Side Effect

Martin Shkreli's Going Away, America's Drug-Price Problem Isn't

The pharma villain's sentencing won't end the controversy.
Photographer: Pete Marovich

One long pharma industry nightmare is over, now that Martin Shkreli has been sentenced to seven years in prison for defrauding investors. Another nightmare for which Shkreli was the poster child -- the controversy over U.S. drug-pricing -- goes on. 

I haven't examined Shkreli's innermost soul, and he claimed at his sentencing hearing to have been changed by his trial and time in jail. But he has done an awfully good impression of a bad person. He defrauded investors. He took a decades-old, life-saving drug needed by vulnerable patients, raised its price by more than 5000 percent and then gloated about it. He harassed and threatened reporters. He once sported a Pepe the Frog pin on Bloomberg television, because wearing a symbol embraced by internet Nazis is hilarious. 

But he's just a uniquely obnoxious symptom of, and a convenient scapegoat for, larger issues in the drug industry. Shkreli's fraud conviction stemmed from his hedge-fund days -- everything he did with drug prices remains legal.

There may never be another drug-industry villain as compelling as Shkreli, but the system that produced him is still going strong. And it should keep inspiring fresh outrage. 

Old medicines are still sold at inflated prices because there's no mechanism to compel drugmakers to lower them. Valeant Pharmaceuticals International Inc. massively increased the price of Glumetza -- an extended-release version of metformin, a drug discovered nearly a century ago and approved in the U.S. in 1995 -- after buying it in 2015. Valeant is under new management but still benefits from the inflated price: The drug was its 10th best-selling product in 2017 and generated $133 million in revenue.

Something Old

Valeant continues to benefit from a massive price hike on an old drug

Source: Bloomberg Intelligence

FDA Commissioner Scott Gottlieb is trying to speed competition for these older drugs to market, but that's a time-consuming process and relies on other drugmakers to actually develop them. And any intelligent second-to-market generic drug producer will price their medicine at only a modest discount to the original, so it takes multiple shots on goal to bring prices down. 

The problem isn't just with old-old drugs, but also new-old drugs. PTC Therapeutics Inc. is selling Emflaza -- a steroid available for $1,000 to $2000 a year elsewhere in the world -- for $35,000 in the U.S. after buying it from the company that got it approved by the FDA last year.

And price hikes continue for already expensive newer drugs. Celgene Corp. raised the price of its blockbuster cancer medicine Revlimid three times last year as the company otherwise struggled with drug development

Something New

The per-pill price of Revlimid has jumped by $200 over the last few years

Source: Bloomberg Intelligence

Drugmakers like to say prices keep rising because pharmacy benefit managers demand ever-bigger discounts for their clients, forcing drugmakers to raise list prices to keep up.  But while PBMs play a role in price inflation in crowded classes, drug companies do plenty of price-hiking for drugs such as Revlimid that aren't really discounted. 

Pharma also likes to justify drug prices by reminding the public that developing drugs is costly and failure-prone. That's a fair point. But drug companies also announced more than $50 billion worth of share buybacks and dividend hikes after the new tax-cut law passed. That will likely exceed the amount they increase R&D spending over the next decade or so. Clearly they have a bit of wiggle room. 

The pharma industry would love to believe the end of the Shkreli saga will cool the public's furor over drug pricing. Dream on. 

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

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    Max Nisen in New York at

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