Is CEO’s greed good?

By John McCarron

Chicago Tribune

He had to go ruin it for everybody.

Just when the drug industry was about to catch up with the rest of corporate America, just when Big Pharma had hit on new and oh so entrepreneurial ways to maximize shareholder value, along comes Martin Shkreli.

He’s the young hedge fund manager who doubles as founding CEO of a startup called Turing Pharmaceuticals. Earlier this year his company began buying rights to specialty drugs prescribed for patients being treated for uncommon diseases.

One drug in particular, Daraprim, is uniquely effective against a nasty parasitic infection called toxoplasmosis. Developed back in the 1950s, the drug’s patent protection expired long ago but no generic has been brought to market because of the limited number of potential customers.

Cheap to manufacture. Captive customer base. Unlikely to draw competitors. Daraprim was an opportunity waiting to be plucked. So this summer Shkreli and Turing raised the per-pill price from $13.50 to $750 – a 5,455 percent increase.

A full course of the treatment now runs about $63,000, according to infectious disease experts, and those who require a steady maintenance dose – such as immune-deficient HIV patients – could end up paying $634,000 a year.

All of which is causing a mighty backlash among consumer groups, physician associations and some of the more enlightened corners of the media. And not just because of Daraprim. Turns out Shkreli and Turing are only pushing to the limit a trend well underway now that Wall Street financiers have discovered easy pickings in the medicine cabinet.

Valeant Pharmaceuticals

Shkreli is channeling Valeant Pharmaceuticals, which has become one of Canada’s largest corporations by acquiring dozens of small drugmakers, only to drastically raise prices and slash expenses – beginning with research expenses. The outrage prompted Turing to say it will lower the price of the drug (although Turing has not said by how much). But some damage is done: No doubt thanks to Shkreli, the Justice Department is looking into drug pricing.

All in all, it’s not hard to understand why, according to a recent survey by Reuters news service, prices for the world’s 20 top-selling medicines are, on average, three times higher in the U.S. than in Britain. Six times higher than in Brazil.

Tell that to Big Pharma, however, and you get the same song-and-dance about the big expense of developing new drugs and the multistage tests required to gain approval from the U.S. Food and Drug Administration.

OK. But other experts are beginning to speak up on the consumer/taxpayer side – and they’re telling another story.

“Valeant and Turing have chosen to zero in on drugs that have reasonably small markets and limit or control distribution, then raise the price, knowing that the market won’t naturally correct itself any time soon,” Fortune was told by Dr. Peter Bach of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. “The only way to get the price lower today is for a competitor to enter, and for a new competitor to enter the generic market, they have to go through an FDA process, which costs millions of dollars and takes several years.”

So all that testing Big Pharma complains about actually helps drug companies maintain high prices. Interesting.

John McCarron teaches, consults and writes on urban affairs. He wrote this for the Chicago Tribune. Distributed by Tribune Content Agency, LLC.