Hehe, I was wondering when this topic would appear here I am hearing about first hand changes both in Turing and in a previous biotech company I was working for because of this outbreak. Was looking into working at Turing, actually. Know some people there. Loss. I'll tell you that. What would you do in his position? How do you stay relevant in the market? Keeping the status quo is getting behind, and competing against the big pharmas is very, very difficult for a company that size. Brah, don't hate Friedman. One of the most illustrated economists in history. That being said, there does need to be some sort of something with healthcare. I just don't understand Repubs that shudder at healthcare regulations. Obamacare isn't perfect, but at least there should be something to address the large cost relative to production cost. But don't blame the player, blame the game. This is the dealings with all pharmas; it isn't just him. The thing is, everybody is still going to get the drug. The insurance companies are "Taking the hit", so to say. I do not think you can make it out to see that this price increase will stop people from getting the drug. The official price is getting increased, but the people that cannot pay, for whatever reason why they cannot, will get it at the lower price. The consumer base is small enough that the price discrimination can occur. Why the drug hasn't change? What is the purpose of big pharmas to invest large money, for a new drug that will give a small profit, due to a small consumer base? Yes, there is a reason the drug hasn't changed, and it's not because it is a "Perfect" drug. Far from a perfect drug, actually. This is one of the imperfections of the health care industry, sure, but far from the largest. Nope. Fixed costs (barrier to entry) are too large, and Turing can lower the price to knock them out of competition. I typed this response up very quickly, so may be missing some information here or there, or may have misstated something.
Agreed 100% I would call it more of a scam or exploitation of the market though. He way overpaid for a company knowing he could price gouge for a year or two or whatever. He is basically taking advantage of insurance companies from what I gather. From his interview it sounded like people who couldn't afford the drug would get it for free or something like that. The guy is a total douche, but it seems like he has found a way to exploit the drug market in this case. That said there are a lot of abusive practices in medicine, so let's not act like this is the only ****head out there.
They can't be that large. I thought he said the drug was only doing 5 mil in revs a year. And the reason why the drug isn't profitable is because of how much he paid for it based on what I can infer.
Ummmm... how about NOT raise the price 5500 percent? Call me crazy. It's a big wide world out there, with lots of tough decisions- sometimes, deciding between right and wrong can be very difficult. This is not one of those times. In the world of right and wrong, this is an easy call. It's wrong. Your post was an informative balanced read overall, thanks for that, but I don't understand your coming to his defense. There's nothing to defend.
Reposting this from the first page of the thread, for those who are wondering how the invisible hand will fix this: Though jbasket summed it up quite nicely at the end of his post.
Well I guess the obvious question to ask is...how much does it cost to build a plant to create this drug? From my random guess based on very crappy internet research I would say somewhere in the neighborhood of 30 million.
Given the circumstances, charging $750 per pill is a rational decision in terms of the company's profit motive. The CEO may well be a douche, but this decision is not why he is a douche. If $750 per pill is gonna earn your company profit and there is a barrier for a competitor to enter into the market, then as a matter of economics, why should the company charge less? It was probably economically irrational, maybe even totally insane, for the prior owner of the drug to sell it for $13.50 per pill. The new owner spotted an inefficiency in the market and took advantage of it-- much like Daryl Morey tries to do with his player transactions. The real question, like I said, is that given the operation of rational economic interest results in $750 per pill, what do we want the government to do about it?
The drug wasn't profitable before the purchase either. In the industry perspective, everybody knew it was raking in a loss now, and the price of the drug rights kept on falling. What was the difference between him and others, was the price to purchase, how much they would let it drop. Maybe another company would have purchased at 40 million, and hiked 4000%. But then they risk losing the opportunity to purchase, in situations like these. What is an alternative option to avoid the status quo? The 1st rule of pharmas/biotech is you don't talk about pharmas/biotech (jokes). But seriously, if they did have a first rule, it would be to not keep the status quo. He doesn't have the capital and revenue of a J&J to throw $1billion at a drug development. The decision you are arguing is to explore an alternative option: company losses. Period. Like I said, don't hate the player, hate the game. Love the Morey analogy by CH. Throw in Hinkie: lot of people hate the tanking, but the topic if you want changed should be at the institution. These are the things a small-business pharma must do to survive. It's a cut-slice-dice situation here, really. Enough so that small-business investors are scared away by the barrier of entry, and the promise to lower prices by Turing. Also, it is a small-enough consumer base without enough profit potential that the very large pharmas like Pfizer would rather focus on other initiatives (profit potential in relation to their other projects/products). Really, cannot put a number on it, because it has too much variance (number of process steps, product production, what the product even is, sustainability measures, regulations, etc.). Great analogy CEO is an interesting dude. He has a Ranked League team with some of the co-workers. Like before, quick response, didn't double check my writing.
Pricing should be what the market can bear. The mistake this guy made is that the market will not bear this pricing, and it will backfire against him.
There will always be a market for a life-death medication. They may be the most inelastic product that has been created. If it saves their life, there will not be an upper limit where a person is like "Nope! That's enough for me."
Not in this scenario. Actually, the general biotech stock (as in the average NASDAQ for the industry) dropped because of fears of legislation that might occur.
it's a 60 year old drug, that sells for much less than the $13 per pill outside the US and his startup chose to buy it for $55M. He's not recouping research here. Not sure his company even does research. If it was that unprofitable, it was never worth $55M buy. This was a hedge fundian 'opportunity. Gouging a niche market. I agree with robbie's take here. Exploitation. And just because it looks good on a spreadsheet doesn't mean it's good business. Perhaps decisions like this are why his hedge fund tanked and he was sued for $65m?
Is there anything that shows that it was not profitable before? Have you gone thru IPXL's SEC filings? I haven't, but I guess I can try to find out in there. IPXL (Impax) bought CorePharma and then sold this drug to Turing. CorePharma was turning a profit as a company when they were acquired by IPXL and they were only selling this drug for $1 back then. I just simply can't imagine that IPXL was losing money on this drug at $13.50/pill, but maybe they were. Futher, I think it is very odd that a company would pay $55 mil or about 5.5x revs for an extremely well established drug that is losing money. I have not kept up with the pharma frenzy since I almost never trade pharma stocks. Yeah it is a small base. It is interesting to note that the IPXL price increases seemed to shrink demand significantly from 12,700 prescriptions to 8,821. This potential mega price spike I'm guessing will cause people to find alternatives.
Well, the greedy little prick has caved and will roll the price back. He still deserves a slight case of toxoplasmosis for his pricktitude.
This is an extreme example. But not that out of the ordinary. Americans always pay higher because of free market and lack of government control. "I prefer free market than livelihood" has been the Americans way. Large picture. Spoiler
Agreed. That is why the old "Free to Choose" spin of the Reagan -Milton Friedman-Libertarian claim is so misleading. Similarly a man who is starving is not really free to choose not to work for say just enough caloric intake to return to work the next day.
Just temporary arbitrage long enough to lead to actual human deaths. No biggie for "libertarian"conservative true believers.. As Stalin said: "If you want an omelet you need to crack some eggs".
