The prescription drug Daraprim is used to treat toxoplasmosis, a parasitic disease that generally occurs in patients with weakened immune systems, such as pregnant women or people suffering from AIDS. Turing Pharmaceutical acquired the patent rights to Daraprim for \(\$ 55\) million. \({ }^{17}\) The drug, which was developed in 1957 , costs about \(\$ 1\) to produce and had been selling for \(\$ 13.50\) per pill. Upon acquisition of the patent rights, Turing raised the price to \(\$ 750\) per pill, an increase of \(4,834 \%\). The Infectious Diseases Society of America and the HIV Medicine Association raised objections to the price increase, explaining that hospitals and pharmacies were no longer able to stock the medication. The two societies offered the following calculations for a year-long treatment: The cost would be \(\$ 336,000\) for those who weigh less than 132 pounds and \(\$ 634,500\) for those who weigh more than that.

According to the Wall Street Journal, Martin Shkreli, 32, Turing's then-CEO, had developed a strategy of buying life-saving, one-of-a-kind drugs from companies that he knew would not raise prices on the drugs because of the potential backlash. \({ }^{18}\) The Wall Street Journal cited the Food and Drug Administration's (FDA) longstanding overregulation as the cause of the lack of development of new drugs and competition for these unique drugs. Mr. Shkreli had discovered this niche for profit and created a company for purchasing drugs and increasing prices.

Between the time of the price increase and the congressional hearings, Mr. Shkreli was arrested on securities fraud charges. He was freed on a \(\$ 5\) million bail bond. He was arrested on December 16,2016 at 6:30 a.m. in his apartment and entered a not guilty plea to charges that he was running a Ponzi scheme at his former company.
The charges were based on Mr. Shkreli's MSMB Capital, a hedge fund that he founded with investments from others of \\($3\) million. The indictment alleges that he spent the money and, at one point, the fund had only \(\$ 310\). When MSMB Capital collapsed, he founded MSMB Healthcare with \(\$ 5\) million from 13 total investors. According to the indictment, instead of the \(1 \%\) management fee that he had promised investors, he took that as well as a \(20 \%\) profit incentive for compensation. MSMB Healthcare then invested in Retrophin, another pharmaceutical company that had no products or assets. Retrophin was founded for the purpose of acquiring older pharmaceuticals that would then be sold for higher prices, which was the strategy with Turing and Daraprim.
There is litigation by investors in MSMB over the Retrophin investment. Mr. Shkreli has indicated that he is innocent and that what should be a civil litigation matter has turned into a government action. He insists that investors made money and that he would prevail in both the civil litigation and the government criminal case. Lawyer Evan Greebel was also charged in the indictment. Mr. Shkreli has offered statements in response to the civil action on a pharma blog:....................................

Discussion Questions 1 Explain Mr. Shkreli's business model and approach to returns for investors.
2. Explain the economics of drug production and pricing.
3. Make a list of the costs to the business of Mr. Shkreli's approach to business profits.
4. What could happen as a result of the congressional hearings?