Yes, that $750 generic pill is a pure artifact of regulation

As you probably know if you follow the news, a man named Martin Shkreli in charge of a startup firm called Turing Pharmaceuticals bought the rights to a drug called pyrimethamine (brand name Daraprim), used in the treatment of AIDS and malaria, and announced that he was jacking up its price from $13.60 to $750. Massive outrage resulted, which has echoed through social media for the past week.

Pyrimethamine is long since off patent. It is not difficult to manufacture, and sells cheaply in Europe. But under the distinctive food and drug laws of the United States you can’t just start turning out pills in your factory to compete with Shkreli, at least not without compiling and submitting a huge pile of regulatory paper with the U.S. Food and Drug Administration. This calls on the services of lawyers and scientists, costs a lot of money, and takes time, and you might or might not be able to recover the costs from the relatively small pool of users.

Alex Tabarrok and commenters explain, and pharmaceutical blogger Derek Lowe has much more detail in a series of posts:

The FDA grants market exclusivity to companies that are willing to take “grandfathered” compounds into compliance with their current regulatory framework, and that’s led to some ridiculous situations with drugs like colchicine and progesterone. (Perhaps the worst example is a company that’s using this technique to get ahold of a drug that’s currently being provided at no charge whatsoever).

Among laws that used the “marketing exclusivity” technique to award monopolies on older drugs, on the logic that otherwise no one would step forward to handle the heavy costs of getting those drugs regulatory clearance, were the Drug Price Competition and Patent Term Restoration Act of 1984, better known as the Hatch-Waxman Act, originally introduced by Sen. Charles Mathias (R-Md.), and the Orphan Drug Act of 1983, introduced by Rep. Henry Waxman (D-Calif.) (We covered the issue briefly in this 2011 post.) In various ways that backers appear not to have foreseen, opportunistic actors have succeeded in seizing the legal-monopoly status made available for various compounds without always providing as much public benefit in return as had been expected. To enforce their legal monopoly, some of these companies sue rival drugmakers to force them to pull their competing offerings off the market.

Underlying it all — but seldom asked — was whether the gigantic costs of regulatory approval are really a necessary evil. Libertarian-minded critics were especially inclined to question whether hugely expensive studies and paperwork should really be required in the case of grandfathered or “generally recognized as safe” drugs, many of which have been familiar to the medical profession for decades or even centuries, allowing for a collective sense to emerge of their safety and effectiveness. But the view that progressives tended to champion — which prevailed — was that older compounds and those used for rare diseases should be held to no less stringent a standard than any other, and should either be withdrawn from the market or have their safety and effectiveness proved at someone’s expense.

At the Niskanen Center, Will Wilkinson ties together several of these themes. “Martin Shkreli… bought himself a monopoly made entirely of health-and-safety red tape,” he notes. The most-hated businessperson of the year is “cashing in precisely because the American pharmaceutical market is so far from free.”

Meanwhile, today’s moralistic politicians denounce the resulting fiasco without acknowledging the role of yesterday’s moralistic politicians in helping to bring it about (cross-posted in adapted form at Cato at Liberty).

More: “if another company wanted to compete to sell the same medicine [Daraprim], it would need to apply for a new generic drug approval, by submitting an ‘Abbreviated New Drug Application’ to the FDA. Filing one of these applications with the FDA used to cost as little as $1 million; today it can run as high as $20 million, sometimes more. …On average, it takes about 50 months for the FDA to approve a single generic application.” [Scott Gottlieb, WSJ] To clarify what I should have spelled out above: while exclusivity grants under the 1983 and 1984 laws have been associated with price jumps for a range of older drugs, the ANDA obstacle to entry by itself accounts for Shkreli’s monopoly position, which he cleverly amplified by sharp practices described by Ronald Bailey: “First, he apparently talked Impax [a predecessor holder of the sole FDA rights to market Daraprim] into starving the wholesale market of the drug, so that when Turing completed its purchase of the rights there were no extra pills floating around. Next, he set up an exclusive distribution network as a way of preventing potential competitors from obtaining enough Daraprim to conduct [the equivalence] trials for the FDA” necessary to develop an ANDA so as eventually to challenge his regulatory monopoly. And Scott Alexander at Slate Star Codex adds the Daraprim episode to a list of calamitous failures of generic drug regulation.

Environment roundup

  • I own a Volkswagen clean diesel myself, and can recommend its terrific fuel economy and peppy performance. It’s almost too good to be true [Clive Crook on policy background] Class action lawyers expect huge payday from scandal, but their emissions might not be very reliable either [Daniel Fisher] More from Fisher: will VW owners actually take their vehicles in for the recall? and more on litigation prospects [More: Car and Driver];
  • Housing advocates looking for plaintiffs to sue Bay Area town that refuses to make its housing supply denser [CityLab]
  • Behind court’s strikedown of NYC Styrofoam ban [Erik Engquist, Crain’s New York; Entrepreneur]
  • “Did Flint, Michigan Just Lead Poison Its Children? Doctors Think So.” [Russell Saunders, The Daily Beast]
  • “Global regulatory norms” favored by pontiff “would globalize Argentina’s downward mobility.” [George Will]
  • After long silence, Hillary Clinton declares opposition to Keystone XL pipeline [Politico, more]
  • Houston: “For the most part, we don’t look all that different from other big cities that do have zoning.” [The Urban Edge; Kinder Institute, Rice U.]

For no good reason…

…except that every so often it makes us smile to see people we respect say nice things about us.

More nice things: the Foundation for Economic Education calls us “indispensable.” And Eric Turkewitz recalls a non-blocking exchange.

“Using RICO against climate change skeptics an attack on free speech”

I’m interviewed at Vermont Watchdog about the truly terrible idea of aiming a civil RICO/racketeering action or investigation against the forces of “climate denial” over wrongful advocacy. The notion seems to have some well organized friends, including Sen. Sheldon Whitehouse (D-R.I.) and, more recently, twenty scientists who recently signed a letter calling for such a probe. “I have no idea how it affects the First Amendment” says one of the letter’s signers, a Vermont scientist, according to a companion report. I should note that when I speak of RICO in the interview transcript, I am referring to the civil-litigation side of the law (“civil RICO”) as distinct from the law’s other wing, “criminal RICO.”

I note, and reject, the idea that the First Amendment protects only truthful speech and thus has no application here because climate skepticism is false. (As Cato and many others argued in last year’s Supreme Court case of Susan B. Anthony List v. Driehaus, controversial speech need not be true to be protected, and in practice an “only truth has rights” rule would give the state a stifling power to punish advocacy in debates that it considers settled.) In substantial part, I note, debate in Washington (and not just in Washington) proceeds by way of advocates’ deployment of half-truths, selectively marshaled data, scientific studies with agendas, and so forth. It is common for both sides to use these techniques. The same techniques are also accepted as standard currency within the adversary process itself, in which the law takes such pride, which makes it particularly absurd to propose defining it as unlawful racketeering to “use dubious information to advance a cause.”

Among those promoting this bad idea: BoingBoing, often regarded as a pro-free-speech site.

P.S. Adapted together with an earlier post into one at Cato at Liberty.

School and college roundup

  • Far-reaching, legally dubious new mandate: 37-page “Dear Colleague” letter from Washington launches new “education equity initiative” directing local schools to ensure all children “equal access to educational resources” [R. Shep Melnick, Education Next and WSJ]
  • “‘Tag is not banned,’ [the school district] insisted.” [Fred Barbash, Washington Post; Lenore Skenazy; Mercer Island, Wash.]
  • University of Texas now blurs racial preferences into “holistic” admission review, Supreme Court should take look [Ilya Shapiro]
  • Feds vs. due process: Michigan State case goes well beyond itself-notorious OCR Dear Colleague letter [KC Johnson; related Hans Bader on Tufts and other cases] Emily Yoffe: not so fast on latest “one in five” study [Slate; more, Stuart Taylor Jr.] “You cannot build justice for women on injustice for men.” [powerful Wendy McElroy speech debating Jessica Valenti]
  • Trashing copies of a student paper to keep content from being read? 171 Wesleyan students/alums: “Go for it!” [Popehat, Scott Greenfield] “Editorial independence remains a huge priority for us” says the Wesleyan Argus editor. Doesn’t sound as if her adversaries see it that way [Robby Soave, Reason]
  • Robert Klitzman: Institutional Review Boards at research institutions could benefit from transparency and respect for precedent [via Zachary Schrag]
  • Donald Trump’s battle with New York Attorney General Eric Schneiderman over proprietary “Trump University” [Emma Brown, Washington Post]

To fit the crime: a social justice “Mikado”

The news that New York’s Gilbert & Sullivan Players have canceled a production of The Mikado because it was accused of purveying anti-Japanese stereotypes, and because there had been objections to Caucasian actors singing the parts, prompted me to write up a short piece in the new Weekly Standard on how the beloved operetta might be modernized for contemporary, social-justice-attuned ears:

So he decreed, in words succinct,
That all who flirted, leered, or winked,
Without consent-form double-inked,
Should forthwith be beheaded…

Correspondent Corey Bean contributed a verse:

My object all sublime
I shall erase the line —
Between micro-
aggressions and crime —
Between mere offense and crime;

The company for now is going to switch to a production of The Pirates of Penzance. “So now pirate-shaming is supposed to be okay?” Read the whole thing here.

Are SCOTUS justices swayed by foreign law?

The much-discussed flirtation of Supreme Court justices with foreign law and transnational standards is something they can seemingly turn on and off at will, argues CEI’s Iain Murray in a WSJ letter to the editor: “to allow more lawsuits, the Supreme Court disregarded every foreign court ruling defining the word ‘accident’ in the Warsaw Convention, in Olympic Airways v. Husain (2004)…. The Supreme Court regularly ignores the international consensus against punitive damages and broad discovery, which most of the world forbids in civil cases, but the U.S. permits.”

Washington, D.C.: unions versus property rights (yours)

Washington, D.C.: a pending council bill on AirBnB and similar arrangements, “backed by a large hotel workers union, would ban the rental of whole units without the owner or occupant being present, and prevent hosts from renting out more than one unit at a time. It would also create a special enforcement division within the District’s Department of Consumer and Regulatory ­Affairs to conduct inspections, and empower third parties — such as neighborhood groups or housing affordability advocates — to sue for violations.” Hotel owners have their own, “less draconian” scheme to restrict AirBnB use in the popular tourism city. [Lydia DePillis, Washington Post “WonkBlog”]

“Take a Valium, Lose Your Kid, Go to Jail”

During pregnancy “occasional, small doses of diazepam (the generic name for Valium) are considered safe… But one morning a few weeks later, when Shehi was back at her job in a nursing home and the baby was with a sitter, investigators from the Etowah County [Alabama] Sheriff’s Office showed up at the front desk with a warrant. She had been charged with ‘knowingly, recklessly, or intentionally’ causing her baby to be exposed to controlled substances in the womb — a felony punishable in her case by up to 10 years in prison. The investigators led her to an unmarked car, handcuffed her and took her to jail.” [Nina Martin, ProPublica]

P.S. Expanded into a longer post at Cato at Liberty.