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Martin Shkreli is low hanging fruit

frances-mcdormand-marge-olmstead-gunderson-fargoSo, Martin Shkreli has been arrested, but not for being the biggest parasite on sick people “all for a little bit of money”.  It was for sucking a startup dry in order to cover up his hedge fund losses.

There’s a reason why I’m not in pharma anymore. My options were limited and one of them was to go into a startup where the nature of the work is the same, the overhead is very high, the money is super tight and there is always the possibility that the vulture capitalists will treat the company as an object and not composed of real people. With real lives. And real careers. And real children.

But Martin Shkreli’s “Mine, Mine, All Mine!” business model is not unique. Before I explain what currently drives the drug industry, let me make two things clear: 1.) it wasn’t always like this and 2.) the lab rats are not to blame.

Basically, the drug industry has moved away from small molecule drug discovery. The industry is moving towards biological drugs for cancer and orphan diseases. There are a couple of reasons for this. They are easier to get through the drug approval process. If there are major side effects, the patients are the last people in the world to sue or complain. And the patients are desperate. They will pay whatever it takes.

Now, I’m all for biologicals for many good reasons. They have a good chance of working in the case of cancers and metabolic diseases. But while  all of the capital has flowed to these types of therapies, the stuff that most people suffer with on a day to day basis have gone without funding, and the people who used to work on those therapies have been out of a job.

So, if you have high blood pressure, schizophrenia or need an antibiotic, you are SOL.

The thing about Martin is that he’s just the most visible and egregious example of greed. And I’m not letting the left off the hook for this disaster. If it hadn’t been for the notorious class action lawsuits (please, don’t even start, you know what I’m talking about. We’re not talking criminal negligence here) we might not have ended up here.

I’ve written about what I think is going to happen to the cost of drugs before and one of these days, I’m going to properly tag and categorize my previous posts on the subject. But let me recap it here. Drug prices of all types are going to continue to rise. The new biological drugs are going to start off being astronomically expensive. The cost of generics are going to go up and up and up. Here’s why: brand name drugs and blockbusters are going off patent rapidly. Ohhh, you say, that means the generics that they turn into will be cheaper. Ha! Say I, you forgot your basic economics 101 course section on supply and demand.

The supply of new drugs with fewer side effects is going to go down. New small molecule drugs get approved rarely and the patent time left for them is short. So to recoup the cost of research, which is substantial, the cost of the drug will be high. Meanwhile, the brand names that have become generics are going to become the play things of people who are much more sophisticated and low profile than Martin Shkreli. The drugs still need to be made in FDA inspected and regulated facilities. That costs money. That money can’t be recouped from a cheap generic. And without blockbusters to keep the lights on, the cost of the generics will need to increase.

I’m just picturing a series of rolling blackouts on some of these drugs in the future. You need a blood pressure med? Darn, that production facility needed to be taken offline for maintenance. It might not be maintenance but there will be some excuse for why there is a shortage and the price needs to go up. And up. And up. They’ll start blaming it on regulation. Hey! A Twofer. If the shortage of your blood pressure med is caused by the federales, why not make it easier to get that drug made in China? It’s generic, after all. You’ll never know the difference. And besides, what would you prefer? Some outdated federal regulatory process on a brand name drug that has gone generic or a stroke?

I don’t know about you, but I want my drugs regulated.

This is the financialization of the pharma industry. Twenty years ago, we wouldn’t have been concerned about hedge funds getting involved in pharma to the same degree that they have. That was before the MBA’s moved in ad decided that R&D staff had it too easy, they weren’t working hard enough and luxuriated in spacious labs instead of cramped cube farms like the accountants and marketing people in the business unit down the road. (yes, I have actually heard this childish and clueless complaint from the MBAs) It should be against the law for petty selfish people to run an industry as important as the drug industry. But you can be sure that the big players are glad for Martin Shkreli to take one for the team so they can get back to business in peace and quiet.

They don’t need the attention.

Well, until the bacterial apocalypse arrives

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#Pharma: Gobstopping Greed

Researchers are mostly a non-ideological lot. I sometimes wonder if we had been a little more ideological whether we would have kept our jobs but that’s for another post, someday down the road.

But some “capitalists” take greed to such an unbelievable level that even we are left almost completely speechless by the sheer audacity and (dare I say it?) evil.

Take the case of Martin Shkreli. I’ll let Derek Lowe at In the Pipeline tell this story:

He went on to form Turing Pharmaceuticals, whose business plan, by contrast, was (at least at first) to find some small-market drugs, buy them from their obscure producers, and raise their prices into geosynchronous orbit. As reported here by Adam Feuerstein, his first target was praziquantel (Biltricide), the antihelmenthic made by Bayer:

Shkreli is negotiating with the German drug giant Bayer to purchase marketing rights to Biltricide, a drug used to treat infections caused by worm-like parasites called liver flukes. A course of treatment with Biltricide typically involves taking six to nine pills in a single day and costs around $100. 

If Shkreli acquires Biltricide from Bayer, he plans to raise the price of the drug to $100,000 for a single-day course of treatment, according to people briefed on Turing’s business plans. No other changes or improvements to the drug will be made by Turing. The extra revenue generated by Biltricide is expected to earn Turing a fast profit for its investors and help defray the cost of developing other, experimental drugs, sources said.

We shouldn’t be surprised by this. This is just plain supply and demand economics. The number of small molecule drugs has fallen precipitously since the salad days of the 90’s. That means there are fewer blockbuster drugs to make money on and fewer drugs overall getting approved. Lowe reported a few weeks ago that the number of FDA approvals had gone up in 2014 but that represents work that happened about a decade earlier and now that we’ve been furloughed for the sake of “shareholder value”, that might be a high tide mark. The shift is from small molecule drugs to biologicals. This is not necessarily a bad thing but it does turn a whole generation of researchers into the equivalent of steelworkers while vastly reducing the output of small molecule drugs.

The consequence of not discovering new small molecule drugs is that even though they are going off patent and should be cheaper, there are no “new and improved” drugs to replace most of them. So, when they become generic, that’s it. There is no higher end model to compete with. Therefore, the cost of generics has to increase. I mean, where else are you going to go?

Now, in comes someone like Shkreli who sees a vast landscape of obscure generic drugs that could get a new life through retesting or new indications. He scoops up what he can and, without any R&D, he can cash in hugely. He still has to account to the FDA on production and quality standards. This is not insignificant. Think about what happened to the Today Sponge. But in general, this is a pure profit business model on the backs of ordinary people who may need these previously cheap medications. He is the ultimate MBA.

Give that man a bonus.

Believe it or not, researchers are not heartless tools of the pharmaceutical industry. We’re also consumers, and some of us are rather poor now that we’ve been kicked out of the field. R&D is incredibly expensive. Don’t let lefties tell you differently. And companies do have a right to recoup those costs and make a profit- that they can plough back into R&D (note: this was the old business model). But Shkreli’s model is shocking. One of Derek’s commenters summed it up nicely:

I wish people would learn to distinguish two types of capitalism:

1. Social capitalism: Create long-term value for customers with innovation, and then distribute the value created among all contributing stakeholders, including customers, employees, suppliers, distributors, payers & providers, tax payers, and yes, also managers and shareholders.

2. Anti-social / psychopathic capitalism (aka greed): Screw everone and take value from others while destroying it, in order to make a quick profit for management and shareholders.

There is far too much of the latter, and its rapidly destroying society as we know it. And ironically, managers and shareholders will also pay the price, ultimately, as part of the same broken society and economy.

I swear I didn’t write that.

In another sign of the times, I am starting to see some slight indications that the industry is falling out of love with academic research. A couple of postings I’ve seen for drug design support are specifically requesting industrial experience and one went so far as to say that academic modelers are not preferred. (And oh my golly, what a difference industrial experience makes, It really is amazing.) Of course, a PhD is still maniacally important so the wait continues…