Pharma Bro Goes to Washington

A Congressional hearing with Martin Shkreli reveals the brokenness of the prescription-drug market.

Joshua Roberts / Reuters

At a hearing at the House Committee on Oversight and Government Reform on Thursday morning, Representative Jason Chaffetz, a Republican from Utah and chairman of the committee, asked former pharmaceutical executive Martin Shkreli a question that was, perhaps, not really a question at all:

“What do you say to that single, pregnant woman who might have AIDS, no income, and she needs Daraprim in order to survive?”

And likewise, he got a non-answer in return.

“On the advice of counsel, I invoke my Fifth Amendment privilege against self-incrimination and respectfully decline to answer your question,” Shkreli said.

“Do you think you've done anything wrong?” Chaffetz fired back.

“On the advice of counsel,” Shkreli responded, “I invoke my Fifth Amendment privilege against self-incrimination and respectfully decline to answer your question.”

He continued thus a couple more times, until Representative Trey Gowdy, a Republican from South Carolina, asked him if his name was pronounced “Sss-kreley.”

“Yes sir,” Shkreli said.

“See, you can answer some questions,” Gowdy said.

“I intend to follow the advice of my counsel, not yours,” Shkreli said.

It was a bit of a let-down for the lawmakers, who had already plumbed Shkreli's emails for an investigation and dealt with delays related to a different legal case against Shkreli in New York and an unprecedented snowstorm in Washington. They were ready to watch him squirm.

It's been nearly six months since Shkreli’s former company, Turing Pharmaceuticals, bought a 62-year-old drug called Daraprim. The medication is used to treat toxoplasmosis, a parasitic infection that can be life-threatening for people with compromised immune systems, such as those with HIV/AIDS. Turing immediately raised the price from $13.50 a tablet to $750.

Almost as quickly, the 32-year-old Shkreli became the face of everything that's wrong with drug pricing in America. A 2014 study by the AARP Public Policy Institute found that retail prices for brand-name prescription drugs shot up by an average of nearly 13 percent in 2013. And certain drugs have seen exponential increases. Some of the increases are driven by companies, like Turing, which buy up existing drugs and raise their prices before competitors can enter the market.

Since then, Shkreli explained the move by saying he cared about the “puzzle of medicine” and helping sick people. (It didn’t hurt, as he told Vanity Fair, that biotech seemed more profitable than hedge funds, his earlier calling.) For his boyishness, his recklessness, and his penchant for swagger, the media christened him Pharma Bro.

In recent months, his mogul antics escalated. He bought a rare album by the rap group Wu-Tang Clan for $2 million. (It was meant to tell his rivals, “hey, fuck you, look at me, I got this $2 million album,” he explained later. Errr, rather, “I wanted to show respect for art.”) He drank a $120 cup of tea on a Tinder date. Perhaps more significantly, he was arrested on charges of securities fraud.

Those charges, however, are not the reason why Shkreli was in D.C. on Thursday, sitting behind a microphone in an overflowing room. Instead of a tie, he wore a smug grin.

Earlier this week, Representative Elijah Cummings released a scathing memo based on documents the Oversight committee staff had unearthed about the Daraprim transaction.

When Shkreli purchased Daraprim for $55 million, the committee staffers wrote, the drug was was “affordable, readily available, and very effective at treating toxoplasmosis in people with compromised immune systems.”

Now, they wrote, it is “prohibitively expensive.” Hospital budgets are straining and patients’ copays have soared into the thousands.

The Turing emails do, indeed, show glimmers of Charles-Montgomery-Burns-level scheming among the company's executives.

According to the documents, Shkreli invested no resources in developing Daraprim, which had been bringing in a steady, but rather modest, $10 million a year for its previous owner. When he set his sights on Daraprim last May, Shkreli wrote an email to his board: “$1bn here we come.”

In September, Tina Ghorban, the senior director of business analytics at Turing, forwarded a purchase order for 96 bottles of Daraprim at the new, higher price. “Another $7.2 million. Pow!” she wrote.

At times, the company feared a backlash, but it figured there would be too few patients to effectively lobby on the issue. As patients’ co-pays climbed and doctors scrambled to find alternate medications, the company’s board weighed removing Shkreli as CEO and hired consultants to help them repair the damage to Turing’s reputation.

By October, Shkreli’s friends were abandoning him. Rima McLeod, a toxoplasmosis expert at the University of Chicago, had initially spoken out in favor of Turing in news articles. But when news surfaced that patients were struggling to obtain the drug, she peppered Turing execs with anxious emails.

“… Patients wait for medicines, and that is unacceptable,” McLeod wrote. “People will really be hurt lifelong. You have a monopoly on safe reliable medicine right now and it truly matters for people’s lives.”

In December, she begged two Turing execs to reconsider their profit goals.

“I understand I know nothing of what makes Turing solvent,” McLeod wrote. “However, Martin [Shkreli] did say that he had to maximize profit for investors and that was why price is high … ”

“He called that the ‘dirty secret’ of pharma.”

Of course, Turing is far from the only company in on this secret. Also present at the hearing was Howard Schiller, the interim CEO of Valeant Pharmaceuticals, which raised the price of two cancer drugs by about 1,700 percent over the past six years.

But Schiller seemed contrite, telling the committee, “where we have made mistakes, we are listening and changing.” So after Shkreli refused to answer for the emails—or really, for anything—Cummings pleaded with him to “use any remaining influence you have over your former company to press them to lower the price of these drugs.”

Shkreli seemed to look away.

“I know you're smiling, but I'm very serious,” Cummings said. “You could go down in history as the poster boy for greedy drug company executives, or you could change the system.”

It's unlikely Shkreli can do the latter, since he resigned as CEO in December, though he remains a Turing shareholder.

The committee excused Shkreli, and they turned their ire on Nancy Retzlaff, Turing's chief commercial officer. Several members pressed her on just how much patients pay for Daraprim.

According to Retzlaff, after noticing that price “seemed to be an issue,” Turing put in place steep discounts. Now, she said, practically no one pays the list price. A quarter of Daraprim's patients have private insurance, and if their copays are more than $10, Turing will pay the difference. For Medicaid patients, the drug now costs one penny per pill. Only hospitals still pay an eye-popping price: $350 per tablet, which is already a 50 percent discount from the list price, she said.

(The problem, of course, is that commercial insurers must still cover the list price, which contributes to rising premiums.)

So few people are on Daraprim, Retzlaff argued, that its price doesn't make a significant budgetary dent. And the company reinvests 60 percent of its revenues in research.

With that, the committee returned to the more colorful—and detestable—aspects of Turing. A company yacht party with a cigar roller. The emails implying the company were more worried about public image than patient access. Shkreli’s “stupid jokes,” as Cummings called them.

Being distasteful, or even immoral, or even a douchebag, is not illegal, however. Valeant, and even Gilead, the company with the $1,000 Hepatitis C pill, are doing similar things with less attitude.

One reason our drugs cost so much more than they do in Europe is because there, governments and insurers have more power to bargain down prices with drug companies. Meanwhile Medicare, one of the biggest buyers of prescription drugs, is prohibited from negotiating drug prices with pharmaceutical companies.

So Turing exemplifies the system we have: Company buys cheap drug, drug cost soars, public gets outraged, executive is castigated, company offers generous-seeming discounts until brouhaha abates.

As Representative Peter Welch, a Democrat from Vermont, said at the hearing, "That’s a mess in the industry. We’ve got a broken market.”

It remains to be seen whether Congress will try to fix that, other than by attempting to chasten a rogue tycoon. Judging by Shkreli’s tweets, that particular strategy doesn't seem to be working: