Reference no: EM132479749

The Curious Case of Daraprim

In August 2015, Turing Pharmaceuticals raised the price of Daraprim from $13.30 a tablet to $750, an increase of 5,456 percent (Over and Silverman 2015). Daraprim is the only available treatment for toxoplasmosis, a rare infection that can become deadly for patients with weakened immune systems. This price increase means that an individual's treatment could cost up to $634,000. Daraprim's patent expired in 1953, and it can be compounded for less than a dollar per tablet. (Langreth 2015).

Two contradictory trends are evident. Generic drug prices have been declining in the United States since at least 2010, yet multiple generic drugs have risen in price.(Ornstein and Thomas 2017). The price increases generate far more attention than the price decreases, yet the structure of the market has not changed.

In the United States, pharmaceutical prices (indeed most medical prices) are based on negotiations between private insurers and suppliers. The US market has two features that are uncommon in other countries.. First, pharmacy benefit managers often act as an intermediary between insurers and suppliers. Second, the federal government plays a limited role in negotiating prices. Although the Department of Veterans Affairs negotiates  drug prices for its beneficiaries, private firms negotiate for Medicare.

Questions

1. Would you expect demand for Daraprim to be elastic or inelastic? 

Daraprim is inelastic in nature at present because there are no other substitutes available.

2. What change in the market would make demand for Daraprim more elastic,? Less?

As the marginal cost is low, demand can become elastic once other generic drug makers start making this drug

3. Why did other companies not start making versions of Daraprim?

The possible reason that other companies were not making daraprim is because the cost of making the drug at small scale might be higher. Although at compounded level the cost is $1, but the demand for daraprim is for a rare disease and hence the demand is very low which makes it not economical for generic drug makers to manufacture it at earlier price levels.

4. Did Turing Pharmaceuticals violate any laws or regulations when it raised the price?

5. Companies have also raised prices for other non-patent drugs. Can you explain why?

6. Can you provide another example of large price increases for off-patent drugs?