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The Journal Gazette

  • Abraham Schwab is a new member of the Ethics Commission, which met Friday in Citizen's Square.

Tuesday, March 15, 2016 7:55 pm

A valuable lesson in morality and the marketplace

Abraham Schwab

On Aug. 10, Martin Shrkeli and Turing Pharmaceuticals purchased the rights to produce Daraprim, then raised the price from $13.50 a pill to $750 a pill. In a letter to Shrkeli, the Infectious Disease Society of America noted that this increase will raise the cost for a full course of the drug to between $300,000 and $650,000 per patient.

While almost everyone is ready to condemn Shrkeli’s actions as greedy and/or immoral, many also acknowledge that Shrkeli did not violate the dictates of the market or any regulatory requirements. Daraprim is an orphan drug. It’s been estimated that between 8,000 and 12,000 prescriptions for it are filled a year. For context, more than 4 billion prescriptions were filled at U.S. retail pharmacies last year. So the market for Daraprim is too small to inspire competition. It’s just not worth it for another company to get FDA approval for a generic version and set up the manufacturing infrastructure.

Shrkeli took advantage of the market. He used the regulatory structures, the limited but persistent demand and the lack of competition to charge what he hoped the market would bear. And it probably would have, given the inelastic need and his monopoly on supply, patients, their insurance companies. And Medicare would have paid. After a while, another company might develop a generic to take advantage of the high price Shrkeli charges, and prices would go down again. But for the short term, he could have kept the prices up, recouped the investment and made a profit.

And then the social shaming began. Experts and lay people vilified and maligned him. And he capitulated. He has said he will lower the price. No law, no regulation and no market force I’m aware of led him to lower the price. It seems the social pressure got to him.

I’m thankful for Shrkeli and his work at Turing Pharmaceuticals. He serves as an important reminder that the market does not have a moral compass. The market encourages competition and innovation, it lowers prices, provides for quick responses to consumer needs and produces a diversity of goods. But the market cannot be the final arbiter of good business. The market can identify what will make for efficient business, economically sustainable business, and profitable business. But the market did not provide the correction to Shrkeli and Turing Pharmaceuticals. It was the social shaming of the CEO and his company that provided the correction.

For this reason we should be deeply suspicious of any individual who argues that if we let the market handle the problem, it will be a good solution. It may be efficient, it may be the solution produced by competition, but what is good is not defined solely by the market. It must also be defined by us, what we value, and how we think people should be treated.