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After public outcry, pharmaceutical company to cut price of drug it hiked by 5,500 percent

Phil Walter/Getty Images

A pharmaceutical company that increased the price of a drug made in the 1960s by more than 5,500 percent has agreed to cut the price following public outrage, NBC News reported.

Turing Pharmaceutical had increased the price of Daraprim, which treats a parasitic infection called toxoplasmosis, from $13.50 per tablet to $750. This was met with enormous public outcry after the New York Times reported it, forcing chief executive Martin Shkreli to make the rounds on television networks explaining his company's decision — at times candidly explaining that his company wanted to make a profit from the drug.

NBC News reported that Turing has not specified just how much it will reduce the price of Daraprim, but Shkreli reportedly said the company will keep the price high enough to break even or make a "small profit."

Although Turing's actions got a lot of attention, what's perhaps more outrageous is that America is the only developed country that allows this kind of price gouging, as Vox's Sarah Kliff explained:

We are the only developed nation that lets drug makers set their own prices — maximizing profits the same way that sellers of chairs, mugs, shoes, or any other seller of manufactured goods would.

In Europe, Canada, and Australia, governments view the market for cures as essentially uncompetitive and set the price as part of a bureaucratic process — similar to how electricity or water are priced in regulated US utility markets.

Other countries do this for drugs and medical care — but not other products, like phones or cars — because of something fundamentally unique about medication: If consumers can't afford the product they could have worse odds of living. In some cases, they face quite certain odds of dying. So most governments have decided that keeping these products affordable is a good reason to introduce more government regulation.

When drug companies set their American prices, they don't focus on the price of making the pills. Instead, they look at what their competitors already charge for similar products — and try to land their price somewhere in that same range, regardless of production costs or how good the drug actually is. Since most drugs are already expensive, new drugs keep matching those prices.

So Turing backed down after facing a public onslaught. But the system hasn't changed. Drug companies are still free to set prices as they wish.