Before getting slammed with seven years in federal prison, former pharma investor and CEO Martin Shkreli made a name for himself as an attention-whoring price-gouging drug profiteer by buying the rights to antiparasitic drug Daraprim and jacking up its price by 5000%. Basking in the media’s stink eye, Shkreli went on to place a $5,000 bounty on a lock of Hillary Clinton’s hair and buy the only copy of rap group Wu-Tang Clan’s album Once Upon a Time in Shaolin, which he mused about either hiding or destroying.
Despite being prone to the tactless grandiosity and reveling in artificial scarcity like some sort of billionaire supervillain, Shkreli doesn’t come from an out of touch old money elite. Born to Montenegrin immigrant janitors and a family of six, he attended Hunter College, a publicly funded NYC high school for high gifted students. At 18 he got a job at the hedge fund Cramer, Berkowitz and Company, where he predicted a drop in the price of Regeneron Pharmaceuticals so successfully and aggressively that it drew the attention from the Securities and Exchange Commission, though they could prove no wrongdoing. High-risk short-selling at Cramer seems to be how Shkreli made much of his early fortune. Such would appear time and again throughout Shkreli’s finance career, and so would the SEC.
Shkreli then founded his own hedge fund, Elea Capital Management, in 2006 at age 23. That fund, however, seems to be notable only for collapsing and losing Lehman Brothers $2.3M in barely a year. Luckily for Shkreli, Lehman Brothers itself collapsed in 2008 as a result of its involvement in the 2008 subprime mortgage crisis (which directly caused the Great Recession), so Elea was never forced to pay back this loss.
Not one to let financial insolvency stop him from touching other people’s money, Shkreli then managed a portfolio at RBC Professional Trading Group LLC. RBC fired Shkreli for conducting trades outside of the firm’s supervision, losing quite a bit of money, and then attempting to conceal said transactions.
Apparently lacking either the credibility as a successful manager or the ability to follow company guidelines, Shkreli turned to the only person still always willing to hire him: himself. He started yet another hedge fund, MSMB Capital and subsequently MSMB Healthcare and rare disease pharmaceuticals company Retrophin. Retrophin focuses on acquiring the rights to orphan drugs and repurposing them for other alternative uses. Since orphan drugs are pharmacologically effective but financially unviable for their intended purpose, projects like Retrophin’s can show rapid results without the typically massive costs of drug development. That is, if the clinical trials turn out successful. They did, and Retrophin’s $40M 2013 IPO has since grown to a $1.1B valuation. They now provide treatments for bile acid synthesis disorders, peroxisomal disorders, and cerebrotendinous xanthomatosis.
If Shkreli were a supervillain, this is the coming-of-age event that turns him from an unscrupulous finance hotshot into a cat-stroking, manically laughing Bond antagonist, at least in the eyes of the media. After acquiring rights to a drug called Thiola which prevents kidney stones in people with the genetic disorder cystinuria, Retrophin raised the price by a factor of twenty to $30 per pill, which may be needed multiple times a day. Outrage, cried the public! But where was the free market, saving us from oppressive price-gouging monopolies when we needed it? The patent on Thiola had already expired, so where is the competition? Stifled by regulation.
See, before jacking up the price on Thiola, Retrophin first moved it to a closed distribution system. Before competitors go to market, they have to prove “bioequivalence” to the FDA in order to ensure that the generic drug actually does what it’s supposed to. But if the generic manufacturer can’t get their hands on Thiola, then they can’t run controlled tests. If they can’t run controlled tests, they can’t prove to the FDA it’s safe. And if they can’t prove it’s safe, they can’t sell it. Even if they could sell it, the price would immediately drop on account of the market now being competitive, and the revenue from the generic might not even pay for the costs of the bioequivalence study.
After leaving Retrophin and founding Turing Pharmaceuticals, Shkreli pulled the same trick with the antiparasitic AIDS drug Daraprim. This time, though, he raised the price by a factor of 56. Daraprim is listed as one of the World Health Organization’s essential medicines and Shkreli managed to become the country’s sole supplier. In a move one doctor calls “especially sinister”, Turing may have been attempting to become the sole supplier of sulfadiazine, the prefered drug to be used in conjunction with pyramethamine (Daraprim) for treating toxoplasmosis.
The Daraprim price hike is where Shkreli really made a name for himself, drawing the ire of major news outlets and even congress. Rather than go into damage control mode, Shkreli rode the tsunami of bad press as “the most hated man in America” to new heights. He went on CNBC and defended the price hike and every other move by the company, flatly refusing to lower the price. When EpiPen raised their prices to similar outrage, Shkreli publicly defend them too. Around this time, Shkreli bought the Wu-Tang Clan album and injected himself into the clown fiesta that was the 2016 presidential primaries. Beginning his scrap with Hillary Clinton who tweeted condemning the drug hike, Shkreli claimed he would destroy the album if Clinton won the 2016 election but release it if Donald Trump won. The hair bounty would follow later. In an interesting twist, Shkreli made a $2,700 donation, the maximum individual amount, to Bernie Sanders, the only candidate who seemed to actually understand and prioritize healthcare economics. Sanders had the most aggressively reformist healthcare platform of any candidate, advocating importing prescription drugs from Canada, requiring Medicare to negotiate drug prices, and expanding Medicare and Medicaid. Sanders rejected the Shkreli’s proposed meeting discussing healthcare policy and diverted the donation to a health clinic.
In a feat of supreme narcissism, around this time Shkreli began livestreaming his life. Turns out Shkreli mostly works and plays video games. He started mixing in Youtube lectures on basic topics like chemistry and market analysis and later made a (surprisingly informative) six-hour series on how to analyze a clinical trial from an investment perspective.
Even congress could not resist joining the bandwagon bashing the man everyone loved to hate. When the House Oversight Committee called Shkreli in to a hearing over the Daraprim price hike, Shkreli made headlines by invoking his fifth amendment right to silence and posing for pictures while Maryland Rep. Elijah Cummings was talking. It seems even congress was not immune to Shkreli’s insolence. The congressional hearing had no effect on the price of Daraprim.
Shkreli might be able to ignore common decency and congress but he couldn’t ignore his old friend the SEC. Four months after the infamous Daraprim hike, Shkreli was indicted and arrested by the SEC, generating even more search traffic than the price hike itself. While the public was already out for Shkreli’s head on a pike at this point, Shkreli’s antics during the trial certainly helped drive media frenzy and give viewers more reason to hate his guts. The government’s post-trial sentencing submission spells out seventy pages of Shkreli’s antics before, during, and after the trial in meticulous detail, including:
- The aforementioned bounty on then-secretary Clinton’s hair
- Making sexual threats towards a reporter and a political pundit
- Making the case “more polarizing and popular” (his own words)
- “Spending millions to influence the jury pool in Brooklyn.” (his own words, possibly an exaggeration)
Ironically, Shkreli would call the trial a “chess match of public opinion” and that he was “prosecuted for being a jerk.” Given that Shkreli himself attempted to make the trial into a public spectacle, we can imagine how bad he might be at chess.
Those of you keeping score at home might be wondering what a twenty-something pharmacology nerd has to say in order to get investors to fork over millions. Surprise, surprise, a ton of bullshit.
After running Elea Capital into the ground, Shkreli gained investors trust for his fund, MSMB Capital, by drastically misrepresenting its assets, profits, other investors, investment strategy, and oversight. When this fund, like Elea Capital, also crashed and burned, Shkreli fabricated documents showing the fund was still in the black. Doubling down, Shkreli started another fund MSMB Healthcare with a different set of investors and simultaneously founded pharmaceutical company Retrophin with diverted funds from the former, all the while syphoning off cash to pay personal expenses and debts. When that ponzi scheme eventually fell apart, Retrophin wound up paying out around $10 million to Shkreli’s defrauded investors as a result of Shkreli’s shenanigans, even though Retrophin’s board never approved the illegal agreements or participated in the funds’ management. Even before Shkreli’s indictment Retrophin would file a $65 million lawsuit against Shkreli, its former CEO, over these entanglements. Confused yet? It’s not just you. Prosecutors tried to use the “especially complex or intricate” nature of the offenses to attach a sophistication enhancement to the length of Shkreli’s sentence.
In the end, Shkreli went down on three of the eight counts he was charged with, all three being related to securities fraud. This Shkreli chose to frame as a decisive victory, despite being ordered to forfeit $7.4 million in assets and got seven years in the clink. To this day, Shkreli maintains that nobody lost money on his funds, and to his credit, the prosecution reluctantly agrees:
“The truth is that the MSMB Capital and MSMB Healthcare investors did not ultimately suffer monetary losses—as measured over a period of, in some cases, five or six years—only because of Shkreli’s ability to avoid detection of his prior frauds, and to keep them going long enough to successfully manipulate the price and trading volume of Retrophin shares so that the shares he distributed to MSMB Capital and MSMB Healthcare investors had value.”
All’s well that ends well, right? Nobody lost money, the jerk went to prison, and the media got one last juicy story out of nobody having to read Shkreli’s misogynistic tweets anymore. But here’s the catch: Shkreli’s sentence had nothing to do with why we hate him. Shkreli didn’t go to prison for pulling medicine out of the mouth of the little man, he went to prison for defrauding investors, millionaires gullible enough to shell out six or seven figures to a fast-talking publicly maligned egomaniac. The state and its court system declared those investors, not the patients, to be the real victims of Shkreli’s antics. Now, ironically, those same investors, who were paid off in Retrophin stock, end up directly reaping the profits of Retrophin’s Thiola price hike.
But let’s not whip ourselves into a proletarian rage just yet. Generally speaking, investors don’t play a direct role in management of firms if they are not on the board of directors. They are neither good nor evil, nor is there evidence that the ones here were specifically intending to profit off pharmaceutical market-cornering. They are merely profit-motivated individuals who play roughly the same game as every other capitalist* agent: make money.
But how is that different than the actions of our protagonist, Martin Shkreli? Except with respect to his convictions for securities fraud, Shkreli was entirely within his legal rights as a capitalist** to price his product any amount he chooses. In fact, in the pharmaceutical industry, this happens pretty frequently; Martin Shkreli just gloated about it more than every other CEO and that’s why the Shkreli saga played out on the national stage. Every villain needs a face, and Shkreli happily gave capitalism a very punchable face.
But the Shkreli episode is uniquely American in two ways. First, Shkreli’s rise has all the hallmarks of the American dream: humble parents, maverick risk taking, and a theoretically repeatable path to success. Secondly, because Shkreli’s price hikes wouldn’t have worked anywhere else in the developed world. These tactics only work in the United States because of two compounding factors.
The first factor is all that regulation discussed above. Without high barriers for bioequivalency set by the FDA, competitors would be able to make and market alternatives to undercut the price of Daraprim or Thiola. Of course, totally deregulating medication would produce plenty of its own issues, but the FDA has clearly failed to effectively toe the line between libertarianism and consumer protection. The FDA is aware of this issue, but I’m not going to hold my breath for a solution.
The second issue is that unlike most developed countries, the US does not use a single payer healthcare system. Single payer systems counter drug-producer monopolies with drug-buyer monopsonies, bringing down prices. Maybe Senator Sanders turning down Shkreli’s campaign contribution made all the difference.
Speaking of senators, where the hell was congress this whole time? Despite drawing statements and tweets from numerous congressmen and even house committees, not a single law changed affecting these tactics in the pharmaceutical industry. If anything, Shkreli’s utter contempt on the Capitol Building floor showed that congress was all talk and totally unwilling to take substantive action on the issue. Congress’s tacit defense of the status quo should hardly come as a surprise given the $152 million that pharmaceutical companies spent lobbying congress in 2016.
In professional wrestling there is a type of character called a “heel”, someone who exists to be hated, who revels in the fans’ jeers. This is how Shkreli saw himself. He said in a Vice interview regarding the Wu-Tang Clan album, “I’m not just the heel of the music world, I want to be the world’s heel.” And he played this role flawlessly, from the pharma boardroom to c-span to his bedroom, he built up a 4-chan-like fandom around his outsized “pharma bro” character.
If real life were sensible enough to have a plot, I argue that taking Shkreli’s character at face value distracts from the message. Shkreli was despised because he went out of his way to get on national television, then behave like a caricature of the 0.1%. However, Shkreli’s behavior in the boardroom was hardly unique among corporations. Rather than a villain, Shkreli behaves like an anti-hero, taking American capitalism to its logical extreme. He doesn’t just make as much money as possible, he does so in ways that spotlight in brilliant 1080p embedded Youtube the most unjust mechanisms in our economic system and the most impotent, counterproductive legislative oversight available. Martin Shkreli elevates capitalism to a performing art. When he finally met his demise, Martin Shkreli did so not at the hands of the American people, but at the hands of other capitalists he crossed flying too close to the fiscal sun.
*def: An advocate of capitalism.
**def: A person who has capital, especially extensive capital, invested in business enterprises.