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Martin Shkreli Has One Idea, And It’s a Bad One

Martin Shkreli may finally have overstepped, and it will be a good thing if he has.

Let me back up both those statements. Shkreli, you may recall, was the founder of Retrophin, a company whose business model was to buy up obscure orphan generic drugs (such as Thiola) and immediately raise their price by, say, twenty-fold. They had analyzed the market, and what insurance companies might be able to put up with, and determined that this could be gotten away with, so why not? After writing about this here, I got involved in a Shkreli skirmish on Reddit (he’s famously active on social media, rather unusually so for someone in his position). But not long after that encounter, he was fired by Retrophin’s board, and the lawsuits are flying.

Shkreli wasted no time forming another company, Turing Pharmaceuticals, and Alan Turing should be sitting up in his grave any day now, at the rate things are going. In my Reddit exchanges with Shkreli, he’d talked about the drugs he’d “discovered”, and Turing made claims about how if you work for them and discover a drug, you’d get a share of the profits (see that last link for more). But so far, they don’t seem to be as interested in discovering drugs as in discovering opportunities to use other people’s drugs as a means to stick it to patients and payers. The company has bought up rights to yet another obscure medicine, Daraprim (pyramethimine), and immediately hiked the price fifty-fold, from $13 to $750 per dose.

So here’s the conflict: companies do (and should) have the right to charge what they think their market will bear. But ordinarily, you’d think that most markets wouldn’t have enough slack in them for a price increase like that one. What we’re seeing is a peculiar part of a generally peculiar market, though. Drug companies are granted a temporary monopoly by the patent system, in recognition of the value of new therapies. Arguing about this tradeoff does not cease, but overall, I think it’s a reasonable system (although one can imagine others, which would involve tradeoffs of their own). But one feature of the existing order is that patents expire (and you’d be surprised how many loud anti-pharma activists don’t seem to realize that). And once they expire, the price comes down as the generic manufacturers get into the market.

That’s how it’s supposed to work, anyway. But in recent years, another strategy has emerged, and Retrophin/Turing are just the most dramatic examples of it. Entire companies have sprung up to take advantage of this sort of leverage – not by discovering their own drugs (too expensive, too risky!) but by buying up existing ones. And the most egregious examples have come in the generic sector. By various means, old generic compounds have ended up as protected species, and several companies have made it their business to take advantage of these situations to the maximum extent possible. The FDA grants market exclusivity to companies that are willing to take “grandfathered” compounds into compliance with their current regulatory framework, and that’s led to some ridiculous situations with drugs like colchicine and progesterone. (Perhaps the worst example is a company that’s using this technique to get ahold of a drug that’s currently being provided at no charge whatsoever). There are also loopholes that companies are trying to exploit when competitors try to prove generic equivalence: whatever it takes to keep competition away and get unlimited pricing power.

But as I discussed in one of those links above, that pricing power is a mighty weapon, and should be handed out sparingly. A company that takes on the substantial risk of new drug discovery deserves it much more than one that is merely rent-seeking. And that’s exactly the economic term for what Retrophin, Turing, Catalyst, Makena and other such companies are engaging in: a chance to put the squeeze on. Here’s the situation with Daraprim:

Daraprim, which is also used to treat malaria, was approved by the FDA in 1953 and has long been made by GlaxoSmithKline. Glaxo sold US marketing rights in 2010 to CorePharma. Last year, Impax Laboratories agreed to buy Core and affiliated companies for $700 million. In August, Impax sold Daraprim to Turing for $55 million, a deal announced the same day Turing said it had raised $90 million from Shkreli and other investors in its first round of financing.

Daraprim cost only about $1 per tablet several years ago, but it went up sharply after CorePharma acquired it. According to IMS Health, which tracks prescriptions, sales of the drug jumped to $6.3 million in 2011 from $667,000 in 2010, even as prescriptions held steady at about 12,700. In 2014, after further price increases, sales were $9.9 million, as the number of prescriptions shrank to 8,821. The figures do not include inpatient use in hospitals.

So there’s already been one round of price-jacking with this old drug, and now Turing is here to take it to unheard-of levels. In any functioning market, someone else would jump in and offer this compound for less – but Turing’s business plan includes “closed distribution”, that loophole mentioned above to try to keep any other generic companies from getting enough of the drug to run a clinic trial proving equivalence. (What to do about this will be the subject of the next post, going up immediately after this one).

Shkreli himself is saying that Turing needs this price increase to do research on better drugs than Daraprim, but this is a need that up until now no one seems to have thought worth filling. And if it’s worth filling, then surely there are other ways to go about raising the money than via a 50x price hike. He’s also dealing with criticism in his usual diplomatic way, calling John Carroll of FierceBiotech a “moron” on Twitter for questioning this strategy. In that case, put me down as a moron, too, because I think it’s a terrible idea. See the next post for more. . .

Update: if you’re really looking to experience the Shkreli worldview, here you go. This is the person who’s dragging us all through the mud.

80 comments on “Martin Shkreli Has One Idea, And It’s a Bad One”

  1. anonymous

    Could Shkreli be Donal Trumph’s long lost twin??

  2. John Galt IV

    Hopefully this isn’t redundant to the links in the article. The gray and long-compromised lady’s take on the situation:

    http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html

  3. Doug Smith

    If you take a life saving drug and increase the price from $750 to $13 you are a very evil person who I hope will yourself die a painful death. This practice is actually killing the sick and needy. We should publicly execute this trash.

    1. Billy Solestis in reply to Doug Smith

      Speaking of sick, Mr Smith, you qualify. Execute people for arbitrage? Sheesh.

      1. JC in reply to Billy Solestis

        Arbitrage. Voluntary mass manslaughter. Its all a matter of perspective.

      2. Bart in reply to Billy Solestis

        “Arbitrage” sounds positively cuddly.

      3. Joey in reply to Billy Solestis

        I don’t think Mr Smith is sick. He’s outraged like the rest of us. And really does taking Martin Shkreli’s life upset anyone? Let’s take a vote. Also you choose to use the word arbitrage to make it seem less offensive. Dirty tactic that. Oh ALL he did was choose to make a profit, so it’s ok. But YOU know it is more than that. He made life saving drugs unavailable. And thus he most likely made those who once could afford them unable to. I would say that is a crime, and crime deserves punishment. Some can argue death is over punishment, while it can also be argued it’s not harsh enough. We all know he won’t be sentenced to death, But I get why many would argue for his execution. He’s a greedy scum bag. AND NO, I wouldn’t do the same thing. More money isn’t everything

    2. Joey like in reply to Doug Smith

      You are right Mr Smith. We should. It makes me sad that we can not. It makes me sadder, he will get away with it.
      I like the old America. Back in the old west, scum bag like him that hurt his fellow Americans, would be dragged down to the nearest tree and hung.
      What a site that would be Shkreli hanging in front of his building, a visual warning to other merchants of greed. All this modern Robber Barons today, insulated from the public, with bought politicians, don’t fear us. A good old outraged mob might change that

  4. Derek,

    Two links are not working: “I got involved” and “another strategy has emerged”. By the way, these are also showing as crossed out on my browser.

  5. Anon

    By the same token, just imagine if doctors started charging a million bucks to give emergency blood transfusions, just because they can. Whatever laws we have to prevent that should be applied to these evil monsters.

  6. david

    Martin Shkreli says he needs the money to support research. But I don’t find any evidence on medline that he’s ever done any research before (there is a different Shkreli who studies telomeres). Since when do we fund inexperienced non-scientists to conduct research?

  7. Evan

    Gee, and you wonder why those crazy anti-pharma folks are so mad. Don’t they understand that patents expire? Except when they don’t, of course.

    1. Mary Jo Cantu in reply to Evan

      A pregnant woman can be tested for the antibodies to toxoplasmosis. If she is already immune she can cross this off her list of things to worry about.

  8. pogotown

    Here is the IMPORTANT information. Daraprim is used to treat toxoplasmosis. Toxoplasmosis can cause birth defects if a pregnant woman is infected. It is spread via cat feces, even in the DUST from cat feces. So if you are pregnant, DO NOT CHANGE THE LITTER BOX. And if you are a man whose partner is pregnant, be a REAL MAN and change the litter box. Please spread the word. Don’t count on a $750-a-pill drug to protect unborn babies.

  9. Emma

    Shkreli is human garbage. His claims are bullshit and his price hike is objectively evil. He’s the physical embodiment of vulture capitalism, and to continue on the same track is to show that he’s completely without morality or integrity.

    1. Phil Yabrody in reply to Emma

      It’s not real capitalism when Uncle Sam is involved.

      1. bartcopfan in reply to Phil Yabrody

        Nor when competitors are excluded.

        I take some issue w/ the “Uncle Sam…involved” remark, particularly if you mean any involvement, as I’d expect (Ayn) Randians would. In my understanding of capitalism or free markets (and FWIW, I do have an MBA) I’d say we have a ‘mixed market’, i.e. generally free, but also subject to regulations), I prefer to think of Uncle Sam as a referee enforcing rules of a game that all players abide by. At the very least, even the most free market is going to need a government-run, functioning court system–or else the market will be unable (unwilling?) to distinguish between profit and theft.

        One place I think lots of these types of discussions get (unnecessarily) muddied regarding the traditional “free marketeer” whipping boy of “regulation” is the conflation of price regulation w/ (for example) safety & health regulation. I’m old enough to remember when the price of crude oil was regulated in the US. You couldn’t sell it for more than $XX per barrel. President Carter started and Reagan finished the price deregulation of that commodity. Now you check the changing-by-the-second spot price on NYMEX or wherever.

        To me, a “free market” means such a deregulated price. With multiple sellers and buyers (and for a true free market, none of either can have “pricing power”, the ability to dictate (or even influence) prices–they’re all price-takers (not, e.g. Walmart)), sellers can usefully charge “what the market will bear”. With a single, monopoly supplier however, there is no free market and “what the market will bear” is meaningless.

        To finish the thought, I think most people mean a market w/ a deregulated price when they colloquially use the common term “free market” or “capitalism”. But others, w/ whom I mostly disagree, want to take it further and remove all regulations, including (esp.) the safety and health ones. “Hey, let the meat-packer sell what they want and inspect themselves. If they send out some poisoned meat, hey, they’ll get sued out of business and/or competitors will take away their customers.”

        Leaving aside that many of these people are the same ones who want to limit court-awarded damages and such, I oppose such a reactive and needlessly-damaging form of (safety & health) deregulation. If it was your kid who ate the poisoned product, I suspect you might feel differently about it. With a broadly-agreed upon system of neutral regulation, then my gov’t-regulator-as-referee analogy (hopefully) makes sense. “Within these (regulated) bounds, the market is (price-regulation) free.” I’d also comment that, contrary to (usually conservative) commenters’ fever-dreams, very little non-price regulation comes about by “government bureaucrats” sitting around dreaming up ways to confound American Enterprise. In the vast majority of cases, certainly in my industry, safety and health legislation has been reactive to some previously-un(or less-)regulated event.

        The most-recent large example from my industry involves regulations passed in response to the San Bruno, CA natural gas transmission pipeline rupture and subsequent explosion and fire near San Francisco several years ago. Even though the company (PG&E) had followed (most of) the rules existing at the time, that didn’t prevent the deaths of several people and displacement of many others. The regulations were understandably tightened and I know from things we’ve found at my work, that we, our customers, and the public is safer now than before. Yes, there was plenty of bitching about it (and the industry negotiated the regulations with its regulators), but I tell anyone who complains too much about it, well, if the industry hadn’t blown up those folks first, the regulations probably wouldn’t have come about.

        Wow, this turned into way more than I intended….

        1. Larry in reply to bartcopfan

          Bravo!!

      2. Brad in reply to Phil Yabrody

        Absolutely!
        Only with the involvement from the Government can this market con take place.
        The government protection of the patent IS THE GOODS AND SERVICES being bought and sold here, not the drug and not the health of the people.
        They did their research of government protected patents and raised money on that.

        Also this guy shows worrying signs of sociopathy/narcissism. The smirk he shows in interviews is a frightening sign.

  10. There is an easy solution to a greedy sociopath with no empathy: buy Pyrimethamine (the actual active ingredient of Daraprim) from an Alibaba supplier at a fraction of the cost. List of suppliers: http://www.alibaba.com/showroom/pyrimethamine.html
    I buy, in bulk, l-methylfolate, an active form of folate, for my homozygous c667t mutation at a fraction of the cost of a Brand drug like Deplin. Same effect at a fraction of the cost.

  11. bumper

    Buy pyrimethamine from Alibaba $140/ Kg.
    Dosage form and Strength
    tablet 25mg or powder 25mg.

    Toxoplasmosis

    50-75 mg qD PO for 1-3 weeks, THEN

    25-37.5 mg qD PO for 4-5 weeks

    P jiroveci Pneumonia (Off-label)

    Prophylaxis p P jiroveci pneumonia (formerly Pneumocystis pneumonia); administer with dapsone

    50-75 mg PO once/week

  12. Dan Mather

    This is good, though the statement “companies do (and should) have the right to charge what they think their market will bear,” could not be further from the truth. This isn’t a clock radio being sold, it’s lifesaving products that nobody deserves more than anyone else. The market is one with inflexible demand, so in some of these small populations, when the alternative is death or exacerbated illness, how are you going to ask what the market will bear? That’s purely exploitation and companies do (but shouldn’t) be allowed to partake in it.

  13. Priya

    The evil this Shkreli guy does just to try to feel powerful, all because he was born with a ridiculously small ween.

  14. Sona

    Have to ask….has anyone looked into reasons for needing to research new drugs? Like drug resistance?
    Of course not.

  15. David Bradford

    Every attorney with a conscience should work diligently, pro bono, to destroy this disgusting little scab on society. He must be breaking or at the very least, bending the law. He must be removed like the diseases he’s preventing people from being able to resist!

  16. I am reevaluating the meaning of the term “moron” these days.
    Looks like it is what a$$holes call decent and educated people these days.
    So when an a$$hole and a sociopath addresses you as “a moron”, you should know that it is actually a compliment according to any accepted moral and social standard,
    In the world of people like Shkreli, I want to be a moron and will fight for the cause of morons.

  17. Michael Byrnes

    When these products are “re-approved” by the FDA, is it via 505 (b) (2), where no new trials are run (evidence of efficacy and safety is based on results from the literature)?

    If so it is even more of a scam. Not that efficacy and safety from clinical trials are all there is to a drug approval, but they do represent a key part of the cost and a key part of what customers get for their money.

  18. Maarten

    FDA should immediately give permission for parallel imports to be made from India or other countries that manufacture pyramethimine. Easy to institute simple purity checks to endure safety and effectiveness and undercut this leech.

  19. Alan Wendt

    The other cool thing about this is that he gets the US Customs Service to be his enforcers.

  20. Mario

    The FDA grants market exclusivity to companies that are willing to take “grandfathered” compounds into compliance with their current regulatory framework […]

    Here is the problem and what needs changing. If we’re going to have regulations at all, then perhaps these proven, long-existing drugs that are no longer under patent need to be able to be produced under a much more relaxed regulatory environment, one that would allow small time players to manufacture and distribute the drugs. Or, maybe a drug like Daraprim (Pyrimethamine), which I come to understand is manufactured the world over and available as an anti-malarial drug, ought to have its import restrictions relaxed.

    If the medical community has decades of experience using a drug, I cannot understand why we need U.S. Big Pharma to produce it. Either smaller domestic outfits should be encouraged to produce it, or we should import it from other countries. I imagine we should be able to find some countries we can trust, no?

  21. Stephen Reed

    The reason these “loopholes” exist is because of the US ban on importation of generics from other countries. It is a travesty that we don’t just simply allow imports of these drugs from other developed countries like Europe and Japan with a minimum amount of paperwork that shouldn’t take longer than a day or two provided that such drugs already have approval in those countries, whose quality/purity is every bit as good as those sold in the US. This regulatory framework should have been reformed ages ago. Hopefully this move will get people to consider it, but it is sad that I see almost no commentary on this price hike even mention the issue.

  22. When I read this article on the web, it truly got me sick and mad! how can we allow this to happen here in our country. the raise of the hiv medical going from $13.50 a pill to $750? We the people must stop this nonsence from happening to us. People and children in Africa and right here in tagrUnited States count on this keeping us at bay from getting aids………….I believe their doing things but not telling the true meaning? population control..First of all blacks, Hispanic and seniors are among a large count needing this medicines. Let us yell out on facebook , Instagram, twitter . This socalled Martin shkreli is a jerk……..Young and greedy for money……. Also here is a issue too that gets my goat! idolizing celebrities. There making money on us watching them on tv , buying their products and think there all the and abag of chips……….Do you really believe they give a damn about us???/////// stop this and put your faith were in should be in ourGod,family and helping mankind. We all need a escape but in the right direction. all those monies they give to charities arejust tax write offs………………………………Smile.

  23. John

    Since GSK originally designed the drug, and GSK still sells it in the UK, why isn’t the UK version considered the “original drug” which can therefore be imported? I mean, I presume when GSK was selling it in the US there would have been no impediment to GSK importing it from GSK’s UK subsidiary, right?

    I think there is room here for a healthy black market.

  24. Ledi Gjata

    I wouldn’t rush on judging. There is some things that are very obvious he knows the effects this has on the market. He has done this before which raises the question – was this done for a quick financial gain, I would say no only due to the crazy price increase. Another fact which we all know is that all the companies that produce drugs make alot of money from fund raising and are huge and involve high end businessman who corrupt their way and would not reduce prices and would not sell the real products that actually work as there are sources that do say there are better drugs to cure cancer but of course they would never come on sale as all the funding would stop and this raised the question – because he knows raising the price would attract all the media attention, is he doing a favour to the people by attracting all the media in this dirty game and maybe bring an end to it by exposing it. Another question is, was this done for political reasons? And this final question is, is he crazy or clever? We will find out soon enough anyway.

  25. mgwin

    Shkreli was trained by Jim Kramer of Mad Money. Worked for him for four years after graduation.

  26. mike austin

    This is capitalism, it’s what makes our country Gods favorite.

  27. Erebus

    Shkreli is a goddamn idiot, but he’s merely taking advantage of the FDA’s bone-headed policies with respect to closed distribution and generics exclusivity. Most of their policies and regulations are dumb, and they often do far more harm than good, but this one really takes the cake. We’ll keep seeing stories like this until they get around to fixing things from a regulatory perspective.

    In all honesty, I’m starting to think that generics should be handled in the same way the dietary supplement industry is handled. If you want to buy resveratrol, for example, there are 500 different vendors to choose from, and many of them are highly trustworthy. Competition has led to a race to the bottom on price; it’s something like $40 for a month’s supply of the most expensive and highest-dosed resveratrol products. (And resveratrol, as a raw material in powder form, costs twice as much as pyrimethamine.) QC can be handled by consumer organizations — a couple of LC/MS and NMR tests shouldn’t cost more than a couple hundred bucks, anyhow, which is within the range of the average consumer.
    …Pyrimethamine would quickly cost $8/month, if it were regulated (or non-regulated) in this way. It beats buying bulk powders from China, and it beats a drug black market.

  28. There is now an article on the BBC website. http://www.bbc.co.uk/news/health-34322720

    In the UK, the same drug is currently sold by GSK at a cost of £13 for 30 tablets. Is there anything stopping a patient flying to the UK every few months?

  29. Bobby

    It’s sickening that we’ve capitalized healthcare to the extent that it’s actually prohibiting innovation now.

  30. Origami Isopod

    “companies do (and should) have the right to charge what they think their market will bear”

    Yeah, let’s keep prioritizing Teh Holey Phree Markit over human lives.

  31. Ainslie Place

    “But one feature of the existing order is that patents expire (and you’d be surprised how many loud anti-pharma activists don’t seem to realize that).”

    Evergreening is how companies get around that, driving up drug costs and keeping generics off the market.

  32. Anonymous

    Isn’t he just following the playbook of the the original scumbags at Questcor? It worked out well for them… right Mallinckrodt?

    http://www.nytimes.com/2012/12/30/business/questcor-finds-profit-for-acthar-drug-at-28000-a-vial.html

  33. Mr. Roberts

    Can you imagine if you depend on this drug. The horror of what this man a former Hedge Fund Manager has done to the minds of people who need this drug to stay alive. I would not like to live with this mans Kharma. I can understand an increase do to more research and overhead, but how does that even come close to his 5000% increase from $15.30 to $700,00 per dose. Is it greed or insanity or perhaps he’s just a thief. To me there is no explanation for what he has done. Obviously he has mental issues that are apparent in regards to an employee that filed a law suit against him for harassment. If there is something good that comes of this perhaps it is exposure to drug maker fraud. Mr. Shitkreli has made a bad decision.

  34. Enormous price gouging and blatant quackery are hardly unknown in medicine but Hillary Clinton’s announced solution of a blanket price cap is the worst possible solution IMO.

    In my college days a roommate was terrified of the possibility of facing a panel hearing with likely worse odds of survival than an ISIL prisoner. Panels charged with selecting those who could get dialysis paid for by the government back then had the unenvious task of selecting maybe one out of ten who might live. A very expensive government program to provide for all was eventually passed but not without strenuous opposition for “waste.”

    Some will always lose out but mindless cost caps are an atrocity.

    Best, Terry

  35. Anon

    Take one flawed capitalist system that rewards greed by allowing people to take value from others without adding any value; add one greedy sociopath … et voila!

    It’s hardly rocket science.

  36. Carole

    1) Katten Muchin represents Martin Shrekeli, so Katten is what, pro malo publico? 2) Martin Shrekeli repeatedly harassed and threatened the wife of an ex-employee, who had no involvement in the dispute other than being a spouse. Specifically, “I hope to see you (the wife) and your four children homeless and will do whatever I can to assure this.” Then he tried to friend the kids on facebook. Small weenie, indeed.

  37. Carole

    More to the point, Shrek claims he wants to use the price increase in the toxoplasmosis treatment to develop new better alternatives But Shrek doesn’t know biochemistry from the aperture in his backside. I don’t think any of his proposals will pass FDA, but in a “free market” they might. He’s arrogant and unstable enough to believe that his hedge fund experience qualifies him to be a pharmaceutical designer, possibly a plastic surgeon and maybe even the Queen of England.

  38. I do not know if it’s just me or if perhaps everybody else encountering issues with your website. It looks like some of the written text within your posts are running off the screen. Can someone else please provide feedback and let me know if this is happening to them as well? This might be a issue with my web browser because I’ve had this happen before. Cheers

  39. Jose Severiano

    Dear Sirs.

    Research on medical products and the distribution, can´t be a “BUSINESS”, or we are going to arrive to the limit of “barbarie”. Medicals products must be treatened as a commom good, necessary for life, or are we going to be driven by monsters as this Shkreli, who doesn´t even is part of the human specie. All the laboratories can exist without exploiting the others unlucky people and still survive. I wish he had to use any of medical products and not have, even a penny to pay for that.
    He is the example of a, stupid, thief, that has not even the wright to exist.

  40. moderateperson

    What if there was a fixed “price” on patents, set by patent office? That is, an estimate of fair R&D spending (plus possibly a bonus, say 50%?) used to result in the invention. Burden of proof of the spending would be on the company applying for the patent. The estimate could be re-done on requestors expense (say, a competing manufacturer claiming the estimate is not fair, based on some evidence/estimates on running similar operation).
    Now, anyone could buy a share of the license, by paying part of the R&D spending. If the original price was say 1 billion, another manufacturer could pay 500 million to the original patent owner to use the patent. A third manufacturer could “buy-in” with just 333 million, that would be split with the first two companies, etc.
    That way R&D costs could be always recouped, but jacking-up prices arbitrarily would be curbed. Also, it would make it much easier for new manufacturers to enter market, since all patents are always available, and have a set maximum price.

  41. Why didn’t anyone mention the ‘Orphan’ protected status and how it is being used on old generics like the one I’m on for the Parkinson’s like side effect of psych meds called ‘Tardive Dyskinesia,’ considered and orphan disease? My med is 300 a month and all it is is a longer acting benzo like Klonopin that’s not rarely used. Now it’s out of reach and I’m shaking like a leaf from my disorder, trying to figure out for an article I’m writing whether or not pending ‘Orphan’ application are a matter of public record. I’m on more generics. Some of them may become ‘Orphan,’ now that older drugs with R&D well behind them are being afforded this protected status. So, FDA, Tim Conte, can consumers find out and have a ‘heads up’ on possible future price hikes on drugs they depend on or not?

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