Well, well, well. At the end of last year we wrote about the weird series of events that could possibly lead to the DOJ getting possession of a one-of-a-kind Wu Tang Clan album called Once Upon a Time in Shaolin. The short version: in 2014 Wu Tang decided to experiment with a different kind of business model: selling a single copy of an album to the highest bidder. Nearly two years later, just as the entire world was learning to absolutely loathe a pharma man-child named Martin Shkreli, it came out that Shkreli was the guy who forked over $2 million or so for the album.
Since then Shkreli has been arrested, and things haven't gone well for him. As you may have heard, a week or so ago, the court ruled that Shkreli caused a loss of $10.4 million for investors. And, yesterday, Judge Kiyo Matsumoto further ruled on the DOJ's asset forfeiture request, granting the request to seize a bunch of Shkreli assets... including Once Upon a Time in Shaolin. The order of forfeiture specifically lays out the following assets:
(a) $5 million in cash that is currently held in an E*Trade brokerage account ending in the digits “0258” as security for the defendant’s
bond, pursuant to orders of the Court dated January 7, 2016, August 24, 2016 and October 19, 2017;
(b) Vyera Pharmaceuticals (formerly known as Turing Pharmaceuticals);
(c) the album “Once Upon A Time in Shaolin” by the Wu Tang Clan;
(d) the album “Tha Carter V” by Lil Wayne; and
(e) a Picasso painting.
Of course, don't think that this means that Jeff Sessions will now be releasing the album. I'm guessing he's not a huge fan of Wu Tang Clan, first of all. But, more importantly, it's likely that the DOJ will simply try to sell the album to get the cash value -- which will make for one hell of an interesting asset auction. But... it also means that some other rich dude might buy the album and keep it all to himself as well. Or, alternatively, someone else might try to buy it and release it. As Sarah Jeong wrote years ago (predicting all of this), it's still not clear what contractual obligations there are or if Wu Tang Clan retains the copyright:
The weird thing is that it's not clear what happens to the contract that Shkreli signed when he bought the album. Presumably, the contract allowed him to transfer his limited distribution rights if he ever sold the physical record to another person. But what happens if the record gets seized by the federal government as part of a criminal forfeiture?
Let's say the government seizes the record, sells it on GSA Auctions, and then I buy it and upload the whole thing onto the internet. If Shkreli had uploaded the whole album for free, Wu-Tang couldn't sue him—as per the terms of the contract. But if I do it, there's no contract preventing Wu-Tang from suing me, even though I'm now the rightful owner of the One True New Wu-Tang Album.
That is, unless the government manages to successfully seize Shkreli's intellectual property rights in the Wu-Tang album.
But, as per the order, the forfeiture order appears to only cover the physical album and not the associated copyright.
So, this story has been bouncing around the internet quite a bit today, but in case you somehow missed it, the Justice Department is seeking to get its hands on the only copy of the Wu Tang Clan album Once Upon a Time in Shaolin. In case you somehow missed this story, there are a few separate background pieces that are necessary to explain. First up, as a combination business model experiment/publicity stunt, back in 2014, Wu Tang Clan announced that it would be selling just a single copy of their latest album. It was an interesting attempt to bring some sort of scarcity back to music and see how the market would respond.
A year and a half later, a totally different story dominated the news. A story about a pharmaceutical company most people hadn't heard of, named Turing Pharmaceutical, buying up the rights to a drug called Daraprim, that many AIDS and cancer patients relied on... and jacking up the price on it from $13.50 per pill to $750 per pill. Soon after that, the young CEO of Turing, named Martin Shkreli, had his smirking face plastered all over the news for his trollish "I'm a villain, but so fucking what" response to all the hatred directed his way.
What does one story have to do with the other? Well, sometime after Martin Shkreli became everyone's favorite villain, it was revealed that he was the one who had purchased Once Upon a Time in Shaolinfor $2 million. While Shkreli, at times, has hinted at releasing the music, or even reselling it, nothing much has come of it. At the very end of 2015, Shkreli was arrested -- not over jacking up drug prices, but for securities fraud.
Right after the arrest, Sarah Jeong wrote a fantastic article about how the arrest might lead to the album getting out. The 4th item on the list... asset forfeiture:
If Shkreli is convicted, the direct proceeds of his crimes will now belong to the government. This is what is known as criminal asset forfeiture. (The government has not sought civil asset forfeiture here, which is a slightly different form of seizure that does not require convicting a person of a crime.)
The United States has requested the forfeiture of "any property, real or personal, which constitutes or is derived from proceeds traceable" to the crimes in the indictment against Martin Shkreli. But when the US attorney said he did not know where the funds for the purchase of the Wu-Tang album came from, he was implying that the album would not be the subject of criminal asset forfeiture.
However, in our wild and improbable hypothetical, the album is implicated in the case and ends up being seized. If Shkreli is convicted, then the album might then become the subject of criminal forfeiture. The multi-million-dollar work of art would then end up on GSA Auctions, alongside dilapidated drug-running Chevrolets and extremely questionable lab equipment.
So... it's now two years later and that "wild and improbable hypothetical" has become fact. The government has filed for criminal forfeiture of Shkreli's assets. You may recall that he was convicted earlier this year and is in jail. As a quick side note: this is different than civil asset forfeiture -- the process we regularly complain about involving law enforcement taking money and assets from people without ever charging anyone for a crime. This is criminal asset forfeiture, after the person has been convicted of the crime, and where the government seeks to disgorge them of the profits from the criminal activity.
Here, the Justice Department notes that Shkreli owes them a lot of money. And it wants to get at his assets:
The Court should hold Shkreli financially accountable for his criminal conduct by requiring him to forfeit the amounts above, which total $7,360,450.00, and enter a forfeiture money judgment against him in that total amount. As set forth herein, this total amount represents a conservative computation of the proceeds Shkreli personally obtained as a result of his three different securities fraud crimes of conviction. Furthermore, pursuant to 21 U.S.C. § 853(p) and Fed. R. Crim. P. 32.2, the government seeks forfeiture of certain substitute assets of Shkreli in order to partially satisfy the forfeiture money judgment.
Got that last part? Basically, he should cough up this money, but if he can't we're going after his other assets... including:
Specifically, the following substitute assets owned by Shkreli have, to date, been identified and now that Shkreli has been convicted, the Court should direct that they be forfeited to the United States in partial satisfaction of his forfeiture money judgment: (a) $5 million in cash that is currently held in an E*Trade brokerage account ending in the digits “0258” as security for Shkreli’s bond, pursuant to orders of the Court dated January 7, 2016, August 24, 2016 and October 19, 2017; (b) Shkreli’s interest in and the monetary value of any and all shares held in an entity called Turing Pharmaceuticals; (c) the album “Once Upon a Time in Shaolin” by the Wu Tang Clan, as well as any proceeds derived from the sale of such album; (d) the album “The Carter V” by Lil Wayne, as well as any proceeds derived from the sale of such album; (e) an Enigma machine, as well as any proceeds derived from the sale of such machine; and (f) a Picasso painting, as well as any proceeds derived from the sale of such painting.
The other album listed, the Lil Wayne one, is another one that Shkreli claims he's the sole owner of. Except, of course, that one appears to have been a leak of some sort, and not through a Wu Tang style sale.
Of course, does this mean that once the US government gets it, the Wu Tang album can be released to the public? It would be a strange world if the US government were suddenly the record label for what would likely be a hugely popular album. But... that's unlikely to be how it works. Wu Tang Clan likely still holds the copyright (there was no indication that they also transferred the copyright with the album, though it's possible?). Jeong went through some of the scenarios in her post two years ago:
The weird thing is that it's not clear what happens to the contract that Shkreli signed when he bought the album. Presumably, the contract allowed him to transfer his limited distribution rights if he ever sold the physical record to another person. But what happens if the record gets seized by the federal government as part of a criminal forfeiture?
Let's say the government seizes the record, sells it on GSA Auctions, and then I buy it and upload the whole thing onto the internet. If Shkreli had uploaded the whole album for free, Wu-Tang couldn't sue him—as per the terms of the contract. But if I do it, there's no contract preventing Wu-Tang from suing me, even though I'm now the rightful owner of the One True New Wu-Tang Album.
That is, unless the government manages to successfully seize Shkreli's intellectual property rights in the Wu-Tang album.
Seizing the actual rights to the album would certainly be an odd move, but not unprecedented. In May, the federal government tried to seize the trademarks of the Mongol Nations motorcycle club after securing criminal convictions against many of its members, and then bringing a RICO indictment against the club itself. They ultimately failed—but not because trademark seizure isn't possible.
Still, the Mongol Nations forfeiture was likely targeted at suppressing future use of the trademark, rather than setting up a government-owned Mongol Nations swag shop. "I don't think the FBI will start a Wu-Tang imprint," said Parker Higgins, copyright activist at the Electronic Frontier Foundation.
And, of course, don't expect to FOIA it away from the government either. Attempts to get other copyright-covered works via FOIA haven't worked out so well.
Still, prying it out of Shkreli's hands, at least increases the possibility that wherever else it ends up may be more likely to figure out a way to get it out into the world...
In the continually developing saga that is the Wu-Tang Clan's unexpected entanglement with the embodiment of everything that's wrong with the pharmaceutical industry, it is now apparently time for the bogus lawsuits to begin.
Artist Jason Koza, a Wu-Tang Clan fan, is suing Tarik Azzougarh, a rapper, producer and manager "associated" with the group, along with one of its members (RZA) and pharma supervillain Martin Shkreli, last seen pleading the smirk in front of a Congressional hearing.
Koza's story is as follows, in his own words, from his own filing [heavily edited for clarity and length]. (h/t The Hollywood Reader)
Mr. Koza has long admired the music of the Wu-Tang Clan, and in late 2013 and early 2014, he rendered original portraits of nine members who recorded the group’s first album.
The nine portraits are titled: “Ghostface Killa-Koza,” “GZA-Koza,” “Ol’ Dirty Bastard-Koza,” “Method Man-Koza,” “Masta Killa-Koza,” “Inspecta Deck-Koza,” “U- God-Koza,” “RZA-Koza,” “Raekwon-Koza” (hereinafter the “Wu-Tang Clan Portraits”)...
In or around late 2013 or early 2014, Mr. Koza saw a solicitation on the WuDisciples.blogspot.com website stating as follows: “Every Thursday we will be posting up pics of Wu-Tang artwork from fans, artists and aliens. If you have artwork you would like to share, please email us at: WuArtTats@gmail.com.”
Mr. Koza submitted digital images of his nine Wu-Tang Clan Portraits to the WuArtTats@gmail.com email address and the works were posted on the WuDisciples.blogspot.com website.
The WuDisciples.blogspot.com did not display any language or disclaimer granting the website a license for submitted works.
Mr. Koza did not grant an express license to the WuDisciples.blogspot.com for the use of his Wu-Tang Clan Portraits, although he intended that they be used for the limited purpose of public display on that website.
Mr. Koza did not authorize the use of his Wu-Tang Clan Portraits outside of the implied license he granted for their display on the WuDisciples.blogspot.com.
Upon information and belief, prior to 2014, Defendants Diggs and Azzougarh began work on a new Wu-Tang Clan album.
[...]
Upon information and belief, in 2015, Mr. Diggs and Mr. Azzougarh completed production of a new Wu-Tang Clan album, which had been recorded secretly over the course of several years, titled “Once Upon a Time in Shaolin.”
Upon information and belief, the album was sold with a leather-bound book containing, inter alia, unauthorized copies of all nine of Mr. Koza’s Wu-Tang Clan Portraits.
Upon information and belief, Mr. Diggs and Mr. Azzougarh made, or caused to be made, the unauthorized copies of Mr. Koza’s Wu-Tang Clan Portraits that were included in the leather-bound book.
Upon information and belief, in 2014 or 2015, Mr. Diggs and Mr. Azzougarh engaged New York-based online auction house Paddle8 as their agent to sell and/or distribute the “Once Upon a Time in Shaolin” album, including the leather-bound book that contains the infringing copies of Mr. Koza’s artwork.
This $2 million album, along with the book of artwork allegedly containing Koza's portraits, is now in former Turing Pharmaceutical head Martin Shkreli's possession.
Koza may have a case against the unauthorized use of his work in the book sold to Shkreli. Nothing on the Wu-Tang fan site indicates Koza would have handed over his rights to his artwork by having it posted there. If those responsible for putting the book together used his work, then he may have a fairly solid infringement case.
However, Koza did not register his artwork with the US Copyright Office until February 1st of this year, which is well past the point in time the infringement allegedly occurred. (The album was sold in 2015 and the book of artwork was compiled before the sale.) This may cut him out of the statutory damages he's seeking as these fees are only retroactive if the registration occurs within 90 days of publication. In his own recounting of the events, Koza indicates the first publication (at the Wu-Tang fansite) occurred sometime prior to April 8, 2014 -- the point at which he was contacted by Azzougarh about the "one copy album" he and RZA were putting together. Koza's copyright filings occurred nearly two years later.
Despite Martin Shkreli doing nothing more than paying an exorbitant amount for an album packaged with a book of artwork he likely assumed was properly licensed, Koza wants to nail him for infringement as well.
Upon information and belief, the album was unique in that only one copy was produced and Mr. Shkreli is contractually prohibited from distributing further copies commercially for 88 years following the sale.
On January 29, 2016, Mr. Koza saw an article published by Vice.com that included photographs of the leather-bound book that was included with the album.
The pictures in the article revealed that at least three of Mr. Koza’s Wu- Tang Clan Portraits were reproduced in the book: “Raekwon-Koza,” “Ol’ Dirty Bastard-Koza,” and “Inspecta Deck-Koza.”
Mr. Koza never gave his permission, express or implied, for any third party to copy, distribute, or publicly display copies of his works, other than his submission to the WuDisciples.blogspot.com website for the limited purpose of displaying the works thereon.
The thing about purchased items is that "third parties" are mostly free to do what they want with their purchased goods, including displaying artwork they purchased. That this was "displayed" in an article at Vice.com does nothing to implicate Shkreli or Vice. Shkreli has the Right of First Sale and Vice.com has fair use -- even if Vice selected which pictures would be published. Koza's legal arguments in relation to this supposed infringement are pretty much nonsensical.
Mr. Shkreli has infringed Mr. Koza’s exclusive right of public display by permitting at least three of the nine Wu-Tang Clan Portraits to be displayed to the public in a news article without Mr. Koza’s permission or license.
Including "in a news article" in his claim pretty much guarantees Vice.com's fair use defense will work, if a judge even lets the case get as far as requiring a response from the website. As for Shkreli, he's done nothing wrong, which is probably the first time that's been said about him since his ascension into the public eye.
Koza even tries to claim his truncated email exchange with Azzougarh -- combined with the fansite's nonexistent statement on who retains what rights to submitted artwork -- somehow coheres into a contract the defendants have violated.
The facts alleged regarding Mr. Koza’s submission of the nine Wu-Tang Clan Portraits to the WuDisciples.blogspot.com website and the subsequent communications between Mr. Koza and Mr. Azzougarh give rise to an implied-in-fact contract for a license from Mr. Koza for use the nine Wu-Tang Clan Portraits in the album in exchange for payment from Defendants.
Once a judge reviews this mess of a lawsuit, it's very likely most of the defendants will be dismissed. On the sort of bright side, if the lawsuit makes it far enough, the exclusive book owned by Shkreli may be entered into evidence, giving Wu-Tang fans a chance to see at least nine pages of the multimillion dollar book.
But as far as legal assertions go, Koza's are at least as shaky as anything delivered to date by Wu-Tang members unhappy with their album being in the possession of the Most Hated Man in America (Corporate Division). But at least when one of them does it, it's far more entertaining. Calling Shkreli "the man with the twelve-year-old body" beats "somebody owes me money... probably" any day of the week.
Update: We mistakenly identified Vice Magazine as a defendant in the law suit in our original headline. Vice has not been named as a defendant.
In a bit of an early Christmas present for the Internet, Turing Pharmaceuticals CEO Martin Shkreli was arrested early Thursday morning for securities fraud (less than a day after Bloomberg had a big article about what a stock trading savant he was). According to reports, the Internet's least favorite human being had been under investigation since January for illegally taking stock from a biotechnology company he started in 2011 (Retrophin) to pay off unrelated debts, using a number of shell companies:
"...federal prosecutors accused Shkreli of engaging in a complicated shell game after his defunct hedge fund, MSMB Capital Management, lost millions. He is alleged to have made secret payoffs and set up sham consulting arrangements. A New York lawyer, Evan Greebel, was also arrested early Thursday. He's accused of conspiring with Shkreli in part of the scheme."
Turing and Shkreli came to fame for raising the price of Daraprim, the preferred treatment for a parasitic condition known as toxoplasmosis, some 5000% (from $13.50 to $750 per pill). After the much maligned CEO then appeared to backpedal and promise a price reduction for the drug, Turing released a highly dodgy press statement right before the Thanksgiving holiday making it abundantly clear that wouldn't be happening. On a positive note, Shkreli's behavior has prompted a much-needed examination of pharmaceutical industry business practices, and specifically the practice of jacking up prices on previously inexpensive generics.
Shkreli's name then remained in the headlines after it was discovered he'd purchased the only copy of the Wu-Tang Clan album Once Upon a Time in Shaolin for the rock-bottom price of $2 million -- months before his rise to "fame." And in a recent interview on the album's purchase, Shkreli tries to vaguely imply that the entire Turing pharmaceutical shit show has been performance art:
"To me, what I’m doing right now in the media,” Shkreli continues, “raising prices, all this shit, believe what you want, but it’s interesting. It gets people talking. At the end of the day, that’s what art is.
Well, maybe less like art and more like bad fiction. Bad fiction about a greedy toddler getting what's owed, and just in time for the holiday season.
When last we checked in with the internet's least-liked human being, the CEO of Turing Pharmaceuticals was backpeddaling on his promise to lower the cost of the AIDS and cancer fighting drug Daraprim, and hiding it ahead of the Thanksgiving holiday in the hopes that fewer people would notice (it worked relatively well). CEO Martin Shkreli, you'll recall, increased the price for Daraprim from $13.50 per pill to $750 -- a 5000% or so mark up for a sixty-two-year-old medication. Shkrelli brought renewed attention to the skyrocketing prices of generics thanks to (ab)using restricted distribution to deny samples to generics manufacturers.
But there may be a small ray of sunshine in what's an otherwise dismal tale of greed. Prescription drug manager Express Scripts has indicated that the company will soon promote use of a compounded medicine that contains the same active ingredient as Daraprim, and offer it at a fraction of the price. Express Scripts manages prescriptions for tens of millions of Americans and will be pushing the compounded alternative made by Imprimis Pharmaceuticals. The new compounded alternative includes Daraprim’s active ingredient, pyrimethamine, as well as leucovorin, included to treat side effects.
"Compounded drugs are customized formulations made by pharmacies for particular, named patients. That requirement restricts how directly Imprimis can compete with Turing. For instance, hospitals cannot stock the compounded version to use for patients coming to the emergency room.
Imprimis, which is publicly traded, is not allowed to make a direct copy of Daraprim. So its capsule contains both pyrimethamine and leucovorin, a drug that is often prescribed with Daraprim to ease certain side effects. If a doctor writes a prescription for Daraprim, Express Scripts or pharmacies cannot substitute the compounded drug produced by Imprimis. So physicians will have to write a prescription specifically for the compounded drug and fax it to Imprimis."
It's a bit of a cumbersome tap dance (so glad we're still using faxes in the age of gigabit fiber), but at least it's an alternative. Impremis has stated it plans to offer the compounded drug for as low as 100 capsules for $99. Express Scripts in turn will help speed delivery of the cheaper option, working with the Infectious Diseases Society of America and the HIV Medicine Association to inform medical professionals about the alternative. Turing has so far responded by telling media outlets that "in addition to being potentially unsafe and ineffective, the compounded product is unnecessary."
Granted, the actual impact may still be low; Express Scripts states it only had 350 patients who used Daraprim last year. Still, it's the principle of the thing, and it's nice to see the market -- even if it has to jump through hoops to do so -- giving Shkreli and Turing a few quick kicks to the shins.
When last we checked in with Martin Shkreli -- founder of Turing Pharmaceuticals and the personification of everything that's wrong with the pharmaceutical industry and mankind -- he was feebly defending his company's decision to jack up the price of a 60-year-old medication some 5000%. Shkreli became America's least liked human being after his company increased the price per pill of Daraprim (used by both AIDS and cancer patients) from $13.50 per pill to $750 per pill. After relentless criticism, Shkreli appeared to backpedal, claiming last September the company would lower prices:
"We’ve agreed to lower the price on Daraprim to a point that is more affordable and is able to allow the company to make a profit, but a very small profit,” he told ABC News. “We think these changes will be welcomed."
Yeah, or not.
Hoping to bury any criticism ahead of the Thanksgiving holiday, Turing released a dodgy press release on Wednesday implying the company had finally seen the error of its ways and would be reducing the cost of Daraprim. Except it's not actually doing anything of the sort. While the company will offer hospitals a 50% discount (now only a 2500% mark up) and is engaging in a few superficial efforts most companies already offer via their patient assistance programs, the press release buries the lede in that the core price of Daraprim isn't going anywhere.
And, just to add insult to injury, a company spokesman insists that's a good thing because (I kid you not) lower drug prices don't benefit patients:
"Drug pricing is one of the most complex parts of the healthcare industry. A drug's list price is not the primary factor in determining patient affordability and access. A reduction in Daraprim's list price would not translate into a benefit for patients."
There's nothing complex about being a raging asshole. There's also nothing complex about a former hedge fund manager jacking up the price of an essential drug 5000% (as is happening with many previously-inexpensive generics), pretending he'd seen the error of his ways, then feebly trying to hide his total lack of integrity ahead of a long holiday weekend.
Martin Shkreli -- who became the personification of a deeply-reviled industry thanks to his insanely-exorbitant price hike on a 60-year old drug -- has heard the disapproving roar of the crowd and will do… something… at some point in the future… to make things right. Or at least a bit more right-ish.
“We’ve agreed to lower the price on Daraprim to a point that is more affordable and is able to allow the company to make a profit, but a very small profit,” he told ABC News. “We think these changes will be welcomed.”
With nothing else to go on (other than Shkreli's continued assertions that the drug is still underpriced), the public will just have to assume that the new price point, whenever it arrives, will be barely above cost. (Considering it was produced for a $1/pill before Turing's purchase, one would think a significant reduction in price would still leave plenty of room for profits and additional R&D.)
Turing's mini-debacle has damaged the pharmaceutical industry. It has drawn even more heat from legislators and presidential candidates. It has even negatively affected more tangible aspects, like stock prices. Shkreli's actions have also drawn attention to the oft-ignored regulatory procedures that allow companies to fully exploit old drugs and medications, even without the protective power of active patents. Derek Lowe at Science Magazine explains the route to securing post-patent monopolies.
By various means, old generic compounds have ended up as protected species, and several companies have made it their business to take advantage of these situations to the maximum extent possible. The FDA grants market exclusivity to companies that are willing to take “grandfathered” compounds into compliance with their current regulatory framework, and that’s led to some ridiculous situations with drugs like colchicine and progesterone. (Perhaps the worst example is a company that’s using this technique to get ahold of a drug that’s currently being provided at no charge whatsoever).
Combine this with the bottleneck Turing generously refers to as "distribution" (via a single specialty pharmacy or directly from Turing itself) and you have everything you need to demand any amount you want for a lifesaving drug with a limited market. Everything being said about R&D investment is just smoke until proven otherwise.
Following his short statements promising unquantified price drops at an unspecified point in the future, Martin Shkreli -- who seemed to relish praising himself/insulting his detractors from this social media platform -- took his Twitter ball and went home.
Turns out the market will bear far less than Turing thought, even with the benefits of a tightly-controlled distribution chain and the FDA's assistance in keeping competitors off the playing field. A whole lot of people who will never use the drug managed to nudge the price downward, and all within 48 hours.
Martin Shkreli -- founder of Turing Pharmaceuticals and overnight poster boy for everything that is wrong with the pharmaceutical industry -- spent a lot of yesterday defending his 5000% price hike on Daraprim, a drug that treats victims of toxoplasmosis. That the drug has a nexus with cancer and AIDS sufferers (basically anyone with a diminished immune system) made the price increase seem even more unconscionable.
He claimed raising the price from $13.50/pill to $750/pill was done in the interest of the same people who would likely find it suddenly prohibitively expensive to take the drug.
“With these new profits, we can spend all of that upside on these patients who sorely need a new drug in my opinion.”
Dr. Wendy Armstrong, professor of infectious diseases at Emory University, questions Turing’s claim that, after more than 60 years of physicians using Daraprim, there is a need for a better version of the drug.
“I certainly don’t think this is one of those diseases where we have been clamoring for better therapies,” says Armstrong.
Next, there's the inherent ridiculousness of this assertion, which portrays Turing's plans for Daraprim as a reverse pyramid scheme, in which future "investors" will benefit from the gouging of those who got in on the ground floor.
On top of that, Shkreli claims the drug is still underpriced, despite having been sold for $1/pill before its acquisition by the company Turing acquired it from.
While it's true that drug research and development can be expensive, it is nowhere near as costly as this price hike would indicate. Shkreli tossed out the easily-debunked claim that it costs $1 billion to bring a new drug to market. The actual cost is considerably lower (~$55 million), according to research using the same data drug companies provided to backup their claims of $1.3 billion in R&D costs per new drug.
Data also shows pharmaceutical companies spend far more on marketing than research and development. They have to. Most "new" products on the market aren't actually new. They're just variants on what's already available. It's tough to sell a "new" drug that doesn't outperform a competing product, hence the increased marketing expenditures.
Shkreli also used a variant of "everyone else is doing it" to defend the price jump. He pointed to the existence of other cancer drugs costing "over $100,000" per treatment as justifying Turing's price increase. But being slightly less exortionate than competitors isn't the same thing as being "good."
Shkreli has little interest in being good, no matter what altruistic assertions he makes. His former company -- from which he was ousted over accusations of stock price manipulation -- also jacked up the price on an essential drug just because it could.
When Retrophin acquired rights to Thiola, the drug cost about $1.50 per pill. [Patients take multiple pills per day.] Now, Retrophin has decided to charge more than $30 for the same Thiola pill. Retrophin says it has plans to change the Thiola dose and develop an extended release version of the drug, but I have seen none of those changes yet. To my knowledge, Retrophin hasn't yet done any of this work -- except to drastically increase Thiola's price.
And indeed, Retrophin never did. From a 2015 presentation, it's generating sales for Retrophin, but nowhere in it is any indication the company is actually working towards an extended-release version of the drug.
I asked Shkreli about this and he claimed the company ditched the R&D plans after it ousted him. Maybe this is true, but it doesn't exactly instill any confidence in Shkreli's latest claims that price hikes are being done with an eye on increased R&D spending. Instead, they look like nothing more than the normal deflection performed by drug companies after controversial price increases.
Other circumstantial evidence does little for consumer confidence. Not only is Shkreli being sued by his former company for fraudulent behavior, he's previously been taken to court (by Lehman Brothers) for a $2.3 million loss he incurred (but never repaid) when his bet on a market decline went south. The complaint accuses him not only of failing to pay Lehman what was owed, but of pushing through the transaction without actually possessing the funds to cover the original purchase.
Shkreli also has a history of thriving on market failure. He has made money shorting pharmaceutical stocks while simultaneously engaging in questionable behavior. Here's a "treatise" he wrote detailing the negative aspects of one company's research efforts, which clearly states at the top of each page (for legal reasons) that he stands to personally gain if the company's stock price drops.
DISCLAIMER: The authors of this article have a conflict of interest and will benefit financially if the stock price of VTL falls. The authors reserve the right to change their investment if the price of VTL changes dramatically. Please read the Disclosure at the end of this paper for more information.
(This was tracked down from a deleted tweet by Martin Shkreli. Other Twitter users had commented on it, so it was recoverable from Google cache. Here's a screenshot, because the cache won't stay live for long.)
But he's also been accused of actions that are more than simply treading the edge of legality. A heated Twitter exchange implies Shkreli talked the FDA out of a drug approval -- something that hurt the company producing the drug, but paid off for Shkreli's stock short.
Shkreli's history does little to back up his assertions of altruistic goals and a future full of well-funded research and development. Instead, it shows someone who's willing to exploit every last dollar out of something and leave its dessicated corpse behind.
What he has done is anger the "community" he's a part of. Drug prices were already being subjected to the scrutiny of crusading legislators. Now, drug prices are no longer under the Congressional microscope. They're also being projected onto the Jumbotron that is social media. No less than presidential candidate Hillary Clinton offered up her view on the price hike, promising a plan to address the problem.
On top of that, share prices for several drug companies fell the day the Daraprim price hike went viral. That this may have worked out well for Shkreli can't be ignored, considering his prior experience with shorting pharmaceutical companies. Maybe this was part of the plan: Short pharma stocks. Jack price up on newly-acquired drugs. Play the villain while cashing in on the market decline.
That's all speculation, of course. What is certain is that Martin Shkreli is not THE problem. (He's not even "Big Pharma," even though several editorials have placed him in this group.) He's part of the problem, but his specific actions are more about exploiting obscure drugs that competitors aren't interested in. His actions shed little light on the genesis of high drug prices.
The original issue is patents. That has been mostly ignored by legislators and opinion pieces during the most recent push for some sort of drug pricing controls. And it will continue to be ignored because Daraprim's price hike is completely unrelated to patent monopolies. Turing's exclusive license for Daraprim includes only the use of the trademarked name. The patents have expired. Anyone can make it, but no one's been particularly interested in offering an alternative. (Maybe this will change now that a company has a chance to take on the villain du jour…)
But it's patents that make drugs unaffordable in the first place. New drugs are given, at minimum, 20 years of competition-free sales. That's two decades (at least) where drug companies can charge whatever they want because no one else can offer a competing product. Companies -- like Shkreli -- will claim they need this exclusivity to recoup "massive" research and development costs. But this simply isn't true. Pharmaceutical companies enjoy massive profit margins, much more than would be expected if they were faced with meaningful competition. The lie is exposed when patents expire. Prices fall dramatically once the market is opened, including that of the original manufacturer's.
So, if the government really wants to tackle the problem of overpriced drugs, it needs to start with the protections it grants that allow this to happen. But this seems unlikely to happen because drug companies have significant "buying power" when it comes to legislation, no matter how many people come forward to testify about being priced out of essential treatments.
Shkreli, however, is specializing in finding "orphan drugs" -- drugs for rare conditions that are no longer under patent protection (which would raise the acquisition price significantly) but which have seen little to no competitive movement over the years. His decision to implement a 5000% price increase, despite minimal costs (and benefiting from R&D performed 60 years ago), is one he can make because there's no market force in place to stop him. So, he may be the poster boy for everything that's wrong with the pharmaceutical industry, but he's not really indicative of the ongoing problem.
What he is, however, is an opportunist with a hedge fund background and a history of market exploitation. Any claims of altruism or searches for better treatments should be met with intense skepticism.
When pharmaceutical companies defend outrageously-priced medicines, they often claim these massive profit margins are there to help them recoup the money dumped into research and development. But that has nothing to do with the high prices. R&D costs are consistently lower than companies portray them. The real reason for exorbitant drug prices is a monopoly granted by patents, which lock out all competitors for years. And when the patent nears expiration, pharma companies extend their monopoly by doing questionable things -- like testing high-powered, opiate-based painkillers on children -- just to extend the patent protection for another few months.
None of that, however, explains this: (h/t to Techdirt reader pixelpusher220)
Turing Pharmaceuticals of New York raised the price of Daraprim from $13.50 per pill to $750 per pill last month, shortly after purchasing the rights to the drug from Impax Laboratories. Turing has exclusive rights to market Daraprim (pyrimethamine), on the market since 1953.
Daraprim fights toxoplasmosis, the second most common food-borne disease, which can easily infect people whose immune systems have been weakened by AIDS, chemotherapy or even pregnancy, according to the Centers for Disease Control.
In this case, any research and marketing costs have long since been recouped (or at least amortized). The patents behind the drug -- all granted between 1951 and 1954 -- should be dead. Conveniently for Turing (and other rights holders before it), no company is offering a generic version.
Every time the drug has changed hands (and it's done it more than once), the price has gone up. But no other company has increased the price quite as much as Turing Pharmaceuticals has. Perhaps that's because Turing spent a significant amount of money to acquire an exclusive marketing license, but with none of the attendant patent exclusivity.
Impax Laboratories, Inc. (NASDAQ: IPXL) today announced that it has sold its U.S. rights to the Daraprim brand to Turing Pharmaceuticals AG for approximately $55 million.
Turing, of course, realizes this price jump -- which puts one month's supply in the new vehicle range ($45-50,000) at minimum -- is going to be tough on those expected to pay for it, but claims to have support in place to help absorb some of the ridiculous increase.
A Turing spokesman, Craig Rothenberg, said the company is working with hospitals and providers to get every patient covered. This includes free-of-charge options for uninsured patients and co-pay assistance programs.
This sounds like exemplary altruism in the face of a presumably unavoidable [hah] increase in price. But a closer look at what Turing is actually doing shows the company will be forcing patients to choose from all of two options:
For inpatient procurement, institutions can no longer order from their general wholesaler. Instead, they must set up an account with the Daraprim Direct program. Once enrolled, orders may be placed with the company until 6 pm Monday through Friday and will be delivered the next business weekday, because there is no weekend delivery at this time.
For outpatient procurement, patients can no longer obtain the medication from their community pharmacy. All prescriptions must be transmitted to a single dispensing pharmacy: Walgreens Specialty Pharmacy. Upon insurance verification and co-pay collection, the prescription will be mailed to the patient’s home, and most prescriptions can be mailed overnight.
This presents a problem for hospitals. Although the drug is low-use (it combats the effects of toxoplasmosis -- something that can cause serious issues for those with weakened immune systems, like cancer/HIV patients), it still is needed often enough that the two access routes just aren't enough.
My institution recently encountered a difficult scenario in which pyrimethamine was attempted to be obtained through the Walgreens Specialty Pharmacy. The patient in question was currently homeless, and therefore did not have a home or address to which the medication could be delivered. Additionally, the manufacturer did not yet have a system in place to address the situation.
This could have been extremely problematic, but fortunately, my institution is affiliated with a Walgreens Specialty Pharmacy and contracted to provide bedside delivery to patients prior to discharge. The patient was able to receive the pyrimethamine as an inpatient.
Turing, of course, defends the increased price by claiming the exorbitant profit margin will result in increased R&D. But let's take a closer look at what its spokesman is actually saying.
Rothenberg defended Daraprim's price, saying that the company will use the money it makes from sales to further research treatments for toxoplasmosis.
Translation: this money will be dumped into finding another variation to patent, thus locking out potential competitors and allowing Turing to continue charging whatever it wants for the medication.
They also plan to invest in marketing and education tools to make people more aware of the disease.
Translation: we will market the hell out of this new drug.
This sort of thing isn't exclusive to Turing. It's standard MO for all pharmaceutical companies. Rather than engage in meaningful competition, these companies are awarded lengthy monopolies on drugs and treatments by the US government. Turing is no different than Amedra -- part of the holding company acquired by Turing along with the Daraprim rights. But when Amedraacquired the rights from GlaxoSmithKline, it somehow managed to keep its price hike to a couple of dollars, rather than several hundred.
This huge price jump has more to do with the man running Turing, Martin Shkreli. Shkreli doesn't have a background in pharmaceuticals, but he does know how to run a hedge fund. And he's used this expertise to become highly-unpopular very quickly.
Since founding Turing last year, Shkreli has taken a page from what made Retrophin a high-profile--and controversial--player among small biotech companies. Retrophin's stated goal was ferreting out value in biopharma by acquiring assets with potential in rare and neglected diseases, a process that can mean acquiring an underused drug and jacking up its cost to take advantage of rare disease pricing.
In September 2014 Retrophin acquired the rights to thiola, a drug used to treat the rare disease cystinuria. It was with Shkreli as CEO that Retrophin introduced a 20-fold price increase for Thiola, despite no additional research and development costs incurred by obtaining these rights.
Turing is basically Retrophin 2.0, or more accurately, Shkreli being Shkreli. Shkreli may have still been helming Retrophin at this point, had his own company not ousted him. In August, his former company also sued him, alleging financial impropriety.
It appears that Shkreli is a bit too comfortable operating in gray areas. The market-related shadiness alleged in the lawsuit appears to be just part of Shkreli's everyday business affairs.
In an uncommon move, Shkreli himself led the Series A financing, and Turing isn't naming any of its other backers, calling them "preeminent institutional equity investors" and leaving it at that. In a filing with the SEC last week, Turing counted 34 individual participants in its funding round but reported raising just $62.7 million.
This reported total of the funding round didn't match the claimed total ($90 million). Shkreli had an answer for the missing funding. And that answer was "Shut up."
A spokesman for the company declined to explain the $27.3 million difference, and further questions about the company's financials were met with a terse email from Shkreli asking FierceBiotech not to contact Turing again.
The unasked question has its answer: why did Turning flip the switch on a 5000% price increase? Because it can. And it's not just the people being prescribed Daraprim that will eat the cost. It will be every customer of every health insurer that covers the rest of the cost of these prescriptions. These additional expenses will eventually result in higher health insurance premiums. And while Turing is offering to help out those with little to no insurance, these costs -- whether they're absorbed by health care institutions or the government itself -- will be passed on to the general public as well.
