Fault Lines
16 January 2019

Going To Plaid: Should the Ludicrous Pricing of Life-Saving Drugs Be a Crime?

Oct. 1, 2015 (Mimesis Law) — Taking a break from all of the death penalty and controversial execution conversations of late, I’m taking a very different topic out for a drive: white collar crime in the pharmaceutical industry. A couple of weeks ago, a story in the New York Times caught everyone’s attention: buying pharmaceutical assets on the cheap and then hiking the price of the drugs to stratospheric proportions.

While this story went viral, it’s not a new tactic, as a Wall Street Journal article from earlier this year points out. The company at the center of this brouhaha is Turing Pharmaceuticals and its puppet master, Martin Shkreli. The drug at issue: Daraprim, a 62-year-old medication used to treat the parasite infection toxoplasmosis, a condition that can be life-threatening in those with HIV, AIDS, or compromised immune systems. Toxoplasmosis may be difficult to pronounce, but what is not difficult is the pronounced climb of Daraprim’s price in mid-September, moving from $13.50 to $750 per pill—an increase of 5,400 percent.

This isn’t Shkreli’s first rodeo, and Turing Pharmaceuticals isn’t alone in peddling once-affordable drugs back for insane prices. Horizon Pharma pushed the price of its pain tablet, Vimovo, up by 600 percent. Other drug companies have similarly bought drugs on the cheap and then flipped them into profit centers.

Shkreli formerly helmed Retrophin, another pharmaceutical company that he founded, now suing him for $65 million. During his turn as CEO of Retrophin, that company amped up the prices on a 1980s kidney medication by roughly 20 times its original cost. Much like the current Daraprim scandal, Retrophin, purchased the drug, Thiola, and moved the price of each individual pill from $1.50 to $30.

Thiola treats cystinuria, a lifelong disease for which there is no known cure nor alternative medication. The disease affects about 20,000 patients in the United States who are typically diagnosed at a very young age.

Shkreli quickly has become one of the world’s most hated men. Now, one might think that just like profiteering providers of goods in a hurricane, this conduct is a crime. But the answer is not really (spoken like a lawyer). There are state laws that prohibit price gouging and federal laws that deal with antitrust violations and market manipulations. There even was some failed federal legislation a few years ago, but really nothing on point that has the teeth to legally clamp down on this practice, especially when pharmaceutical companies justify their prices by using the predictable defense of “we need to charge more to offset the cost of research and development.”

But outside the law, public opinion does matter. So, Shkreli caved a bit after the story broke and agreed to lower the price. It remains to be seen what the new price will be, but in a neat post-script to this story, more news about Shkreli has come out, and it seems like the feds are pursuing the (alleged) price-hiking swindler.

Since January, 2015 (and possibly earlier), Shkreli has been under criminal investigation by federal prosecutors in the Eastern District of New York. The criminal investigation appears to be in tandem with the million-dollar lawsuit filed against Shkreli by Retrophin. The quick and dirty: Shkreli took money, lied about it, and broke securities laws.

Shkreli may not answer for his history of price-hiking life saving drugs, but he may be his own worst enemy. He appeared on television and tweeted to validate and win support for the price adjustment. Instead, he fell under the microscope and earned the outrage and disgust of politicians, lawmakers, and the very people he depends on to buy the drugs. The firestorm over his actions makes him far more attractive to prosecutors than he was in January.

With shots fired on multiple fronts, even the pharma lobby backed away from Shkreli. The Pharmaceutical Research and Manufacturers of America, a trade group that represents the pharmaceutical industry in the U.S., dumped Turing like a hot potato and tweeted:

@TuringPharma does not represent the values of @PhRMA member companies.

Even the leading Democratic presidential candidates, Hilary Clinton and Bernie Sanders, got in on the bashing and condemned the obscene price inflation. Clinton labeled it “price gouging” and used it to support her recent proposals to reduce drug costs. No word on whether Republican candidates will adopt a similar platform. Doubtful, based on current conditions.

Whatever your thoughts on capitalism (the Pope included), this practice is a problem. The return on investment should not trump the health and well being of sick Americans.

4 Comments on this post.

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  • Mark Draughn
    1 October 2015 at 8:50 pm - Reply

    Whatever the reason the feds are taking a look at Martin Shkreli, I don’t think we should be applauding the idea that prosecutors might be more likely to press charges because lots of people are angry at him for doing something that’s apparently legal. That’s not what prosecutor’s discretion is for.

    And however you may feel about stores that raise prices during a hurricane, at least hurricanes are natural events. What’s happening here is enabled by the Food and Drug Administration. The generic version of Daraprim, pyrimethamine, is available all over the world, including from countries with drug quality regulations comparable to ours, for less than the price of Duraprim before Turing Pharmaceuticals bought the rights.

    If someone in the federal government wants to lower the price of Duraprim, they don’t have to threaten Shkreli with prosecution. All they have to do is let Americans import the drug from Europe or Canada.

    • shg
      1 October 2015 at 9:24 pm - Reply

      Somewhat correct, but not entirely. Because Daraprim has been sold through a closed distribution system, the generics makers have been prevented from doing the requisite bioequivalence studies needed for FDA approval. So yes, the FDA could just allow generic in, despite not having satisfied their requirements. Or, if Turing didn’t control distribution to prevent it, generics could be tested as the FDA requires.

      Pinning blame on the FDA is somewhat disingenuous, unless one considers their studies (and the precedent bypassing studies would create) needless, which might be a reasonable view given that the generics are used safely around the world.

      • Windypundit
        2 October 2015 at 2:38 am - Reply

        This whole situation is possible because of the framework of rules enforced by the FDA (although I’m guessing that Congress had something to do with it as well). These rules may make sense when dealing with new drugs that can help a lot of people, but Daraprim is an old drug, and it’s an “orphan drug” that is only dispensed to a few thousand patients every year in the U.S. That’s not enough money to entice competitors into going through the expense of bringing their own drugs to market.

        (Or at least not at the old price. The new price is probably high enough to encourage competitors to develop their own generic versions of the drug…which is where they run into the problem you describe with getting enough Duraprim to prove bioequivalence.)

        One way to get more pyrimethamine manufacturers into the market is for the FDA to reduce the regulatory barriers to entry for orphan drugs, including the barriers to importing the drugs from other countries. With a new drug, reducing barriers might be high-risk, but with a drug that’s been around for decades and which is available from sources approved by other advanced industrial nations…yeah, I suspect the FDA studies aren’t really needed.

        • shg
          2 October 2015 at 6:43 am - Reply

          As I said, it’s a fair argument, particularly for someone who isn’t fond of regulatory schemes in the first place. But if you’re going to make it, you need to include the itty bitty detail that it requires the FDA to forego its regulatory scheme in order to compensate for Turing’s intransigence before you can place blame on the FDA.

          Other people would say that the regulatory scheme for drug testing of generics produced outside the US is still worthwhile, and that ignoring it is not sound, whether because of precedence or public safety. And even so, it merely provides an alternative, and does nothing to alter the initial blame. Is a killer less of a killer because a doctor failed to save the victim’s life?