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Increasing Pharma Profits Come from Price Bumps, Not New Drugs

Something is broken.

When Martin Shkreli made news in 2015 for jacking the price of Daraprim, a drug used to prevent certain parasitic infections in HIV patients, from $13.50 per pill to over $750 per pill he was basically cast as a comic book villain. A craven boyman cashing in on the needs of the sick. He became an outlier, a pharma celebrity posed in relief to an industry that otherwise remained faceless.

Shkreli wasn't really an outlier though. He was just a part of the pharma continuum. In the pharmaceutical industry, some 80 percent of the growth in profits in 2015 are attributable to price increases rather than new drugs. This is according to a new op-ed in Stat from Robin Feldman, director of the Institute for Innovation Law at UC Hastings College of the Law and a frequent patent law commentator. Feldman is currently pitching a new book: Drug Wars: How Big Pharma Raises Prices and Keeps Generics Off the Market.


"Between 2010 and 2014, prices for the 30 best-selling drugs in the U.S. rose eight times faster than inflation," Feldman writes. "Americans bear the brunt of these increases. For example, the liver failure drug Syprine, which costs less than $400 a year in some countries, has a list price around $300,000 in the United States."

In the US, the difference between an affordable drug and otherwise is mostly determined by whether or not a generic version of the drug exists. If it does not exist, then the drug manufacturer can basically charge whatever it wants. If it does exist, competition invariably drives the price down. So, the task of the drug maker is delaying for as long as possible the introduction of the generic drug. Drug companies have made an art of this.

There's a logic behind blocking generics, to an extent. Drug developers are given a window of exclusivity in the first place—where only a particular company can make a drug—because developing new drugs costs a lot of money. It seems fair that they should have a chance to recoup some of that. Otherwise, there wouldn't be much incentive to make new drugs.

But it's hardly that simple. If a drug company can somehow extend an drug's window of exclusivity, then it doesn't even have to make something new, right? So that's what happens.

Feldman outlines several different ways a drug company can go about doing this. The most simple is just asking the FDA to not approve generic versions, but there are other methods, such as starting clinical trials for a potential new application of a particular drug. In some cases, generic drug makers and name-brand drug makers reach deals where the generic firm voluntarily agrees to not enter the market in exchange for some payout.

That this stuff is happening isn't news, but it's worth keeping in mind that things were plenty fucked before Shkreli hit the scene and they will remain so so long as the law allows it.