Monday, September 21, 2015

Drug Pricing and Externalities

I bet a few companies are not too happy about what Turing Pharmaceuticals just did.

Turing acquired rights to the drug Daraprim and pretty much right away increased its price from $13.50 a tablet to $750.  The NYT has the story.

Well, that created quite an uproar.  Hillary Clinton tweeted, "Price gouging like this in the specialty drug market is outrageous. Tomorrow I'll lay out a plan to take it on. -H"

Today the biotech sector had a bad day on Wall Street.


Now what was Turing up to?  Maybe the previous owner, Impax Laboratories, was simply mispricing it?  Maybe there is a difference in opinion as to the price elasticity of demand?

Or maybe there is a difference in time horizon/discount rate between the old owner and the new owner, with the new owner caring more about cash in the present than a lower but longer annuity?


Paula Sundstrom said...

There is more discussion about Turing at Inthepipline.

Matthew Obenhaus said...

My opinion is that the new owner may have simply made a colossal PR and business blunder, which the free market should allow for. I have not kept up with all of the updates to the story, but I believe a competitor promptly swooped in and offered a generic at a vastly lower price. Thus, it would appear that the market cleanly solved for this, not handwringing.

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