Newsflash: Counterfeit Goods are Cheap!

Either I am being dense, or the BBC is:

The man who sparked outrage last year by hiking the price of a life-saving drug may have met his match in some Australian schoolboys.

US executive Martin Shkreli became a symbol of greed when he raised the price of a tablet of Daraprim from $13.50 (£11) to $750.

Now, Sydney school students have recreated the drug’s key ingredient for just $20.

The Sydney Grammar boys, all 17, synthesised the active ingredient, pyrimethamine, in their school science laboratory.

“It wasn’t terribly hard but that’s really the point, I think, because we’re high school students,” one boy, Charles Jameson, told the BBC.

The students produced 3.7 grams of pyrimethamine for $20. In the US, the same quantity would cost up to $110,000.

The issue was never how expensive it is to make the drug, it was who held the license to make it and sell it in the US.

Mr Shkreli, also known as “Pharma Bro”, was chief executive of Turing Pharmaceuticals when it acquired exclusive rights to Daraprim.

Clearly some people don’t realise this:

Dr Alice Williamson, a University of Sydney research chemist, supported the boys’ project through online platform Open Source Malaria.

“They’ve transformed starter material that’s worth pennies into something that has a real monetary value in the States,” she told the BBC.

No, their product has no monetary value in the States.  Let them try to sell it over there and see what happens.

“If you can obtain it cheaply in schools, then there’s no excuse for charging that much money for a drug. Especially from people that really need it and probably can’t afford to pay for it.”

Dr Williamson called the pricing in the US “ludicrous”.

We have a chemist working in research at a university who thinks the price of drugs is driven by the cost of the ingredients, and shit turned out in a school lab is the same as that certified for distribution in the US by the FDA.

Next up from the BBC: Chinese students make a Louis Vuitton bag for $10, undercutting the flagship store on the Champs-Élysées by $490.  Praise all ’round.

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18 thoughts on “Newsflash: Counterfeit Goods are Cheap!

  1. Or- I can burn DVD’s of Strictly for pence, and flog a series’ worth for three quid at a car boot sale.

    Am I still a hero?

  2. Knowing so little about making and marketing pharmaceuticals, isn’t the issue here the long lead time for research and development? No one just makes a drug and puts it on the market within days: there’s lot of time and wages and other costs required before the Wonder Cure-All (registered TM) hits the shelves. I mean, child proof-bottling takes some of the costs.

    Oddly, when Al-Beeb complains that there isn’t enough regulation, control and big state interference in many aspects off life, they might remember that yes, it is possible to do things the cheap and quick way, but extra costs are neatly woven into the things they most love.

  3. As I understand it, Shkreli doesn’t own the patent but does own the only company licensed by the FDA to manufacture and distribute this drug in the US. Thus he has bought a monopoly created by the FDA which he is exploiting, i.e. yet another failure of the world-renowned US regulatory authorities.

    As the drug has a very limited market, it is not worth any other pharmaceutical company taking on the expense of getting their own version approved by the FDA.

  4. Alex M,

    Yes, I think that is it.

    Watcher,

    Knowing so little about making and marketing pharmaceuticals, isn’t the issue here the long lead time for research and development?

    That too.

  5. @TN

    It’s not that good an analogy, really- drugs ease suffering. Strictly causes it.

    I just couldn’t think of a valuable piece of BBC intellectual property that could be licensed on an exclusive basis. Not since they lost GBBO, fucked up Top Gear, etc.

  6. “We have a chemist working in research at a university who thinks the price of drugs is driven by the cost of the ingredients”: like the morons who think they’ve said something interesting when they point out that the coffee beans cost Starbucks the equivalent of a penny-ha’penny per drink.

  7. Something is much easier when you know someone else has done it before.
    Those kids were not pioneering anything. They had a very narrow target, and they knew it to be achievable.

    For their next trick they can go & create a brand new drug, for a previously uncured/uncurable condition. …. with a budget of $20

  8. As Alex M. wrote, Shkreli doesn’t own the patent on the active substance, pyrimethamine. The chemical must be a generic now: it was synthesized in 1953 and patented about the same time. There’s no way a drug patent can last for 60 years – it’s more like 20 years in the US.

    As a result, pyrimethamine is manufactured by various producers around the world. The Forbes piece linked above claims it’s now available in the US, if only compounded with another substance, and it’s really cheap.

    But – who knows? – perhaps Daraprim, the patented version made by GSK, is immensely superior to the generics thanks to, say, some proprietary purification technology? It turns out you can buy Daraprim – not generic pyrimethamine but GSK’s product – in the UK for about 60 cents per 25-mg tablet. You can buy the same GSK product (imported from the UK) in Canada for about $2/tablet. But, even before Shkreli’s price hike, the same amount of the same drug was sold in the US for $13.5/tablet. What made such extraordinary market segmentation possible? It looks like a huge market inefficiency due to artificially created monopoly rights.

    Another question is why, with the current price differential of $700+ per tablet, people aren’t traveling to Canada for their medication. Perhaps Shkreli figured out he’d be mostly getting paid by Medicare or Obamacare?

  9. The BBC misses the point, as usual. Federal rules effectively prohibit patients from importing drugs from abroad as they are not ‘approved’. Even though they may be the exact same drug, or as noted by Alex K made by the same company.

    @Alex K: There are online Canadian pharmacies which ship directly to the US.

  10. Alex M has it. There is no issue other than the barrier to entry to a competitor. Regulations which have some kind of sense but can be exploited when this odd constellation occurs. Part of that barrier to entry comes however from the manufacturer itself. No competitor can set up cheaply because they now cannot get the marketed drug to do a comparative study. And they can’t do it expensively because,since we know the drug works, it is no longer ethically acceptable to do the controlled trial you would need to demonstrate efficacy from scratch. It is a truly astonishing snooker that no one intended to ever happen.

    My only surprise is that no one thought of it until this guy. And trust me – he is the most hated person in pharma, even among companies that are pulling similar, if slightly less egregious, stunts.

    The patent system has huge problems as applied to pharma – the costs of a successful drug (and all the unsuccesful ones) have to be amortised over a few years of monopoly sales, at rightly eye-watering prices. The aftermath of end of patent is rarely clean either. It’s different in different places, leading to a huge grey market in an industry that can only price-discriminate by regional spending power and relying on trade barriers to support that. The money then wasted on legal bids to keep generics out, tactical changes in formulation to thwart copy licenses, withdrawal of marketing authorisations by the owners, and so on, would be better spent elsewhere.

    It’s a broken system that can’t be reformed because that would be giving money to evil big pharma companies.

    What this guy is doing might be completely legal exercise of his property rights, and indeed totally rational in the “(non)market” environment. But it’s about as moral as destroying food in front of the starving in order to keep its price up. Most businessmen, even in pharma, will forego some income rather than be total assholes. As in all walks of life, some people are just assholes.

  11. Tim writes: “Next up from the BBC: Chinese students make a Louis Vuitton bag for $10, undercutting the flagship store on the Champs-Élysées by $490. Praise all ’round.”

    I personally do not see the equivalence with government enforced protectionism of a pharma company’s excessively priced monopoly of supply (of the generic product).

    Fashion accessories have some legal protection, usually by copyright and/or by registered design and/or by trademark labelling. Some people buy in the belief that the fashion companies have provided some original work; others, who spend their money otherwise, mostly believe that such high-priced products have legitimacy if not desirability. There is no government enforced monopoly in handbags and the like.

    The problem however is surely actually with the USA government’s licensing policy (totally non-beneficially) inhibiting price competition: it is not with the weird action of the pharma company. Nor, in this case, is it to do with legitimate pricing (to recover R&D and associated costs) of a currently patented substance.

    Best regards

  12. Nigel,

    I personally do not see the equivalence with government enforced protectionism of a pharma company’s excessively priced monopoly of supply (of the generic product).

    Nor do I, and had the BBC been capable of giving us the explanation that my blog commenters have, I would not have posted about it. The example I cited regarding the handbags was to illustrate the point that products often sell – for numerous reasons – much higher than their cost to manufacture, and you need to understand those reasons before you write an article on the disparity.

  13. BiG,

    Thanks for your contribution here, I recall your informative commentary on the subject at TW’s gaff.

  14. @Nigel Sedgwick,

    Fashion designs are protected, like rock music, by copyright.

    To take that rock music example – you can make an album by gyrating in a studio for a week or two (granted, you have to write the music as well, but that’s how long recording sessions had back in the day), six figures up front, and your great-great grandchildren will continue to dine on the royalties that are still being collected 75 years after your personal demise.

    Alternatively you can sink a couple of billion dollars into drug development (just think how many career-equivalents that is for just one drug, even considering that some of us are pretty well paid), and you might get about 8 years of monopoly sales. Because it’s patent not copyright.

    The system needs to be fixed but it can’t be fixed.

  15. @BiG: I wrote: “Nor, in this case, is it to do with legitimate pricing (to recover R&D and associated costs) of a currently patented substance.”

    You seem to state otherwise: might I ask you to justify, please.

    Then, you write: “The system needs to be fixed but it can’t be fixed.”

    The first part is (IMHO too) true; the second part is, I suspect, a gross exaggeration. As is (quite often) said of the USA, they get things right: having earlier tried everything else. That’s them moving from big wrong to big better – even (eventually and perhaps) to big right

    Best regards

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