Pharma Bro Is the Face of U.S. Health Care

Martin Shkreli is a symptom of a dangerous system.

Martin Shkreli / Twitter

In what appears to be his authentic OKCupid profile (recently deactivated), the 32-year-old New York entrepreneur Martin Shkreli listed his income at more than one-million dollars. If you were a suitor, and the seven figures were not the first thing you noticed, you might also notice his eyes, attitude, and confidence. Those were, at least, the three things listed under “Things People Usually Notice About Me.”

A fourth thing might be that he is the face of unapologetic profiteering from the suffering of humans. As CEO of Turing Pharmaceuticals, he acquired an anti-parasite medication called Daraprim and immediately increased the price from roughly $13.50 to $750. In the last 72 hours since that made national news, Shkreli’s attitude and confidence have been duly noticed, reminding Americans that we live in the only country where drug companies set their own prices for life-saving medications. His confidence is the kind of confidence that manifests as Burberry polo shirts and semi-ironic emulation of Flo Rida; conspicuous consumption that does not play well to those suffering toxoplasmosis-induced seizures, preventable with Daraprim.

With an easily dislikeable villain comes an easy shift in the national conversation toward pharmaceutical prices and predatory practices that exploit the sick. Because Shkreli has been called a “morally bankrupt sociopath,” a “garbage monster,” and “everything that is wrong with capitalism,” people have noticed the ground on which he stands. Also, his eyes. The question in both cases is what’s to be done about them.

For 72 hours, Shkreli’s response was well encapsulated in his tweet that said the media can have his middle finger. And then on Tuesday night, he did what no one expected: He stopped antagonizing his antagonists. He even locked his Twitter account, making it private. Shkreli gave one final interview to NBC News, in which he appeared to have conceded slightly in a passive-voice apology, saying, “I think that it makes sense to lower the price in response to the anger that was felt by people.” He did not specify the extent of that lowering, only that it might make sense to have “an affordable price.” He did manage to get headlines this morning to say that he had reconsidered, implying that he has a heart, or is at least responsive to public outrage. That remains to be seen, though it would be a small victory.

Shkreli already considered the price increase to $750 to be “not excessive at all.” Daraprim treats toxoplasmosis, which kills people with weakened immune systems, as in AIDS and during chemotherapy. The parasite Toxoplasmosis gondii lives inside of one third of all people, in little cysts that go unnoticed because they are quarantined in our brains and livers by our immune systems. When those defenses deteriorate, though, the parasite is unleashed and attacks the brain and eyes of its host, resulting in blindness, seizures, and loss of cognitive faculties. One study found that toxoplasmosis encephalitis affected 25 percent of AIDS patients, of which it killed 84 percent.

“I can see how it looks greedy," Shkreli told CBS's Don Dahler on Tuesday morning, after multiple infectious-disease specialists protested that the 5,500 percent price increase would make treatment unavailable to many people in dire need. “But,” he continued, “it actually has a lot of altruistic properties.”

“Altruistic?” Dahler raised both eyebrows.

“This is a disease where there hasn't been one pharmaceutical company focused on it for 70 years,” Shkreli continued, the corners of his mouth angled upward. “We're now a company that is dedicated to the treatment and cure of toxoplasmosis. And with these new profits we can spend all of that upside on these patients who sorely need a new drug, in my opinion.”

Of course, pyrimethamine (Daraprim) is usually an effective treatment for toxoplasmosis. The “we need to subsidize research” explanation is the important part of his argument, and this entire story. That’s the standard defense pharmaceutical companies use to justify high prices. And it almost makes sense.

Medical research is extremely expensive. Except that most of the key innovation is still coming from academic medical centers, funded by taxpayers. Pharmaceutical companies then take that innovation and turn it into a marketable product. That costs money, but not billions of dollars. How anything could justify a drug costing hundreds or thousands of dollars—in the case of the hepatitis C medication Sovaldi, which costs $84,000 for a 12-week course of treatment—while still clearing a 30-percent industry-wide profit margin is difficult to conceive. It might be easier to conceive if budgets were transparent. But, as Gregg Gonsalves, co-director of the Global Health Justice Partnership at Yale Law School emphasized to me, no major pharmaceutical company has ever been willing to disclose how much it actually spends on research and development.

Speaking Wednesday morning in Des Moines, Hillary Clinton shared her outrage over the Shkreli story, emphasizing her plan to implement a $250 cap on out-of-pocket payments for prescription medications. As long as medication costs remain high, though, that simply means that other Americans will be paying for those drugs, either through taxes or increased insurance premiums.

“We're going to start holding the drug companies accountable to drive down the prices,” Clinton added. That will be more difficult. The power of pharmaceutical-industry lobbying kept price controls out of the Affordable Care Act. Even the power to negotiate prices and to create price competition between alternative products did not make it into the Affordable Care Act. Clinton’s plan would allow Medicare to negotiate for lower prices on medications and increase competition for generic versions of medications, which Medicare could do because of its substantial purchasing power. As it stands, a pharmaceutical company names its price, and it has at least 49 million older Americans, covered by Medicare, for whom the program (taxpayers) must pay that price. But even if allowance for price negotiation could get past lobbying interests, the remainder of the fragmented American health-care system would be left with little power to negotiate.

Clinton would also end tax breaks for televised advertising and require at least some investment in research and development by companies that are subsidized by tax money. By which she means directly subsidized, as opposed to subsidized by way of collaboration with subsidized academic medical centers.

The response of the pharmaceutical industry was predictable to the letter: “Secretary Clinton's proposal would turn back the clock on medical innovation and halt progress against the diseases that patients fear most,” said John Castellani, head of the Pharmaceutical Research and Manufacturers of America. The argument is that competition in the industry would stifle innovation, which made sense to me in little more than syntax. Rather, as more generic competitors enter the market, prices do go down. More tax money can be directed to academic medical centers where scientific enterprise can flourish unencumbered by a need to work solely toward a marketable end product.

But how is it that a company can charge $750 for a medication when the patent expired decades ago?

I asked Alfred Engelberg, a patent attorney for whom the Engelberg Center on Innovation and Law Policy at NYU is named. He worked for decades challenging patents on behalf of generic-medication manufacturers. Engelberg does believe the Daraprim price increase is the direct result of the supply and demand problem, in that over the last decade the number of companies producing any given medication has fallen significantly, due to mergers and business failures. It takes two to three years and costs around $1 million to gain approval for a generic drug, assuming you can find a source of manufacture for the active ingredient, he explained. Many drugs are down to three or fewer manufacturers, creating oligopolies. When one or two of those competitors has a raw material interruption, an FDA-compliance problem, or for any other reason decides to stop producing the drug, a monopoly results. The company can charge anything it wants.

“A new breed of greedy CEOs is taking advantage of the rules of capitalism to make a killing,” Engelberg said. He explains that it's simply not worth the investment for most companies to take up a low-volume drug that sells at a low price. Daraprim was a low-volume drug selling at a low price. If another company wants to start selling generic pyrimethamine, it could drive the price of brand-name Daraprim back down. But that generic company wouldn’t make much money, so why bother?

What can be done? Stop the mergers, Engelberg implores. It is when profits erode on established products due to competition that businesses will seriously invest in innovation; not when they are thriving monopolies. Loosen the regulatory process to make it possible for drugs approved in Europe, India, and elsewhere to be rapidly approved in the U.S. on a reciprocity basis to alleviate shortages or price gouging. Clinton’s plan does allow for this.

Shkreli was born in Brooklyn in 1983, according to The New York Times, but he may just as well be an imagined manifestation of national guilt over a broken health-care system, broken largely because of the costs of medications. The little red guy with a pitchfork on our collective arthritic shoulder, Shkreli is a product, not a cause. Defeating him is treating a symptom, not creating a cure. In mocking his hubris we mock a person for operating within a system that we created and continue to subsidize. It took a firestorm of public outrage stoked by every national news outlet and multiple presidential candidates to get Shkreli to remit. But there are many more Shkrelis, and there will continue to be more Shkrelis.