As far as 32 year-old hedge fund managers who’re worth north of $100m go, Martin Shkreli is having a rough month.
It all started to go wrong on the 20th of September when John Carroll, a journalist for the Fierce Biotech news site, asked him about the new pricing plan for a drug called Daraprim.
Daraprim is a 62 year-old drug used to treat toxoplasmosis, a disease which can kill people with weakened immune systems. A lot of AIDS sufferers are prescribed Daraprim. Shkreli specialises in buying the rights to old drugs, and it recently bought the rights to Daraprim.
Carroll asked Shkreli why he decided to hike the price of Daraprim from $13.50 to $750 per pill – a 5,455% increase. And Shkreli wasn’t happy to talk about it! He took to twitter:
I’ll bet you one pill of Daraprim that Shkreli regrets those tweets!
The story blew up on twitter, and soon it was making national headlines. And the people are not happy. Shkreli’s been called the “most hated” and “most despised” man in America, a “scumbag”, a “garbage monster”, and a “morally bankrupt sociopath”.
The politicians piled on next. Bernie Sanders (who’s the second favourite candidate for the Democratic nomination for the Presidency) called him “the poster boy for pharmaceutical company greed”. And in a Facebook post, Hilary Clinton wrote “if you’re price gouging American families and jacking up costs for no good reason, I’m going to hold you accountable.”
Now this might all be nothing more than an entertaining story, except that it’s knocked billions off the value of biotech stocks. The Nasdaq Biotech Index dropped about 25% as the story broke.
Investors are worried that the Daraprim story is going to bring American biotech companies’ pricing to the attention of the politicians.
They’re right to be worried – Martin Shkreli isn’t the only chancer in the business! Other companies like Gilead and Valeant Pharma specialise in the same tactic. They buy the rights to old drugs, jack up the price they charge consumers, and keep the profits. $11bn has been wiped off the value of Valeant in the last month, or 31% of its market cap.
As you’d expect, Tom Bulford has an insightful take on the whole business:
If these [politicians’]threats ever become reality, it is potentially quite serious for big drug companies for the simple reason that any decline in revenue consequent upon price cuts would come straight off profits – although I dare say they could find plenty of cost savings if required.
Anyway the battle lines are drawn, so let me give you a few facts. Americans are rattling with pills. The USA accounts for about 40% of the global market. A recent survey found that half of Americans had taken a prescription drug in the last thirty days, one in five had taken three drugs and one in ten had taken five.
Not only do they take a lot of pills but they pay more for them. Drug prices in the USA are about twice as high as they are in the UK and the result is that Americans spend about $1,000 per year on drugs.
Where does this leave biotech investors? Well, Tom has been predicting a pullback like this for quite some time, especially in the US market. And he’s built a portfolio to measure. In Breakthrough Biotech Alert, he gives his readers the information they need to invest in the biotech bull market.
“None of what has happened recently surprises me in the least, and nor does it make me doubt for a second that the biotechnology revolution is here to stay.
Those companies that remain in the portfolio are, by and large, delivering on their strategy and so I am happy to stay with them… While others may be scared of that ‘volatility’, we must make it work in our favour.”