What the Downfall of Two of Big Pharma’s Most Prominent Players Says About America’s Health Industry

Underhand practices in the healthcare industry went unchecked for years. That is, until the practices of two CEO’s, Elizabeth Holmes of Theranos and founder of Turing Pharmaceuticals, Martin Shkreli, were recently condemned.

Holmes was charged with ‘massive fraud’ for raising $700 million from investors by allegedly misleading them about Theranos’ purportedly groundbreaking blood-test technology, Edison. She was even able to acquire FDA approval for the fraudulent product.

Holmes and Theranos agreed to a settlement that called for them to pay a $500,000 penalty, return millions of shares to the company, and relinquish Holmes’ company voting power.

To this day, Theranos neither confirms nor denies the charges. Holmes has also been barred from serving as an officer or director of a public company for 10 years.

Martin Shkreli, on the other hand, was charged with securities fraud, stealing millions from two hedge funds he operated, and scheming to prop up the stock prices for Retrophin – a company he founded before Turing Pharmaceuticals.

On March 9th, Shkreli was sentenced to seven years jail for his crimes.

Who Are Elizabeth Holmes and Martin Shkreli?

At 19 years old, Elizabeth Holmes registered a patent for her diagnostic systems that claimed to establish the presence of a number of diseases from a singer finger-pick of blood.

What followed were dramatic claims of the efficacy of her new invention, positive press coverage, an Edison award for Lab Diagnostics, and being honoured by Forbes as the youngest billionaire in 2015.

However, Wall Street Journal investigative reporter John Carreyrou was not convinced, and exposed the reality of inaccurate results and the use of traditional blood-testing machines for tests claimed to be performed with Edison.

Had this not been exposed, patients could have been mistreated, causing a plethora of medical negligence cases to follow. In the wake of the exposure, Theranos faced multiple legal challenges from former investors, the Securities and Exchange Commission (SEC), Medicare and Medicaid Services (CMS), and the State Attorney General.

Martin Shkreli founded Turing Pharmaceuticals in 2015 after leaving Retrophin, the company which developed an intranasal version of ketamine for depression, an intranasal version of oxytocin, and Vecamyl for hypertension.

He became notorious in August of the same year for his part in raising the price of Daraprim, an anti-parasitic drug for treating cancer and AIDS related diseases, by 5,000% to a whopping $750 per pill.

While price gouging is not against the law, or even uncommon within the American pharmaceutical industry, Shkreli’s actions earned him the titles of ‘Pharma Bro’ and ‘America’s most hated man’. It possibly also alerted authorities to his more underhand practices.

In December 2015, he was sentenced to a seven year prison term.

What The Downfall of Elizabeth and Martin Highlights About America’s Health Industry

The antics of Holmes and Shkreli aside, America’s healthcare industry is booming in terms of the quantity and quality of services it provides.

In fact, the industry accounted for $2.9 trillion of America’s $18 trillion GDP and filled 12 million jobs in 2015.

The underlying question of what will be done about shareholder losses due to the fraud carried out by Holmes and Shkreil remains unanswered.

Trillions of dollars are invested each year in medical experiments, marketing, and building a better, more affordable healthcare system for Americans.

Much of this investment is returned through high retail pricing. In a country without a free healthcare system like those of Canada, the UK, and Australia, general health check-ups can cost anywhere upwards of $3,000.

Americans pay the most for prescription drugs, paying at the counter and in the form of taxes to National Institutes of Health for research.

On top of this, most Americans pay for expensive healthcare insurance, while successful insurance companies aim to cover as little toward drug costs as possible.

In the case of Shkreli’s Daraprim price hike, people unable to afford the cost for their medication were asked to pay a token $1 while insurance companies picked up the remaining $749.

Whether or not you swallowed a Daraprim at the inflated price, took one of Theranos’ blood tests, or neither, each American has paid for the privilege many times over.

The healthcare industry, supported by a cycle of investors, scientists, manufacturers, marketers, insurance brokers, hospitals, and doctors, leaves very little room to benefit the end customer.