shkeli smirk

Big Pharma’s Profitable Can of Worms (Special Report)

Internal documents reveal Martin Shkreli's Turing Pharmaceuticals and other companies believe 'greed is good'


February 16, 2016 :: 9:45 AM

Martin Shkreli‘s arrogance apparently knows no bounds—he revels in flaunting his hedge fund-made fortune. Last Friday, the former Turing Pharmaceutical chief executive, nicknamed “Pharma Bro” by the media, offered Kanye West $10 million to become the sole owner of the rapper’s new album. Last year, Shkreli paid $2 million for the only copy of Wu-Tang Clan’s “Once Upon a Time in Shaolin”—not to listen to it but so he could “keep it from the people.

But the 32-year old has some financial headaches. The Internal Revenue Service filed a lien against Shkreli in New York City last month seeking more than $8 million in outstanding taxes, according to documents posted by Gawker. And since his federal arrest last December for a Ponzi-like securities scheme—he pleaded not guilty—the brokerage account Shkreli relied on to secure his $5 million bail bond dropped $40 million and he may need to put up new assets to secure his bond.

Ironically, Shkreli might have remained anonymous to everyone but the business community had his greed not cast him as “the most hated man in America.” Last August, Shkreli bought Turing Pharmaceutical and overnight jacked up the price of the 62-year-old drug Daraprim—used to treat a toxoplasmosis in people with HIV and cancer—from $13.50 to $750 a tablet. The unabashed price gouging caused national outrage—and revealed that the practice is commonplace among drug companies that place profit before people.

Democrats have been complaining about drug pricing since 2003 when President George W. Bush signed Medicare Part D into law, providing prescription drug benefits but explicitly prohibiting Medicare from being able to negotiate for drugs. Republicans argued that such a practice would leave the pharmaceutical industry much less money for research and innovation. In 2015, the pharmaceutical industry spent $179 million to lobby the Republican-controlled Congress against any policy changes.

But disease is not partisan and constituent stories to lawmakers may be changing the political landscape. Last November, the Senate Aging Committee, chaired by Maine Republican Sen. Susan Collins, opened a bipartisan investigation into the dramatic price hikes for certain decades-old off-patent drugs.  The Committee held its first in a series of hearings in December. In late January, Collins opened her questioning of Food and Drug Administration director Dr. Janet Woodcock by noting “the sudden, very aggressive price spikes that some companies have implemented on drugs that have been on the market for literally decades.”

Collins told Woodcock that

“one of things I would like to work with you on is whether there is a way to eliminate the incentive by having this expedited approval that would encourage a generic to come in, and discourage the company from buying up the decades-old drug, thinking it is going to have a monopoly long enough to make a great deal of money…What we are finding is that a lot of these companies are not doing the manufacturing.  It is a new business model, and I am convinced that it is one that is negative for patients, providers, hospitals, and federal and state health care programs.”

Woodcock said there is difficulty with the generic application process because of the pharmaceutical companies’ closed system and delays at testing against the brand drug.

Martin Shkreli, Turing, Valeant Pharmaceuticals, Rodelis Therapeutics and Retrophin, the company Shkreli ran before Turing, were singled out during the hearing for hiking their prices “by 20, 30 or 40 times the prior price, at times putting these medicines out of reach for the patients and the doctors who treat them,” Collins said, adding that the companies “did not bear the research costs of developing” the drugs.

“These companies are to ethical pharmaceutical companies as a loan shark is to a bank,” Collins said.

“My main challenge today will be keeping my temper,” said Missouri Democratic Sen. Claire McCaskill. “They can try to hide the truth but if this is just greed we have a duty to find out how to protect patients.”

Dr. Erin Fox, director of drug information services at the University of Utah health care system, told the committee that hospitals were now forced to restrict Valeant-supplied Isuprel and Nitropress, used on “crash carts” for emergency treatment of cardiac arrest. The prices jumped from $50 for each dose in 2013 to $660 a dose for Nitropress and $2,700 a dose for Isuprel, though nothing appeared to have been changed with the drug itself.

Dr. David Kimberlin, a leading pediatric infectious diseases specialist at the University of Alabama, told the committee that since Turing acquired Daraprim and changed its distribution (dispensed through Walgreens Specialty Pharmacy), he had trouble getting the drug in the liquid form that babies need.

“This has directly put the lives of patients with this severe infection at risk. Babies’ lives literally hang in the balance here,” Kimberlin testified.

On Feb. 4, the House Committee on Oversight and Government Reform finally held hearings, too, featuring a smirking, minimal appearance by Shkreli.

“We pledge that no patient needing Daraprim will ever be denied access,” Nancy Retzlaff, Turing’s chief commercial officer, said in a news release.  She added that “drug pricing is one of the most complex parts of the healthcare industry. A drug’s list price is not the primary factor in determining patient affordability and access.”

Ranking Democratic Rep. Elijah Cummings was waiting for them. For more than two years after a constituent pleaded for help for her son, Cummings had been investigating the accessibility and affordability of prescription drugs on the FDA’s shortage list. He was deeply knowledgeable about the “gray market” of buying up already on the market, raising prices “astronomically” for a short period before other companies enter the market in order to make as much profit as possible. He subpoenaed internal company documents from Turing and Valeant.

In his opening statement, Cummings asked: “How much money are we talking about?” Then answers:

“Valeant reported gross revenues of more than $547 million on Nitropress and Isuprel. That’s more than half a billion dollars in one year. The company reported profits of $351 million On just these two drugs in 2015 alone.

These stunning returns put Valeant’s CEO, J. Michael Pearson, on the Forbes list of billionaires. According t press reports these massive profits also allowed Mr. Shiller, who is here today on behalf of Valeant, to collect a salary of $400,000 per month.

For Turing, the company reported $98 million in revenues for Daraprim in 2015, with manufacturing costs of only $1 million.

Yet, Turing actually tried to claim that it took a $44 million loss last year. The company reported that it spent $22 million on research and development. This money apparently went to “donations” to unnamed entities, “contributions to foundations,” and vague “other research and development costs.” But the documents we have obtained indicate that these expenditure were just as much about PR as R&D.

Like a Ponzi scheme, it appears that Turing may be using revenues from Daraprim to research and identify the next drug it will acquire, and then impose similarly massive price increases on future victims.”

(Interesting side note: Valeant tried to buy the company that makes Botox, but failed.)

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Two days before the hearing, Cummings released the Democratic staff’s summary memos of more than 300,000 pages of documents obtained from Turing, and from Valeant with quotes from email exchanges between company executives, corporate projections, analyses on revenues and profits, communications with angry hospital officials and other healthcare providers and a public relations strategy to reframe and redirect the backlash from the pharmaceuticals to the insurance companies.

“These new documents provide a rare, inside look at the motivations and tactics of drug company executives,” said Cummings.  “They confirm what Americans across the country have experienced first hand for years—that many drug companies are lining their pockets at the expense of some of the most vulnerable families in our nation.  The documents show that these tactics are not limited to a few ‘bad apples,’ but are prominent throughout the industry.”

The internal documents shiver with pure greed.

From 2014 to 2015, Valeant raised the price of more than 20 prescription products by more than 200%, according to the Valeant memo. In some cases, the price was jacked up by as much as 800%. The memo also noted that a Valeant presentation of a new patient-assistance program pointed out that one goal was to “minimize media coverage of the pricing increase.” The presentation included a possible plan suggesting the company tie the price hikes to the cost of research and development.

The documents show that Turing was equally egregious. One email from Shkreli says: “$1bn here we come.” A sales presentation included a slide on Drug Pricing: “Drugs are typically non-discretionary and consumers are relatively price insensitive ….Typically there’s an inverse correlation between prevalence of a disease and the annual cost of treatment … Exclusivity (closed distribution) creates a barrier and pricing power.”

The memos spell out public relations strategies for how to deal with potential backlash to Daraprim’s price increase from gay and HIV groups, specifically citing the Human Rights Campaign. Turing believed that the groups might be organized and vocal but could be managed, the staff memo said.

A May 2015 memo entitled “Commercial Capabilities” stated: “Current pricing lower than other adjunctive therapies, so could increase price immediately.”

However, it warned: “HIV patient advocacy may react to price increase. … HIV community is highly organized, sensitive, and action-oriented….Significant price increases that disproportionately affect this community could result in backlash from patient advocacy groups, particularly if payers increase cost sharing with patients.”

On Sept. 21, 2015, an outside consultant forwarded a Shkreli press article to Turing leadership: “With the inflammatory coverage of the last two days, it will be difficult to get HIV/AIDS KOLs [key opinion leaders] to spoke out [sic] on behalf of Turing. However, we still come out ahead if we can frame this issue within the HIV/AIDS community as a fight between a drug company and insurance companies.

“As long as everyone who needs Daraprim can get it as soon as they need it,” the memo reads, “regardless of ability to pay, the community should have no issue. There is no love lost between HIV/AIDS activists and insurance companies, and they certainly don’t want to be manipulated by them to fight on their behalf.”

The consultant wrote: “With the price increase comes new research, support systems, patient education and greater awareness, so pragmatically and strategically, the community shouldn’t advocate against its own interests. If we can get HIV/AIDS activists to ‘sit this out’ we come out way ahead.”

An Oct. 12, 2015 internal presentation warned, however: “HRC [Human Rights Campaign] has been vocal and in the media about the pricing issue and is potentially the most vocal organization able to garner media coverage. While their motivation is primarily political given their actions we feel it would be important to get a meeting with CEO Chad Griffin in an attempt to slow their aggressive stance and work with them to better understand the company.”

HRC was among 160 organizations signing onto an open letter to Turing last October calling on Shkreli to keep his promise. David Stacy, HRC’s Government Affairs Director, confirms that HRC—and Griffin once directly—was twice invited to meet with Turing but refused unless they first lower their price on Daraprim, which Shkreli promised to do  after the backlash, but never did. At HRC’s urging last Sept, New York Attorney General Eric Schneiderman launched an investigation into whether Turing violated antitrust laws by limiting distribution of the drug.

HRC also sent letters to Sen. Lamar Alexander (R-TN), Chair of the Committee on Health, Education, Labor and Pensions; Rep. Fred Upton (R-MI), Chair of the Committee on Energy and Commerce; and Rep. Jason Chaffetz (R-UT), Chair of the Committee on Oversight and Government Reform, seeking an investigation into the unconscionable action of Turing Pharmaceuticals.

The problem has not ended, despite the public glare and even as the hearings proceed.

“We understand that patients are still having difficulty obtaining the drug due to its limited distribution. Providers have reported a mix of switching to an alternative therapy, or contracting with a compound pharmacy or compounding the drug themselves,” says HRC’s Stacy. “Turing implied that patients were not having to bear the exorbitant cost—it was paid by others, namely hospitals and insurance companies. As members from both sides of the aisle pointed out, that cost shift is passed on and ultimately born by the American public through increases in the cost of hospital services or insurance premiums.”

Stacy also believes that as the prescription drug crisis goes on, the public will become more outraged. “The number of patients with toxoplasmosis and who require Daraprim is relatively small,” he says. “While there may not appear to be outrage over the price increase of Daraprim, I can assure you it is there. Patients with more common conditions such as heart disease have had their medications (Isuprel and Nitropress) rise exponentially, too. Similarly, the cost of new drugs to cure Hepatitis C are staggering and Congress is looking into the pricing strategy for these as well.”

“Turing Pharmaceuticals and Martin Shkreli put people in jeopardy with their despicable scheme to gouge vulnerable patients and curtail access to a lifesaving drug,” says HRC President Griffin. “There is simply no explanation for that, and no middle ground. We are not going to let up until Turing restores Daraprim to its original price — and we continue to call on Congress to stop other companies from getting away with profiting at the expense of our health and our lives.”

National Alliance of State & Territorial AIDS Directors, HIV Medicine Association, the Infectious Diseases Society of America and the Treatment Action Group did hold a face-to-face meeting with Shkreli to ask for the cost to be lowered, for cost mitigation strategies and to express their concerns. The group issued a press release after that meeting last Nov:

A month and a half after Turing Pharmaceuticals’ announcement that the company would return the price for pyrimethamine, the toxoplasmosis drug marketed as Daraprim to an affordable level, we met with Turing executives yesterday in the hope of learning when the drug will once again become fully accessible to the patients who need it. We have learned that the company, which raised the price of the drug from $13.50 per tablet to $750 per tablet shortly after acquiring it, has still not arrived at a revised price but plans an announcement before the end of year. We were encouraged that they are in the process of implementing programs to address the serious disruptions in access to treatment that have occurred over the last several months. While complete details of these programs have yet to be made public, we need full transparency on eligibility and information on how to access these programs for providers and patients as soon as possible. Meanwhile, we remain seriously concerned about the exorbitant price hike and its impact on patient care and the health care system.

TAG’s HIV Project Director Tim Horn, however, said the meeting was “very unproductive.” But, he added, “Yes, Turing is greedy. But Turing is taking advantage of a loophole in the law that allowed that to happen. We need to close that loophole.”

Meanwhile, AIDS Healthcare Foundation joined the fight from another angle. On Jan. 26, AHF filed a federal lawsuit against Gilead Sciences seeking to invalidate their patents on key AIDS drugs, including Tenofovir, a 30 year old drug first synthesized in the Czech Republic. Tenofovir is a component in Genvoya, Gilead’s four-in-one Fixed Dose Combination (FDC) to treat HIV/AIDS patients as well as Gilead’s similar predecessor FDC, Stribild.

AHF currently cares for over 575,000 HIV/AIDS patients in 35 countries and purchased millions of dollars of antiviral drugs from Gilead in 2015 alone. In its legal filing, AHF asserts that:

“In a relentless effort to maximize its profits, Gilead manipulated the patent system and engaged in anticompetitive practices to prevent economical access to TAF – an antiviral agent used in the treatment of HIV,” AHF says in their lawsuit, noting that TAF is not a new compound. “Several years before Gilead obtained a patent on TAF, Gilead had patented a similar prodrug called Tenofovir Disoproxil (“TDF”). Despite similarities between TAF and TDF and the weakness of the patents covering TAF, Gilead illegally seeks to extend the period of patent exclusivity for drugs incorporating Tenofovir by decades.”

“In 2013, Gilead unsuccessfully petitioned the FDA for a patent extension from three to five years on Stribild—which at $28,500 per patient, per year when it was introduced in January 2013 was the most expensive fixed-dose first-line combination HIV/AIDS therapy on the market,” said Michael Weinstein, President of AIDS Healthcare Foundation. “In November 2015, after the FDA approved Gilead’s Genvoya, we said the updated combination, with admittedly fewer potential side effects, was also developed as a means to extend prior patent protections. We believed then—as now—that Gilead is trying to monopolize the market by price gouging on its HIV/AIDS treatments, actions that severely diminish access to these lifesaving medications and serve as catalyst for our legal action today.”

“This case sends a message to the pharmaceutical industry. Gilead shouldn’t be able to line its pockets by manipulating access to its HIV drugs,” said Dorian Berger AIDS Healthcare Foundation’s attorney from the firm Olavi Dunne LLP. “It is illegal to block access to lifesaving drugs by manipulating the law and through this legal action we intend to hold Gilead accountable.”

“The AHF lawsuit certainly drags a lot of longstanding questions about the development TAF into the cold light of day,” Horn told Frontiers. “By 2001, Gilead had strong animal data suggested that TAF may have important safety advantages over its blockbuster drug TDF. But the company didn’t begin human studies until 2011, with the approval of TAF-inclusive coformulations occurring at the twilight of TDF’s patent protection. That delay means ten additional years of accumulated kidney and bone toxicity for many people living with HIV–a shame, to say the least.”

Horn also points out that the time is right for action, noting that presidential candidates Hillary Clinton and Bernie Sanders have spoken about the price-hikes in prescription drugs. Additionally, President Obama has included drug pricing reforms in his final budget proposal.

Horn says:

“What we’re seeing is a confluence of crises in drug pricing. The pricing of highly curative treatment for hepatitis C that has resulted in significant rationing, when the emphasis should be on maximizing the numbers of cures now to eradicate the disease. Preposterous price gouging of off-patent life-saving drugs with limited competition. Skyrocketing prices being set for generic medications that have been low cost for years. Annual increases, to the tune of 7 to 8%, on the cost of HIV medications, which are seriously out of lockstep with all measures of inflation in the U.S. So it’s no wonder that representatives on both sides of the aisle in both federal and state legislative houses, not to mention presidential candidates, are starting to take things seriously. U.S. policies and its myriad loopholes make egregious drug pricing possible. It’s now a government issue to secure the breeches.”

AHF also has two initiatives on the Nov. ballot in California and in Ohio that would prohibit those states from paying more for prescription drugs than the Veterans Administration. “Pharma has already raised $38 million against us,” says Weinstein.

This is an expanded version of story in the new edition of Frontiers Magazine.


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