pyrimethamine costs 10 cents a tablet in India. I’m allowed to check in two pieces of luggage. Just saying.)

No innovation is a bald threat that hasn’t been empirically tested. The reason it hasn’t been empirically tested is because there’s a slim possibility that it may turn out to be true. This is a game of chicken, to borrow game theory, in which pharma doesn’t blink, and we’re too much of a chicken to call their bluff. We have made a Faustian bargain with pharma — we want to live longer, and they want to make more money. It’s win-win, until we see the price tag.

Compounding this, is the runaway logic which prohibits CMS from price fixing. The logic, endemic in conservative circles, is that price fixing is socialism, and obviously if we fix prices we are a short step to gulags. The logic is getting tedious. Not least because what is being defended is not free market capitalism, but a political economy that is the union of the ugliest wart of capitalism — greed — and the most sterile part of socialism: lack of competition. Drugonomics is not Adam Smith’s invisible hand. It is Gordon Gekko’s visible middle finger.

Pharma is not evil. It is the mythical homo economicus. It does what a rational agent would do in a monopoly — it fleeces as much as it can fleece. It knows that payers will blink — case in point, those alleged penny pinchers at Britain’s National Institute of Clinical Excellence yielded to Gilead and will cover Sovaldi.

Pharma innovates on the condition that it can price freely. Pharma also delivers the goods. If a bacterial strain went rogue, greedy pharma would have more chances of finding a cure, than Buddhist Monks, or tenured Ivy League scientists.

Shkreli may be a particularly virulent strain of homo economicus. But remember, he is not doing anything illegal. The media is portraying him as an unsentimental money maker. I couldn’t care less if he boiled his neighbor’s bunny. The demonization distracts us from the most important question, which is not why Shkreli is raising the price of Daraprim by 5,500 percent, but how.

Saurabh Jha is a radiologist and can be reached on Twitter @RogueRad.  This article originally appeared in the Health Care Blog.

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