Professionalism/Martin Shkreli, Turing Pharmaceuticals, and Daraprim

Background

In September 2015, Turing Pharmaceuticals raised the price of Daraprim (pyrimethamine), a drug used to treat toxoplasmosis, from $13.50 to $750, resulting in backlash from the pharmaceutical industry and criticism of the company's vocal and controversial CEO, Martin Shkreli. The price hike revealed unethical conduct in pharmaceutical companies and highlighted inconsistencies in the pharmaceutical industry's actions and its duties to patients and improving health.

Business Dealings Before Turing Pharmaceuticals

Prior to founding Turing Pharmaceuticals, Martin Shkreli involved himself in multiple business ventures, primarily in biotech fields. Shkreli left high school early to join Wall Street hedge fund Cramer, Berkowitz, & Co. in 2000. During this time, Shkreli gained recognition shorting biotech stocks. After leaving Cramer, Berkowitz, & Co., he spent time with UBS and Intrepid Capital Management honing his shorting prowess. He started Elea Capital Management in 2006. This company was relatively unsuccessful and met its end in a default judgement lawsuit with Lehman Brothers, in which Elea settled for $2.3 million. Following the lawsuit, Shkreli and his childhood friend, Marek Biestek, started MSMB Capital Management. Down the road, investigations related to Shkreli's arrest found he ran MSMB Capital into the ground with bad trades. From this fund, Shkreli launched biotech company Retrophin in 2011. Shkreli made headlines for starting his own biotech company as he had previously profited from their failures. In September 2014, Shkreli was replaced as CEO of Retrophin by its board due to loss of confidence in his leadership. Retrophin later sued Shkreli for damages.

Turing Pharmaceuticals

Business Model

Martin Shkreli founded Turing Pharmaceuticals in February 2015. Turing Pharmaceuticals is a “fully integrated biopharmaceutical company focusing on patients with unmet medical needs… [They] are dedicated to helping patients, who often have no effective treatment options, by developing and commercializing innovative treatments.” The company markets two drugs: Vecamyl (mecamylamine) and Daraprim. Daraprim is primarily used as a treatment for toxoplasmosis which is considered a “neglected” parasitic infection by the Centers for Disease Control and Prevention (CDC). Toxoplasmosis affects immunocompromised people, especially HIV positive patients.

Turing Pharmaceuticals' Code of Conduct states all Turing employees should act with "good faith and integrity.” They define integrity as: 1) following all laws, regulations, and policies which impact business operations, 2) Treating each other, customers, and patients with respect, and 3) Asking questions when unsure how to proceed with a situation. Turing claims its Code of Conduct benefits its patients, healthcare professionals, and customers.

Turing Pharmaceuticals' business model focuses on seeking out-of-patent drug licenses and reevaluating the price for profit. Closed distribution for the product and no competition allow price increases. Without drug licenses, there is no incentive to research new drugs given the low rate of return. Pharmaceutical companies counteract this by selling new drugs at higher prices before a generic version is released. However, Shkreli’s business model exploited loopholes to re-license off-brand drugs and increase their prices. Raising drug prices to earn a profit is not uncommon in the pharmaceutical industry. For example, price increases account for 29% of Merck's sales growth, 34% of Pfizer’s, and 112% of AbbVie’s according to SSR Personnel.

Price Hike Controversy

On August 7, 2015, Turing Pharmaceuticals acquired the marketing rights to Daraprim from Impax Laboratories for $55 million. A month later, Martin Shkreli and Turing Pharmaceuticals raised the price of Daraprim by 5000%, from $13.50 to $750 per pill. Shkreli claimed that despite the price increase, patient co-pays would be lower. He defended the price hike, saying "if there was a company that was selling an Aston Martin at the price of a bicycle, and we buy that company and we ask to charge Toyota prices, I don’t think that that should be a crime".

Internal documents about Turing’s business operations indicate the price hike was encouraged by economic interest. Turing now makes $375,000,000 on 5,000 bottles of Daraprim, most of which is profit. Business officials expect this to continue for three years. Turing believed it could dodge resistance from AIDS activists and doctors by framing the price hike as an issue between drug companies and insurance companies, not customers. To maintain customer loyalty, Turing said only commercial insurance companies would have to pay the full price for Daraprim. Physicians and patients can access Daraprim through Turing’s Daraprim Direct Program which claims “no patient needing Daraprim will be denied access.” Patients can access the drug three ways: 1) Uninsured patients meeting eligibility criteria have access to Daraprim for no out-of-pocket cost, 2) Patients with commercial or private insurance will not have to pay more than $10 for their prescription, or 3) Patients with Medicare Part D insurance coverage have access to a charitable foundation, to which Turing donates, to make treatment affordable. However, various clinical centers refused to associate with Turing until a price reduction was issued.

In November 2015, Turing reduced the price of Daraprim for hospitals by up to 50%. By early 2016, Turing promised smaller bottles, roughly 30 tablets, for hospitals and free sample starter packages for emergencies to reduce purchase costs. A public relations consultant from Turing suggested removing Shkreli as CEO to link the price drop with a significant event. Shkreli resigned on December 17, 2015 and was replaced by interim CEO Ron Tilles.

Criminal Investigation

Martin Shkreli testifying before the House Committee on Oversight and Government Reform in response to Retrophin's $65 million lawsuit.

In 2015, Retrophin sued Martin Shkreli for "repeatedly breaching his duty of loyalty". Retrophin representatives said Shkreli used his influence in Retrophin to enrich himself and to pay off defaulted investors in his previous hedge funds. Shkreli was indicted by the Federal Bureau of Investigation in December 2015, and released on $5 million bail. The arrest resulted from Shkreli consistently lying to his investors and using money from Retrophin to keep his hedge funds afloat; it was not associated with the Daraprim price hike. Shkreli was demonized by journalists for his demeanor during a hearing with the House Committee on Oversight and Government Reform. He refused to answer the committee's questions in a decidedly self-assured manner, and proceeded to post to Twitter: "Hard to accept that these imbeciles represent the people in our government."

Responses

Pharmaceutical Industry and Scapegoat Theory

Other pharmaceutical companies were quick to denounce Martin Shkreli and Turing Pharmaceuticals' decision to raise the price of Daraprim so high. The Biotechnology Industry Organization (BIO), an international trade association, voted to remove Turing as a member organization . The Pharmaceutical Research and Manufacturers of America (PhRMA), a United States advocacy group, released a statement saying: "Turing Pharmaceutical is not a member of PhRMA and we do not embrace either their recent actions or the conduct of their CEO." In a later tweet, the organization stated that "Turing Pharma does not represent the values of PhRMA member companies."

Despite the near-unanimous negative reactions to the Daraprim price hike from pharmaceutical companies and trade associations, Shkreli and Turing's conduct is representative of the industry. According to DRX, a provider of price comparisons between health plans, prices more than doubled for 60 drugs and at least quadrupled for 20 since December 2014. The pharmaceutical industry used Turing Pharmaceuticals and Shkreli as scapegoats to detract from the reality that price hikes are actually common pharmaceutical practice.

Elijah E. Cummings, ranking member of the House Committee on Oversight and Government Reform, sent two memos to Democratic National Committee members in preparation for a hearing involving Turing and Valeant Pharmaceuticals' price hikes. These memos included emails from CEOs Shkreli and J. Michael Pearson, corporate projections and analyses on revenues and profits, and communications with hospital officials and other healthcare providers. Cummings stated of the documents: "They confirm what Americans across the country have experienced firsthand for years — that many drug companies are lining their pockets at the expense of some of the most vulnerable families in our nation. The documents show that these tactics are not limited to a few ‘bad apples,’ but are prominent throughout the industry.”

Social Groups, Social Media, and Public Outcry

Various groups, such as patient advocacy groups, doctors, and skeptics, criticized Turing Pharmaceuticals and even Martin Shkreli following the Daraprim price hike. In 2015, the Infectious Diseases Society of America and HIV Medicine Association wrote a joint letter to Turing requesting they reduce the cost of Daraprim, claiming the price was "unjustifiable for the medically vulnerable patient population...and unsustainable for the health care system."

Multiple physicians feared the increased price of Daraprim would affect not only patients but also tax payers. Dr. Carlos del Rio, a professor at Emory School of Medicine and Rollins School of Public Health, suggested raising the price of Daraprim and other off-patent drugs encourages insurance companies to raise their rates, impacting taxpayers. Dr. Judith Aberg, an expert on infectious diseases from the Icahn School of Medicine at Mount Sinai, feared the price hike was a profit-driven venture that would result in ineffective treatment of toxoplasmosis in immunocompromised patients.

Individuals not associated with the medical or pharmaceutical industry took to social media to blast Turing, and many directly targeted Shkreli. A petition on Change.org asked Shkreli to lower the price of the drug, calling Turing "greedy" and claiming it was "gouging patients." Twitter users jeffpearlman and zoninoz, among many others angered by the price hike, directly attacked Shkreli. Shkreli often responded snidely to his critics, increasing public furor over the price hike. Attacking Shkreli for his character created an abusive ad hominem fallacy as people attributed the price increase to Shkreli's abrasive personality rather than to the culture of the pharmaceutical industry, detracting from the industry-wide issue and its impact on patients.

Politicians and Heroism

Presidential candidates Donald Trump (left) and Hillary Clinton (right).

Both Republican and Democratic presidential candidates were angered by the price hike. Donald Trump said Martin Shkreli's actions were "disgusting" and that "he ought to be ashamed of himself" When Turing agreed to decrease the price of Daraprim by 10% to increase access, Hillary Clinton called the action "insulting," to which Martin Shkreli responded "lol."

Shkreli responded to political criticism by suggesting price hikes were beneficial to both the pharmaceutical industry and patients. In a Twitter conversation with Bernie Sanders and Clinton, Shkreli questioned whether politicians would prefer pharmaceutical companies to charge high prices for their drugs to fund research and development, or if they would like cheaper drugs subsidized by Corporate America and private insurance companies who could exploit patients for profits. Although price gouging is permitted in the United States' economy, and even supported by the government, various politicians exploited the Daraprim price hike to appear heroic to compromised patients. To heighten their heroism, politicians vilified Shkreli through dehumanization and moral disengagement.

Shkreli's Professional Dilemma

Martin Shkreli's responses to his critics were crass and candid. However, his actions reflect what he felt were his responsibilities as a CEO. When asked in an interview if he would reconsider the Daraprim price hike, he responded: "I probably would have raised the price higher...I could have raised it higher and made more profits for my shareholders, which is my primary duty." Shkreli's professional judgment as a businessman was to increase his company's profits. This contradicts the pharmaceutical industry's social responsibility to place its patients above its shareholders. Further, despite pressure from his critics, Shkreli claimed that he would prefer to be authentic rather than "manufacture a personality that is fake." He provides a counterargument to online disinhibition effect, or GIFT, because despite the consequences of his publicized actions and social media posts, he does not require anonymity to voice his opinions, no matter how unethical.

Conclusions

Pharmaceutical Industry

Pharmaceutical companies recognize that older drugs can generate revenue that can fuel development of new medicines. Pharmaceutical companies claim this is good for their patients as it broadens access of treatment. Unfortunately, many of these new drugs have a much higher profit margin and serve a narrower patient base. These drugs generally include targeted biologics and expensive drugs such as the Hepatitis C drug Sovaldi (sofosbuvir), which became known as the "cure for the one percenters" after it was publicized that a full treatment costs $80,000.

In a for-profit health care system, there is an inherent conflict of interest between, as the World Health Organization claims, "the legitimate business goals of manufacturers and the social, medical and economic needs of providers and the public to select and use drugs in the most rational way." Research and development, which remains dominated by the private sector, is particularly profit-driven. The profit imperative ensures that new research projects are chosen based on which drugs are most likely to provide a high return on the company's investment. The industry shift in priority from patient to shareholder has begun to transform American health care from a profession to a business. This is especially noticeable in "Big Pharma" companies such as Pfizer and Eli Lilly.

Professional Judgment

Martin Shkreli's judgment as a professional was criticized heavily. Although price hikes in the pharmaceutical industry are common, criticism for Darparim was often fueled by Shkreli's arguable and immature attitude and comments. Further, media coverage publicized Shkreli's antics and spurred backlash. The media's effect vilified not only Shkreli but also Turing, and allowed the pharmaceutical industry to detract from the unethical nature of price hikes by disassociating from Turing. However, Shkreli's judgment as a businessman was conflicted by the differing ethical responsibilities of the pharmaceutical industry. Therefore, assessing Shkreli's professionalism in regards to the price hike is difficult as he acted as other pharmaceutical CEOs had, but was more vocal and public about his conduct, leading to a skewed perception of his actions.