Economy, Regs, & Taxes

Clinton Does Drug Companies

She calls for innovation-killing price controls.

James Shott · Oct. 20, 2015

Hillary Clinton recently declared a war on drug prices. At a forum in Iowa, she said that asking people to pay thousands of dollars for pills they need to stay alive is not how the market is supposed to work and is instead a sign of “bad actors making a fortune off of people’s misfortune.” Her prescription is bad actors in Washington dictating prices.

She has, however, tapped into populist sentiment. A recent Kaiser Family Foundation poll showed that more than 70% of Americans think drug costs are unreasonable and want limitations on what drug companies can charge for medicines that treat serious illnesses.

Real events feed this sort of thinking. Turing Pharmaceuticals, for example, has come under fire for a dramatic hike in the price of Daraprim, which has been used for decades to treat toxoplasmosis and more recently to treat AIDS and cancer. Turing purchased a quantity of the drug along with marketing rights, and hiked the price to $750 per tablet from $13.50. Such a steep increase appears to defy reason — and to make Clinton’s case — although the economic factors involved in the price hike are not discussed when Turing is getting run through the ringer.

Clinton concludes that high prices are routinely due to price gouging, as appears to be the case with the Turing price hike. That is the populist’s first response. But Clinton either lacks understanding of how businesses work, and in particular the realities of developing needed pharmaceutical products, or she uses this emotional response to her benefit, or perhaps both.

It takes years, sometimes decades, to develop drugs for market, and those drugs make it to patients only if the Food and Drug Administration (FDA) gives its bureaucratic seal of approval. Just a handful of every thousand drugs even makes it to human testing, meaning companies have to recoup research and development cost through a fraction of the drugs with which they experiment.

Does Clinton have even the slightest inkling of the huge investment pharmaceutical companies have to make in the one drug in 5,000 that actually gets to market?

Forbes reported that the Eli Lilly company blog contained a post noting, “The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion.”

And Clinton thinks the cost of pills is too high? How many pills must be sold to recoup that investment? The lower the price, the more pills have to be sold to pay for developing a drug to help people with serious health problems.

Her solution, predictably, is more involvement by the federal government — the Democrat solution to nearly everything.

However, more than a little bit of these incredibly high investments is due to the federal government. “Regulating pharmaceutical drugs to a certain extent is important to prevent dangerous medicines from being released on the market, yet the current amount of regulation is stifling competition,” according to the National Center for Policy Analysis. “The FDA has increased the security on the manufacturing process and as a result several U.S. drug plants have closed their doors. The time intensive process of approval and the recent shutdown of plants is creating drug shortages and monopolies, causing the prices of drugs to skyrocket.”

The reality is that the cost of drugs amounts to about 10% of health care spending, and the amount of health care spending used on drugs has not changed in 50 years. Thanks to ObamaCare, that could be changing.

If Clinton was really interested in bringing down the price of drugs, she would acknowledge the role over-regulation and slow approval processes play, and pledge to streamline the process instead of demonizing drug manufacturers and proposing even more government intervention.

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