The tale of Martin Shkreli is practically Shakespearean: A brash hedge fund investor buys the rights to a cheap generic drug, then dramatically raises the price. After a public outcry, he brazenly defends the high price. He is arrested by the FBI on unrelated fraud charges, after another company finds a way to sell an equivalent drug for a much lower price.
It’s a happy ending in this case, but the pharmaceutical market—which receives about 10 percent of Americans’ health-care spending—remains controversial. We know about Shkreli only because he broadcast his business practices as entertainment. If he had doubled the cost of Daraprim quietly—as many drug companies do—it’s likely few would have noticed or cared.
Manufacturers often point to the cost of developing a new drug to justify high prices. Pharmaceutical companies have to spend millions of dollars years before a drug can be released. If a drug doesn’t work as expected or if the side effects are deemed too dangerous, the company can’t recoup any of that cost.
So manufacturers have to make their money selling the drugs that do work—or heavily advertise the drugs that work a little bit. Most companies spend billions more on marketing and advertising than on research and development.
This system rewards the drugs that will make the greatest profit—far more than it rewards helping the most people. A drug that treats hepatitis, say, is a safe bet: you can price a new medication just a little lower than the cost of a liver transplant. Meanwhile, new antibiotics are needed around the world to keep pace with bacterial resistance. But current treatments are too cheap for new drugs to make a profit.
The problem of ...1