Pharma Bro Emails Reveal Just How Greedy Drug Companies Can Be

Never mind what happens to the patients.

02/02/2016 06:24 pm ET
Richard Drew/AP Photo
Would you buy a life-saving medicine from a man like Martin Shkreli? You might not have a choice.

"$1bn here we come."

That was the triumphant message sent by then-Turing Pharmaceuticals CEO Martin Shkreli, the infamous "Pharma Bro" who jacked up the price of a life-saving drug by 5,000 percent last year, when it became clear his firm could acquire the rights to the medicine. The email went to Turing's presumably pleased board of directors last May.

To anyone who's followed this story since The New York Times shined a spotlight on Turing and intensified the national debate about prescription drug pricing last fall, the Shkreli email and other documents made public by the Democrats on the House Government Reform and Oversight Committee Tuesday do little more than confirm the basic facts. Turing raised the price of Daraprim, which treats a deadly parasitic infection called toxoplasmosis that afflicts HIV/AIDS patients, because it could. The company reaped a windfall, followed by a massive backlash that forced out Shkreli without providing any relief to patients.

But this kind of drug pricing strategy isn't limited to one rogue executive or company. Though rarely quite so blatant, it's woven throughout the pharmaceutical industry.

Other documents released Tuesday reveal similar moves by Valeant Pharmaceuticals. The Valeant documents show that it purchased two heart medications, Isuprel and Nitropress, in early 2015 and subsequently hiked the prices by 525 percent and 212 percent, respectively. In just one year, the company racked up $351 million in profits from those two drugs alone.  

Rep. Elijah Cummings (Md.), ranking Democrat on the House oversight committee, made public excerpts from some 250,000 pages of documents that Turing and Valeant had provided to the panel.

5,000 paying bottles at the new price is $375,000,000 -- almost all of it is profit. Martin Shkreli, then CEO of Turing Pharmaceuticals

"I think it will be huge. We raised the price from $1,700 per bottle to $75,000. ... So 5,000 paying bottles at the new price is $375,000,000 -- almost all of it is profit and I think we will get 3 years of that or more. Should be a very handsome investment for all of us. Let's all cross our fingers that the estimates are accurate," Shkreli wrote in one email.

Shkreli, current Turing executives and the head of Valeant are scheduled to testify before the House committee Thursday as part of Congress' investigation into drug pricing. But the panel likely won't get much satisfaction from the former CEO, who appears under subpoena. Shkreli plans to invoke his Fifth Amendment right against self-incrimination and refuse to answer questions. That's not stopping him, however, from mouthing off to reporters and on Twitter, or from attempting to pick a fight with a prominent hip-hop artist.

Shkreli also faces criminal charges stemming from alleged securities fraud. The Huffington Post asked Shkreli's defense attorney, Benjamin Brafman of Brafman & Associates in New York, to comment on the House Democrats' report.

Braff replied by email only to confirm that he represented Shkreli and to say this about the criminal case (emphasis his): "THE CHARGES ARE VERY DEFENSIBLE, AND WE ARE CONFIDENT THAT HE WILL BE FULLY EXONERATED. IT IS CLEAR THAT MR. SHKRELI NEVER INTENDED TO VIOLATE THE LAW, NOR DID HE EVER INTEND TO DEFRAUD ANYONE."

Turing trades in medicines for uncommon illnesses. Valeant is similarly focused on "orphan drugs," which have a very small user base and are generally treatments for rare diseases and disorders, the House Democrats' report notes.

The documents suggest that Valeant's primary concern in raising prices was not the effect on patients' health, but the possibility of negative publicity. "Valeant's upcoming price increase on three drugs … has the potential to insert Valeant into the ongoing dialogue about orphan drugs, and therefore needs to be managed carefully," one document reads.

Divorced from Shkreli's notably outlandish and provocative behavior, these and other comments from Turing and Valeant executives might simply sound like businesses evaluating a market and setting a profit-maximizing price. But they underscore how the market for medicines works differently from many other parts of the economy.

Like Valeant's orphan drugs, Daraprim had no direct competitor when Turing acquired it. Because so few patients need the drug, there was little incentive for anyone else to make it, although another company has since entered the market. Because toxoplasmosis is so dangerous to HIV/AIDs patients, they and their health insurance providers couldn't simply say no when the price skyrocketed.

Shkreli and Turing knew this, of course. "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," reads one slide from a Turing presentation.

While the Daraprim profiteering is egregious, pharmaceutical companies large and small have been increasing prices for all manner of medicines in recent years, including for the generic drugs that are supposed to be the cheapest, as a Bloomberg News report illustrates. Shkreli even pointed to other companies' behavior as a justification for Turing's actions last year.

Turing continues to maintain that its motive in raising Daraprim's price was to produce additional income to advance the science of toxoplasmosis treatment. "The revenues generated from the price increase fund both research and development and patient access programs," it wrote in a lengthy statement to HuffPost.

There is little evidence in the documents released by House Democrats, however, that company executives were concerned with anything other than boosting profits and quelling the public outrage that followed.

Shkreli reneged on a public vow to reduce the price last year. Turing's internal strategy emphasized hiding the cost from patients and avoiding fights with HIV/AIDs advocates and customers like hospitals, the new documents show.

Moreover, pharmaceutical companies often deflect concerns about high costs by touting their patient access (or assistance) programs, which provide free or low-cost medicines to uninsured people or cover the co-payments for those with insurance.

Valeant employed this strategy when patients complained about prices, giving the neediest customers drugs at a very low cost. "Kind of hard to paint us as greedy if we have removed financial barriers for patients," one marketing executive wrote.

Trying to silence critics by lowering prices for some desperate people avoids the real debate about high pharmaceutical costs, which are paid by insurers and government programs even when drug makers subsidize certain patients. Americans in particular get hit hard by drug companies' profit-driven behavior. 

The structure of the global pharmaceutical market is not balanced, according to Mahmud Hassan, director of Rutgers Business School's pharmaceutical management program. The U.S. is the world's only major market, he said, where pharmaceutical prices are unregulated. As a result, U.S. patients, health insurers and the government typically pay more for prescription medicines than their counterparts in countries with national health programs.

There is a tradeoff: The high prices paid by Americans help fund pharmaceutical companies' development of new drugs -- which they then sell around the world.

"The U.S. is subsidizing the entire world for those expensive drugs," said Hassan.

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