Welcome to Shkreli's Nightmare

His track record suggested controversy would follow.

Though infamous for his recent escapades involving the Wu-Tang Clan and drug-price-hiking, Martin Shkreli's earliest moves are coming back to haunt him.

Shkreli was arrested by federal agents on Thursday, Bloomberg News reports, on charges related to his first biotech company, Retrophin, and the defunct hedge fund MSMB that he started in his early 20s. In an indictment available here, Shkreli is accused of misusing company funds to pay back investors in the hedge fund, which blew up in 2011 after a disastrous trade.

A few weeks ago, when Shkreli took control of KaloBios, then a penny stock, its shares spiked over 1000 percent at one point. On Thursday they were down 59.2 percent premarket before Nasdaq halted trading. A spokesman for KaloBios had no immediate comment. An attorney for Shkreli was not immediately available for comment.

Back to Bust

Martin Shkreli's rescue of KaloBios' share price may prove short lived

Source: Bloomberg

Such a blowup was all but inevitable; Shkreli was always going to be an awful bet for investors. Taking over KaloBios put him in charge of bringing that company's most promising drug candidate, an extremely early stage possible leukemia treatment, to market. His track record suggests he doesn't have the temperament, judgment, or experience to do it. Now there's also a chance Shkreli won't be able to run a public company any more when the FBI and SEC are done with him.  

These fraud charges aren't the only controversy arrayed against Shkreli and his fledgling companies. He was heavily criticized during a congressional hearing on drug pricing last week over his private firm Turing Pharmaceuticals raising the price of Daraprim, a 50-year-old drug for toxoplasmosis, more than 50-fold. A partnership between Express Scripts and a compounding pharmacy to sell an equivalent to Daraprim for $1 could blow a large hole in Turing's sales. 

He is trying to secure an FDA priority review voucher, which guarantees a faster decision on a future drug and can be worth $350 million on the open market, by buying the rights to an already widely used treatment for Chagas disease not approved in the U.S. That drew the ire of the usually business friendly Republican party: The House Oversight Committee has asked the FDA for information on Shkreli's possible exploitation of the review voucher system. 

And Shkreli is heading for a pricing controversy that might be worse than the Daraprim row. He wants to price the drug for Chagas disease at around the level of a new wave of hepatitis C drugs -- which cost about $80,000 a year, provoking their own wave of outrage and congressional hearings. The drug currently costs a fraction of that elsewhere in the world. Chagas is a life-threatening disease that affects as many as 200,000 people in the United States. 

He seems to invite controversy and scrutiny on a daily basis, trolling for dates on Twitter and giving interviews where he gloats profanely about having spied on an ex-employee and harassing that ex-employee's wife and children. 

Shkreli has revealed time and time again that he's never really grown out of his sometimes successful earlier career as a biotech short seller. His strategies always seem to be about exploiting loopholes and short-term gain. But developing medicines is a long-term game, for which Shkreli seems constitutionally unsuited. KaloBios investors are right to be anxious.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Max Nisen in New York at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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