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The Daraprim Drug Scandal

How can a life-saving drug (Daraprim) that has been widely available since the 1940s for $1 suddenly cost $740? Is this what the FDA's mission is when it says it exists "to promote and protect the public health"? Before a Wall Street wolf lands on your doorstep, should you face a life-threatening disease, consider the case of Martin Shkreli.


Background: Predator Drug Pricing and the FDA:

In July 2013, I reported in the AVA on the price manipulation of colchicine. For decades colchicine was available to millions of gout sufferers for as little as 4 cents a pill. But through a series of murky, under-the-radar dealings, with FDA complicity, a shadowy generic manufacturer acquired exclusive marketing rights and jacked up the price to $5.00 a pill. This is just one example of a generic drug that has been grabbed up by profiteers trolling for pure profit at the expense of patients who suffer, often from a life-threatening disease.

There are a number of ways this sort of thing happens. Say a mainstream pharmaceutical decides to unload a drug that is no longer protected by copyright, and thus not a big profit center. Along comes a manufacturer of generic drugs, one not into research and development of new drugs. It buys up the existing formulary and gets FDA approval as exclusive distributor. Suddenly the price goes through the roof.

A second method is for an "entrepreneur" to create a company for the express purpose of cherry-picking a generic or "orphan" drug to mine for profit. It gets FDA approval to market the drug and pays (let's not call it a bribe) existing producers to abandon marketing their brand of the generic. This clears the way to jack up the price. They may even claim that they need to charge an outrageous sum for the generic in order to research and develop new drugs, though that is not in truth their intent. The FDA, it seems, has no intention of verifying such claims, nor enforcement powers to curb such predatory practices.

Smoking Gun Examples:

Here is a small sample of generic medicines that have been targeted by so-called pharmaceuticals for the sole purpose of making huge profits at the expense of patients facing life-threatening illnesses:

Rodelis Therapeutics: In 2003 Eli Lilly sells its tuberculosis drug (Cycloserine), available since the 1950s, to companies in India, China, and South Africa. The treatment of 2 pills per day cost $20 for 100 pills. When Rodelis Therapeutics obtains the U.S. marketing rights, the cost goes viral, at $500 for 30 pills. A two year treatment could cost as much as $500,000. How can a $292 cure morph into a $500,000 windfall for a so-called pharmaceutical company that neither incurred research and development costs, nor has any history of developing new drugs?

KV Pharmaceutical: In 2011, Drug 170HP cost $280 for a 12 week treatment that prevents premature birth in at-risk women. Enter KV Pharma, a company founded to exploit "orphan" generic drugs. Overnight the same treatment escalates to $28,800.

21 Company "Conglomerate": In 2013, the FDA declared an emergency in the supply chain for Doxycycline, a generic antibiotic used to treat malaria, gonorrhea, urinary tract infections, and other maladies. A bottle of 30 pills cost $20. Suddenly, a 30 pill bottle is $1,849. Among the manufacturers is TEVA, an Israeli Pharmaceutical Company specializing in generics. Other distributors of Doxycycline include companies in India, China, a host of other countries. And, with all these companies vying for a market niche, the FDA declares a "supply emergency" and opens a floodgate for profiteers preying on the sick?

Retrophin Pharmaceuticals, 2011. Enter the disgraced hedge fund manager, 28 year old Martin Shkreli. He founds Retrophin in 2011 in order to mine generics for big profits. Retrophin gains the exclusive rights to manufacture and distribute Thiola (tiopronin), a drug used to treat kidney stone disease. Overnight, a pill that costs $1.50 becomes a $30 pill, a price increase of 20 times. Mr. Shkreli's insider dealing was too much even for the other stakeholders of Retrophin, who fired him.

Turing Pharmaceuticals, February, 2015. Martin Shkreli, now 32, having been fired from Retrophin in 2013, founds Turing. Still under investigation by the SEC for insider trading, which he has admitted, and with no background in drug research and development, he raises $90 million dollars, opens shop as Turing Pharma, pays Core Pharma $55 million for the exclusive rights to Daraprim, with the blessing of the FDA. On the market since the 1940s, Daraprim treats a parasitic disease, toxoplasmosis, which often afflicts HIV/AIDS patients, and others with depressed immune systems. Overnight, a $1 pill skyrockets to $740.

The New Gold Rush

The above sampling of recent raids on the generic and "orphan" drug market, with the tacit complicity of the FDA, represents but the tip of the iceberg. Left unrestrained, such price increases are not only outrages; they also pose an existential threat to the health care system itself. Every American is put at risk by drug prices that are far out of proportion to the costs involved in research and development and healthy levels of profit. Many of the "Pharmaceuticals" involved in this price spiking GoldRush have no history of R/D. They have no intent to use profits for R/D. They are in business solely to milk the victims and health care insurers/providers of vast sums of money for the sole benefit of owners and stockholders.

Mr. Martin Shkreli: Example Par Excellence:

How then, does a disgraced hedge fund manager, at age 28 (in 2011) qualify to open up shop as a drug manufacturer? Simple: He convinces greedy investors that mining generic drugs is the New Gold Rush, a way to make a "killing" at the expense of patients with life-threatening illnesses, who will pay anything to stay alive. His lawyers find ways to gain FDA approval as a "pharmaceutical", all the while the SEC investigation into his admitted insider trading plods along with no indictment in sight. As for the FDA, anyone who wants to can open up shop as a manufacturer/distributor of FDA approved drugs.

When the story of the price spike appeared in the New York Times, the Washington Post, and other publications, a torrent of denunciations came down on Mr. Shkreli. His action was termed "outrageous," and "repulsive." Even Donald Trump weighed in, calling Mr. Shkreli nothing more than a "spoiled brat." Members of Congress have written letters denouncing this and other price spikes, but there is no suggestion, whatsoever, that elected officials, the ones who make the laws, have any inclination to curb such abuses. Indeed, every candidate for national elective office is well aware that the pharmaceutical industry is a prime source of campaign dollars, and it does no good to bite the hand that feeds them. They may decry such practices, but do not expect any actions until the tide of public opinion turns decidedly against such practices.

Has the furor over Mr. Shkreli's behavior caused him to recant? On the contrary, his is quoted as saying:

"We might have to curtail research for several lethal diseases that we are seeking treatments for." This from a company founded in 2015, with no research and development program?

I think I know more about toxoplasmosis than anyone in the world." This comes from a 32 year-old disgraced hedge fund manager with NO qualification to speak on matters related to medical treatments of any kind?

From Shkreli's twitter, "And it seems the media immediately points a finger at me? So I point one back at them, but not the index or pinkie." The message is, Go F*ck Yourself.

A quote given The Guardian, "I don't think much about the wider world. I think about my patients." What is this? He is now saying those who suffer and need Daraprim to stay alive, perhaps to the tune of $500,000 a year cost, are HIS patients?

"This drug saves your life for..." At this price it is a no brainer."

He said at $50,000. Clearly, Shkreli thinks he has found the magic formula for fleecing desperate patients, insurers, and the health care system in general, ordinary tax payers included.

*Shkreli, " We need to turn a profit on this drug." In order "to help create better medicines for the future." Until recently, a profit could be made at $1. Even when the price in 2003 increased to $13.50, no one complained too much. But, at $740 a pill, well!

Shkreli on CNBC, on Monday, defends his actions. "At this price Daraprim is still on the lower end of what drugs cost." "And, we are certainly not the first company to raise drug prices." Does this mean that Shkreli has more surprises in store?

And so the airways continue to play out this sordid drama, with Shkreli calling critics "morons." Fear not, without sustained attention on the part of citizens and the health care industry as a whole, the air will go out of this balloon, and Shkreli will continue to troll for more ways to "make a comfortable profit."

Political Theatrics

In the last few years, a number of congressmen and senators have spoken out about the growing crisis in drug pricing. Such protestations have come, predictably, from Democrats. Beyond expressing their concerns, however, nothing comes of their efforts. It is not a priority of the Obama Administration. Worse, the pending trade agreements that Obama is building his "legacy" around contain patent and intellectual property rights provisions that will only serve to open wider the gateways to exploitation of American markets. The drug supply chain will become yet one more area where China, India, Japan, and others discover a rich market to exploit.

When news of Martin Shkreli's latest outrageous price hike hit the airways, the first to raise serious concern was Bernie Sanders. Of course, that could have been expected from a "socialist" Senator running for president. The mainstream media, naturally, is good at marginalizing any candidate with real solutions. Not to be outdone, Hilary Clinton saw that it was not wise to leave the issue to an opponent. She weighed in with a plan to limit out of pocket expenses to the patient for prescription drugs to $540 a year. What if she were to get her way? That would do nothing to actually lower the cost of drugs, let alone the outrageous spikes due to the entrance of predatory start-ups determined to make a killing while the killing is good. The costs would simply be passed on to taxpayers through Medicaid, Medicare, VA-care, health insurance rate increases, you name it. Clearly, simply passing the costs down the line is no solution. One analyst and stockbroker clearly identified the core of the problem, "the initial reaction is often overstated. From the viewpoint of any politician, talking about the pharmaceutical industry is a very strong area to get airtime but it's very hard to enact reform. (Panmire Gordon)

Hard questions need to be addressed. How much do drug costs in America contribute to making the nation's health care system at least twice as expensive as any other industrialized country on earth? Would it be so terrible to initiate something like Canada's Crown Corporation, which serves to produce generic and orphan drugs at reasonable cost AND return a profit to the government coffers? No wonder large numbers of desperately ill people flock to Canadian websites for less expensive drugs.

Who can doubt that the American health care system, including its drug industry is in need of a drastic overhaul. One thing that Mr. Shkreli has shown is that our drug industry in increasingly being given over to profiteers whose motto appears to be that the patients and the public are "MORONS." America is, as we are told, all about business, not saving lives or treating people like human beings. Spiking the price of drugs is "a great business decision that also benefits all our stockholders. I don't expect the likes of you to process that." (Martin Shkreli)



  1. Tom Cod October 15, 2015

    What a f—n little punk! I bet he glibly spouts narcissistic bon mots from the likes of Ayn Rand. The difference between this little criminal and that kid who got sentenced to 71 years to life the other day is exactly what?

  2. Rick Weddle October 16, 2015

    The Donald actually called this gasbag a ‘spoiled brat,’…really? Now, there’s an insult with some heft to it, spoken by one who knows damned well whereof he speaks!

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