Vilified for drug pricing, CEO Shkreli busted for securities fraud

23 Dec 2015 | Author: | No comments yet »

Court grants $5m bond for disgraced pharma CEO Martin Shkreli.

A boyish-looking entrepreneur who became the new face of corporate greed when he jacked up the price of a lifesaving drug fiftyfold was led away in handcuffs by the FBI on unrelated fraud charges Thursday in a scene that left more than a few Americans positively gleeful. Until Thursday, Martin Shkreli, the defiant CEO of upstart Turing Pharmaceuticals, boasted that he would personally put up $2 million in bail for rapper Bobby Schmurda, jailed since last year for conspiracy to commit murder.It is not clear why Shkreli decided to begin hosting these livestreams on YouTube, that feature him sitting in front of his computer while engaging with fans who message him, checking his OK Cupid profile and playing his guitar, among other things.

Martin Shkreli, a 32-year-old former hedge fund manager and relentless self-promoter who has called himself “the world’s most eligible bachelor” on Twitter, was arrested in a gray hoodie and taken into federal court in Brooklyn, where he pleaded not guilty. He tells this teenager – who says she attends his alma mater Hunter College High School in New York – that he is best friends with incarcerated rapper Bobby Shmurda and plans to start a rap career himself before at one point joining a group chat with her friends. Shkreli, who has become a lightning rod for growing outrage over soaring prescription drug prices, was arrested before dawn at the tony Murray Hill Tower Apartments in midtown Manhattan.

It was a dramatic turn of events for Shkreli, who in recent months became a pariah for his controversial remarks in the press and taunts on social media outlets, including to Democratic presidential candidate Bernie Sanders. The indictment, the result of an ongoing investigation, also charged Evan Greebel, a former partner at law firm Katten Muchin Rosenman who was Retrophin’s outside counsel. Prosecutors said that between 2009 and 2014, Shkreli lost some of his hedge fund investors’ money through bad trades, then looted Retrophin, a pharmaceutical company where he was CEO, for $11 million to pay back his disgruntled clients. Shkreli, 32, now CEO of Turing Pharmaceuticals AG and KaloBios Pharmaceuticals, has a history of speculative financial gambits and fractured relationships.

Both were also sued in a related lawsuit by the US Securities and Exchange Commission, which also named New York-based hedge fund MSMB Capital Management as a defendant. In September, Shkreli was widely vilified after a drug company he founded, Turing Pharmaceuticals, spent $55 million for the U.S. rights to sell a medicine called Daraprim and promptly raised the price from $13.50 to $750 per pill. The 62-year-old drug is the only approved treatment for toxoplasmosis, a rare parasitic disease that mainly strikes pregnant women, cancer patients and AIDS patients. The move enraged patients, doctors and hospitals and made Turing, along with Retrophin and other companies, the focus of a bipartisan Senate investigation.

Attorney Robert Capers said at a news conference that Shkreli “essentially ran his companies like a Ponzi scheme, where he used each subsequent company to pay off defrauded investors in the prior company.” Authorities highlighted what they called the “brazenness” of his actions. Headlines called the Brooklyn-born Shkreli such thing as “America’s most hated man,” the “drug industry’s villain” and “biotech’s bad boy” — and those were just some of the more printable names.

Experts say that a flurry of developments affecting the marketplace for new drugs over the last decade are now converging and conspiring to drive prices up. Hillary Clinton called it price-gouging and said the company’s behavior was “outrageous.” Donald Trump called Shkreli “a spoiled brat.” Bernie Sanders returned a donation from Shkreli. The stage was set a decade ago, Miller says, when the patents on many innovative new drugs began to expire and waves of generics began reaching the market.

The market tolerated these price hikes, because so many patients were shifting to generics. “For every patient who went on an expensive new drug,” he says, “I could move 10 patients to a generic product.” No longer, he says. While most patients’ copayments will be $10 or less a month, insurance companies will be stuck with the bulk of the tab, potentially driving up future treatment and insurance costs. “Al Capone was brought down for tax evasion, but he committed many worse crimes,” Weissman said. “So if Shkreli’s arrested for securities violations, it’s a comparable justice.” Shkreli is known as a prolific user of Twitter and often livestreams his work day over the Internet, inviting people to chat with him at his desk. He refers to those who follow him online as his “fans.” Recently it emerged that he bought the only copy of a Wu-Tang Clan album titled “Once Upon a Time in Shaolin,” which the hip-hop group sold on the condition that it not be released publicly.

Andrew Ceresney, director of the SEC’s enforcement division, said Mr Shkreli should be barred from the finance industry and from serving as an officer of a publicly traded company. Capers, the chief federal prosecutor, sidestepped a question about whether authorities had seized Shkreli’s album, and said: “We’re not aware of how he raised the funds to buy the Wu-Tang album.” Last month, Shkreli was named chairman and CEO of KaloBios Pharmaceuticals after buying a majority stake in the struggling cancer drug developer. Finally, much of the innovation is taking place at biotech companies, rather than traditional drug manufacturers, which used to produce hundreds of drugs. “When you’re a biotech company,” he says, “you may only have one product – you may not have another product – and you feel obligated to extract the maximum that you can.” Shkreli and Turing represent another dimension of the drug-pricing crisis, one that prompted the Senate Special Committee on Aging to hold a Dec. 9 hearing as part of a wider investigation. In July, Mr Greebel had joined the law firm Kaye Scholer, which in a statement noted the “transactions in question predated his arrival to the firm.” He in turn provoked his critics, and was often vocal on Twitter and other online platforms about his business strategies, politics and even musical tastes.

Last October, Retrophin’s board simultaneously credited Shkreli for creating “a thriving biopharmaceutical company that has improved the lives of patients with rare disease” and fired him. His new firm, Turing, bought the rights to Daraprim, a generic drug used to treat a parasitic infection called toxoplasmosis, which poses severe risks for patients with weakened immunity, including pregnant women and their fetuses and patients with HIV and cancer.

In one, he can be seen sitting at a computer in a plain white room with two electric guitars and an amplifier visible behind him while he answers infrequent questions from viewers. He is an executive of a team of players, called Team Imagine, which participates in the online multiplayer game League of Legends, according to various media reports.

He said he would price the drug, benznidazole – which is available in many Latin American countries for $60 to $100 – to a price structure similar to Hepatitis C drugs that can cost $94,000, according to a statement from the Drugs for Neglected Diseases Initiative. After MSMB suffered devastating trading losses in 2011 and ceased trading, Shkreli for months sent fabricated updates to investors touting profits of as high as 40% since inception, the indictment said.

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