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Martin Shkreli

Martin Shkreli

Recent articles have highlighted the drug Daraprim, a 62-year-old drug. Daraprim “was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.”

Daraprim is cheap to make. “Daraprim cost only about $1 a tablet several years ago, but the drug’s price rose sharply after CorePharma acquired it [in 2010]. According to IMS Health, which tracks prescriptions, sales of the drug jumped to $6.3 million in 2011 from $667,000 in 2010, even as prescriptions held steady at about 12,700. In 2014, after further price increases, sales were $9.9 million, as the number of prescriptions shrank to 8,821. The figures do not include inpatient use in hospitals.”

“In August [2015], Impax sold Daraprim to Turing for $55 million, a deal announced the same day Turing said it had raised $90 million from Mr. [Martin] Shkreli and other investors in its first round of financing.”

Basically, a cheap-to-make drug with a small market gets jacked up in price and is then sold for millions of dollars in a sale that is all about finance and nothing about health.

Basically, a cheap-to-make drug with a small market gets jacked up in price and is then sold for millions of dollars in a sale that is all about finance and nothing about health.

Notice that Daraprim is well outside its patent. One would think that in a “free enterprise” society, the gigantic increase in price would attract plenty of competitors. But the article says: “With the price now high, other companies could conceivably make generic copies, since patents have long expired. One factor that could discourage that option is that Daraprim’s distribution is now tightly controlled, making it harder for generic companies to get the samples they need for the required testing.

“The switch from drugstores to controlled distribution was made in June by Impax, not by Turing. Still, controlled distribution was a strategy Mr. Shkreli talked about at his previous company as a way to thwart generics.”

The drug is old, but it has been used for years, is used for relatively rare conditions, and there is no easy way for a competitor to emerge. In fact, to prevent competition, the drug maker has shifted from offering it at drugstores to “controlled distribution” designed to hamper competitors.

If the Daraprim situation were unusual, it could be disregarded as minor. But apparently Turing's price surge is not an isolated example. Taking old generic drugs and turning them into high-priced specialty drugs has become a new finance game.

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“In August [2015], two members of CongressSenator Bernie Sanders and Rep. Elijah E. Cummings of Maryland] investigating generic drug price increases wrote to Valeant Pharmaceuticals after that company acquired two heart drugs, Isuprel and Nitropress, from Marathon Pharmaceuticals and promptly raised their prices by 525 percent and 212 percent respectively. Marathon had acquired the drugs from another company in 2013 and had quintupled their prices [according to the two lawmakers].”

To solve many of the issues in high-cost healthcare, Bernie Sanders has suggested going to a “single-payer” system. That way, the single-payer is in a position to negotiate with healthcare providers and drug companies over costs. That negotation solution should work, so long as the “single payer” has the ability to find alternatives if the provider sticks to its pricing scheme. The Daraprim situation reveals a situation in which the provider has a de facto monopoly. In those situations, negotiation would probably do little to reduce cost.

Daraprim was owned from 1953 to 2010 by GlaxoSmithKline, a large pharmaceutical company. GSK did not raise the price of the drug astronomically, although presumably it could have. However, GSK makes many drugs, and if it raised the prices high on this specific drug, it might have found that hospitals and doctors were unwilling to buy other drugs from it. In other words, so long as it was manufactured by a company making many drugs, the price of Daraprim could not be raised outrageously.

Turing, on the other hand, apparently does not have that problem. It was formed to deal only with Daraprim and perhaps a few other “specialty” drugs. Thus, all of its products lack competition and it can charge what it wants.

The Daraprim situation looks as if it might be an anti-trust situation. If it is, though, it is a very peculiar one. In fact, “[a]lthough high prices charged for [certain] by manufacturers that hold a monopoly (or a near monopoly) on them can hinder access for certain patients, U.S. antitrust laws protect consumers only from anticompetitive strategies such as price fixing among competitors. Manufacturers of generic drugs that legally obtain a market monopoly are free to unilaterally raise the prices of their products. The Federal Trade Commission will not intervene without evidence of a conspiracy among competitors or other anticompetitive actions that sustain the increased price.” In other words, it would be hard to get at Turing under existing law.

We may be watching a very common scenario in which financiers buy up drugs that have only a single source, put it into a single entity, and then raise prices astronomically. No one can compete with such a company, because it only has a single product. Even a “single-payer” entity such as the government would be powerless, because the product is vitally needed, if only by a small number of patients.

If in fact our anti-trust laws do not extend to such situations, they should be quickly re-written. The FTC and private parties should be authorized to prevail over a company that buys a product that costs less than a dollar to produce, ship and sell and start charging $750.00. In fact, anyone who engages in such a practice should be thrown in jail.

Clearly, Martin Shkreli and his backers knew exactly what they were doing when they formed Turing and purchased Daraprim. They are not entrepreneurs, but thieves who found a loophole. While they themselves cannot be so punished, acts such as theirs should be punished harshly in the future.


Smoking marijuana is a crime, but what Shkreli & Co. did is not. That must change.

Michael T. Hertz