Pharmaceutical greed makes Martin Shkreli public enemy #1

Toxoplasmosis is a disease that can be caused when a person is infected with the Toxoplasma gondii parasite, a bug which could be affecting up to 60 million Americans, according to the U.S. Centers for Disease Control. Typically, most people carry the parasite without any symptoms because a normal, healthy human immune system is tough enough to fight it back. When the immune system is in a weakened state, however, symptoms from headache to fever to fatigue up through severe damage to the eye and brain can be sustained. In patients with HIV or cancer that leads to compromised immune systems, toxoplasmosis can be fatal.

The most effective pharmaceutical agent that doctors have to prescribe to those immunocompromised patients is known as pyrimethamine. This commonly prescribed drug is the most effective known agent against toxoplasmosis. Patients with HIV/AIDS are typically prescribed an initial dose of 200 milligrams of pyrimethamine, followed by a daily regimen ranging from 50mg to 75mg, along with other medications. Pyrimethamine, marketed under the brand name Daraprim, was first approved by the Food and Drug Administration in 1953, the same year that the use of Daraprim was noted for its antimalarial properties in an article published by the British Medical Journal.

August was a very interesting month for Daraprim. On August 10th, the rights to sell Daraprim were bought from Impax Laboratories Inc. (NASDAQ:IPXL) of Hayward, CA, by Turing Pharmaceuticals, a privately held company with headquarters in New York City and Switzerland. Turing’s CEO and Founder Martin Shkreli was very optimistic about the acquisition in a press release, stating that the company plans to “launch an educational effort to help raise awareness and improve diagnosis for patients with toxoplasmosis.”

Shortly after acquiring Daraprim, Shkreli raised its price by more than 5,000 percent, from $13.50 per pill up to $750 per pill for a medication that’s not usually prescribed by itself; it’s typically part of a larger regimen for AIDS and cancer patients. As the result of public outcry, Shkreli announced several days ago that the price would drop from $750 a pill to some unspecified level. He pointed out that at $13.50 a pill the drug was not profitable to sell. Still, the damage has been done to an industry everyone loves to hate because drug prices in the U.S. are perceived to be outrageously high already.

Even when health insurance covers some of the cost, the percentage that some insurance providers make insured adults pay for high-price medications could make this a costly move even for insured patients. Based on the prescribed dose for an individual, it’s possible that the price increase for Daraprim will cost a patient anywhere from $336,000 to $634,500 per year, according to the Infectious Diseases Society of America (IDSA).

On September 8th, a letter came out from the IDSA, written also on behalf of the HIV Medicine Association (HIVMA), to address the “distribution issues that are disrupting access to this generic medication used in the prevention and treatment of opportunistic infections.” The letter decries the Daraprim price increase as “unjustifiable for the medically vulnerable patient population” as well as “unsustainable for the health care system.” The letter urges Turing to adopt a rational and fair pricing strategy for pyrimethamine to ensure that the treatment stays accessible to the patients who need it.

The closer anyone looks at Turing CEO Martin Shkreli’s record, however, the more it appears that he’s definitely not the person who will be seeking to level the playing field any day soon. Shkreli’s Twitter account has been greenwashed with a fair amount of posts for charity causes but a tweet dated August 21st disclosed how he had recently earned $20 million through stock options. It’s not clear if that has anything to do with the Daraprim price increase (although the company did earn $90 million in venture capital funding on the morning of the Daraprim acquisition, most of that investment coming from Shkreli himself) and may very well not be involved at all, but it highlights that Shkreli has a definite focus on his company’s bottom line. Two things that you won’t find on Shkreli’s Twitter feed, among the charity donations and advice on which stocks to short, are educational information on toxoplasmosis or any effort to improve patient diagnosis for that disease.

[Bio-Pharma]

Digging a little more deeply into Shkreli’s past in the business world and it’s not hard to turn up the hedge fund manager’s already spotty reputation. The first thing that should stick out to any observer is that Shkreli has done this same thing before. In September 2014, Retrophin Inc. (NASDAQ:RTRX) of San Diego, CA, hiked the price for Thiola (tiopronin) by more than 20 times, from $1.50 per pill to $30 per pill. Shkreli was CEO of Retrophin at that time. Much like in the case of Daraprim, there was no new science to justify a price increase, nor were there any clinical trials or new drug formulations. There was only the recent acquisition of a generic drug that had been on the market for decades by a company run by Shkreli a few months earlier. The bottom line in both cases was not research, education or better medical outcomes; the bottom line was business. Patients who could not afford the price increase on a pill they had to take multiple times a day simply had to deal with the painful medical condition of cystinuria, a kidney disease that causes an increased production of cysteine leading to kidney stone formation.

Patients might not be too happy with Shkreli, but surely the windfall his company experienced must have kept his business interests secure, right? Well, it turns out that’s not the case, either. In the middle of August, a week after securing the round of investment gains for Turing, Shkreli was sued by Retrophin for $65 million. The lawsuit claims that Shkreli was a “faithless servant” to Retrophin, taking the company public simply to profit investors in the MSMB Capital Management hedge fund managed by Shkreli. The company alleges that millions of dollars worth of company money were used in transactions with MSMB investors which were not approved by the Retrophin board.

Back in 2012, there was another organization calling for investigations into Shkreli’s involvement in the pharmaceutical world for potential illegal activity. In July of that year, Citizens for Responsibility and Ethics in Washington (CREW) sent a letter to U.S. Attorney Preet Bharara urging him to look into the short-selling activities of Shkreli’s hedge fund to see if they were causing illegal manipulation of stock prices in the biotech and pharmaceutical industries. CREW alleged that Shkreli filed a citizen petition with the FDA which asked the agency not to approve a new drug application for Lymphoseek, a treatment for lymph node mapping in patients with solid tumors. This application, coupled with a series of posts on SeekingAlpha.com which lambasted Lymphoseek, led to a 65 percent loss in stock price for Neoprobe, now operating as Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB) of Dublin, OH, in a little more than two months during the summer of 2011. As Shkreli noted in his citizen petition filed with the FDA, he stood to make a substantial financial gain if Neoprobe stock was negatively impacted, according to CREW.

It’s very unfortunate that the pharmaceutical industry, which is reportedly suffering the effects of inter partes review and stock manipulation caused by hedge fund managers like Kyle Bass, would be targeted by those with malicious business interests. It’s possible, however, that at least some of this system that Shkreli seems to be gaming for personal financial gain is enabled by unintended consequences stemming from an FDA program established in 2006 known as the Unapproved Drugs Initiative. This program seeks to reduce risks to public health by ensuring that all drugs are brought into the FDA’s drug approval process. For drugs like pyrimethamine, approved before the FDA began rigorously testing new drugs for safety in 1962. Under the Unapproved Drugs Initiative, it didn’t matter that pyrimethamine was effective and could be safely administered: it had to be FDA-approved. Further, the Unapproved Drugs Initiative includes mechanisms for seizures of unapproved drugs, so any pharmacy creating its own pyrimethamine without officially selling it as Daraprim runs the risk of legal action. To create another marketable form of pyrimethamine would require a tremendous investment for FDA approval. Although the program has reduced the percentage of unapproved drugs on the American market down to about 1 percent, it’s created a mechanism through which similar price increases have greatly affected patients who have been prescribed colchicine or 17 alpha-hydroxyprogesterone caproate (17-OHP).

Price increases for pharmaceuticals have probably been the most difficult pill for patients to swallow in recent years. Between 2008 and 2015, prices on brand name pharmaceuticals rose by 127 percent while the consumer price index only rose by 11 percent. In February of this year, Canada-based Valeant Pharmaceuticals (NYSE:VRX) purchased the rights to a pair of medications often prescribed to patients with heart conditions and raised their prices by 212 percent and 525 percent, respectively. In each of the above cases, a company bought a drug that was already approved and raised the prices without publishing any scientific material supporting the price increase. In each case it seems pretty clear that prices were raised simply because they could be raised for higher profits.

We won’t sit here and engage in a bout of capitalist shaming and argue that pharmaceutical companies shouldn’t operate with a profit motive. Readers of IPWatchdog might note that in the past, we’ve reported on the billions of dollars that it costs pharmaceutical companies to get new drugs approved today. But if pharmaceutical companies are pricing medications out of the reach of some patients, that doesn’t seem to make a great deal of business sense. It also raises at least the specter of an ethical issue, especially when price increases are made without any new benefit for patients and even more so when it negatively impacts a vulnerable set of stakeholders, like HIV patients who need a drug to survive.

Despite the potential ethical issues raised here, everything we’ve discussed about raising prices is perfectly legal in the American drug market, albeit a rather poorly calculated move. Corporations exist to make money for shareholders, a fact which has been used to defend recent price increases in generics. Further, Shkreli might be facing a lawsuit but he has already countersued Retrophin for $70 million for tarnishing his reputation; this battle has a while to go before it is concluded in a court of law. The U.S. attorney’s office also never opened an official investigation into Shkreli, and Lymphoseek was finally approved by the FDA in June 2014 despite Shkreli’s involvement.

Americans pay the most money for pharmaceuticals by far, spending just under $1,000 per person in 2013, 40 percent more than second-place Canada. We also have the world’s largest market for pharmaceuticals with prescription drugs earning as much as $300 billion in 2009. By some measures, 70 percent of Americans are on a prescription. We also pay for pharmaceuticals in a much different way than many other countries which employ some form of price regulations for pharmaceuticals; in America, the free market answer is to let biopharma companies set the rates which insurers agree to pay, passing on the cost to the consumer in the form of co-pays. The free market answer would come from a competitive company who sees the need for a low-end pyrimethamine generic but the incredible costs of bringing a new drug to market, including clinical trials and research, poses a major hurdle there.

A 5,000% price increase screams for a response, and has become the poster child for increased government regulation of prices in the pharmaceutical industry. Democrat Presidential candidate Hillary Clinton called the increase outrageous. The move prompted Clinton to release a plan to curb the costs of pharmaceutical drugs and require drug companies to engage in research and development.

The RAND Corporation, a fairly centrist policy think tank, produced a study on pharmaceutical pricing regulations and their likely effect in the United States, finding that strict price controls on pharmaceuticals could hurt innovation and even cause a slight decrease in American life expectancies in the long run.

Given the power of the pharmaceutical industry lobby and the exorbitant cost associated with taking drugs to market, it seems unlikely that the U.S. will abandon the free market approach to drug pricing even if Clinton were to be elected President. Having said that, there is no doubt that the level of greed exhibited by Shkreli has created a public outrage that does real damage to the entire industry.