Here's Why Drug Prices in the U.S. Are So High

Bloomberg Originals

29 Jun 201602:25

Summary

TLDRThe video script discusses the controversial practice of drug price gouging, exemplified by Martin Shkreli's 5,000% price increase of the HIV drug Daraprim. It highlights that such price hikes are common in the industry, with examples like Merck's Januvia and Novartis's Gleevec showing significant price increases over time. The pharmaceutical industry justifies these increases due to the high costs and risks of research and development (R&D), and the limited time of market dominance before generic competition. Shkreli's Turing Pharmaceuticals faced backlash, eventually reducing the drug's price for some hospitals, but the video emphasizes that this behavior is widespread and unlikely to change without regulation.

Takeaways

💊 A drug company, Turing Pharmaceuticals, infamously raised the price of its drug Daraprim by 5,000%, causing public outrage.
📰 Martin Shkreli, the former CEO of Turing, justified the price hike by claiming the need to turn a profit on the drug.
🤬 The price increase of Daraprim from $13.50 to $750 per pill drew widespread criticism, including from political figures like Hillary Clinton.
💉 Daraprim is a drug used to treat life-threatening diseases in HIV patients, making its price increase particularly sensitive.
💔 The industry and even the lobby group in Washington distanced themselves from Turing's actions, indicating the controversial nature of such price hikes.
💊 Price increases are common in the pharmaceutical industry, with examples given for drugs like Januvia and Gleevec showing significant hikes over the years.
💰 The high costs of research and development (R&D) in the pharmaceutical industry, which can exceed $50 billion annually, are cited as a reason for high drug prices.
🔬 Most drugs fail during the development process, with only a few making it through the rigorous FDA approval process, which justifies the high prices to recoup R&D costs.
🏆 Once a drug is approved, it often has a 12-year period of market dominance before cheaper generics enter the market, during which time companies aim to maximize profits.
📈 Turing Pharmaceuticals was an extreme example, but the practice of increasing drug prices is widespread and unlikely to change without regulation.
🛑 After public backlash, Turing announced a reduction in the drug's price for some hospitals, but affordability issues persist for many patients.

Q & A

What was the controversy surrounding Turing Pharmaceuticals and Martin Shkreli?
-Martin Shkreli, the former CEO of Turing Pharmaceuticals, faced criticism for raising the price of the drug Daraprim by 5,000% overnight, from $13.50 a pill to $750, which caused public outrage and was widely covered in the media.
What is Daraprim used for, and why was its price increase so controversial?
-Daraprim is used to treat life-threatening diseases in HIV patients. The controversy arose because the overnight price increase made the drug unaffordable for many who needed it, leading to ethical concerns about price gouging.
How did Hillary Clinton respond to the price increase of Daraprim?
-Hillary Clinton tweeted about the issue, highlighting the problem of price gouging in the pharmaceutical industry.
What was the reaction of the industry's lobby group in Washington to Turing's actions?
-Pharma, the industry's lobby group in Washington, distanced itself from Turing Pharmaceuticals' actions, indicating that such extreme price increases are not representative of the industry as a whole.
Can you provide an example of another drug with a significant price increase?
-An example is Januvia, a drug used by millions of Americans to treat diabetes. Its price increased from about $146 a month when it was first sold in 2006 to at least $370 a month in 2015, more than twice its initial cost.
What was the price increase timeline for Novartis' cancer drug Gleevec?
-Novartis raised the price of Gleevec from $30,193 per year in 2001 to about $118,000 per year in 2015.
How many drugs did Pfizer raise prices on in a single year, and what was the year?
-Pfizer raised prices on at least 133 of its drugs in a single year, which was 2015.
What is one of the reasons drug makers give for increasing drug prices?
-Drug makers argue that research and development (R&D) is risky and expensive, with the industry spending over $50 billion on R&D in 2014 alone, and most drugs failing before reaching the market.
How long do drug companies typically have before generic versions of their drugs enter the market?
-On average, drug companies have about 12 years of dominance before cheap generics come on the market and create competition.
What happened to Turing Pharmaceuticals after the controversy with the Daraprim price increase?
-Martin Shkreli was kicked out of Turing Pharmaceuticals, and in November, the company announced it would cut the price of the drug by as much as 50% for some hospitals.
What was revealed about the accessibility of the drug at a congressional hearing in March?
-At a congressional hearing in March, a doctor treating patients needing the drug stated that they were still having difficulty obtaining it at an affordable price.
What does the Turing Pharmaceuticals case illustrate about the pharmaceutical industry?
-The Turing Pharmaceuticals case is an extreme example that highlights a broader issue within the pharmaceutical industry, where companies have been raising drug prices for years and are unlikely to change this practice.

Outlines

00:00

💊 Soaring Drug Prices: The Shkreli Controversy

This paragraph discusses the public outcry following the 5,000% price increase of a life-saving drug by Turing Pharmaceuticals under the leadership of Martin Shkreli. Shkreli's rationale for the price hike was to turn a profit on the drug, daraprim, which treats serious illnesses in HIV patients. The price surge from $13.50 to $750 per pill incited widespread anger, prompting political responses and affecting the biotech market. The paragraph also highlights similar price increases by other pharmaceutical companies, suggesting that while Shkreli's case was extreme, high drug pricing is a common industry practice.

📈 Understanding Pharmaceutical Price Hikes

This section delves into the reasons behind the continuous increase in drug prices. It explains that drug makers argue the necessity of high prices due to the high costs and risks associated with research and development (R&D). The industry spent over $50 billion on R&D in 2014, with most drugs failing to pass the rigorous FDA approval process. For the few that succeed, they typically have a 12-year period of market dominance before cheaper generic alternatives enter the market. Pharmaceutical companies aim to maximize profits during this period. The example of Turing Pharmaceuticals is used to illustrate the issue, noting that despite Shkreli's removal and a promised price reduction, accessibility and affordability of the drug remain a challenge.

Mindmap

Keywords

💡Drug Price Increase

Drug Price Increase refers to the practice where pharmaceutical companies raise the cost of their medications. In the video, this is exemplified by Turing Pharmaceuticals, which increased the price of Daraprim by 5,000%. This concept is central to the video's theme, highlighting the controversy and public outrage over such price hikes.

💡Martin Shkreli

Martin Shkreli is the former CEO of Turing Pharmaceuticals who became infamous for raising the price of Daraprim, a drug used by HIV patients. His actions are a focal point in the video, illustrating the personification of the broader issue of drug price gouging and its impact on public perception.

💡Daraprim

Daraprim is an old drug that treats life-threatening diseases in HIV patients. The video discusses how its price was raised overnight from $13.50 a pill to $750, causing public outrage. It serves as a key example of the issue being discussed in the video, which is the ethical implications of drastic drug price increases.

💡Price Gouging

Price gouging is the act of raising prices of goods or services to an unfair level, often taking advantage of a situation where consumers have no other options. In the video, Hillary Clinton's tweet about 'price gouging' and the reaction to Turing Pharmaceuticals' actions exemplify the public's disapproval of such practices.

💡R&D (Research and Development)

R&D in the pharmaceutical industry refers to the process of creating new drugs, which is both risky and expensive. The video explains that drug makers justify high prices by citing the high costs of R&D, with an example of the industry spending over $50 billion in 2014. This term is crucial in understanding the argument pharmaceutical companies make for high drug prices.

💡FDA (Food and Drug Administration)

The FDA is the regulatory body responsible for protecting public health by ensuring the safety, efficacy, and security of drugs. The video mentions the FDA in the context of the rigorous clinical trials and approval process that new drugs must undergo, which contributes to the high costs of R&D.

💡Generic Drugs

Generic drugs are copies of brand-name drugs that can be produced and marketed once the original drug's patent has expired. The video discusses how, after a drug is approved, it typically has about 12 years of market dominance before generics enter the market, which is a factor in why companies aim to maximize profits during this period.

💡Merck

Merck is a pharmaceutical company mentioned in the video for its drug Januvia, used to treat diabetes. The price of Januvia is highlighted as an example of how drug prices can more than double over time, from $146 a month in 2006 to at least $370 a month in the present day.

💡Novartis

Novartis is another pharmaceutical company mentioned in the video for raising the price of its cancer drug Gleevec significantly over the years, from $30,193 in 2001 to about $118,000 in 2015. This example further illustrates the trend of increasing drug prices in the industry.

💡Pfizer

Pfizer is a global pharmaceutical company that is cited in the video for raising prices on at least 133 of its drugs in a single year. This example underscores the widespread nature of drug price increases in the pharmaceutical industry.

💡Congressional Hearing

A congressional hearing is a formal legislative inquiry into a specific issue. The video mentions a congressional hearing where a doctor testified about the difficulty of obtaining the drug at an affordable price, emphasizing the real-world impact of high drug prices on patients and healthcare providers.

Highlights

A drug company raised the price of its drug by 5,000%, causing public outrage.

Martin Shkreli, former CEO of Turing Pharmaceuticals, defended the price hike to turn a profit.

Daraprim, an old drug for treating life-threatening HIV diseases, saw its price raised from $13.50 to $750 per pill.

Hillary Clinton tweeted about the issue of price gouging in the pharmaceutical industry.

The industry lobby group in Washington distanced itself from Turing's actions.

Drug price increases are common in the industry, with examples like Januvia for diabetes treatment.

The cost of Januvia has more than doubled since its introduction in 2006.

Novartis raised the price of its cancer drug Gleevec significantly from 2001 to 2015.

Pfizer raised prices on at least 133 of its drugs in one year.

Drug makers justify high prices due to the high cost and risk of R&D.

The pharmaceutical industry spent over $50 billion on R&D in 2014.

Most drugs fail to pass the FDA's clinical trials before being approved for sale.

Drugs that are approved have about 12 years of market dominance before generics enter.

US does not regulate drug prices, allowing companies to maximize profits before generic competition.

Turing Pharmaceuticals made about a billion dollars more due to price increases from mid-2012 to mid-2014.

Martin Shkreli was removed from Turing Pharmaceuticals and the company reduced drug prices for some hospitals.

Despite reductions, some doctors still struggle to get the drug at an affordable price.

Drug companies have been raising prices for years and are unlikely to change their practices.