I’ve made no secret that I believe in free markets (I have started several companies and have worked as a CEO) but I have two caveats: First of all, what I mean by free market is not always what politicians or conservative pundits mean when they use the term “free market”. A free market is one where there is real competition, and this always requires some level of regulation (for example, to eliminate monopolies). Second, I’m a pragmatist, not an ideologue, so I understand that there are markets where real competition is impossible.
We used to understand this, which is why the government controlled utilities and other markets where competition is not achievable. But somehow along the way the religion of less-regulation-is-always-better took over and we forgot about the era of robber barons and economic crashes that preceded proper regulation. (As a side note, as a pragmatist I also believe that regulations can be good or bad — our goal should be to eliminate bad regulations while creating and enforcing good regulations).
What this lengthy prologue is leading up to is a story in NPR today which points out a market that is obviously out of control. Drug company Gilead purchased a smaller company that had developed a cure for Hepatitis C. They then proceeded to bring this drug to market and are charging $1000 per pill, which means that the cost for a full course of treatment is a minimum of $84,000 just for the drug (which doesn’t include other medical costs including necessary companion drugs).
Drug researchers have estimated the cost of producing this drug as between $150 to $250 for the entire course of treatment, which means that the markup on this drug is 33,600%. Of course, drug companies claim that this kind of profit is required to overcome the costs of developing and testing a new drug.
Really? I’ll ignore the fact that Gilead didn’t actually develop the drug themselves. But how much money do they actually need? There are more than 3 million people with hepatitis C in the US alone, which means that Gilead stands to make up to $252 billion on this one drug just in the US (worldwide estimates put the number of people with hepatitis C at 170 million).
Unfortunately, the people who need this drug have little choice. Without treatment, they will likely die. Alternative treatments include things (like liver transplants) that cost even more and have bad side effects.
But what makes this worse is that this drug is closely related to antiviral drugs that were developed 20 years ago as a cure for HIV/AIDS. Governments, including the US government, paid for most of that research.
So in a “free” market, where a company was able to take advantage of massive amounts of government research, and which is protected by government-provided drug patents, whose customers need the product in order to survive, what is a fair price? Is there such a thing?
Maybe it is time to start considering the price to society. How many people will die in the name of drug company profits? How much will it damage our economy to have people wait until they need expensive and debilitating liver transplants because they couldn’t afford a drug that is inexpensive to manufacture?
