Hillary Comes Out Against Drug Prices; Patents and Regulation Implicated
Sept. 22, 2015 (Mimesis Law) — Judging by to the media reaction to his company’s decision to raise the price of one of his drugs by 5000% overnight, America has a new cartoon villian in the form of pharma-startup Turing Pharma’s CEO Martin Shkleri. We have no opinion right now as to the propriety of Turing’s business decision, but do see the public uproar about drug pricing- which included a tweet by Hillary Clinton that sent biotech share prices down almost immediately – as a phenomenon that is likely to gain momentum. Especially now that the issue has been thrust into the political realm by Hillary’s tweet, and the mass media has decided to cover this particular drug price increase with vigor — as an example of a problem that deserves greater attention.
Compounding the problem for companies like Turing, who may have counted on being able in generate these ‘overnight price adjustments’ in relative anonymity, is the fact that the proffered argument ‘justifying’ the drug price increases that have become de rigeur in the industry is at best a tenuous one. For example, Turing’s CEO argued that the company needs to raise the prices for its one approved drug (Daraprim, an old drug that was previously available for pennies, was being sold for $13.50 a pill when Turing bought the rights to it, and now costs $750 a pill) in order to pay for R&D for future drugs. At the same time, pharma companies are notorious for pointing to the constant failure of prospective drugs under development as an independent basis justifying drug price increases — or high prices to begin with. The circular reasoning should be obvious, and in order to buy the arguments of Turing and it’s compatriots, some suspension of disbelief about the desire for additional profit being the real reason for this ‘pricing’ is also necessary. In any event, the reaction to this particular suggested price raise by Turing has been a visceral one, and negative at that.
The market reaction to Hillary’s tweet makes clear the link between drug company pricing (and their ability to maintain and increase that pricing) and the market capitalization of publicly-traded pharmaceutical/biotech companies. We all know that the federal government plays a large role in propping up the ability of such companies to command premium pricing for their offerings, through two mechanisms – FDA regulations, which is how Turing has the exclusive rights to Daraprim, and patents. We also know that Kyle Bass has been increasingly public about pointing to the link between potentially invalid patents and drug pricing. While the pharma/biotech industry has unleashed a lobbying blitzkrieg in an attempt to halt Bass’ assault on pharma patents using the IPR process, it remains to be seen – but looks increasingly likely in light of the public reaction to Turing’s ‘announcement’ of a 5000% increase for an old drug – whether Bass’ position that the real issue is drug prices has been bolstered by the increasing attention on the issue. Considering some major decisions are expected on his filings very shortly, the timing of this media attention on his ‘core issue’ may be very fortunate. No matter what happens with Bass, however, it seems like investors in pharma/biotech companies will need to be sensitive to potential blowback, especially if the companies they invest in garner the same negative attention that has enveloped Turing.
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The Week(s) Ahead — Expected Events
Marathon trial against TRW Automotive continues Delaware. Expected institution decisions in Bass’ Shire and Celgene petitions.
Disclosures and Disclaimers
Nothing in this material is intended to constitute legal or investment advice of any kind, nor is any of this material based on any non-public information of any kind. In addition to my work at Markman Advisors, I am also a name partner at a NYC-based intellectual property litigation boutique firm, Kroub Silbersher & Kolmykov PLLC (www.kskiplaw.com). Markman Advisors is affiliated with a Houston-based investment management firm, Perdix Capital Management, which may have existing or potential positions relating to situations discussed in this material. Markman Advisors also provides consulting services to buy-side investors, including hedge funds and family offices, that may also have or enter into positions relating to situations discussed in this material. Questions or comments can be directed to me at email@example.com. All suggestions are welcome.