[Ip-health] Washington Post: ‘Pharma bro’ Martin Shkreli and the very American debate over maximizing profit

Thiru Balasubramaniam thiru at keionline.org
Wed Sep 23 23:46:52 PDT 2015


Morning Mix

‘Pharma bro’ Martin Shkreli and the very American debate over maximizing

By Michael E. Miller September 23

By now, you’ve probably heard of Martin Shkreli.

Over the past week, the 32-year-old has become Public Enemy No. 1 thanks to
his company’s decision to raise the price of a lifesaving drug by more than
4,000 percent, from $1,130 to $63,000.

Thousands of people took to the Internet to label Shkreli a “putz,” a
“psychopath” and “Big Pharma’s Biggest A**hole.” The BBC asked whether he
was the most hated man in America. Twitter appeared to answer in the

Prescription pricing is a strange thing to stir such rage, however. After
all, Daraprim, the drug in question, is not widely used. It treats a
potentially deadly condition called toxoplasmosis that primarily affects
people with compromised immune systems, such as newborns and HIV patients.

Moreover, “Pharma bro,” as Shkreli quickly became known, is not the first
person to corner the market on a drug and then hike its price — although he
is a frequent offender.

So, how did Shkreli become the Internet’s latest villain?

Much of the reason lies with the former hedge fund manager’s unabashed
pursuit of profit.

Although Shkreli has delivered different, at times conflicting statements
about why his company, Turing Pharmaceuticals, raised the price of
Daraprim, his answer has often boiled down to this: because of capitalism.

It’s unlikely that Shkreli set out to stir a debate about the limits of the
American economic system, but that’s effectively what he has done. The
controversy comes at a time of broad concern over inequality in this
country. Bernie Sanders has made a presidential campaign out of the issue.
Even Donald Trump is talking about raising taxes on the wealthy.

With job creation, employment and corporate profits all up, yet wages
stubbornly stagnant, many Americans feel that the system is flawed.

So perhaps it’s no surprise that Shkreli, a brash young CEO who defiantly
quotes hip-hop artists on social media, has suddenly become a lightning rod.

Take one of his first comments on the current controversy. When confronted
Sunday on Twitter by a journalist covering the drug industry, Shkreli said
hiking the price of Daraprim was simply a “business decision.”

“It’s a great business decision that also benefits all of our
stakeholders,” Shkreli said. “I don’t expect the likes of you to process

When the journalist questioned hiking the price “5,000%,” Shkreli called
him “a moron.”

“So there you have it,” the journalist, Fierce Biotech’s John Carroll,
wrote later. “The unvarnished truth. It was a business decision. It was
about money. And screw you.”

Shkreli has softened his stance since then, but his subsequent comments
have similarly shown how his decision to raise the drug’s price is grounded
in capitalism, or his understanding of it, at least.

“There’s no doubt — I’m a capitalist,” he told CBS. “I’m trying to create a
big drug company, a successful drug company, a profitable drug company.
We’re trying to flourish.”

Later, in the same interview, Shkreli appeared to echo Gordon Gekko’s
infamous quote from “Wall Street” that “greed is good.”

“I can see how it looks greedy, but I think there’s a lot of altruistic
properties to it,” Shkreli told CBS. Higher profits would pay for research
and development to create a better drug that would eradicate toxoplasmosis,
he told Bloomberg News.

Although that claim has been rejected by many in the medical industry — “I
certainly don’t think this is one of those diseases where we have been
clamoring for better therapies,” Wendy Armstrong, a professor of infectious
diseases at Emory University in Atlanta, told the New York Times — it does
strike at the center of a centuries-old debate about capitalism, and a
decades-old battle over drug prices.

In his 18th-century tome “The Wealth of Nations,” economist Adam Smith
famously argued that the market functions best, and society benefits, when
individuals pursue their self-interest.

A century later, however, Karl Marx argued that capitalists’ personal
profits were the product of the exploitation of the labor force, and he
urged workers to unite in global revolution to ensure a higher standard of

Both strains of thought still exist today, but capitalism has carried the
day in most parts of the world, particularly in America. Here, Nobel
Prize-winning, free-market economist Milton Friedman argued that the only
“social responsibility of business is to increase its profits.”

Ayn Rand, another strong influence on American conservative thought, went
even further. “From her start, America was torn by the clash of her
political system with the altruist morality,” she wrote in “For the New
Intellectual.” “Capitalism and altruism are incompatible; they are
philosophical opposites; they cannot co-exist in the same man or in the
same society.”

This notion of “shareholder wealth maximization” helped “spawn the rise of
executive pay tied to share prices — and thus the huge rise in stock-option
pay. As a result, average annual executive pay has quadrupled since the
early 1970s,” The Post’s Jia Lynn Yang wrote in 2013.

But experience of capitalism’s pains has also led politicians to try to
curb its excesses, including in the pharmaceutical industry.

As far back as 1957, a Senate antitrust and monopoly subcommittee tried to
rein in the prescription drug industry’s growing monopoly powers, wrote
Ellen ’t Hoen in “The Global Politics of Pharmaceutical Monopoly Power.”
“In the late 1950s-early ’60s, the U.S. invoked government use powers on a
routine basis to order generic medicines from abroad, regardless of the
patent status of the products.”

The ethics of unlimited profits came to a head in the 1980s with the AIDS
crisis, ‘t Hoen told The Washington Post in a phone interview. There was
simply no way that people dying of the disease, particularly in the Third
World, could afford the drugs they needed.

That led to the rise of generic drugs and the realization that the pure
pursuit of profit could lead to disastrous and, ultimately, unacceptable
consequences, explained ‘t Hoen, the former director of policy and advocacy
at Doctors Without Borders’ Campaign for Access to Essential Medicines and
a key figure in the creation of the Medicines Patent Pool, which helps
provide low-cost HIV treatments in developing countries.

She said she was shocked but not completely surprised by Shkreli’s comments.

“It’s not the first time it’s happened,” she told The Post. “What you often
see is that when companies are in the position to ask the highest possible
price, and there is no opposition or measures against it, that’s what
they’ll do. We’ve seen that with HIV, we’ve seen it with Hepatitis C, and
we see it now with this product.”

The price hike could put Daraprim beyond some patients, or at least delay
its availability, she said. (Although Turing doesn’t technically have a
monopoly on Daraprim — it’s a 62-year-old drug, so the patent expired many
years ago — it effectively does. Although other companies could make the
drug, it would be difficult and take a while. “Martin picked carefully,”
Carroll, the drug industry journalist, explained on Twitter. “Narrowly
controlled ingredient as I understand it.”)

“That is why it is so dangerous to leave health care and the provision of
central medicines to the market alone,” ‘t Hoen said. “You need the
government to intervene in a situation like this.”

The drug is so inexpensive to produce, she said, that the American
government could quickly and cheaply produce enough of it to last every
American for the foreseeable future.

After insisting that Turing would not bow to public pressure and reduce its
price, Shkreli indicated on Tuesday that his company would, in fact,
discount Daraprim, although he didn’t say by how much.

‘T Hoen said that she hoped he did, but that even if he didn’t, some good
could come out of the controversy. Shkreli’s unapologetic statements and
aggressive tweets have proved akin to “putting up a huge billboard that
focuses people’s attention on drug prices,” she said.

“If this case, because it clearly touched a nerve with many people, led to
more serious government action on this, then he could get the Nobel for all
I care,” she said, conceding, however, that any price controls would be
very “un-American.”

Still, there are signs that outrage over “Pharma bro” could lead to change.

In what surely marked peak Shkreli-shredding, Hillary Clinton slammed the
CEO on Twitter for his “outrageous” “price gouging” and promised a plan to
control prescription costs. (In response to the mere suggestion of future
regulation, U.S. biotech stocks immediately took a tumble.)

Bernie Sanders also has a plan to rein in drug company profits. Meanwhile,
the issue is presenting difficult questions for Republicans.

“A true healthcare issue has just exploded like a piñata in the middle of
the 24/7 presidential campaign, scattering treats at the feet of (last
count) 14 Republican and at least 5 Democratic contenders for their
parties’ nomination,” Steve Brozak wrote in Forbes. “GOP candidates will
scramble to find ways to denounce the price hike, while simultaneously
praising the free market. Turing’s move has provided raw steak for Bernie
Sanders and Hillary Rodham Clinton.”

Even some of the staunchest free-market advocates are admitting that
“Pharma bro” has highlighted some contradictions within capitalism.

“For those with a belief in the efficacy of free markets, this has been a
dispiriting week,” wrote Martin Tillier, a financial adviser and former
foreign exchange trader, on the Nasdaq’s own Web site.

“We have been treated to two examples of what Karl Marx once called
‘Capitalism red in tooth and claw,'” he wrote, mentioning Shkreli-gate as
well as Volkswagen’s admission that it cheated on emission tests. “It is an
indication of the depths to which the two companies have sunk that the best
description of their behavior comes from that source. The two stories are
vastly different in many ways, but both show the danger of a corporate
culture that eschews basic morality in the pursuit of profit. It should be
noted that maximizing shareholder return is the most fundamental task of a
public company, and I have nothing against that, but even the most
profit-driven of executives is expected to strike a balance between that
mandate and what is the ‘right thing’ to do, either morally or legally.”

Tillier admitted that the free market had failed, at least in the short
term, and also worried that Turing’s price hike hurt others.

“To go back to Marx, his basic contention was that capitalism contained the
seeds of its own destruction,” Tillier concluded. “The kind of behavior we
have seen this week is, he claimed, an inevitable consequence of the profit
motive, and when the workers have had enough of it they will revolt. We
have learned to avoid that by regulating the excesses of the few, but in
both cases regulators must make sure that any regulation that is sparked by
the actions of Turing and VW do not inadvertently do more harm than good.”

Marx may not get the last laugh, but “Pharma bro” has given the communist’s
old complaints new life.

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