An Executive’s Arrest Gives Drug Makers Cover


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Demonstrators protested outside of the New York Activists protesting in October at the offices of Turing Pharmaceuticals, whose chief, Martin Shkreli, was arrested on Thursday.

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Craig Ruttle/Associated Press

During his three months as a household name, Martin Shkreli has been a walking, talking (incessantly) personification of one of the pharmaceutical industry’s worst nightmares — the greedy drug company executive.

So his arrest Thursday on securities fraud charges might bring some private cheer to pharmaceutical company executives, who blame him for setting off a public uproar over drug prices.

In fact, in some ways, Mr. Shkreli, chief executive of Turing Pharmaceuticals, has taken the heat off other drug companies.

Most drug companies do not increase prices fiftyfold overnight, as Mr. Shkreli did.

But they often increase prices 10 percent or more a year, far faster than inflation. And those 10 percent increases — on drugs for common diseases like diabetes, high cholesterol and cancer — have a far bigger impact on health care spending than the 5,000 percent increase on Turing’s drug, Daraprim, which might be used by about 2,000 people a year facing possible brain damage from a parasitic infection called toxoplasmosis.

“Because he played the part so well of the evil Wall Street hedge fund guy, Martin really drew attention away from the more serious issues with much bigger dollar impacts,” said John Rother, chief executive of the National Coalition on Health Care, a Washington organization concerned with drug prices. Its members include medical societies, insurers, consumer groups and labor unions.

The arrest and indictment will buttress the efforts of more established pharmaceutical companies to distance themselves from the upstart Mr. Shkreli. They have been arguing that most companies do research to invent innovative new drugs, not merely acquire the rights to old ones and raise their prices.

“He is not us,” Kenneth C. Frazier, chief executive of Merck and chairman of the pharmaceutical industry’s main trade group, said this month at the Forbes Healthcare Summit this month. Now, pharmaceutical executives can look at the federal indictment and say that Mr. Shkreli is an aberration, a rotten apple.

But his arrest is not likely to make concern about drug prices go away. First of all, Mr. Shkreli was arrested on charges of securities fraud stemming mainly from his time as a hedge fund manager, not for increasing the price of Daraprim to $750 a pill from $13.50. And his professed motivation — charging high prices to get money to spend on developing new drugs — is not all that different from that of other pharmaceutical companies.

Just a year ago, the public outrage was over Sovaldi, a new hepatitis C drug being sold by Gilead Sciences for $1,000 a pill, or $84,000 for a course of treatment. The drug was a true innovation, curing the disease in 12 weeks with few side effects. But so many people wanted treatment that the drug racked up sales of $10.3 billion in 2014, shattering the sales record for a first-year drug and straining the budgets of state Medicaid programs, private insurers, prisons and the Veterans Health Administration.

Now, Gilead has been largely shoved out of the news by Turing and other companies with similar practices, most notably Valeant Pharmaceuticals International.

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, said Richard Evans, an analyst at SSR Health, a stock analysis company.

Old drugs for multiple sclerosis, for instance, have gone up in price to more than $60,000 a year from about $10,000 a year in the late 1990s.

There have been concerns for decades about the prices of particular drugs, such as early treatments for H.I.V. But concern has really come to the fore in the last few years with the rise of so-called specialty drugs, which are for less common diseases and can cost tens or hundreds of thousands of dollars a year.

One reason is that doctors have started to pay attention to drug costs. They say their staffs have to spend countless hours trying to arrange reimbursement or financial assistance so patients can afford drugs.

In 2012, doctors at Memorial Sloan Kettering Cancer Center wrote an Op-Ed piece in The New York Times about their decision to not use a new cancer drug because it was twice as expensive but no more effective than an existing one. The next year, more than 100 influential cancer specialists wrote an article in a medical journal protesting the prices for drugs such as Gleevec, the Novartis leukemia drug that had tripled in price since its introduction in 2001.

Nowadays, new cancer drugs typically cost over $10,000 a month, and the price is rising.

With new drugs for rare diseases selling for hundreds of thousands of dollars a year, it occurred to some entrepreneurs to search for neglected old drugs for rare diseases and reprice them. This struck many people as more repugnant than charging high prices for an innovative new drug because there was no research involved.

Mr. Shkreli was not the first to do this. In 2008, Congress held hearings about this practice, focusing for instance on Ovation Pharmaceuticals, which acquired a drug to treat a breathing problem in newborns and raised the price to $1,500 per unit from about $100. There was also Questcor Pharmaceuticals, which spent $100,000 to acquire a decades-old drug for infantile spasms and raise its price from about $40 a vial to over $23,000, with the biggest jump occurring overnight in 2007. Valeant has done this type of thing for several drugs.

Still, Mr. Shkreli captured attention in a way few others have. Part of this was timing. His action was seized on by Hillary Clinton, who was about to make drug pricing a campaign issue in the presidential race. But it was also Mr. Shkreli’s hedge fund background, and his willingness to keep himself in the news with various outrageous statements and actions, some having to do with music and women, not drugs.

“Instead of a nameless company, there is a sardonically smiling face to attach to all of these issues,” said Dr. Aaron Kesselheim, an associate professor at Harvard Medical School and Brigham and Women’s Hospital who has studied drug pricing issues.

Mr. Shkreli has said in his defense that while Turing did not develop Daraprim, it will use the money from the price increase to develop new drugs for serious diseases. He has said that even with the increase, Daraprim will account for a negligible portion of health care spending. He has also said that for many patients, such as those on Medicaid, the price is far less than $750 a pill. And he has said that Turing offers financial assistance and even free drugs to make sure no one goes without Daraprim.

“If you can afford our drugs with insurance, great,” he said in a Twitter post on Wednesday, one of his last before being arrested. “If you can’t, you can have it for free. Our system works.”

That is not too different from the arguments made by the pharmaceutical industry that disowns him. The industry cites the high cost of developing drugs as a reason that high prices are justified. It says that drugs account for only about 10 percent of overall health care spending and the list prices that make headlines are not what people actually pay, given discounting. And it talks about various patient assistance programs.

Mr. Shkreli has spurred or added momentum to various congressional investigations into drug prices. But some, like one by the Senate Special Committee on Aging, are focused on Turing and Valeant, not on prices of new drugs or the steady price increases of nearly new drugs.

“Some of the companies that have been the focus of our investigation look more like hedge funds than they do traditional pharmaceutical companies,” the committee’s chairwoman, Senator Susan Collins, Republican of Maine, said at a hearing on Dec. 9.

That is music to the ears of the more conventional, research-oriented drug companies.



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