The unsavory rise and precipitous fall of Martin Shkreli is a truncated version of ‘The Wolf of Wall Street’ on steroids.
Martin Shkreli got his start as an intern at Cramer Berkowitz when he was 17 years old. According to his Vanity Fair article profile, he ‘weaseled’ (or conned) himself into this job. According to his own legend, he became a protege of Jim Cramer (the guy that shouts stock and financial advice on CNBC). Shkreli had the unique ability to sniff out which biotech stocks were real and which ones were fraudulent. Though not a scientist, he has a keen interest in science and a strong desire to eradicate incurable illness with science and biomedical technology. Jim Cramer says Shkreli was no protege, he does not even remember this person working for him. Jim Cramer also left the firm he founded soon after Shkreli’s internship.
The valuable lesson Shkreli learned at Cramer Berkowitz is biotech companies can legally inflate the claims of what their drugs can do to get investor money. Since the Food and Drug Administration (FDA) only approves 15% of all drugs which begin clinical trial anyways, the margin of error is wide. The conditions are rife for companies to make outlandish claims of what a drug can do just to attract investor funds. Many companies bilk investors out of millions of dollars without ever being prosecuted or jailed. In fact, there are groups of investors who specifically bet on this sort of failure by shorting biochem and pharmaceutical stocks, this is a safer bet than its alternative, which is the FDA approving new drugs to treat diseases.
Shkreli realized this is where the real money is. Pharmaceuticals, not hedge fund managing is the way to go if he wants to be the new wolf of Wall Street. In what universe can he bet on companies to fail and make money? And do it legally. The other thing in Shkreli’s favor is his natural gift and interest in science, math and data crunching. Many doctors and researchers whom he worked with were impressed with his knowledge in science and data compiling and enjoyed working with him.
Prior to starting Turing Pharmaceuticals, the company which would acquire Daraprim, his career in big finance had been unremarkable and even disastrous at times. He had made several big bets and lost but because it was right before the financial meltdown of 2008 and it involved Lehman Brothers, he was able to ‘weasel’ out of paying that loss. He then started a hedge fund with a friend, but made another wrong bet and lost a lot of money for those investors. He had the gumption to take big risks knowing the losses could be big, he was of the ‘go big or go home’ persuasion, after all, the money he was gambling with wasn’t his.
He also made himself an expert on what is legal to do and what isn’t and as long as he painted within the legal lines regardless of the ethical and moral consequences, he had no trouble sleeping at night. When he realized running hedge funds required more work than he originally thought, he completely shifted his focus to biochemical and pharmaceutical companies.
In August of this year, Shkreli acquired the rights to Daraprim, which is a drug that fights “toxoplasmosis, a parasitic infection that is particularly dangerous to pregnant women, people with compromised immune systems, and the elderly. In that vulnerable population it can lead to seizures, blindness, birth defects in babies of infected mothers, and, in some cases, death.” AIDS and cancer patients with compromised immune systems have also come to rely on this drug. It’s the most effective drug to treat this type of infection. Overnight the price of this drug went from a modest $13.50 a dose to $750 a dose, a price hike of 5000%, Shkreli defended his actions stating what he had done wasn’t ‘illegal’ and his justification is:
“This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business,” Mr. Shkreli said. He said that many patients use the drug for far less than a year and that the price was now more in line with those of other drugs for rare diseases.“This is still one of the smallest pharmaceutical products in the world,” he said. “It really doesn’t make sense to get any criticism for this.”
He also claims this drug is so rarely used by the medical community, the impact will be minimal. After much pressure from all directions, he agreed to lower the price and then be backed out of that agreement as well.
This month he allowed Vanity Fair to do a profile on him, he sat down for an interview with them and in that interview he claimed he was no different from John D. Rockefeller when he was in control of the Standard Oil Company. It is common practice to raise prices when a company gets acquired by someone else. Immediately Shkreli became the most hated man in America. He was the symbol of everything that is wrong with America, capitalism and Wall Street.
Nor is this a young man who is discreet with his wealth. On his social network profiles, he often puts his conspicuous consumption on full display, without shame or remorse. He’s got the green and he’d going to flash it. All of his claims of hiking the price of Daraprim is to improve the drug and develop new drugs to treat even more serious diseases doesn’t hold water.
Whatever he lacks in discretion, he makes up for with boldness and inflated sense of ego and self-worth. To even compare himself to John D. Rockefeller, while no saint is one of America’s greatest industrialists, is ridiculous. How this twitchy guy, who seems to have no control over his body movements while speaking, who is still wet behind the ears when it comes to business can make such a bold comparison is laughable. Shkreli doesn’t have half the depth and reserve of John D. Rockefeller. Rockefeller, for all of the evil things he done on the way up, built a legacy, not just for himself, but for America. Regardless of what one thinks of his legacy and how he attained this legacy, that’s a separate argument. But one thing is for sure: Rockefeller would have never gotten caught this early in the game.
Given all the corporate greed and criminality out there, Shkreli’s actions are probably not the worst there is, but because of his inability to keep his mouth shut and wallet closed, he got caught up in the dragnet. Rightly so, not one person feels sorry for him, even if the allegations turn out to be trumped up and the charges don’t result in a conviction, it won’t matter one bit.
For all of Shkreli’s proclamations of raising the prices to make the company profitable to improve the drug and develop new drugs, as of yesterday, the real reason for the price hike is clear. He needed to raise cash to pay off the investors he angered when he ran his hedge fund into the ground. Before he started Turing Pharmaceuticals, he was the CEO of another biochem firm Retrophin, he was ousted as its CEO for misappropriating company funds and using company funds like his personal piggy bank to pay off the same angry investors from his collapsed hedge fund. The board of directors of Retrophin accused Shkreli of running a Ponzi scheme with their company and asked the Brooklyn DA to open an investigation.
The investigation resulted in an indictment yesterday and Shkreli was arrested by the FBI. Though he was able to bail himself out of jail, there is one more twist. The attorney who is representing him for his criminal case decided to charge his new client 5000% over what he normally charges. His attorney fees went from $1200 an hour to $60,000 an hour, to which Shkreli shrieked “this is the behavior of a sociopath” and accused his attorney of “outrageous and inhumane price gouging,” a rather teapot and kettle accusation.
According to the report by The New Yorker:
For his part, Shkreli’s lawyer was unmoved by his client’s complaint. “Compared to what he pays for an hour of Wu-Tang Clan, sixty thou is a bargain,” he said.
About that Wu-Tang Clan album, Shkreli reportedly outbid billionaires to acquire the one and only copy of an unreleased Wu-Tang Clan album, he paid north of $5 million dollars for it, apparently not realizing he’ll be needing these millions very soon.
Karma is not a bitch. Karma is divinely glorious.