26 Aug, 16 | by Iain Brassington
Jumping to the defence of pharmaceutical companies over their pricing policies isn’t fashionable – and a lot of the time, it’s not going to end prettily. But it’s perfectly coherent to think that the profit motive is one of the motors of innovation, and that it’s part of the quid pro quo for spending money on drugs that may do nothing; in fine, that the profit motive may actually be a necessary part of getting the good stuff we want. To an economist, the phrase “normal profit” means the minimum profit necessary to keep a firm going – where average revenue equals average total cost. But if that was all that was on offer, there’d be no incentive to enter a market in the first place: if you’re (on average) in the same place as you were before entering the market, why bother? So it’s reasonable to think that there ought to be some level of supernormal profits. They help ensure we get a world that’s better tomorrow than it was yesterday.
On this account, the problem is not with making a supernormal profit – oh, all right then: what in everyday English we’d simply call a profit – but with gouging and/ or profiteering. The question that needs to be addressed is one of what level of profit, and what kind of return on investment, is reasonable. In some sectors of the economy, it may be quite high. For example, if I can manufacture a luxury good for which people are willing to pay through the nose, and make a stonking great profit from it… well, all hail me. In other sectors, this will not be the case.
The determinants of the level of acceptability will depend on all kinds of factor. It’s a complicated question, and it may defy satisfactory answers from time to time. All the same: one doesn’t have to be able to say that or why x is good in order to be able to say that y stinks. The story about EpiPen pricing that’s emerged over the last week or so is one such case.
Here’s the story: EpiPens deliver a dose of adrenaline, and are therefore very useful in cases of allergic reaction. Adrenaline is not expensive, but delivering it via a syringe is cumbersome; EpiPens make it much simpler. Mylan Pharmaceuticals obtained the rights to the device in 2007; since then, the price has risen by somewhere between 400 and 500% in the US (different sources offer different amounts; but a pack of two EpiPens costs about $415 in the US, and about $85 in France). That’s bad enough on the face of it, though Mylan CEO Heather Bresch does apparently have a defence, as Fortune explains: more…