Turing CEO Shkreli replaced by chairman after fraud bust

By Caroline Humer

(Reuters) - Martin Shkreli, the poster boy for large prescription drug price increases, has stepped down as chief executive of Turing Pharmaceuticals, the company said on Friday, following his arrest for securities fraud earlier this week.

Shkreli was replaced by Ron Tilles, who has been chairman of Turing since its launch. They co-founded another pharmaceutical company, Retrophin Inc , that is at the centre of the securities fraud charges against Shkreli.

The government charges do not include activities at privately held Turing, which has been at the centre of a national drug pricing debate.

Earlier this year after buying a 60-year-old drug called Daraprim, Turing raised the price overnight to $750 a tablet from $13.50. The increase propelled Shkreli to the media spotlight: Presidential candidate Hillary Clinton pilloried him for gouging, and he was pulled into congressional drug pricing investigations.

Shkreli has appeared to bask in the attention, using social media site Twitter to prod his detractors, appearing on CNBC to defend drug price increases and telling guests at a Forbes healthcare conference earlier this month that he should have raised the price of Daraprim further.

Tilles said in a Turing statement that the company is committed to providing access to its commercial products, including Daraprim, an anti-infective drug to treat toxoplasmosis that is often taken by people with AIDS.

Turing Chief Commercial Officer Nancy Retzlaff said in a statement: "We pledge that no patient needing Daraprim will be denied access." The company said it had a programme to reduce patient co-pays in place and would expand its distribution partnerships.

Drug prices rose about 13 percent last year, driven in part by large increases in the price tags of older generic drugs such as Daraprim. Drug makers that have been criticized, such as Valeant Pharmaceuticals Inc , have begun to roll back prices.

Turing's Daraprim faces new competition from at least two large compounding pharmacies that have signed deals with the largest U.S. pharmacy benefit managers to provide the generic drug directly to doctors at a price of $1 per day.

The company said in a statement that these compounds, which combine the active ingredient of Daraprim, pyrimethamine, with a vitamin leucovorin, has not undergone the same FDA review process as Daraprim.

The government indictment said Shkreli ran his hedge fund, MSMB Capital Management, and Retrophin like a Ponzi scheme, using one company to pay off investors in the other.

He was charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy, with a maximum sentence for the top count of 20 years in prison.

In October 2014, Shkreli was ousted from Retrophin. The drugmaker sued him for $65 million, saying he had breached his duty to the company.

On Thursday night, he said via a statement that he was confident he would be cleared of all charges and denied the charges regarding his hedge fund entities. He said prosecutors and the Securities and Exchange Commission failed to understand the accounting.

Shkreli and Tilles, who was at Retrophin from 2011 to 2014, were two of the company's three board members. The third was Walter Blum, who is based in Switzerland where the company also has offices, according to the website. Reuters attempts to reach Tilles and Blum directly were unsuccessful.

Shkreli is also CEO of drugmaker KaloBios Pharmaceuticals Inc . KaloBios, which had planned to shut down operations, named him to that post on Nov. 20 after he and a consortium of investors bought about 70 percent of its outstanding shares.

The spokesman for KaloBios, who also represents Turing, did not respond to request for comment on KaloBios.

Nasdaq has placed KaloBios' stock on a trading halt until the company provides more information.

On Thursday night, Shkreli, who was released on a $5 million bond earlier in the day, tweeted "Glad to be home. Thanks for the support."

(Reporting by Caroline Humer in New York, Deena Beasley in Los Angeles and Vidya L Nathan in Bengaluru; Editing by Sriraj Kalluvila, Lisa Von Ahn and Steve Orlofsky)