Saturday, October 10, 2015


Clueless CEOs, opportunistic politicians, tough regulators. Which two do you want?  Unfortunately, we check all three boxes.

The New Yorker's James Surowiecki writes about "Taking on the Drug Profiteers." But what is a "profiteer"? We supposedly have a profit-loss economy but profits are routinely denounced and losses too often bailed out.

Surowiecki refers to Turing Pharmaceuticals and its mammoth price hike of a life-saving drug for which it had sole regulatory approval. Surowiecki notes that the price hike was entirely legal but not smart because politicians pounced, denounced "gouging", and threatened price controls. Stocks across the pharmaceutical sector and beyond fell steeply.
A good way to explain supply and demand is to note that the prices we observe are there because the seller can charge them.  If not, there is a "sale" and a new price is soon discovered. Likewise, the profits reported are the ones that sellers can earn in the political context we have. In this case, that context is heavily regulated and heavily politicized. Turing's actions were entirely legal but "... even with a generic drug, regulatory barriers and a lack of competition can make big price hikes possible." Well, not really.