What in the drug industry allows the price gouging?

Ok, so, generally in the free market, unless some massive shortage of raw materials comes out of the blue, prices usually flow along linear scales that reflect the value of a product.

Even rare products that are hard to get. I can get old microprocessors no longer being manufactured for a mere 5x markup or so, or any one of millions of esoteric electronic parts that are made using processes that are more complex and advanced than synthesis of most pharmaceutical drugs.

So, how do these massive markups of off patent drugs happen like this? If there’s a half dozen companies making all the off patent drugs, you would expect the market prices to reflect the cost of raw materials, production, labor, and a modest profit margin. If only one company is making a drug and charging $750 a pill, why don’t other companies compete with them?

The news articles mention things like “manufacturing licenses”. What? If I produce a pure substance, verified with chromatography and NMR and other methods to be pure enough to be safe for human consumptions, why can’t I stick it into a pill and sell it? All I should have to have is a factory licensed and inspected to produce pharmaceuticals and a certificate from a third party lab verifying the drug is at least as pure and free of side products/contaminants as the original patented pharmaceutical the FDA originally approved.

In such a world, nobody could raise prices 5000 percent because no one would buy their good, they’d just fill out an order form for the next competitor. What gives?


One reply I read on a news article today said that even the $13.50 price was a recent hike, and for a long time it had been selling for $1/dose, which made it too cheaper for the generic pill manufacturers to bother producing. Same post predicted a generic version will hit the market in a few months because the price rise has made it attractive to compete with and undercut.

It sounded plausible, but I haven’t fact checked it.

Good manufactuing practice (GMP) certification is extremely onerous in the pharmaceutical industry - it’s a big deal and effectively stops people from knocking out generics using a bathtub in a shed, which is what your hypothetical factory would look like to the FDA. So the barrier to entry to the marketplace, or whatever the correct economic term is, is high.

If a medicine did persist at a massively inflated price, then there is nothing to stop estabished, GMP-certified generics manufacturers from producing it, and competing. I guess that would happen if the market for the medicine looked to have some legs.

In this IMHO thread on the same subject, it was mentioned that the company doing the price gouging (Turing Pharmaceuticals) can let you spend your millions starting up your factory, raking in the profits all the while, then lower the price back down to 10 bucks when you’re about to go to market. That possibility creates a disincentive to compete against Turing.

Manufacturing processes for drugs can be very very complex. It is hard to relate them to the semiconductor industry. The economies are different, and the variety of complexity different. Chips only need the process to be sorted for the feature size, and then it is all ready for the designers.

Drugs can can be manufactured with a ridiculous range of technologies, and some drugs require time and number of processing steps that make them intrinsically expensive to make, whether off patent or not.

Then you get into the problem that even if a drug is off patent, the patent doesn’t tell you how to make it. So if you want to make a generic, you have to work out how to manufacture it yourself. You are only saved the problem of discovery and all the work in licensing. (No small amount of work, but not the full problem.) You have a potentially very complex chemical that is known to work. You need to work out how to make it, and how to avoid making versions that are isomers that are either ineffectual, or worse, have bad effects. There does seem to be evidence that some generics have issues here. Licensing a drug, even a generic, requires a lot of hoops to be jumped through. Just basic NMR and HPLC analysis is not going to get close to cutting it.

The issues in bringing drugs to market are worrying. I was recently reading a paper on the history of research of bile acids - the author described two drugs that he invented/discovered with worthwhile clinical application that never made it to market - because they are already known compounds and not patentable. Thus no profit, and no point. The current system is broken, but not in the manner many think.

There are other drug companies out there, though, that already have factories.

Isn’t predatory pricing (i.e. pricing deliberately changed/lowered to put competitors out of the business) an anti-trust violation? I guess the question is whether the government is motivated to pursue this…

If everybody was all in the same country that would be one form of deterrent. But since we’re dealing with suppliers all over the world, enforcement of laws gets harder. Even deciding whether US or EU or India law applies gets hard.

I suspect in this case, it’s a combination of a relatively small market combined with high enough barriers to entry for competitors (high startup costs and investments), that combine to make entry into that market not terribly profitable.

I mean, if this guy is only going to sell a couple thousand doses of this 60 year old drug per year, what’s in it for say… Bayer or Sanofi-Aventis to get into that market with all the startup costs of setting up a new production run of this stuff? Even at the 5000% markup, it may not be enough, and they’d almost certainly be splitting the market with him, and/or driving the prices down, both of which would lessen profits even further.

Basically this asshole found himself a niche where nobody’s going to bother to compete with him, and where he can jack the price up because the people who need that drug have few effective alternatives.

What I’d like to see is one of the big pharma companies come up with some creative accounting that lets them essentially dump pyrimethamine on the market for free as some kind of humanitarian effort that they can write off, and wreck this guy’s business entirely.

Now that you mention it, it does seem to me that anti-trust laws are intended to protect against exactly this sort of abuse.

The abuse here is the sudden and massive changing of prices. For a product that people’s lives depend on it, and you cannot freely import foreign substitutes, you shouldn’t be able to just jack up the price 5000 times one week and drop it to nothing the next unless you can show a documented reason for this change, such as an increase in raw materials, labor, or facility costs.

It should be legal for a private company to sell their goods for any arbitrary price, but they should have to give 2 years warning or something.

Even foreign suppliers who want to do business in the USA have to obey FTC regulations and anti-trust rules.

I’m trying to imagine why politicians would ignore the little guy in favour f big pharma…?

There is only one answer to the OP: capitalism. It is not a question of what permits it, but what prevents and the answer is: nothing. Even though the drug is long past patent, the difficulty of starting a new drug assembly line, getting approval and so on, while not as good as a patent is still formidable. And would you do it, knowing that the other guy would undercut you if you did. And I will probably get a warning for this, but a certain political part insisted on a clause in the 2003 prescription drug act that forbade the government to negotiate a price lower than list.

Poisoning the Well. First, prove it *is *price gouging.

Check the profits of the five Big Pharma companies. Nice, but hardly amazing.

The R&D is hugely expensive, and often you spend all that $$ and your drug never gets to market. The ones that do get to market and find a ready market have to be marked up to account for all the losses on the other products.

Otherwise that new treatment for cancer or even toe fungus isnt going to be developed.

Other countries don’t let pharmaceutical companies charge outrageous prices.

As an aside, there is a inexpensive generic of viagra, but it cannot be prescribed for erectile dysfunction, only to treat blood pressure.

Predatory pricing involves lowering the price - this instance the price was raised. As the other thread suggests, with high barriers to entry the current company can then bring costs back in line with a regular margin closer to the marginal costs without engaging in predatory pricing.

What doesn’t seem to be getting as much focus is the high built in costs imposed by the FDA regulatory scheme.

Please elaborate. :slight_smile:

I rather expect that a new fab costs a lot more than a new drug factory. And the process of making a processor with say an 18 nm process is probably a lot more complex. And it takes months for a wafer to get through the process.
Plus we see the price of a processor drop very quickly when a faster one comes out. This is partly due to reduced costs through yield improvements, but mostly directly due to market forces.
The real difference is that you are unlikely to die if you don’t upgrade your processor.

Price manipulation to prevent others from coming to market is against US anti-trust laws.

Note that there are a lot of drug factories now in India that crank out USDA certified quality drugs very cheaply all the time. Places like that are where all those $4 a month drugs come from. To add another drug to their list, especially one that’s been around 62 years (how hard could one that old be to make???), is no big deal.

Their only concern is the zigzag pricing.

Note that there are several tricks drug companies play to keep patents longer than the usual terms. E.g., combine it with an antacid or a time-release, patent that at the end of term, somehow this magically prevents others from coming out with the original. (Why the others don’t file patents for adding antacids and time-releases the day the hear about the new drug is a puzzle. They don’t even need to get the patent. Just that it’s already public knowledge is enough.) But I don’t think that applies here. 62 years is too long even for those games.