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‘Pharma Bro’ Martin Shkreli And The Very American Debate Over Maximizing Profit

Edit: Shenzhen OK Biotech Technology Co., Ltd. (SZOB)    Date: Sep 23, 2015

www.ok-biotech.com

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

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 life-saving 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 if he was the most hated man in America. Twitter appeared to answer in the affirmative.


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 effects people with compromised immune systems, such as newborns and HIV patients.


[Shkreli promises to lower price of drug — but would not say by how much]


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… 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 that.”


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.


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 capitalism relies on self-interest.


A century later, Karl Marx argued that capitalists’ 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 living.


Both strains of thought still exist today, but capitalism has carried the day 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.


[Maximizing shareholder value: The goal that changed corporate America]


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


As far back as 1957, the U.S. Senate sub-committee on Anti-trust and Monopoly 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 US 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 Médecins sans Frontières’ (MSF) Campaign for Access to Essential Medicines and a key figure in the creation a 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,” explained Carroll, the drug industry journalist, on Twitter. “Narrowly controlled ingredient as I understand it.”)


“That is why it is so dangerous to leave healthcare 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 cheap 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 cut its prices, Shkreli indicated on Tuesday that his company could reduce Daraprim’s price, although he didn’t say by how much.


‘t Hoen said 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.


 


There are, in fact, signs outrage over “Pharma bro” might 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 posing 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,” wrote Steve Brozak 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.”


Meanwhile, even 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 advisor 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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