The media has gone nuts about Martin Shkreli, the CEO of Turing Pharma who “obtained the manufacturing licence for Daraprim, an out-of-patent medicine, and raised its price by 5,455 percent (from $13.50 to $750 per tablet).” (Wikipedia)
While the company has stated that there will be a price reversal (as of this writing, we don’t know how much yet), Shkreli has now “receded from the public” according to USA Today, and who can blame him with the furious media storm raging out there?
Most analyses focus on rampant greed within the pharma industry, and use Shkreli as the poster boy for the zenith thereof. One redditor (/u/BlueGold), however, offers a different viewpoint which sheds some additional light on the subject. I’ve bowdlerized it a bit for family consumption – the original thread is here if you don’t mind colorful language.
Legal securities transaction experience and a little SEC regulation fluency checking in:
I’ve actually been doing some more research on the guy at work today, and am pretty blown away at how this all went down, should this theory be on point.
I’d like to state first that he’s a total jerk, and that this is a theory, but it’s becoming more and more convincing that he intended for all of this to happen, and it’s been a fun idea to play with – help educate me in what else this would require and each other:
So he knew the 4,700% cost-floor revaluation was an embellishment with a purpose:
He has, from what I can find, $4 – $15 million in shares of borrowed stock in various pharma corp. entities.
So, the moment reddit started raging about the injustice to the AIDS victims, and someone on Hilary’s digital media team said “Mrs. Clinton – appeal to all these voters by coming down on this dude!” he cracked a beer and watched his whole plan unfold.
In realistic share terms, taking taxes, interest rates in the ST contract with his lenders, and estimated holding into account, is probably several million dollars in profit for a day of acting. Someone above said “he’ll make billions short-selling!” Not only could he not make that much on a 20% drop short sale with his highest estimated borrowed holding, but the profit from a short sale like this doesn’t come to light for the market player until days, weeks, even months later when the price is back up to optimal value for cashing out.
So, its safe to say that he made millions with his little PR stunt, and vocationally, in a vacuum, he’s totally brilliant. Again, universally – he’s a jerk, but has an undeniable vocational aptitude for what he does.
If this probable play theory is on point, he knew he’d announce this cost reduction and caving on the 5k% value inflation shortly after reddit, twitter, mainstream media, and Hilary all started airing out their grievances – and he knew that there would be a subsequent revitalization in the pharma. share market base.
Bada bing bada boom. Say what you want about this guy, but he just acted like a jerk in order to troll the outrage bandwagon into actually influencing share values, and it totally worked. He didn’t deprive any dying children, he didn’t put anyone on the street, he probably didn’t even leave his office.
Alas, the predictable freakout hit the exact water mark he wanted it to, maybe even higher, and he bought all he could at the low price the bandwagon created, flipped back his $4-$15 million in borrowed shares to his creditors with presumably a “lets do business againreal soon” interest rate, and will soon profit generously when the market settles back to its regular CFS.
It would be really impressive, entirely because of the ignorance that is the foundation of everyone’s outrage.
I see a lot of people griping and moaning about the “system,” and the “extortion,” and the “broken justice” of SEC regs, and no suggestions other than “
this psychopath.”
Ya know what the ironic thing about this situation is though? His play will encourage the SEC revision committee to act. Not PI groups, not activists, not media attention. But this guy, who took advantage of the volatility of the market in response to uninformed social justice outcry. The only thing that really gets the attention of the SEC revision committee is economic circumstances, and the potential to not have firm control over happenings in private trading.
From 1934 – 2012, the SEC Regulatory Revision Committee has instituted 7 major acts, all in response to participant profiting, no one went to prison, and ALL THE ACTS were in the interest of non-corporate market participants.
Like it or not, he’s the only one who’ll make a difference for the better, whether it’s his intention or not – and he’s getting rich while he’s doing it, and not actually acting any differently than 80% of the other AIDS med manufacturers in the industry. In fact, he’s lowered his price below many others.
EDIT: Hopefully this adds some umph to anything I’ve said or answers any questions:
This guy is a master at short selling tactics.
He would get in a run of the mill short sale position, but then encourage the FDA via filing of “citizen petitions” to stall the release of certain products from corporations whose stock he was short selling. In doing this, is where his real mastery lies:
Dr. Hayflick, of OHSU (an outstanding medical research facility), “got a call from him in 2012, suggesting she try a different molecular modification to remedy pantothenate kinase-associated neurodegeneration, or PKAN. ‘Damned if it doesn’t do what he thought it would do…It’s impressive. It’s humbling.'”
This isn’t a new thing, at all. I think this outrage is situational discontent with the pharma industry at large, and the for-profit nature of its governance. This, unfortunately, is a product of our privatized medical production realm that happens constantly. He just happened to make a noisy jerk out of himself, but really is one of many players, and still a small one at that.
Gylbera costs 1$ million buckaroos for annual treatment.
Acthar gel was marked 7000% for years.
Cinryze runs 3 times as much as his proposed value.
Short selling, multi-thousand percent mark ups from production-to-sale on drugs, constitutionally-protected systematic deflation of competition, reverse mergers… These are all well established market practices, just usually employed by undeniably smart, exploitive market players and CFOs who keep their mouths shut. This kind of noisy behavior has potential to create a PR nightmare that influences shareholder’s reactionary tendencies. Alas, it’s going back up!!! like our little jerk here has done.
This dude is a jerk. And if this hypothetical situation is on; a really smart jerk.
Once more, it serves to emphasize that this is one person’s theory. But it’s based on substantial experience in the industry, and makes for fascinating reading. There are some possibly good outcomes from this entire debacle:
Let us hope that some good comes out of this, whether or not Shkreli ever intended such an outcome.
The Old Wolf has spoken, with thanks to /u/BlueGold.
Playing in the World Game 