Pharma CEO’s arrest a sign of health sector ills

December 17, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Fraud charges against Turing Pharmaceuticals boss Martin Shkreli are a symptom of the sector’s ills. Healthcare has been prone to financial finagling, but the recent boom created more opportunities for misconduct. With good times fading, the excesses suddenly stand out like a sore thumb.

Controversy has long been Shkreli’s calling card. He made his name publicly criticizing biotechnology stocks whose value his hedge fund bet would drop. Then he switched tactics, founding two biotech companies himself.

U.S. presidential hopeful Hillary Clinton harshly criticized Shkreli for acquiring the manufacturing rights to an anti-parasite medication used by AIDS patients and infants – and raising its price from $13.50 a pill to $750. Pharma’s bad boy responded by saying he should have charged even more. To top things off, he paid $2 million for the only copy of an album by American hip-hop group Wu-Tang Clan but claimed never to have listened to it.

Prosecutors believe Shkreli’s antics behind the scenes were far more serious, charging him with defrauding both his hedge fund investors and Retrophin, a company he founded and left in disgrace. They claim Shkreli tried to cover disastrous trades by illegally transferring Retrophin stock and cash to himself and former investors in his fund. He has denied the charges.

Though Shkreli may be innocent, he has left himself vulnerable to scrutiny. It’s probably not the smartest move to, for example, take on Clinton publicly while profiting from AIDS patients and infants in a highly regulated industry that has attracted enormous controversy.

His indictment may be the first of many in the sector. The NASDAQ index of the value of biotech stocks has quadrupled over the past four years before falling recently, and hospitals and health insurers have also done extraordinarily well. The lure of high profits often leads investors to overlook potential fraud and lavish money on questionable businesses.

That can, of course, bring even more illegal activity. The National Health Care Anti-Fraud Association estimates at least 3 percent of the more than $2 trillion Americans spend on health is eaten up by fraud. Other estimates claim up to 10 percent. Shkreli may turn out to be just an appetizer for prosecutors hungry for big healthcare game.

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What is really going on is that the American oligarchy is recognizing the need to reign in some of its more egregious, in your face members. Rather like what Putin did in Russia.

Posted by ChrisHerz | Report as abusive