The news has been abuzz regarding the drug Daraprim and the major price-hike by its US-distributor (Turing Pharma). According to its website, Turing “acquired” Daraprim in August 2015 from CorePharma who had previously obtained rights in 2010 from GlaxoSmithKline. When CorePharma bought rights, it increased the price from $1 to $13.50 per pill, Turing’s increase pushed the price up to $750.
My first thought was that the price-hike was likely backed by the exclusivity of patent rights. However, I then read that the drug has been on the market for more than 60 years and any patent rights associated with its sale and distribution have long expired. Although the deal is not public, the rights purchased by Turing appear to include marketing rights (FDA right to market) along with related trade mark and trade secret rights associated with the manufacture, sale, and testing of the drug.
At this point, it is a straightforward process for a generic competitor to enter the market by filing an Abbreviated New Drug Application (ANDA). However, that ANDA process is still expensive and was previously not cost effective because of the low number of Daraprim users. Turing is apparently now lowering its price, but if it remains high enough, a competitor will likely enter the market.
Outside of the U.S., the drug is sold generically for $1 per pill or less. However, foreign drugs cannot be directly imported and sold without first seeking and obtaining approval from the FDA through the ANDA process. In the meantime, the company with exclusive marketing rights can demand monopoly rents.
The situation should highlight the fact that patent rights are only a small-bit of the ‘game.’ The barriers to entry are such that – even in the generic market – drug pricing in the US will often have little relation to the marginal cost of production – with the exception being drugs used by millions of Americans.