THE WORLD’S MOST-HATED MAN TRIES TO EXPLAIN HIMSELF
Combative CEO opens up about his past, setbacks and the pharmaceuticals industry By Julie Creswell and Andrew Pollack
Martin Shkreli was trying to explain himself, so he turned to YouTube. In the conference room at Turing Pharmaceuticals, the company he heads, his fingers flew across a laptop keyboard and up popped a YouTube video on a large wall screen. It was a heartfelt appeal from three young brothers in North Dakota who suffer from a degenerative and often fatal brain condition. “Only 300 people in the country have this disease,” Mr Shkreli said.
Why show the video? “I invented a new drug,” to treat the disease, he said, shrugging nonchalantly. “But it’s hard to sell a drug for 300 people, to go through the process. You have to charge a lot per person to make it a viable product.”
His point was that new drugs — especially for rare conditions — don’t come cheap and someone has to pay for them. This is more truism than earth-shattering revelation. But Mr Shkreli has become a public villain for twisting that notion to apply to a decades-old drug that Turing merely acquired. By raising the price of that drug overnight to $750 a pill from $13.50, he became a caricature of pharmaceutical industry greed.
A former hedge fund manager, Mr Shkreli drew the wrath of consumers, became a talking point in the presidential campaign and spurred federal and state inquiries. And in a sharp slap, just Tuesday, Express Scripts, the largest pharmacy benefit manager, endorsed the use of a compounded alternative to Daraprim, the $750 pill. That treatment will sell for about $1 a pill.
Rather than cower as he takes a beating, Mr Shkreli seems to relish his time in the ring. He taunts his critics on Twitter or wherever he can. Last month, he and a group of investors took a large stake in another drug company. He sparred contemptuously with an executive of Express Scripts at a recent Forbes conference.
In Turing’s Manhattan offices last Tuesday, Mr Shkreli, 32, wore a black T-shirt and dark jeans and seemed less brash than his public persona but no less boastful. While he said that he receives little compensation from his companies, he became wealthy as a result of his investments.
Even before the Daraprim price increase, his business practices had come under scrutiny. He acknowledged the regulatory and criminal investigations into claims of wrongdoing at hedge funds he once controlled as well as at Retrophin, the public pharmaceutical company he ran — and from which he was expelled. But he was dismissive of their importance.
Besides, he said, returning to his theme: The high price on the drug Turing sells is a way to raise enough revenue to develop new medicines for debilitating illnesses.
Critics say that if Turing wants to develop new drugs, it should use money from investors, like most biotech startups do, not burden existing patients and hospitals.
“This is a stupid investment,” said Dr Carlos del Rio, a professor at Emory University and chairman of the HIV Medicine Association, referring to Turing’s $55 million purchase of the Daraprim rights. “They paid a fortune for it, and now they have to recover their money.”
For Mr Shkreli, money isn’t the sole motivation. His name is on two patents held by his former company, Retrophin, for drugs to treat the degenerative brain disease afflicting those North Dakota brothers. He says he’s working on “an even better version” of the drug at Turing.
He’s doing this, he added, “partly to spite my old company.” Then he gave a cheeky grin. Mr Shkreli grew up in a small apartment in Brooklyn with his three siblings and parents, immigrants from Albania who, he said, worked janitorial and other odd jobs. Neighbours say the family kept to itself. He was clearly bright. He was admitted into Hunter College High School, an elite Manhattan public school for the intellectually gifted. But former classmates said he was more interested in chess and playing electric guitar in a band. He stopped attending classes and was asked to leave before his senior year.
“I didn’t like the conformity of the school,” Mr Shkreli said, “the expectations.”
He received the credits needed for his high school degree through a program that also placed him in an internship at the Wall Street hedge fund Cramer, Berkowitz & Co.
He took classes at Baruch College, worked briefly for a Wall Street investment bank and then, in his early twenties, started his own hedge fund, Elea Capital, using a couple of million dollars he obtained from an investor.
Elea met its demise in 2007, when Mr Shkreli made a $2.6 million bet that the stock market would decline. It didn’t. At least not at the right time for him.
“I learned a lot about using leverage, the perils of leverage,” he said. “Back then, this was almost 10 years ago, I was rushing to succeed. I made a monster bet that the market would crash, and I was wrong.”
The lesson didn’t sink in right away, as Mr Shkreli kept taking big risks. Despite Elea’s failure, he was able to attract enough money to start a second, bigger hedge fund, MSMB Capital.
In 2011, while still running MSMB, he started Retrophin, which adopted a business strategy that had been used by other companies like Questcor Pharmaceuticals and Valeant Pharmaceuticals. It acquired old, neglected drugs, usually for rare diseases, and raised their prices to be closer to those of modern drugs. Retrophin, for instance, raised the price of Thiola, used to treat a disease that causes kidney stones, to $30 a pill from $1.50.
Mr Shkreli said that higher prices made the supply more secure and were better for patients because they gave the company the financial wherewithal to educate doctors about the diseases and possible treatments. Many cases of cystinuria, the disease Thiola treats, are undiagnosed, he has said.
But there was discord within the company. On Sept 30, 2014, Retrophin announced that its board had replaced Mr Shkreli, effective immediately.
A lawsuit filed by Retrophin this summer illuminates some of the strife. According to the lawsuit, which seeks $65 million in damages, when the MSMB hedge fund ran into trouble on a bad bet in the market, Mr Shkreli began an elaborate shell game, using Retrophin cash and assets to pay off discontented MSMB investors. Retrophin also disclosed in regulatory filings that it had received a subpoena relating to an investigation by the Justice Department into Mr Shkreli’s transactions.
In an emailed statement, a spokesman for Retrophin said that the board replaced Mr Shkreli “because of serious concerns about his conduct” and that a subsequent investigation “identified substantial self-dealing and breaches of fiduciary duty”.
When asked about the lawsuit, he waved his hand dismissively. “It’s rife with inaccuracies,” he said, adding it contained “vile accusations”.
As with other setbacks, Mr Shkreli’s ouster from Retrophin did not seem to impair his ability to start something new, in this case Turing. The company announced in August that it had raised $90 million, an unusually high amount for a first round of financing for a biotech company. Mr Shkreli says he owns about half of the company. He would not reveal the other investors, but people on Wall Street say they include some hedge funds that made a lot of money on Retrophin.
Turing’s first big move was the one that made Mr Shkreli notorious. He paid $55 million for the US marketing rights for Daraprim, a 62-year-old drug for toxoplasmosis, a parasitic infection that can be devastating for babies and people with Aids. The immediate price increase brought the cost of a course of treatment for some patients to hundreds of thousands of dollars.
Mr Shkreli could do this because in the United States, unlike in many other countries, there are no drug price controls.
Daraprim is so old that it no longer has patent protection. A generic company could sell a lower-priced copy, but revenues from the drug were so small until now, that no generic company was interested, and it would take a few years for one to get regulatory approval.
Moreover, at both Retrophin and Turing, Mr Shkreli tightly controlled distribution of the drugs, making it difficult for generic companies to obtain the samples they need for testing. The New York state attorney general’s office has asked Turing about this, saying it may violate antitrust laws.
At first, in response to the outrage over the increase, Mr Shkreli said he would lower the price. But he never lowered the list price of Daraprim, instead saying that Turing would offer discounts of as much as 50% to hospitals. He now says the extra funds will be used to develop better drugs for toxoplasmosis and other diseases. The company has begun a clinical trial of a drug for severe forms of epilepsy.
Mr Shkreli said that he made virtually no money from his hedge funds but that his Turing stake and the $100 million he said he made selling Retrophin stock after he left made him very rich. Plus, he pocketed $30 million to $40 million this year selling short the stock of two companies, Celladon and Vital Therapies, whose products failed in clinical trials.
Seemingly secure in his wealth, Mr Shkreli has started putting money toward philanthropy. Earlier this year, he started the Shkreli Foundation, run by his sister Leonora, which he said has given more than $3 million to various causes.