How About a Little Our-Brand-Name-Pharmaceutical with Your Sandwich, Doctor?

Way back in 2009, I argued that "gimme" pens, cups, T-shirts, lunches, and all the rest were a bad idea in the medical industry (and others, too, for that matter). (Full post, here) At the time, I wasn't sure that something so small as a pen could affect a doctor's purchasing decision, but even the appearance of being so influenced was bad.

It turned out, of course, that doctors could be influenced by something so small as a pen. (Another 2009 post, here)

I wrote about it again in 2012 (here) and 2014 (here) and probably a bunch of other places that I haven't found in a quick scan.

And... here we are again.

Today's New York Times has a "Well" blogpost from Nicholas Bakalar (article, here) that reports, depressingly but not surprisingly, that "...[a] free lunch may be all it takes to persuade a doctor to prescribe a brand-name drug instead of a cheaper generic, a new study suggests."

Sigh.

And, of course, "[the] more meals doctors had, the more likely they were to prescribe the promoted drug."

The full article on which Bakalar's post is based is from JAMA Internal Medicine, and can be found online, free, here.

None of us like to think of ourselves as this susceptible, but study after study has shown that we are. So why are we still OK with this system?

West TX: Still What a Regulation-Free Universe Looks Like

Three years ago, an explosion at a fertilizer plant in West TX leveled the building, destroyed or damaged hundreds of homes, killed 15 (10 of whom were volunteer firefighters or other emergency responders trying to contain the disaster, and wounded hundreds.

A year later, the US Chemical Safety Board released preliminary findings, stating that the fire and explosion were entirely preventable, and that part of the responsibility for the death and destruction lay in the fact that there is no state fire code, and that "counties under a certain population are prohibited from having them."

Something like 50 tons of ammonium nitrate was stored in wooden bins in a wooden warehouse that had no sprinkler system (ammonium nitrate was used in the Oklahoma City bombing in 1995). As New York Times reporter Manny Fernandez wrote then, "Federal investigators have determined that a lack of oversight and regulations at the local, state and federal levels contributed to the deadly fertilizer plant explosion that devastated ...(West TX)." (Fernandez' article, here)

And as I wrote at the time (full post, here): Ya think?!?

The full and final responsibility for the fire and explosion has gotten murkier, as the Bureau of Alcohol, Tobacco, Firearms and Explosives has just released the results of its investigation: the fire was deliberately set.

In an article in today's Times, Fernandez writes, "All accidental and natural fire possibilities were tested and eliminated..."

As a result, the case is now being pursued as a crime, and officials announced a reward of "up to $50,000 for information leading to the arrest of those responsible."

A senior ATF official was quoted as saying, "It required extensive scientific testing to determine the cause of this... We took our time because we knew we had to get this right. For a fire of this size, I wouldn't say this is unreasonable."

If the West TX disaster was a crime, how can I continue to say that "this is what a regulation-free universe looks like"?

Easily.

The crime was as "successful" as it was because of lax regulation. Fernandez's story today reminded me that the explosion "left a crater 93 feet wide and 10 feet deep." Just think about that for a moment.

More than a quarter of the town's homes were destroyed or severely damaged. Fernandez also noted that "three schools, a nursing home and a 50-unit apartment complex were destroyed or heavily damaged."

A key contributing factor to the extent of the disaster? "The nearest cluster of houses was about 370 feet from the plant's property line and most of those injured were within 1,500 feet of the blast."

What does that say to you? To me, it says that the Chemical Safety Board was right: lax regulation and oversight. Who would allow houses to be built that close to a warehouse that stores a potential explosive? Who would allow a potential explosive to be stored in a warehouse with no sprinkler system? Who thinks no fire codes are a good idea?

None of these failures has been addressed.

Meanwhile, a civil suit against the West Fertilizer Company and the ammonium nitrate supplier, filed three years ago, is slowly wending its way through the justice system. The suit, according to a 2013 Waco Tribune article, seeks "unspecified damages".


.

Good News Shouldn't Be So Rare, But Let's Celebrate Anyway

It's been a while since I've posted anything, for a variety of reasons. Among them -- the business news has been depressing: how many times can I write, Trust and Transparency?!?

So I'm happy to pass on a little bit of good news, the story of an entrepreneur who realizes that it's not all about me, Me, ME.

A little more than ten years ago, Hamdi Ulukaya, founded Chobani Greek yogurt, buying a shuttered factory in upstate New York and turning an $800,000 Small Business Administration loan into a wild success. The company, still privately held, is currently valued at several billion dollars.

What has Mr. Ulukaya done? He's turned around and given a 10 percent stake in the company to his 2,000 full-time employees (the longer you've been with Chobani, the larger the number of shares you've received).

New York Times reporter Stephanie Strom, in an article in today's paper, quoted one long-time employee: "It's better than a bonus or a raise. It's the best thing because you're getting a piece of this thing you helped build."

Exactly.

Ulukaya said the same thing: "I've built something that I never thought would be such a success, but I cannot think of Chobani being built without all these people."

The only depressing thing about this news is how rarely it occurs. I wrote a piece six years ago about Bob Moore's gift of his company, Bob's Red Mill, to his employees (full post, here), but I can't think of another recent example.

Strom notes that the Chobani employees will be able to sell their shares "if the company goes public or is bought by another business, neither of which seems imminent. Employees can hang onto the shares if they leave or retire, or the company will buy them back."

Given the current hot-button political issue of income inequality, this is particularly good news. And especially for upstate New York which has struggled for many years.

Not to mention -- given another hot-button political issue -- that Ulukaya is a Turkish immigrant to the United States.

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.

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.

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.

Business 101: The Truth Will Out

A number of companies have found themselves in, um, unfortunate situations this month because of problems that they should have known would eventually come to light.

You may think I'm talking about GM's ignition switch issues (which I've written about plenty of times before, e.g., here), and for which the company agreed last week to pay $900 million (some details of the settlement can be found in a New York Times article sourced from Reuters, here), and in some ways, I guess I am: did they really think the problems would just go away? That no one would notice?

Or were they just hoping that no one would notice on my watch?

But I was also thinking about the ouster of United Airlines CEO Jeff Smisek, in part due to the turbulent investigation of "Bridgegate". According to Chicago Tribune reporter Gregory Karp, Smisek is accused of "improperly currying favor with former Port Authority of New York and New Jersey David Samson. United reinstated a money-losing route from Newark to an airport near Samson's South Carolina vacation home." (full article, here)

Smisek was apparently hoping for, among other things, subsidies for a new United airplane maintenance hangar at Newark. The Thursday-down and Monday-back flights (I want a three-day workweek too!) were cancelled four days after Samson resigned from the Port Authority in 2014.

Did he think no one would notice?

Smisek is out, but not exactly hurting: According to a New York Times article from the Associated Press (here), the ex-CEO "would get a severance payment of $4.9 million and be eligible for a bonus. Smisek, 61, will have health insurance until he is eligible for Medicare and keep flight benefits and parking privileges for the rest of his life. He gets to keep his company car."

I particularly like that he is "eligible for a bonus."

And then there's Volkswagen (September has been a sadly great month for these stories).

In last Friday's New York Times, reporters Coral Davenport and Jack Ewing wrote that the Environmental Protection Agency was ordering the carmaker to recall some 500,000 diesel automobiles because:

...the German automaker [was] using software to detect when the car is undergoing its periodic state emissions testing. Only during such tests are the cars' full emissions control systems turned on. During normal driving situations, the controls are turned off, allowing the cars to spew as much as 40 times as much pollution as allowed under the Clean Air Act...

Why would VW do such a thing? "Experts in automotive technology said that disengaging the pollution controls on a diesel-fueled car can yield better performance, including increased torque and acceleration."

Did they think no one would notice?

It does take a while sometimes (the VW and Audi models involved in the recall, for example, are 2009-2015 model year vehicles), but:

The Truth Will Out.