The Joy Of Monopolies: Orphan Drug Price Increasing By Nearly 40% Each Year
from the no-surprise-there dept
A couple of years ago, Techdirt carried an article by Andy Kessler about the difference between entrepreneurs who create value, and those who lock it up. The former tend to drive prices down constantly, innovating all the while in order to make a profit; the latter, by contrast, typically enjoy monopolies that allow them to push up prices without offering anything more in return.
Here’s another great example of the latter from The New York Times, which concerns so-called “orphan drugs” — that is, those intended to treat more uncommon diseases, which are often overlooked by Big Pharma only interested in Big Markets and Big Profits. Here’s what happened with a company called Jazz:
To get drug developers to focus on these relatively small pools of patients, the federal government offers inducements like a 50 percent research-and-development tax credit as well as a longer period of market exclusivity (seven years after Food and Drug Administration approval, rather than the typical five). These long monopolies often give orphan drug makers a free hand to raise prices.
That’s precisely what Jazz has done, often multiple times each year, at an average annual rate of nearly 40 percent. Today, Xyrem costs more than $65,000 per year for the typical user.
Of course, the standard justification for such incredibly expensive drugs is that they are incredibly expensive to develop. Techdirt has debunked that notion in general, and The New York Times article does so again for this particular case:
Xyrem, which is a modification of a long-available compound, was inexpensive to develop, as new drugs go. Indeed, Jazz paid only $146 million for Orphan Medical [the company that did the original work on Xyrem and other orphan drugs], just a fraction of what it now earns each year from Xyrem alone. (The company contends that it has spent considerably on its development.)
So however laudable the aim of the 1983 Orphan Drug Act might have been, its effect can turn out to be just what you would expect from granting yet more government-backed monopolies: ever-higher prices for no additional benefit — the very definition of a company locking up value, rather than creating it.