Did Turing Pharmaceuticals use their AIDs drug to manipulate the biotechnology market?

On 20th September Turing Pharmaceuticals raised the price of their recently acquired AIDs drug Daraprim from $13.50 to $750, a 5000% increase overnight.

The drug treats a parasitic affliction called toxoplasmosis, affecting people with compromised immune systems.

The massive price hike is a result of the free biotechnology market that exists in the United States. In the UK profits are capped to stop prices creeping too high, but in the US this is not the case. As a result prices can go up and down, depending on what people are willing to pay.

The company had argued that even though the pill costs only $1 to produce, the $13.50 was not enough to cover other costs like marketing and distribution. The drug costs 43p per tablet in the UK.

Three days later however, Turing Pharmaceuticals CEO Martin Shkreli announced they would lower the price of its drug after facing a public backlash.

So was the dramatic price increase a mere mistake, or was this part of a ploy to profit from fluctuations in the US biotechnology markets?

If the latter is the case, then the former hedge fund manager Shkreli will have engaged in something similar to short-selling.

People often believe that investing is the act of acquiring an asset, holding it while it appreciates in value, and then finally selling it to make a profit. Short-selling is the opposite: an investor will only make money when a shorted security falls in value.

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Essentially, the investor will acquire stock and then sell the stock into the market. The idea is to buy the stock back at a later date for a lower price.

It is possible that when Turing Pharmaceuticals increased the price of Daraprim from $13.50 a tablet to $750, they were doing so for a reaction. The reaction from Hilary Clinton was typical of the type of response they would have hoped for. On the 21st of September she tweeted:

“Price gouging like this in the speciality drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. –H”

As soon as Clinton had tweeted that she would release a plan to combat the high cost of prescription drugs, US biotechnology stocks fell: the 144-member Nasdaq Biotechnology Index was down 4.7% to 3,556.58 at 1.08pm, just five hours after Clinton’s tweet. This was the biggest intraday drop since 24th August.

If this is the reality of the situation, it is not the first time that Shkreli has successfully played the markets.

In his twenties he developed a reputation for using a stock-gossip website to savage biotechnology companies whose shares he was short-selling.

And recently, on the 12th August, he tweeted that the stock of Vital Therapies Inc (VTL), a U.S. company that manufactures drugs for liver disease, would decrease in value, tweeting:

“$VTL is a short. I think it goes down 80% in the next few weeks.”

The advice to short sell VTL stocks was good advice. It closed on Friday the 18th August at $17.68 and opened on the next Monday at $3.65, a fall of 73.4%.

Whilst it is not certain that Turing Pharmaceuticals used their recently acquired AIDs drug to manipulate the biotechnology market, there is empirical data to suggest that their overnight price hike was not a mere miscalculation.

Did Turing Pharmaceuticals use their AIDs drug to manipulate the biotechnology market?

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