[Senate Hearing 114-849]
[From the U.S. Government Publishing Office]
S. Hrg. 114-849
SUDDEN PRICE SPIKES IN
DECADES-OLD PRESCRIPTION DRUGS:
INSIDE THE MONOPOLY BUSINESS MODEL
=======================================================================
HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
MARCH 17, 2016
__________
Serial No. 114-21
Printed for the use of the Special Committee on Aging
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
48-226 PDF WASHINGTON : 2022
SPECIAL COMMITTEE ON AGING
SUSAN M. COLLINS, Maine, Chairman
ORRIN G. HATCH, Utah CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois BILL NELSON, Florida
JEFF FLAKE, Arizona ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas JOE DONNELLY, Indiana
DAVID PERDUE, Georgia ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina TIM KAINE, Virginia
BEN SASSE, Nebraska
----------
Priscilla Hanley, Majority Staff Director
Derron Parks, Minority Staff Director
C O N T E N T S
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Page
Opening Statement of Senator Susan M. Collins, Chairman.......... 1
Opening Statement of Senator Claire McCaskill, Ranking Member.... 2
PANEL OF WITNESSES
PANEL I
Howard Dorfman, Former Senior Vice President and General Counsel,
Turing Pharmaceuticals......................................... 5
Adaora Adimora, M.D., Professor of Medicine and Epidemiology,
University of North Carolina at Chapel Hill, and Immediate Past
Chair, HIV Medicine Association................................ 7
Shannon and Joshua Weston, Parents of an infant born with
Toxoplasmosis.................................................. 9
PANEL II
Ronald Tilles, Interim Chief Executive Officer, and Chairman of
the Board, Turing Pharmaceuticals.............................. 22
Michael Smith, Co-Founder and Senior Director of Business
Development, Turing Pharmaceuticals............................ 23
Dan Wichman, Partner and Analyst, Broadfin Capital............... 25
APPENDIX
Prepared Witness Statements
Howard Dorfman, Former Senior Vice President and General Counsel,
Turing Pharmaceuticals......................................... 63
Adaora Adimora, M.D., Professor of Medicine and Epidemiology,
University of North Carolina at Chapel Hill, and Immediate Past
Chair, HIV Medicine Association................................ 67
Shannon and Joshua Weston, Parents of an infant born with
Toxoplasmosis.................................................. 73
Ronald Tilles, Interim Chief Executive Officer, and Chairman of
the Board, Turing Pharmaceuticals.............................. 76
Michael Smith, Co-Founder and Senior Director of Business
Development, Turing Pharmaceuticals............................ 79
Dan Wichman, Partner and Analyst, Broadfin Capital............... 83
Statements for the Record
Special Committee on Aging Hearing Transcripts................... 89
SUDDEN PRICE SPIKES IN
DECADES-OLD PRESCRIPTION DRUGS:
INSIDE THE MONOPOLY BUSINESS MODEL
----------
THURSDAY, MARCH 17, 2016
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 9:46 a.m., Room
562, Dirksen Senate Office Building, Hon. Susan M. Collins,
Chairman of the Committee, presiding.
Present: Senators Collins, Heller, Tillis, McCaskill,
Casey, Whitehouse, Gillibrand, Blumenthal, Donnelly, Warren,
and Kaine.
OPENING STATEMENT OF SENATOR
SUSAN M. COLLINS, CHAIRMAN
The Chairman. The Committee will come to order. Good
morning.
Last fall, this Committee launched a bipartisan
investigation into the sudden enormous price increases on
decades-old prescription drugs. Our focus today is on two
companies in particular that operate more like hedge funds than
they do traditional pharmaceutical companies, Turing
Pharmaceuticals and Retrophin.
The Committee has investigated how these companies devised
their business models to impose and protect egregious price
hikes and what policy changes are needed to respond to their
actions. These two hedge fund pharmaceuticals were both founded
by Martin Shkreli, Retrophin in 2011 and Turing in 2014. Our
investigation has determined that these companies follow a
business model with five key elements.
I now submit for the record, committee exhibits containing
more than a thousand pages of documents that reveal the
structure of this business model, which operates like this.
First, the companies identify an older brand name sole
source drug. They choose a drug whose patents have long since
expired, which already has the field to itself, and which faces
no generic competitor.
Second, they make sure that the drug is the gold standard
for the condition it treats so that health care providers
cannot prescribe a substitute treatment or will not feel
comfortable in doing so.
Third, they select a drug that serves a small patient
population. Fewer patients means less scrutiny and less
incentive for a competitor to enter the market.
Fourth, they put the drug in a closed distribution system
or specialty pharmacy, which gives the companies a monopoly.
This move is key because it keeps generic companies from
competing in the market because they cannot get the supply
required to conduct bioequivalence tests needed for FDA
approval. As Martin Shkreli told potential investors in 2014,
``We do not sell Retrophin products to generic companies.''
Fifth, they accomplish their ultimate goal. Soon after Mr.
Shkreli made that statement in reference to the drug Thiola,
which is used to treat a rare kidney disease, that drug began
generating revenue at a level 5,000 percent higher than it had
produced for its previous owner.
In October 2014, Mr. Shkreli left Retrophin to start
Turing, bringing with him former Retrophin consultant Ron
Tilles, who is now Turing's CEO and Chairman of the Board.
Edwin Urrutia, now Turing's CFO, Michael Smith, now Turing's
Senior Director of Business Development, and most important,
the business model I have described.
Applying this business model, they acquired a drug called
Daraprim, which is the gold standard medicine used to treat
toxoplasmosis. Daraprim has been on the market since 1953, yet
it has no generic competitor. When they acquired Daraprim, it
was selling for about $13.50 per pill. Turing raised the price
of this low-profile but very important medicine to $750 per
pill, which amounted to $75,000 per bottle.
Today, we will hear the sworn testimony of three company
insiders, one who protested the business model and lost his job
because of it, and two who stayed and helped to carry out the
greedy scheme that caused hardship for patients and providers,
prevented generic competition, and enriched the companies.
These decisions made by these companies did not play out in
a vacuum. We will hear from the mother of an infant diagnosed
with congenital toxoplasmosis who, as a result of Turing's
actions, faced a price tag of $28,000 a month for the medicine
she needed to save her infant daughter from death or a lifetime
of disability.
An infectious disease expert will also provide her
perspective on the impact of this price manipulation scheme on
real people who are struggling to get access to drugs they
cannot afford and desperately need.
Whether or not these companies' actions are legal, their
behavior harms patients, represents a market failure, and is a
call to action.
I now welcome the statement of our Ranking Member, Senator
Claire McCaskill, who has done tremendous work on this
important issue. It was, in fact, Senator McCaskill who first
pointed out to me the enormous price spike for the drug
Daraprim, so thank you very much, Senator McCaskill, for your
leadership on this important issue.
OPENING STATEMENT OF SENATOR
CLAIRE McCASKILL, RANKING MEMBER
Senator McCaskill. Thank you, Senator Collins, and as
always, it is a pleasure to work in partnership with you to try
to find public policy that can impact this practice without
doing unintended harm to those companies that are out there
doing the R&D to find the innovative cures that are so
important to our country.
I am glad to be here today for the second of our series of
hearings about these rising drug prices. The first hearing the
Aging Committee held on this topic examined the market forces
that have allowed some companies to raise prices for their
products by hundreds or thousands of percentage points.
As we hear from witnesses back in December, the drugs that
are being targeted for these astounding overnight price
increases are, as the Chairman pointed out, usually drugs that
are off-patent, that have a small enough patient population
that most generic companies feel that it is not worth the cost
or the time to develop a generic competitor. This gives the
company that owns the right to this drug a de facto monopoly,
and let me emphasize here that it is the government's business
to go after monopolies, especially those that are harming the
public.
The patient populations for these drugs are so small, they
are not only unattractive to potential generic manufacturers,
but they are also usually not an important or even a desirable
part of a traditional pharmaceutical company's portfolio, so
traditional pharmaceutical companies are generally happy to
sell these drugs to others when a good offer comes along. This
makes these drugs and, therefore, the patients that need them,
vulnerable to being poached by a relatively new breed of
pharmaceutical companies whose primary goal is to reap
extraordinary profits and who do not hesitate to pursue that
goal despite risking patient access and people's lives.
In our effort to understand why these cases were occurring
with more frequency and how we could prevent these cases in the
future, the Committee subpoenaed tens of thousands of documents
last year from four companies that had engaged in this type of
egregious price gouging: Valeant, Rodelis, Retrophin, and
Turing, and in the documents, we found written detailed
confirmation of how this new breed of pharmaceutical company
operates.
As Senator Collins has already described, the documents we
subpoenaed showed that these companies are very good at
targeting drugs whose prices can be manipulated without generic
competition, and they have a whole master plan for how they go
about doing so systematically.
Something I also found to be interesting in my review of
the documents was that not only are some of these companies
being run by people who are not traditional pharmaceutical
executives, such as Martin Shkreli and Michael Pearson, but
that investors seem to be playing an outsized role in these
companies.
Some of these relationships are well known. For example,
Valeant Pharmaceuticals maintains some of the most visible
relationships with hedge funds who invest in the company, even
going so far as placing people from those hedge funds on their
board of directors. Valeant has worked closely with these hedge
funds in the past few years to acquire companies, slash their
R&D budgets--let me emphasize that, slash their R&D budgets--
and then raise the price of their drugs to fund additional
acquisitions and boost its stock price. I look forward to
examining Valeant in more depth at our next hearing in this
investigation.
The documents reviewed by the Committee make clear that the
chief rationale for the extraordinary increase in price is just
profit. The documents are explicit. In one e-mail, Martin
Shkreli tells his investors that a certain drug will be, ``an
annuity for some time.'' Or, and I quote, ``a $100 million
present to investors.''
The documents also make clear that the investors are
working hand-in-hand with the companies to drive up prices. In
one e-mail to Mr. Shkreli, Dan Wichman, one of Mr. Shkreli's
investors, who will testify on the second panel, said, and I
quote, ``Funny that other small companies still have not
realized that you can raise price aggressively and nobody gets
too upset.'' Well, I am here to tell you today that I am upset,
so make no mistake. Every single for-profit pharmaceutical
company aims to increase earnings and create value for
shareholders. There is nothing wrong with that, but
traditionally, pharmaceutical companies have gone after profit
by attempting to run a profitable pharmaceutical business,
bolstered by research and development with the aim of creating
new, innovative treatments.
With the companies at issue in this investigation, however,
that is not what we are seeing. What we are seeing in these
cases is Wall Street having turned its eye to health care,
because it has realized that here is a commodity, a product
with a stubbornly inelastic demand. Yet, there is a price for
everything at which people will no longer be able to pay for a
product, but what some investors have realized, much to their
delight, is that they can keep squeezing the very people who
depend on these drugs in order to line their own pockets.
The notion that these costs are passed on, the hearing that
brought this to my attention, an executive from Valeant was
there and I tried to pin him down on the outrageous increase in
a drug that was being provided to hospitals and he said, well,
the patients are not paying for that. That is being passed on.
They want to somehow float this notion that these costs are
going to insurance companies or hospitals. Make no mistake
about it. Every greedy grab of profit in this space lands in
the lap of hard-working Americans, every single dime.
This is disturbing. If this new breed of pharmaceutical
companies is where our pharmaceutical industry is headed, we
are in big trouble. Let me speak very clearly to the folks who
believe they can participate in this sick game of acquiring
drugs, raising prices to ridiculous heights, and sticking it to
patients. We will not stop this investigation until we find the
right prescription of public policy to end this practice.
We will shed light on this practice and we will work
together to stop it for the sake of patients, the health care
system, and American taxpayers, and I am very proud to be
working with Senator Collins and all of my colleagues on this
Committee to do so.
I thank the witnesses for being here today and I look
forward to their testimony.
The Chairman. Thank you very much, Senator McCaskill.
We now will turn to our first panel of witnesses. First, we
will hear from Mr. Howard Dorfman, the former Senior Vice
President and General Counsel of Turing. I would note for the
record that Mr. Dorfman's testimony has been compelled by
subpoena, but I also want to note for the record his
cooperation and sense of civic duty in coming forward to tell
his insider story.
I am also very pleased to turn to our esteemed colleague,
Senator Tillis, to introduce the next two witnesses, who both
hail from his home State of North Carolina.
Senator Tillis.
Senator Tillis. Thank you, Chairman Collins and Ranking
Member McCaskill. Thank you for holding this important hearing.
It is one that literally touches home.
I want to welcome three North Carolinians, and I regret
that you are here under these circumstances, however. First is
Dr. Adimora. Dr. Adimora is a leader in infectious disease and
HIV. She served as Chair of the HIV Medicine Association from
2014 to 2015.
Dr. Adimora treats patients who desperately need Daraprim
and has firsthand experience with access problems. The patients
that she treats are among the sickest of the sick, in end-stage
AIDS and struggling with chronic and significant socio-economic
burdens.
Mr. and Mrs. Weston are the parents of a baby born with
toxoplasmosis, both, I think, in May 2015, and physicians do
not know why Mrs. Weston got the disease, but their baby got
the disease in utero. Mrs. Weston found out that without
treatment, the symptoms will develop permanent brain damage.
She was told that it would cost $28,000 a month for treatment,
and Mrs. Weston is unable to afford the cost, as are so many
other people suffering, so again, I welcome you here. I regret
it is under these circumstances, and I look forward to your
testimony.
The Chairman. Thank you very much, Senator Tillis.
This is an investigation, we will be swearing in all of the
witnesses today, so I would ask that you all stand and raise
your right hand as I administer the oath.
Pursuant to Committee Rule II-4, do you swear that the
testimony that you will give to the Committee will be the
truth, the whole truth, and nothing but the truth, so help you
God?
Mr. Dorfman. I do.
Dr. Adimora. I do.
Mrs. Weston. I do.
Mr. Weston. I do.
Thank you very much. Let the record reflect that all of the
witnesses answered in the affirmative.
Mr. Dorfman, we will start with your testimony.
STATEMENT OF HOWARD DORFMAN, FORMER
SENIOR VICE PRESIDENT AND GENERAL COUNSEL,
TURING PHARMACEUTICALS
Mr. Dorfman. Chairman Collins, Ranking Member McCaskill,
and members of the Committee, before answering the Committee's
questions, I would like to provide context by sharing my
thoughts on the current discussions involving the cost of
prescription pharmaceuticals and price increases by companies
in the pharmaceutical industry. The opinions I provide for the
Committee today are my own and do not represent those of any
present or former clients I have counseled during my 30 years
as an in-house and outside counsel in the pharmaceutical
industry.
In addition, due to issues of attorney-client privilege, I
must respectfully confine myself to my role as an executive and
advisor on business and commercial issues.
From December 2014 until August 13, 2015, I served as
Senior Vice President and General Counsel at Turing
Pharmaceuticals, a privately held Swiss-based pharmaceutical
company with offices in New York City. At a point during 2015,
Turing acquired the manufacturing and commercialization rights
to a drug, Daraprim, from Impax laboratories. Daraprim, the
trade name for pyrimethamine, has been available since 1953 and
is considered the gold standard and cornerstone in the
treatment of toxoplasmosis, a parasitic disease that can be
fatal in patient populations with compromised immune systems,
as is the case with HIV and cancer. In the opinion of most
experts, there is no adequate substitute drug for Daraprim.
Thankfully, relatively few patients suffer from
toxoplasmosis. Drugs with such limited target populations
developed by pharmaceutical companies, so-called orphan drugs,
may be priced higher than drugs with a wider potential market,
largely attributable to research costs and limited revenue
expectations. Congress has provided incentives to
pharmaceutical manufacturers to bring such drugs to market.
Following its acquisition of Daraprim in August 2015,
Turing announced an increase in the price of the drug from
approximately $13.50 per pill to $750 per pill. Turing
implemented another change by entering into an exclusive
distribution agreement with a specialty pharmacy company,
limiting access to the drug through the specialty distributor.
I and other members of the Turing management committee
repeatedly raised business objections to these and other
aspects of the commercialization plans under discussion in
anticipation of the finalization of the acquisition of Daraprim
based on our belief that the proposed actions would have a
severely negative impact on Turing's business and reputation.
The objections against an immediate and precipitous rise in
the cost of Daraprim included concern as to the availability of
the drug for a particularly vulnerable and vocal HIV and AIDS
patient community, the lack of any formal study protocol in
place to implement research to develop a next generation
toxoplasmosis therapy, and the failure to develop any of the
educational materials for health care professionals and
patients, all of which were announced as components of the
rationale for an immediate price increase.
We made these objections during management committee
meetings attended by senior executives of the company,
including the Chief Commercial Officer, Nancy Retzlaff. In
fact, Ms. Retzlaff shared these concerns in these meetings and
in discussions with other members of the management committee
in private discussions.
Pharmaceutical companies typically justify drug price
increases, especially large rises, by expenditures such as
research and development of the drug itself or a substitute,
clinical trial work, or educational programs. In this instance,
the price increase as contemplated and subsequently announced
was not justified by any such actual expenditures.
Having referenced the retention of a specialty pharmacy for
commercialization purposes upon the acquisition of Daraprim, it
is important to understand how that closed distribution system
plays a role in maximizing the returns on a drug such as
Daraprim. Specialty pharmacies can play a crucial role in a
program often mandated by the FDA to manage and minimize risks
to patients. By creating a direct relationship between the
specialty pharmacy and the patient and caregiver, the
pharmaceutical manufacturer can have access to critical adverse
event information in real time as well as the ability to
monitor utilization and maximize expedited delivery, but such a
system can reduce, if not eliminate, the opportunity for a
second generic entrant to obtain sufficient quantities of the
drug in order to complete the necessary bioequivalence studies
required for FDA approval.
In the case of Daraprim, the retention of a new specialty
pharmacy distributor to carry on a closed distribution system
was considered an integral part of the company's desire to
block a generic entrant for at least 3 years.
The issue of drug prices continues to generate considerable
debate. One reason for drug pricing can be found in the costs
inherent in the development of a prescription drug from lab
through regulatory approval. In November 2014, the Tufts Center
for the Study of Drug Development estimated that cost to be
$2.6 billion, a 145 percent increase directed for inflation
over the estimates made in 2003. Whether one accepts that
figure at face value, it is recognized that drug development is
a costly venture with significant risks of failure before final
marketing approval is granted.
What has fueled the recent debate to a large extent has not
been price increases per se, but increases in prices for drugs
developed decades earlier without either patent protection or
the expenses of clinical trials.
In closing, I hope I have been able to provide useful
background and context into the activities under examination by
this Committee. Thank you very much.
The Chairman. Thank you for your testimony.
Dr. Adimora, welcome.
STATEMENT OF ADAORA ADIMORA, M.D.,
PROFESSOR OF MEDICINE AND EPIDEMIOLOGY,
UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL,
AND IMMEDIATE PAST CHAIR, HIV MEDICINE ASSOCIATION
Dr. Adimora. Good morning and thank you for asking me to
testify. My name is Ada Adimora and I am an infectious diseases
physician, research, and Professor of Medicine at the
University of North Carolina at Chapel Hill.
I have been caring for patients with HIV infection for many
years. Today, I am testifying as the Immediate Past Chair of
the HIV Medicine Association, or HIVMA, to describe how
doctors, patients, and the health care system are affected by
the price increase for pyrimethamine, which is marketed as
Daraprim. HIVMA is a national organization within the
Infectious Diseases Society of America, or IDSA, that
represents more than 5,000 physicians, researchers, and other
medical providers devoted to HIV medicine.
Last September, Dr. Stephen Calderwood, the population of
IDSA at the time, and I, as the then-Chair of HIVMA, wrote to
Turing Pharmaceuticals urging them to reconsider their pricing
of Daraprim. The letter followed many reports from infectious
diseases, or ID, providers that Daraprim's price had increased
dramatically overnight and noted concerns about the effect the
increase was having on toxoplasmosis treatment. An Ohio
pharmacy had reported that Daraprim's price had increased from
$13.50 per pill to $750 per pill, an increase of 5,000 percent.
Turing's response to the letter indicated that they were
committed to ensuring access for all patients who need it, but
the access issues continued, and HIVMA, the IDSA, and the
Pediatric Infectious Diseases Society wrote in late December to
the new Turing CEO, Ron Tilles, about these continued patient
access problems, urging him to return Daraprim's price to
$13.50 per pill. To date, Turing has not responded to that
request.
Toxoplasmosis, or toxo, is a parasitic infection that
mainly affects people with compromised immune systems, like
people with AIDS, people on cancer therapy, or people after
transplantation, and pregnant women and their newborns because
their immune system cannot control the infection, and if not
effectively treated, severe toxoplasmosis can cause brain and
organ damage, blindness, or death.
Now, my own experience with toxo is in treating patients
with AIDS, who typically present with brain abscesses that can
cause seizures, strokes, coma, or death. Patients are typically
treated and stabilized in the hospital with Daraprim and other
drugs and then discharged with a prescription to continue it at
home. They usually require at least 8 months of treatment, many
longer.
The FDA first approved Daraprim in 1953 and it has long
been a stable in toxo treatment. The Federal AIDS treatment
guidelines recommend it as the standard, but in October 2015,
these guidelines had to be updated to suggest alternative
treatments because when Daraprim is unavailable.
Turing's purchase of Daraprim in August 2015 disrupted toxo
treatment in the U.S. Patients have suffered treatment
interruptions or delays. They have been prescribed alternative
therapies or gone without treatment entirely. Providers have
devoted hours and hours or even days to getting the drug. Some
institutions have been forced to extend their line of credit
due to the $75,000 price tag for one bottle. Patients with
health insurance are sometimes now subject to prior
authorizations requiring many appeals, which can take 2 weeks
or more to process. Patients without health insurance also face
significant delays, sometimes for weeks or even months while
they wait for assistance through Turing's Patient Assistance
Program, if they are eligible for assistance through the
program at all.
Since HIVMA began monitoring access issues in October, we
have gotten at least 50 case reports from providers about the
trouble they have had accessing, or treating toxoplasmosis,
rather. Just last month, a physician reported through the
Daraprim access blog that a patient's hospital stay was
extended for 7 days because of problems getting Daraprim on an
outpatient basis through Turing's Patient Assistance Program.
The patient finally got a 1-month's supply through the state's
AIDS Drug Assistance Program, even though the drug had been
removed from the program's formulary, but even at the 50
percent discounted rate that Turing now offers certain
hospitals, the cost was $1,125 per day for the initial regimen.
Before August 2015, the cost for this would have been around
$41 per day.
Many providers and institutions have turned to alternative
treatment options, like compounding the drug in the hospital
pharmacy, prescribing Bactrim, or contracting with a
compounding pharmacy.
We have turned to alternative solutions because we have to
to treat a serious illness that really does require immediate
attention, but we should not have to when there is a 60-year-
old drug to treat toxo that is still available in other
developed countries for as little as $2.50 per pill or less, so
on behalf of infectious diseases and HIV providers, thank you
for your continued attention to unjustified price increases for
older off-patent prescription drugs. My comments focused on
Daraprim, but other older drugs, as you know, have been priced
out of reach. We urgently need policies to promote rational
drug pricing that ensure patient access without complex
assistance programs or making unreasonable demands on health
care providers. Our patients' lives, our Nation's public
health, and the sustainability of our health care system depend
on preventing future market failures like this one.
The Chairman. Thank you very much for your excellent and
informative testimony.
Mrs. Weston, we are so grateful for your being here today
to share your personal story.
STATEMENT OF SHANNON AND JOSHUA WESTON,
PARENTS OF AN INFANT BORN WITH TOXOPLASMOSIS
Mrs. Weston. Good morning and thank you, Chairman Collins,
Ranking Member McCaskill, and distinguished members of the
Committee, for inviting me to testify today.
My name is Shannon Weston, and my husband, Joshua, and I
met 14 years ago today. In the 3-years that followed, we bought
a house, we got married, and we began dreaming about our future
family. After I began graduate school, we began trying to begin
that family that we had begun dreaming about earlier. Over the
past 7 years, we have suffered many losses, and before I became
pregnant with Isla.
The pregnancy was ideal. There were no complications, and
all of my ultrasounds revealed that nothing was abnormal. Isla
was born on May 14, 2015, at 10:51 in the morning, and she was
seven pounds, six ounces, and had a head full of hair. Her
birth was eventful and resulted in delivery by emergency
cesarian section, and as a result, she did not transition well
to lung breathing on her own.
After nearly a week in NICU, we were finally able to take
our amazingly perfect, beautiful little daughter home. Those
first weeks, we thoroughly enjoyed everything about her and
stressed, as new parents did, and survived on no sleep
whatsoever.
When Isla was 2 months old, however, she developed a pocket
of fluid between her skull and her scalp. A CT scan revealed
pinpoint calcifications in her brain and her pediatrician said
that it could have come from a number of things, and so we
investigated further. A TORCH titer test, which is used to
screen for certain infections, was ordered, and we were sent to
a pediatric ophthalmologist and neurologist.
The TORCH tests, the first one came back negative. The
ophthalmologist found a macular scar in her left eye, but the
cause of this was unknown at the time. The MRI revealed normal
brain function and that the fluid pocket was the result of
bruising from her being stuck in the birth canal, but we could
not tell because of all that hair.
After the results, a second TORCH titer test was ordered.
The result this time was positive for the IGg antibody for
toxoplasmosis. We were then referred to Dr. Belhorn, a
pediatric infectious disease specialist at UNC Chapel Hill, who
had previously treated diseases with congenital toxoplasmosis.
To confirm the diagnosis, more tests had to be run.
On August 6, 2015, we were admitted to the UNC Hospital,
where they drew blood, performed a spinal tap on my 2-month-old
daughter, and made arrangements to see an eye specialist there
at the University. The lab asked for repeated blood draws from
Isla and from me, and at the beginning of October, we finally
received the conclusive results that Isla was diagnosed with
congenital toxoplasmosis.
Dr. Belhorn called me immediately when he received those
results and we spent many hours going over what this meant, how
we needed to proceed, and what the outcomes could be, but most
of the time on that phone call, he spent consoling me, as my
head was spinning a million miles a minute and every worst case
scenario was playing out. Dr. Belhorn assured me that at the
time Isla was asymptomatic except for the macular scar, and
that as long as we began treating immediately, she would remain
so. He then ordered the Daraprim and sulfadiazine that is the
treatment for congenital toxoplasmosis and said it would be
compounded in 2 days.
The very morning we were to go for her treatment, we
learned that our insurance company denied the medication that
Isla needed. Dr. Belhorn resubmitted to the insurance company.
They denied again, and then I filed a formal appeal. The
insurance company wrote to Dr. Belhorn that the reason for the
denial was that there was no medical necessity for the
treatment, since she was HIV-negative.
Dr. Belhorn continued to fight with the insurance company
over the necessity of treatment with Daraprim and I looked into
any way I could think of to come up with the almost $360,000
that I was going to need for a year of treatment. I knew that
as long as she was treated before symptoms set in, that she
would remain asymptomatic, and I was hopeless and depressed at
the thought of what would happen to my perfect little girl if I
was not able to help her. I truly felt that I had failed her in
every possible way.
I spent days researching Daraprim to see if there was
another way to obtain it, and just as I was at a complete loss
for what to do, Dr. Belhorn called to say that the UNC pharmacy
had enough to cover Isla's treatment for at least that year and
that they would compound it into the serum she needed and all
for an affordable price.
Since November 6, we have been purchasing the medication
from the UNC pharmacy directly. I am so grateful that we found
this option before it was too late for her, because I do not
know what I would have done, and I thank you again and look
forward to your questions.
The Chairman. Thank you very much. Your story is absolutely
heart wrenching and it helps us to put a human face on what has
happened with this immoral price increase and the impact on
your precious daughter, so thank you so much for being here.
Mr. Dorfman, I would like to have Slide 17 put up. You have
been in the pharmaceutical industry for some 30 years, and you
have testified to the business model that was being used and
the enormous price increase that Turing was going to apply. In
this slide, Turing predicts that Daraprim will skyrocket from
$4.9 million in annual revenue to possibly over $500 million.
In your view, was there any justification for that kind of
increase, based on your many years in the industry?
Mr. Dorfman. Let me respond. It is an excellent question.
As I said in my opening statement, and as I have believed
throughout my career in the pharmaceutical industry, there are
legitimate reasons for which prices are raised for
pharmaceuticals, and usually the rationale for that increase
has been fairly consistent over time among the various
pharmaceutical companies, and that is the extraordinary costs
of research, clinical trial programs, and those expenses for a
company to determine whether a drug can be submitted to and
then subsequently approved by the FDA remain a very important
component of how a pharmaceutical company would go about
undertaking to examine how best to price the drug, bearing in
mind the returns that are required to reinvest in research and
also to have the drug available for the required patient
population.
As I said before, during the discussions that were held
among the management committee, there was a number of people,
including myself and others, that voiced a very strong position
that Daraprim did not fit that classic model, that the research
had already been done on that drug and there were no clinical
trial programs in place at that time to ostensibly develop what
was purported to be a safer alternative to Daraprim, sort of a
second generation drug for toxoplasmosis.
The Chairman. What you are saying, in a nutshell, I
believe, is no, because Turing did not bear the R&D costs of
the clinical trials, the lab development for developing
Daraprim, is that correct?
Mr. Dorfman. That is correct.
The Chairman. When you expressed your reservations and your
concerns, did you believe that the price increase was
unethical?
Mr. Dorfman. I believe that the price increase was
certainly unjustified.
The Chairman. What was the reaction from Mr. Shkreli when
you expressed that concern?
Mr. Dorfman. Mr. Shkreli told me that he was the most
knowledgeable person with regard to this business model, that I
was seriously misinformed with regard to my concerns-----
The Chairman. Despite your 30 years in the industry.
Mr. Dorfman. Despite my 30 years in the industry, correct,
and basically, said that no one cares about price increases.
The Chairman. How soon after you expressed your opposition
to this price increase were you fired?
Mr. Dorfman. Certainly less than a month. I would say
approximately two--two to 3 weeks.
The Chairman. Were you fired for cause?
Mr. Dorfman. No. I was told I was not fired for cause.
The Chairman. Thank you.
Dr. Adimora, prior to Turing's acquisition of Daraprim, did
you or your colleagues at the HIV Medical Association ever have
any serious issues with promptly obtaining Daraprim at an
affordable price?
Dr. Adimora. No. Actually, if you allow me to expand-----
The Chairman. Yes.
Dr. Adimora [continuing]. the process was quite seamless. I
mean, people are admitted, typically with toxoplasmosis of the
brain, if they have HIV infection, they are quite ill, admitted
through the emergency room, desperately ill, as I said.
Providers spend their time taking care of the patient. Once
they recognize what infection the patient has, they used to
simply just write the order, if they are inpatients, for
pyrimethamine and sulfadiazine and leucovorin, start treating
the patients, and then when they are ready to be discharged,
write them a prescription, which was easily filled, for
pyrimethamine, sulfadiazine, and leucovorin, or rather,
Daraprim, I should say, and the other medicines. It was a
seamless process.
The Chairman. Everything changed once Turing bought
Daraprim.
Dr. Adimora. Absolutely.
The Chairman. Thank you.
Senator McCaskill.
Senator McCaskill. Mr. Dorfman, at the meeting when you
tried to explain to this genius, Martin Shkreli, or however you
say his name, did you use the phrase that we use in Missouri,
that pigs get fed and hogs get slaughtered? Did that phrase
come up during that meeting?
Mr. Dorfman. I am sorry, I forgot to use that phrase.
Senator McCaskill. Yes.
Well, that is what we are really talking about here. We are
talking about unbridled, immoral greed, is what we are talking
about.
Dr. Adimora, when you sent letters to Turing, what were the
dates that you sent letters to Turing? While Mr. Shkreli was
trying to tell the world that they did not want to limit access
to patients, what were the dates that you sent letters to
Turing raising concerns about the inability of Mrs. Weston and
Joshua and Isla in terms of getting this drug at a price that
was anywhere in the realm of reasonable?
Dr. Adimora. The first letter was sent sometime in
September. I do not recall the exact date, but we can look it
up and get back to you, and they responded, as I said, with the
sort of general response, but did not actually do anything. We
continued to have access problems and so a second letter was
written sometime in December.
Senator McCaskill. Did you hear back from the December
letter?
Dr. Adimora. They really did not respond in any meaningful
way, no.
Senator McCaskill. I kind of want to get this timeline, and
Mrs. Weston, you all began really looking for this drug for
Isla in October, is that correct?
Mrs. Weston. Yes, ma'am.
Senator McCaskill. Just to give context here, I think it is
important to point out that Martin Shkreli bought the Wu-Tang
recording in December for $2 million, just to give context to
what is really going on here.
Now, has anyone from Turing reached out to you at all, Dr.
Adimora, about accessibility of this drug, ever? Has anyone
called you at the HIV Medical Association to say, we are
concerned that perhaps our price increase are killing people?
Dr. Adimora. No.
Senator McCaskill. Okay. Let me ask you this question about
the closed system. I am interested in this. Can you give us
your opinion, Dr. Adimora, about why a closed distribution,
what the real reason is for Turing to have a closed
distribution on this drug. What is gained by having a closed
distribution? What competitive advantage is actually at play
here?
Dr. Adimora. Well, I have to say, you know, the exact
mechanics of drug pricing and drug availability are somewhat
beyond my field of expertise, but what it would appear to me is
that the reason for having a closed distribution is to make
sure that you can maintain a monopoly to enable you to get the
price that you want without allowing others to make the drug
available for a lower price.
Senator McCaskill. Do you believe that, from a public
policy standpoint, if the FDA changed--if there was a change in
the law and public policy that would allow generics competing
with orphan drugs to go to the front of the line at the FDA, do
you believe that would have a positive impact on this type of
immoral seeking of a monopoly in order to cause the Weston
family the kind of grief that they have endured?
Dr. Adimora. I believe that it would help in general,
because, as I believe you noted in your opening remarks, there
are several drugs for which this is a problem, so I do believe
it would help. I would say, though, that in these situations
such as this one, where there is a very small market, there
is--there is also some concern that the likelihood that other
companies would come in and offer lower prices that would be
competitive enough to afford access to patients remains a
concern because of the small market. I think the idea is, in
general, a good one, but I think that, you know, we have to----
Senator McCaskill. We have two problems.
Dr. Adimora. Yes. There are two problems.
Senator McCaskill. One is how long it takes to get a
competing generic to the market, and the other is that while
the demand is inelastic, it is also not large because it is not
a widely prescribed drug.
Dr. Adimora. Yes, exactly. I am not certain that that
alone, although helpful, I am not certain that that alone would
solve this particular problem.
Senator McCaskill. We need to figure out how to get at
protecting families like the Weston family when there is a life
saving drug, but not a lot of people need it, because they are
the ones that are really getting it stuck to them.
Dr. Adimora. Exactly.
Senator McCaskill. Was there discussion, Mr. Dorfman, very
briefly, during your time there, about the closed distribution
model and the competitive advantages of using a closed
distribution model?
Mr. Dorfman. Yes, there were. The fact that we were talking
about a drug for a relatively small but extremely needy and
vulnerable patient population and having a closed distribution
system would certainly assist in delaying or preventing a
generic from entering the market because of the unavailability
of the drug to do the necessary bioequivalence testing, so it
was all part and parcel of the overall marketing plan, as it
were, for this drug.
Senator McCaskill. Thank you.
Thank you, Madam Chair.
The Chairman. Thank you.
Senator Tillis.
Senator Tillis. Thank you, Madam Chair.
Mr. and Mrs. Weston, how is baby Isla doing?
Mrs. Weston. She is doing amazingly well.
Senator Tillis. Good.
Mrs. Weston. She is beautiful. She is perfect, so far with
the treatment, she has been developing normally, and knock on
wood, it is going to continue that way.
Senator Tillis. What is the cost of the medicine that is
being compounded by the folks at UNC?
Mrs. Weston. Forty-eight dollars a month.
Senator Tillis. Forty-eight dollars a month, and the
alternative was how much?
Mrs. Weston. Twenty-eight-thousand dollars a month.
Senator Tillis. Okay. I meant to mention that I am thankful
that we have a very successful prosecutor on this panel,
because I think that I am looking forward to the questions of
the second panel. I am glad to have you back in any event, but
particularly because of that.
Dr. Adimora, can you give me some sense of the other costs
and consequences of these drug increases in terms of hospital
stays and other sorts of treatments that you may have to take
if the access to the drug is not possible because of the cost.
Dr. Adimora. In terms of accessing the drug, here are some
of the--here is some of what happens. Instead of simply writing
the prescription and attending to the patient, what has been
happening in many cases is that there is treatment delay, which
can be quite problematic, because a lot of these patients are
desperately ill.
Senator Tillis. Which would lead to even more costly
complications?
Dr. Adimora. Yes, or death of the patient, or disability,
so there is--there are delays in treatment. In addition, there
have also been incredible amounts--there has been incredible
waste of time on the part of physicians, nurses, social
workers, and other people, but a lot of times, this comes down
to physician time, as Mrs. Weston described Dr. Belhorn's
having spent hours and, in fact, days haggling with insurance
companies to--in an attempt to get the medication, so it is an
incredible waste of time that we simply do not have, is one
thing.
The other thing is that it is important to remember that in
many of these cases, particularly the patients with AIDS, but
in others, as well, they have a brain abscess. You know, they
have a brain deficit, so talking to insurance companies and
patient assistance programs is not something that they can
necessarily do, but a lot of times that is required. If you are
going to get a drug via a patient assistance program, you or
your delegate has to interact with them and they cannot
necessarily.
In addition, many of the patients are poor. I mean, that is
how they--some of them have gotten AIDS. They are not
necessarily able to negotiate the situation, and finally, this
has opened up, all of these complications have opened up new
opportunities for things to fall through the cracks. For
example, again, some of the patients are not--that we have seen
cases where, and I actually saw--was aware of one of these
situations where the patient, again, being not the most
knowledgeable and having had perhaps some cognitive impairment,
had been getting the medicine and then suddenly was not able to
get it and did not say anything, came back not having had the
drug for 3 weeks.
Senator Tillis. The reason I asked that question is I think
we are all angry about the practice that we have before the
Committee today, but every single taxpayer and every single
person who has insurance should be angry, too, because, just as
you said, to provide the treatment, this company, Turing, and
their leaders have decided they are going to pick the pockets
of everybody. They are going to put you in a devastating
situation in terms of caring for your baby, but they are also
raising the cost of insurance, and to the extent that insurance
does not cover it, they are raising the cost to the taxpayers
for their own greed, and they need to be held accountable to
that. I think they are predators. I think they are parasites. I
think we have got to try and do something about it.
The one thing that I did want to--and, Mr. Dorfman, my time
is short. I had a question for you, but I want to thank you for
your testimony and being here. I think it is important to
understand the distinction between pharmaceutical companies
that are taking risks and incurring the costs to do what they
need to do. UNC Chapel Hill has a great collaboration with
pharmaceutical companies. They are creating life saving
treatments. There is a cost associated with that that they have
to recover so that, ultimately, those can become lower-cost
drugs, more pervasive drugs over time.
We need to make it very clear, this is not an attack on the
pharmaceutical industry, the good actors. This is a focus on
the bad actors, that if there is any possible way legally we
can put them out of business, I think we should.
Thank you, Madam Chair.
The Chairman. Thank you very much, Senator Tillis.
Senator Casey.
Senator Casey. Madam Chairman, thank you very much, and we
welcome back Senator McCaskill and we are grateful she is with
us.
I said to Senator McCaskill yesterday--she said she was
going to be out for 3 weeks, and I said, Claire, it has only
been two, but apparently it was three. She moves pretty fast,
so we are grateful she is here, and I want to see that second
panel, as well. It will be interesting today to hear her
questions and to have heard the ones she presented.
I wanted to nail down, or reiterate is probably a better
word, something that, Mr. Dorfman, you said for the record in
your statement, and you gave a summary in answer to one of the
questions. On page two, you outlined the objections you and
others had, but then on page three, you said the following, and
I am quoting at the top of the page. ``Pharmaceutical companies
typically justify drug price increases, especially large rises,
by expenditures such as research and development of the drug
itself or a substitute, clinical trial work, or educational
programs.'' Then you say, ``In this instance, the price
increase as contemplated and subsequently announced was not
justified by any such actual expenditure.''
I think it is important for the record to note that that
statement is there. It was not justified. That is not some
random opinion by some observer in the marketplace. That is the
testimony of someone who saw it up close. Not justified.
Probably an understatement, an understatement for what I would
argue is a pattern of conduct which is pure evil, the
incarnation of evil.
In our system, once in a while, that is a subject of
accountability and even prosecution and punishment. I hope to
God that happens in this case, because no family, no family
should ever have to go through what the Weston family went
through. You did everything right, and a group of people in
this company did everything wrong, so we will watch and support
efforts to hold them accountable.
I do not want to lose sight of what you have ahead of you.
The good news is you have a perfect daughter and that is good
news, but I want to get a sense of what you are up against next
in terms of what is ahead of you.
Just one specific question about--I want to make sure I
pronounce this right--with regard to the treatment with
pyrimethamine, how long will she need that part of the
treatment?
Mrs. Weston. The treatment for congenital toxoplasmosis is
1 year with pyrimethamine, sulfadiazine, and leucovorin, and
then there is monitoring monthly after that to ensure
reactivation has not occurred. They would monitor the macular
scar, and that is how they would look for reactivation, but it
is a minimum of 1 year.
Senator Casey. One year. Thank you, and then, in addition
to that, in terms of an additional source of the drug, do you
have something lined up, or what is your sense of what comes
next on that part of the challenge you have?
Mrs. Weston. Well, UNC has told us that we have the year at
the price they are able to provide it, which is so much better
than the $28,000 a month. After that, we are not sure.
Senator Casey. Mm-hmm.
Mrs. Weston. Either something changes, my insurance company
decides to cover it, or I do not know, unfortunately, and that
is the scary part.
Senator Casey. Well, you should not have that uncertainty,
especially in light of what you have already been through. I
hope the folks out there are listening. I hope someone out
there thinks about working to take away that uncertainty, but
we are really grateful you are here today, because as Senator
Collins said, especially when matters are complicated, it is
very--it is one thing to listen to expertise, and we had some
of that here, thankfully, for people that have lived with these
issues for a long period of time.
Nothing replaces or nothing can substitute for your own
personal witness, and we appreciate you doing this. I know it
is not easy. You could have just dealt with the challenge that
you had privately, and you did not. Your testimony is going to
help other people and we appreciate you being here. Thank you.
Mrs. Weston. I hope it does. Thank you.
The Chairman. Thank you, Senator Casey.
Senator Donnelly.
Senator Donnelly. Thank you, Madam Chair.
I am so angry I can hardly see straight when I think of
this and I think of what you went through with your child and
the decisions made by people to cause this pain to other human
beings, to little kids who have done nothing, but hope for a
good life.
You know, I am not someone who wears my religion on my
sleeve, but there is a saying in the Bible that what you do for
others, you do for Me, and I just do not know how you can do
these things. It takes my breath away to think about this kid
suffering so you can buy a $2 million album. Something is so
wrong with that, to buy a bigger house in the Hamptons, to buy
a fancier car, to have more trinkets and baubles, and at the
same time that is going on, there are kids who are suffering.
There are people who are struggling.
You know, I think of my dear friend Claire. Can you imagine
if, when she got sick, they said the problem is, your medicine
is unaffordable because people need to have more cash to throw
out windows. We are sorry.
You know, I think of my Dad, who had a small business and
worked hard every single day, and he always told me what you
have are your name and you take care of your customers and you
treat them right, and if you treat them right, then we will
have a--we will be able to keep this business going. That is
how Americans do it.
To have such staggering greed, it just takes my breath
away.
You were talking about brain abscesses that are caused when
you do not have this. Tell us a little bit more about that.
Dr. Adimora. This is--first, I actually would like to
revise, if you do not mind, a response that I made about
communications between HIVMA and Turing, and again, I do not
know the exact timeline, but there were some additional
communications. For example, there was a meeting which I
believe occurred in November between some Turing officials and
other HIVMA-related--HIVMA members and some related
organizations. We also sent additional letters, so there was a
meeting in November.
There were--and they did--I believe they may have laid out
some plans for patient assistance, but my point is actually
that nothing meaningfully changed in any way. I mean, we
continue to get these reports of incredible problems accessing
the drugs. I just wanted to make that clear. In the interest of
accuracy, there were additional communications, but nothing
meaningfully really changed.
In response to your question, Senator Donnelly, so,
typically, when I see patients with toxoplasmosis, this is
typically people in the advanced stages of AIDS with very
compromised immune systems. They often come in complaining of
fever and headache and they have pretty big neurologic deficits
a lot of the times. They may have strokes, and they may
actually come in with coma or go on to have coma. I mean,
people can die from this. They truly are desperately ill.
They come in, are admitted to the emergency room, or
admitted from the emergency room to the inpatient side of the
hospital and they require urgent emergent care, and they need
their medicines quickly. They need them right away. The
expectation is that the order is written for the medicines and
they get it within, you know, an hour. There is not that the
care providers spend time talking to insurance--arguing with
insurance companies and patient assistance programs, and the
patients themselves typically are not capable of doing that
because they are sick. Some of them are comatose, and they may
not have a delegate to help them.
This can be--actually, it is interesting, because despite
the fact that people can be so desperately ill with this
infection, it also can be quite gratifying to treat if you
treat it quickly and properly. I personally have seen many
people turn completely around in a matter of weeks or less
after proper treatment.
Senator Donnelly. I am just about out of time. I just want
to ask Mr. Dorfman, why did Turing executives not heed your
warning?
Mr. Dorfman. I guess you would have to ask them----
Senator Donnelly. Oh, we plan to.
Mr. Dorfman. I do not know, you know, my--I gave my best
business and judgment, knowing how some of these activities
would certainly impact the availability of drugs for patient
populations that were in desperate need. These plans were not
in place, and I can only--I really cannot surmise as to why. I
think you have said it before, but I really had no knowledge
about why.
Senator Donnelly. Well, to the Westons, we are so glad your
child is doing well, and the fact of the matter is, for anybody
who is listening, it could be our kid. It could be any kid. I
just--I just--it breaks your heart to think that this kind of
thing has been going on. Thank you.
The Chairman. Thank you.
Senator Gillibrand.
Senator Gillibrand. Thank you, Madam Chairwoman.
I want to continue the line of questioning that Senator
Donnelly started. Mr. Dorfman, in your written testimony, you
said that when Turing Pharmaceuticals was establishing its
pricing plan for the drug Daraprim, you raised concerns
internally about the proposed price increase. Turing decided to
increase the price anyway, from approximately $13.50 per pill
to $750 per pill, more than a 5,000 percent price increase.
What were the specific concerns that you raised? What did
you actually say? Do you believe that Turing was justified in
implementing the price increase? Why or why not?
Mr. Dorfman. Well, the crux of my objections were based on
the fact that, number one, we were dealing with a very, very
vulnerable patient population. As the Doctor has testified, the
AIDS community, HIV community, is extremely vulnerable where a
drug of this type is--basically can be a life or death
decision.
The question of whether the drug would be available, both
in terms of timing through distribution and also whether it
would be available because of pricing, those were all
objections that I and other senior members of the management
committee expressed over--over and over again to the company.
I am sorry, there was another part of your question.
Senator Gillibrand. Do you believe they had any
justification for disregarding your legal advice?
Mr. Dorfman. Well, I really cannot answer legal advice
because of patient--excuse me, of client confidentiality. I can
give you it based on a business decision, and that is, again,
the pharmaceutical industry has historically worked toward
measuring price increases with the expenditures that were
needed to establish clinical trial programs and to be able to
fund a drug from, basically from the lab through FDA approval.
These were not expenses or costs that Turing had incurred
because of the nature of the drug. It had been approved in
1953, and the rationale for that kind of price increases, or
any major price increase, was lacking.
Senator Gillibrand. Thank you. Thank you.
The Chairman. Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman Collins. Let me
first thank you and our Ranking Member, Senator McCaskill, for
holding a bipartisan hearing on this very, very important
question. Let me welcome Senator McCaskill back. This is the
first time we have encountered one another in a hearing since
her return.
My observation is that there are very clear market failures
that allow for the extortionate type of pricing strategies that
the Westons have so well described the consequences of, and you
mentioned some of the conditions, Mr. Dorfman, in your
testimony that provide this opportunity for mischievous,
monopolistic, or extortionate pricing strategies.
I guess my question is two-fold. One, are there signals
that would allow this Committee to make a principled
distinction between market-based competitive behavior and the
kind of, again, mischievous, monopolistic, or extortionate
pricing that we now see in many quadrants of the pharmaceutical
industry? If so, what are they?
The reason I ask that question is that I think there is
very broad concern, and I would suggest bipartisan concern,
that we not interfere into any kind of pricing strategies that
would interfere with the fair and free operation of the market.
If the market is absolutely failed, then I think there actually
is a role for Congress to step in and put some kind of price
limits on so that the type of catastrophes that are befalling
families like the Westons do not take place.
What is your advice to us? Is there, in fact, a way to
separate out the bad conduct from regular market conduct, and
what would those red flags of warning be that we should look
for?
Mr. Dorfman. Well, I definitely think we have to recognize,
as you said, and as has been stated earlier, and particularly
by even Dr. Adimora extraordinarily well, what we do not want
to do is disrupt a process that has allowed the United States
to really be the major developer, researcher, for life-saving
therapies around the world and the United States. We are also
dealing, of course, in this instance and others with patient--
with relatively small patient populations. That seems to be one
of the ways in which these kind of activities are identified,
because of the relatively small patient population.
I think the work of this Committee in terms of
investigating has probably gone a long way. I do not agree
necessarily that we are dealing with a rogue industry. What we
are dealing with----
Senator Whitehouse. No, rogues within an industry.
Mr. Dorfman. We are dealing with----
Senator Whitehouse. It is not the industry. It is not rogue
at all.
Mr. Dorfman [continuing]. right, and we--what we need to do
is we need to clearly identify conduct that we deem to be
inappropriate. I have been in the industry for over 30 years. I
am extraordinarily proud and feel privileged to have been
working in an industry that has dedicated itself to alleviating
pain, alleviating disease, and treating patients such as the
beautiful daughter that we have seen here today.
As far as signals are concerned, I think one of the things
that we need to do is look at, number one, how the generic
approval system has been working. Are there undue delays? Is it
a funding issue? Things of that nature. Basically, making sure
that we pay particularly close attention to orphan diseases and
provide the kind of in-depth support that allows these drugs to
be developed, yet would seek to limit inappropriate conduct by
certain individuals.
Senator Whitehouse. Mr. Dorfman, I have 5 seconds
remaining. I would simply ask you, if you might, take my
question as a question for the record, and if you wish to
supplement your answer in any way, I think it would be helpful
to the Committee to get a thoughtful written element from you
about the elements that would be good signals that there is a
market failure and there is rogue pricing going on. Thank you.
Mr. Dorfman. Well, I certainly think that signals, at least
early warning signs, can certainly be----
Senator Whitehouse. For the record means you write it down
and send it later, and I do not----
Mr. Dorfman. Oh, I am sorry.
Senator Whitehouse. Sorry.
The Chairman. Thank you.
Mr. Dorfman. I will do so. Thank you.
The Chairman. Thank you very much.
I want to thank this panel for appearing today.
To the Westons, I want you to know that we will continue to
do everything we can to make sure that your daughter gets what
she needs, but also to make sure that other families do not go
through the absolutely horrific experience that you endured.
During this hearing, I had my staff do a little calculation
on what the cost of Daraprim for your daughter would have been
prior to Turing getting the--buying the drug and what it was
going to be for you if UNC had not come to your rescue. The
answer is, it would have been $6,500 for the treatment of your
daughter for the year. After Daraprim was bought by Turing, it
would have been $360,000.
I know, and from our previous staff discussions with you,
that prior to your working out the agreement with UNC, that you
were looking at remortgaging your house, emptying out your
retirement plan, doing everything you could to save your
precious daughter, and this is just outrageous, and I want to
thank you so much for coming forward.
Dr. Adimora, I want to thank you, as well. You were able to
describe and to show conclusively that this problem has real
consequences for the patients that you treat and that prior to
the change in ownership, as you put it, the system was
seamless.
Mr. Dorfman, I want to thank you for your courage in
telling us exactly what happened and for standing up in the
first place and raising questions about this completely
unwarranted price increase. I know that it most likely cost you
your job, but there is going to be a special place in heaven
for you, I can tell you that.
Mr. Dorfman. Thank you very much.
The Chairman. I very much appreciate your coming forward.
Senator Kaine, we were just about to go to the next panel,
but if you would like to ask a quick question----
Senator Kaine. No. Thank you, Madam Chair. I want to hear
the next panel and ask them questions.
The Chairman. Great. Thank you very much.
This panel is excused and we appreciate your help.
For the interest and knowledge of my colleagues, for this
next panel, we will do 10-minute rounds of questions, and while
they are setting up, I am going to introduce the witnesses.
First, we will hear the testimony from Ronald Tilles, who
was Chairman of the Board during the acquisition of and price
increase of Daraprim by Turing. He has served as CEO of the
company since Martin Shkreli resigned after being indicted for
fraud.
Next, we will hear from Michael Smith, the Senior Director
of Business Development and co-founder of Turing, who helped
find Daraprim as a potential acquisition, and finally, we will
hear from Dan Wichman of Broadfin Capital, an investor in
Retrophin.
Pursuant to the Committee rules, I would ask that you all
stand so that you could be sworn in. Please raise your right
hand as I administer the oath.
Do you swear that the testimony you are about to give will
be the truth, the whole truth, and nothing but the truth, so
help you God?
Mr. Tilles. I do.
Mr. Smith. I do.
Mr. Wichman. I do.
The Chairman. Let the record reflect that all the witnesses
answered in the affirmative.
Mr. Tilles, we will begin with your testimony.
STATEMENT OF RONALD TILLES, INTERIM
CHIEF EXECUTIVE OFFICER, AND CHAIRMAN
OF THE BOARD, TURING PHARMACEUTICALS
Mr. Tilles. Thank you. Thank you, Chairman Collins, Ranking
Member McCaskill, and distinguished members of the Committee. I
am pleased to appear here today at your request.
I am currently the Interim CEO of Turing Pharmaceuticals
and Chairman of its Board. In my role as Interim CEO, my
primary responsibilities include interacting with investors,
addressing issues related to the expenses of the company, and
identifying new strategic opportunities. Our focus remains to
invest in treatments for neglected diseases and to dedicate our
revenues to research and development.
I oversee the day-to-day affairs of Turing with the
assistance of Turing's senior management, including Nancy
Retzlaff, who is Turing's Chief Commercial Officer, and Dr.
Eliseo Salinas, who is Turing's President of R&D.
I graduated from Middlebury College and received an M.B.A.
from Columbia University in 1985. I have held various positions
at investment firms over the years, but in the last years, I
have focused primarily on startups. One of those startups was
Retrophin, in which I was an early investor. I became a
consultant to the company with a focus on business development.
I then joined Turing, another startup, with a similar focus
on acquisition strategy and raising capital. I was the point of
contact with Impax during the negotiation for the purchase of
Daraprim. I did not, however, develop the valuation models for
the deal or analyze the issues relating to the pricing of the
drug.
As the Committee is aware, Martin Shkreli resigned as the
CEO of Turing last year. He has also since resigned from
Turing's board. He continues to be a shareholder in the
company, but is not involved in any of the day-to-day
operations of the business.
When I took over as Interim CEO, I assumed leadership of a
company facing critical challenges. I am working diligently to
address those challenges in concert with our executive team.
Please note that we are still a young startup trying to address
the issues that face all new companies.
My responsibilities as the Interim CEO do not include
primary oversight of drug pricing, marketing, sales, or
distribution. I do not manage patient access matters or our
Patient Assistance Programs, which Turing funds in order to
ensure that all patients who need Daraprim can get the drug
regardless of their ability to pay.
For those matters, I rely on our talented and experienced
commercial team under the able leadership of Nancy Retzlaff,
who also happens to be in the room today. She has more than 20
years of experience in the pharmaceutical industry, including
positions as a senior marketing officer for several large
established drug companies.
It is important to note that we have put in place discounts
and support programs that mean ability to pay should never be a
barrier to access. For example, two-thirds of Daraprim sales
are to Federal and State health programs that pay Turing one
penny per pill. In addition, we fund a Patient Assistance
Program that offers Daraprim free of charge to qualified
uninsured patients. For insured patients, we provide copay
support and fund a bridge program to provide a supply of
Daraprim at no charge if there are delays in coverage.
I also think it is important for the Committee to
understand that the large majority of Daraprim sales by volume
are not through the specialty distribution channel. For that
larger volume, Turing cannot control access by generic
competitors.
I am not a scientist or medical researcher. Although I do
not personally manage Turing's R&D programs, I want to ensure
that Turing is fulfilling its commitment to invest in research
into new and improved drug treatments, including for
toxoplasmosis. For this effort, I rely on Dr. Eliseo Salinas,
who is a highly respected and an experienced life science
executive and medical researcher. I have complete confidence in
the experience and expertise of my team.
All of us at Turing are working hard to uphold Turing's
commitments to research and development and to patient access,
even while we face critical challenges from the negative
publicity surrounding our former CEO. The revenues generated by
Daraprim are primarily used to fund R&D. I am very proud of our
R&D efforts and my team's commitment to innovation.
We are pleased to cooperate with the Committee's inquiry
and I look forward to answering your questions. Thank you,
Madam Chairman.
The Chairman. Mr. Smith.
STATEMENT OF MICHAEL SMITH, CO-FOUNDER
AND SENIOR DIRECTOR OF BUSINESS
DEVELOPMENT, TURING PHARMACEUTICALS
Mr. Smith. Thank you, Chairman Collins, Ranking Member
McCaskill, and distinguished members of the Committee. I am
pleased to appear here today at the request of the Committee.
I am a part of the business development team at Turing
Pharmaceuticals, where my responsibilities include looking at
opportunities to acquire undervalued products. I am not a part
of the company's executive leadership team.
I received my undergraduate degree in finance from Fordham
University. I started my career as an investment analyst.
Later, I joined the business development group at Retrophin. I
left Retrophin in 2014 to join Turing. I reported to Martin
Shkreli before he resigned as CEO of turing in December 2015.
Turing acquired the rights to market Daraprim in the U.S.
from Impax in August 2015. We view Daraprim as an undervalued
treatment for a serious but neglected disease, toxoplasmosis.
This acquisition gave us an important foothold in the treatment
of toxoplasmosis and a revenue stream to fund research into new
drug treatments.
I care deeply about the patients who take our drug and
Turing is committed to innovation in life-saving medicines.
This conviction comes from personal experience. Both my Mom and
my sister are cancer survivors. My father suffered from heart
disease and received a quadruple bypass 4 months before he was
killed in the September 11 attacks, so as much as anyone, I
appreciate the need for pharmaceutical innovation.
At Turing, we are focused at developing improved treatment
for toxoplasmosis. Someday, we hope to market a worldwide next
generation toxoplasmosis drug that could have the potential for
greater return on our investment.
I did not participate directly in the negotiations with
Impax regarding the purchase of Daraprim. My responsibilities
focus on certain aspects of due diligence for the transaction,
including with respect to potential generic entry and
collecting information from physicians about the use of
Daraprim.
My responsibilities for business development do not include
aspects of Turing business that I understand are most relevant
to the issues under review. I do not have responsibility for
drug pricing, marketing, sales, market access, or distribution.
I am not familiar with the procedures for drug payment and
invoicing or with the prices paid for our drug Daraprim by
various entities and different distribution channels, including
government entities, hospitals, commercial insurance companies,
or pharmacy benefit managers.
I do not deal with any patient access issues, and I have no
involvement in administering the extensive Patient Assistance
Programs that Turing funds in order to ensure that all patients
who need Daraprim get the drug regardless of their ability to
pay.
All of these matters are handled by our experienced
commercial team, headed up by Nancy Retzlaff, Turing's Chief
Commercial Officer.
I am also not a scientist and I am not responsible for
Turing's R&D programs. The person most familiar with those
programs is Dr. Eliseo Salinas, Turing's President of Research
and Development.
I know the Committee is focused on certain portions of
business development documents and presentations prepared for
investors. Some of these documents reflect a suggestion that
restricted distribution of branded drugs can make it difficult
for generic companies to obtain product samples for
bioequivalence testing. Others emphasize that drugs tend to be
more valuable if they are the preferred treatment for a serious
disease with small patient populations and there is no good
substitute. These are assumptions that investors sometimes make
when evaluating a potential investment, but they do not always
reflect the realities of the commercial marketplace. Every drug
is different.
For example, I understand from our commercial team that
Turing supplies Daraprim in large volumes to some institutional
purchasers. We do not have the ability to control access to
this product once it goes through those channels, and Turing
inherited the distribution system put in place by our prior
owner of Daraprim. Since then, we have improved distribution to
expand access to the drug.
I also understand that there are real benefits to patients
and physicians from the specialty pharmacy services offered for
Daraprim users. The people at Turing most familiar with these
commercial realities are Nancy Retzlaff and her team.
For my part, while I am not responsible for the commercial
side of the business, I do believe that these factors are
critical to the Committee's understanding of the actual market
dynamics involved in drug pricing and patient access.
Thank you, Madam Chairman.
The Chairman. Mr. Wichman.
STATEMENT OF DAN WICHMAN,
PARTNER AND ANALYST, BROADFIN CAPITAL
Mr. Wichman. Chairman Collins, Ranking Member
McCaskill, and members of the Senate Special Committee on
Aging, thank you for inviting me to speak before you this
morning. My name is Dan Wichman and I am a partner and analyst
at Broadfin Capital, an investor and provider of capital to
health care companies.
Broadfin was founded in 2005 and invests in a wide variety
of mostly small and mid-sized companies in the pharmaceutical,
biotech, and medical technology sectors, including companies
developing new cancer drugs, companies that are focused on
treatments for rare diseases, companies that manufacture
generic drugs, and many others. We invest in both companies
that are turning a profit and those whose only currency is a
good idea. We trade infrequently and often invest in companies
over multiple years.
I personally have been working in health care finance for
17 years and I have seen dozens and dozens of companies in
which we have invested develop innovative, often life-saving
products that change lives.
My own philosophy, consistent with Broadfin's, is that the
best and most profitable investments are companies developing
products and services that will add significant value to the
health care sector for many years. We believe that the most
successful pharmaceutical companies are those that maximize
opportunities by focusing on patients, for example, investing
in improved doctor and patient access and education, investing
in better drug formulations, and investing in measures to
improve patient compliance with treatment.
Although we seek to foster good relationships with many of
the companies we invest in, we are passive investors and have
never had an activist role with any company in the
pharmaceutical space. We believe our job is to ask fundamental
due diligence questions, fact check management's
representations, and observe and analyze results. While
companies sometimes bounce ideas off of us and ask for our
opinions, they make the final decision.
Retrophin is one of more than 100 life science investments
in Broadfin's current portfolio. We are one of many investors,
which include a number of large mutual funds. We first decided
to invest in Retrophin in August 2013, when the company only
had two pipeline assets and was not generating any revenue.
The first pipeline asset is a drug called RE-024, which
treats a rare disease called pantothenate kinase-associated
neurodegeneration, or PKAN. PKAN is a progressive degenerative
nerve disorder that primarily affects children and is caused by
a mutant gene that allows iron to buildup in the brain. Once
diagnosed, the life expectancy for children affected with this
disorder is sometimes only a handful of years.
The second drug is called Sparsentan, which treats a rare
kidney disease called focal segmental glomerulosclerosis, or
FSGS. FSGS affects both children and adults, and more than half
of people who suffer from FSGS develop chronic kidney failure
within 10 years.
We believed then and believe now that both these drugs have
the potential to improve patients' lives dramatically if they
are brought to market. In the last 2 years, we understand that
Retrophin has spent approximately $50 million per year in
research and development, largely around these two compounds.
I am aware that the Committee is interested in price
increases for off-patent branded drugs in general and for
Retrophin's drug Thiola in particular. Thiola, acquired by
Retrophin in 2014, treats a rare and debilitating chronic
kidney disorder called cystinuria. We had never heard of Thiola
before Martin Shkreli, Retrophin's then-CEO, told us about it.
When Retrophin explained the acquisition, it sounded
promising, but the decision was the company's. We understood
that there would be a price increase, but that the increase
would be accompanied by investments into patient services and
support, improved manufacturing, and research and development
into better formulations.
Our own diligence has suggested that physicians and
patients are satisfied with how Retrophin has handled ownership
of Thiola, and we believe the patient community is better off
due to Retrophin's acquisition of the drug. According to
Retrophin, the patient population receiving the drug has
approximately doubled since Retrophin acquired Thiola less than
2 years ago. We also believe the company has made great strides
in working with patients to adhere to what can be a difficult
treatment regimen. In fact, Retrophin recently announced that
since the acquisition, patient compliance rates have improved
from approximately 50 percent to 85 percent.
Finally, I am also aware that the Committee is interested
in the experience of Turing Pharmaceuticals. While we were
repeatedly approached by Mr. Shkreli to become an investor in
Turing, we chose not to and have never invested. Let me
reiterate, we have never been an investor in Turing.
Broadfin is proud to partner with innovative companies,
like Retrophin, that invest in improving the lives of the
patients who use their products. We are committed to investing
responsibly on behalf of our investors while at the same time
making a difference in the lives of children and adults who
suffer from debilitating conditions and ailments.
Thank you, and I welcome your questions.
The Chairman. Thank you.
Well, I must say, it is very difficult to know where to
even begin, but Mr. Smith, you made the most outrageous
statement of anyone when you stated, quote, that you ``care
deeply about the patients who take Daraprim.'' I would like to
draw your attention to Exhibit 8 and Exhibit 9.
Now, clearly, you know that Daraprim went from being
modestly priced to being prohibitively expensive, and when you
started to hear of access problems, according to a Skype
exchange that we have, which is shown in Exhibit 8, you say,
``I think some of them are fake.''
You participated in a Skype chat with two of your
colleagues in which you express shock that two patients had
paid cash for Daraprim. Let me read from that chat, although it
is difficult to do so because of the number of expletives in it
in which you are making fun of patients that are paying the
full amount. ``Two patients have paid cash for Daraprim.
Rich...
[expletive deleted]. Oh, my God. Wow.''
You went on to discuss concerns that you had with the 340B
Medicare program. This is a program that provides needed
medicine for our Nation's desperately poor, and you express
concern that it was cutting into Turing's profits, so as we can
see from the slides, your colleague, Mr. Crutcher, wrote,
``Time to dip out of the 340B claims...
[expletive deleted]. F-these guys.'' Your reply, ``Laugh
out loud. Yes. I told her to start disputing the 340B claims.''
Mr. Smith, that exchange alone--and there are many more
that I could have pointed to--make it very difficult for me to
believe your statement when you express your deep concern for
the patients. Would you care to respond?
Mr. Smith. Yes. I would like to provide a little bit of
context about this exchange. The 340B program makes up
approximately 66 percent of Turing's--the volume of Daraprim
that Turing sells, and there is some--within the industry,
there is some concern that the 340B program is occasionally
abused for fraudulent use, where a hospital may purchase a
product at a much lower price to then sell it at a higher
price, so that--those comments that I was making in this
informal discussion between coworkers that have been working
together for many years, and there are many stupid comments in
here and regretful language. That was the genesis of those
comments.
The Chairman. Well, ``LOL, yes'' does not sound like you
are really talking about fraudulent claims. The whole tenor of
this exchange is, can you believe there are suckers out there
who are paying the full price? Can you believe that--we are
concerned. We have got to start fighting back on the 340B
program. There is nothing in there that expresses an iota of
concern for the patients who are getting help through the 340B
program, nothing at all.
Mr. Tilles, Daraprim has been on the market since 1953. Is
the Daraprim pill that Turing sells today essentially the same
pill that has been on the market, the same medicine that has
been on the market since the FDA approved the drug in 1953?
Mr. Tilles. Yes.
The Chairman. Turing did not do any R&D to develop
Daraprim, correct?
Mr. Tilles. Correct.
The Chairman. Since, obviously, Turing did not exist until
2014 and this drug has been on the market since 1953, so the
R&D was done before--decades before Turing even came into
existence, correct?
Mr. Tilles. Yes.
The Chairman. What improvements did Turing make to Daraprim
to justify raising the price of the drug from $13.50 a pill to
$750 a pill?
Mr. Tilles. I think it is important to distinguish the
initial purchase and what we are doing now. We are now
focused--sorry. We are now focused on R&D for the next
generation of toxoplasmosis. We have Dr. Eliseo Salinas, who is
adequately qualified to develop new programs, and we are very
much focused on R&D going forward. Initially, no, now, yes.
There are--as you mentioned, the drug has been around since
1953 and we are not aware of any other pharmaceutical company
which ever paid it any attention to try to develop it in any
way going forward.
The Chairman. We----
Mr. Tilles. Some people--oh, sorry. Go ahead.
The Chairman. We have heard testimony today that Daraprim
works just fine, that it is the gold standard. In fact, if you
look through Turing's documents, it is repeatedly described as
the gold standard, so no matter what the story may be now about
your R&D plans, the truth is that Daraprim is exactly the same
today as it was 60 years ago. The only difference is that the
price has been increased by some 5,000 percent.
Mr. Tilles. Correct, and I have--since I began at Turing, I
have spoken to--we have had, actually, many experts in the
field come in, and you are correct. It has been around since
1953, but it does not mean, because of that, it is the best
version. My understanding is that there are many patients who
do not tolerate Daraprim very well and there actually is room--
there are some toxic effects--there is room for improvement, so
I respectfully would have to disagree that there is nothing
that can be done to improve the lives of Daraprim patients.
It is actually a cyst that is very hard to destroy. It is
actually not originally an AIDS drug. It is a cyst. It is a
parasite that infects you, and there is actually apparently
three billion people globally who have this parasite. Someone
in this room could have it, so it is actually there is room for
improvement.
The Chairman. What percentage of your revenues are you
spending on R&D today?
Mr. Tilles. Last year, we spent roughly, I think as we
described earlier, about 60 percent in R&D last year.
The Chairman. Sixty percent of R&D----
Mr. Tilles. Last year. Last year.
The Chairman. [continuing]. does not add up to the figures.
Are you talking about 60 percent of the increase in the price
of Daraprim?
Mr. Tilles. No, I am talking about in terms of any kind of
revenue that we make.
The Chairman. There is a conflict between your testimony
and the testimony of your executive who testified on the House
side in that regard----
Mr. Tilles. I--uh----
The Chairman. [continuing]. since he said it was of the
increase in the price.
Mr. Tilles. That may be--she might be correct, actually,
so----
The Chairman. Let me turn to another issue, and that is
Exhibit 5. This is a personal letter--personal letter--directly
to you from the leaders of the HIV Medical Association, the
Infectious Diseases Society of America, and the Pediatric
Infectious Diseases Society. This letter contains a personal
plea to you.
It notes that you are the newly appointed interim CEO of
Turing and it pleads with you to lead the country in--lead the
company in a new direction that places patients' interests and
lives ahead of short-term profits by taking the step of
reversing Turing's price increase on Daraprim from $13.50 a
pill to the $750 a pill, and it goes on to note that despite
Turing's repeated assurances to the contrary, the $750 per
tablet price has wreaked serious havoc on patient access to the
treatment of toxoplasmosis, resulting in treatment delays and
interruptions.
Now, you said in your deposition that you were out of the
office at the time that this letter arrived. What, when you
became aware of the letter, what did you personally do to
respond specifically to this December 22, 2015, letter from
these three prestigious medical groups?
Mr. Tilles. Yes. As I mentioned before, this was not
actually my area of expertise, but it is of great concern, so I
discussed it with Nancy Retzlaff, who, again, is here in the
room, our Chief Commercial Officer, and my understanding is
that she made every attempt to reach out to all these
organizations.
The Chairman. What have you personally done in response to
this urgent plea to reverse the price increase of Daraprim?
Mr. Tilles. Well, again, with all due respect, we have
actually reduced the price of Daraprim across the board, first
to hospitals by 50 percent, and as I earlier described two-
thirds of patients basically pay one penny a pill, so that $750
number is a little bit inaccurate if you look at the entire
patient population.
The Chairman. Well, the hospital price of--let us say you
cut it in half. It is still going from $13.50 to more than $300
a pill.
Mr. Tilles. Again, the majority pay a penny a pill.
The Chairman. Well, I would suggest to you that we talked
to these three medical societies and they tell us that you have
done nothing to respond to their letter and that you have made
virtually no changes in your distribution pattern or your
pricing.
Senator McCaskill.
Senator McCaskill. Mr. Wichman, I know from your testimony
that your company, Broadfin Capital, regularly invests in the
health care sector and pharmaceutical companies. In your due
diligence, do you think it is important that the CEO of a
pharmaceutical company have a background in pharmaceuticals?
Mr. Wichman. You know, I--people at the company would have
to have some kind of background----
Senator McCaskill. No, the CEO. Do you think the CEO of a
pharmaceutical company should have any background in
pharmaceuticals, as part of your due diligence for you
investors?
Mr. Wichman. My opinion, it would be helpful. It is not--
not mandatory. I do not think----
Senator McCaskill. Did Martin Shkreli have that kind of
background in pharmaceuticals?
Mr. Wichman. As the CEO of a pharmaceutical company? No.
Senator McCaskill. Did he have any--how about Michael
Pearson at Valeant? Did he have that kind of background?
Mr. Wichman. I do not believe so.
Senator McCaskill. Okay. Mr. Tilles, you are the CEO of the
company?
Mr. Tilles. Yes, I am Interim CEO.
Senator McCaskill. Okay, but you do not know much about
pharmaceuticals, do you?
Mr. Tilles. That is correct.
Senator McCaskill. So----
Mr. Tilles. That is not my background.
Senator McCaskill [continuing]. like, even last month, or 2
months ago when we took your deposition, you did not even know
what ANDA was, did you?
Mr. Tilles. I know what it is now----
Senator McCaskill. You did not know 2 months ago.
Mr. Tilles. When I started--when I started, no, I did not.
Senator McCaskill. Yes. You became CEO--you were Chairman
of the Board beginning at the beginning of this adventure to
acquire Daraprim and jack the price up because there was
nothing anybody could do about it. You have been there as
Chairman of the Board. Now you are a CEO since December, and in
your deposition, you did not know what ANDA was, which was 2
months ago, after you had been CEO for several months, correct?
Mr. Tilles. I believe, again, if I look at my--if I recall
my deposition, when I first started--not 2 months--when I first
started, I did not know.
Senator McCaskill. It is on the screen, sir. You can look
at it. You said, ``I have heard of the term.''
Mr. Tilles. Okay.
Senator McCaskill. You did not know what it was?
Mr. Tilles. Correct.
Senator McCaskill. All right. What about when you were
asked about if you were familiar with the concept of
bioequivalence testing. Were you----
Mr. Tilles. I was not that familiar with the exact
procedure, no.
Senator McCaskill. Well, did you not say, ``I have heard
the term, but if you quizzed me, I would fail''?
Mr. Tilles. That is correct.
Senator McCaskill. All right, and what about you are not
really familiar with a concept known as substitutability of a
drug. Did you understand that term as CEO of this
pharmaceutical company?
Mr. Tilles. Again, I do now, but I did not then.
Senator McCaskill. That was after you had been CEO for
several months.
Mr. Tilles. I have been CEO since December 18.
Senator McCaskill. Okay, so let me now turn to your sales.
What were your sales in August 2015, prior to the price
increase? What was the IMS tracking number for your company in
August 2015, before you increased the price?
Mr. Tilles. For Turing? For----
Senator McCaskill. For Daraprim, which is that, and you
have Vecamyl, but, essentially, your company is Daraprim, so
tell me what your unit was in August 2015.
Mr. Tilles. Well, we--I think it was close to zero, because
we acquired it in August 2015, so we did not own it----
Senator McCaskill. What was being prescribed in the country
in August 2015 of Daraprim? Surely, you knew that as Chairman
of the Board, what you were buying, how many were going out the
door.
Mr. Tilles. I believe it was five million.
Senator McCaskill. Well, per month. In August 2015, it was
25,500, based on IMS data, which is the industry standard,
correct, Mr. Wichman?
Mr. Wichman. IMS is the industry standard.
Senator McCaskill. Okay. I am using the industry standard
here and you are the CEO, so in August 2015, before you
increased the price, 25,500 in that month. Now, what about in
December 2015, when you took over as CEO? How many went out the
door, according to the IMS data, that month?
Mr. Tilles. Again, I do not recall the specific number.
Senator McCaskill. How about 600? How are you doing
reaching patients with this astronomical price increase? This
notion that you are sitting there and saying a penny a pill is
so offensive to me. I mean, we are not stupid. Six hundred, so
you went from putting 25,000 out the door at the lower price to
600 out the door in less than 6 months according to the
industry data. Now, how does that--how does that board feel
about that? How is this price increase working out for you?
Mr. Tilles. Well, I do think there were some transitional
issues when we--after we acquired in August into September, so
there is a several month transition period, and I am not sure
in terms of why the sales numbers were different. I do not
believe that it was just because of the price.
Senator McCaskill. You think it went from 25,000 a month to
600 a month for some other reason, because all of a sudden we
have controlled the disease?
Mr. Tilles. I----
Senator McCaskill. I thought you just said that this was a
growing epidemic worldwide, globally, and that this need for
this drug was so serious compared to what had been prescribed.
How do you reconcile going from 25,000 a month to 600 a month?
Mr. Tilles. Well, in the U.S., it affects about 2,000 to
3,000 patients per year, but I was not--I am not aware of what
impacts or measure were doing before we bought it, so it is
really hard for me to comment on their sales before we acquired
the drug. Actually, I have no idea what they were doing
previously. All I can comment is what has happened since we
have acquired it.
Senator McCaskill. Well, I will tell you. Since you have
acquired it, in September 2015, it was 3,000. In October 2015,
it was 900. In November 2015, it was 500, and in December 2015,
it was 600.
Mr. Tilles. Mm-hmm.
Senator McCaskill. Now, as CEO, I would think you would
have those numbers at the tips of your fingers. I know if Mr.
Wichman had invested in your company, he would expect you to
know that, and the street would expect you to know that, so I
am a little confused that you do not even have a handle on your
sales. How do we trust anything you tell us about your revenue
or your R&D expenditure if you do not understand basic terms of
pharmaceutical industry at your deposition and you do not even
understand what your sales are? That is very hard for me to
reconcile.
Now, let me ask you about this. You were very involved in
the acquisition of Daraprim, correct?
Mr. Tilles. Yes.
Senator McCaskill. You, in fact--it is your role---you
stated that you were the point of contact with the former
owner, is that correct?
Mr. Tilles. I was point of contact in terms of negotiations
for the company, yes.
Senator McCaskill. You sent several letters to them making
offers to buy Daraprim, correct?
Mr. Tilles. Yes.
Senator McCaskill. When you were asked about, the
investigators of this Committee, about your role in the offer
letter during your deposition last week, you quoted yourself as
contributing to it in terms of grammar, and I want to read for
the record the questioning in the deposition, because I think
it is very important because it is astounding.
You note in the--this is a question. ``You note in the
second full paragraph, quote, 'We believe our offer is generous
for an asset with declining volumes, lower than typical gross
margins, and for which an ANDA might have been filed.'
Question: What did you mean by that?''
Answer: ``I did not mean anything. I just sent the letter,
but again, I can speculate. I was just the conduit.''
Question: ``Did you write the letter?''
Answer: ``No, I sent it.''
Mr. Tilles. Okay.
Senator McCaskill. Question: ``To be clear--"
Answer: ``Actually, I was not writing the letters.''
Question: ``Did you edit the letter in any way?''
``Did I? Well, for English, yes, but not for numbers.''
Question: ``So, you edited the letter only for English, not
for content?''
Answer: ``Yes, that is correct. I typically didn't write
the letters.''
``Understood. Referring specifically to this letter, the
offer letter, did you not write this letter?''
``Correct. I contributed to it only in terms of grammar.''
``And then you sent it under your signature.''
``That is correct.''
``So, you, as Chairman of the Board of Turing, sent a
letter to a potential counterparty in a deal stating we believe
our offer is generous for an asset with declining volumes,
lower than typical gross margins for which an ANDA may have
been filed, but you do not understand what was meant by that.''
``Sitting here today, now I do, but no, not then. They were
just kind of, like, send this, and I was, like, Okay.''
You were Chairman of the Board and you were just signing
letters that were put in front of you? Do you not have a
fiduciary responsibility to the people that give money, to
people like Mr. Wichman, to have some sense of what you are
sending and what it means?
Mr. Tilles. Well, I certainly read the letters. What I
meant is we are a very small company. We have three or four
people. Again, as I said before, I do not have a pharmaceutical
background, so did I send the letter as Chairman? Yes. Did I
read it? Yes, but did I compose it? No. We have a very small
team that writes the letters.
Senator McCaskill. Well, I get confused. On one hand, you
say that you are going to do groundbreaking R&D with 60 percent
of your revenues, and you turn around and say, well, we are a
very small company. We only have three or four people. We
cannot do things like have the CEO understand what he is
talking about when he actually is dealing in a pharmaceutical
industry. It is hard for me to reconcile your testimony in that
regard.
Mr. Wichman, I am not going to have time to get into
everything I want to get into with you on this round, but I
will come back to Retrophin and to the kidney drug and talk to
you about that investment and some of the issues surrounding
that problem.
Let me just say on the record here, as my time expires, and
as I say I hope to do some more work in the second round, if
anybody wants to know--it is always interesting to me when I
talk to people who work on Wall Street, or when I talk to
people in corporate America and they are beside themselves in
trying to understand why America is so mad at them. They do not
get it. Well, I do not understand, you know. We are just, you
know, we are creating value for shareholders.
This is why they are mad. This nonsense is why people are
furious, and they are mad at us because we are letting you do
it. Just so everybody is clear, nobody understands where the
pitchforks came from. They came from deals like this. This is
where the pitchforks came from.
The Chairman. Senator Casey.
Senator Casey. Thank you, Madam Chair.
I wanted to start with referring to an earlier statement I
made in the first panel. There are lots of ways to describe
what happened here with regard to the conduct or even the
pattern of conduct that has been alleged against Turing. My
only way, the best way I can describe it is the incarnation of
evil. That is what I believe it to be, and I just hope our
system can hold those responsible fully accountable, but we
will see what happens.
I wanted to start, though, with part of the testimony of
Mr. Tilles and Mr. Smith. One thing that jumped out at me, and
I just place almost no credence in what, at least this part of
your statement, I hope subsequent events and testimony and
evidence proves me wrong, but it is just not credible in your
testimony--in your written testimony--where you make references
to discounts and support programs that mean ability to pay
should never be a barrier to access. That is part of Mr.
Tilles's statement or testimony, and then, Mr. Smith, when you
say on page two, referring to assistance programs regardless of
ability to pay.
We just had a family here in the first panel that was told
what they had to pay in order to help their daughter, so I hope
that those were not just gratuitous statements. I hope that
when you put that in your testimony, you meant it. I cannot
prove you wrong. I just do not believe that part of your
testimony, so I hope the rest of your testimony is truthful.
Let me ask both of you this question. Mr. Dorfman in his
testimony in the first panel said, and I am quoting at the top
of page three, ``Pharmaceutical companies typically justify
drug price increases, especially large rises, by expenditures
such as research and development of the drug itself or a
substitute, clinical trial work, or educational programs.''
That is the justification for large price increases.
Mr. Tilles, let me ask you, do you agree with that
statement?
Mr. Tilles. Well, I think it is important to understand two
things. One----
Senator Casey. Let me just say, just answer that question
first. Then you can talk----
Mr. Tilles. Sorry. Then could you repeat the specific
question? I am sorry.
Senator Casey. Do you agree with the following statement.
``Pharmaceutical companies typically justify drug price
increases, especially large rises, by expenditures such as
research and development of the drug itself or a substitute,
clinical trial work, or educational programs,'' Do you agree
with that statement?
Mr. Tilles. Yes, I agree.
Senator Casey. Mr. Smith, do you agree with that?
Mr. Smith. I agree, but I would also include pre-clinical
and early stage development.
Senator Casey. He then goes--the next sentence is as
follows. ``In this instance,'' meaning Turing--``in this
instance, the price increase as contemplated and subsequently
announced was not justified by any such actual expenditure,''
Do you agree with that statement, Mr. Tilles?
Mr. Tilles. I respectfully do not.
Senator Casey. Mr. Smith, do you agree with that statement?
Mr. Smith. I respectfully disagree.
Senator Casey. Okay. Good to have that clarified.
Mr. Smith, I want to ask you a couple of questions about
your testimony and some of the statements that you have made.
You indicated that you worked on a valuation model related to
Daraprim with other members of the business development team,
is that true?
Mr. Smith. That is correct.
Senator Casey. You also said that you viewed Daraprim as an
undervalued treatment for a serious but neglected disease. Is
that true?
Mr. Smith. That is true.
Senator Casey. The question I have is, what factors went
into the conclusion that Daraprim was undervalued? How did you
come to that conclusion?
Mr. Smith. Many drugs are valued based on the value they
provide to patients, and Daraprim being a standard of care for
a rare, you know, neglected disease, it seemed that the current
value of the product was much lower than comparable medicines
for similar disease morbidity indications.
Senator Casey. What did you do to--what kind of analysis or
what kind of work did you do to make that conclusion? What
undergirds the conclusion you made?
Mr. Smith. I am not sure that I have done a specific
analysis, but my general experience with the industry is that
you see drugs with small patient populations generally have
prices well in excess of Daraprim.
Senator Casey. You also stated the Daraprim acquisition
gave you an important foothold in the treatment of
toxoplasmosis. I assume that the word ``foothold'' means a firm
positioning in the marketplace. Is that generally accurate?
Mr. Smith. Yes. What I was referring to in that statement
was prior to the completion of the acquisition, we had made a
decision that regardless of the success of that acquisition, we
would be developing new drugs for toxoplasmosis because of the
severity of the disease and because there has been no
improvements for over 50 years and there is still a lot of--a
lot of physicians share the opinion that there is room for
improvement.
Senator Casey. Could the company not have gained a, quote,
``foothold,'' without raising the price almost, by one
estimate, 5,000 percent?
Mr. Smith. I think that the price raise was necessary in
order to establish that foothold.
Senator Casey. By that amount, the price raise was
necessary?
Mr. Smith. I am not--I do not make any pricing decisions,
so I am not sure what----
Senator Casey. You just said--you just said that you
thought it was necessary.
Mr. Smith. I--I thought that a price raise was necessary,
yes, but the scale of which, I have never had to make such a
decision, so----
Senator Casey. All right. I want to make sure I understand
what you are saying. You are saying a price raise was
necessary.
Mr. Smith. Yes.
Senator Casey. Not necessarily the price raise that
transpired.
Mr. Smith. I do not have the experience. There are a lot of
factors that go into price decisions and I do not have the
experience to determine whether that was an appropriate price
or whether that was too low, too high.
Senator Casey. You did come to the conclusion about
valuation, as your testimony indicates.
Mr. Smith. I built the model, correct.
Senator Casey. Let me just conclude with this sentence.
Where in your modeling do you estimate what financial resources
would be necessary to improve treatment for toxoplasmosis?
Mr. Smith. Could you be specific with which model, or---we
prepare many iterations of models. Models, it is a tool. It is
not necessarily a snapshot.
Senator Casey. Well, let me ask you this. What models, if
any, did you prepare that related to toxoplasmosis?
Mr. Smith. I prepared the main one the business development
team used, but again, as we moved through the due diligence
process and our understanding, you know, of the product grew,
there were many changes to the model, so there are many, many
iterations.
Senator Casey. You just said you did prepare a model.
Mr. Smith. Yes, that was updated constantly.
Senator Casey. What went into the development of that
model?
Mr. Smith. There was an extensive literature search to
understand, you know, the patient population. I spoke to a few
doctors that had said that they had treated toxoplasmosis. You
know, we received confidential information from Impax as the
process went on about the product. Those sorts of things.
Senator Casey. I think you were here when we had earlier
testimony. I want to go to the Westons' testimony, in
particular, where they were told the cost--what the cost would
be for the treatment for their daughter. Did you hear that part
of their testimony?
Mr. Smith. I heard that part, yes.
Senator Casey. What do you say to a family that is faced
with that kind of predicament?
Mr. Smith. I was deeply saddened to learn about their
situation. I only found out yesterday, and I was more upset
that there was not adequate communication. Turing has made
substantial efforts, and our commercial team and Nancy Retzlaff
have made substantial efforts to reach out to hospitals,
pharmacies, and members of the community to make sure that
everyone knows where to get Daraprim and that if there is any
issue with the ability to pay, we have several different
programs that can limit copays, that can provide drug free of
cost, so I was disappointed that that was not made available
immediately to those folks.
Senator Casey. That is all I have.
The Chairman. Senator Donnelly.
Senator Donnelly. Thank you, Madam Chair.
To the Westons, I heard your testimony. If it were my
child, just like you, I would be turning over the tables,
because you will do anything to make sure your child is Okay,
and you know, I may have been born at night, but I was not born
last night. This is a scam. You guys are running a scam, and
you tried to figure how fast you could milk it and how hard you
can milk it, and somewhere, there has been a complete loss of
any sense of shame, of any sense of responsibility.
I am going to give you a chance here. The pills were $17.50
before you guys got your hands on it. They are $750 now. I will
make you a deal. Why do you not make a pledge here today that
you will not charge more than $25 for any of these pills for at
least the next 2 years. You have got over--almost a 50 percent
increase in the price then. Why do you not make a deal and tell
the American people you are going to step up and end this and
you will not charge more than $25 for any pill.
Mr. Tilles, will you make that deal?
Mr. Tilles. With all due respect, in my role as CEO, as an
individual, I would love to do that, but as a CEO, I cannot,
because----
Senator Donnelly. As a CEO, is a 50 percent increase in a
product you just bought not enough?
Mr. Tilles. Well, what I was going to say is the company
still has to survive, and at this point----
Senator Donnelly. They cannot survive on a 50 percent
increase in the price of the product you bought?
Mr. Tilles. We are not a profitable company right now.
Senator Donnelly. Why is that?
Mr. Tilles. Again, many reasons----
Senator Donnelly. Is it the $2 million records that your
CEO is buying? I mean, why are you not profitable right now?
Mr. Tilles. Just to comment on that, Mr. Shkreli never took
a salary while at Turing, and as far as I know, as Chairman and
CEO, I do not think he has extracted one dollar out of Turing
to date.
Senator Donnelly. Well, then, why did you buy a company
that you are not now making money on that was apparently
profitable at $17.50 a pill. You are charging $750 a pill. That
does not make any economic sense at all.
Mr. Tilles. Well, again, our goal as a company--you know, I
find it interesting. We have talked about how to get a drug
through the pipeline can cost over a billion dollars, and one
of our initial visions----
Senator Donnelly. Well, this did not go through a pipeline.
Madam Chair, am I wrong, this is the same thing since the
1950's?
The Chairman. You are absolutely correct, and the witness
has so testified.
Senator Donnelly. Forget about the pipeline. You jacked it
up 50 percent if you get 25. How is that not enough?
Mr. Tilles. Well, what I was going to add was that, again,
the distinction between developing a drug from scratch and
using the profits from the drug that we do have to develop new
drugs from scratch, I do not see that----
Senator Donnelly. In the process, their child cannot get
the medicine.
I have a town--let me tell you about a little town in
Indiana. The name of the town is Austin. We have had a terrible
opioid problem there. We wound up with 189 people with HIV
cases. Maybe at some point with AIDS they would have to use
your product. How can I sit here and let you continue with a
750 price point when I have people who may be in desperate need
of your product?
Mr. Tilles. Well, as I said earlier, the majority of
patients do not pay 750 a pill. They pay----
Senator Donnelly. Why do any of them pay 750, other than
the fact that maybe you thought you could get it?
Mr. Tilles. Well, again, our head of marketing is in the
room. My understanding is that----
Senator Donnelly. Well, maybe the head of marketing can
tell me.
Mr. Tilles. She can if she likes.
Senator Donnelly. Do you want to tell me how you came up
with the 750 price? I would be really interested how you sat at
a table, and who made the decision to go from $17.50 to $750.
The Chairman. Senator----
Senator Donnelly. Okay. I am sorry.
The Chairman. [continuing]. since that witness would not be
under oath----
Senator Donnelly. We will pass, then.
The Chairman. [continuing]. and testified extensively at
the House side----
Senator Donnelly. I am sorry. We will pass this.
The Chairman. We have her testimony already.
Senator Donnelly. Mr. Smith, let me ask you a question, and
maybe this is a little bit offbeat. What do your parents think
about this model you came up with that wound up with $750 pill
prices for kids?
Mr. Smith. Well, I cannot comment for my father. As I said
earlier, he was killed in the September 11 attacks, but for my
mother, she--I mean, she does not have a strong understanding
of what I do, so she is generally supportive of me.
Senator Donnelly. You think that is morally correct to do
750?
Mr. Smith. Again, as I said earlier, I am not involved in
any of the pricing decisions. I have never had to make one.
There are many factors that go into it.
Senator Donnelly. Let me ask you this, Mr. Tilles. Do you
still believe no patients have been impacted by this price?
Mr. Tilles. I believe Turing has done everything in their
power to make sure every patient has access to the pill. As I
mentioned before, we have numerous programs in place and our
desire is that no patient not have access to this drug, and I
actually think that we are doing everything in our power to
create awareness of this disease and to make sure that everyone
is--that gets the drug that needs it.
I am also pleased--again, Dr. Salinas is not here---
actually, our head of research is the highest paid person in
our company. I do not know if you are aware of that. I am
pleased to see that we are actually doing a lot of things in
toxoplasmosis. I sat on a panel--again, I am not a pharma
expert, but some of the things he is doing are just fascinating
to me in terms of the next generation of drug.
Senator Donnelly. Mr. Wichman, could you walk us through
the process of identifying a pharmaceutical asset you
reasonably assess as promising in terms of potential returns
for your hedge fund investors.
Mr. Wichman. Senator, we generally do not identify
pharmaceutical products. We identify companies that we think
are worthy of investment and that is what our job is.
Senator Donnelly. As you look at this, as you move forward,
as you check out potential returns in the pharmaceutical
assets, the question was asked before, how deep do you look in
terms of the management's expertise in pharmaceuticals, their
work in pharmaceuticals, their CEO's role in pharmaceuticals?
What do you look at with that?
Mr. Wichman. We look at management teams and we look at a
number of other factors when we do our diligence. When we look
at a drug, we speak to physicians. We build financial models.
We do detailed work on a number of factors, so it is one of
many factors that goes into investing in a product, or in a
company.
Senator Donnelly. Do you encourage the companies that you
buy to take a step like this?
Mr. Wichman. Absolutely not.
Senator Donnelly. Absolutely not. Okay.
Well, you know, we are going to continue to work to turn
this back. I think you can make a huge difference in your
public opinion, in the way you are viewed, if you would step up
and say, we are not going to charge more than $25, which is
over a 50 percent increase in what you were--the price that was
being charged when you bought it. I think it would be an
enormous help to all of you. I think it would help to clean up
the mess that you have on your hands, and I think it would be a
sign to the families who count on you, who may lose their
children, who may lose their loved one who has AIDS, that you
can start to put this back on the right track, and I would
encourage you to do so.
Thank you, Madam Chair.
The Chairman. Thank you.
Senator Kaine.
Senator Kaine. Thank you, Madam Chair.
Mr. Tilles, I just want to followup. You indicated you
graduated from Middlebury College, I believe?
Mr. Tilles. That is correct.
Senator Kaine. What was your undergraduate degree?
Mr. Tilles. Oh, you mean what did I study?
Senator Kaine. Yes.
Mr. Tilles. English.
Senator Kaine. Then a Columbia M.B.A. Did you have a
concentration at Columbia in finance or human resources?
Mr. Tilles. Marketing and finance.
Senator Kaine. Uh-huh, and then you indicated you did not
have a pharmacy or medical background. You have not had
separate training in pharmacy science or any allied health
field?
Mr. Tilles. That is correct.
Senator Kaine. Mr. Smith, tell me about you. Where did you
go to college?
Mr. Smith. I went to Fordham University.
Senator Kaine. What was your undergraduate major?
Mr. Smith. Finance.
Senator Kaine. Do you have a graduate degree?
Mr. Smith. No.
Senator Kaine. Have you had any separate training in any
pharmacy or allied health field?
Mr. Smith. None other than professional experience.
Senator Kaine. Okay, and then, my understanding is the same
is probably true about Mr. Shkreli, that he did not have a
background in pharmacy or medical studies academically.
Mr. Tilles. I am not sure of Martin's educational
background, but I do know that early on, one of the things that
enormously impressed me was that he had developed on his own a
treatment for PKAN. I found that fascinating. I think he has a
patent on the disease, so to me, he seems to have been self-
taught.
Senator Kaine. You first started working with him when he
was at a hedge fund, is that correct?
Mr. Tilles. I met him when he was there, yes.
Senator Kaine. Okay. Mr. Smith, you answered a question to
Senator Casey that I want to followup on. You asked kind of how
you came upon Daraprim and determined that it was undervalued,
and he asked you, how do you determine a drug is undervalued,
and I think your testimony was that--I was trying to write it
down quickly--you look at drugs and you assess the value of the
drugs based upon the value that they have to patients, and if
you notice that, I think the extension was, if the value to
patients is high but the cost is not very high, then there is
some kind of a mismatch, and that is what undervalued means. Is
that a fair characterization of your testimony?
Mr. Smith. I think to expand on my testimony, I was
referring to the fact that some drugs, there is also an
opportunity to increase units. As some physicians have
mentioned, the typical patient that takes Daraprim is generally
pretty noncompliant with their medicine, so putting a product
like Daraprim into a specialty pharmacy, where there is refill
reminders and the drug is delivered right to their door, a
number of steps that we take to ensure that patients take drug,
which increases units, and also it leads to better patient
outcomes.
Senator Kaine. How does that relate to your answer to the
question of whether Daraprim was undervalued?
Mr. Smith. Those items add to the value. Those things were
not currently being addressed as aggressively as we currently
are.
Senator Kaine. You concluded that Daraprim was undervalued
in part because you thought that there was a mismatch between
the pricing of that drug and the significant and intense need
that particular patients had for that drug because it was the
gold standard treatment for the medical condition.
Mr. Smith. I believe the drug was underutilized, yes.
Senator Kaine. Right, so this notion of kind of what
undervalue is, that it is--if patients really need it, that
they have an intense need for it because it is the gold
standard, but the price is low, I mean, it is basically a
profit opportunity. It is the patient as a hostage, the patient
as a profit center. If the patient really needs it, because it
is the gold standard, and the price is low, then there is the
finance opportunity that suggests, wow, this is an undervalued
drug. What a great business opportunity for us. I mean, it
sounds like I kind of got the business model.
Mr. Smith. Can I provide some clarification?
Senator Kaine. Yes. I mean, your testimony is already on
the record, what you said to Senator Casey, but, please, yes,
clarify.
Mr. Smith. When I said utilization, I meant that the
patients--because it is such an important medicine----
Senator Kaine. Actually, your answer did not--when you
answered Senator Casey, you said nothing about utilization.
What you said is you viewed this as an undervalued drug because
the value to patients was very high and that was very different
than how the drug was being priced, so my read of that quick
testimony was you saw a gap between patients who had a
tremendous need to have this drug, because it is the gold
standard in treating a difficult condition, and a pricing
mechanism that, frankly, was not extracting enough for them
given the value that it had to the patients who needed it.
Mr. Smith. As I responded to your initial request for
clarification on undervalued, I used the word ``utilization,''
and by utilization, I meant the use of the drug within the
patient population. You know, it is my understanding that
there----
Senator Kaine. The notion would be, if it was
underutilized, one of the ways you could more utilize it is
expand access to it, have more people have access to it, right?
Mr. Smith. By utilization, I mean patients taking--sick
patients taking the drug.
Senator Kaine. The idea would be you would want to expand
utilization, and the way to expand utilization would be to
expand access, right?
Mr. Smith. By investing in patient access----
Senator Kaine. I know that you have indicated that you have
no responsibility with respect to pricing decisions, but how
could it conceivably be an expansion of utilization, or
facilitate expanded access, to increase the price of a pill
from $17 to $750?
Mr. Smith. Well, access is just a component. The additional
research and development and the next generation drug that we
could market worldwide is also a significant----
Senator Kaine. You would agree with me, so you went to
Fordham and had a degree in finance, and I have a degree in
economics I can barely remember, but as a general matter, if we
see this drug, we do not think it is utilized enough and we
want it to be utilized more, that jacking the price from $17 to
$750 and entering into a sole source distribution agreement,
those two things actually cut against the expansion of
utilization, I mean, would you not agree with that?
Mr. Smith. No.
Senator Kaine. You do not think increasing the price from
$17 to $750 would reduce the expanded utilization of this
product?
Mr. Smith. No. Raising the price allows you to make all
these significant investments in the different areas I spoke
about, the commercial patient outreach and research and
development.
Senator Kaine. Has the subsequent experience, in terms of
dramatically expanding the quantity of this that patients have
been taking, borne that out?
Mr. Smith. I do not have familiarity with the exact
figures, but Nancy Retzlaff, our Chief Commercial Officer,
would be able to tell you.
Senator Kaine. What was the--tell me about the genesis of
the sole distribution agreement with Walgreens.
Mr. Smith. That is an agreement that we inherited from
Impax.
Senator Kaine. Was the fact that that agreement was in
place a business factor in your decision that Daraprim was an
undervalued drug and a promising opportunity for investment by
Turing?
Mr. Smith. We had planned to make--set up a similar system,
so it--in some ways, they already set it up.
Senator Kaine. Right, so you would have done that if--so,
it was. That was a positive factor as you were looking at
whether this was an undervalued drug that you might want to
purchase, that they had a sole distribution agreement with
Walgreens.
Mr. Smith. Their agreement is--I believe there have been a
number of amendments to the agreement, but----
Senator Kaine. Yes, but you get what I am asking. If you
were going to do it anyway, the fact that they had already done
it was a positive as you looked at this investment opportunity.
Mr. Smith. Yes.
Senator Kaine. Okay, and there were concerns raised with
Turing about the sole source agreement with Walgreens and the
effect that it would have on access and utilization. I will
just refer to the record, Exhibit 23, e-mails from the Health
Resources and Services Administration that show that HRSA
reached out directly to Turing with concerns that this limited
distribution network would have a significant impact on patient
access, and I will just State that for the record. I do not
think we need to go into it further. It is in the record.
Madam Chair, I do not have any other questions, but I just
think that the two fundamental kind of core aspects of this
undervaluation determination, we see this as undervalued
because patients really need it and the cost and maybe the
access to it suggest that we need to expand utilization, and
then we take steps to dramatically jack up the cost and we take
steps to put this drug, or we at least find positive to put
this drug in a limited distribution channel that raises
questions about access.
It just seems to me that this is a business model that is
about patients as hostages. It is about patients as profit
centers, and it is decisions that are made by executives who
have no training in pharmacy, no training in medicine, no
training in allied health fields at all, and you know, that
this seems OK.
Fordham is a Jesuit school.
Mr. Smith. Correct.
The Chairman. Thank you, Senator Kaine. You are exactly
right. It is a case where there is a captive audience and this
is the gold standard, which is part of the business model that
we have been able to identify.
Ms. Retzlaff, I notice you have remained at the table.
Unless you are giving legal counsel in an official capacity to
the witnesses, I would ask that you return to your seat.
Mr. Tilles. May I say something?
The Chairman. Mr. Tilles.
Mr. Tilles. Yes. I just want to say that although her
testimony is not a part of this Senate record--although Nancy
Retzlaff's testimony is not part of the Senate record, my
understanding that Turing is--we are happy to offer her as a
sworn witness because it seems like she is the most qualified
person on these matters.
The Chairman. Ms. Retzlaff testified extensively on the
House side, so we have her testimony, and unless she is here
officially representing one of the witnesses as an attorney,
she is directed to return to her seat.
Senator Blumenthal.
Senator Blumenthal. Thank you, Madam Chair.
You are here under subpoena, correct?
Mr. Tilles. Yes.
Mr. Smith. That is correct.
Senator Blumenthal, You have taken an oath.
Mr. Tilles. Yes.
Mr. Smith. Yes.
Senator Blumenthal. Let me ask you, because you are here
under compulsory process, whether you would have done things
differently if you knew then what you know now.
Mr. Tilles. Are you talking to me, sir?
Senator Blumenthal. I am asking both of you.
Mr. Tilles. Okay. Well, it is hard--it is hard to, again,
look back. I mean, what is done is done. I would just say that,
going forward, we will make every effort to basically invest in
R&D and improve patient access as much as we can. Mr. Shkreli
is no longer part of the company. We feel we are moving in a
good direction at this point, and again, despite all the
scrutiny, we remain a--we remain a very small company. As I
said before, it is pretty much kind of a startup, so you know,
we do have big plans, but it has obviously been very difficult
in the last few months, but we do hope to move forward and
correct the issues.
Mr. Smith. As I said earlier, I have never been a part of a
senior executive team, so I am not sure about all the factors
that weigh into all these specific departments, so I am not
sure that I----
Senator Blumenthal. Well, you are intimately involved in
the affairs of the company. Would you have done things
differently than, in fact, happened, if you were in a position
of responsibility?
Mr. Smith. Again, I think that someone--the folks on our
senior management team have a lot more experience and years,
many, many years more knowledge of these matters, so I would
not--I would not know how to assess the situation.
Senator Blumenthal. I think what the members of this
Committee find offensive, with all due respect, is the apparent
lack of remorse, given the powerful impact that we have seen of
the price gouging that occurred, the powerful impact on
families like the Weston family--thank you to them for being
here today--the lack of remorse and, frankly, any sense of
regret, because the human impact is incalculable.
The explanation that there was going to be an investment in
R&D or in greater access, which defies common sense as to why a
5,000 percent increase in price was necessary, and the logic,
or defiance of logic in saying that utilization would be
expanded by increasing the price--I am not an economics major.
I have no background in finance, but that is a little bit like
saying that the laws of gravity no longer work, or we are going
to put a man on the moon by drilling to the center of the
earth.
I know that your explanation is you were going to invest in
expanding the reach, but you are dealing here with a product
that is not being mass marketed, correct?
Mr. Smith. Correct. It reminds me a lot of Thiola, as Dan
Wichman said, when we did a very similar strategy and grew
units.
Senator Blumenthal. It is a captive audience, a discrete
patient population that has to be reached by very specific
means, not by going on TV or other kinds of mass media, and so,
to have a drug that is the gold standard that is available
through discrete, specific channels, and then to say that a
5,000 percent price increase is necessary to invest in the
means to reach that captive patient population just seems to
defy common sense.
Mr. Smith. My understanding from speaking with physicians
is that there is still a large amount of unmet need. For
example, with congenital toxoplasmosis, I believe Daraprim is
contraindicated for a certain trimester of dosing and it can be
very unsafe----
Senator Blumenthal. You are not going to make that drug
more available by putting it financially out of reach. That is
the contradiction here.
Mr. Smith. In speaking with some of our R&D staff recently,
I was made aware of our--a series of compounds that we have
developed that display degrees of selectivity for the toxo over
the human gene, DHFR, of hundreds-fold, so we are already
making those steps in the next generation of toxoplasmosis
treatments that could mean, you know, no need to co-dose with
other drugs for which there is known allergies, or lower pill
burden for these patients that are notoriously noncompliant, so
there are significant advantages to investing in this.
Senator Blumenthal. When you raised the price, was there a
business plan that calculated the specific revenue that was
necessary to accomplish specific R&D steps or outreach
measures?
Mr. Smith. There was a financial model, but again, as I
said, it is a tool. It is not really a snapshot.
Senator Blumenthal. I am sorry----
Mr. Smith. It is a tool to evaluate different scenarios, so
it is not necessarily something that shows exactly--I mean,
there may be other documents that I am not aware of. I am just
speaking from my personal knowledge.
Senator Blumenthal. Do you want to supplement that?
Mr. Tilles. Yes, if I might add that it is hard, because,
again, we are a relatively new company, it is hard month to
month to figure out the exact budget to go into R&D. I can
assure you that pretty much every spare dime we have goes into
these types of programs.
Senator Blumenthal. Well, I have been looking at the
testimony that was submitted to the House by Ms. Retzlaff and,
you know, I am at a loss to know why that 5,000 percent
increase was the number set, why it went so substantially to
that number. Maybe you have an explanation.
Mr. Tilles. Again, I was at the company, but at the time, I
was a Board member. I was not CEO. I did not get involved in
the drug pricing. I did get involved in the negotiation of the
deal. I do not know how they arrived----
Senator Blumenthal. You cannot really come to this--I
apologize for interrupting. You cannot come to this Committee
and say, you know, I am Sergeant Schultz. I see nothing. I know
nothing. You know what happened, correct?
Mr. Tilles. I would like to add that I believe one of the
things they were looking at, if you step aside and--I know we
cannot, but if you could, for a second, ignore the price
increase, that if it was a new drug that we had developed, and
it was an old drug, but in that sense, it was----
Senator Blumenthal. Well, that really----
Mr. Tilles [continuing]. it is a life-saving--oh, sorry. Go
ahead.
Senator Blumenthal. Go ahead. Sorry.
Mr. Tilles. It is a life-saving treatment and it is
overall, in comparison, I believe, looking in comparison to
other drugs of comparable treatments, it is relatively priced.
I do agree that there was a price increase. I acknowledge that.
Again, the actual amount paid by every patient, as I guess
Nancy said before, is a totally different number and many
patients get it at a penny per pill, and our program, our
desire, again, as I have said before, even though we are not
developing a drug from scratch, we are using the profits to
develop new drugs from scratch, so it is, in a way, similar.
Senator Blumenthal. Do you have anything to add?
Mr. Smith. No.
Senator Blumenthal. The Nancy you referred to was Nancy
Retzlaff?
Mr. Tilles. Yes. Correct.
Senator Blumenthal. Well, I would ask that you submit to
this Committee any additional documents that you may have to
justify the decision to raise this price to the specific number
of $750 from the much lower price, and any other documents that
would reflect on that decision.
Thank you, Madam Chair.
The Chairman. Senator Warren.
Senator Warren. Thank you, Madam Chair.
I want to start out by thanking Chair Collins and Ranking
Member McCaskill for this deep investigation on drug pricing.
Your work shines a light in many dark areas, and this is the
first step for changes in the industry. I admire your
leadership in this very much.
The market for prescription drugs is different from the
market for other goods and services, and there are lots of
reasons why. Patients need prescription drugs to live and be
healthy. They are not like TVs, where you can put off until
next month your next purchase.
Unlike most consumer products, the drug industry has little
price transparency. Unlike most consumer products, there are
very long legal monopolies. In many cases, like we saw with
Daraprim, there is only one manufacturer selling a drug. If
that manufacturer raises the price, consumers cannot just shop
elsewhere.
These structural differences give drug manufacturers great
pricing power, and, you know, I think Spiderman had it right.
With great power comes great responsibility, but that
responsibility is missing across the drug industry.
Mr. Dorfman from the first panel is the former General
Counsel of Turing and he was let go after he raised concerns
about the company's strategy of jacking up the Daraprim prices.
We have his sworn deposition, and in his deposition--I just
want to quote it here--he said, ``A price increase along the
lines that were taken here is, in my mind, is not justifiable.
I do think a price increase that is taken with a drug, if it is
necessary to maintain, frankly, the life of a particularly
vulnerable patient population that could negatively impact
their ability to obtain it, is unethical from a business ethics
perspective.''
Mr. Tilles, do you agree with that statement? Do you think
it is unethical for a company to raise the prices of drugs
needed to save patients' lives so high that patients cannot
afford them?
Mr. Tilles. Again, with all due respect, to put it in the
context of what we were trying to do, the price--I admit there
was a price increase. Actually, you know, again----
Senator Warren. We know there was a price increase. That
part is clear.
Mr. Tilles. Yes, and we were--when Mr. Dorfman left, we
were still an early stage company, and as far as I am aware, we
had not even really begun our R&D program then because we had
no profits to invest in R&D, so he left prior to that being the
case.
Senator Warren. Well, hold on just a minute. Mr. Dorfman is
not some abstract ethicist or some do-gooder. He is a 40-year
industry veteran and a former General Counsel of your company,
and he is just looking at the question of pricing a drug that
is necessary for people to survive at a price where they cannot
afford it, and he says these price increases are unethical, and
I am just asking, do you agree with his statement?
Mr. Tilles. Again, I--at Turing, you know, we are a small
company. I see what we are doing, so at first blush, you could
say, oh, my God, that is incredibly unethical, but if I see----
Senator Warren. Yes, I think you could say that.
Mr. Tilles. If I see the dedication and desire of all our
employees--again, I admit, and I have said it, I am not--do not
have a pharma background, but we have about over 65 people in
our New York office and every one of them is very dedicated to
what they are doing, and I find it hard to believe that they
would all be there, you know, if they did not see the vision
that we have, and I think we are quite misunderstood as to what
we are doing. If you spent a day at our company, you would see
the dedication. We have scientists and I am very impressed with
our R&D----
Senator Warren. Well, let me just stop you there, though,
Mr. Tilles. I assume--I mean, you are the CEO of this company.
You are the one ultimately responsible for the pricing, and
that was the question I asked. Mr. Tilles
[sic] said--he was your former General Counsel--he said he
thought pricing exactly the way you have priced is unethical,
and I am asking the question, do you agree with him, and if--do
you agree with him?
Mr. Tilles. Again, so the pricing policy that we had in
place, again, no--as I have said before, as far as I know,
almost no patient pays that price, so it is----
Senator Warren. Well, wait just a minute. There are
obviously patients who cannot afford this product, and we know
this. There are patients who have testified that they cannot
afford this product, so saying ``almost'' is not very good if
it is your child who is in trouble, if it is your child whose
life is on the line.
Let me just underline this. Every time you say this--you
know, it sort of makes me jump back a little bit when you say
many patients cannot afford it. Let us keep in mind, it does
not mean no one is paying that price. We are all paying the
higher price through higher insurance premiums, through what we
pay in Medicare.
You cannot just shove this off. We have people who cannot
afford it and we are still asking the question about you have
picked a price that your own former General Counsel says was
unethically arrived at.
Mr. Tilles. Again, the pricing was determined by our
Marketing Department and----
Senator Warren. In other words, because you could.
Mr. Tilles. No, I would not say that. I would say that
there are many things that went into the pricing. The
assistance programs we have in place, as I said before, we are
trying to develop them as much as we can. If you went on our
website, you would see all the programs that are available. You
can call us, obviously, as a company.
Senator Warren. I have actually just looked face to face
with people for whom that is not working.
Mr. Tilles. Again, yes, so there were--I am aware--again, I
became CEO in December--I am aware that there were, yes,
transitional issues when we took it over from Impax. There were
not all the programs that might have been in place, and from
what I understand, we are doing everything in our power to
change that.
My goal as CEO is to make sure that there is no patient who
cannot get access to the drug, and as far as the pricing issue,
I cannot at this point, you know, again, as CEO, I cannot just
roll up--we have reduced the price, as I said, to hospitals,
and we are doing everything in our power to make sure that
access is there, and we are also----
Senator Warren. Well, wait a minute. If you are doing
everything in your power, I have a suggestion for you. Lower
the price. That will actually make it easier for patients to
access the drug and it will make it easier for hospitals to
access the drug, for Medicare, for insurance companies to be
able to pay it. You do have something entirely within your
power.
Mr. Tilles. Again, two-thirds of the patients, is my
understanding--I am not the head of marketing--but two-thirds
of the patients pay a penny a pill.
Senator Warren. Well, the question we are asking here is
whether or not it is ethical to price the way you have priced,
and you have tried to defend this by saying lots of people can
afford to pay, and for the people who cannot, it is just too
bad?
Mr. Tilles. No. I think we have programs in place that if
you cannot afford it, you get it for free.
Senator Warren. Well, programs that are not working.
Mr. Tilles. Well, we are trying to change that.
Senator Warren. You are telling me that you are going to
lower the price----
Mr. Tilles. No, I did not----
Senator Warren [continuing]. for everyone who cannot pay
for it?
Mr. Tilles. I did not say it like that. I said we have
lowered the price and we have----
Senator Warren. Well, and that is not working. You say you
want something that works, so I am asking the question. Are you
going to lower the price for everyone who says it is a hardship
for me to pay for this?
Mr. Tilles. Again, as I have said before, we have many
programs in place to make sure they can access the drug.
Senator Warren. Well----
Mr. Tilles. Many people are not--are getting it, as I said,
for a penny, and apparently----
Senator Warren. Many are not.
Mr. Tilles. No, and many for free.
Senator Warren. Many are not, and that is the point. and if
you wanted access for everyone, you could lower the price. Do
not tell me it is not within your control.
You know, I should just wrap this up by saying that I agree
with Mr. Dorfman. I think that charging patients so much for a
drug that they cannot afford it is unethical. It was unethical
when Turing did it, and it is just as unethical when the rest
of the pharmaceutical industry jacks up drug prices, and they
routinely do it.
The Washington Post reported last week that Novartis has
hiked the price of the breakthrough drug Glivec for leukemia
from $26,400 for a year's supply to more than $120,000 today.
The Wall Street Journal reported that Biogen has hiked the
price of Avonex to treat MS an average of 16 percent per year
over the last decade. Amgen raised the arthritis drug Enbrel's
price 88 percent over the last 5 years. The Journal also
reports that at the beginning of this year, Pfizer raised list
prices an average of 11 percent for more than 60 branded
products. This happens again and again.
The pharmaceutical market may be producing giant profits
for drug companies, but it is not working for the American
people. Congress needs to take action on this to make sure that
this market functions for patients, and I hope to be a full
partner in those efforts.
Thank you, Madam Chair.
The Chairman. Thank you.
Mr. Tilles, you have said at least three times today, maybe
more, that many patients are getting Daraprim for a penny a
pill. You have said that over and over again. You are referring
to 340B program, a special program that discounts the cost of
medications that go through hospitals that desperately poor
patients use.
Are you aware that at least three of your colleagues were
involved in a discussion--Mr. Patrick Crutcher, Mr. Urrutia,
and Mr. Smith--in which they talk about trying to, quote, ``dip
out of the 340B claims and say F-these guys. I told her to
start disputing the 340B claims. Laugh out loud. Yes.'' There
is a discussion of one patient who is from Canada and the
suggestion is that he return to his own country. That does not
sound to me like a business that is supportive of or concerned
about the 340B program making a drug that you have made
extraordinarily expensive affordable.
Are you concerned about that? You are a small firm. You
have three senior people, including the CFO, trying to figure
out a way to bypass this program and denigrating this program.
Mr. Tilles. Again, I was not actually aware of those
discussions before these hearings, but I might add that none of
them are a part of the Marketing Department. Again, we have, as
I have said before, Nancy has many people on her staff who are
dealing with these issues every day. None of those three
individuals, as far as I know, were involved in any way in
those areas. Nancy heads up patient access. She heads up
pricing, all of those issues that we have discussed before. I
think those isolated statements are not at all characteristic
of us as a company.
The Chairman. Well, those are pretty senior people making
those statements.
Mr. Smith, you have gone out of your way today to describe
yourself as being a low-level person in the firm. When you
worked for Martin Shkreli at Retrophin, did you report to him?
Mr. Smith. Yes.
The Chairman. Did you report to him directly?
Mr. Smith. Uh, me, along with four or five other business
development----
The Chairman. Right. You reported----
Mr. Smith [continuing]. middle-level folks----
The Chairman. [continuing]. to him directly.
Mr. Smith. I reported to him directly, yes.
The Chairman. That is what your deposition says.
Mr. Smith. Yes. He acted as head of business development.
The Chairman. Did you report to Martin Shkreli at Turing,
also?
Mr. Smith. That is correct, again, reprising the role of
head of BD.
The Chairman. At one point, did you earn in excess of
$300,000 a year?
Mr. Smith. I believe we have provided all of our company
financials. We are a private company. None of this is public
information, but if we have not, we are happy to.
The Chairman. My point is that you are a highly paid
executive that reported directly to Mr. Shkreli.
Were you the individual who located Daraprim and suggested
that the firm buy it or invest in it?
Mr. Smith. No.
The Chairman. Do you know who that person was?
Mr. Smith. I believe it was Patrick.
The Chairman. Mr. Crutcher?
Mr. Smith. Correct.
The Chairman. In your deposition, you stated that the first
time you heard someone suggest that there were any access
problems for Daraprim was when your colleague appeared before
the House Committee on February 4, but that statement is not
accurate, is it?
Mr. Smith. I was referring to the ongoing issues. Any--it
was my impression from the commercial team that any issues that
I came across, whenever I spoke to them, they would say it has
already been addressed or they have been working on it.
The Chairman. Well, in your deposition, you were asked the
question, were you aware that there were access issues for
Daraprim. You responded, ``During the Senate,'' and you later
corrected to mean the House, ``hearing committee where Nancy
spoke. I recall one of the Senators,'' you meant Congressmen,
``mentioning something, but outside of that, that was the first
time.''
Mr. Smith. Right. It was my understanding that they had all
been taken care of.
The Chairman. Well, I am trying to reconcile your testimony
during the deposition with the discussion you had on the
website, on the Skype chat, back in October 2015, October 20,
with two of your colleagues, when you specifically addressed
the subject of access concerns presented on the website
HIVclinician.org, a forum that is dedicated to medical
professionals reporting access problems with Daraprim, and your
response was, ``I think some of these are fake.''
Mr. Smith. My experience with that website is that they
have censored a lot of posts that we have tried to provide to
inform patients where they can access Daraprim, and just--we
monitor it frequently and we try to get in contact with them,
and I understand that it has created an additional barrier,
where there is someone who knows someone who has--who needs to
access Daraprim and they are actively preventing us from, is my
understanding----
The Chairman. You heard testimony today from Mrs. Weston
and an infectious disease specialist who talked about access
problems that they know firsthand of. Do you still think that
this is a fake problem?
Mr. Smith. For the Westons, absolutely not. No.
The Chairman. Are you discounting the testimony of Dr.
Adimora?
Mr. Smith. With regard to that website specifically,
because of the difficulties we have had with working with them
in order to get the drug to patients, I felt that they were not
doing everything in their power to--and they did not have our
interests at heart in terms of providing----
The Chairman. Well, I am not surprised they do not have
your interests at heart, given that you imposed a 5,000 percent
increase on a medication that their patients desperately need
and that you yourself have described as the gold standard.
Mr. Smith. Right, but I would expect them to be more
focused on getting drug to their patients rather than----
The Chairman. They wrote a letter to Mr. Tilles, which he
still has not answered, back in December from three respected
medical societies saying they were having access problems
because of the price. Do you discount that?
Mr. Smith. Again, these matters are chiefly dealt with by
Nancy Retzlaff, so I do not have the----
The Chairman. Mr. Tilles, do you discount that letter? Do
you think these are fake reports of access problems? Do you
agree with Mr. Smith on this issue?
Mr. Tilles. I do not discount the letter at all, and as I
said before, again referring to Ms. Retzlaff, we, as I
understand, did reach out to those organizations many times.
The Chairman. Well, according to the information that we
have received, there still has been no answer to that letter.
Mr. Smith, in your testimony, you indicated that investors
sometimes make the assumption that restricted distributions
make it difficult for generic companies to obtain product
samples for bioequivalence testing. You further say that
investors also sometimes assume that drugs tend to be more
valuable if they are the preferred treatment for serious
diseases and there is no good substitute.
Well, we have looked at Turing's--it is Exhibit 4--we
looked at Turing's investment presentations on Daraprim and it
indicates the following. Daraprim is the preferred treatment,
the gold standard. It also indicates that Turing management has
experience with restricted distributions. The presentation
calls it, quote, ``a high-touch closed distribution system''
and emphasizes that it would be difficult for a generic to
enter the market until at least mid-2016, possibly much longer.
Mr. Smith, can you understand why an investor would make
these assumptions when Turing presents this case as the precise
reasons why people should invest in Turing?
Mr. Smith. This distribution system that we describe here
is, as I said, at Retrophin something that we put in place and
had success with in----
The Chairman. Success is defined as keeping generic
companies from buying up enough of the medicine in order to do
the bioequivalence studies, correct?
Mr. Smith. I think you misunderstand the channels, so the
specialty channel that we sell through, we have control of that
channel. We do not have control through--for, I believe, 60 to
70 percent of our product by unit that we ship out. We have
no--I am not aware of any reason why, you know, a generic could
not get access to that.
The Chairman. Well, there is absolutely no reason,
according to the medical experts that we have talked to, to put
this drug into a specialty pharmacy or a restricted
distribution system other than to prevent generics from buying
up enough of the drug to produce a lower-price generic version.
The only exceptions are drugs that have special safety risks,
and that is not the case here, according to what the experts
tell us.
Senator McCaskill.
Senator McCaskill. Let me first turn to Mr. Tilles about
R&D. Mr. Dorfman indicated in his testimony, and I think
Senator Warren covered it, that he believed the price increase
was not justifiable, and you said in response to Senator Warren
that he left before you had really begun any R&D. That is what
you said.
Mr. Tilles. Being able to pay for any R&D. We did have a
plan. We just did not have the money.
Senator McCaskill. Well, your management report says you
had already spent $8.5 million on R&D before September, so what
was that money?
Mr. Tilles. No, that is----
Senator McCaskill. It clearly was not R&D, because you said
you did not have any R&D before he left. You put down on your
management report you spent $8.5 million on R&D and had not
done any.
Mr. Tilles. Yes. We had some initial investment in the
company, but we could not ramp up R&D to the degree that we
wanted. There was some initial investment in some early
programs in our pipeline. It is all in the presentations. We
had several at the time. Recently, we have had to cut back on a
little bit because we just do not have the money. As we have
said many times, it is very expensive to carry these drugs
through fruition, but I am there and we do remain an R&D
focused company, despite the----
Senator McCaskill. I am--you know, seriously, I mean, I
cannot trust these books. You say in your testimony you did no
R&D before Dorfman left and your books say you spent $8.5
million on R&D before Dorfman left.
Let me go through the numbers with you. In September, you
had $21 million in gross revenue. Your book says that you spent
$3 million on R&D and had 36 employees in R&D. I assume most of
the costs that you are charging to R&D is, in fact, your
personnel.
Mr. Tilles. No, I would not say that.
Senator McCaskill. Okay. what percentage of your R&D budget
is personnel?
Mr. Tilles. Again, I would have to look. I do not want to--
--
Senator McCaskill. Well, this is your specialty now. You
know about the numbers. This is what you do. You do not know
pharma, but you know the numbers, so tell me what percentage of
your R&D is on personnel.
Mr. Tilles. Right today?
Senator McCaskill. Mm-hmm.
Mr. Tilles. I would say a very small percent. In terms of
personnel, you are talking about their salaries? Is that what
you are----
Senator McCaskill. Yes. I am talking about the overhead to
the company for paying the people that are doing the R&D.
Mr. Tilles. Right. No, I would say it is significant.
Again, Dr. Eliseo is our highest paid employee----
Senator McCaskill. Okay.
Mr. Tilles [continuing]. who is the head of R&D.
Senator McCaskill. Okay, and how many----
Mr. Tilles. So--but----
Senator McCaskill [continuing]. people work for this
doctor?
Mr. Tilles. We have about probably 20 people there.
Senator McCaskill. Okay, and so what is the total of that
payroll?
Mr. Tilles. Umm, I would say it is about--well, again, I
would say--I would say it is about 20 percent, at least, 30
percent. Of total payroll.
Senator McCaskill. Tell me the number.
Mr. Tilles. Umm, again, I would have to look. I am sorry. I
do not have it at hand.
Senator McCaskill. Okay. Well, we----
Mr. Tilles. I apologize.
Senator McCaskill. You know, it does not make any sense,
because what you have got on your management reports makes no
sense. You have got, you know, $20 million in gross revenue and
you spent $3 million on R&D, which, by the way, is not near 60
percent. You have got 36 employees, you say, that are doing
R&D.
Then in October, you say you spent--you have $26 million in
gross revenue. You spent $3 million again on R&D, and you have
no number for employees.
Then in November, you say $16 million in gross revenue.
Now, you are up to 46 employees in November on R&D, and spent
$3.7 million, and then in December, you have $27 million in
revenue and you spend $7 million, you say, on R&D and once
again, 36 employees.
Now, here is the question. In January, you have $8 million
in revenue, R&D is $1.3, but you still say you have 36 R&D
employees, so where is all that R&D money going, because it
says here you are paying $1.3 million for 36 people. That is
quite a bargain for 36 scientists.
Mr. Tilles. Well, again, we have several programs, which we
could go into detail about----
Senator McCaskill. You understand these numbers make no
sense.
Mr. Tilles. I--again, I do not have them in front of me.
Senator McCaskill. It appears to me that the books are
being presented in a way to give the impression that this is
about R&D, and let us be clear about where this R&D money is
coming from. You are not calling Mr. Wichman and asking for
investment for R&D. You are not going out and finding capital
for R&D, like many pharmaceutical companies do. You are going
to families like the Westons and saying, we want you to pay for
our R&D.
The notion that you, Mr. Smith, with your finance degree
from Fordham, are trying to tell this Committee that this was
about increasing utilization of a drug, jacking the price? No.
It was about an orphan drug price. It was about a business
model that meant money, money, money raining from the sky. It
was about a drug that was making $5 million a year for the
previous company that you made $69 million on last year, even
while the numbers were going way down in terms of how much of
the drug was going out the door.
Mr. Smith. Can I provide some context?
Senator McCaskill. Sure.
Mr. Smith. For the gross revenue numbers that you are
quoting, those--gross revenue is not revenue that a company
actually receives. There is a discount that goes in, so for
example, the drug we sell to 340B programs, that would be
incorporated in that discount, so the actual revenue number is
much lower, and then, in terms of the IMS data that you are
referencing, IMS gets their data from wholesalers and
pharmacies which do not have complete visibility into all the
channels.
Senator McCaskill. Yes.
Mr. Smith. In addition to that----
Senator McCaskill. It is the industry standard, Mr. Smith.
You can give me all the context you want. You know what would
really be refreshing? If you guys would just own this. It is so
obvious to anybody. I mean, I spent a lot of time on this. You
know, I have tried to really understand. It is very obvious
what this is. Mr. Wichman knows what it is. He knows exactly
what it is, and let us turn to Mr. Wichman. You said in your
opening statement, you are passive investors, have never had an
activist role in any company in the pharmaceutical space. I am
going to direct your attention to a series of e-mails between
you and Mr. Shkreli concerning a different company. This is a
company with the drug--this is Retrophin and this is the drug
that has to do with kidney disease, and I think it is, by this
e-mail discussion, it is hard to see you as a passive investor.
I will not go through all of it, but in several back-and-
forths, Shkreli says to you, ``I have to be careful with giving
you minute-by-minute updates on the company,'' smiley face, and
then in this exchange, you are discussing with Mr. Shkreli how
to market the news of the acquisition to the rest of Wall
Street.
The same morning, Mr. Shkreli informs you that Retrophin is
looking into acquiring Thiola. He states in his e-mail, and I
quote, ``The drug does $1.2 million in sales. It is woefully
underpriced and would not stop selling at orphan prices. With
new pricing, we estimate sales of $20 to $40 million, almost 95
percent EBITDA margins at these prices. Would be an annuity for
some time.'' Then he adds, and I quote, in an e-mail to you,
``A hundred-million dollar present to you this morning,
correct?''
Now, I take it that what he means when he says the drug
would not stop selling at orphan prices, he means that the
price of Thiola could be drastically increased. It would not
affect demand. Do you understand that is what orphan prices
are? Do you want to see the depositions?
What are the pages, guys? What are the pages for the e-
mails. Here we go.
Mr. Wichman. Senator McCaskill----
Senator McCaskill. It is Exhibit 10, Exhibit 10 in your
book. This is a back-and-forth e-mail from you and Mr. Shkreli
on May 3, beginning at 8:41 a.m. This is where your e-mail
begins, on page two of the exhibit. ``It sounds like no lose,
to put it mildly. Don't have to run a model on this one this
weekend to give you my opinion,''and listen to your opinion.
``Funny that these small companies still haven't realized you
can raise price aggressively and nobody gets too upset.
Obviously, it depends on the product, but I figure this dynamic
may not last forever. You need to maximize opportunities while
you can. In the real boring spec pharma space, I kind of look
at HZNP Horizon versus Depo,'' which is the Wall Street--I do
not know which company that is. Who is depo?
Mr. Wichman. Depomed.
Senator McCaskill. Depomed. ``Own and like both companies.
Have nothing but good things to say about Depo, but Depo is
very cautious and conservative while Horizon says this price
dynamic might not last forever, at least on these reformulated
pain products, so let us maximize our cash-flows now and
diversify it over time. It is not like people are giving
companies gold stars for charging slightly lower prices.
Thanks, guys, for charging 500 a prescription, not 800. In that
land, the generics are not your competition and do not even
try. Anyway, it is different in orphan land and probably more
sustainable. It seems like at this point these little guys
would get the idea they could push things a bit. How can they
ever make money with that model? Bottom line is I will not get
too excited, but it sounds very intriguing.''
You guys are discussing the business model that I want
everybody to own up to here, finding an orphan drug that has
inelastic demand and jacking the price up for a period of time
before another generic can get in the space, or maybe the
demand is so low that another generic never gets in the space
and people like the Weston family just suffer.
Mr. Wichman. Thank you, Senator McCaskill. I, first, would
like to provide a little context and clarify that at the time--
the e-mail you are talking about, the background, it was
actually a number of weeks prior, we had been approached by
Barclays, along with a number of other investors, about a
completely different acquisition. This was the--$190 million--
this was another acquisition. It was a--we had been working for
a number of weeks on this, modeling this acquisition, doing our
diligence, and that was the focus heading into the e-mail you
are referring to.
Senator McCaskill. Yes, and then we go into, ``The deal we
are working on''--this is from Martin Shkreli to you, about 3
minutes later--``the deal we are working on is very simple and
Manchester-like. We would pay $1 million to acquire a drug
called Thiola, which is the only treatment for a rare disease
called cystinuria. The drug does $1.2 million in sales. It is
woefully underpriced and would not stop selling at orphan
prices.'' Now, orphan prices means jacking the price way up,
right?
Mr. Wichman. Higher prices.
Senator McCaskill. Yes, and orphan prices is a term in this
area where you know you can really jack up the price because
there is not competition. You have got a monopoly. That is why
it is called an orphan, right? It is all by itself.
Mr. Wichman. Right.
Senator McCaskill. It would be annuity for some time, and
that is where he says, a million dollar present--``a $100
million present for you this morning.''
I would say I will be happy with that--this is what you
say. ``I would say, I will be happy with the one I know about,
but I am always open to more as long as you guys have the
personnel and time and expertise to handle it all.'' Then he
goes, ``Steve is the best.'' It goes back and forth, and then
you say, later on, May 3, Saturday, May 3, ``Yes, fair enough.
Once this deal closes, I'll go back to being less a pain in the
ass. Sounds good on Steve. A ying and yang perhaps, and hope
the other stuff works out. Assuming this looks like a done deal
this weekend, I'd love to discuss a little of how you will
convey it to the street. I--"
Mr. Wichman. Senator McCaskill, I apologize. I was
referring to a completely different deal there. I was not
referring to this deal that you are discussing. That was a
completely different deal that we were doing the work on.
Senator McCaskill. Okay.
Mr. Wichman. That never happened.
Senator McCaskill. Okay. Well, I think that the essence of
these e-mails, if you look at all of these e-mails, is that you
are really engaged with Mr. Shkreli back and forth, I mean,
minute by minute. How are you going to present the deals, you
know, pricing, and I know you did not follow him to Turing. I
know you said, enough, and I will give you an opportunity to
say why. I mean, this would be the chance you would have to say
you thought the guy was flaky or something.
Mr. Wichman. Maybe, first, a comment on those e-mails,
because again, a lot of those e-mails referred to a deal we
were working on with Barclays and other investors
confidentially and a deal that never happened.
In the context of multiple weeks of discussion, Mr. Shkreli
mentioned a product I had never heard of before, product
Thiola. He mentioned it. It was a Saturday morning. I was home
with my kids. I provided some snap observations about the
industry and the dynamics as they were at the time, and I think
it is very important to point out that when--as a fund, when we
are looking at maximizing opportunities, we are not talking
about maximizing price alone. I do not believe you can be a
successful company by simply maximizing price, and just again,
to give context, after this conversation, we went back to
talking about this other deal that never happened. I did not
hear about Thiola. I did not think about Thiola until the end
of the month, but when we talk about maximizing opportunities,
we are talking about we make long-term investments where we--
where companies maximize access for patients, and I think it
has played out where Thiola is now used in approximately twice
as many patients as it was at the time of the acquisition. You
maximize improvements in manufacturing. Our understanding is
Thiola had not actually been supplied to the market for a lot
of 2012. There were supply shortages. There was bare bones
manufacturing. The supply was improved when Retrophin acquired
the product. There was improvements potentially in the actual
formulation of the drug.
Our--again, we did the work multiple weeks later, once we
actually heard that this is a real deal, and this is a drug
that patients take, our understanding is, eight to ten pills a
day, potentially as many as 16 to 18 pills. Retrophin has said
publicly that they are working on the next generation version
of this drug that could be far more convenient for patients,
and as mentioned before in my opening statement, Retrophin is a
company that spends significant amounts of money on R&D in
particular----
Senator McCaskill. I listened. I understand all of that,
and I--you have plenty of opportunity to put anything in the
record you want to put in the record, and we will have more
questions.
I think it is really clear when you read these e-mails in
context, when you read them all, it is very clear what is going
on, and I am not saying that there is anything inherently evil
about wanting to make money. I am saying that the business
model that finds an orphan drug with an inelastic demand and no
competition and the ability to jack up prices--and I am going
to quote you, and it may not have been about this deal, but
these are your words, Mr. Wichman. ``I hear you on the pharma
mentality. It is ironic how it took two companies, Jazz and
Horizon, the brink of insolvency to decide they should
aggressively play the price card, and Questcor is obviously a
poster child. For the heat and bad PR they took, didn't work
out so badly in the end, did it. Not every deal and not every
product will work out.''
I mean, I guess what I am trying to tell you is, the
overarching message of this hearing is that we have places in
the pharmaceutical industry that are gouging families like the
Westons for quick profits, big profits, and I am assuming you
guys get stock options and bonuses?
Mr. Smith. I think we have made all of our financials-----
Senator McCaskill. I am asking you.
Mr. Smith. I think we have submitted it to the Committee--
--
Senator McCaskill. You will not tell me? I do not have it
in front of me. I would like to hear it.
Mr. Tilles. No bonuses.
Senator McCaskill. Stock options?
Mr. Tilles. There is an employee option plan.
Senator McCaskill. Yes, and I am sure Mr. Shkreli got stock
options. You said he did not take a dime. He got no stock?
Mr. Tilles. Oh, no, stock? Yes, options----
Senator McCaskill. Yes, and he can trade that stock, and I
think that stock has been pretty valuable from what----
Mr. Tilles. Oh, I am sorry. You meant Retrophin. Sorry.
Sorry. Thought you were talking about Turing.
Senator McCaskill. Yes. I mean, he--I do not think anybody
is saying----
Mr. Tilles. I did not----
Senator McCaskill. I do not think anybody buys a $2 million
album of Wu-Tang if they do not have any cash on hand. It
looked he had more cash on hand in December than your company
did, so I think he turned out--I think he came out just fine in
the deal.
Mr. Wichman, I guess if you can provide more information to
this Committee about how we do a public policy that stops this,
but does not stop meaningful R&D in this space, because I think
that there are hucksters out here trying to make a quick buck
because they see these orphan drugs and they know that the
people who need them are going to need them no matter what, and
you can say all you want to about a penny a pill, but this
family and millions of other families like that, for lots of
different drugs, are facing exorbitant price increases that the
market does not really bear out because there is not
competition.
Mr. Wichman. Thank you, Senator McCaskill. I would just
add, on--and, again, Broadfin did not invest in Turing. With
Thiola, in particular, we have talked to physicians. We have--
we attended the Society of Nephrology meeting late in 2014 to
understand how they were looking at Retrophin and how this was
working out, and our understanding, and it is not
comprehensive, but the physicians we have talked to have been
very happy with how this has played out.
Our understanding, again, based on public information, is
approximately--there are now twice as many patients on Thiola
as there were at the time that this product was acquired, so
you know, I cannot speak to other products, other acquisitions
that we did not make, but----
Senator McCaskill. Well, we will take a look at the IMS
data on that drug, and what was the price increase there, what
percentage?
Mr. Wichman. It went from, I believe, $1.50 to $30 a pill.
Senator McCaskill. Yes, $1.50 to $30 a pill. I do not know
how that helps get more people the drug. It is
counterintuitive. I feel every once in a while in this hearing,
every time you guys say, oh, we are going to jack up the price
and we are going to have more utilization, and meanwhile, the
University of North Carolina is helping them get through a
crisis because the insurance companies have now figured out
that--in fact, one of the people involved in this said--I think
in one of his e-mails--the insurance companies just absorb it.
I think it was from you, Mr. Wichman. I think you said that the
insurance companies just absorb it, or maybe Mr. Shkreli, but
in one of the e-mails I read in preparation for this hearing.
I am way over my time and my Chairman has been very patient
with me. Thank you all for being here today. We are not done.
We are not done, so better grab while the grabbing is good
because something is going to happen.
The Chairman. Today's hearing is the second in the
Committee's investigation. As the Ranking Member has just
indicated, our investigation is ongoing and will feature
additional scrutiny on others of the four companies in
particular which have been our focus.
Today, we have examined a business model used by Turing and
Retrophin to target certain drugs for acquisition in order to
generate huge profits. As we have seen, the business model at
both Retrophin and Turing involves identifying a sole source
drug that is the gold standard for treating a particular
condition, preferably one that serves a small patient
population, then putting that drug into a closed distribution
system, if it is not already there, and then hiking the price
as high as it will go.
We have seen, thanks to the Westons and thanks to the
infectious disease specialist who testified, that real people
are being hurt by the access issues created by the closed
distribution system, which prohibits generic competitors, and,
of course, by the egregious and unacceptable price increases.
Committee members will have until Monday, March 28, to
submit additional questions for the record.
I want to thank our witnesses today, and I also want to
thank our Ranking Member, in particular, as well as all the
Committee members who participated in today's hearing.
This hearing is now adjourned.[Whereupon, at 1:00 p.m., the
Committee was adjourned.]
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APPENDIX
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Prepared Witness Statements
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Statements for the Record
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