More on the Closed Distribution of Daraprim: Should Shkreli Have Really Been “Shocked” by It?

On December 21, 2016, Senators Susan Collins (R-Maine) and Claire McCaskill (D-Missouri), the respective Chairman and Ranking Member of the Senate Aging Committee, released a bipartisan report of their investigation into the escalating costs of generic drugs, and specifically that of Turing Pharmaceutical’s Daraprim (generic, pyrimethamine).

In August of 2015, when Turing acquired the US marketing rights to the 62-year-old antimicrobial, the per-pill cost skyrocketed from $13.50 to $750, and the medicine became available only through closed distribution systems, which ensure a small-market monopoly. Details of how this monopoly occurred and how it is important to extortive individuals like Turing’s former CEO, Twitter troll Martin Shkreli, and his Turing accomplices are carefully unpacked and supported in the report (see pages 32-41).

Among several things, what is apparent from the report is just how duplicitous Shkreli has been publicly when compared with his and other Turing executives’ private intent to ensure that the distribution of Daraprim remains strictly controlled. (For background on this issue, which has been previously discussed at this blog, go here and here.) Nowhere is this duplicity more apparent than when comparing Shkreli’s interview with Forbes‘s Matthew Herper at the Forbes Healthcare Summit on December 3, 2015, and the evidence presented in the Senators’ bipartisan report. To wit, here is a transcription of a portion of Shkreli’s interview with Herper (boldface emphasis has been added) from approximately 1 year ago.

Shkreli: When we bought this drug, the prior owner was in the midst of changing the distribution system. They did that without our prompting by the way. We were going to do that, make no mistake about it. We were going to do it ourselves. But, um, we were shocked. We were actually in discussions with Express Scripts—I can reveal this—uh, and Express Scripts emailed me the other day, begging for our business. Uh, I can send you that email, if you like. Um, they wanted to distribute Daraprim, and instead, and we actually gave, we said, “When we buy this drug, we’ll give you the contract.” And they were thrilled. And then what we saw, amazingly, Express Scripts sent us an email that said, “Well, it turns out that we got this email from Impax that says that Walgreens is going to be the distributor of record.” And we said, “Well, it looks like you’re SOL.” Uh, most of you know what that is, I think. And, uh, they’re out of luck. And uh, the uh, the um, so, so we told Express Scripts, “We’re sorry [you] can’t distribute Daraprim.” Which is, you know, they’re going to lose out on 5, 10 million dollars in fees. Um, so I don’t know if this reaction[*] is something, you know, is related to that. The point of my story is that the distribution change, which was not authorized or expected, quite frankly, by us, uh, that [unintelligible] caused all these eruptions. I wouldn’t go post hoc ergo propter hoc[**] with our company. We’ve done everything possible to make sure that everyone can get the drug. This is the prior manufacturer’s fault.

Herper: Even if it’s recent.

Shkreli: It’s not—They changed the distribution just before we bought the drug. And they didn’t tell anyone. They didn’t put out a sales force. We had our 50 people to go get the word out on how to get our product. I personally answer product-acquisition phone calls. I dealt with uh, with uh, Mass General on getting, uh, uh, illegal alien’s pill for free. Um, 65% of our drug we sell for a penny. So I don’t think it makes a lot of sense. We’ve got 200 people at Turing that are dedicated to make sure everyone gets their medicine. And by the way, that’s 200 people more than anyone has ever had for this medicine.

Here, Shkreli said he was “shocked” at the set up of a closed distribution system for Daraprim by the previous owner, Impax Laboratories. However, a series of facts, obtained through depositions and Turing emails, presented within the bipartisan report, provide a somewhat different story. Here is a timeline, gleaned from the report, for comparison:

March 2015: Turing enters into negotiations with Impax to purchase the US-based licensing rights to Daraprim.

April 29, 2015: Turing’s Senior Director of Business Development, Michael Smith, emails Nancy Retzlaff (Turing’s Chief Commercial Officer) and Tina Ghorban (Turing’s Senior Director of Business Analytics), highlighting that Daraprim and another drug (possibly sulfadiazine***) were acquisition targets because they were “sole-source” generics—meaning, that there was only one manufacturer.

May 20, 2015: Turing’s co-founder and CFO, Edwin Urrutia emails a private investor, stating that Daraprim (and another drug [again possibly sulfadiazine]) were “sole sourced and the standard of care” for their indications (ie, toxoplasmosis). Urrutia proposes that Turing intends to place both drugs in closed distribution.

June 2015: In an email from Ghorban to Retzlaff, Ghorban clarifies that Turing wants to shore up the US supply of the active pharmaceutical ingredient (API) pyrimethamine, the active ingredient in Daraprim. (In May, Turing had failed to secure an exclusive deal to acquire the API from Japanese manufacturer Fukuzyu for the US market. For further background on the FDA-approved sources for the API pyrimethamine, go here.)

June 10, 2015: Retzlaff emails Ghorban, stating “[T]he priority work stream is to ensure the product is moved in a closed distribution as swiftly as possible in order to minimize exposure.”

June 15, 2015: The closed or “controlled” distribution of Daraprim (Daraprim Direct for inpatients and Walgreens Specialty Pharmacy for outpatients) launches. A July 17, 2015, article at Pharmacy Times explains how hospitals and patients can no longer acquire the drug through the usual routes (ie, from wholesalers and a local pharmacy, respectively).

July 11, 2015: Shkreli texts Smith, stating that “Generics are required to keep samples on hand. So closed [distribution] will prohibit new guys but any ANDA [abbreviated new drug application] filer will keep samples and expiry won’t matter cause they can retest them.”

August 7, 2015: Turing buys Daraprim from Impax for $55 million and increases per-pill cost from $13.50 to $750.

Further Turing communications examined by the bipartisan committee also show how Turing wanted to tightly control the distribution of Daraprim, to prevent its acquisition by would-be generic competitors. The fact that Shkreli’s expressed shock at the closed distribution for Daraprim in December of 2015 to Forbes’s Matthew Herper belies Turing’s sole-minded intent to ensure that the distribution of Daraprim be restricted for monopolistic purposes. It’s possible, as Shkreli implies, that Impax had made an independent agreement with Walgreens to distribute Daraprim, just weeks before the company transferred the marketing rights. Although it’s very hard to believe that this agreement would have been done without Shkreli’s knowledge, especially when negotiations between Impax and Turing had been going on for months.

*The announcement on November 30, 2015, that Express Scripts partnered with compounding pharmacy Imprimis to offer a version of Daraprim (pyrimethamine) for 99 cents per pill.

** A logical fallacy ascribing a cause-and-effect relationship to 2 close, temporal events. It’s not entirely clear how Shkreli is using the accusation here, but it might be inferred that he is charging that people are falsely correlating the distribution change for Daraprim to the transfer of the marketing rights to Daraprim from Impax to Turing. A charge that, in my opinion, is truly laughable.

***Turing’s interest in sulfadiazine is especially sinister, given that the drug is given with pyramethamine to treat toxoplasmosis. If the company had acquired both drugs, they would have had a lock on the preferred combination treatment for toxoplasmosis. Sulfadiazine has been approved for use in the United States since 1941. Like pyramethamine, it is on WHO’s List of Essential Medicines.