You already hate Martin Shkreli, the bratty former hedge fund manager who raised the price on a drug to treat infections in AIDS patients by 5,000%. Now it’s time to get to know him.
I’m not saying you should get to know Shkreli because you’ll like him in the end. You might hate him more. He is very smart, but also callow and possibly sociopathic. (He prefers “iconoclast.”) Yet much of what has been written about him this past week is unrecognizable. He’s not a bro or some big time executive but a small player with tons of bluster who took Wall Street’s ideas about drug pricing to their frightening extreme. He became a target for derision not because of what he did but because he was so cartoonishly easy to parody, essentially fouling the cover-up. Other companies have jacked up prices just as much as his firm, Turing, with no consequences other than soaring stock prices. Hillary Clinton’s reforms? It’s unlikely they’d make a difference. Shkreli, by the way, is unrepentant, and says he thinks he’s a great CEO.
“I care more about patients than anyone,” Shkreli told me yesterday. “I care more about drug science than anyone you can point at. I love this business and I love science and I hold my yardstick to that. I know I’m helping patients. That’s all I need to know.”
I first met Shkreli when he was 27, over branzino at a noisy midtown restaurant near the office of his hedge fund, MSMB Capital. I remember thinking that he looked like a teenage vampire from some 1980s movie, pale and thin. He bragged about all the “high-end hires” he was making. “I’m definitely not a fly-by-night hedge fund manager,” he said. Okay.
Listening to that tape again, I can hear that he was working hard to craft his rags-to-riches story. “When you’re from New York City, a lot of interesting things are possible,” he told me. The son of Albanian immigrants, he’d graduated New York’s elite Hunter College High School two years ahead of schedule and met Jim Cramer, who was then still at his hedge fund, Cramer Berkowitz. “Jim interviewed me and he asked me what I did, and I said I played guitar,” Shkreli remembered. “And he asked me to come and play guitar to prove it. And I played all these wedding songs and I started working at Cramer Berkowitz’s hedge fund March 1, 2000, when I was 16.”
Shkreli convinced an impressive bunch of investors to back his first biotech company, Retrophin: the former executive team of drug giant Schering-Plough, now part of Merck, including CEO Fred Hassan, a legendary turnaround artist, and Hassan’s protégé, Brent Saunders. At the time, Retrophin was going to be based on drug technology to combat muscular dystrophy.
“The only person I needed affirmation from was Fred Hassan,” Shkreli told me during our first meeting. “So I asked them do you think I can do this? They said you must do this. We really want you to do this.”
Saunders, who is now the chief executive of Allergan, says that the team chipped in to help Shkreli buy the technology, but lost interest as Shkreli changed his focus to drug pricing. Saunders and another former Schering executive, Robert Bertolini, say Shkreli listed Saunders as a member of Retrophin’s board of directors on the company’s web site without, in Saunders’ words, “my consent, knowledge, or permission.” Bertolini says Saunders was furious at the time, but Shkreli claims that Saunders agreed to be on the board but never finished any paperwork.
Saunders now says Shkreli’s recent pricing decisions actions are “egregious” and adds: “I think Martin is a really smart guy who has a lot of potential. [But] this is like a hedge fund strategy. It’s just purely about making money.”
Shkreli doesn’t get it. “That’s called being a bad friend,” says Shkreli. “I’m very disappointed in Brent. The guy helped me found my first company. It has nothing to do with him being uncomfortable about pricing. He just doesn’t want to hurt his pretty career.”
Why Rare Disease Drugs Are Expensive
Martin has a gift, I learned in that first meeting, for explaining one of the harsh realities of the drug business: unless treatments are very, very expensive, patients with very rare diseases, like cystic fibrosis and muscular dystrophy, will likely get no help at all. It’s a choice between high prices and suffering.
Shkreli told me the story of a classmate of his at Hunter who died of cystic fibrosis. “We could sort of watch his decline,” Shkreli said, “which was remarkable because we were all watching our ascensions… You remember when he could play in gym class, and then he wasn’t allowed to anymore. You remember when he could walk, and you had to watch him not be able to walk anymore. This was sort of a tough thing to watch so that sowed the seed.”
At that time, Vertex Pharmaceuticals was about to introduce a drug called Kalydeco that dramatically improves the symptoms of patients with cystic fibrosis. “One minute you’re thinking I might not live until next year, and the next you’re not even coughing anymore,” Roe Van Epps, one of the early patients to take it, told me. It only works for patients with a specific genetic mutation, and it costs $300,000 a year.
Rare disease drugs have a different economic logic than any other medicines. Their makers work hard to make sure that patients who can’t pay get the medicines for free, and that those who are hit with high insurance copays are helped with those. In return, they negotiate hard with countries and insurance systems to get paid for the medicine for as many patients as possible. This strategy is highly profitable because the medicines are valuable.
Take one of Shkreli’s favorite companies, Alexion Pharmaceuticals, another top-performing stock. Its drug, Soliris can cost $700,000 per patient per year, and treats two diseases, one in which the body destroys its own blood cells, and another where it eats away at the kidneys. As one patient put it on Reddit, “This drug has changed my life.” Most medicines get the bulk of their sales in the U.S., because drug prices here are higher. But only 1/3 of Soliris patients are in the U.S. The rest are split evenly between Europe, where most countries have single-payer systems that are fussy about drug prices, and, even more amazingly, the rest of the world, where there are price controls.
Shkreli insisted that medicines at these high prices could be worth it. And he was utterly convincing. “I literally look at it as is the buyer getting a good deal,” he said. “That is the only question I care about.” The average muscular dystrophy patient costs society $400,000 per year, he argued. An effective drug that cost $300,000 a year would be a steal.
But what Shkreli didn’t seem to grasp is that rare disease companies are forgiven their high prices because they invented something wonderful. To him, if it was a fair price, it was a fair price, whether you spent years of cash and sweat and tears on a drug or bought a generic that was cheap and widely available and jacked the price up because you were for “modern pricing.” If you could get that expensive price for something that had already been invented, maybe years or decades ago, why not do it?
Well, because it would strike almost anyone outside the pharma bubble as wrong. But Shkreli was not one to care.
Jacking Up Prices
Buying an already marketed drug and increasing the price offered Shkreli a way to jumpstart Retrophin, giving the company revenue and possibly earnings that could fund his research.
The drug was Thiola, an old treatment for a rare kidney disorder. Retrophin increased the price of the medicine 2000%, from $1.50 to about $30. “In the real world — not the 1% bubble of Wall Street — patients feel drug price increases directly or indirectly,” wrote Benjamin Davies, a physician at the University of Pittsburgh Medical Center. Derek Lowe, a pharmaceutical chemist, wrote on his widely followed blog that it was “the most unconscionable price hike I have ever seen.”
Shkreli claims the opposite is true. Low drug prices, he says, leave doctors and patients struggling to get government resources for science. CEOs don’t even know that they own the medicines, or discontinue making them. Raising the price guarantees the supply of the drug, leads companies to go out looking for patients who need it, and spurs investment in research and development to create more medicines. The fact that he profits doesn’t change this. “I don’t see any loser in any of this,” Shkreli says now. “I don’t see any loser in that situation.”
Without evidence patients are being harmed by cheap drugs, it’s probably right to view this as a crass justification. But Shkreli was initially good at selling the message. When a Reddit thread ignited about the price increase, Shkreli seemed to win converts. “We make sure absolutely no one has a hard time affording their medicine,” he wrote. “We have people dedicated to this job, which is why we need a higher price (to hire said people).”
This strategy has been certainly been great for Retrophin – the stock is up 300% in two years. It’s been great for other companies that came before it, too. Questcor Pharmaceuticals raised the price of its drug, Acthar Gel, from $40 to $28,000 a vial. The reward? It was one of the best-performing stocks in America until Mallinckrodt bought it for $5.6 billion last year. Valeant Pharmaceuticals has done big price increases on numerous drugs. The stock’s up 740% over five years and its founder, Michael Pearson, is a billionaire. Only Shkreli has drawn the American public’s rage.
How To Make Enemies
If you want to understand why the guy is so widely hated, start with the fact that he’s no longer chief executive of Retrophin. He was ousted last October, reportedly for “stock irregularities.” That’s why he’s currently operating out of a new company, Turing Pharmaceuticals, which has raised $90 million. It was at Turing that he gave us his repeat performance, raising the price of the toxoplasmosis treatment Daraprim from $1.50 to $750 and set the internet on fire.
“Ousted” is putting it mildly: in a $75 million lawsuit filed against him, Retrophin alleges that Shkreli improperly used the company as a personal piggy bank to try to pay off people who felt they’d been ripped off by his hedge fund. Shkreli says the allegations are untrue and that Retrophin doesn’t want to pay him severance he is owed. Which would be believable if he didn’t keep getting into trouble.
Newsweek investigative reporter Kurt Eichenwald says Shkreli is under criminal investigation for his behavior at Retrophin – and has a giant target on his back because of his drug-pricing escapades. The government’s theory, Eichenwald writes, is: “If there was money, Shkreli took it. If there were facts to be revealed, Shkreli hid them. If there were securities laws, Shkreli broke them.” Gawker obtained an affidavit from a former colleague of Shkreli’s at Retrophin who alleged that not only had Shkreli threatened him, he had stalked his family, telling the man’s wife: “I hope to see you and your four children homeless and will do whatever I can to assure this” and later sending her text messages that said, “Hey, sweetheart.” Gross.
That behavior matches Shkreli’s Internet persona. He’ll Tweet vulgar quotes from Wu-Tang Clan and Eminem songs, and he helped ignite the current controversy by calling John Carroll, the editor of industry news site FiercePharma, a “moron.” Shkreli claims he doesn’t care what the media or the public thinks, but he has an almost pathological need to respond to what is said about him, and lacks the good sense, so ingrained in most chief executives, to know when not to talk.
He’s finally gotten most of the drug industry, which takes lots of price increases but rarely so big and not on decades-old drugs, to speak out on predatory pricing practices. PhRMA, the drug industry trade group, says of Turing: “We do not embrace either their recent actions or the conduct of their CEO.” BIO, the lobbying group for the biotechnology industry, kicked Turing out.
“Do not confuse the new flood of hedge fund managers masquerading as pharmaceutical executives, taking advantage of the biotech bubble as anything close to the pharmaceutical industry,” Joseph Jimenez, the chief executive of Novartis, told me when I asked about Shkreli. “They are taking advantage of inflated biotech valuations. In the end, their shareholders will be left holding the bag.”
Jimenez also warned that people like Shkreli “may do real damage to the industry” and that “patients are the ones who will suffer.”
What Pharma Must Do
If they really want to contain the damage Shkreli caused, executives need to work harder to come up with their own methods of explaining and justifying drug prices, as IMS executive Murray Aitken proposed at last year’s Forbes Healthcare Summit. Leaving it to the political process is dangerous.
Although maybe not. Richard Evans of Sovereign & Sector, a former Roche executive and longtime industry analyst, says there’s probably nothing in Hillary Clinton’s proposals on drug pricing that would have prevented Shkreli from executing his price increase. Allowing importation of drugs from outside the U.S. might help, but companies can just limit supply, forcing countries to decide between U.S. patients and their own. And Clinton’s plan to limit patients’ out of pocket drug costs to $250 a month? Evans and I agree that would be a dream come true for pharma, losing one of the biggest points of real leverage that insurance companies have.
There are things in there that might lower drug prices. Tax laws that demand companies spend on R&D might hurt Valeant, but not Turing. Giving Medicare some ability to negotiate drug prices could control costs. But even that might not stop a Shkreli. When there is only one maker of a lifesaving treatment, Medicare cannot easily say no. Right now, the main pressure on drug firms who are jacking up prices is public shame. Shkreli proves how ineffective that is: he’s promised only to lower a price where his company will make a slim profit, meaning he’d be able to use it to fund his operations indefinitely.
“I’m not a politician,” Shkreli tells me. “I don’t have to win a popular vote contest. That’s called being an iconoclast. You prioritize your compass over others, and your conviction that the compass is correct in making the world a better place. I don’t care about the way the media portrays me as long as I can keep doing my job.”
Whether Shkreli can keep doing his job with a giant target painted on him is an open question. But for those who are politicians, his words should be a reminder of how powerless they might be.