Dear Martin Shkreli: This Is How You Hike Drug Prices

Tyler Durden's picture

Last week, when the 15 minutes of fame, or rather infamy, of Turing Pharma CEO Martin Shkreli came and went following his now ill-fated attempt to boost the price of a toxoplasmosis drug by 5000%, we said two things: "Martin Shkreli's (who started his Wall Street career working for Jim Cramer, and apparently still owes the Lehman estate $2.3 million for a Put trade gone wrong) decision to disturb the fragile equilibrium in the biotech industry" and "now that Shkreli's 15 minutes of fame are over and his Twitter profile is now in "private" mode the attention should shift to the real villains - those truly big pharma companies, who do what Shkreli did but on a far vaster and grander, if less obvious, scale taking advantage of the price cushioning effects that Obamacare provides."

Today, this is precisely what happened, when as we reported previously Democrats on the House oversight committee sent a letter demanding that serial biotech rollup Valeant Pharmaceuticals should provide documents explaining hefty price increases for two heart drugs.

As the WSJ adds, "Valeant refused early this month to provide documents sought by Rep. Elijah Cummings (D., Md.) and Sen. Bernie Sanders (I., Vt.) explaining the 525% and 212% price increases the company took on the two drugs the day it acquired their rights, saying the requested information was “highly proprietary and confidential."

That probably would have been the end of it... had it not been the NYT article from last weekend blasting Shkreli's decision to bring the attention of the entire country to the biotech space in general, and price gougers such as Turing and Valeant in particular.

The immedaite reaction to today's news was a historic collapse in Valeant's share price, which crashed by 17% leading to $600 million in losses for Bill Ackman, and forcing the continued brutalizing of biotech stocks, which just suffered their worst day in 4 years.

Which brings us back to Shkreli's action - the ridiculous (or very savvy, if as we suppose he had a massive short biotech trade on to begin with) decision to bring attention not only to himself but the entire drug space with a 5000%+ price hike. As a reminder, what Shrekli did was not in any way unique: everyone else did it too, they were just much smarter about how to do it.

In a report issued just hours after the subpoena news hit, famed short-seller Citron research, which was just waiting for the news about the Valeant's potential subpoena, declared that VRX stock is worth at best $135/share in the short term (which would mean the end of Pershing Square) and "worse" in the longer-term, because all the company does is serially acquire numerous small companies simply to raise the prices of their existing drug portfolio into the stratosphere.

Or rather, just below cloud level. Because this is where the difference between Valeant and Turing is to be found. While the entire US population was shocked, appalled and outraged at Shkreli for daring to boost the price of one drug by 5000%, apparently nobody had a problem with Valeant jacking up the prices of nearly 30 drugs by anywhere between 90% and 786% on the high end, with one solitary outlier, Ofloxacin ear drops seeing its price soar by 2288%.

Valeant's price increases, or gouging as some would call it, are shown in the chart below courtesy of Citron:

And there you have it: boost the prices of dozens of drugs in the span of 1-3 years anywhere between 100% and 800% and nobody notices (thank you insurance companies). But hike the price of one drug by 5,500% and suddenly all of America thinks you are satan incarnate.

Indeed, as Citron concludes, "In the Twitter-storm furor over Turing’s recent one-drug price gouge attempt, the media has overlooked the reality that Martin Shkreli was created by the system. Shkreli is merely a rogue trying to play the gambit that Valeant has perfected."

But, as Citron also adds:

"Martin Skrelli has put a face to the gouging of America by pharmaceutical companies. The media seems roused to demand answers. Now Senate Democrats are demanding action, and this is the stimulus."

 

And just like Shrekli burst the Valeant bubble and led to broad contagion across the biotech sector, Valeant's far more egregious pricing strategy, in the words of Citron, "jeopardizes the entire US pharmaceutical industry, and its status as a leader in the development of drugs for the entire medical system."

Finally, perhaps the Shkreli-Valeant episode should serve as a wake up call to the US public and the media that "serves" it, and serve to answer the question: just what is the threshold that activates popular aversion - why is it one instance of a grotesque price increase which in the grand scheme of things has a small nominal impact has such a vastly greater impact on the popular psyche over thousands of smaller cases which however when combined, lead to far greater spending on drugs by a far greater group of people... and yet snuck by unobserved for so long.

In any event, absent some massive bribe by the biotech lobby of Congress, the glory days of the biotech bubble are now over.

Oh, and in conclusion now that Hillary's populist fury at price-hiking biotechs is so tangible one can almost taste it, we conclude with what we said one week ago:

We also are curious to see how Hillary's populist outrage at Shkreli will be explained when the public realizes that it is only thanks to the benefits of socialized insurance programs such as Obamacare, of which Hillary is a staunch supporter, that such price gouging was possible in the first place.

As Citron notes, "The US is the only developed country without some form of control over drug pricing; we have the highest pharma prices in the world. Most of the reason devolves from a backroom deal cut when the Bush administration set in motion the Medicare Drug benefit and inexplicably (if you’re not a lobbyist) gave away the rights of the US Government -- the nation's largest buyer of pharmaceuticals -- to negotiate drug prices with suppliers."

Surprise: the ultimate patsy in this latest get rich quick scheme is... you, dear taxpayer.

* * *

Full Citron letter below (pdf)

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Bastiat's picture

Not even aspirin for me. Fuck 'em.

SuperRay's picture

Tylers, I love ya!

   You still have the naive belief that Americans have the capacity to link two dots together.  Linking Obamacare to pharmaceutical gouging will not happen, because they have to connect dot one, increases in their premiums, to dot two, usurial (is that a word?) increases in the cost a a drug they're not taking.   The Department of Education has long since removed understanding causal chains as a requirement in the common core and its predecessors.  Besides, Obama is such a folksy guy, it would be racist not to love him...

SMG's picture

It must be great to not have a conscience, or care about anything else but yourself. 

Nothing wrong with making a profit, but a free society without a soul or a conscience will destroy itself.

mtl4's picture

You need to be alot worse than that to get into the billionaire club.

Pseudo Anonym's picture

how do you figure?  where  do you live?

...but a free society without a soul or a conscience will destroy itself.

we here in the west are nothing but zombies and debt slaves to hofjuden fiat.  we dont know what free society is.  what is it anyway this free society?

MayIMommaDogFace2theBananaPatch's picture

usurial (is that a word?)

I think the word you are looking for is usurious.

http://dictionary.reference.com/browse/usurious?s=t

OrangeJews's picture
OrangeJews (not verified) Bastiat Sep 28, 2015 5:37 PM

Use Boswellia for inflamation... it's an herb.

RopeADope's picture

This did not sneak by unobserved to professionals within the healthcare industry.

Which means that Obamacare is a purposefully criminal action.

The GOP completely dropped the ball on this, but being criminals themselves they could not really go around crying "Crime!"

Squid Viscous's picture

And Ackman was just helping out the folks with his Herbalife crusade...

what a smug, unethical, piece of shit kike...

world_debt_slave's picture

just another reason I don't take medications

bankonzhongguo's picture

What do you expect when a secret group of industry and government wonks arrange for government subsidized prices on drugs.

I'm not one for government intervention in markets or products, but considering the madness of Obamacare to mandate people (citizens - not illegals) buy a private product, then why not have the government (the citizens) set up master non-profit drug manufacturers for these common off patent drugs at a penny or dime a dose.

Obamacare is a failure because NOBODY EVER was interested in controlling health care "costs" (profits).

I know that sounds pretty sophomoric, but for the US to pay these crazy prices is equally evil or stupid.

Face it.  You really can't have a for-profit industry that thrives on the suffering of human beings.

The scientists, clinicians and lab people are the true heroes of medical innovation and they should be celebrated like rock stars.

But these human stains and their families running these pharma and insurance cabals should be given a dose of their own medicide.

 

centerline's picture

+1.  If the rule of law was followed, the racketeering charges would be miles deep.

Glasnost's picture

"You really can't have a for-profit industry that thrives on the suffering of human beings."
 
You can actually.  It's called the American sickcare system.

But yeah.  It should never be a public requirement to purchase a private product.  Public requirement to purchase a (fully) public product okay fine.  That's what they do in some 'welfare' states.

The current mandate though is essentially equivalent to making it a requirement for citizens to buy an Apple product.  Well then, Apple might as well increase its prices by X amount cause everyone has to buy it anyways...just like colleges might as well charge whatever they feel like since the cost(loan) is backstopped by government.

TeethVillage88s's picture

How many US Citizens die in the USA from Medical Mistakes or Medical Mistakes in our Hospitals?

JAMA Published a study long ago that found 90,000 had been killed by doctors or staff mistakes. Also they found the data collection is very difficult to use to make any kind of determination without years of manual searches. I heard there ws a follow up study that found it was more like 90,000 people per year that died in this way.

I have to search for these studies.

Also seems like USA is #14 or maybe #39 in Global Health care, I have to search that one too.

TeethVillage88s's picture

Here it is: JAMA Published 2001, July 25, 2001, Vol 286, No. 4. Estimating Hospital Deaths Due to Medical Errors, Preventability Is in the Eye of the Reviewer, Rodney A. Hayward, MD; Timothy P. Hofer, MD, MS. Design Retrospective implicit review of medical records from 1995-1996. The number of deaths in US hospitals that are reportedly due to medical errors is disturbingly high. A recent Institute of Medicine report quoted rates estimating that medical errors kill between 44 000 and 98 000 people a year in US hospitals.1

Estimating Hospital Deaths Due to Medical Errors - JAMA
jama.jamanetwork.com/article.aspx?articleid=194039
Jul 25, 2001 ... Context Studies using physician implicit review have suggested that the number of deaths due to medical errors in US hospitals is extremely ...

How Many Die From Medical Mistakes in U.S. Hospitals? - ProPublica
http://www.propublica.org/article/how-many-die-from-medical-mistakes-in-...
Sep 19, 2013 ... That would make medical errors the third-leading cause of death in America ... He told ProPublica that he has confidence in the four studies and the estimate by James. ..... JAMA published this original data over 10 years ago.

Errors in Health Care: A Leading Cause of Death and Injury - To Err ...
www.ncbi.nlm.nih.gov/books/NBK225187/
Two studies of large samples of hospital admissions, one in New York using 1984 ... Medication errors account for one out of 131 outpatient deaths and one out of ..... of Adverse Drug Events in Hospitalized Patients. JAMA . 277:307–311, 1997.

Hospitals continue to make preventable mistakes - The Boston Globe
https://www.bostonglobe.com/metro/2015/06/10/hospitals-continue-make-pre...
Jun 11, 2015 ... “It's extraordinary the amount of medical errors and deaths that occur ... the journal JAMA Surgery of a study of surgical “never” events — errors ...

Death by Medicine By Gary Null, PhD; Carolyn Dean ... - webDC.com
www.webdc.com/pdfs/deathbymedicine.pdf
meticulous study indicate that conventional medicine is “the leading cause of death” in the .... Journal of the American Medical Association (JAMA). ... errors, the annual death rate could be as high as 420,000 for hospital inpatients alone.

Doctors Are The Third Leading Cause of Death in the US, Killing ...
http://articles.mercola.com/sites/articles/archive/2000/07/30/doctors-de...
Jul 30, 2000 ... This week's issue of JAMA is the best article I have ever seen written in the ... 7,000 -- medication errors in hospitals; 20,000 -- other errors in hospitals ... First, most of the data are derived from studies in hospitalized patients.

Medical error - Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Medical_error
In the UK, a 2000 study found that an estimated 850,000 medical errors ..... " Estimating Hospital Deaths Due to Medical Errors: Preventability Is in the Eye of the Reviewer". JAMA: the Journal of the American Medical Association (Journal of the

-

US Ranks #37 as per WHO, US is worst of all Developed Nations.

https://en.wikipedia.org/wiki/World_Health_Organization_ranking_of_healt...

SuperRay's picture

"You really can't have a for-profit industry that thrives on the suffering of human beings."

Wow.  and Wow again.  That is quite a statement, considering that all defense contractors (and the bankers who finance them) have been doing that forever.   Next you'll be telling me that corporate CEO's actually CARE about whether what they're doing to generate profits is causing people to suffer.  Are you doing a colon inspection, dude, or do you just like having your head up there where the sun don't shine?


TeethVillage88s's picture

And US System is health Maintenance, pain management, symptom management.

There is little funding and training in prevention.

Prophylactics are offered which provided a funding stream, flow of capital to the Pharma Company.

Check Out What's Hidden in Obama's Budget, Jennifer Briney lays it out pretty good.
https://www.youtube.com/watch?v=hWLmhH8sQIs

Congress passes bills each week mostly for Bankers/Finance, Fossil Fuel Industry, and Pharma

Peak Finance's picture

What a stupid statement:

Face it.  You really can't have a for-profit industry that thrives on the suffering of human beings.

Funny how everything worked JUST FINE till Johnson started fucking with healthcare during the "Great Society" scam.  Fucked it up so badly healthcare was "unoffically" bankrupted just 4 years after he left office, only to be "saved" by the creation of HMO's and healthcare plans, until those too cracked 30+ years later. 

Prices on ALL UNREGULATED MEDICAL TREATMENTS HAVE FALLEN, like cosmetic surgeries, Lasik Eye surgery, etc!

Also, other countries that have fully "capitalistic" healthcare systems like Singapore and Thailand are solvent. 

Nels's picture

 

Face it.  You really can't have a for-profit industry that thrives on the suffering hunger of human beings.

Now go and demonstrate because McDonald's isn't free. 

One of these industries thrives on relieving hunger, the other (should) thrive on relieving suffering.  Note which industry has no monopoly status, and low barriers to entry.

centerline's picture

Big pharma has been fucking the US for as long as I can remember.  And the real tragedy is that a big part of what should be done is just to enforce the laws that are on the books.  But, of course, we know the story there.

RaceToTheBottom's picture

Nail Gun prices have remained relatively stable.  Make use of it.

TeethVillage88s's picture

So under Kapitalism, the Insurance Companies never fight the price of Drugs in your medical system?

Americanski, that is really fucked up.

Is Korrupt System, Da?

Flash44's picture

Short pharmaceuticals long homeopathic and or alternative medicine. 

Flash44's picture

Short pharmaceuticals long homeopathic and or alternative medicine. 

NuYawkFrankie's picture

Wouldn't you just LOVE to wipe that smirk off his face?

Not if_ But When's picture

Looks like yet another BERNIE SANDERS act in behalf of the population outside the "socialism-enjoying .01-1%".  You know, the rest of us and all?

csmith's picture

"...why is it one instance of a grotesque price increase which in the grand scheme of things has a small nominal impact has such a vastly greater impact on the popular psyche over thousands of smaller cases which however when combined, lead to far greater spending on drugs by a far greater group of people... and yet snuck by unobserved for so long."

 

Ah, it's called "PR".

"We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of."

Edward Bernays

donkeyhaute's picture

that little Igby lookalike plays his role a little too well.  he needs to take acting lessons from the Virginia TV shooting crew.

Bemused Observer's picture

Thank you donkeyhaute!

Yes, he is a planted stooge...the greasy hair was a nice touch. As was the rat-like face, and the attitude.

I expected him to start cackling madly, and start rubbing his hands together while threatening to "Take over the WORLD!"

I hope Hillary paid him enough for all the heat he's taking now.

pupdog1's picture

He is Hillary, minus the cankles.

Agent P's picture

I missed the story.  Why does everyone hate this guy?  Did he shoot a lion or something? 

antonina2's picture

Does this article suggest that all private businesses that rely on tax payers (or the countries indebtedness) should have limited profitability or run by taxpayers, ie socialised?

teslaberry's picture

what is wrong with jacking up drug prices? do people not raise rent on real estate when they buy it?

 

is this NOT capitalism!?

 

the problem isn't the prices, nor is it the unlimited low interest rates and free money, it is the government fda and other institutions and licensing agencies that prevent the salesa nd production of more drugs and more of all sorts of remedies for anything and everything, including the complete capture of the insurance company model that insures 'approved' drugs get paid off by heatlhcare to the exclusion of everything else. 

 

insurance should be illegal and everything would be solved.

Crocodile's picture

If there were many competitors; could they raise it like that apart from collusion?  You confuse MONOPOLY with CAPITALISM. 

Crocodile's picture

Tetracycline went up by 17K%; no kidding.  The higher the prices go the fewer the poison we will take..I say raise all of them by 20,000% and help really extend lives.

 

"For instance, the per-unit price for a 500 mg capsule of tetracycline, a common antibiotic, increased from $0.05 cents to $8.59, a more than 17,000 % increase."

http://www.modernhealthcare.com/article/20141009/NEWS/310099962

docinthehouse's picture

He is Satan-esque.  So are all thoeyse other fucking companies.  Yet Obama fiddles with selfies.  Now we are getting a little closer to that Satan thingie.

vincent's picture

They'll investigate his "minimal market participation" and the trades he and his douchebag fratboys placed.

And he is a total Fuck.. the kind you just want to stomp

 

skipjack's picture

I'm tired of the snide comments about the American public. How about some snide comments bemoaning the FACT that none of the other price increases EVER made it into the "news", alternative or mainstream.

NEWSFLASH for all you bozos - I wouldn't have a clue what ANY drug cost this year, let alone last year, because I don't take any. Nor does any entity with which I or most people are familiar, publish a public list where I can see manufacturer prices year over year. So unless I go looking for the info for some unspecified reason, where the fuck would I ever see it in my daily life ?!?!?

mastersnark's picture

That's right, obey the govt media and do the 2 Minute Hate of groups that take advantage of the "health insurance" rules established by DC...do not get mad at the rules...get mad at the players...hate the players...DC is your friend...DC knows best...

Charming Anarchist's picture

You all feel so hard-done-by because the BigPharma is not drugging you cheaply enough???

Shit. 

These higher prices are a blessing in disguise, as far as I am concerned.  The gene pool is getting infested with weaklings! 

My kids will be stuck having to breed with sickly humans who are too expensive to survive WITHOUT big pharma. 

 

What the fuck is wrong with you people????Think of the children!!

slvrizgold's picture

Is he Jewish? Yup. What do you expect? His ancestors sacrificed and drank blood from abducted Gentile babies.

Immortal Flatulence's picture

 

 

 

1. This smug dirt bag was just so blatent he attracted attention, but indeed, EVERYTHING "medical" is grossly overpriced.

2. When .gov is the biggest player in anything, John Q Taxpayer gets fleeced.

3. A scientific law is a statement based on repeated experimental observations that describes some aspects of the universe. A scientific law always applies under the same conditions, and implies that there is a causal relationship involving its elements.

Therefore...

4. # 2 is a scientific law.