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Shkreli’s infamous price-gouging scheme finally shut down in $40M settlement

Martin Shkreli, former CEO of Turing, smirked his way through a Congressional hearing.
Enlarge / Martin Shkreli, former CEO of Turing, smirked his way through a Congressional hearing.

A pharmaceutical company once owned by Martin Shkreli will pay up to $40 million in a settlement that will also finally end his infamous price-gouging scheme involving the antiparasitic drug Daraprim.

The Federal Trade Commission and its state co-plaintiffs—New York, California, Illinois, North Carolina, Ohio, Pennsylvania, and Virginia—filed a settlement order this week that will require Vyera Pharmaceuticals (formerly Turing) and its parent company Phoenixus to make Daraprim available to any generic competitor for the cost of making the drug. The companies are also barred from engaging in any scheme resembling the one surrounding Daraprim for 10 years.

The FTC and states alleged that, in 2015, Shkreli and former Vyera CEO Kevin Mulleady abruptly jacked up the price of Daraprim by more than 4,000 percent—raising the list price from $17.50 to $750 per tablet—after they bought the rights to the drug and created a “web of anticompetitive restrictions to box out the competition.”

Daraprim is a cheap, life-saving, decades-old drug used to treat toxoplasmosis, which is caused by a common parasitic infection. The infection often strikes people with compromised immune systems, such as AIDS patients, and can be fatal to babies born to infected mothers.

Vyera’s scheme allegedly included resale-restriction agreements with drug distributors that kept Daraprim out of the hands of competitors, who would need to perform tests on the drug in order to create their own versions. Such testing is required by the Food and Drug Administration. The scheme also allegedly included exclusivity agreements with suppliers, which made a critical ingredient for Daraprim unavailable to other drug makers. Last, Vyera allegedly created data-blocking agreements that prevented two key distributors from releasing Daraprim sales data, which masked the market size and potential for generic competition.

Altogether, the FTC and states say the scheme “delayed generic competition for years and caused tens of millions of dollars in harm to consumers.”

“Greedy, dangerous, and anticompetitive behavior”

Under the settlement, Vyera and Phoenixus will pay up to $40 million total in equitable relief to victims of Daraprim’s exorbitant price hike. The companies will pay $10 million upfront and up to $30 million more over the course of 10 years, depending on the companies’ financial conditions.

This settlement “puts money back in the pockets of drug patients fleeced by a monopolistic scheme,” FTC Chair Lina Khan said in a statement.

Additionally, Mulleady is banned from “working for, consulting for, or controlling” any pharmaceutical company for seven years. Mulleady agreed to pay $250,000 if he violates any terms of the settlement.

Overall, the settlement resolves all the legal claims brought by the FTC and states as well as a class-action suit against Vyera, Phoenixus, and Mulleady—but not Shkreli. He will still face his own trial, which is set to begin December 14.

Khan said:

Martin Shkreli masterminded an elaborate plan to dramatically jack up the price of life-saving drug Daraprim by blocking cheaper options. While litigation against Shkreli continues, the order shuts down the illegal enterprise run by his companies, Vyera and Phoenixus, and bans his associate from the industry. This strong relief sets a new standard and puts corporate leaders on notice that they will face severe consequences for ripping off the public by wantonly monopolizing markets.

In a separate statement, New York Attorney General Letitia James celebrated the settlement and expressed eagerness to face Shkreli in court:

Vyera and Mulleady, along with Martin Shkreli, shamelessly engaged in illegal conduct that allowed them to maintain their exorbitant and monopolistic price of a life-saving drug—letting pharma bros get rich, while others paid the price. We are forcing the company to pay up to $40 million to offset their ill-gotten gains… Our trial against “pharma bro” Martin Shkreli will commence later this month, where we will lay out Mr. Shkreli’s greedy, dangerous, and anticompetitive behavior.

Shkreli is currently serving a seven-year prison sentence for securities fraud related to two hedge funds he ran prior to raising the price of Daraprim.

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