'Wolf of pharma street' shows mirror to industry

Martin Shkreli, the pharmaceutical CEO arrested on securities fraud charges this week, may have made drug price increases notorious in the US. But his strategy of finding an old drug, raising its price, and taking the profit is one that's increasingly common among a new breed of drugmakers.

Disdaining a business model dependent on expensive research and development, companies like Shkreli's Turing Pharmaceuticals AG, Valeant Pharmaceuticals International Inc, Rodelis Therapeutics and others have taken advantage of inefficiencies in the US health-care system. Old drugs can be sold at much higher prices if the owner is willing to push the boundaries of what the market will bear. Turing, for example, took a decades-old drug, Daraprim, and raised the price to $750 a pill from $13.50.

Shkreli was arrested in New York on charges related to hedge funds he ran and his old drug company Retrophin Inc. He has denied the charges, which aren't related to drug pricing. Turing declined to comment. The company announced today that Shkreli has resigned as CEO.

"Shkreli has become the Wolf of Pharma Street - he's basically come to represent everything that was bad and wrong with pharma," Art Caplan, a medical ethicist at New York University, said by phone. While Shkreli may be reviled, said Caplan, "he's not doing anything in terms of prices that other companies haven't done."

Like Shkreli, Valeant Chief Executive Officer Mike Pearson has excelled at finding cheap drugs, boosting their cost and reaping the rewards. The company took two heart drugs, Nitropress and Isuprel, and raised their prices by 212 per cent and 525 per cent, respectively. Rodelis boosted a tuberculosis treatment to $360 a pill from $20, before saying in September that it would give up rights to the drug.

Rodelis was working to ensure "long-term availability" of the tuberculosis drug, and planned to maintain patients' access, the company said on its website. The drug's rights were returned to the nonprofit Purdue Research Foundation, who sold it to Rodelis earlier this year, in September after an outcry over the price increase.

Not a new practice

Such price increases aren't a new strategy. From 2005 to 2008, Questcor Pharmaceuticals Inc, now owned by Mallinckrodt Plc, increased the price of the drug HP Acthar from $1,235 a vial to $29,086. Mallinckrodt had no immediate comment.

Questcor raised the price in 2007 because Acthar was no longer profitable, according to Mallinckrodt, and since it was acquired Mallinckrodt says its price increases have been in line with or below inflation.

Big price increases are just business, Shkreli has said. "I think health-care prices are inelastic," he said at an event in New York this month. "I could have raised it higher and made more profits for our shareholders."

Shkreli has previously said that his goal is to use his financial gains to develop new drugs and that he gives much of his company's medicine away for pennies.

At Valeant, after facing criticism of price increases, Pearson said in October that the company won't be as reliant on the practice. And he's taken pains to distance himself from Turing and Shkreli.

"To compare us to Turing is ridiculous," Pearson said during a December 15 interview with CNBC. "That is a single-product company." Valeant declined to comment for this story.

Yet Pearson has criticised Big Pharma companies for overspending on research, and the company has said that it looks for products that can be sold better and more profitably by Valeant. In Daraprim, and other drugs, Shkreli may have seen the same opportunity.

"If you talk to anyone in pharma, maybe I don't have the same resources as Pfizer, I may not have the same experience as Merck, but I'm crafty as f---," Shkreli said in a December 16 interview with the publication HipHopDX.