Biotech companies should be kept from setting drug prices too high…. right? After all, shouldn’t consumers be able to afford life-saving drugs? Hillary Clinton sure thinks so. Recently, Daraprim, a drug used to fight AIDS, was bought by Turing Pharmaceuticals. The price “skyrocketed” from $13.50 to $750. Take a look at this tweet by president-wannabe Hillary Clinton:
“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. -H”
This tweet sent shares of biotechnology companies like Biogen Inc. (BIIB) down almost 8.5% in the following week. Shares of the tracking ETF “CURE” for biotech were down nearly 25% in the same period.
Hillary Clinton sure has a point. However, she is misunderstanding fundamental tenets of the free market, or at least pretending to misunderstand these basic truths in order to appeal to her uninformed voting base. Consider the motives behind even producing a lifesaving drug for a minority. In the past few hundred years, only recently have these drugs emerged. Were they created by individuals seeking to help others? Well, that was definitely one possible motivation, but most drugs were produced by companies seeking profits. These companies realized that some individuals with rare diseases were not going to be served by the majority of companies, who in turn thought that since there only were a few consumers, they would not be able to offset the expenses from research and development. The solution? Charging high prices.
High prices are the only way for companies to turn a profit producing a drug for a rare disease. If the government sets a “price ceiling,” which sets a maximum price a drug can be sold at, companies will no longer have an incentive to research these drugs. In effect, the government would be killing the industry and even killing those who would have benefited from the drug.
The common flaw pointed out in this argument is that consumers will not be able to afford these medicines. However, almost all legal citizens of the United States have health-care insurance coverage. Insurance companies are more than willing to charge premiums to consumers who wish to have insurance in the case of catching a rare disease. In effect, all the consumer has to pay for is the insurance premium. With the advent of dubious measures like the Affordable Care Act, even these costs may be offset by other citizens who can afford.
What is the solution? It is simple: Allow the free market to work. Insurance companies are willing to pay high prices, and pharmaceutical companies should be able to charge whatever price they want. If their price is too high, insurance companies will not be willing to support the drug, and there will be no demand, and the price will be automatically lowered to increase revenue for the pharma company. Supply and demand will work out the price, and government price ceilings can be shelved.
At the Finance Club, we are aware that Hillary Clinton is a very educated individual. However, we also understand that she has to appeal to voters who have not had the opportunity to consider these basic economic facts.
– Finance Club
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