Friday, December 18, 2015

Could It Happen to a Nicer Guy?

Since I don't know him personally, I'll grant that it's possible that Martin Shkreli is indeed a genuinely nice guy. But it seems unlikely.

If the name seems familiar, it's because a lot of news stories since late summer (and a 1 Dec blog post, here) covered the dramatic price increase Turing Pharmaceuticals instituted when it acquired an old, but still highly effective drug, Daraprim, which is primarily used to treat a serious and often life-threatening parasitic ailment. Overnight, Turing, the start-up pharmaceutical company Shkreli runs, raised the per-dose price of Daraprim from $13.50 to $750. No, the decimal point is not misplaced.

An uproar followed, which Shkreli seemed to enjoy (He should have raised the price more, he said.).

What goes around eventually comes around, I thought.

I just didn't expect it to come around so quickly.

Yesterday, Shkreli was arrested on securities fraud and wire fraud charges at his Manhattan home by the FBI, and arraigned in Brooklyn's federal district court.  (And, yes, I will admit to a little schadenfreude over the "perp walk" pictures.) (And yes, through a spokesperson, Shkreli said that he is "confident" that he will be cleared of all charges.)

The arrest has nothing to do with Turing, but rather with Shkreli's earlier career as a hedge-fund manager and with his first biopharmaceutical company. As reported by Stephanie Clifford and Matthew Goldstein in today's New York Times (full DealBook article, here),
Martin Shkreli told investors that his hedge fund had an auditor, that it had posted a 36 percent return since its inception and that it had $35 million in assets under management.
None of it was true, federal authorities say.
According to the authorities, what Shkreli was really doing was running a small-time Ponzi scheme. The article reports,
His former hedge fund, MSMB Capital Management, had recorded losses of at least 18 percent and was essentially broke by 2011, having less than $1,000 in its bank account.... The hedge fund had no auditor.
The authorities described Mr. Shkreli, 32, as a failed trader with a habit of spreading falsehoods and running his business on fumes and misappropriated money. His Ponzi-like scheme, they said, involved looting Retrophin, a biopharmaceutical company he used to run, to pay back his disgruntled investors.
Note that MSMB Capital was Shkreli's second hedge fund; his earlier effort, Elea Capital Management, which he ran from 2006 to 2007, had also lost money.
The indictment mirrors some of the accusations contained in a civil lawsuit filed in August [2015] by Retrophin, which ousted Mr. Shkreli as chief executive in 2014. The company had accused him of using Retrophin as his personal piggy bank to help pay off upset investors in the hedge fund by hiring some of them for sham consulting jobs.
Am I surprised? Of course not. Only that it's taken so long for things to unravel. And, please, a 36 percent return? Repeat after me, class, "If it sounds too good to be true..."

More concerning, however, is a second New York Times article today, by Andrew Pollack, who notes that Shkreli was "a walking, talking (incessantly) personification of one of the pharmaceutical industry's worst nightmares -- the greedy drug company executive."

With his arrest, many in the industry hope, things will quiet down ...and they can go on doing many of the things that Shkreli was doing so boastfully. While most companies are smart enough not to raise prices by 5,500% overnight, they do often "increase prices 10 percent or more a year", which is way above the current rate of inflation. And since the drugs involved often involve common diseases like diabetes or cancer, those increases "have a far bigger impact on health care spending" than did the increase on Daraprim.

Pharmaceutical companies had been hoping that most people wouldn't notice the price increases. Daraprim made it harder, so they now hope that the spotlight will turn away. I wouldn't be so sure. As Pollack writes,
Unlike many other countries, the United States does not control drug prices, making the American market a big source of profits for drug makers worldwide. In the last two decades or so, price increases on existing drugs in the United States accounted for fully half the growth of the entire multinational pharmaceutical industry...
I recognize that it costs an amazing amount to do the research and testing to bring new drugs to the market, some of which are true breakthroughs (although many are only marginally, if at all, better than existing ones). But at some point, too much is just that: too much.

Friday, December 4, 2015

Sometimes A "Disappointing" Result Is Good Enough

Ever since the horrific deaths of 29 mine workers at Massey Energy's Upper Big Branch mine in 2010, I've been wondering how long it would take to impose criminal penalties on the company (Massey Energy is now owned by Alpha Natural Resources).

Given the enormous power and influence that coal companies still wield in West Virginia, I didn't expect much. After all, while a 2011 Mine Safety and Health Administration report explicitly blamed safety violations at the mine for allowing coal dust and methane gas to collect and ignite, it wasn't until November 2014 that former Massey CEO Don Blankenship was indicted on four criminal counts by a federal grand jury. (Two of several prior blogposts on the Massey situation can be found here and here.)

As Alan Blinder wrote in today's New York Times (full article, here):
The prosecution of Mr. Blankenship was one of extraordinary political, legal and emotional significance in West Virginia, a state where many residents have long believed that coal companies and their leaders faced only cursory scrutiny.
Alpha Natural Resources had agreed four years ago to a $209 million settlement in civil and criminal penalties with the Justice Department, Some of that money ($46.5 million) was earmarked for the families of the miners who died. The settlement protected Alpha executives, but not Massey executives, from prosecution. 

Blankenship's trial, scheduled for January of this year, was postponed until October; jury deliberation began in mid-November.

Yesterday, Blankenship was convicted on one of those four counts -- the misdemeanor of conspiring to violate federal safety standards, to be sure, rather than any of the felonies. Question: Why is a conspiracy to violate federal safety standards only a misdemeanor?

As Blinder wrote,
Mr. Blankenship was not tried on any charges that accused him of direct responsibility for the deaths at Upper Big Branch.... But prosecutors argued that his leadership had laid the groundwork for catastrophe. There was not necessarily a formal conspiracy, prosecutors acknowledged, but they said that Mr. Blankenship's example and tone had set Massey on a course that put profits ahead of lives.
Massey had, under Blankenship's "leadership", collected thousands of citations for violations of safety standards. Blinder noted,

His lawyers are nonetheless "disappointed" with the verdict, and are planning an appeal. Me, I'm disappointed that he was only convicted on one count. But I agree with Blinder that this trial was of "extraordinary political, legal and emotional significance", so a disappointing outcome is actually OK.

Blinder quoted a West Virginia University law professor: "A century of mine disasters and failing to hold coal company executives responsible is over."

Dear God, I hope so.

Tuesday, December 1, 2015

What Goes Around Usually Does Come Around.

If you look up "arrogant jerk" in the dictionary, I suspect you'll find a photograph of Martin Shkreli, CEO of Turing Pharmaceuticals.

If you haven't been following this story -- and I sort of wish I hadn't been, because it's so depressing -- Shkreli, a former hedge fund manager, runs Turing, a start-up pharmaceutical company. How do you start up a pharma? By buying existing drugs.

In August, Turing acquired Daraprim, a 60-plus year old drug that is used primarily to treat a serious and often life-threatening parasitic ailment, toxoplasmosis, and is also used to treat malaria. Overnight, the price of the drug went from $13.50 a tablet to $750 a tablet. That's right, $750. Take the original price and increase it more than 50 times. (For expanded discussion of the original price increase and of the problems Shkreli has seen and/or caused in previous careers, see the Sept. 20 New York Times article by Andrew Pollack, here.) 

Despite a storm of protests, late last month Turing refused to lower the price (Times article, also by Andrew Pollack, here). It did say, however, that "it would offer discounts of up to 50 percent to hospitals and would take other measures to help patients afford the medicine."

Protests have been ineffective, obviously, but now Turing faces a new foe: Express Scripts, the nation's largest prescription drug manager.

According to Andrew Pollack of the New York Times, Express Scripts "will promote use of a compounded medicine that contains the same active ingredient as the Turing drug." (Full story, here)

Nathan Bomey of USA Today (article, here) reported that Express Scripts will "speed access to a $1 treatment offered by San Diego-based Imprimis Pharmaceuticals" and noted that while the Food and Drug Administration has not approved Imprimis' compounded drug formulations as a recommended treatment for toxoplasmosis," doctors can immediately prescribe the treatment.

Not surprisingly, Turing reacted negatively. Bomey reported that a Turing statement termed the move "potentially unsafe and ineffective", and added that the compounded version is "unnecessary" because "patient assistance programs" can reduce the cost to an insured patient to a $10 copay (last time I checked, $10 was still a lot more than $1), and free of charge to qualified uninsured patients.