In Defence of Martin Shkreli

You might be familiar with Martin Shkreli. Back in 2015, he was known as the ‘Most Hated Man in America’ after hiking the price of a “life saving AIDS drug,” Daraprim, from $13.50 per pill to $750 per pill overnight. This became the most publicised case of price gouging in recent history. 

Now serving time in prison for the defraudment of hedge fund investors and set to be released in November 2022, Shkreli’s portrayal as a despicable ‘pharma bro’ by the media still inspires hatred to this day. Such assessments may be fair. But on the Daraprim question, are we going to trust the media’s perception of these events? Is it not time to dig a little deeper into the narrative in order to try to eek out some truth?

I will not be defending Shkreli on moral grounds. I do not know him personally and do not condone the supposed series of dodgy dealings that got him put away in the first place. Unlike many though, I will not be chastising him for such actions as his purchase of a one of a kind Wu-Tang Clan vinyl. 

For those who have forgotten, the media in 2015 was furious after Shkreli bought the only legal copy of Wu Tang’s Once Upon a Time in Shaolin. Painting it as yet another example of Shkreli’s obnoxious waving of wealth in the faces of the people, the media portrayed his purchase of the album as a cruel removal of the public’s chance of ever listening to the Holy Grail of hip-hop. 

It wasn’t Shkreli’s decision, however, to produce only one copy of the album and sell it at auction. That was the decision of the Wu-Tang Clan. And if he hadn’t bought it, some other rich socialite would have: I doubt they would have received the same vitriol as Shkreli did.

Thus, I am going to be arguing Shkreli’s case from the position of pure free market principles while calling out the media’s dishonesty about his actions. Because of its many restrictions and regulations, the US pharmaceutical industry heavily incentivises such bad behaviour. And the media always likes to have a witch to burn.

First, the framing of Daraprim as a ‘lifesaving AIDS drug’ by the media is dishonest. It leads those who do not know better to think that this is the only drug available to help patients with AIDS and HIV, a disease that affects over one million people a year in the US alone. However, Daraprim is actually used for a much narrower group of patients, and for a different disease. 

Daraprim is used to treat toxoplasmosis, a parasitic illness that currently affects 40 million people in the US. Usually, this is held back and remedied by a healthy immune system, but those with already compromised immune systems are left at risk of complications including blindness, fever, headaches, seizures, and other severe symptoms. Symptomatic toxoplasmosis is most prevalent in pregnant women and in those with AIDS and cancer, hence the “life saving AIDS drug” claim (a simple case of half truths on part of the media’s dishonest rhetoric).

Used by around 2,000 Americans per year, Daraprim has been available for public purchase since 1953. On average, drugs in the US retain their patent for around 20 years, and during that time, only the company holding that patent can legally produce it. Once the patent expires, however, the rights to produce the drug enter the generic market, and other companies may produce and sell alternatives upon gaining approval from the FDA. 

This of course constitutes a government-granted monopoly and has the exact same consequences as other government-sponsored monopolies. Innovation in Daraprim stagnated, and no further developments in toxoplasmosis treatment were made. By the time the 20-year patent expired in 2015, the small pool of only 2,000 or so regular patients meant that other pharmaceutical companies had no incentive to produce specific alternatives to the drug on the generic market. While alternatives were available by compounding separate drugs together, nothing on the market was akin to Daraprim in treating toxoplasmosis (in fact, it was only in 2020 that the FDA approved the first generic alternative to Daraprim). 

By 2010, the price of Daraprim was $1 per pill. This was raised to $13.50 per pill after the rights were bought by CorePharma, which then sold the exclusive rights to the drug to Shkreli’s company, Turing, in 2015. If there were other marketable alternatives, would this have been so easy? I think not. The fact of the matter is that under this system, by purchasing the rights to Daraprim, Turing had the right to price it however they liked. 

Patents are not a method of preventing the theft of intellectual property. They propagate a  ‘first come, first served’ approach to innovation. As Rothbard puts it in Man, Economy, and State:

“Patent, then, has nothing to do with implicit theft. It confers an exclusive privilege on the first inventor, and if anyone else should, quite independently, invent the same or similar machine or product, the latter would be debarred by violence from using it in production.” 

As always, when contradictions within the organism of state and regulation arise, the question is not how we can reform this system, but instead ‘How can we regulate further?’, or ‘How can the state fix this?’. Sadly, problems created by the state are unlikely to be fixed by the state. Thus, once the prices were raised on Daraprim, the question was not ‘How can we improve the market to incentivise pharmaceutical innovation?’ but ‘How can we create more laws to prevent companies from raising prices?’. This is simple price fixing, an action that has never worked as intended whenever and wherever it has been implemented.

When explaining why he increased the price of Daraprim so drastically, Shkreli stated that the increase in price was to provide Turing with a modest profit to be reinvested into the further research and development of drugs treating toxoplasmosis. He also stated that anyone without insurance or the necessary finances would either get Daraprim for free or through payment plans. Predictably, the media did not buy this, and it’s easy to see why. Shkreli’s promises indeed sounded like the kind of hand-waving corporate promise that’s made to be broken.

But we do not measure truth with feelings, we measure it with evidence. In fact, there are clear arguments for a need to improve Daraprim that were not being met at the time nor since. Among other side effects, Daraprim is known for being able to harm the unborn babies of pregnant women. Not exactly a desirable side effect for a drug used primarily to treat pregnant women. Shkreli seemingly kept to his promise of making the drug available to those who needed it. He even communicated with someone who called him out on Reddit, arranging the complainant a free supply of Daraprim for life. Thus, despite the words of the media, Shkreli seems to have kept to his word.

What then of free market critiques for this kind of behaviour? Austrian economists would argue that price gouging and other predatory tactics in fact encourages competitors to pop up and undercut prices. This exact thing happened in December 2015, when Express Scripts began offering an alternative compound drug to Daraprim for $1 per pill. Along with this, media and public backlash led to Shkreli promising to lower the price of Daraprim, which he did.

So is Martin Shkreli the bad guy? I would argue that while he is certainly not morally pure or innocent, he is also not the monster many made him out to be. He is simply the ‌result of a confused, mixed economy approach to the pharmaceutical industry that incentives bad behaviour and stifles innovation.

An interesting point to end on is how the media treated Martin Shkreli. When it came to Shkreli, then the CEO of a startup pharmaceutical company, the hiking of prices for a drug needed by less than 2,000 people per year meant mainstream outrage and condemnation. But, when governments were collaborating with large, well-established pharmaceutical companies years later—some with a sordid history of their own—to create a vaccine for COVID-19, there was no such scepticism presented. 

When states chose to mandate this vaccine to their populations, restricting access to jobs and services to those who chose not to get it, the media was suddenly on big pharma’s side. Could it be that companies like Pfizer actively sponsored the media? Did they feel a self-righteous thrill at being on the side of a moral oppressor? Is it that the methods and arguments flip depending on who the target is, and persecuting the common man is fine as long as you’re in league with the government, rather than a private actor? I would argue it’s a mixture of ‌these reasons. Either way, it doesn’t paint a rosy picture of how the anointed view the rest of us.