Slapping Around Martin Shkreli Won’t Cut Drug Prices

(Bloomberg Opinion) -- If you’re a prosecutor or a regulator looking to get a little good press, one surefire approach is to sue Martin Shkreli, the infamous “pharma bro.”

That’s what New York State Attorney General Letitia James and the Federal Trade Commission did on Monday, and it worked like a charm. Reports popped up in the New York Times, the Wall Street Journal, the Toronto Star, CBS News, Daily Beast and many other outlets. James herself took a victory lap on Twitter:

Shkreli is a perfect target. Five years ago, he became the symbol for outrageous drug prices after he raised the cost of his company’s one drug, Daraprim, to $750 a pill from $13.50 — and then basically laughed at everyone who complained. His nonstop smirking during a subsequent congressional hearing infuriated lawmakers. In the spring of 2018, he was sentenced to seven years in prison for committing financial fraud. Last year, he was transferred from federal prison in New Jersey after the Journal reported that he was using a contraband mobile phone to run the company from his cell.

The charges leveled by the attorney general and the FTC against Shkreli(1)and the company — Vyera Pharmaceuticals LLC, as it’s now called(2)— flow directly from that now-infamous price increase. According to the complaint, they have been using illegal tactics to prevent low-cost generics from entering the market.

For instance, Vyera drew up agreements with distributors that prevented them from selling Daraprim, which treats toxoplasmosis, to generic manufacturers. (Generic companies need access to the brand-name drugs to make their copies.) It had “data-blocking” agreements, which made it impossible for generic makers to obtain the information to assess whether enough patients needed the drug to make it worth pursuing. And it cut off competitors’ access to pyrimethamine, the active ingredient in Daraprim. All of these measures helped Daraprim maintain its monopoly — and its high price.

All five of the FTC commissioners approved the lawsuit, although the two Democrats had reservations, which I’ll get to in a moment. In the FTC’s press release, Gail Levine, the deputy director of the agency’s bureau of competition, said that “Vyera kept the price of Daraprim astronomically high by illegally boxing out the competition.” In the New York attorney general’s press release, James described Shkreli as despicable and said that one of the goals of the lawsuit was to prevent him from ever working in the pharmaceutical industry again.

“We won’t allow ‘Pharma Bros’ to manipulate the market and line their pockets at the expense of vulnerable patients and the health care system,” she added.

Except pharma bros aren’t the problem. Shkreli jacked up the price of one drug with a small patient population. Meanwhile, the cost of insulin has tripled in the past decade, and many of the country’s 30 million diabetics are rationing insulin shots because they can’t afford the high price. The country’s three insulin manufacturers, Eli Lilly & Co., Novo Nordisk A/S, and Sanofi, are not pharma bros.

Humira, the world’s top-selling drug, costs $60,000 a year. Its manufacturer, AbbVie Inc., has successfully fended off generic competition for years. It’s not a pharma bro either. Neither is Roche Holdings AG, Gilead Science Inc. or Biogen Inc., which all have drugs whose prices have skyrocketed.

When I asked Rutgers University law professor Michael Carrier why New York and the FTC weren’t going after these bigger — and, frankly, worthier — targets, he made a plausible case that the Daraprim situation was unique. Carrier co-wrote a paper in 2018 that laid out the way antitrust law could be used against Vyera and Shkreli — a paper that the state and the commission appear to have used as a blueprint.

“With Daraprim, you can make a straightforward application of antitrust law,” he told me. “Everything they did had anticompetitive effects, and no pro-competition justification. It was maintaining its monopoly by taking actions that had no other rationale other than keeping competition away.”

When I asked him why that was any different from, say, Humira, Carrier responded with one word: patents. AbbVie has protected Humira’s monopoly by surrounding the drug with dozens of add-on patents, a practice called “evergreening.” Although the ordinary person might view those patents as being solely intended to maintain the drug’s monopoly, courts tend to give great weight to patent protection. To make an antitrust case against Humira, the authorities would have to argue that its add-on patents are frivolous, and that’s not a winning argument, even if it’s true.

Fair enough. Still, Big Pharma uses other tactics to keep generics off the market. Many companies now file “citizen’s petitions” to the Food and Drug Administration — originally intended to allow citizens to influence health policy — against other companies to keep their drugs off the market. They cut deals with generic companies to delay the introduction of a competitor. They also do some of the same things Vyera does to maintain Daraprim’s monopoly.

So, yes, maybe a straightforward antitrust case wouldn’t work against these larger players. But there is something else the FTC could do to take on the big boys — and that’s what the two Democrats on the commission, Rohit Chopra and Rebecca Kelly Slaughter, suggested in their concurrent statements.

Section 5 of the FTC Act gives the agency the ability to declare unlawful “unfair or deceptive acts or practices in or affecting commerce.” Like many federal agencies, the FTC has become timid, so its use of this broad mandate has been circumscribed in recent decades. “I believe that some of the conduct alleged in the complaint,” against Shkreli and Vyera, Chopra wrote, “also constitutes a violation of the FTC Act’s prohibition of unfair acts and practices.”

“I believe that the FTC and many of the State Attorneys General should pursue this legal claim in cases with the similar facts,” he said, adding, “I continue to be concerned that the FTC does not use its authority to the fullest extent possible to combat marketplace abuses. This is another missed opportunity for the Commission.”

He’s right. If the FTC and James were willing to go after Big Pharma’s tactics using Section 5, they might be able to do something big and important to rein in drug prices. But that would be difficult, and they might not win. So instead they went after the easiest target on the planet: a “pharma bro” who’s already in prison.

If and when they win the case, there will no doubt be another round of congratulatory press releases. And the price of insulin will keep going up.

(1) James and the FTC also charged a third party in addition to Shkreli and Vyera: Kevin Mulleady, the chairman of Phoenixus AG, a Swiss company that controls Vyera.

(2) It was called Turing Pharmaceuticals when Shkreli was the CEO.

To contact the author of this story: Joe Nocera at jnocera3@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

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

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."

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