That $750 Generic Pill Is a Pure Artifact of Regulation

By Walter Olson
Cato @ Liberty
Sep. 30, 2015

As you probably know if you follow the news, a man named Martin Shkreli in charge of a startup firm called Turing Pharmaceuticals bought the rights to a drug called pyrimethamine (brand name Daraprim), used in the treatment of AIDS and malaria, and announced that he was jacking up its price from $13.60 to $750. Massive outrage resulted, which has echoed through social media for the past week.

Pyrimethamine is long since off patent. It is not difficult to manufacture, and sells cheaply in Europe. But under the distinctive food and drug laws of the United States you can't just start turning out pills in your factory to compete with Shkreli, at least not without compiling and submitting a huge pile of regulatory paper with the U.S. Food and Drug Administration. This calls on the services of lawyers and scientists, costs a lot of money, and takes time, and you might or might not be able to recover the costs from the relatively small pool of users.

Alex Tabarrok and commenters explain, and pharmaceutical blogger Derek Lowe has much more detail in a series of posts:

The FDA grants market exclusivity to companies that are willing to take "grandfathered" compounds into compliance with their current regulatory framework, and that's led to some ridiculous situations with drugs like colchicine and progesterone. (Perhaps the worst example is a company that's using this technique to get ahold of a drug that's currently being provided at no charge whatsoever).

Among laws that used the "marketing exclusivity" technique to award monopolies on older drugs, on the logic that otherwise no one would step forward to handle the heavy costs of getting those drugs regulatory clearance, were the Drug Price Competition and Patent Term Restoration Act of 1984, better known as the Hatch-Waxman Act, originally introduced by Sen. Charles Mathias (R-Md.), and the Orphan Drug Act of 1983, introduced by Rep. Henry Waxman (D-Calif.) In various ways that backers appear not to have foreseen, opportunistic actors have succeeded in seizing the legal-monopoly status made available for some of these compounds without always providing as much public benefit in return as had been expected. To enforce their legal monopoly, some of these companies sue rival drugmakers to force them to pull their competing offerings off the market.

Underlying it all -- but seldom asked -- was whether the gigantic costs of regulatory approval are really a necessary evil. Libertarians questioned whether hugely expensive studies and paperwork made even theoretical sense in the case of grandfathered or "generally recognized as safe" drugs, many of which have been familiar to the medical profession for decades or even centuries, allowing for a collective sense to emerge of their safety and effectiveness. But the view that progressives tended to champion -- which prevailed -- was that older compounds and those used for rare diseases should be held to no less stringent a standard than any other, and should either be withdrawn from the market or have their safety and effectiveness proved at someone's expense.

Meanwhile, today's moralistic politicians denounce the resulting fiasco without acknowledging the role of yesterday's moralistic politicians in helping to bring it about (cross-posted and slightly adapted from Overlawyered).