The price of Daraprim (pyrimethamine), a drug that treats the parasitic infection toxoplasmosis and is used in some cases to treat cancer and AIDS, was raised from $13.50 to $750.00 per pill when sole rights to its sale in the United States were acquired last month by drug company Turing Pharmaceuticals. The news brought outrage from all corners, prompting the owner of Turing Pharmaceuticals, Martin Shkreli, to announce that the price would be lowered—though he hasn’t said what its new price will be.

The price hike is not unique to Daraprim, a drug which has been around for decades. How does it happen?

Part of the problem is that there are individuals like Shkreli scouring the market for drugs like Daraprim that don’t have effective generic rivals (perhaps that market is too small for a generic drug maker to view it is profitable; perhaps, as in Daraprim’s case, there are unique issues surrounding the requirements for regulatory testing) or other factors that give the drug a lot of effective pricing power. The profit-minded individual or company snaps up the patents, suddenly hikes the drug’s price and puts consumers – from insurance companies to individuals – in a position of either paying what is demanded or going without.

That explanation is from The Guardian, which provides some examples of other drugs the price of which have been raised in similar fashion. Here are some others:

The Daraprim price hike and others like it are now a subject of intense and widespread public discussion. Since these price hikes raise a number of issues in ethics, political philosophy, and philosophy of economics, I asked some philosophers to write up some of their thoughts about them in short, blog-friendly form. Contributing are:

I am grateful to them for participating on such short notice.

The idea of the “Philosophers On” series is to prompt further discussion among philosophers about issues and events of current public interest, and also to explore the ways in which philosophers can add, with their characteristically insightful and careful modes of thinking, to the public conversation. Others are, of course, welcome to join in. Additionally, if you come across particularly valuable relevant philosophical commentary elsewhere, please provide a link in the comments.

Nicole Hassoun:

New Incentive Structures for Pharmaceutical Companies Can Save Lives

Pharmaceutical companies’ should not purchase drugs for neglected diseases only to raise prices dramatically. No one has the right to make it difficult or impossible for people to secure life-saving medicines. The Human Rights Guidelines for Pharmaceutical Companies in Relation to Access to Medicines specify, for instance, that “companies must do all they reasonably can to ensure that medicines are available in sufficient quantities in the countries where they are needed.” They also suggest that companies are obligated to contribute to the development of drugs for neglected diseases. Companies must make sure the drugs they produce are accessible to all patient groups—not just rich patients or those in developed countries.

Turing Pharmaceutical’s decision to purchase and then dramatically increase the price of pyrimethamine (Daraprim) might have had major global health consequences. Pyrimethamine is not only used to treat toxoplasmosis but is also a key component of one of the world’s most important anti-malaria medicines, artesunate-sulphadoxine pyrimethamine (AS+SP). Sanofi holds the original patent on AS+SP and Gullian Pharmaceuticals distributes the drug through the Global Fund. Still, pyrimethamine can be combined with artesunate-sulphadoxine from other sources. Turing’s press department had “no specific information about Turing’s plans for distribution of Daraprim outside the US for anti-malarial treatment” (Allan Ripp, email communication, 9/22/15).

In any case, the general trend of companies purchasing older (even generic) drugs solely to raise prices and profits is disturbing, even tragic. Recently, another company purchased and attempted to raise the price of cycloserine, an essential medicine for the treatment of drug-resistant tuberculosis. Millions of people’s lives hang in the

balance.

There is no good justification for letting companies charge whatever they want for even their generic technologies. Turing’s CEO Martin Shkreli argues that this is necessary for Turing to help people access essential medicines who could not otherwise do so because they could not conduct research and development into new medicines. But the research and development Turing is doing will primarily benefit the world’s rich especially if the resulting medicines come with high price tags (their website suggests they are investing in toxoplasmosis and a few other health issues common in developing countries and some rare diseases; they do not focus primarily on malaria or neglected tropical disease research). Shkreli might argue that eventually (when prices fall) even the poorest will be able to access essential medicines. But if the trend is towards raising costs on old medicines, the argument pales in the light of reason.

We should instead create new incentives for pharmaceutical companies to invest in what matters and come up with alternative ways of rewarding (or conducting) essential research and development. We also need to make sure that the resulting technology is available around the world. There are many creative proposals for doing so on the table (we might consider Jamie Love and Aidan Hollis et. al.’s suggestion of a second patent system for essential medicines or more state funded R&D). In the meantime, prudent regulation is essential. As Boldrin & Levine put it in Against Intellectual Monopoly (Chapter 9, p. 16):

There can be no excuse for allowing either the idea or reality of private property to interfere with the business of saving one’s fellow man. If compensation for the taking of medical and pharmaceutical patents need be paid, so be it. But we can only hope that along with the great mass murderers of the 20th Century—the Stalins and the Hitlers—there is a special place in hell reserved for those who stood by and refused to act while those around them died.

If, as recent critiques of proposals for positive change suggest, large corporations have become too powerful to control, our political system is fundamentally broken.

Samia Hurst:

What Justifies Pharmaceutical Profit-Making?

A very interesting case, this Daraprim story. Bear in mind that it is no isolated example. On many fronts, drug prices are hiking up. Some, like the anti-hepatitis C Sofosbuvir, are truly new and highly effective. Some are, let’s say, less effective. Some, like Daraprim, are not new. In examples across the board, though, higher costs are attracting attention. Importantly, these are not cases where high investments in drug development justify some modest profit requiring high prices. The cases getting heat are mostly drugs being sold at what looks like the highest price that can credibly be supported by the market, in what increasingly resembles a very straightforward racket: “you need this, we have it, hand us your money”. From this angle, companies attempting to look good by promising to give away some set amount of these highly expensive drugs to the destitute quickly start to look like mafia bosses who give to charity.

To this, the easiest reaction is to blame those who have set these prices. It is more interesting, however, to ask how such a thing has become possible. Part of the answer, it seems, is while we do agree that making a profit from finding, developing, and selling pharmaceuticals is legitimate, we were never truly clear about what made it so. Perhaps we approve this profit because we believe that the effort and creativity involved in bringing a new drug to the market deserves to be paid for. Perhaps we consider that the manufacture of a drug also merits payment. Perhaps we are not considering merit at all, but looking to the consequences: we want to incentivize the development of new therapeutic advances. Perhaps we want to guarantee that access to needed medical therapies is kept up by the profit motive.

What is fascinating about the Daraprim case, and a few others, is how obviously these traditional justifications don’t apply. It is very clear that any effort involved in developing this drug has long been paid for and that any further profit cannot be deserved in this way. Manufacturing it still costs money, of course, but nowhere near enough to justify its current cost. Finally, rather than guaranteeing access, this sort of price hike seems almost designed to limit it. Yet, this move is, to all appearances, perfectly legal. This is a situation, then, where our collective confusion has real financial—not to mention life and death—costs.

Chris MacDonald:

We Lack a Clear Theory of Just Pricing

The fundamental philosophical problem with regard to drug prices is that we simply don’t have anything like a theory of just pricing. People react instinctively to high prices, especially in relation to life-saving drugs, but those intuitive reactions can’t easily be cashed out in theoretical terms. If you ask, “what’s a fair price for a life-saving drug?” you may hear some likely candidate principles but I think all of them fail. So the default is to let manufacturers and distributors charge what the market will bear. Many find this morally unsatisfactory, both on consequentialist and deontic grounds. So the rough answer will be that prices should be lower. Just how low might be unclear, but certainly not as high as the market will bear. But what’s the ethical justification for charging something less than what the market will bear?

One possible option is for drug companies to react to need. If you price according to what the market will bear, some needs will go unmet. Instead, you should price your product so that you do the most good, or perhaps so that the most urgent needs are met. Here the problem is that our conventional understanding is that the duty of beneficence is a fairly weak one, and one that can be satisfied in any number of ways. Most major pharmaceutical companies have charitable foundations that supply drugs on a compassionate basis, either free or at a reduced price, to those in need. This in itself goes further toward satisfying any plausible duty of beneficence than most corporations or individuals can claim.

A second idea might be to charge less that what the market will bear on grounds of distributive justice. Many good things, including importantly access to healthcare, are very unequally distributed in the world. And most people think that’s a problem. However, even if we are committed to greater equality of access to healthcare, it’s not clear that cheaper pharmaceuticals are the most pressing need, from a social point of view. And even to the extent that cheaper pharmaceuticals would be desirable, it’s not at all clear that ad hoc price adjustments by individual pharmaceutical companies would be the best method of achieving that.

What about lowering prices on grounds of non-exploitation? In the most serious cases, charging what the market will bear can mean extracting exorbitant amounts of money from people who literally have no choice but to pay. But the wrongness of exploitation is hard to pin down. Roughly speaking, exploitation involves benefiting disproportionately from someone’s dire need. Those who engage in exploitation do something that “feels” a bit like more obviously wrong behaviors, such as extortion, but the parallels break down once you get to the details. It’s worth remembering that, in standard cases at least, the person paying the exploitative price really is benefiting quite substantially, and would certainly be substantially worse-off if the exploiter had never showed up in the first place. That is by no means a full endorsement of exploitative pricing. But given the complexity of the pharmaceutical market, and the role that the potential for high profits has in incentivizing investment and innovation, it does suggest that charging what the market will bear is at least not obviously wrong.

Finally, it’s worth pointing out that the market for life-saving pharmaceuticals is not a ‘normal’ one, structurally let alone ethically. The question of fair pricing is made more complex by the way the issue of ability to pay is influenced by regulators, insurance companies, charitable foundations, and so on. In general, I think that rather than seek an assessment of the fairness of a particular price, we ought to look at the ethical justification of the entire system of prices. A given price might be neither good nor bad, ethically speaking; it is the system as a whole that warrants assessment. In general, free markets — the kind where people charge what the market will bear — do relatively well in this regard, but it’s much harder to be sanguine about that when we look at a real-life market as complex as the market for life-saving drugs.

Jeremy Snyder:

Why It’s Price Gouging, and why It’s Wrong

The decision by Turing Pharmaceutical’s Martin Shkreli to raise the price of the drug Daraprim from $13.50 to $750 per dose was met with charges of price gouging in numerous press articles and on social media, including in a tweet by Hillary Clinton. As I’ve said elsewhere, the popular use of the term ‘price gouging’ is problematic, often being used to criticize any price increase that consumers find unpleasant or unexpected and without any account of why these price increases are morally problematic. For example, increases in the price of gasoline due to supply disruptions are frequently criticized as ‘gouging’ by greedy oil companies or undisclosed others.

However, the charge that Shkreli has acted unethically, or more specifically that he is price gouging his customers, is justified. There are several reasons for this. First, Daraprim is, for many, a medicine essential to their survival. As a result, these patients (or their insurers) have little choice but to pay the price increase, in some cases sacrificing spending on other essential goods. Compare this to a case where a concert promoter suddenly raises the price on Taylor Swift tickets—crushing for her fans, surely, but not morally equivalent to the price increase for Daraprim.

Second, the market for Daraprim and its alternatives is not competitive. Turing Pharmaceutical purchased a patent on Daraprim that gives it the exclusive right to market this drug (in exchange for bringing it into compliance with current FDA regulations) even though it was discovered over 50 years ago. Moreover, Shkreli is using a closed distribution model that makes it very difficult and time consuming for other companies to develop and gain approval for generic versions of this compound. Thus, defenses of Shkreli along the lines that he is just ‘charging what the market will bear’ ring false in that the regulatory system in the US does not allow for genuine competition that would lower the price for Daraprim.

Finally, the price increase cannot be justified by increases in the cost of production of Daraprim, which remains unchanged. Shkreli has argued that the price increase is needed to pay for research and development of new drugs, the rationale given for patent protections of new pharmaceutical products. However, these protections are typically justified as recovering the costs of drug development, not as a fund raising device that may or may not actually be invested in new product development (an area where Shkreli does not have a track record).

While Shkreli has announced that he will rescind some of the price increase for Daraprim, it is not clear what the new price will be or whether it will address these concerns. Hopefully, the public outrage, this time rightfully placed, against Shkreli will create sustained pressure for reform of the pharmaceutical patenting system. Changes are needed not only to address the mechanisms used by Shkreli and others to introduce large price increases for older essential medicines but also to reform a global patenting system that often makes it impossible for those in low resource settings to access essential medicines.

Marcel Verweij:

Let Shkreli Pay the Price for his “Altruism”

Daraprim (pyrimethamine) is the only drug that is available for treating immune-deficient patients (HIV, cancer) who are infected with the toxoplasmosis parasite. Without this therapy, toxoplasmosis may lead to organ failure and blindness, and it would be a major cause of death in these vulnerable patient groups. A normal course takes three to four weeks, so the decision of the new owner of the drug, Martin Shkreli of Turing Pharmaceuticals, to raise the price tag per pill from $ 13,50 to $ 750 means a price increase for a regular course from $ 378 to $ 21,000. For some patients, the costs of treatment will be even much higher. Some years ago, the drug was available for just one dollar a pill, so arguably the drastic increase was not necessary to make the drug profitable. Yet, given that the pharmaceutical company has in fact a monopoly on the sixty year old patent free drug, Martin Shkreli can argue that Daraprim is worth much more than the previous price tag: “If there was a company that was selling an Aston Martin at the price of a bicycle, and we buy that company and we ask to charge Toyota prices, I don’t think that that should be a crime.”

The various news reports about this case, the responses of politicians and citizens, and other stories of how Shkreli dealt with ex-employees, paint a picture of a greedy, cold-hearted, morally bankrupt or even malevolent person who is mainly interested in making money and not in the wellbeing of others. Being pictured that way, Shkreli’s response that the profits will ultimately go to patients, as it will enable Turing Pharmaceuticals to promote patient compliance, educate doctors, and improve toxoplasmosis drugs, will probably not convince many.

But, merely for the sake of the argument, let us assume that Shkreli is honest and tries to make more money out of this old drug in order to do something good and contribute to people’s health. “There is much altruism in this”, he claims. Now would such altruism justify raising the price of the drug in this magnitude? A first problem is that, as investor, he probably still wants to see a return of his investment: acquiring the drug cost $50 million and at least part of the price hike will be used to pay back that investment. If this is altruism, it seems a relatively inefficient form of doing good.

A second question is concerned with fairness: is it right to make toxoplasmosis patients, or, in a broader sense, societal public health systems, pay for the altruist aims of Mr Shkreli? Just asking the question already reveals that this is not a matter of altruism at all. Shkreli is asking—or more precisely, requiring—patients and societies to pay for his pharmaceutical research and health education. Such research and education may be beneficent, but the term ‘altruism’ is completely misplaced if the ‘benefactors’ cannot escape paying for the benefits.

Yet even if this is no real altruism, might it still be fair that society pays for the expected beneficent innovations in pharmaceuticals that companies like Turing are planning? I don’t think it is. There are many ways in which public health and clinical care can be and should be improved, and societies cannot but set priorities in health policy and health research. In a democratic society, such priority setting should be accountable and fair, and this requires public deliberation and reasonable justification. Monopolist pharmaceutical companies that force a democratic society to pay for the innovations they see fit undermine justice in health care.

Danielle Wenner:

Fairness Demands More than the Absence of Coercion

If I own a thing, and I offer to sell it to you for X amount of money and you want that thing more than you want that amount of money, then we can make a trade. Assuming I haven’t manipulated, coerced, or threatened you, then we tend to characterize such an exchange as legitimate. Presumably we both walk away from the transaction better off than we were before, otherwise one of us wouldn’t have agreed to the terms. We might even call it a “just” transaction.

This is one story we could tell about the recent overnight price hikes of drugs like Daraprim, Nitropress, Isuprel, and cycloserine: the companies raising the prices on these drugs aren’t coercing anyone into using them, they aren’t manipulating sick people or lying to them about the drugs’ effectiveness. They’re simply offering to trade things with people who value those things more than they value the amount of money they’re being charged for them.

The problem with this story is that the procedural fairness of a transaction—that it is fair in the sense of being uncoerced, unmanipulated, and beneficial to both parties— does not necessarily imply the fairness of the transaction, all things considered. Often background features can function to undermine a transaction’s fairness by undermining the respective bargaining positions of the parties. This is most pronounced when one party to a transaction—though not coerced by the other party—is not in a position to reasonably refuse to transact. This can happen when one party has an effective monopoly. It can also happen when one party has a need so great that although there are no procedural constraints preventing her from refusing a transaction, such refusal will have such a bad outcome that it can’t be considered a real alternative. In such instances, it will often be the case that a “free” transaction between consenting parties will result in a trade that is grossly unfair in terms of its substance.

What is missing from the story above is a recognition of the fact, pointed out by political philosopher John Rawls, that given a large enough number of procedurally fair, mutually beneficial transactions, eventually the background conditions for substantively fair transactions (those fair in terms of their content) will be eroded. The distribution of wealth, left unchecked, may accumulate in a very few hands; or some subset of the population may be left without sufficient resources to ensure the ability to meet their basic needs. That this can happen as a result of a number of individually fair transactions suggests that truly “just” transactions must occur within the context of a certain kind of system of rules and regulations, for example, a system that protects individuals from finding themselves in such a weak bargaining position that they cannot refuse a job that pays $1.25 a day, or a system that prevents one entity from holding the only solution to a life-threatening illness and using that strength in bargaining position to demand prices that vastly outweigh the costs of production.

The liberal political tradition lauds the principle of respect for individual autonomy and the rights of persons to engage in free transactions. But absent social structures that function to ensure a sufficient baseline of well-being to all and to prevent the leveraging of monopolies over needed goods, individual autonomy and the right to freely transact are valuable only to those bargaining from the position of power.

Matt Zwolinski:

OK, So Maybe Not All Price Gouging is Morally Permissible

I’ve written in defense of price gouging before. So readers familiar with my views might expect me to leap to Shkreli’s defense. But the defense of price gouging that I have offered is based on two arguments, one economic and one philosophical, neither of which apply to Shkreli’s case.

The philosophical defense of price gouging starts with the observation that even if standard cases of gouging are exploitative, they are also mutually beneficial. That is, they leave both parties better off than they would have been had the transaction not taken place at all. So, for instance, someone who sells bags of ice for $12 each to disaster victims desperate for some method of refrigeration might seem to treat his customers unfairly. But because those customers have no other way of getting the ice they need, they will often be better off taking the price gouger’s offer than rejecting it. And this raises a difficult philosophical puzzle: if the price gouger is doing something that makes desperate people better off, then how can what he’s doing be morally wrong? How can a gouger be morally worse than someone from the next town over who could bring ice to the disaster area but doesn’t, given than the gouger does something to improve the lives of disaster victims, while those other individuals do nothing at all?

I find this logic compelling. But however compelling it might be, it simply doesn’t apply to the Shkreli case. Shkreli is not bringing to patients a drug that would not have been available to them otherwise. He’s simply buying up drugs that were already available to patients and reselling them at highly inflated prices. That’s an important difference. You might loathe the price gouger who sells you ice for $12. But if you really need the ice and value it more highly than you value the $12 you give up for it, then you’re glad that gouger came into your life. Nobody, in contrast, is happy to see Martin Shkreli come into their life. By inflating the prices of drugs to which they already had access, he makes his customers worse off, not better.

How is Shkreli able to do this? This is where the economic argument comes in. In a lot of cases, the high prices that people decry as “price gouging” are economically defensible as part of a system that actually works to everyone’s advantage in the long run. In the pharmaceutical industry, for instance, it’s not unusual for companies to charge hundreds of dollars for pills that cost them only pennies to make. But often those high prices are necessary to recoup the cost spent researching and developing that drug, and the hundreds of other drugs that never made it to market. Charging a price that’s well above the “marginal cost of production” is the only way companies can make a normal level of profit over the long run, and therefore the only way to ensure that society gets the new drugs it needs. But Shkreli didn’t have any R&D costs for Duraprim. Those costs were already incurred, and presumably recouped, by the company that developed the drug 62 years ago. So that standard justification for high pricing doesn’t seem to apply here.

Shkreli is able to charge high prices because he is taking advantage of a legally created monopoly. Daraprim is a generic drug, no longer under patent. So, at least in this case, that’s not the problem. The problem is that in order to produce and sell even generic drugs in the United States, companies need to obtain approval from the FDA. And that approval can be very difficult, and expensive, to get.

In other countries, where competition is more robust, Duraprim is available for pennies a pill. The obvious solution, then, is free trade. As Alex Tabarrok has argued, a policy of reciprocity under which drugs approved for sale in Europe would be approved for sale in the United States as well, would mean lower prices and wider availability for patients everywhere.

Legal restrictions on trade and competition breed privilege, and privilege is what makes exploitation possible over the long run. In this case, as in so many others, the antidote is the leveling power of free competition.

Discussion welcome.