Ignore the Critics, We Want More $600 EpiPens

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"All hits are flukes." Those are the words of movie producer Jeff Sagansky. He uttered them long ago while head of entertainment at CBS.

While television networks, cable channels, and increasingly internet companies (Amazon, Netflix) produce copious amounts of television content, they do so well aware that most of what they create will not only fail, but won't even make it to television, computer, or smartphone screens. While the world's best investors fail nearly as often as they succeed, television producers, like Silicon Valley venture capitalists, operate in an environment in which the vast majority of what they produce will go belly up.

In the world of television, the future is very much unknown. Hits are once again flukes. As entertainment writer Jennifer Keishin Armstrong reported in her newly released book, Seinfeldia, a history of the show about nothing, what began as The Seinfeld Chronicles wasn't expected to amount to very much at all. As then NBC entertainment president Brandon Tartikoff mused about it, "Who will want to see Jews wandering around New York acting neurotic?" Tartikoff wasn't alone with his skepticism.

Indeed, as Seinfeld co-creator Larry David lamented after a mere four shows were ordered by NBC based on the "pilot" episode, "I'm going to get a Lexus [with my bonus]. I'll never be able to afford one again." Nowadays David can afford thousands of Lexus cars, along with seemingly anything else he wants. As is well known now, the show about nothing that seemingly everyone was pessimistic about became a smash hit, and a multi-billion dollar enterprise. Seinfeld was a terrific fluke.

The unexpected success of NBC's hit has relevance to the recent uproar over Mylan's emergency allergy fix, EpiPen. Left and right are up in arms about the cost of the pen for different reasons, but the two principle reasons arguably miss the point.

The right point to the FDA and the various barriers the agency erects to delay the entrance of new drugs into the marketplace.  They broadly finger the regulatory body as the source of high drug prices. Up front, it should be said that the FDA shouldn't exist. It's superfluous.  In a normal world free of government meddling, venture buyers and yes, venture tryers, would be able to pay nosebleed prices for all manner of drugs (most unproven) as a way of testing their efficacy. The rich would serve as the proverbial guinea pigs for the rest of us.

Yet the $600 EpiPen situation has some on the right confidently stating the high price of same is a sinister creation of the FDA protecting markets for well-connected drugmakers.  They have a point, but it's not nearly as powerful as they think. As technologist Howard Aiken long ago observed as a way of expressing his skepticism about patents, "Don't worry about people stealing an idea. If it's original, you will have to ram it down their throats."

Aiken's observation is relevant to the outcry about the EpiPen. One reason it's presumably expensive now is because as an original allergy cure, its popularity wasn't always a certainty. This would have been true even in an open market happily bereft of the FDA. Just as hit television shows are flukes, so frequently are pharmaceutical advances.  The FDA can't make expensive what the markets don't want. A high price for most any market good signals a lightly regarded product emerging as unexpectedly valuable to consumers.  We want more EpiPen stories, not less.  

Left and right point to the actual cost of making EpiPens as "evidence" of an overbearing FDA or a gouging Mylan, but this misses the point.  Television shows are relatively inexpensive to "pilot" too, but most shows (like most drugs) are never good or useful enough to reach the marketplace.  

With or without the FDA, and contrary to the musings of some on the right, the EpiPen would still be expensive.  Just as the FDA can't make pricey that which serves no medical use, a lack of regulation can't immediately make cheap what is sui generis. Thank goodness.  The hits pay for everything else, and their costs reflect this truth. Pharmaceutical advances would be expensive regardless of superfluous regulation from the FDA.

On the left, the complaint is that big businesses like Mylan are gouging the little people with exorbitant prices. More realistically, the left should be cheering those high prices. Just as the eventual multi-billion dollar success of Seinfeld made possible the creation of all sorts of other television shows, so do high prices for drugs make it possible for pharmaceutical firms to experiment with myriad other new, but so far unproven ideas.

Seinfeld began as a show about nothing that was worth next to nothing not just in the eyes of NBC executives, but also in the eyes of its actual creators.  Yet this wholly unexpected cultural phenomenon was so popular during its 1990s heyday that it generated $200 million in annual income for NBC thanks to, among other things, the network's ability to charge $550,000 per 30 second ad spot.  Notable there is that lefties didn't complain when NBC and Seinfeld's producers, having discovered the extraordinary value of their product, began to charge nosebleed prices to advertisers and syndicates as a consequence of the show's unexpected hit status.  It's also worth pointing out that there hasn't been any modern protest related to Seinfeld's creators securing $160 million from Hulu just for the streaming rights to a show that's already been in syndication for over twenty years.  At the same time,  the creators of an emergency allergy fix are vilified for trying to harvest their unexpected innovation in the way that artists regularly do? Missed by Mylan's critics on the left is that without expensive drug successes there can be no experimentation in the first place. The lure of potential profits, to state the obvious, is what makes healthcare advances a possibility.

At the same time, Mylan's critics on the right haven't sounded very reasonable either.  They've taken to blaming the FDA and government more broadly for the high prices charged for the EpiPen in what they claim is an FDA-protected market.  Without defending the superfluous FDA or government meddling even for a second, the critiques from the right bring to mind President Obama's famously dim comment about how entrepreneurs "didn't build that." Implicit in their commentary is that absent the FDA, prices for innovative products would be really cheap thanks to broad competition that would quickly bring something similar (or better) from numerous copycat competitors into the marketplace. Really?  The internet is an open commercial space, but have Walmart and Best Buy been able to duplicate the genius of Amazon?  Nike and Gucci don't enjoy closed markets for sports and high-end shoes, but are new entrants able to copy what they've achieved on the way to cheap Nike and Gucci shoes? Why then, when it comes to advanced pharmaceuticals, is it broadly assumed that absent a regulatory body every drugmaker would have scientists possessing the talent necessary to equal or exceed Mylan and its EpiPen on the path to much lower prices? Does anyone on the right seriously think that the various networks not NBC didn't strive mightily (only to fail) when it came to making "the next" Seinfeld? The right blindly diminish the talent at pharmaceutical firms in the same way that Obama insulted entrepreneurs back in 2012.  It's as though all businesses are equal in the pharma space such that they can only generate gargantuan profits insofar as they're tight with the FDA. When it comes to drugs, the right frequently sound like the left.  Back to reality, flukey hits spring from enormous talent. Only in the eyes of columnists and pundits plainly untouched by the real world is it easy to re-create or successfully mimic "the next" anything. 

With Mylan, left and right reacted negatively to the cost of EpiPens, but for different reasons. Both sides are incorrect. It's when the market is bereft of high-priced drugs that we know there's very little progress on the pharmaceutical front.  It's an extraordinarily rare achievement for any business to create a product or service that rates $550,000 for a 30-second ad spot, or $600 for an emergency drug. Successful television shows, like pharmaceutical advances, are most often flukes born of amazing talent that can rarely be duplicated. Only if producers can charge a lot for the rare home run will they be able pay for all the costly strikeouts. Bot sides need to rethink what they believe so strongly about Mylan and the EpiPen.  


John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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