Saturday, August 20, 2011

Drug Shortage in USA or Big Pharma Scam?

NYT is running a story about drug shortages in the United States. This is at least the second time they have done so.

I'm a little suspicious about the story. Not that there aren't shortages, but NYT's prominent placement of the story, with insufficient facts to judge what is really going on.

First, as anyone who has taken an econ 101 course knows, you can't have a shortage without some sort of price controls. In a free market, supply and demand will result in a price that eliminates the possibility of a shortage. Yet, NYT fails to discuss whatever price controls have to be in the background that is causing the shortage.

Instead, NYT brings up an Obama plan to stockpile supplies of the drugs. Thus, one has to ask, if the Obama administration can acquire sufficient supplies of these drugs, why can't they be obtained on the free market?

Something really stinks here and I suspect it will result in big pharma selling to the government supplies of the drugs at prices that it would never be obtainable on the free market.

Bottom line: As per usual, the NYT is spinning the expansion of government, without asking, discussing or providing important details. But the sure put the fear in the story.


  1. I actually just emailed this story out. I was trying to gauge my readers knowledge as I think this serves as an excellent piece to determine how well one thinks in terms of economics and understanding the effects of what is unseen, the role of FDA in general, IP laws (patents) and so on.

    One section of the article that I am surprised you didn't quote from and note its absurdity is this:

    "More than half the recent shortages have resulted because government or company inspectors found problems like microbial contamination that can be lethal on injection. Others have occurred because of capacity problems at drug plants or lack of interest because of low profits, according to the F.D.A. "

    Now I think it is pretty safe to assume that on a free market if demand for a good is so high that it is not being produced rapidly enough such that there is a shortage, it is impossible for there to be "low profits".

    Clearly, the FDA's explanation that there is a shortage of supply because firms "are not interested due to low profits" is preposterous on its face. If it is not an outright lie, the only way that makes any sense if is there is some type of price control mechanism being imposed by the FDA or government. That would certainly explain the shortage, but unfortunately for the hundreds of posters on the original article, would also burst their bubble of being able to lament another "free market failure".

    Another government proposed solution for a government-created problem...

  2. Its funny how any regressive will tell you how the Reps favor big business but they always fail to see how their policies do the same damn thing. My oh my, wouldn't a big pharma company love to sell the government lots of drugs for it to stock pile that will sit in a dark closet and expire over time? What CEO wouldn't jump at that offer? You get to sell your drugs at full price, which will probably create a real shortage and then you have no risk from people taking the drugs and having side effects since the drugs will just waste away unused. Back in the day we use to say the best IPO's were the ones that didn't price, but we still got paid all our due diligence fees.

    Hey my company sells computer software, and I fear I may be inclined to withhold it from the public to drive my price up. Maybe the government should stock pile my software? LOL I love stupid mainstream thinking!

  3. I'm a veterinarian and I have dealt with generic drug shortages for the last few years. It is in the commonly used drugs that we use huge amounts of and not the ones still under patent. Every back order has the stamp of FDA bullshit on it. Drugs like atropine, cephalahexin, and the latest prednisone!!!. These are dirt cheap for the patient so of course they are regulated out of existence. If they do come back the return at astronomical prices. My best example are the ophthalmic topical products disappear at $2.5 return at $28
    It is a concerted attack on offshore generic suppliers. Best yet the quotes from Mylan mouthpiece, Mylan is one of the biggest corporatist rent seeking companies along with the rest of big pharma. The government can't solve this problem IT IS THE PROBLEM.

  4. If you are to control medical costs, the first item you look at are pharmas since they hawk their most expensive"finds" through doctors to all the gullible patients. If the government wants to cut back, it sics the PDA and various science groups on pharma and suddenly they are in short supply.

    The Times works with its advertisers et al and my guess is that bog pharma are facing having to tone down their claims for placebos and get real again.