Pharma CEO: Why aren’t we making pills more affordable?

IRVINE, California - The debate over price gouging in the pharmaceutical industry reached a fever pitch in 2015. Much of the outrage was directed at one man: Martin Shkreli, the former CEO of Turing Pharmaceuticals, who was labeled the ‘most hated man in America’ last September when his company jacked up the price of a treatment used by HIV patients from $13.50 a pill to an astonishing $750 a pill — a 5,500 percent markup, practically overnight.

But Shkreli, who was arrested in December for unrelated securities fraud charges, isn’t alone. Several other companies — Jazz Pharmaceuticals, Questcor and Mylan, among others —have come under fire recently for dramatically increasing drug prices. The news comes as the U.S. Department of Health and Human Services found that prices of many generic medications continue to outpace inflation rates, yet drug company representatives argue that rising prices are necessary.

One reason it’s so easy to raise prices, experts say, is because there are no federal price caps in the United States as there are in other developed nations. Governments in places like Canada and the UK are permitted to set caps and negotiate prices. That means it’s largely left up to the CEOs of American drug companies to regulate the prices themselves.

To find out how companies come up with these seemingly arbitrary prices, we sat down with Mark Baum, the CEO of Imprimis Pharmaceuticals, who recently surprised the industry in the aftermath of the Turing price hike by releasing a generic version of Daraprim for just $1 a pill. Will the decision to release an affordable alternative influence other companies to follow his lead? Baum talked to us about this  — and whether big pharma needs more regulation.

Questions and answers are edited for clarity and brevity.

Michael Okwu: Is Turing [Pharmaceuticals] a bully?

Mark Baum: I think [Turing is] taking advantage of a monopoly ... and that's not the way I think pharmaceutical companies should behave.

To the outsider, it looks like they've got a product and they basically stick a label on it that's the most expensive price that they can come up with.

Right. There’s all sorts of different ways and models that people come up with to price drugs. Most companies will try and get as much money for a drug as they possibly can. They hire economists to figure out how to build models to say, ‘Hey, you know, if my drug prevents this number of people from going to the hospital this number of times, at this amount per visit … I could charge $500 a pill for my drug.’ That’s … not the way we do things. We actually look at our real costs of the chemicals, the labor to produce the drug and we charge what we think is a fair price.

There’s accessible and there’s accessible. Why only $1 per pill?

We're dealing with people that are in pain, that are suffering, that really need these medicines. And we hear directly from them … Turing with Daraprim, or Valeant with Isuprel, or any of the other drugs that have [had] their prices get jacked up, those companies never talk to patients.

How do you reconcile the fact that you're a businessman, in a business, trying to make a bottom line on the one hand, and that you have a moral obligation to the patient on the other?

We don't do with any of our drugs what you’ve seen Turing do … we just don't do that as a company, that's against our value system.

What's your most expensive drug? I have to assume they're not all a buck a pill.

We have drugs that you know are quite a bit more than a dollar a pill. We have drugs that  … patients spend several thousand dollars a month for. Nothing that is $80,000. We're not one of those companies.

You know that there are cynics out there who are going to say that your pricing is a PR stunt.

The idea that it's a publicity stunt is absurd. Anybody that says that needs to get in the car, drive over to the hospital and meet a patient that's suffering from one of these diseases …These people can't afford these drugs. This is not a joke for them.

Should there be some sort of oversight?

I don't think price fixing [or] price caps are necessary. I think companies should be free to price things how they wish to price them. If someone like Turing wants to charge $750 for a medicine that the day before might have been $13 a pill, they have every right to do that. And we just want to have the right to price ours at 99 cents.