Can the Government Stop the Next Martin Shkreli?

It wants to prevent accidental monopolies on old, essential drugs. It needs to do a lot more than that.

Martin Shkreli listens during a hearing of the House Oversight and Government Reform Committee on Capitol Hill Feb. 4 in Washington, D.C.
Former Turing Pharmaceuticals CEO Martin Shkreli, an agent of reform in spite of himself.

Brendan Smialowski/Getty Images

It’s time to stop thinking of Martin Shkreli as a cartoonish villain and start considering the former CEO of Turing Pharmaceuticals an unlikely therapeutic reformer. In part because of Shkreli’s price-jacking of an old, essential medicine—not to mention his public antics in and out of congressional hearing chambers—the U.S. government is finally getting serious about the prices of off-patent drugs. That’s something worth cheering and a signal that, in general, legislators and regulators hope to address climbing pharmaceutical prices more aggressively. But it’s only a start.

Last week, the U.S. Food and Drug Administration quietly put in motion a new plan to speed up the approval of generic competitors for prescription drugs that are still made by only one manufacturer, even though their patents and market exclusivities have expired. This would mark the first time that the 110-year-old scientific regulatory agency directly addressed the problem of pharmaceutical monopolies. Along with a Senate bill currently working its way through committee, the FDA hopes to ensure that the older drugs many of us assume to be cheap actually will be.

Why now? Until recently, most public concern over increasing pharmaceutical prices has focused on the monopolies enjoyed by manufacturers of new drugs, which are protected by a web of patents and other market exclusivities. Although we might debate to what extent the high costs for new drugs are an acceptable price to pay for innovation, older, off-patent drugs are generally imagined to be available for pennies on the dollar. But thanks in part to Shkreli’s attempts to justify a 5,000-percent price increase on a 50-year-old drug his company had spent nothing to develop, a problem hidden in the 21st-century pharmaceutical marketplace has become painfully visible: A number of off-patent drugs are only available from one source.

In theory, these monopolies on old drugs should be highly vulnerable. If the invisible hand was doing its job balancing supply and demand, any increase in price would be met by a flood of new competitors entering the market. But because the generic drug market requires FDA approval for each new manufacturer, and because that approval process can easily take 15 months, many other actors besides Shkreli—including executives at Valeant, Rodelis, and Amedra Pharmaceuticals—have found a lucrative strategy in acquiring monopolies on old drugs and hiking up the prices. 

For most of its existence, the FDA has steadfastly avoided questions of economics or access to pharmaceuticals, focusing instead on the more technical issues of drug safety, efficacy, and marketing claims. But the escalating problems of generic drug shortages and price hikes in the past few years have led the agency to reconsider its accidental role in sustaining monopolies on old drugs. And so the agency announced Friday a new priority-review pathway that would grease the rails for any would-be competitor to challenge an accidental monopoly like the one Turing exploited.

The FDA’s move follows a bill introduced last month by Sens. Susan Collins and Claire McCaskill to promote competition in the off-patent drug marketplace by instituting a priority-review pathway to break up off-patent drug monopolies and create an additional voucher system to create incentives for generic drugmakers to take more interest in low-margin, off-patent products. This bipartisan pair, who head the Senate Special Committee on Aging, have led the Senate side of recent congressional investigations into drug pricing. Though it’s still working its way through committees, their bill is expected to find strong bipartisan support and, if passed, would represent a substantial step in shoring up generic competition and deterring future price gouging. In contrast to the 21st Century Cures Act approved by the House of Representatives last summer—which focuses only on the development and approval of new drugs—this Senate legislation serves as a reminder that valorizing innovation alone isn’t sufficient to protect the health of Americans if the maintenance of the key infrastructure of access to older therapeutics—like Daraprim, the toxoplasmosis treatment whose price Turing jacked because it had no competitors—is allowed to crumble.

Both the FDA and Sens. Collins and McCaskill deserve praise for fighting the corrosive effect of pharmaceutical monopoly on the U.S. health care system. Their actions should serve as deterrents to future Turings and Valeants—who might seek to further exploit temporary monopolies on off-patent drugs—and send a strong signal that these rent-seeking behaviors will be unsustainable in the long run. But they’re not enough.

We have a long way to go to thwart the broader problem of escalating drug prices. First, and perhaps most obviously, these latest measures do nothing to solve the spiraling increase in prices for new, patent-protected pharmaceutical products, even when such prices are clearly set at rates to maximize profit over public health benefit, as in the case of the recent breakthrough treatments for hepatitis C. Second, they do not solve the limitations on generic savings for newer, large-molecule biotech drugs once they go off patent, which cannot be certified as “bioequivalent” in the same way generic versions of small-molecule chemical pharmaceuticals are. The elaboration of new regulatory pathways for off-patent “biosimilar” drugs is unlikely to produce the robust competition and price savings seen in the generic marketplace of the late 20th century. Third, these measures do nothing to address the other problems through which a series of new patents and other market exclusivities have effectively undercut meaningful generic competition for key drugs for the treatment of chronic diseases such as diabetes, asthma, and gout.

Perhaps even more importantly, while these measures help remove a regulatory barrier to competition in off-patent pharmaceutical markets, it’s hard to know if the FDA’s actions and the voucher program will generate enough incentive for generic manufacturers to help produce these competitive markets in very-low-margin drug markets. Nor do they address the more general increase in prices for generic drugs that has taken place even where competition does exist. These factors are influenced by deeper forces still poorly understood by policymakers, including the substantial consolidation of the generic drug industry in recent years into a few powerful “generic giants”; and the role of pharmacy benefit managers, group purchasing organizations, and other middlemen in distorting the marketplace for old drugs. Sustained inquiry by Congress is needed to help shine more light on these sources of prescription drug price increases so that more meaningful long-term solutions can be found.

We can and should do more to address the unsustainable cost of medicines in the United States, but these first steps are still encouraging. In the coming weeks and months, it will be important to monitor the new FDA policy to make sure it results in speedier approval of “generic first” drugs. Likewise, it will be important to follow how the Collins­–McCaskill bill advances through the Senate and whether the Senate’s efforts to guarantee competitive prices for old drugs will coincide or conflict with the House’s efforts to reduce regulatory barriers for new drugs under the 21st Century Cures Act.

Few could have imagined 12 months ago that this Congress would be capable of taking meaningful bipartisan action on drug prices. And few would have imagined that the FDA would embrace the task of fighting pharmaceutical monopolies as a part of its public health mission. In time, we may yet find ourselves thankful that in our time of need, this troubled health care system found its Martin Shkreli, an agent of reform in spite of himself.