When Turing Pharmaceuticals jacked up the price of a toxoplasmosis-fighting drug (commonly used by AIDS and cancer patients) to $750/pill (a previous company sold it for $1/pill), CEO Martin Shkreli defended the move, saying the money would be dumped into research for a new and better drug. Of course, this is the usual defense offered by any pharmaceutical company that institutes a rate hike, but these claims are rarely followed through on. (And when they are, the R&D costs tend to be very overstated.)
Daraprim has been on the market since the 1950s and does its job well. The patent has long expired but the FDA’s policies make it difficult for anyone to formulate a generic version of this “sole supplier” drug. When there’s no competition, it’s a seller’s market, and Martin Shkreli is making the most of it.
Turing CEO Martin Shkreli became “the most hated man in America” last month after raising the cost of the drug, commonly used to treat parasitic infections in immunocompromised patients, from $13.50 per pill to a staggering $750 per dose, claiming the company’s exorbitant price hike was justified. Now Imprimis will offer their alternative to those who need Daraprim for less than $1 per tablet.
Imprimis is now offering customizable compounded formulations of pyrimethamine and leucovorin in oral capsules starting as low as $99.00 for a 100 count bottle, or at a cost of under a dollar per capsule. Compounded medications may be appropriate for prescription when a commercially-available medicine does not meet the specific needs of a patient.
There’s more detail in the disclaimer towards the end of the press release.
Imprimis’ finished compounded drug formulations do not have an FDA-approval label for recommended use. Imprimis compounded formulations are not FDA approved and may only be prescribed pursuant to a physician prescription for an individually identified patient consistent with federal and state laws governing compounded drug formulations.
So, those looking for a cheaper variant of Daraprim will have to find a physician willing to prescribe a drug that doesn’t have the FDA’s blessing for this particular use. The compound will likely work as well as Daraprim, but it does open doctors up to additional liability. That being said, some doctors may be willing to do this as the only other option for some patients will be no medicine at all.
The other problem is that the FDA could come down aggressively on pharmaceutical companies who market drugs for non-FDA-approved purposes. Imprimis is exploiting a loophole in the system, albeit one much more easily closed than the FDA’s loophole-esque sheltering of “sole supplier,” off-patent drugs — the sort that most often see astronomical price hikes post-acquisition.
But for now, it’s the market system at work — the same market system Shkreli used as a justification for raising Daraprim’s price. Zero competition led to Turing’s $750/pill price. A little competition might push Shkreli to drop Daraprim’s retail price lower than he actually wanted to. (And, again, no price drop has been instituted at this point.) But given Shkreli’s past use of the FDA as his unofficial partner in stock-shorting moves, it’s far more likely he’ll be asking the agency to eject his new competitor from the playing field.
Martin Shkreli — founder of Turing Pharmaceuticals and overnight poster boy for everything that is wrong with the pharmaceutical industry — spent a lot of yesterday defending his 5000% price hike on Daraprim, a drug that treats victims of toxoplasmosis. That the drug has a nexus with cancer and AIDS sufferers (basically anyone with a diminished immune system) made the price increase seem even more unconscionable.
Dr. Wendy Armstrong, professor of infectious diseases at Emory University, questions Turing’s claim that, after more than 60 years of physicians using Daraprim, there is a need for a better version of the drug.
“I certainly don’t think this is one of those diseases where we have been clamoring for better therapies,” says Armstrong.
Next, there’s the inherent ridiculousness of this assertion, which portrays Turing’s plans for Daraprim as a reverse pyramid scheme, in which future “investors” will benefit from the gouging of those who got in on the ground floor.
On top of that, Shkreli claims the drug is still underpriced, despite having been sold for $1/pill before its acquisition by the company Turing acquired it from.
While it’s true that drug research and development can be expensive, it is nowhere near as costly as this price hike would indicate. Shkreli tossed out the easily-debunked claim that it costs $1 billion to bring a new drug to market. The actual cost is considerably lower (~$55 million), according to research using the same data drug companies provided to backup their claims of $1.3 billion in R&D costs per new drug.
Data also shows pharmaceutical companies spend far more on marketing than research and development. They have to. Most “new” products on the market aren’t actually new. They’re just variants on what’s already available. It’s tough to sell a “new” drug that doesn’t outperform a competing product, hence the increased marketing expenditures.
Shkreli also used a variant of “everyone else is doing it” to defend the price jump. He pointed to the existence of other cancer drugs costing “over $100,000” per treatment as justifying Turing’s price increase. But being slightly less exortionate than competitors isn’t the same thing as being “good.”
Shkreli has little interest in being good, no matter what altruistic assertions he makes. His former company — from which he was ousted over accusations of stock price manipulation — also jacked up the price on an essential drug just because it could.
When Retrophin acquired rights to Thiola, the drug cost about $1.50 per pill. [Patients take multiple pills per day.] Now, Retrophin has decided to charge more than $30 for the same Thiola pill. Retrophin says it has plans to change the Thiola dose and develop an extended release version of the drug, but I have seen none of those changes yet. To my knowledge, Retrophin hasn’t yet done any of this work — except to drastically increase Thiola’s price.
And indeed, Retrophin never did. From a 2015 presentation, it’s generating sales for Retrophin, but nowhere in it is any indication the company is actually working towards an extended-release version of the drug.
I asked Shkreli about this and he claimed the company ditched the R&D plans after it ousted him. Maybe this is true, but it doesn’t exactly instill any confidence in Shkreli’s latest claims that price hikes are being done with an eye on increased R&D spending. Instead, they look like nothing more than the normal deflection performed by drug companies after controversial price increases.
Other circumstantial evidence does little for consumer confidence. Not only is Shkreli being sued by his former company for fraudulent behavior, he’s previously been taken to court (by Lehman Brothers) for a $2.3 million loss he incurred (but never repaid) when his bet on a market decline went south. The complaint accuses him not only of failing to pay Lehman what was owed, but of pushing through the transaction without actually possessing the funds to cover the original purchase.
Shkreli also has a history of thriving on market failure. He has made money shorting pharmaceutical stocks while simultaneously engaging in questionable behavior. Here’s a “treatise” he wrote detailing the negative aspects of one company’s research efforts, which clearly states at the top of each page (for legal reasons) that he stands to personally gain if the company’s stock price drops.
DISCLAIMER: The authors of this article have a conflict of interest and will benefit financially if the stock price of VTL falls. The authors reserve the right to change their investment if the price of VTL changes dramatically. Please read the Disclosure at the end of this paper for more information.
(This was tracked down from a deleted tweet by Martin Shkreli. Other Twitter users had commented on it, so it was recoverable from Google cache. Here’s a screenshot, because the cache won’t stay live for long.)
But he’s also been accused of actions that are more than simply treading the edge of legality. A heated Twitter exchange implies Shkreli talked the FDA out of a drug approval — something that hurt the company producing the drug, but paid off for Shkreli’s stock short.
Shkreli’s history does little to back up his assertions of altruistic goals and a future full of well-funded research and development. Instead, it shows someone who’s willing to exploit every last dollar out of something and leave its dessicated corpse behind.
On top of that, share prices for several drug companies fell the day the Daraprim price hike went viral. That this may have worked out well for Shkreli can’t be ignored, considering his prior experience with shorting pharmaceutical companies. Maybe this was part of the plan: Short pharma stocks. Jack price up on newly-acquired drugs. Play the villain while cashing in on the market decline.
That’s all speculation, of course. What is certain is that Martin Shkreli is not THE problem. (He’s not even “Big Pharma,” even though several editorials have placed him in this group.) He’s part of the problem, but his specific actions are more about exploiting obscure drugs that competitors aren’t interested in. His actions shed little light on the genesis of high drug prices.
The original issue is patents. That has been mostly ignored by legislators and opinion pieces during the most recent push for some sort of drug pricing controls. And it will continue to be ignored because Daraprim’s price hike is completely unrelated to patent monopolies. Turing’s exclusive license for Daraprim includes only the use of the trademarked name. The patents have expired. Anyone can make it, but no one’s been particularly interested in offering an alternative. (Maybe this will change now that a company has a chance to take on the villain du jour…)
But it’s patents that make drugs unaffordable in the first place. New drugs are given, at minimum, 20 years of competition-free sales. That’s two decades (at least) where drug companies can charge whatever they want because no one else can offer a competing product. Companies — like Shkreli — will claim they need this exclusivity to recoup “massive” research and development costs. But this simply isn’t true. Pharmaceutical companies enjoy massive profit margins, much more than would be expected if they were faced with meaningful competition. The lie is exposed when patents expire. Prices fall dramatically once the market is opened, including that of the original manufacturer’s.
So, if the government really wants to tackle the problem of overpriced drugs, it needs to start with the protections it grants that allow this to happen. But this seems unlikely to happen because drug companies have significant “buying power” when it comes to legislation, no matter how many people come forward to testify about being priced out of essential treatments.
Shkreli, however, is specializing in finding “orphan drugs” — drugs for rare conditions that are no longer under patent protection (which would raise the acquisition price significantly) but which have seen little to no competitive movement over the years. His decision to implement a 5000% price increase, despite minimal costs (and benefiting from R&D performed 60 years ago), is one he can make because there’s no market force in place to stop him. So, he may be the poster boy for everything that’s wrong with the pharmaceutical industry, but he’s not really indicative of the ongoing problem.
What he is, however, is an opportunist with a hedge fund background and a history of market exploitation. Any claims of altruism or searches for better treatments should be met with intense skepticism.