The Economics of a $750 Pill

(by Farasat Bokhari) On Monday morning, the New York Times broke the story about a price hike in the USA from $13.50 to $750 per pill for Turing Pharmaceuticals’ drug Daraprim. Hillary Clinton tweeted, “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. –H”. Since Clinton’s plan is likely to include negotiated prices between pharma and Medicare, this in turn sent the Nasdaq Biotechnology Index down by 4.7% within the next two hours (see the Bloomberg graph below). Beyond the political repercussions, how can it suddenly be profitable to impose such an enormous price rise for an out-of-patent drug?