[Senate Hearing 114-849]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-849

                         SUDDEN PRICE SPIKES IN
                    DECADES-OLD PRESCRIPTION DRUGS:
                   INSIDE THE MONOPOLY BUSINESS MODEL

=======================================================================

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             MARCH 17, 2016

                               __________

                           Serial No. 114-21

         Printed for the use of the Special Committee on Aging
         
         
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]         
         

        Available via the World Wide Web: http://www.govinfo.gov
                       
                              ___________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
48-226 PDF                 WASHINGTON : 2022                     
                   
                   

                      SPECIAL COMMITTEE ON AGING
                  
                  SUSAN M. COLLINS, Maine, Chairman

ORRIN G. HATCH, Utah                 CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois                  BILL NELSON, Florida
JEFF FLAKE, Arizona                  ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina            SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee                KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada                  RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas                 JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina          TIM KAINE, Virginia
BEN SASSE, Nebraska
                              ----------                              
               Priscilla Hanley, Majority Staff Director
                 Derron Parks, Minority Staff Director
                        
                        
                        C  O  N  T  E  N  T  S

                              ----------                              

                                                                   Page

Opening Statement of Senator Susan M. Collins, Chairman..........     1
Opening Statement of Senator Claire McCaskill, Ranking Member....     2

                           PANEL OF WITNESSES
                                PANEL I

Howard Dorfman, Former Senior Vice President and General Counsel, 
  Turing Pharmaceuticals.........................................     5
Adaora Adimora, M.D., Professor of Medicine and Epidemiology, 
  University of North Carolina at Chapel Hill, and Immediate Past 
  Chair, HIV Medicine Association................................     7
Shannon and Joshua Weston, Parents of an infant born with 
  Toxoplasmosis..................................................     9

                                PANEL II

Ronald Tilles, Interim Chief Executive Officer, and Chairman of 
  the Board, Turing Pharmaceuticals..............................    22
Michael Smith, Co-Founder and Senior Director of Business 
  Development, Turing Pharmaceuticals............................    23
Dan Wichman, Partner and Analyst, Broadfin Capital...............    25

                                APPENDIX
                      Prepared Witness Statements

Howard Dorfman, Former Senior Vice President and General Counsel, 
  Turing Pharmaceuticals.........................................    63
Adaora Adimora, M.D., Professor of Medicine and Epidemiology, 
  University of North Carolina at Chapel Hill, and Immediate Past 
  Chair, HIV Medicine Association................................    67
Shannon and Joshua Weston, Parents of an infant born with 
  Toxoplasmosis..................................................    73
Ronald Tilles, Interim Chief Executive Officer, and Chairman of 
  the Board, Turing Pharmaceuticals..............................    76
Michael Smith, Co-Founder and Senior Director of Business 
  Development, Turing Pharmaceuticals............................    79
Dan Wichman, Partner and Analyst, Broadfin Capital...............    83

                       Statements for the Record

Special Committee on Aging Hearing Transcripts...................    89

 
                         SUDDEN PRICE SPIKES IN 
                    DECADES-OLD PRESCRIPTION DRUGS: 
                   INSIDE THE MONOPOLY BUSINESS MODEL

                              ----------                              


                        THURSDAY, MARCH 17, 2016

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:46 a.m., Room 
562, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Heller, Tillis, McCaskill, 
Casey, Whitehouse, Gillibrand, Blumenthal, Donnelly, Warren, 
and Kaine.

                 OPENING STATEMENT OF SENATOR 
                   SUSAN M. COLLINS, CHAIRMAN

    The Chairman. The Committee will come to order. Good 
morning.
    Last fall, this Committee launched a bipartisan 
investigation into the sudden enormous price increases on 
decades-old prescription drugs. Our focus today is on two 
companies in particular that operate more like hedge funds than 
they do traditional pharmaceutical companies, Turing 
Pharmaceuticals and Retrophin.
    The Committee has investigated how these companies devised 
their business models to impose and protect egregious price 
hikes and what policy changes are needed to respond to their 
actions. These two hedge fund pharmaceuticals were both founded 
by Martin Shkreli, Retrophin in 2011 and Turing in 2014. Our 
investigation has determined that these companies follow a 
business model with five key elements.
    I now submit for the record, committee exhibits containing 
more than a thousand pages of documents that reveal the 
structure of this business model, which operates like this.
    First, the companies identify an older brand name sole 
source drug. They choose a drug whose patents have long since 
expired, which already has the field to itself, and which faces 
no generic competitor.
    Second, they make sure that the drug is the gold standard 
for the condition it treats so that health care providers 
cannot prescribe a substitute treatment or will not feel 
comfortable in doing so.
    Third, they select a drug that serves a small patient 
population. Fewer patients means less scrutiny and less 
incentive for a competitor to enter the market.
    Fourth, they put the drug in a closed distribution system 
or specialty pharmacy, which gives the companies a monopoly. 
This move is key because it keeps generic companies from 
competing in the market because they cannot get the supply 
required to conduct bioequivalence tests needed for FDA 
approval. As Martin Shkreli told potential investors in 2014, 
``We do not sell Retrophin products to generic companies.''
    Fifth, they accomplish their ultimate goal. Soon after Mr. 
Shkreli made that statement in reference to the drug Thiola, 
which is used to treat a rare kidney disease, that drug began 
generating revenue at a level 5,000 percent higher than it had 
produced for its previous owner.
    In October 2014, Mr. Shkreli left Retrophin to start 
Turing, bringing with him former Retrophin consultant Ron 
Tilles, who is now Turing's CEO and Chairman of the Board. 
Edwin Urrutia, now Turing's CFO, Michael Smith, now Turing's 
Senior Director of Business Development, and most important, 
the business model I have described.
    Applying this business model, they acquired a drug called 
Daraprim, which is the gold standard medicine used to treat 
toxoplasmosis. Daraprim has been on the market since 1953, yet 
it has no generic competitor. When they acquired Daraprim, it 
was selling for about $13.50 per pill. Turing raised the price 
of this low-profile but very important medicine to $750 per 
pill, which amounted to $75,000 per bottle.
    Today, we will hear the sworn testimony of three company 
insiders, one who protested the business model and lost his job 
because of it, and two who stayed and helped to carry out the 
greedy scheme that caused hardship for patients and providers, 
prevented generic competition, and enriched the companies.
    These decisions made by these companies did not play out in 
a vacuum. We will hear from the mother of an infant diagnosed 
with congenital toxoplasmosis who, as a result of Turing's 
actions, faced a price tag of $28,000 a month for the medicine 
she needed to save her infant daughter from death or a lifetime 
of disability.
    An infectious disease expert will also provide her 
perspective on the impact of this price manipulation scheme on 
real people who are struggling to get access to drugs they 
cannot afford and desperately need.
    Whether or not these companies' actions are legal, their 
behavior harms patients, represents a market failure, and is a 
call to action.
    I now welcome the statement of our Ranking Member, Senator 
Claire McCaskill, who has done tremendous work on this 
important issue. It was, in fact, Senator McCaskill who first 
pointed out to me the enormous price spike for the drug 
Daraprim, so thank you very much, Senator McCaskill, for your 
leadership on this important issue.

                 OPENING STATEMENT OF SENATOR 
                CLAIRE McCASKILL, RANKING MEMBER

    Senator McCaskill. Thank you, Senator Collins, and as 
always, it is a pleasure to work in partnership with you to try 
to find public policy that can impact this practice without 
doing unintended harm to those companies that are out there 
doing the R&D to find the innovative cures that are so 
important to our country.
    I am glad to be here today for the second of our series of 
hearings about these rising drug prices. The first hearing the 
Aging Committee held on this topic examined the market forces 
that have allowed some companies to raise prices for their 
products by hundreds or thousands of percentage points.
    As we hear from witnesses back in December, the drugs that 
are being targeted for these astounding overnight price 
increases are, as the Chairman pointed out, usually drugs that 
are off-patent, that have a small enough patient population 
that most generic companies feel that it is not worth the cost 
or the time to develop a generic competitor. This gives the 
company that owns the right to this drug a de facto monopoly, 
and let me emphasize here that it is the government's business 
to go after monopolies, especially those that are harming the 
public.
    The patient populations for these drugs are so small, they 
are not only unattractive to potential generic manufacturers, 
but they are also usually not an important or even a desirable 
part of a traditional pharmaceutical company's portfolio, so 
traditional pharmaceutical companies are generally happy to 
sell these drugs to others when a good offer comes along. This 
makes these drugs and, therefore, the patients that need them, 
vulnerable to being poached by a relatively new breed of 
pharmaceutical companies whose primary goal is to reap 
extraordinary profits and who do not hesitate to pursue that 
goal despite risking patient access and people's lives.
    In our effort to understand why these cases were occurring 
with more frequency and how we could prevent these cases in the 
future, the Committee subpoenaed tens of thousands of documents 
last year from four companies that had engaged in this type of 
egregious price gouging: Valeant, Rodelis, Retrophin, and 
Turing, and in the documents, we found written detailed 
confirmation of how this new breed of pharmaceutical company 
operates.
    As Senator Collins has already described, the documents we 
subpoenaed showed that these companies are very good at 
targeting drugs whose prices can be manipulated without generic 
competition, and they have a whole master plan for how they go 
about doing so systematically.
    Something I also found to be interesting in my review of 
the documents was that not only are some of these companies 
being run by people who are not traditional pharmaceutical 
executives, such as Martin Shkreli and Michael Pearson, but 
that investors seem to be playing an outsized role in these 
companies.
    Some of these relationships are well known. For example, 
Valeant Pharmaceuticals maintains some of the most visible 
relationships with hedge funds who invest in the company, even 
going so far as placing people from those hedge funds on their 
board of directors. Valeant has worked closely with these hedge 
funds in the past few years to acquire companies, slash their 
R&D budgets--let me emphasize that, slash their R&D budgets--
and then raise the price of their drugs to fund additional 
acquisitions and boost its stock price. I look forward to 
examining Valeant in more depth at our next hearing in this 
investigation.
    The documents reviewed by the Committee make clear that the 
chief rationale for the extraordinary increase in price is just 
profit. The documents are explicit. In one e-mail, Martin 
Shkreli tells his investors that a certain drug will be, ``an 
annuity for some time.'' Or, and I quote, ``a $100 million 
present to investors.''
    The documents also make clear that the investors are 
working hand-in-hand with the companies to drive up prices. In 
one e-mail to Mr. Shkreli, Dan Wichman, one of Mr. Shkreli's 
investors, who will testify on the second panel, said, and I 
quote, ``Funny that other small companies still have not 
realized that you can raise price aggressively and nobody gets 
too upset.'' Well, I am here to tell you today that I am upset, 
so make no mistake. Every single for-profit pharmaceutical 
company aims to increase earnings and create value for 
shareholders. There is nothing wrong with that, but 
traditionally, pharmaceutical companies have gone after profit 
by attempting to run a profitable pharmaceutical business, 
bolstered by research and development with the aim of creating 
new, innovative treatments.
    With the companies at issue in this investigation, however, 
that is not what we are seeing. What we are seeing in these 
cases is Wall Street having turned its eye to health care, 
because it has realized that here is a commodity, a product 
with a stubbornly inelastic demand. Yet, there is a price for 
everything at which people will no longer be able to pay for a 
product, but what some investors have realized, much to their 
delight, is that they can keep squeezing the very people who 
depend on these drugs in order to line their own pockets.
    The notion that these costs are passed on, the hearing that 
brought this to my attention, an executive from Valeant was 
there and I tried to pin him down on the outrageous increase in 
a drug that was being provided to hospitals and he said, well, 
the patients are not paying for that. That is being passed on. 
They want to somehow float this notion that these costs are 
going to insurance companies or hospitals. Make no mistake 
about it. Every greedy grab of profit in this space lands in 
the lap of hard-working Americans, every single dime.
    This is disturbing. If this new breed of pharmaceutical 
companies is where our pharmaceutical industry is headed, we 
are in big trouble. Let me speak very clearly to the folks who 
believe they can participate in this sick game of acquiring 
drugs, raising prices to ridiculous heights, and sticking it to 
patients. We will not stop this investigation until we find the 
right prescription of public policy to end this practice.
    We will shed light on this practice and we will work 
together to stop it for the sake of patients, the health care 
system, and American taxpayers, and I am very proud to be 
working with Senator Collins and all of my colleagues on this 
Committee to do so.
    I thank the witnesses for being here today and I look 
forward to their testimony.
    The Chairman. Thank you very much, Senator McCaskill.
    We now will turn to our first panel of witnesses. First, we 
will hear from Mr. Howard Dorfman, the former Senior Vice 
President and General Counsel of Turing. I would note for the 
record that Mr. Dorfman's testimony has been compelled by 
subpoena, but I also want to note for the record his 
cooperation and sense of civic duty in coming forward to tell 
his insider story.
    I am also very pleased to turn to our esteemed colleague, 
Senator Tillis, to introduce the next two witnesses, who both 
hail from his home State of North Carolina.
    Senator Tillis.
    Senator Tillis. Thank you, Chairman Collins and Ranking 
Member McCaskill. Thank you for holding this important hearing. 
It is one that literally touches home.
    I want to welcome three North Carolinians, and I regret 
that you are here under these circumstances, however. First is 
Dr. Adimora. Dr. Adimora is a leader in infectious disease and 
HIV. She served as Chair of the HIV Medicine Association from 
2014 to 2015.
    Dr. Adimora treats patients who desperately need Daraprim 
and has firsthand experience with access problems. The patients 
that she treats are among the sickest of the sick, in end-stage 
AIDS and struggling with chronic and significant socio-economic 
burdens.
    Mr. and Mrs. Weston are the parents of a baby born with 
toxoplasmosis, both, I think, in May 2015, and physicians do 
not know why Mrs. Weston got the disease, but their baby got 
the disease in utero. Mrs. Weston found out that without 
treatment, the symptoms will develop permanent brain damage. 
She was told that it would cost $28,000 a month for treatment, 
and Mrs. Weston is unable to afford the cost, as are so many 
other people suffering, so again, I welcome you here. I regret 
it is under these circumstances, and I look forward to your 
testimony.
    The Chairman. Thank you very much, Senator Tillis.
    This is an investigation, we will be swearing in all of the 
witnesses today, so I would ask that you all stand and raise 
your right hand as I administer the oath.
    Pursuant to Committee Rule II-4, do you swear that the 
testimony that you will give to the Committee will be the 
truth, the whole truth, and nothing but the truth, so help you 
God?
    Mr. Dorfman. I do.
    Dr. Adimora. I do.
    Mrs. Weston. I do.
    Mr. Weston. I do.
    Thank you very much. Let the record reflect that all of the 
witnesses answered in the affirmative.
    Mr. Dorfman, we will start with your testimony.

              STATEMENT OF HOWARD DORFMAN, FORMER

           SENIOR VICE PRESIDENT AND GENERAL COUNSEL,

                     TURING PHARMACEUTICALS

    Mr. Dorfman. Chairman Collins, Ranking Member McCaskill, 
and members of the Committee, before answering the Committee's 
questions, I would like to provide context by sharing my 
thoughts on the current discussions involving the cost of 
prescription pharmaceuticals and price increases by companies 
in the pharmaceutical industry. The opinions I provide for the 
Committee today are my own and do not represent those of any 
present or former clients I have counseled during my 30 years 
as an in-house and outside counsel in the pharmaceutical 
industry.
    In addition, due to issues of attorney-client privilege, I 
must respectfully confine myself to my role as an executive and 
advisor on business and commercial issues.
    From December 2014 until August 13, 2015, I served as 
Senior Vice President and General Counsel at Turing 
Pharmaceuticals, a privately held Swiss-based pharmaceutical 
company with offices in New York City. At a point during 2015, 
Turing acquired the manufacturing and commercialization rights 
to a drug, Daraprim, from Impax laboratories. Daraprim, the 
trade name for pyrimethamine, has been available since 1953 and 
is considered the gold standard and cornerstone in the 
treatment of toxoplasmosis, a parasitic disease that can be 
fatal in patient populations with compromised immune systems, 
as is the case with HIV and cancer. In the opinion of most 
experts, there is no adequate substitute drug for Daraprim.
    Thankfully, relatively few patients suffer from 
toxoplasmosis. Drugs with such limited target populations 
developed by pharmaceutical companies, so-called orphan drugs, 
may be priced higher than drugs with a wider potential market, 
largely attributable to research costs and limited revenue 
expectations. Congress has provided incentives to 
pharmaceutical manufacturers to bring such drugs to market.
    Following its acquisition of Daraprim in August 2015, 
Turing announced an increase in the price of the drug from 
approximately $13.50 per pill to $750 per pill. Turing 
implemented another change by entering into an exclusive 
distribution agreement with a specialty pharmacy company, 
limiting access to the drug through the specialty distributor.
    I and other members of the Turing management committee 
repeatedly raised business objections to these and other 
aspects of the commercialization plans under discussion in 
anticipation of the finalization of the acquisition of Daraprim 
based on our belief that the proposed actions would have a 
severely negative impact on Turing's business and reputation.
    The objections against an immediate and precipitous rise in 
the cost of Daraprim included concern as to the availability of 
the drug for a particularly vulnerable and vocal HIV and AIDS 
patient community, the lack of any formal study protocol in 
place to implement research to develop a next generation 
toxoplasmosis therapy, and the failure to develop any of the 
educational materials for health care professionals and 
patients, all of which were announced as components of the 
rationale for an immediate price increase.
    We made these objections during management committee 
meetings attended by senior executives of the company, 
including the Chief Commercial Officer, Nancy Retzlaff. In 
fact, Ms. Retzlaff shared these concerns in these meetings and 
in discussions with other members of the management committee 
in private discussions.
    Pharmaceutical companies typically justify drug price 
increases, especially large rises, by expenditures such as 
research and development of the drug itself or a substitute, 
clinical trial work, or educational programs. In this instance, 
the price increase as contemplated and subsequently announced 
was not justified by any such actual expenditures.
    Having referenced the retention of a specialty pharmacy for 
commercialization purposes upon the acquisition of Daraprim, it 
is important to understand how that closed distribution system 
plays a role in maximizing the returns on a drug such as 
Daraprim. Specialty pharmacies can play a crucial role in a 
program often mandated by the FDA to manage and minimize risks 
to patients. By creating a direct relationship between the 
specialty pharmacy and the patient and caregiver, the 
pharmaceutical manufacturer can have access to critical adverse 
event information in real time as well as the ability to 
monitor utilization and maximize expedited delivery, but such a 
system can reduce, if not eliminate, the opportunity for a 
second generic entrant to obtain sufficient quantities of the 
drug in order to complete the necessary bioequivalence studies 
required for FDA approval.
    In the case of Daraprim, the retention of a new specialty 
pharmacy distributor to carry on a closed distribution system 
was considered an integral part of the company's desire to 
block a generic entrant for at least 3 years.
    The issue of drug prices continues to generate considerable 
debate. One reason for drug pricing can be found in the costs 
inherent in the development of a prescription drug from lab 
through regulatory approval. In November 2014, the Tufts Center 
for the Study of Drug Development estimated that cost to be 
$2.6 billion, a 145 percent increase directed for inflation 
over the estimates made in 2003. Whether one accepts that 
figure at face value, it is recognized that drug development is 
a costly venture with significant risks of failure before final 
marketing approval is granted.
    What has fueled the recent debate to a large extent has not 
been price increases per se, but increases in prices for drugs 
developed decades earlier without either patent protection or 
the expenses of clinical trials.
    In closing, I hope I have been able to provide useful 
background and context into the activities under examination by 
this Committee. Thank you very much.
    The Chairman. Thank you for your testimony.
    Dr. Adimora, welcome.

               STATEMENT OF ADAORA ADIMORA, M.D.,

            PROFESSOR OF MEDICINE AND EPIDEMIOLOGY,

          UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL,

       AND IMMEDIATE PAST CHAIR, HIV MEDICINE ASSOCIATION

    Dr. Adimora. Good morning and thank you for asking me to 
testify. My name is Ada Adimora and I am an infectious diseases 
physician, research, and Professor of Medicine at the 
University of North Carolina at Chapel Hill.
    I have been caring for patients with HIV infection for many 
years. Today, I am testifying as the Immediate Past Chair of 
the HIV Medicine Association, or HIVMA, to describe how 
doctors, patients, and the health care system are affected by 
the price increase for pyrimethamine, which is marketed as 
Daraprim. HIVMA is a national organization within the 
Infectious Diseases Society of America, or IDSA, that 
represents more than 5,000 physicians, researchers, and other 
medical providers devoted to HIV medicine.
    Last September, Dr. Stephen Calderwood, the population of 
IDSA at the time, and I, as the then-Chair of HIVMA, wrote to 
Turing Pharmaceuticals urging them to reconsider their pricing 
of Daraprim. The letter followed many reports from infectious 
diseases, or ID, providers that Daraprim's price had increased 
dramatically overnight and noted concerns about the effect the 
increase was having on toxoplasmosis treatment. An Ohio 
pharmacy had reported that Daraprim's price had increased from 
$13.50 per pill to $750 per pill, an increase of 5,000 percent.
    Turing's response to the letter indicated that they were 
committed to ensuring access for all patients who need it, but 
the access issues continued, and HIVMA, the IDSA, and the 
Pediatric Infectious Diseases Society wrote in late December to 
the new Turing CEO, Ron Tilles, about these continued patient 
access problems, urging him to return Daraprim's price to 
$13.50 per pill. To date, Turing has not responded to that 
request.
    Toxoplasmosis, or toxo, is a parasitic infection that 
mainly affects people with compromised immune systems, like 
people with AIDS, people on cancer therapy, or people after 
transplantation, and pregnant women and their newborns because 
their immune system cannot control the infection, and if not 
effectively treated, severe toxoplasmosis can cause brain and 
organ damage, blindness, or death.
    Now, my own experience with toxo is in treating patients 
with AIDS, who typically present with brain abscesses that can 
cause seizures, strokes, coma, or death. Patients are typically 
treated and stabilized in the hospital with Daraprim and other 
drugs and then discharged with a prescription to continue it at 
home. They usually require at least 8 months of treatment, many 
longer.
    The FDA first approved Daraprim in 1953 and it has long 
been a stable in toxo treatment. The Federal AIDS treatment 
guidelines recommend it as the standard, but in October 2015, 
these guidelines had to be updated to suggest alternative 
treatments because when Daraprim is unavailable.
    Turing's purchase of Daraprim in August 2015 disrupted toxo 
treatment in the U.S. Patients have suffered treatment 
interruptions or delays. They have been prescribed alternative 
therapies or gone without treatment entirely. Providers have 
devoted hours and hours or even days to getting the drug. Some 
institutions have been forced to extend their line of credit 
due to the $75,000 price tag for one bottle. Patients with 
health insurance are sometimes now subject to prior 
authorizations requiring many appeals, which can take 2 weeks 
or more to process. Patients without health insurance also face 
significant delays, sometimes for weeks or even months while 
they wait for assistance through Turing's Patient Assistance 
Program, if they are eligible for assistance through the 
program at all.
    Since HIVMA began monitoring access issues in October, we 
have gotten at least 50 case reports from providers about the 
trouble they have had accessing, or treating toxoplasmosis, 
rather. Just last month, a physician reported through the 
Daraprim access blog that a patient's hospital stay was 
extended for 7 days because of problems getting Daraprim on an 
outpatient basis through Turing's Patient Assistance Program. 
The patient finally got a 1-month's supply through the state's 
AIDS Drug Assistance Program, even though the drug had been 
removed from the program's formulary, but even at the 50 
percent discounted rate that Turing now offers certain 
hospitals, the cost was $1,125 per day for the initial regimen. 
Before August 2015, the cost for this would have been around 
$41 per day.
    Many providers and institutions have turned to alternative 
treatment options, like compounding the drug in the hospital 
pharmacy, prescribing Bactrim, or contracting with a 
compounding pharmacy.
    We have turned to alternative solutions because we have to 
to treat a serious illness that really does require immediate 
attention, but we should not have to when there is a 60-year-
old drug to treat toxo that is still available in other 
developed countries for as little as $2.50 per pill or less, so 
on behalf of infectious diseases and HIV providers, thank you 
for your continued attention to unjustified price increases for 
older off-patent prescription drugs. My comments focused on 
Daraprim, but other older drugs, as you know, have been priced 
out of reach. We urgently need policies to promote rational 
drug pricing that ensure patient access without complex 
assistance programs or making unreasonable demands on health 
care providers. Our patients' lives, our Nation's public 
health, and the sustainability of our health care system depend 
on preventing future market failures like this one.
    The Chairman. Thank you very much for your excellent and 
informative testimony.
    Mrs. Weston, we are so grateful for your being here today 
to share your personal story.

            STATEMENT OF SHANNON AND JOSHUA WESTON, 
          PARENTS OF AN INFANT BORN WITH TOXOPLASMOSIS

    Mrs. Weston. Good morning and thank you, Chairman Collins, 
Ranking Member McCaskill, and distinguished members of the 
Committee, for inviting me to testify today.
    My name is Shannon Weston, and my husband, Joshua, and I 
met 14 years ago today. In the 3-years that followed, we bought 
a house, we got married, and we began dreaming about our future 
family. After I began graduate school, we began trying to begin 
that family that we had begun dreaming about earlier. Over the 
past 7 years, we have suffered many losses, and before I became 
pregnant with Isla.
    The pregnancy was ideal. There were no complications, and 
all of my ultrasounds revealed that nothing was abnormal. Isla 
was born on May 14, 2015, at 10:51 in the morning, and she was 
seven pounds, six ounces, and had a head full of hair. Her 
birth was eventful and resulted in delivery by emergency 
cesarian section, and as a result, she did not transition well 
to lung breathing on her own.
    After nearly a week in NICU, we were finally able to take 
our amazingly perfect, beautiful little daughter home. Those 
first weeks, we thoroughly enjoyed everything about her and 
stressed, as new parents did, and survived on no sleep 
whatsoever.
    When Isla was 2 months old, however, she developed a pocket 
of fluid between her skull and her scalp. A CT scan revealed 
pinpoint calcifications in her brain and her pediatrician said 
that it could have come from a number of things, and so we 
investigated further. A TORCH titer test, which is used to 
screen for certain infections, was ordered, and we were sent to 
a pediatric ophthalmologist and neurologist.
    The TORCH tests, the first one came back negative. The 
ophthalmologist found a macular scar in her left eye, but the 
cause of this was unknown at the time. The MRI revealed normal 
brain function and that the fluid pocket was the result of 
bruising from her being stuck in the birth canal, but we could 
not tell because of all that hair.
    After the results, a second TORCH titer test was ordered. 
The result this time was positive for the IGg antibody for 
toxoplasmosis. We were then referred to Dr. Belhorn, a 
pediatric infectious disease specialist at UNC Chapel Hill, who 
had previously treated diseases with congenital toxoplasmosis. 
To confirm the diagnosis, more tests had to be run.
    On August 6, 2015, we were admitted to the UNC Hospital, 
where they drew blood, performed a spinal tap on my 2-month-old 
daughter, and made arrangements to see an eye specialist there 
at the University. The lab asked for repeated blood draws from 
Isla and from me, and at the beginning of October, we finally 
received the conclusive results that Isla was diagnosed with 
congenital toxoplasmosis.
    Dr. Belhorn called me immediately when he received those 
results and we spent many hours going over what this meant, how 
we needed to proceed, and what the outcomes could be, but most 
of the time on that phone call, he spent consoling me, as my 
head was spinning a million miles a minute and every worst case 
scenario was playing out. Dr. Belhorn assured me that at the 
time Isla was asymptomatic except for the macular scar, and 
that as long as we began treating immediately, she would remain 
so. He then ordered the Daraprim and sulfadiazine that is the 
treatment for congenital toxoplasmosis and said it would be 
compounded in 2 days.
    The very morning we were to go for her treatment, we 
learned that our insurance company denied the medication that 
Isla needed. Dr. Belhorn resubmitted to the insurance company. 
They denied again, and then I filed a formal appeal. The 
insurance company wrote to Dr. Belhorn that the reason for the 
denial was that there was no medical necessity for the 
treatment, since she was HIV-negative.
    Dr. Belhorn continued to fight with the insurance company 
over the necessity of treatment with Daraprim and I looked into 
any way I could think of to come up with the almost $360,000 
that I was going to need for a year of treatment. I knew that 
as long as she was treated before symptoms set in, that she 
would remain asymptomatic, and I was hopeless and depressed at 
the thought of what would happen to my perfect little girl if I 
was not able to help her. I truly felt that I had failed her in 
every possible way.
    I spent days researching Daraprim to see if there was 
another way to obtain it, and just as I was at a complete loss 
for what to do, Dr. Belhorn called to say that the UNC pharmacy 
had enough to cover Isla's treatment for at least that year and 
that they would compound it into the serum she needed and all 
for an affordable price.
    Since November 6, we have been purchasing the medication 
from the UNC pharmacy directly. I am so grateful that we found 
this option before it was too late for her, because I do not 
know what I would have done, and I thank you again and look 
forward to your questions.
    The Chairman. Thank you very much. Your story is absolutely 
heart wrenching and it helps us to put a human face on what has 
happened with this immoral price increase and the impact on 
your precious daughter, so thank you so much for being here.
    Mr. Dorfman, I would like to have Slide 17 put up. You have 
been in the pharmaceutical industry for some 30 years, and you 
have testified to the business model that was being used and 
the enormous price increase that Turing was going to apply. In 
this slide, Turing predicts that Daraprim will skyrocket from 
$4.9 million in annual revenue to possibly over $500 million. 
In your view, was there any justification for that kind of 
increase, based on your many years in the industry?
    Mr. Dorfman. Let me respond. It is an excellent question. 
As I said in my opening statement, and as I have believed 
throughout my career in the pharmaceutical industry, there are 
legitimate reasons for which prices are raised for 
pharmaceuticals, and usually the rationale for that increase 
has been fairly consistent over time among the various 
pharmaceutical companies, and that is the extraordinary costs 
of research, clinical trial programs, and those expenses for a 
company to determine whether a drug can be submitted to and 
then subsequently approved by the FDA remain a very important 
component of how a pharmaceutical company would go about 
undertaking to examine how best to price the drug, bearing in 
mind the returns that are required to reinvest in research and 
also to have the drug available for the required patient 
population.
    As I said before, during the discussions that were held 
among the management committee, there was a number of people, 
including myself and others, that voiced a very strong position 
that Daraprim did not fit that classic model, that the research 
had already been done on that drug and there were no clinical 
trial programs in place at that time to ostensibly develop what 
was purported to be a safer alternative to Daraprim, sort of a 
second generation drug for toxoplasmosis.
    The Chairman. What you are saying, in a nutshell, I 
believe, is no, because Turing did not bear the R&D costs of 
the clinical trials, the lab development for developing 
Daraprim, is that correct?
    Mr. Dorfman. That is correct.
    The Chairman. When you expressed your reservations and your 
concerns, did you believe that the price increase was 
unethical?
    Mr. Dorfman. I believe that the price increase was 
certainly unjustified.
    The Chairman. What was the reaction from Mr. Shkreli when 
you expressed that concern?
    Mr. Dorfman. Mr. Shkreli told me that he was the most 
knowledgeable person with regard to this business model, that I 
was seriously misinformed with regard to my concerns-----
    The Chairman. Despite your 30 years in the industry.
    Mr. Dorfman. Despite my 30 years in the industry, correct, 
and basically, said that no one cares about price increases.
    The Chairman. How soon after you expressed your opposition 
to this price increase were you fired?
    Mr. Dorfman. Certainly less than a month. I would say 
approximately two--two to 3 weeks.
    The Chairman. Were you fired for cause?
    Mr. Dorfman. No. I was told I was not fired for cause.
    The Chairman. Thank you.
    Dr. Adimora, prior to Turing's acquisition of Daraprim, did 
you or your colleagues at the HIV Medical Association ever have 
any serious issues with promptly obtaining Daraprim at an 
affordable price?
    Dr. Adimora. No. Actually, if you allow me to expand-----
    The Chairman. Yes.
    Dr. Adimora [continuing]. the process was quite seamless. I 
mean, people are admitted, typically with toxoplasmosis of the 
brain, if they have HIV infection, they are quite ill, admitted 
through the emergency room, desperately ill, as I said. 
Providers spend their time taking care of the patient. Once 
they recognize what infection the patient has, they used to 
simply just write the order, if they are inpatients, for 
pyrimethamine and sulfadiazine and leucovorin, start treating 
the patients, and then when they are ready to be discharged, 
write them a prescription, which was easily filled, for 
pyrimethamine, sulfadiazine, and leucovorin, or rather, 
Daraprim, I should say, and the other medicines. It was a 
seamless process.
    The Chairman. Everything changed once Turing bought 
Daraprim.
    Dr. Adimora. Absolutely.
    The Chairman. Thank you.
    Senator McCaskill.
    Senator McCaskill. Mr. Dorfman, at the meeting when you 
tried to explain to this genius, Martin Shkreli, or however you 
say his name, did you use the phrase that we use in Missouri, 
that pigs get fed and hogs get slaughtered? Did that phrase 
come up during that meeting?
    Mr. Dorfman. I am sorry, I forgot to use that phrase.
    Senator McCaskill. Yes.
    Well, that is what we are really talking about here. We are 
talking about unbridled, immoral greed, is what we are talking 
about.
    Dr. Adimora, when you sent letters to Turing, what were the 
dates that you sent letters to Turing? While Mr. Shkreli was 
trying to tell the world that they did not want to limit access 
to patients, what were the dates that you sent letters to 
Turing raising concerns about the inability of Mrs. Weston and 
Joshua and Isla in terms of getting this drug at a price that 
was anywhere in the realm of reasonable?
    Dr. Adimora. The first letter was sent sometime in 
September. I do not recall the exact date, but we can look it 
up and get back to you, and they responded, as I said, with the 
sort of general response, but did not actually do anything. We 
continued to have access problems and so a second letter was 
written sometime in December.
    Senator McCaskill. Did you hear back from the December 
letter?
    Dr. Adimora. They really did not respond in any meaningful 
way, no.
    Senator McCaskill. I kind of want to get this timeline, and 
Mrs. Weston, you all began really looking for this drug for 
Isla in October, is that correct?
    Mrs. Weston. Yes, ma'am.
    Senator McCaskill. Just to give context here, I think it is 
important to point out that Martin Shkreli bought the Wu-Tang 
recording in December for $2 million, just to give context to 
what is really going on here.
    Now, has anyone from Turing reached out to you at all, Dr. 
Adimora, about accessibility of this drug, ever? Has anyone 
called you at the HIV Medical Association to say, we are 
concerned that perhaps our price increase are killing people?
    Dr. Adimora. No.
    Senator McCaskill. Okay. Let me ask you this question about 
the closed system. I am interested in this. Can you give us 
your opinion, Dr. Adimora, about why a closed distribution, 
what the real reason is for Turing to have a closed 
distribution on this drug. What is gained by having a closed 
distribution? What competitive advantage is actually at play 
here?
    Dr. Adimora. Well, I have to say, you know, the exact 
mechanics of drug pricing and drug availability are somewhat 
beyond my field of expertise, but what it would appear to me is 
that the reason for having a closed distribution is to make 
sure that you can maintain a monopoly to enable you to get the 
price that you want without allowing others to make the drug 
available for a lower price.
    Senator McCaskill. Do you believe that, from a public 
policy standpoint, if the FDA changed--if there was a change in 
the law and public policy that would allow generics competing 
with orphan drugs to go to the front of the line at the FDA, do 
you believe that would have a positive impact on this type of 
immoral seeking of a monopoly in order to cause the Weston 
family the kind of grief that they have endured?
    Dr. Adimora. I believe that it would help in general, 
because, as I believe you noted in your opening remarks, there 
are several drugs for which this is a problem, so I do believe 
it would help. I would say, though, that in these situations 
such as this one, where there is a very small market, there 
is--there is also some concern that the likelihood that other 
companies would come in and offer lower prices that would be 
competitive enough to afford access to patients remains a 
concern because of the small market. I think the idea is, in 
general, a good one, but I think that, you know, we have to----
    Senator McCaskill. We have two problems.
    Dr. Adimora. Yes. There are two problems.
    Senator McCaskill. One is how long it takes to get a 
competing generic to the market, and the other is that while 
the demand is inelastic, it is also not large because it is not 
a widely prescribed drug.
    Dr. Adimora. Yes, exactly. I am not certain that that 
alone, although helpful, I am not certain that that alone would 
solve this particular problem.
    Senator McCaskill. We need to figure out how to get at 
protecting families like the Weston family when there is a life 
saving drug, but not a lot of people need it, because they are 
the ones that are really getting it stuck to them.
    Dr. Adimora. Exactly.
    Senator McCaskill. Was there discussion, Mr. Dorfman, very 
briefly, during your time there, about the closed distribution 
model and the competitive advantages of using a closed 
distribution model?
    Mr. Dorfman. Yes, there were. The fact that we were talking 
about a drug for a relatively small but extremely needy and 
vulnerable patient population and having a closed distribution 
system would certainly assist in delaying or preventing a 
generic from entering the market because of the unavailability 
of the drug to do the necessary bioequivalence testing, so it 
was all part and parcel of the overall marketing plan, as it 
were, for this drug.
    Senator McCaskill. Thank you.
    Thank you, Madam Chair.
    The Chairman. Thank you.
    Senator Tillis.
    Senator Tillis. Thank you, Madam Chair.
    Mr. and Mrs. Weston, how is baby Isla doing?
    Mrs. Weston. She is doing amazingly well.
    Senator Tillis. Good.
    Mrs. Weston. She is beautiful. She is perfect, so far with 
the treatment, she has been developing normally, and knock on 
wood, it is going to continue that way.
    Senator Tillis. What is the cost of the medicine that is 
being compounded by the folks at UNC?
    Mrs. Weston. Forty-eight dollars a month.
    Senator Tillis. Forty-eight dollars a month, and the 
alternative was how much?
    Mrs. Weston. Twenty-eight-thousand dollars a month.
    Senator Tillis. Okay. I meant to mention that I am thankful 
that we have a very successful prosecutor on this panel, 
because I think that I am looking forward to the questions of 
the second panel. I am glad to have you back in any event, but 
particularly because of that.
    Dr. Adimora, can you give me some sense of the other costs 
and consequences of these drug increases in terms of hospital 
stays and other sorts of treatments that you may have to take 
if the access to the drug is not possible because of the cost.
    Dr. Adimora. In terms of accessing the drug, here are some 
of the--here is some of what happens. Instead of simply writing 
the prescription and attending to the patient, what has been 
happening in many cases is that there is treatment delay, which 
can be quite problematic, because a lot of these patients are 
desperately ill.
    Senator Tillis. Which would lead to even more costly 
complications?
    Dr. Adimora. Yes, or death of the patient, or disability, 
so there is--there are delays in treatment. In addition, there 
have also been incredible amounts--there has been incredible 
waste of time on the part of physicians, nurses, social 
workers, and other people, but a lot of times, this comes down 
to physician time, as Mrs. Weston described Dr. Belhorn's 
having spent hours and, in fact, days haggling with insurance 
companies to--in an attempt to get the medication, so it is an 
incredible waste of time that we simply do not have, is one 
thing.
    The other thing is that it is important to remember that in 
many of these cases, particularly the patients with AIDS, but 
in others, as well, they have a brain abscess. You know, they 
have a brain deficit, so talking to insurance companies and 
patient assistance programs is not something that they can 
necessarily do, but a lot of times that is required. If you are 
going to get a drug via a patient assistance program, you or 
your delegate has to interact with them and they cannot 
necessarily.
    In addition, many of the patients are poor. I mean, that is 
how they--some of them have gotten AIDS. They are not 
necessarily able to negotiate the situation, and finally, this 
has opened up, all of these complications have opened up new 
opportunities for things to fall through the cracks. For 
example, again, some of the patients are not--that we have seen 
cases where, and I actually saw--was aware of one of these 
situations where the patient, again, being not the most 
knowledgeable and having had perhaps some cognitive impairment, 
had been getting the medicine and then suddenly was not able to 
get it and did not say anything, came back not having had the 
drug for 3 weeks.
    Senator Tillis. The reason I asked that question is I think 
we are all angry about the practice that we have before the 
Committee today, but every single taxpayer and every single 
person who has insurance should be angry, too, because, just as 
you said, to provide the treatment, this company, Turing, and 
their leaders have decided they are going to pick the pockets 
of everybody. They are going to put you in a devastating 
situation in terms of caring for your baby, but they are also 
raising the cost of insurance, and to the extent that insurance 
does not cover it, they are raising the cost to the taxpayers 
for their own greed, and they need to be held accountable to 
that. I think they are predators. I think they are parasites. I 
think we have got to try and do something about it.
    The one thing that I did want to--and, Mr. Dorfman, my time 
is short. I had a question for you, but I want to thank you for 
your testimony and being here. I think it is important to 
understand the distinction between pharmaceutical companies 
that are taking risks and incurring the costs to do what they 
need to do. UNC Chapel Hill has a great collaboration with 
pharmaceutical companies. They are creating life saving 
treatments. There is a cost associated with that that they have 
to recover so that, ultimately, those can become lower-cost 
drugs, more pervasive drugs over time.
    We need to make it very clear, this is not an attack on the 
pharmaceutical industry, the good actors. This is a focus on 
the bad actors, that if there is any possible way legally we 
can put them out of business, I think we should.
    Thank you, Madam Chair.
    The Chairman. Thank you very much, Senator Tillis.
    Senator Casey.
    Senator Casey. Madam Chairman, thank you very much, and we 
welcome back Senator McCaskill and we are grateful she is with 
us.
    I said to Senator McCaskill yesterday--she said she was 
going to be out for 3 weeks, and I said, Claire, it has only 
been two, but apparently it was three. She moves pretty fast, 
so we are grateful she is here, and I want to see that second 
panel, as well. It will be interesting today to hear her 
questions and to have heard the ones she presented.
    I wanted to nail down, or reiterate is probably a better 
word, something that, Mr. Dorfman, you said for the record in 
your statement, and you gave a summary in answer to one of the 
questions. On page two, you outlined the objections you and 
others had, but then on page three, you said the following, and 
I am quoting at the top of the page. ``Pharmaceutical companies 
typically justify drug price increases, especially large rises, 
by expenditures such as research and development of the drug 
itself or a substitute, clinical trial work, or educational 
programs.'' Then you say, ``In this instance, the price 
increase as contemplated and subsequently announced was not 
justified by any such actual expenditure.''
    I think it is important for the record to note that that 
statement is there. It was not justified. That is not some 
random opinion by some observer in the marketplace. That is the 
testimony of someone who saw it up close. Not justified. 
Probably an understatement, an understatement for what I would 
argue is a pattern of conduct which is pure evil, the 
incarnation of evil.
    In our system, once in a while, that is a subject of 
accountability and even prosecution and punishment. I hope to 
God that happens in this case, because no family, no family 
should ever have to go through what the Weston family went 
through. You did everything right, and a group of people in 
this company did everything wrong, so we will watch and support 
efforts to hold them accountable.
    I do not want to lose sight of what you have ahead of you. 
The good news is you have a perfect daughter and that is good 
news, but I want to get a sense of what you are up against next 
in terms of what is ahead of you.
    Just one specific question about--I want to make sure I 
pronounce this right--with regard to the treatment with 
pyrimethamine, how long will she need that part of the 
treatment?
    Mrs. Weston. The treatment for congenital toxoplasmosis is 
1 year with pyrimethamine, sulfadiazine, and leucovorin, and 
then there is monitoring monthly after that to ensure 
reactivation has not occurred. They would monitor the macular 
scar, and that is how they would look for reactivation, but it 
is a minimum of 1 year.
    Senator Casey. One year. Thank you, and then, in addition 
to that, in terms of an additional source of the drug, do you 
have something lined up, or what is your sense of what comes 
next on that part of the challenge you have?
    Mrs. Weston. Well, UNC has told us that we have the year at 
the price they are able to provide it, which is so much better 
than the $28,000 a month. After that, we are not sure.
    Senator Casey. Mm-hmm.
    Mrs. Weston. Either something changes, my insurance company 
decides to cover it, or I do not know, unfortunately, and that 
is the scary part.
    Senator Casey. Well, you should not have that uncertainty, 
especially in light of what you have already been through. I 
hope the folks out there are listening. I hope someone out 
there thinks about working to take away that uncertainty, but 
we are really grateful you are here today, because as Senator 
Collins said, especially when matters are complicated, it is 
very--it is one thing to listen to expertise, and we had some 
of that here, thankfully, for people that have lived with these 
issues for a long period of time.
    Nothing replaces or nothing can substitute for your own 
personal witness, and we appreciate you doing this. I know it 
is not easy. You could have just dealt with the challenge that 
you had privately, and you did not. Your testimony is going to 
help other people and we appreciate you being here. Thank you.
    Mrs. Weston. I hope it does. Thank you.
    The Chairman. Thank you, Senator Casey.
    Senator Donnelly.
    Senator Donnelly. Thank you, Madam Chair.
    I am so angry I can hardly see straight when I think of 
this and I think of what you went through with your child and 
the decisions made by people to cause this pain to other human 
beings, to little kids who have done nothing, but hope for a 
good life.
    You know, I am not someone who wears my religion on my 
sleeve, but there is a saying in the Bible that what you do for 
others, you do for Me, and I just do not know how you can do 
these things. It takes my breath away to think about this kid 
suffering so you can buy a $2 million album. Something is so 
wrong with that, to buy a bigger house in the Hamptons, to buy 
a fancier car, to have more trinkets and baubles, and at the 
same time that is going on, there are kids who are suffering. 
There are people who are struggling.
    You know, I think of my dear friend Claire. Can you imagine 
if, when she got sick, they said the problem is, your medicine 
is unaffordable because people need to have more cash to throw 
out windows. We are sorry.
    You know, I think of my Dad, who had a small business and 
worked hard every single day, and he always told me what you 
have are your name and you take care of your customers and you 
treat them right, and if you treat them right, then we will 
have a--we will be able to keep this business going. That is 
how Americans do it.
    To have such staggering greed, it just takes my breath 
away.
    You were talking about brain abscesses that are caused when 
you do not have this. Tell us a little bit more about that.
    Dr. Adimora. This is--first, I actually would like to 
revise, if you do not mind, a response that I made about 
communications between HIVMA and Turing, and again, I do not 
know the exact timeline, but there were some additional 
communications. For example, there was a meeting which I 
believe occurred in November between some Turing officials and 
other HIVMA-related--HIVMA members and some related 
organizations. We also sent additional letters, so there was a 
meeting in November.
    There were--and they did--I believe they may have laid out 
some plans for patient assistance, but my point is actually 
that nothing meaningfully changed in any way. I mean, we 
continue to get these reports of incredible problems accessing 
the drugs. I just wanted to make that clear. In the interest of 
accuracy, there were additional communications, but nothing 
meaningfully really changed.
    In response to your question, Senator Donnelly, so, 
typically, when I see patients with toxoplasmosis, this is 
typically people in the advanced stages of AIDS with very 
compromised immune systems. They often come in complaining of 
fever and headache and they have pretty big neurologic deficits 
a lot of the times. They may have strokes, and they may 
actually come in with coma or go on to have coma. I mean, 
people can die from this. They truly are desperately ill.
    They come in, are admitted to the emergency room, or 
admitted from the emergency room to the inpatient side of the 
hospital and they require urgent emergent care, and they need 
their medicines quickly. They need them right away. The 
expectation is that the order is written for the medicines and 
they get it within, you know, an hour. There is not that the 
care providers spend time talking to insurance--arguing with 
insurance companies and patient assistance programs, and the 
patients themselves typically are not capable of doing that 
because they are sick. Some of them are comatose, and they may 
not have a delegate to help them.
    This can be--actually, it is interesting, because despite 
the fact that people can be so desperately ill with this 
infection, it also can be quite gratifying to treat if you 
treat it quickly and properly. I personally have seen many 
people turn completely around in a matter of weeks or less 
after proper treatment.
    Senator Donnelly. I am just about out of time. I just want 
to ask Mr. Dorfman, why did Turing executives not heed your 
warning?
    Mr. Dorfman. I guess you would have to ask them----
    Senator Donnelly. Oh, we plan to.
    Mr. Dorfman. I do not know, you know, my--I gave my best 
business and judgment, knowing how some of these activities 
would certainly impact the availability of drugs for patient 
populations that were in desperate need. These plans were not 
in place, and I can only--I really cannot surmise as to why. I 
think you have said it before, but I really had no knowledge 
about why.
    Senator Donnelly. Well, to the Westons, we are so glad your 
child is doing well, and the fact of the matter is, for anybody 
who is listening, it could be our kid. It could be any kid. I 
just--I just--it breaks your heart to think that this kind of 
thing has been going on. Thank you.
    The Chairman. Thank you.
    Senator Gillibrand.
    Senator Gillibrand. Thank you, Madam Chairwoman.
    I want to continue the line of questioning that Senator 
Donnelly started. Mr. Dorfman, in your written testimony, you 
said that when Turing Pharmaceuticals was establishing its 
pricing plan for the drug Daraprim, you raised concerns 
internally about the proposed price increase. Turing decided to 
increase the price anyway, from approximately $13.50 per pill 
to $750 per pill, more than a 5,000 percent price increase.
    What were the specific concerns that you raised? What did 
you actually say? Do you believe that Turing was justified in 
implementing the price increase? Why or why not?
    Mr. Dorfman. Well, the crux of my objections were based on 
the fact that, number one, we were dealing with a very, very 
vulnerable patient population. As the Doctor has testified, the 
AIDS community, HIV community, is extremely vulnerable where a 
drug of this type is--basically can be a life or death 
decision.
    The question of whether the drug would be available, both 
in terms of timing through distribution and also whether it 
would be available because of pricing, those were all 
objections that I and other senior members of the management 
committee expressed over--over and over again to the company.
    I am sorry, there was another part of your question.
    Senator Gillibrand. Do you believe they had any 
justification for disregarding your legal advice?
    Mr. Dorfman. Well, I really cannot answer legal advice 
because of patient--excuse me, of client confidentiality. I can 
give you it based on a business decision, and that is, again, 
the pharmaceutical industry has historically worked toward 
measuring price increases with the expenditures that were 
needed to establish clinical trial programs and to be able to 
fund a drug from, basically from the lab through FDA approval. 
These were not expenses or costs that Turing had incurred 
because of the nature of the drug. It had been approved in 
1953, and the rationale for that kind of price increases, or 
any major price increase, was lacking.
    Senator Gillibrand. Thank you. Thank you.
    The Chairman. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman Collins. Let me 
first thank you and our Ranking Member, Senator McCaskill, for 
holding a bipartisan hearing on this very, very important 
question. Let me welcome Senator McCaskill back. This is the 
first time we have encountered one another in a hearing since 
her return.
    My observation is that there are very clear market failures 
that allow for the extortionate type of pricing strategies that 
the Westons have so well described the consequences of, and you 
mentioned some of the conditions, Mr. Dorfman, in your 
testimony that provide this opportunity for mischievous, 
monopolistic, or extortionate pricing strategies.
    I guess my question is two-fold. One, are there signals 
that would allow this Committee to make a principled 
distinction between market-based competitive behavior and the 
kind of, again, mischievous, monopolistic, or extortionate 
pricing that we now see in many quadrants of the pharmaceutical 
industry? If so, what are they?
    The reason I ask that question is that I think there is 
very broad concern, and I would suggest bipartisan concern, 
that we not interfere into any kind of pricing strategies that 
would interfere with the fair and free operation of the market. 
If the market is absolutely failed, then I think there actually 
is a role for Congress to step in and put some kind of price 
limits on so that the type of catastrophes that are befalling 
families like the Westons do not take place.
    What is your advice to us? Is there, in fact, a way to 
separate out the bad conduct from regular market conduct, and 
what would those red flags of warning be that we should look 
for?
    Mr. Dorfman. Well, I definitely think we have to recognize, 
as you said, and as has been stated earlier, and particularly 
by even Dr. Adimora extraordinarily well, what we do not want 
to do is disrupt a process that has allowed the United States 
to really be the major developer, researcher, for life-saving 
therapies around the world and the United States. We are also 
dealing, of course, in this instance and others with patient--
with relatively small patient populations. That seems to be one 
of the ways in which these kind of activities are identified, 
because of the relatively small patient population.
    I think the work of this Committee in terms of 
investigating has probably gone a long way. I do not agree 
necessarily that we are dealing with a rogue industry. What we 
are dealing with----
    Senator Whitehouse. No, rogues within an industry.
    Mr. Dorfman. We are dealing with----
    Senator Whitehouse. It is not the industry. It is not rogue 
at all.
    Mr. Dorfman [continuing]. right, and we--what we need to do 
is we need to clearly identify conduct that we deem to be 
inappropriate. I have been in the industry for over 30 years. I 
am extraordinarily proud and feel privileged to have been 
working in an industry that has dedicated itself to alleviating 
pain, alleviating disease, and treating patients such as the 
beautiful daughter that we have seen here today.
    As far as signals are concerned, I think one of the things 
that we need to do is look at, number one, how the generic 
approval system has been working. Are there undue delays? Is it 
a funding issue? Things of that nature. Basically, making sure 
that we pay particularly close attention to orphan diseases and 
provide the kind of in-depth support that allows these drugs to 
be developed, yet would seek to limit inappropriate conduct by 
certain individuals.
    Senator Whitehouse. Mr. Dorfman, I have 5 seconds 
remaining. I would simply ask you, if you might, take my 
question as a question for the record, and if you wish to 
supplement your answer in any way, I think it would be helpful 
to the Committee to get a thoughtful written element from you 
about the elements that would be good signals that there is a 
market failure and there is rogue pricing going on. Thank you.
    Mr. Dorfman. Well, I certainly think that signals, at least 
early warning signs, can certainly be----
    Senator Whitehouse. For the record means you write it down 
and send it later, and I do not----
    Mr. Dorfman. Oh, I am sorry.
    Senator Whitehouse. Sorry.
    The Chairman. Thank you.
    Mr. Dorfman. I will do so. Thank you.
    The Chairman. Thank you very much.
    I want to thank this panel for appearing today.
    To the Westons, I want you to know that we will continue to 
do everything we can to make sure that your daughter gets what 
she needs, but also to make sure that other families do not go 
through the absolutely horrific experience that you endured.
    During this hearing, I had my staff do a little calculation 
on what the cost of Daraprim for your daughter would have been 
prior to Turing getting the--buying the drug and what it was 
going to be for you if UNC had not come to your rescue. The 
answer is, it would have been $6,500 for the treatment of your 
daughter for the year. After Daraprim was bought by Turing, it 
would have been $360,000.
    I know, and from our previous staff discussions with you, 
that prior to your working out the agreement with UNC, that you 
were looking at remortgaging your house, emptying out your 
retirement plan, doing everything you could to save your 
precious daughter, and this is just outrageous, and I want to 
thank you so much for coming forward.
    Dr. Adimora, I want to thank you, as well. You were able to 
describe and to show conclusively that this problem has real 
consequences for the patients that you treat and that prior to 
the change in ownership, as you put it, the system was 
seamless.
    Mr. Dorfman, I want to thank you for your courage in 
telling us exactly what happened and for standing up in the 
first place and raising questions about this completely 
unwarranted price increase. I know that it most likely cost you 
your job, but there is going to be a special place in heaven 
for you, I can tell you that.
    Mr. Dorfman. Thank you very much.
    The Chairman. I very much appreciate your coming forward.
    Senator Kaine, we were just about to go to the next panel, 
but if you would like to ask a quick question----
    Senator Kaine. No. Thank you, Madam Chair. I want to hear 
the next panel and ask them questions.
    The Chairman. Great. Thank you very much.
    This panel is excused and we appreciate your help.
    For the interest and knowledge of my colleagues, for this 
next panel, we will do 10-minute rounds of questions, and while 
they are setting up, I am going to introduce the witnesses.
    First, we will hear the testimony from Ronald Tilles, who 
was Chairman of the Board during the acquisition of and price 
increase of Daraprim by Turing. He has served as CEO of the 
company since Martin Shkreli resigned after being indicted for 
fraud.
    Next, we will hear from Michael Smith, the Senior Director 
of Business Development and co-founder of Turing, who helped 
find Daraprim as a potential acquisition, and finally, we will 
hear from Dan Wichman of Broadfin Capital, an investor in 
Retrophin.
    Pursuant to the Committee rules, I would ask that you all 
stand so that you could be sworn in. Please raise your right 
hand as I administer the oath.
    Do you swear that the testimony you are about to give will 
be the truth, the whole truth, and nothing but the truth, so 
help you God?
    Mr. Tilles. I do.
    Mr. Smith. I do.
    Mr. Wichman. I do.
    The Chairman. Let the record reflect that all the witnesses 
answered in the affirmative.
    Mr. Tilles, we will begin with your testimony.

              STATEMENT OF RONALD TILLES, INTERIM

             CHIEF EXECUTIVE OFFICER, AND CHAIRMAN

              OF THE BOARD, TURING PHARMACEUTICALS

    Mr. Tilles. Thank you. Thank you, Chairman Collins, Ranking 
Member McCaskill, and distinguished members of the Committee. I 
am pleased to appear here today at your request.
    I am currently the Interim CEO of Turing Pharmaceuticals 
and Chairman of its Board. In my role as Interim CEO, my 
primary responsibilities include interacting with investors, 
addressing issues related to the expenses of the company, and 
identifying new strategic opportunities. Our focus remains to 
invest in treatments for neglected diseases and to dedicate our 
revenues to research and development.
    I oversee the day-to-day affairs of Turing with the 
assistance of Turing's senior management, including Nancy 
Retzlaff, who is Turing's Chief Commercial Officer, and Dr. 
Eliseo Salinas, who is Turing's President of R&D.
    I graduated from Middlebury College and received an M.B.A. 
from Columbia University in 1985. I have held various positions 
at investment firms over the years, but in the last years, I 
have focused primarily on startups. One of those startups was 
Retrophin, in which I was an early investor. I became a 
consultant to the company with a focus on business development.
    I then joined Turing, another startup, with a similar focus 
on acquisition strategy and raising capital. I was the point of 
contact with Impax during the negotiation for the purchase of 
Daraprim. I did not, however, develop the valuation models for 
the deal or analyze the issues relating to the pricing of the 
drug.
    As the Committee is aware, Martin Shkreli resigned as the 
CEO of Turing last year. He has also since resigned from 
Turing's board. He continues to be a shareholder in the 
company, but is not involved in any of the day-to-day 
operations of the business.
    When I took over as Interim CEO, I assumed leadership of a 
company facing critical challenges. I am working diligently to 
address those challenges in concert with our executive team. 
Please note that we are still a young startup trying to address 
the issues that face all new companies.
    My responsibilities as the Interim CEO do not include 
primary oversight of drug pricing, marketing, sales, or 
distribution. I do not manage patient access matters or our 
Patient Assistance Programs, which Turing funds in order to 
ensure that all patients who need Daraprim can get the drug 
regardless of their ability to pay.
    For those matters, I rely on our talented and experienced 
commercial team under the able leadership of Nancy Retzlaff, 
who also happens to be in the room today. She has more than 20 
years of experience in the pharmaceutical industry, including 
positions as a senior marketing officer for several large 
established drug companies.
    It is important to note that we have put in place discounts 
and support programs that mean ability to pay should never be a 
barrier to access. For example, two-thirds of Daraprim sales 
are to Federal and State health programs that pay Turing one 
penny per pill. In addition, we fund a Patient Assistance 
Program that offers Daraprim free of charge to qualified 
uninsured patients. For insured patients, we provide copay 
support and fund a bridge program to provide a supply of 
Daraprim at no charge if there are delays in coverage.
    I also think it is important for the Committee to 
understand that the large majority of Daraprim sales by volume 
are not through the specialty distribution channel. For that 
larger volume, Turing cannot control access by generic 
competitors.
    I am not a scientist or medical researcher. Although I do 
not personally manage Turing's R&D programs, I want to ensure 
that Turing is fulfilling its commitment to invest in research 
into new and improved drug treatments, including for 
toxoplasmosis. For this effort, I rely on Dr. Eliseo Salinas, 
who is a highly respected and an experienced life science 
executive and medical researcher. I have complete confidence in 
the experience and expertise of my team.
    All of us at Turing are working hard to uphold Turing's 
commitments to research and development and to patient access, 
even while we face critical challenges from the negative 
publicity surrounding our former CEO. The revenues generated by 
Daraprim are primarily used to fund R&D. I am very proud of our 
R&D efforts and my team's commitment to innovation.
    We are pleased to cooperate with the Committee's inquiry 
and I look forward to answering your questions. Thank you, 
Madam Chairman.
    The Chairman. Mr. Smith.

             STATEMENT OF MICHAEL SMITH, CO-FOUNDER

                AND SENIOR DIRECTOR OF BUSINESS

              DEVELOPMENT, TURING PHARMACEUTICALS

    Mr. Smith. Thank you, Chairman Collins, Ranking Member 
McCaskill, and distinguished members of the Committee. I am 
pleased to appear here today at the request of the Committee.
    I am a part of the business development team at Turing 
Pharmaceuticals, where my responsibilities include looking at 
opportunities to acquire undervalued products. I am not a part 
of the company's executive leadership team.
    I received my undergraduate degree in finance from Fordham 
University. I started my career as an investment analyst. 
Later, I joined the business development group at Retrophin. I 
left Retrophin in 2014 to join Turing. I reported to Martin 
Shkreli before he resigned as CEO of turing in December 2015.
    Turing acquired the rights to market Daraprim in the U.S. 
from Impax in August 2015. We view Daraprim as an undervalued 
treatment for a serious but neglected disease, toxoplasmosis. 
This acquisition gave us an important foothold in the treatment 
of toxoplasmosis and a revenue stream to fund research into new 
drug treatments.
    I care deeply about the patients who take our drug and 
Turing is committed to innovation in life-saving medicines. 
This conviction comes from personal experience. Both my Mom and 
my sister are cancer survivors. My father suffered from heart 
disease and received a quadruple bypass 4 months before he was 
killed in the September 11 attacks, so as much as anyone, I 
appreciate the need for pharmaceutical innovation.
    At Turing, we are focused at developing improved treatment 
for toxoplasmosis. Someday, we hope to market a worldwide next 
generation toxoplasmosis drug that could have the potential for 
greater return on our investment.
    I did not participate directly in the negotiations with 
Impax regarding the purchase of Daraprim. My responsibilities 
focus on certain aspects of due diligence for the transaction, 
including with respect to potential generic entry and 
collecting information from physicians about the use of 
Daraprim.
    My responsibilities for business development do not include 
aspects of Turing business that I understand are most relevant 
to the issues under review. I do not have responsibility for 
drug pricing, marketing, sales, market access, or distribution. 
I am not familiar with the procedures for drug payment and 
invoicing or with the prices paid for our drug Daraprim by 
various entities and different distribution channels, including 
government entities, hospitals, commercial insurance companies, 
or pharmacy benefit managers.
    I do not deal with any patient access issues, and I have no 
involvement in administering the extensive Patient Assistance 
Programs that Turing funds in order to ensure that all patients 
who need Daraprim get the drug regardless of their ability to 
pay.
    All of these matters are handled by our experienced 
commercial team, headed up by Nancy Retzlaff, Turing's Chief 
Commercial Officer.
    I am also not a scientist and I am not responsible for 
Turing's R&D programs. The person most familiar with those 
programs is Dr. Eliseo Salinas, Turing's President of Research 
and Development.
    I know the Committee is focused on certain portions of 
business development documents and presentations prepared for 
investors. Some of these documents reflect a suggestion that 
restricted distribution of branded drugs can make it difficult 
for generic companies to obtain product samples for 
bioequivalence testing. Others emphasize that drugs tend to be 
more valuable if they are the preferred treatment for a serious 
disease with small patient populations and there is no good 
substitute. These are assumptions that investors sometimes make 
when evaluating a potential investment, but they do not always 
reflect the realities of the commercial marketplace. Every drug 
is different.
    For example, I understand from our commercial team that 
Turing supplies Daraprim in large volumes to some institutional 
purchasers. We do not have the ability to control access to 
this product once it goes through those channels, and Turing 
inherited the distribution system put in place by our prior 
owner of Daraprim. Since then, we have improved distribution to 
expand access to the drug.
    I also understand that there are real benefits to patients 
and physicians from the specialty pharmacy services offered for 
Daraprim users. The people at Turing most familiar with these 
commercial realities are Nancy Retzlaff and her team.
    For my part, while I am not responsible for the commercial 
side of the business, I do believe that these factors are 
critical to the Committee's understanding of the actual market 
dynamics involved in drug pricing and patient access.
    Thank you, Madam Chairman.
    The Chairman. Mr. Wichman.

                   STATEMENT OF DAN WICHMAN, 
             PARTNER AND ANALYST, BROADFIN CAPITAL

    Mr. Wichman. Chairman Collins, Ranking Member
    McCaskill, and members of the Senate Special Committee on 
Aging, thank you for inviting me to speak before you this 
morning. My name is Dan Wichman and I am a partner and analyst 
at Broadfin Capital, an investor and provider of capital to 
health care companies.
    Broadfin was founded in 2005 and invests in a wide variety 
of mostly small and mid-sized companies in the pharmaceutical, 
biotech, and medical technology sectors, including companies 
developing new cancer drugs, companies that are focused on 
treatments for rare diseases, companies that manufacture 
generic drugs, and many others. We invest in both companies 
that are turning a profit and those whose only currency is a 
good idea. We trade infrequently and often invest in companies 
over multiple years.
    I personally have been working in health care finance for 
17 years and I have seen dozens and dozens of companies in 
which we have invested develop innovative, often life-saving 
products that change lives.
    My own philosophy, consistent with Broadfin's, is that the 
best and most profitable investments are companies developing 
products and services that will add significant value to the 
health care sector for many years. We believe that the most 
successful pharmaceutical companies are those that maximize 
opportunities by focusing on patients, for example, investing 
in improved doctor and patient access and education, investing 
in better drug formulations, and investing in measures to 
improve patient compliance with treatment.
    Although we seek to foster good relationships with many of 
the companies we invest in, we are passive investors and have 
never had an activist role with any company in the 
pharmaceutical space. We believe our job is to ask fundamental 
due diligence questions, fact check management's 
representations, and observe and analyze results. While 
companies sometimes bounce ideas off of us and ask for our 
opinions, they make the final decision.
    Retrophin is one of more than 100 life science investments 
in Broadfin's current portfolio. We are one of many investors, 
which include a number of large mutual funds. We first decided 
to invest in Retrophin in August 2013, when the company only 
had two pipeline assets and was not generating any revenue.
    The first pipeline asset is a drug called RE-024, which 
treats a rare disease called pantothenate kinase-associated 
neurodegeneration, or PKAN. PKAN is a progressive degenerative 
nerve disorder that primarily affects children and is caused by 
a mutant gene that allows iron to buildup in the brain. Once 
diagnosed, the life expectancy for children affected with this 
disorder is sometimes only a handful of years.
    The second drug is called Sparsentan, which treats a rare 
kidney disease called focal segmental glomerulosclerosis, or 
FSGS. FSGS affects both children and adults, and more than half 
of people who suffer from FSGS develop chronic kidney failure 
within 10 years.
    We believed then and believe now that both these drugs have 
the potential to improve patients' lives dramatically if they 
are brought to market. In the last 2 years, we understand that 
Retrophin has spent approximately $50 million per year in 
research and development, largely around these two compounds.
    I am aware that the Committee is interested in price 
increases for off-patent branded drugs in general and for 
Retrophin's drug Thiola in particular. Thiola, acquired by 
Retrophin in 2014, treats a rare and debilitating chronic 
kidney disorder called cystinuria. We had never heard of Thiola 
before Martin Shkreli, Retrophin's then-CEO, told us about it.
    When Retrophin explained the acquisition, it sounded 
promising, but the decision was the company's. We understood 
that there would be a price increase, but that the increase 
would be accompanied by investments into patient services and 
support, improved manufacturing, and research and development 
into better formulations.
    Our own diligence has suggested that physicians and 
patients are satisfied with how Retrophin has handled ownership 
of Thiola, and we believe the patient community is better off 
due to Retrophin's acquisition of the drug. According to 
Retrophin, the patient population receiving the drug has 
approximately doubled since Retrophin acquired Thiola less than 
2 years ago. We also believe the company has made great strides 
in working with patients to adhere to what can be a difficult 
treatment regimen. In fact, Retrophin recently announced that 
since the acquisition, patient compliance rates have improved 
from approximately 50 percent to 85 percent.
    Finally, I am also aware that the Committee is interested 
in the experience of Turing Pharmaceuticals. While we were 
repeatedly approached by Mr. Shkreli to become an investor in 
Turing, we chose not to and have never invested. Let me 
reiterate, we have never been an investor in Turing.
    Broadfin is proud to partner with innovative companies, 
like Retrophin, that invest in improving the lives of the 
patients who use their products. We are committed to investing 
responsibly on behalf of our investors while at the same time 
making a difference in the lives of children and adults who 
suffer from debilitating conditions and ailments.
    Thank you, and I welcome your questions.
    The Chairman. Thank you.
    Well, I must say, it is very difficult to know where to 
even begin, but Mr. Smith, you made the most outrageous 
statement of anyone when you stated, quote, that you ``care 
deeply about the patients who take Daraprim.'' I would like to 
draw your attention to Exhibit 8 and Exhibit 9.
    Now, clearly, you know that Daraprim went from being 
modestly priced to being prohibitively expensive, and when you 
started to hear of access problems, according to a Skype 
exchange that we have, which is shown in Exhibit 8, you say, 
``I think some of them are fake.''
    You participated in a Skype chat with two of your 
colleagues in which you express shock that two patients had 
paid cash for Daraprim. Let me read from that chat, although it 
is difficult to do so because of the number of expletives in it 
in which you are making fun of patients that are paying the 
full amount. ``Two patients have paid cash for Daraprim. 
Rich...
    [expletive deleted]. Oh, my God. Wow.''
    You went on to discuss concerns that you had with the 340B 
Medicare program. This is a program that provides needed 
medicine for our Nation's desperately poor, and you express 
concern that it was cutting into Turing's profits, so as we can 
see from the slides, your colleague, Mr. Crutcher, wrote, 
``Time to dip out of the 340B claims...
    [expletive deleted]. F-these guys.'' Your reply, ``Laugh 
out loud. Yes. I told her to start disputing the 340B claims.''
    Mr. Smith, that exchange alone--and there are many more 
that I could have pointed to--make it very difficult for me to 
believe your statement when you express your deep concern for 
the patients. Would you care to respond?
    Mr. Smith. Yes. I would like to provide a little bit of 
context about this exchange. The 340B program makes up 
approximately 66 percent of Turing's--the volume of Daraprim 
that Turing sells, and there is some--within the industry, 
there is some concern that the 340B program is occasionally 
abused for fraudulent use, where a hospital may purchase a 
product at a much lower price to then sell it at a higher 
price, so that--those comments that I was making in this 
informal discussion between coworkers that have been working 
together for many years, and there are many stupid comments in 
here and regretful language. That was the genesis of those 
comments.
    The Chairman. Well, ``LOL, yes'' does not sound like you 
are really talking about fraudulent claims. The whole tenor of 
this exchange is, can you believe there are suckers out there 
who are paying the full price? Can you believe that--we are 
concerned. We have got to start fighting back on the 340B 
program. There is nothing in there that expresses an iota of 
concern for the patients who are getting help through the 340B 
program, nothing at all.
    Mr. Tilles, Daraprim has been on the market since 1953. Is 
the Daraprim pill that Turing sells today essentially the same 
pill that has been on the market, the same medicine that has 
been on the market since the FDA approved the drug in 1953?
    Mr. Tilles. Yes.
    The Chairman. Turing did not do any R&D to develop 
Daraprim, correct?
    Mr. Tilles. Correct.
    The Chairman. Since, obviously, Turing did not exist until 
2014 and this drug has been on the market since 1953, so the 
R&D was done before--decades before Turing even came into 
existence, correct?
    Mr. Tilles. Yes.
    The Chairman. What improvements did Turing make to Daraprim 
to justify raising the price of the drug from $13.50 a pill to 
$750 a pill?
    Mr. Tilles. I think it is important to distinguish the 
initial purchase and what we are doing now. We are now 
focused--sorry. We are now focused on R&D for the next 
generation of toxoplasmosis. We have Dr. Eliseo Salinas, who is 
adequately qualified to develop new programs, and we are very 
much focused on R&D going forward. Initially, no, now, yes. 
There are--as you mentioned, the drug has been around since 
1953 and we are not aware of any other pharmaceutical company 
which ever paid it any attention to try to develop it in any 
way going forward.
    The Chairman. We----
    Mr. Tilles. Some people--oh, sorry. Go ahead.
    The Chairman. We have heard testimony today that Daraprim 
works just fine, that it is the gold standard. In fact, if you 
look through Turing's documents, it is repeatedly described as 
the gold standard, so no matter what the story may be now about 
your R&D plans, the truth is that Daraprim is exactly the same 
today as it was 60 years ago. The only difference is that the 
price has been increased by some 5,000 percent.
    Mr. Tilles. Correct, and I have--since I began at Turing, I 
have spoken to--we have had, actually, many experts in the 
field come in, and you are correct. It has been around since 
1953, but it does not mean, because of that, it is the best 
version. My understanding is that there are many patients who 
do not tolerate Daraprim very well and there actually is room--
there are some toxic effects--there is room for improvement, so 
I respectfully would have to disagree that there is nothing 
that can be done to improve the lives of Daraprim patients.
    It is actually a cyst that is very hard to destroy. It is 
actually not originally an AIDS drug. It is a cyst. It is a 
parasite that infects you, and there is actually apparently 
three billion people globally who have this parasite. Someone 
in this room could have it, so it is actually there is room for 
improvement.
    The Chairman. What percentage of your revenues are you 
spending on R&D today?
    Mr. Tilles. Last year, we spent roughly, I think as we 
described earlier, about 60 percent in R&D last year.
    The Chairman. Sixty percent of R&D----
    Mr. Tilles. Last year. Last year.
    The Chairman. [continuing]. does not add up to the figures. 
Are you talking about 60 percent of the increase in the price 
of Daraprim?
    Mr. Tilles. No, I am talking about in terms of any kind of 
revenue that we make.
    The Chairman. There is a conflict between your testimony 
and the testimony of your executive who testified on the House 
side in that regard----
    Mr. Tilles. I--uh----
    The Chairman. [continuing]. since he said it was of the 
increase in the price.
    Mr. Tilles. That may be--she might be correct, actually, 
so----
    The Chairman. Let me turn to another issue, and that is 
Exhibit 5. This is a personal letter--personal letter--directly 
to you from the leaders of the HIV Medical Association, the 
Infectious Diseases Society of America, and the Pediatric 
Infectious Diseases Society. This letter contains a personal 
plea to you.
    It notes that you are the newly appointed interim CEO of 
Turing and it pleads with you to lead the country in--lead the 
company in a new direction that places patients' interests and 
lives ahead of short-term profits by taking the step of 
reversing Turing's price increase on Daraprim from $13.50 a 
pill to the $750 a pill, and it goes on to note that despite 
Turing's repeated assurances to the contrary, the $750 per 
tablet price has wreaked serious havoc on patient access to the 
treatment of toxoplasmosis, resulting in treatment delays and 
interruptions.
    Now, you said in your deposition that you were out of the 
office at the time that this letter arrived. What, when you 
became aware of the letter, what did you personally do to 
respond specifically to this December 22, 2015, letter from 
these three prestigious medical groups?
    Mr. Tilles. Yes. As I mentioned before, this was not 
actually my area of expertise, but it is of great concern, so I 
discussed it with Nancy Retzlaff, who, again, is here in the 
room, our Chief Commercial Officer, and my understanding is 
that she made every attempt to reach out to all these 
organizations.
    The Chairman. What have you personally done in response to 
this urgent plea to reverse the price increase of Daraprim?
    Mr. Tilles. Well, again, with all due respect, we have 
actually reduced the price of Daraprim across the board, first 
to hospitals by 50 percent, and as I earlier described two-
thirds of patients basically pay one penny a pill, so that $750 
number is a little bit inaccurate if you look at the entire 
patient population.
    The Chairman. Well, the hospital price of--let us say you 
cut it in half. It is still going from $13.50 to more than $300 
a pill.
    Mr. Tilles. Again, the majority pay a penny a pill.
    The Chairman. Well, I would suggest to you that we talked 
to these three medical societies and they tell us that you have 
done nothing to respond to their letter and that you have made 
virtually no changes in your distribution pattern or your 
pricing.
    Senator McCaskill.
    Senator McCaskill. Mr. Wichman, I know from your testimony 
that your company, Broadfin Capital, regularly invests in the 
health care sector and pharmaceutical companies. In your due 
diligence, do you think it is important that the CEO of a 
pharmaceutical company have a background in pharmaceuticals?
    Mr. Wichman. You know, I--people at the company would have 
to have some kind of background----
    Senator McCaskill. No, the CEO. Do you think the CEO of a 
pharmaceutical company should have any background in 
pharmaceuticals, as part of your due diligence for you 
investors?
    Mr. Wichman. My opinion, it would be helpful. It is not--
not mandatory. I do not think----
    Senator McCaskill. Did Martin Shkreli have that kind of 
background in pharmaceuticals?
    Mr. Wichman. As the CEO of a pharmaceutical company? No.
    Senator McCaskill. Did he have any--how about Michael 
Pearson at Valeant? Did he have that kind of background?
    Mr. Wichman. I do not believe so.
    Senator McCaskill. Okay. Mr. Tilles, you are the CEO of the 
company?
    Mr. Tilles. Yes, I am Interim CEO.
    Senator McCaskill. Okay, but you do not know much about 
pharmaceuticals, do you?
    Mr. Tilles. That is correct.
    Senator McCaskill. So----
    Mr. Tilles. That is not my background.
    Senator McCaskill [continuing]. like, even last month, or 2 
months ago when we took your deposition, you did not even know 
what ANDA was, did you?
    Mr. Tilles. I know what it is now----
    Senator McCaskill. You did not know 2 months ago.
    Mr. Tilles. When I started--when I started, no, I did not.
    Senator McCaskill. Yes. You became CEO--you were Chairman 
of the Board beginning at the beginning of this adventure to 
acquire Daraprim and jack the price up because there was 
nothing anybody could do about it. You have been there as 
Chairman of the Board. Now you are a CEO since December, and in 
your deposition, you did not know what ANDA was, which was 2 
months ago, after you had been CEO for several months, correct?
    Mr. Tilles. I believe, again, if I look at my--if I recall 
my deposition, when I first started--not 2 months--when I first 
started, I did not know.
    Senator McCaskill. It is on the screen, sir. You can look 
at it. You said, ``I have heard of the term.''
    Mr. Tilles. Okay.
    Senator McCaskill. You did not know what it was?
    Mr. Tilles. Correct.
    Senator McCaskill. All right. What about when you were 
asked about if you were familiar with the concept of 
bioequivalence testing. Were you----
    Mr. Tilles. I was not that familiar with the exact 
procedure, no.
    Senator McCaskill. Well, did you not say, ``I have heard 
the term, but if you quizzed me, I would fail''?
    Mr. Tilles. That is correct.
    Senator McCaskill. All right, and what about you are not 
really familiar with a concept known as substitutability of a 
drug. Did you understand that term as CEO of this 
pharmaceutical company?
    Mr. Tilles. Again, I do now, but I did not then.
    Senator McCaskill. That was after you had been CEO for 
several months.
    Mr. Tilles. I have been CEO since December 18.
    Senator McCaskill. Okay, so let me now turn to your sales. 
What were your sales in August 2015, prior to the price 
increase? What was the IMS tracking number for your company in 
August 2015, before you increased the price?
    Mr. Tilles. For Turing? For----
    Senator McCaskill. For Daraprim, which is that, and you 
have Vecamyl, but, essentially, your company is Daraprim, so 
tell me what your unit was in August 2015.
    Mr. Tilles. Well, we--I think it was close to zero, because 
we acquired it in August 2015, so we did not own it----
    Senator McCaskill. What was being prescribed in the country 
in August 2015 of Daraprim? Surely, you knew that as Chairman 
of the Board, what you were buying, how many were going out the 
door.
    Mr. Tilles. I believe it was five million.
    Senator McCaskill. Well, per month. In August 2015, it was 
25,500, based on IMS data, which is the industry standard, 
correct, Mr. Wichman?
    Mr. Wichman. IMS is the industry standard.
    Senator McCaskill. Okay. I am using the industry standard 
here and you are the CEO, so in August 2015, before you 
increased the price, 25,500 in that month. Now, what about in 
December 2015, when you took over as CEO? How many went out the 
door, according to the IMS data, that month?
    Mr. Tilles. Again, I do not recall the specific number.
    Senator McCaskill. How about 600? How are you doing 
reaching patients with this astronomical price increase? This 
notion that you are sitting there and saying a penny a pill is 
so offensive to me. I mean, we are not stupid. Six hundred, so 
you went from putting 25,000 out the door at the lower price to 
600 out the door in less than 6 months according to the 
industry data. Now, how does that--how does that board feel 
about that? How is this price increase working out for you?
    Mr. Tilles. Well, I do think there were some transitional 
issues when we--after we acquired in August into September, so 
there is a several month transition period, and I am not sure 
in terms of why the sales numbers were different. I do not 
believe that it was just because of the price.
    Senator McCaskill. You think it went from 25,000 a month to 
600 a month for some other reason, because all of a sudden we 
have controlled the disease?
    Mr. Tilles. I----
    Senator McCaskill. I thought you just said that this was a 
growing epidemic worldwide, globally, and that this need for 
this drug was so serious compared to what had been prescribed. 
How do you reconcile going from 25,000 a month to 600 a month?
    Mr. Tilles. Well, in the U.S., it affects about 2,000 to 
3,000 patients per year, but I was not--I am not aware of what 
impacts or measure were doing before we bought it, so it is 
really hard for me to comment on their sales before we acquired 
the drug. Actually, I have no idea what they were doing 
previously. All I can comment is what has happened since we 
have acquired it.
    Senator McCaskill. Well, I will tell you. Since you have 
acquired it, in September 2015, it was 3,000. In October 2015, 
it was 900. In November 2015, it was 500, and in December 2015, 
it was 600.
    Mr. Tilles. Mm-hmm.
    Senator McCaskill. Now, as CEO, I would think you would 
have those numbers at the tips of your fingers. I know if Mr. 
Wichman had invested in your company, he would expect you to 
know that, and the street would expect you to know that, so I 
am a little confused that you do not even have a handle on your 
sales. How do we trust anything you tell us about your revenue 
or your R&D expenditure if you do not understand basic terms of 
pharmaceutical industry at your deposition and you do not even 
understand what your sales are? That is very hard for me to 
reconcile.
    Now, let me ask you about this. You were very involved in 
the acquisition of Daraprim, correct?
    Mr. Tilles. Yes.
    Senator McCaskill. You, in fact--it is your role---you 
stated that you were the point of contact with the former 
owner, is that correct?
    Mr. Tilles. I was point of contact in terms of negotiations 
for the company, yes.
    Senator McCaskill. You sent several letters to them making 
offers to buy Daraprim, correct?
    Mr. Tilles. Yes.
    Senator McCaskill. When you were asked about, the 
investigators of this Committee, about your role in the offer 
letter during your deposition last week, you quoted yourself as 
contributing to it in terms of grammar, and I want to read for 
the record the questioning in the deposition, because I think 
it is very important because it is astounding.
    You note in the--this is a question. ``You note in the 
second full paragraph, quote, 'We believe our offer is generous 
for an asset with declining volumes, lower than typical gross 
margins, and for which an ANDA might have been filed.' 
Question: What did you mean by that?''
    Answer: ``I did not mean anything. I just sent the letter, 
but again, I can speculate. I was just the conduit.''
    Question: ``Did you write the letter?''
    Answer: ``No, I sent it.''
    Mr. Tilles. Okay.
    Senator McCaskill. Question: ``To be clear--"
    Answer: ``Actually, I was not writing the letters.''
    Question: ``Did you edit the letter in any way?''
    ``Did I? Well, for English, yes, but not for numbers.''
    Question: ``So, you edited the letter only for English, not 
for content?''
    Answer: ``Yes, that is correct. I typically didn't write 
the letters.''
    ``Understood. Referring specifically to this letter, the 
offer letter, did you not write this letter?''
    ``Correct. I contributed to it only in terms of grammar.''
    ``And then you sent it under your signature.''
    ``That is correct.''
    ``So, you, as Chairman of the Board of Turing, sent a 
letter to a potential counterparty in a deal stating we believe 
our offer is generous for an asset with declining volumes, 
lower than typical gross margins for which an ANDA may have 
been filed, but you do not understand what was meant by that.''
    ``Sitting here today, now I do, but no, not then. They were 
just kind of, like, send this, and I was, like, Okay.''
    You were Chairman of the Board and you were just signing 
letters that were put in front of you? Do you not have a 
fiduciary responsibility to the people that give money, to 
people like Mr. Wichman, to have some sense of what you are 
sending and what it means?
    Mr. Tilles. Well, I certainly read the letters. What I 
meant is we are a very small company. We have three or four 
people. Again, as I said before, I do not have a pharmaceutical 
background, so did I send the letter as Chairman? Yes. Did I 
read it? Yes, but did I compose it? No. We have a very small 
team that writes the letters.
    Senator McCaskill. Well, I get confused. On one hand, you 
say that you are going to do groundbreaking R&D with 60 percent 
of your revenues, and you turn around and say, well, we are a 
very small company. We only have three or four people. We 
cannot do things like have the CEO understand what he is 
talking about when he actually is dealing in a pharmaceutical 
industry. It is hard for me to reconcile your testimony in that 
regard.
    Mr. Wichman, I am not going to have time to get into 
everything I want to get into with you on this round, but I 
will come back to Retrophin and to the kidney drug and talk to 
you about that investment and some of the issues surrounding 
that problem.
    Let me just say on the record here, as my time expires, and 
as I say I hope to do some more work in the second round, if 
anybody wants to know--it is always interesting to me when I 
talk to people who work on Wall Street, or when I talk to 
people in corporate America and they are beside themselves in 
trying to understand why America is so mad at them. They do not 
get it. Well, I do not understand, you know. We are just, you 
know, we are creating value for shareholders.
    This is why they are mad. This nonsense is why people are 
furious, and they are mad at us because we are letting you do 
it. Just so everybody is clear, nobody understands where the 
pitchforks came from. They came from deals like this. This is 
where the pitchforks came from.
    The Chairman. Senator Casey.
    Senator Casey. Thank you, Madam Chair.
    I wanted to start with referring to an earlier statement I 
made in the first panel. There are lots of ways to describe 
what happened here with regard to the conduct or even the 
pattern of conduct that has been alleged against Turing. My 
only way, the best way I can describe it is the incarnation of 
evil. That is what I believe it to be, and I just hope our 
system can hold those responsible fully accountable, but we 
will see what happens.
    I wanted to start, though, with part of the testimony of 
Mr. Tilles and Mr. Smith. One thing that jumped out at me, and 
I just place almost no credence in what, at least this part of 
your statement, I hope subsequent events and testimony and 
evidence proves me wrong, but it is just not credible in your 
testimony--in your written testimony--where you make references 
to discounts and support programs that mean ability to pay 
should never be a barrier to access. That is part of Mr. 
Tilles's statement or testimony, and then, Mr. Smith, when you 
say on page two, referring to assistance programs regardless of 
ability to pay.
    We just had a family here in the first panel that was told 
what they had to pay in order to help their daughter, so I hope 
that those were not just gratuitous statements. I hope that 
when you put that in your testimony, you meant it. I cannot 
prove you wrong. I just do not believe that part of your 
testimony, so I hope the rest of your testimony is truthful.
    Let me ask both of you this question. Mr. Dorfman in his 
testimony in the first panel said, and I am quoting at the top 
of page three, ``Pharmaceutical companies typically justify 
drug price increases, especially large rises, by expenditures 
such as research and development of the drug itself or a 
substitute, clinical trial work, or educational programs.'' 
That is the justification for large price increases.
    Mr. Tilles, let me ask you, do you agree with that 
statement?
    Mr. Tilles. Well, I think it is important to understand two 
things. One----
    Senator Casey. Let me just say, just answer that question 
first. Then you can talk----
    Mr. Tilles. Sorry. Then could you repeat the specific 
question? I am sorry.
    Senator Casey. Do you agree with the following statement. 
``Pharmaceutical companies typically justify drug price 
increases, especially large rises, by expenditures such as 
research and development of the drug itself or a substitute, 
clinical trial work, or educational programs,'' Do you agree 
with that statement?
    Mr. Tilles. Yes, I agree.
    Senator Casey. Mr. Smith, do you agree with that?
    Mr. Smith. I agree, but I would also include pre-clinical 
and early stage development.
    Senator Casey. He then goes--the next sentence is as 
follows. ``In this instance,'' meaning Turing--``in this 
instance, the price increase as contemplated and subsequently 
announced was not justified by any such actual expenditure,'' 
Do you agree with that statement, Mr. Tilles?
    Mr. Tilles. I respectfully do not.
    Senator Casey. Mr. Smith, do you agree with that statement?
    Mr. Smith. I respectfully disagree.
    Senator Casey. Okay. Good to have that clarified.
    Mr. Smith, I want to ask you a couple of questions about 
your testimony and some of the statements that you have made. 
You indicated that you worked on a valuation model related to 
Daraprim with other members of the business development team, 
is that true?
    Mr. Smith. That is correct.
    Senator Casey. You also said that you viewed Daraprim as an 
undervalued treatment for a serious but neglected disease. Is 
that true?
    Mr. Smith. That is true.
    Senator Casey. The question I have is, what factors went 
into the conclusion that Daraprim was undervalued? How did you 
come to that conclusion?
    Mr. Smith. Many drugs are valued based on the value they 
provide to patients, and Daraprim being a standard of care for 
a rare, you know, neglected disease, it seemed that the current 
value of the product was much lower than comparable medicines 
for similar disease morbidity indications.
    Senator Casey. What did you do to--what kind of analysis or 
what kind of work did you do to make that conclusion? What 
undergirds the conclusion you made?
    Mr. Smith. I am not sure that I have done a specific 
analysis, but my general experience with the industry is that 
you see drugs with small patient populations generally have 
prices well in excess of Daraprim.
    Senator Casey. You also stated the Daraprim acquisition 
gave you an important foothold in the treatment of 
toxoplasmosis. I assume that the word ``foothold'' means a firm 
positioning in the marketplace. Is that generally accurate?
    Mr. Smith. Yes. What I was referring to in that statement 
was prior to the completion of the acquisition, we had made a 
decision that regardless of the success of that acquisition, we 
would be developing new drugs for toxoplasmosis because of the 
severity of the disease and because there has been no 
improvements for over 50 years and there is still a lot of--a 
lot of physicians share the opinion that there is room for 
improvement.
    Senator Casey. Could the company not have gained a, quote, 
``foothold,'' without raising the price almost, by one 
estimate, 5,000 percent?
    Mr. Smith. I think that the price raise was necessary in 
order to establish that foothold.
    Senator Casey. By that amount, the price raise was 
necessary?
    Mr. Smith. I am not--I do not make any pricing decisions, 
so I am not sure what----
    Senator Casey. You just said--you just said that you 
thought it was necessary.
    Mr. Smith. I--I thought that a price raise was necessary, 
yes, but the scale of which, I have never had to make such a 
decision, so----
    Senator Casey. All right. I want to make sure I understand 
what you are saying. You are saying a price raise was 
necessary.
    Mr. Smith. Yes.
    Senator Casey. Not necessarily the price raise that 
transpired.
    Mr. Smith. I do not have the experience. There are a lot of 
factors that go into price decisions and I do not have the 
experience to determine whether that was an appropriate price 
or whether that was too low, too high.
    Senator Casey. You did come to the conclusion about 
valuation, as your testimony indicates.
    Mr. Smith. I built the model, correct.
    Senator Casey. Let me just conclude with this sentence. 
Where in your modeling do you estimate what financial resources 
would be necessary to improve treatment for toxoplasmosis?
    Mr. Smith. Could you be specific with which model, or---we 
prepare many iterations of models. Models, it is a tool. It is 
not necessarily a snapshot.
    Senator Casey. Well, let me ask you this. What models, if 
any, did you prepare that related to toxoplasmosis?
    Mr. Smith. I prepared the main one the business development 
team used, but again, as we moved through the due diligence 
process and our understanding, you know, of the product grew, 
there were many changes to the model, so there are many, many 
iterations.
    Senator Casey. You just said you did prepare a model.
    Mr. Smith. Yes, that was updated constantly.
    Senator Casey. What went into the development of that 
model?
    Mr. Smith. There was an extensive literature search to 
understand, you know, the patient population. I spoke to a few 
doctors that had said that they had treated toxoplasmosis. You 
know, we received confidential information from Impax as the 
process went on about the product. Those sorts of things.
    Senator Casey. I think you were here when we had earlier 
testimony. I want to go to the Westons' testimony, in 
particular, where they were told the cost--what the cost would 
be for the treatment for their daughter. Did you hear that part 
of their testimony?
    Mr. Smith. I heard that part, yes.
    Senator Casey. What do you say to a family that is faced 
with that kind of predicament?
    Mr. Smith. I was deeply saddened to learn about their 
situation. I only found out yesterday, and I was more upset 
that there was not adequate communication. Turing has made 
substantial efforts, and our commercial team and Nancy Retzlaff 
have made substantial efforts to reach out to hospitals, 
pharmacies, and members of the community to make sure that 
everyone knows where to get Daraprim and that if there is any 
issue with the ability to pay, we have several different 
programs that can limit copays, that can provide drug free of 
cost, so I was disappointed that that was not made available 
immediately to those folks.
    Senator Casey. That is all I have.
    The Chairman. Senator Donnelly.
    Senator Donnelly. Thank you, Madam Chair.
    To the Westons, I heard your testimony. If it were my 
child, just like you, I would be turning over the tables, 
because you will do anything to make sure your child is Okay, 
and you know, I may have been born at night, but I was not born 
last night. This is a scam. You guys are running a scam, and 
you tried to figure how fast you could milk it and how hard you 
can milk it, and somewhere, there has been a complete loss of 
any sense of shame, of any sense of responsibility.
    I am going to give you a chance here. The pills were $17.50 
before you guys got your hands on it. They are $750 now. I will 
make you a deal. Why do you not make a pledge here today that 
you will not charge more than $25 for any of these pills for at 
least the next 2 years. You have got over--almost a 50 percent 
increase in the price then. Why do you not make a deal and tell 
the American people you are going to step up and end this and 
you will not charge more than $25 for any pill.
    Mr. Tilles, will you make that deal?
    Mr. Tilles. With all due respect, in my role as CEO, as an 
individual, I would love to do that, but as a CEO, I cannot, 
because----
    Senator Donnelly. As a CEO, is a 50 percent increase in a 
product you just bought not enough?
    Mr. Tilles. Well, what I was going to say is the company 
still has to survive, and at this point----
    Senator Donnelly. They cannot survive on a 50 percent 
increase in the price of the product you bought?
    Mr. Tilles. We are not a profitable company right now.
    Senator Donnelly. Why is that?
    Mr. Tilles. Again, many reasons----
    Senator Donnelly. Is it the $2 million records that your 
CEO is buying? I mean, why are you not profitable right now?
    Mr. Tilles. Just to comment on that, Mr. Shkreli never took 
a salary while at Turing, and as far as I know, as Chairman and 
CEO, I do not think he has extracted one dollar out of Turing 
to date.
    Senator Donnelly. Well, then, why did you buy a company 
that you are not now making money on that was apparently 
profitable at $17.50 a pill. You are charging $750 a pill. That 
does not make any economic sense at all.
    Mr. Tilles. Well, again, our goal as a company--you know, I 
find it interesting. We have talked about how to get a drug 
through the pipeline can cost over a billion dollars, and one 
of our initial visions----
    Senator Donnelly. Well, this did not go through a pipeline. 
Madam Chair, am I wrong, this is the same thing since the 
1950's?
    The Chairman. You are absolutely correct, and the witness 
has so testified.
    Senator Donnelly. Forget about the pipeline. You jacked it 
up 50 percent if you get 25. How is that not enough?
    Mr. Tilles. Well, what I was going to add was that, again, 
the distinction between developing a drug from scratch and 
using the profits from the drug that we do have to develop new 
drugs from scratch, I do not see that----
    Senator Donnelly. In the process, their child cannot get 
the medicine.
    I have a town--let me tell you about a little town in 
Indiana. The name of the town is Austin. We have had a terrible 
opioid problem there. We wound up with 189 people with HIV 
cases. Maybe at some point with AIDS they would have to use 
your product. How can I sit here and let you continue with a 
750 price point when I have people who may be in desperate need 
of your product?
    Mr. Tilles. Well, as I said earlier, the majority of 
patients do not pay 750 a pill. They pay----
    Senator Donnelly. Why do any of them pay 750, other than 
the fact that maybe you thought you could get it?
    Mr. Tilles. Well, again, our head of marketing is in the 
room. My understanding is that----
    Senator Donnelly. Well, maybe the head of marketing can 
tell me.
    Mr. Tilles. She can if she likes.
    Senator Donnelly. Do you want to tell me how you came up 
with the 750 price? I would be really interested how you sat at 
a table, and who made the decision to go from $17.50 to $750.
    The Chairman. Senator----
    Senator Donnelly. Okay. I am sorry.
    The Chairman. [continuing]. since that witness would not be 
under oath----
    Senator Donnelly. We will pass, then.
    The Chairman. [continuing]. and testified extensively at 
the House side----
    Senator Donnelly. I am sorry. We will pass this.
    The Chairman. We have her testimony already.
    Senator Donnelly. Mr. Smith, let me ask you a question, and 
maybe this is a little bit offbeat. What do your parents think 
about this model you came up with that wound up with $750 pill 
prices for kids?
    Mr. Smith. Well, I cannot comment for my father. As I said 
earlier, he was killed in the September 11 attacks, but for my 
mother, she--I mean, she does not have a strong understanding 
of what I do, so she is generally supportive of me.
    Senator Donnelly. You think that is morally correct to do 
750?
    Mr. Smith. Again, as I said earlier, I am not involved in 
any of the pricing decisions. I have never had to make one. 
There are many factors that go into it.
    Senator Donnelly. Let me ask you this, Mr. Tilles. Do you 
still believe no patients have been impacted by this price?
    Mr. Tilles. I believe Turing has done everything in their 
power to make sure every patient has access to the pill. As I 
mentioned before, we have numerous programs in place and our 
desire is that no patient not have access to this drug, and I 
actually think that we are doing everything in our power to 
create awareness of this disease and to make sure that everyone 
is--that gets the drug that needs it.
    I am also pleased--again, Dr. Salinas is not here---
actually, our head of research is the highest paid person in 
our company. I do not know if you are aware of that. I am 
pleased to see that we are actually doing a lot of things in 
toxoplasmosis. I sat on a panel--again, I am not a pharma 
expert, but some of the things he is doing are just fascinating 
to me in terms of the next generation of drug.
    Senator Donnelly. Mr. Wichman, could you walk us through 
the process of identifying a pharmaceutical asset you 
reasonably assess as promising in terms of potential returns 
for your hedge fund investors.
    Mr. Wichman. Senator, we generally do not identify 
pharmaceutical products. We identify companies that we think 
are worthy of investment and that is what our job is.
    Senator Donnelly. As you look at this, as you move forward, 
as you check out potential returns in the pharmaceutical 
assets, the question was asked before, how deep do you look in 
terms of the management's expertise in pharmaceuticals, their 
work in pharmaceuticals, their CEO's role in pharmaceuticals? 
What do you look at with that?
    Mr. Wichman. We look at management teams and we look at a 
number of other factors when we do our diligence. When we look 
at a drug, we speak to physicians. We build financial models. 
We do detailed work on a number of factors, so it is one of 
many factors that goes into investing in a product, or in a 
company.
    Senator Donnelly. Do you encourage the companies that you 
buy to take a step like this?
    Mr. Wichman. Absolutely not.
    Senator Donnelly. Absolutely not. Okay.
    Well, you know, we are going to continue to work to turn 
this back. I think you can make a huge difference in your 
public opinion, in the way you are viewed, if you would step up 
and say, we are not going to charge more than $25, which is 
over a 50 percent increase in what you were--the price that was 
being charged when you bought it. I think it would be an 
enormous help to all of you. I think it would help to clean up 
the mess that you have on your hands, and I think it would be a 
sign to the families who count on you, who may lose their 
children, who may lose their loved one who has AIDS, that you 
can start to put this back on the right track, and I would 
encourage you to do so.
    Thank you, Madam Chair.
    The Chairman. Thank you.
    Senator Kaine.
    Senator Kaine. Thank you, Madam Chair.
    Mr. Tilles, I just want to followup. You indicated you 
graduated from Middlebury College, I believe?
    Mr. Tilles. That is correct.
    Senator Kaine. What was your undergraduate degree?
    Mr. Tilles. Oh, you mean what did I study?
    Senator Kaine. Yes.
    Mr. Tilles. English.
    Senator Kaine. Then a Columbia M.B.A. Did you have a 
concentration at Columbia in finance or human resources?
    Mr. Tilles. Marketing and finance.
    Senator Kaine. Uh-huh, and then you indicated you did not 
have a pharmacy or medical background. You have not had 
separate training in pharmacy science or any allied health 
field?
    Mr. Tilles. That is correct.
    Senator Kaine. Mr. Smith, tell me about you. Where did you 
go to college?
    Mr. Smith. I went to Fordham University.
    Senator Kaine. What was your undergraduate major?
    Mr. Smith. Finance.
    Senator Kaine. Do you have a graduate degree?
    Mr. Smith. No.
    Senator Kaine. Have you had any separate training in any 
pharmacy or allied health field?
    Mr. Smith. None other than professional experience.
    Senator Kaine. Okay, and then, my understanding is the same 
is probably true about Mr. Shkreli, that he did not have a 
background in pharmacy or medical studies academically.
    Mr. Tilles. I am not sure of Martin's educational 
background, but I do know that early on, one of the things that 
enormously impressed me was that he had developed on his own a 
treatment for PKAN. I found that fascinating. I think he has a 
patent on the disease, so to me, he seems to have been self-
taught.
    Senator Kaine. You first started working with him when he 
was at a hedge fund, is that correct?
    Mr. Tilles. I met him when he was there, yes.
    Senator Kaine. Okay. Mr. Smith, you answered a question to 
Senator Casey that I want to followup on. You asked kind of how 
you came upon Daraprim and determined that it was undervalued, 
and he asked you, how do you determine a drug is undervalued, 
and I think your testimony was that--I was trying to write it 
down quickly--you look at drugs and you assess the value of the 
drugs based upon the value that they have to patients, and if 
you notice that, I think the extension was, if the value to 
patients is high but the cost is not very high, then there is 
some kind of a mismatch, and that is what undervalued means. Is 
that a fair characterization of your testimony?
    Mr. Smith. I think to expand on my testimony, I was 
referring to the fact that some drugs, there is also an 
opportunity to increase units. As some physicians have 
mentioned, the typical patient that takes Daraprim is generally 
pretty noncompliant with their medicine, so putting a product 
like Daraprim into a specialty pharmacy, where there is refill 
reminders and the drug is delivered right to their door, a 
number of steps that we take to ensure that patients take drug, 
which increases units, and also it leads to better patient 
outcomes.
    Senator Kaine. How does that relate to your answer to the 
question of whether Daraprim was undervalued?
    Mr. Smith. Those items add to the value. Those things were 
not currently being addressed as aggressively as we currently 
are.
    Senator Kaine. You concluded that Daraprim was undervalued 
in part because you thought that there was a mismatch between 
the pricing of that drug and the significant and intense need 
that particular patients had for that drug because it was the 
gold standard treatment for the medical condition.
    Mr. Smith. I believe the drug was underutilized, yes.
    Senator Kaine. Right, so this notion of kind of what 
undervalue is, that it is--if patients really need it, that 
they have an intense need for it because it is the gold 
standard, but the price is low, I mean, it is basically a 
profit opportunity. It is the patient as a hostage, the patient 
as a profit center. If the patient really needs it, because it 
is the gold standard, and the price is low, then there is the 
finance opportunity that suggests, wow, this is an undervalued 
drug. What a great business opportunity for us. I mean, it 
sounds like I kind of got the business model.
    Mr. Smith. Can I provide some clarification?
    Senator Kaine. Yes. I mean, your testimony is already on 
the record, what you said to Senator Casey, but, please, yes, 
clarify.
    Mr. Smith. When I said utilization, I meant that the 
patients--because it is such an important medicine----
    Senator Kaine. Actually, your answer did not--when you 
answered Senator Casey, you said nothing about utilization. 
What you said is you viewed this as an undervalued drug because 
the value to patients was very high and that was very different 
than how the drug was being priced, so my read of that quick 
testimony was you saw a gap between patients who had a 
tremendous need to have this drug, because it is the gold 
standard in treating a difficult condition, and a pricing 
mechanism that, frankly, was not extracting enough for them 
given the value that it had to the patients who needed it.
    Mr. Smith. As I responded to your initial request for 
clarification on undervalued, I used the word ``utilization,'' 
and by utilization, I meant the use of the drug within the 
patient population. You know, it is my understanding that 
there----
    Senator Kaine. The notion would be, if it was 
underutilized, one of the ways you could more utilize it is 
expand access to it, have more people have access to it, right?
    Mr. Smith. By utilization, I mean patients taking--sick 
patients taking the drug.
    Senator Kaine. The idea would be you would want to expand 
utilization, and the way to expand utilization would be to 
expand access, right?
    Mr. Smith. By investing in patient access----
    Senator Kaine. I know that you have indicated that you have 
no responsibility with respect to pricing decisions, but how 
could it conceivably be an expansion of utilization, or 
facilitate expanded access, to increase the price of a pill 
from $17 to $750?
    Mr. Smith. Well, access is just a component. The additional 
research and development and the next generation drug that we 
could market worldwide is also a significant----
    Senator Kaine. You would agree with me, so you went to 
Fordham and had a degree in finance, and I have a degree in 
economics I can barely remember, but as a general matter, if we 
see this drug, we do not think it is utilized enough and we 
want it to be utilized more, that jacking the price from $17 to 
$750 and entering into a sole source distribution agreement, 
those two things actually cut against the expansion of 
utilization, I mean, would you not agree with that?
    Mr. Smith. No.
    Senator Kaine. You do not think increasing the price from 
$17 to $750 would reduce the expanded utilization of this 
product?
    Mr. Smith. No. Raising the price allows you to make all 
these significant investments in the different areas I spoke 
about, the commercial patient outreach and research and 
development.
    Senator Kaine. Has the subsequent experience, in terms of 
dramatically expanding the quantity of this that patients have 
been taking, borne that out?
    Mr. Smith. I do not have familiarity with the exact 
figures, but Nancy Retzlaff, our Chief Commercial Officer, 
would be able to tell you.
    Senator Kaine. What was the--tell me about the genesis of 
the sole distribution agreement with Walgreens.
    Mr. Smith. That is an agreement that we inherited from 
Impax.
    Senator Kaine. Was the fact that that agreement was in 
place a business factor in your decision that Daraprim was an 
undervalued drug and a promising opportunity for investment by 
Turing?
    Mr. Smith. We had planned to make--set up a similar system, 
so it--in some ways, they already set it up.
    Senator Kaine. Right, so you would have done that if--so, 
it was. That was a positive factor as you were looking at 
whether this was an undervalued drug that you might want to 
purchase, that they had a sole distribution agreement with 
Walgreens.
    Mr. Smith. Their agreement is--I believe there have been a 
number of amendments to the agreement, but----
    Senator Kaine. Yes, but you get what I am asking. If you 
were going to do it anyway, the fact that they had already done 
it was a positive as you looked at this investment opportunity.
    Mr. Smith. Yes.
    Senator Kaine. Okay, and there were concerns raised with 
Turing about the sole source agreement with Walgreens and the 
effect that it would have on access and utilization. I will 
just refer to the record, Exhibit 23, e-mails from the Health 
Resources and Services Administration that show that HRSA 
reached out directly to Turing with concerns that this limited 
distribution network would have a significant impact on patient 
access, and I will just State that for the record. I do not 
think we need to go into it further. It is in the record.
    Madam Chair, I do not have any other questions, but I just 
think that the two fundamental kind of core aspects of this 
undervaluation determination, we see this as undervalued 
because patients really need it and the cost and maybe the 
access to it suggest that we need to expand utilization, and 
then we take steps to dramatically jack up the cost and we take 
steps to put this drug, or we at least find positive to put 
this drug in a limited distribution channel that raises 
questions about access.
    It just seems to me that this is a business model that is 
about patients as hostages. It is about patients as profit 
centers, and it is decisions that are made by executives who 
have no training in pharmacy, no training in medicine, no 
training in allied health fields at all, and you know, that 
this seems OK.
    Fordham is a Jesuit school.
    Mr. Smith. Correct.
    The Chairman. Thank you, Senator Kaine. You are exactly 
right. It is a case where there is a captive audience and this 
is the gold standard, which is part of the business model that 
we have been able to identify.
    Ms. Retzlaff, I notice you have remained at the table. 
Unless you are giving legal counsel in an official capacity to 
the witnesses, I would ask that you return to your seat.
    Mr. Tilles. May I say something?
    The Chairman. Mr. Tilles.
    Mr. Tilles. Yes. I just want to say that although her 
testimony is not a part of this Senate record--although Nancy 
Retzlaff's testimony is not part of the Senate record, my 
understanding that Turing is--we are happy to offer her as a 
sworn witness because it seems like she is the most qualified 
person on these matters.
    The Chairman. Ms. Retzlaff testified extensively on the 
House side, so we have her testimony, and unless she is here 
officially representing one of the witnesses as an attorney, 
she is directed to return to her seat.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Madam Chair.
    You are here under subpoena, correct?
    Mr. Tilles. Yes.
    Mr. Smith. That is correct.
    Senator Blumenthal, You have taken an oath.
    Mr. Tilles. Yes.
    Mr. Smith. Yes.
    Senator Blumenthal. Let me ask you, because you are here 
under compulsory process, whether you would have done things 
differently if you knew then what you know now.
    Mr. Tilles. Are you talking to me, sir?
    Senator Blumenthal. I am asking both of you.
    Mr. Tilles. Okay. Well, it is hard--it is hard to, again, 
look back. I mean, what is done is done. I would just say that, 
going forward, we will make every effort to basically invest in 
R&D and improve patient access as much as we can. Mr. Shkreli 
is no longer part of the company. We feel we are moving in a 
good direction at this point, and again, despite all the 
scrutiny, we remain a--we remain a very small company. As I 
said before, it is pretty much kind of a startup, so you know, 
we do have big plans, but it has obviously been very difficult 
in the last few months, but we do hope to move forward and 
correct the issues.
    Mr. Smith. As I said earlier, I have never been a part of a 
senior executive team, so I am not sure about all the factors 
that weigh into all these specific departments, so I am not 
sure that I----
    Senator Blumenthal. Well, you are intimately involved in 
the affairs of the company. Would you have done things 
differently than, in fact, happened, if you were in a position 
of responsibility?
    Mr. Smith. Again, I think that someone--the folks on our 
senior management team have a lot more experience and years, 
many, many years more knowledge of these matters, so I would 
not--I would not know how to assess the situation.
    Senator Blumenthal. I think what the members of this 
Committee find offensive, with all due respect, is the apparent 
lack of remorse, given the powerful impact that we have seen of 
the price gouging that occurred, the powerful impact on 
families like the Weston family--thank you to them for being 
here today--the lack of remorse and, frankly, any sense of 
regret, because the human impact is incalculable.
    The explanation that there was going to be an investment in 
R&D or in greater access, which defies common sense as to why a 
5,000 percent increase in price was necessary, and the logic, 
or defiance of logic in saying that utilization would be 
expanded by increasing the price--I am not an economics major. 
I have no background in finance, but that is a little bit like 
saying that the laws of gravity no longer work, or we are going 
to put a man on the moon by drilling to the center of the 
earth.
    I know that your explanation is you were going to invest in 
expanding the reach, but you are dealing here with a product 
that is not being mass marketed, correct?
    Mr. Smith. Correct. It reminds me a lot of Thiola, as Dan 
Wichman said, when we did a very similar strategy and grew 
units.
    Senator Blumenthal. It is a captive audience, a discrete 
patient population that has to be reached by very specific 
means, not by going on TV or other kinds of mass media, and so, 
to have a drug that is the gold standard that is available 
through discrete, specific channels, and then to say that a 
5,000 percent price increase is necessary to invest in the 
means to reach that captive patient population just seems to 
defy common sense.
    Mr. Smith. My understanding from speaking with physicians 
is that there is still a large amount of unmet need. For 
example, with congenital toxoplasmosis, I believe Daraprim is 
contraindicated for a certain trimester of dosing and it can be 
very unsafe----
    Senator Blumenthal. You are not going to make that drug 
more available by putting it financially out of reach. That is 
the contradiction here.
    Mr. Smith. In speaking with some of our R&D staff recently, 
I was made aware of our--a series of compounds that we have 
developed that display degrees of selectivity for the toxo over 
the human gene, DHFR, of hundreds-fold, so we are already 
making those steps in the next generation of toxoplasmosis 
treatments that could mean, you know, no need to co-dose with 
other drugs for which there is known allergies, or lower pill 
burden for these patients that are notoriously noncompliant, so 
there are significant advantages to investing in this.
    Senator Blumenthal. When you raised the price, was there a 
business plan that calculated the specific revenue that was 
necessary to accomplish specific R&D steps or outreach 
measures?
    Mr. Smith. There was a financial model, but again, as I 
said, it is a tool. It is not really a snapshot.
    Senator Blumenthal. I am sorry----
    Mr. Smith. It is a tool to evaluate different scenarios, so 
it is not necessarily something that shows exactly--I mean, 
there may be other documents that I am not aware of. I am just 
speaking from my personal knowledge.
    Senator Blumenthal. Do you want to supplement that?
    Mr. Tilles. Yes, if I might add that it is hard, because, 
again, we are a relatively new company, it is hard month to 
month to figure out the exact budget to go into R&D. I can 
assure you that pretty much every spare dime we have goes into 
these types of programs.
    Senator Blumenthal. Well, I have been looking at the 
testimony that was submitted to the House by Ms. Retzlaff and, 
you know, I am at a loss to know why that 5,000 percent 
increase was the number set, why it went so substantially to 
that number. Maybe you have an explanation.
    Mr. Tilles. Again, I was at the company, but at the time, I 
was a Board member. I was not CEO. I did not get involved in 
the drug pricing. I did get involved in the negotiation of the 
deal. I do not know how they arrived----
    Senator Blumenthal. You cannot really come to this--I 
apologize for interrupting. You cannot come to this Committee 
and say, you know, I am Sergeant Schultz. I see nothing. I know 
nothing. You know what happened, correct?
    Mr. Tilles. I would like to add that I believe one of the 
things they were looking at, if you step aside and--I know we 
cannot, but if you could, for a second, ignore the price 
increase, that if it was a new drug that we had developed, and 
it was an old drug, but in that sense, it was----
    Senator Blumenthal. Well, that really----
    Mr. Tilles [continuing]. it is a life-saving--oh, sorry. Go 
ahead.
    Senator Blumenthal. Go ahead. Sorry.
    Mr. Tilles. It is a life-saving treatment and it is 
overall, in comparison, I believe, looking in comparison to 
other drugs of comparable treatments, it is relatively priced. 
I do agree that there was a price increase. I acknowledge that. 
Again, the actual amount paid by every patient, as I guess 
Nancy said before, is a totally different number and many 
patients get it at a penny per pill, and our program, our 
desire, again, as I have said before, even though we are not 
developing a drug from scratch, we are using the profits to 
develop new drugs from scratch, so it is, in a way, similar.
    Senator Blumenthal. Do you have anything to add?
    Mr. Smith. No.
    Senator Blumenthal. The Nancy you referred to was Nancy 
Retzlaff?
    Mr. Tilles. Yes. Correct.
    Senator Blumenthal. Well, I would ask that you submit to 
this Committee any additional documents that you may have to 
justify the decision to raise this price to the specific number 
of $750 from the much lower price, and any other documents that 
would reflect on that decision.
    Thank you, Madam Chair.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Madam Chair.
    I want to start out by thanking Chair Collins and Ranking 
Member McCaskill for this deep investigation on drug pricing. 
Your work shines a light in many dark areas, and this is the 
first step for changes in the industry. I admire your 
leadership in this very much.
    The market for prescription drugs is different from the 
market for other goods and services, and there are lots of 
reasons why. Patients need prescription drugs to live and be 
healthy. They are not like TVs, where you can put off until 
next month your next purchase.
    Unlike most consumer products, the drug industry has little 
price transparency. Unlike most consumer products, there are 
very long legal monopolies. In many cases, like we saw with 
Daraprim, there is only one manufacturer selling a drug. If 
that manufacturer raises the price, consumers cannot just shop 
elsewhere.
    These structural differences give drug manufacturers great 
pricing power, and, you know, I think Spiderman had it right. 
With great power comes great responsibility, but that 
responsibility is missing across the drug industry.
    Mr. Dorfman from the first panel is the former General 
Counsel of Turing and he was let go after he raised concerns 
about the company's strategy of jacking up the Daraprim prices. 
We have his sworn deposition, and in his deposition--I just 
want to quote it here--he said, ``A price increase along the 
lines that were taken here is, in my mind, is not justifiable. 
I do think a price increase that is taken with a drug, if it is 
necessary to maintain, frankly, the life of a particularly 
vulnerable patient population that could negatively impact 
their ability to obtain it, is unethical from a business ethics 
perspective.''
    Mr. Tilles, do you agree with that statement? Do you think 
it is unethical for a company to raise the prices of drugs 
needed to save patients' lives so high that patients cannot 
afford them?
    Mr. Tilles. Again, with all due respect, to put it in the 
context of what we were trying to do, the price--I admit there 
was a price increase. Actually, you know, again----
    Senator Warren. We know there was a price increase. That 
part is clear.
    Mr. Tilles. Yes, and we were--when Mr. Dorfman left, we 
were still an early stage company, and as far as I am aware, we 
had not even really begun our R&D program then because we had 
no profits to invest in R&D, so he left prior to that being the 
case.
    Senator Warren. Well, hold on just a minute. Mr. Dorfman is 
not some abstract ethicist or some do-gooder. He is a 40-year 
industry veteran and a former General Counsel of your company, 
and he is just looking at the question of pricing a drug that 
is necessary for people to survive at a price where they cannot 
afford it, and he says these price increases are unethical, and 
I am just asking, do you agree with his statement?
    Mr. Tilles. Again, I--at Turing, you know, we are a small 
company. I see what we are doing, so at first blush, you could 
say, oh, my God, that is incredibly unethical, but if I see----
    Senator Warren. Yes, I think you could say that.
    Mr. Tilles. If I see the dedication and desire of all our 
employees--again, I admit, and I have said it, I am not--do not 
have a pharma background, but we have about over 65 people in 
our New York office and every one of them is very dedicated to 
what they are doing, and I find it hard to believe that they 
would all be there, you know, if they did not see the vision 
that we have, and I think we are quite misunderstood as to what 
we are doing. If you spent a day at our company, you would see 
the dedication. We have scientists and I am very impressed with 
our R&D----
    Senator Warren. Well, let me just stop you there, though, 
Mr. Tilles. I assume--I mean, you are the CEO of this company. 
You are the one ultimately responsible for the pricing, and 
that was the question I asked. Mr. Tilles
    [sic] said--he was your former General Counsel--he said he 
thought pricing exactly the way you have priced is unethical, 
and I am asking the question, do you agree with him, and if--do 
you agree with him?
    Mr. Tilles. Again, so the pricing policy that we had in 
place, again, no--as I have said before, as far as I know, 
almost no patient pays that price, so it is----
    Senator Warren. Well, wait just a minute. There are 
obviously patients who cannot afford this product, and we know 
this. There are patients who have testified that they cannot 
afford this product, so saying ``almost'' is not very good if 
it is your child who is in trouble, if it is your child whose 
life is on the line.
    Let me just underline this. Every time you say this--you 
know, it sort of makes me jump back a little bit when you say 
many patients cannot afford it. Let us keep in mind, it does 
not mean no one is paying that price. We are all paying the 
higher price through higher insurance premiums, through what we 
pay in Medicare.
    You cannot just shove this off. We have people who cannot 
afford it and we are still asking the question about you have 
picked a price that your own former General Counsel says was 
unethically arrived at.
    Mr. Tilles. Again, the pricing was determined by our 
Marketing Department and----
    Senator Warren. In other words, because you could.
    Mr. Tilles. No, I would not say that. I would say that 
there are many things that went into the pricing. The 
assistance programs we have in place, as I said before, we are 
trying to develop them as much as we can. If you went on our 
website, you would see all the programs that are available. You 
can call us, obviously, as a company.
    Senator Warren. I have actually just looked face to face 
with people for whom that is not working.
    Mr. Tilles. Again, yes, so there were--I am aware--again, I 
became CEO in December--I am aware that there were, yes, 
transitional issues when we took it over from Impax. There were 
not all the programs that might have been in place, and from 
what I understand, we are doing everything in our power to 
change that.
    My goal as CEO is to make sure that there is no patient who 
cannot get access to the drug, and as far as the pricing issue, 
I cannot at this point, you know, again, as CEO, I cannot just 
roll up--we have reduced the price, as I said, to hospitals, 
and we are doing everything in our power to make sure that 
access is there, and we are also----
    Senator Warren. Well, wait a minute. If you are doing 
everything in your power, I have a suggestion for you. Lower 
the price. That will actually make it easier for patients to 
access the drug and it will make it easier for hospitals to 
access the drug, for Medicare, for insurance companies to be 
able to pay it. You do have something entirely within your 
power.
    Mr. Tilles. Again, two-thirds of the patients, is my 
understanding--I am not the head of marketing--but two-thirds 
of the patients pay a penny a pill.
    Senator Warren. Well, the question we are asking here is 
whether or not it is ethical to price the way you have priced, 
and you have tried to defend this by saying lots of people can 
afford to pay, and for the people who cannot, it is just too 
bad?
    Mr. Tilles. No. I think we have programs in place that if 
you cannot afford it, you get it for free.
    Senator Warren. Well, programs that are not working.
    Mr. Tilles. Well, we are trying to change that.
    Senator Warren. You are telling me that you are going to 
lower the price----
    Mr. Tilles. No, I did not----
    Senator Warren [continuing]. for everyone who cannot pay 
for it?
    Mr. Tilles. I did not say it like that. I said we have 
lowered the price and we have----
    Senator Warren. Well, and that is not working. You say you 
want something that works, so I am asking the question. Are you 
going to lower the price for everyone who says it is a hardship 
for me to pay for this?
    Mr. Tilles. Again, as I have said before, we have many 
programs in place to make sure they can access the drug.
    Senator Warren. Well----
    Mr. Tilles. Many people are not--are getting it, as I said, 
for a penny, and apparently----
    Senator Warren. Many are not.
    Mr. Tilles. No, and many for free.
    Senator Warren. Many are not, and that is the point. and if 
you wanted access for everyone, you could lower the price. Do 
not tell me it is not within your control.
    You know, I should just wrap this up by saying that I agree 
with Mr. Dorfman. I think that charging patients so much for a 
drug that they cannot afford it is unethical. It was unethical 
when Turing did it, and it is just as unethical when the rest 
of the pharmaceutical industry jacks up drug prices, and they 
routinely do it.
    The Washington Post reported last week that Novartis has 
hiked the price of the breakthrough drug Glivec for leukemia 
from $26,400 for a year's supply to more than $120,000 today. 
The Wall Street Journal reported that Biogen has hiked the 
price of Avonex to treat MS an average of 16 percent per year 
over the last decade. Amgen raised the arthritis drug Enbrel's 
price 88 percent over the last 5 years. The Journal also 
reports that at the beginning of this year, Pfizer raised list 
prices an average of 11 percent for more than 60 branded 
products. This happens again and again.
    The pharmaceutical market may be producing giant profits 
for drug companies, but it is not working for the American 
people. Congress needs to take action on this to make sure that 
this market functions for patients, and I hope to be a full 
partner in those efforts.
    Thank you, Madam Chair.
    The Chairman. Thank you.
    Mr. Tilles, you have said at least three times today, maybe 
more, that many patients are getting Daraprim for a penny a 
pill. You have said that over and over again. You are referring 
to 340B program, a special program that discounts the cost of 
medications that go through hospitals that desperately poor 
patients use.
    Are you aware that at least three of your colleagues were 
involved in a discussion--Mr. Patrick Crutcher, Mr. Urrutia, 
and Mr. Smith--in which they talk about trying to, quote, ``dip 
out of the 340B claims and say F-these guys. I told her to 
start disputing the 340B claims. Laugh out loud. Yes.'' There 
is a discussion of one patient who is from Canada and the 
suggestion is that he return to his own country. That does not 
sound to me like a business that is supportive of or concerned 
about the 340B program making a drug that you have made 
extraordinarily expensive affordable.
    Are you concerned about that? You are a small firm. You 
have three senior people, including the CFO, trying to figure 
out a way to bypass this program and denigrating this program.
    Mr. Tilles. Again, I was not actually aware of those 
discussions before these hearings, but I might add that none of 
them are a part of the Marketing Department. Again, we have, as 
I have said before, Nancy has many people on her staff who are 
dealing with these issues every day. None of those three 
individuals, as far as I know, were involved in any way in 
those areas. Nancy heads up patient access. She heads up 
pricing, all of those issues that we have discussed before. I 
think those isolated statements are not at all characteristic 
of us as a company.
    The Chairman. Well, those are pretty senior people making 
those statements.
    Mr. Smith, you have gone out of your way today to describe 
yourself as being a low-level person in the firm. When you 
worked for Martin Shkreli at Retrophin, did you report to him?
    Mr. Smith. Yes.
    The Chairman. Did you report to him directly?
    Mr. Smith. Uh, me, along with four or five other business 
development----
    The Chairman. Right. You reported----
    Mr. Smith [continuing]. middle-level folks----
    The Chairman. [continuing]. to him directly.
    Mr. Smith. I reported to him directly, yes.
    The Chairman. That is what your deposition says.
    Mr. Smith. Yes. He acted as head of business development.
    The Chairman. Did you report to Martin Shkreli at Turing, 
also?
    Mr. Smith. That is correct, again, reprising the role of 
head of BD.
    The Chairman. At one point, did you earn in excess of 
$300,000 a year?
    Mr. Smith. I believe we have provided all of our company 
financials. We are a private company. None of this is public 
information, but if we have not, we are happy to.
    The Chairman. My point is that you are a highly paid 
executive that reported directly to Mr. Shkreli.
    Were you the individual who located Daraprim and suggested 
that the firm buy it or invest in it?
    Mr. Smith. No.
    The Chairman. Do you know who that person was?
    Mr. Smith. I believe it was Patrick.
    The Chairman. Mr. Crutcher?
    Mr. Smith. Correct.
    The Chairman. In your deposition, you stated that the first 
time you heard someone suggest that there were any access 
problems for Daraprim was when your colleague appeared before 
the House Committee on February 4, but that statement is not 
accurate, is it?
    Mr. Smith. I was referring to the ongoing issues. Any--it 
was my impression from the commercial team that any issues that 
I came across, whenever I spoke to them, they would say it has 
already been addressed or they have been working on it.
    The Chairman. Well, in your deposition, you were asked the 
question, were you aware that there were access issues for 
Daraprim. You responded, ``During the Senate,'' and you later 
corrected to mean the House, ``hearing committee where Nancy 
spoke. I recall one of the Senators,'' you meant Congressmen, 
``mentioning something, but outside of that, that was the first 
time.''
    Mr. Smith. Right. It was my understanding that they had all 
been taken care of.
    The Chairman. Well, I am trying to reconcile your testimony 
during the deposition with the discussion you had on the 
website, on the Skype chat, back in October 2015, October 20, 
with two of your colleagues, when you specifically addressed 
the subject of access concerns presented on the website 
HIVclinician.org, a forum that is dedicated to medical 
professionals reporting access problems with Daraprim, and your 
response was, ``I think some of these are fake.''
    Mr. Smith. My experience with that website is that they 
have censored a lot of posts that we have tried to provide to 
inform patients where they can access Daraprim, and just--we 
monitor it frequently and we try to get in contact with them, 
and I understand that it has created an additional barrier, 
where there is someone who knows someone who has--who needs to 
access Daraprim and they are actively preventing us from, is my 
understanding----
    The Chairman. You heard testimony today from Mrs. Weston 
and an infectious disease specialist who talked about access 
problems that they know firsthand of. Do you still think that 
this is a fake problem?
    Mr. Smith. For the Westons, absolutely not. No.
    The Chairman. Are you discounting the testimony of Dr. 
Adimora?
    Mr. Smith. With regard to that website specifically, 
because of the difficulties we have had with working with them 
in order to get the drug to patients, I felt that they were not 
doing everything in their power to--and they did not have our 
interests at heart in terms of providing----
    The Chairman. Well, I am not surprised they do not have 
your interests at heart, given that you imposed a 5,000 percent 
increase on a medication that their patients desperately need 
and that you yourself have described as the gold standard.
    Mr. Smith. Right, but I would expect them to be more 
focused on getting drug to their patients rather than----
    The Chairman. They wrote a letter to Mr. Tilles, which he 
still has not answered, back in December from three respected 
medical societies saying they were having access problems 
because of the price. Do you discount that?
    Mr. Smith. Again, these matters are chiefly dealt with by 
Nancy Retzlaff, so I do not have the----
    The Chairman. Mr. Tilles, do you discount that letter? Do 
you think these are fake reports of access problems? Do you 
agree with Mr. Smith on this issue?
    Mr. Tilles. I do not discount the letter at all, and as I 
said before, again referring to Ms. Retzlaff, we, as I 
understand, did reach out to those organizations many times.
    The Chairman. Well, according to the information that we 
have received, there still has been no answer to that letter.
    Mr. Smith, in your testimony, you indicated that investors 
sometimes make the assumption that restricted distributions 
make it difficult for generic companies to obtain product 
samples for bioequivalence testing. You further say that 
investors also sometimes assume that drugs tend to be more 
valuable if they are the preferred treatment for serious 
diseases and there is no good substitute.
    Well, we have looked at Turing's--it is Exhibit 4--we 
looked at Turing's investment presentations on Daraprim and it 
indicates the following. Daraprim is the preferred treatment, 
the gold standard. It also indicates that Turing management has 
experience with restricted distributions. The presentation 
calls it, quote, ``a high-touch closed distribution system'' 
and emphasizes that it would be difficult for a generic to 
enter the market until at least mid-2016, possibly much longer.
    Mr. Smith, can you understand why an investor would make 
these assumptions when Turing presents this case as the precise 
reasons why people should invest in Turing?
    Mr. Smith. This distribution system that we describe here 
is, as I said, at Retrophin something that we put in place and 
had success with in----
    The Chairman. Success is defined as keeping generic 
companies from buying up enough of the medicine in order to do 
the bioequivalence studies, correct?
    Mr. Smith. I think you misunderstand the channels, so the 
specialty channel that we sell through, we have control of that 
channel. We do not have control through--for, I believe, 60 to 
70 percent of our product by unit that we ship out. We have 
no--I am not aware of any reason why, you know, a generic could 
not get access to that.
    The Chairman. Well, there is absolutely no reason, 
according to the medical experts that we have talked to, to put 
this drug into a specialty pharmacy or a restricted 
distribution system other than to prevent generics from buying 
up enough of the drug to produce a lower-price generic version. 
The only exceptions are drugs that have special safety risks, 
and that is not the case here, according to what the experts 
tell us.
    Senator McCaskill.
    Senator McCaskill. Let me first turn to Mr. Tilles about 
R&D. Mr. Dorfman indicated in his testimony, and I think 
Senator Warren covered it, that he believed the price increase 
was not justifiable, and you said in response to Senator Warren 
that he left before you had really begun any R&D. That is what 
you said.
    Mr. Tilles. Being able to pay for any R&D. We did have a 
plan. We just did not have the money.
    Senator McCaskill. Well, your management report says you 
had already spent $8.5 million on R&D before September, so what 
was that money?
    Mr. Tilles. No, that is----
    Senator McCaskill. It clearly was not R&D, because you said 
you did not have any R&D before he left. You put down on your 
management report you spent $8.5 million on R&D and had not 
done any.
    Mr. Tilles. Yes. We had some initial investment in the 
company, but we could not ramp up R&D to the degree that we 
wanted. There was some initial investment in some early 
programs in our pipeline. It is all in the presentations. We 
had several at the time. Recently, we have had to cut back on a 
little bit because we just do not have the money. As we have 
said many times, it is very expensive to carry these drugs 
through fruition, but I am there and we do remain an R&D 
focused company, despite the----
    Senator McCaskill. I am--you know, seriously, I mean, I 
cannot trust these books. You say in your testimony you did no 
R&D before Dorfman left and your books say you spent $8.5 
million on R&D before Dorfman left.
    Let me go through the numbers with you. In September, you 
had $21 million in gross revenue. Your book says that you spent 
$3 million on R&D and had 36 employees in R&D. I assume most of 
the costs that you are charging to R&D is, in fact, your 
personnel.
    Mr. Tilles. No, I would not say that.
    Senator McCaskill. Okay. what percentage of your R&D budget 
is personnel?
    Mr. Tilles. Again, I would have to look. I do not want to--
--
    Senator McCaskill. Well, this is your specialty now. You 
know about the numbers. This is what you do. You do not know 
pharma, but you know the numbers, so tell me what percentage of 
your R&D is on personnel.
    Mr. Tilles. Right today?
    Senator McCaskill. Mm-hmm.
    Mr. Tilles. I would say a very small percent. In terms of 
personnel, you are talking about their salaries? Is that what 
you are----
    Senator McCaskill. Yes. I am talking about the overhead to 
the company for paying the people that are doing the R&D.
    Mr. Tilles. Right. No, I would say it is significant. 
Again, Dr. Eliseo is our highest paid employee----
    Senator McCaskill. Okay.
    Mr. Tilles [continuing]. who is the head of R&D.
    Senator McCaskill. Okay, and how many----
    Mr. Tilles. So--but----
    Senator McCaskill [continuing]. people work for this 
doctor?
    Mr. Tilles. We have about probably 20 people there.
    Senator McCaskill. Okay, and so what is the total of that 
payroll?
    Mr. Tilles. Umm, I would say it is about--well, again, I 
would say--I would say it is about 20 percent, at least, 30 
percent. Of total payroll.
    Senator McCaskill. Tell me the number.
    Mr. Tilles. Umm, again, I would have to look. I am sorry. I 
do not have it at hand.
    Senator McCaskill. Okay. Well, we----
    Mr. Tilles. I apologize.
    Senator McCaskill. You know, it does not make any sense, 
because what you have got on your management reports makes no 
sense. You have got, you know, $20 million in gross revenue and 
you spent $3 million on R&D, which, by the way, is not near 60 
percent. You have got 36 employees, you say, that are doing 
R&D.
    Then in October, you say you spent--you have $26 million in 
gross revenue. You spent $3 million again on R&D, and you have 
no number for employees.
    Then in November, you say $16 million in gross revenue. 
Now, you are up to 46 employees in November on R&D, and spent 
$3.7 million, and then in December, you have $27 million in 
revenue and you spend $7 million, you say, on R&D and once 
again, 36 employees.
    Now, here is the question. In January, you have $8 million 
in revenue, R&D is $1.3, but you still say you have 36 R&D 
employees, so where is all that R&D money going, because it 
says here you are paying $1.3 million for 36 people. That is 
quite a bargain for 36 scientists.
    Mr. Tilles. Well, again, we have several programs, which we 
could go into detail about----
    Senator McCaskill. You understand these numbers make no 
sense.
    Mr. Tilles. I--again, I do not have them in front of me.
    Senator McCaskill. It appears to me that the books are 
being presented in a way to give the impression that this is 
about R&D, and let us be clear about where this R&D money is 
coming from. You are not calling Mr. Wichman and asking for 
investment for R&D. You are not going out and finding capital 
for R&D, like many pharmaceutical companies do. You are going 
to families like the Westons and saying, we want you to pay for 
our R&D.
    The notion that you, Mr. Smith, with your finance degree 
from Fordham, are trying to tell this Committee that this was 
about increasing utilization of a drug, jacking the price? No. 
It was about an orphan drug price. It was about a business 
model that meant money, money, money raining from the sky. It 
was about a drug that was making $5 million a year for the 
previous company that you made $69 million on last year, even 
while the numbers were going way down in terms of how much of 
the drug was going out the door.
    Mr. Smith. Can I provide some context?
    Senator McCaskill. Sure.
    Mr. Smith. For the gross revenue numbers that you are 
quoting, those--gross revenue is not revenue that a company 
actually receives. There is a discount that goes in, so for 
example, the drug we sell to 340B programs, that would be 
incorporated in that discount, so the actual revenue number is 
much lower, and then, in terms of the IMS data that you are 
referencing, IMS gets their data from wholesalers and 
pharmacies which do not have complete visibility into all the 
channels.
    Senator McCaskill. Yes.
    Mr. Smith. In addition to that----
    Senator McCaskill. It is the industry standard, Mr. Smith. 
You can give me all the context you want. You know what would 
really be refreshing? If you guys would just own this. It is so 
obvious to anybody. I mean, I spent a lot of time on this. You 
know, I have tried to really understand. It is very obvious 
what this is. Mr. Wichman knows what it is. He knows exactly 
what it is, and let us turn to Mr. Wichman. You said in your 
opening statement, you are passive investors, have never had an 
activist role in any company in the pharmaceutical space. I am 
going to direct your attention to a series of e-mails between 
you and Mr. Shkreli concerning a different company. This is a 
company with the drug--this is Retrophin and this is the drug 
that has to do with kidney disease, and I think it is, by this 
e-mail discussion, it is hard to see you as a passive investor.
    I will not go through all of it, but in several back-and-
forths, Shkreli says to you, ``I have to be careful with giving 
you minute-by-minute updates on the company,'' smiley face, and 
then in this exchange, you are discussing with Mr. Shkreli how 
to market the news of the acquisition to the rest of Wall 
Street.
    The same morning, Mr. Shkreli informs you that Retrophin is 
looking into acquiring Thiola. He states in his e-mail, and I 
quote, ``The drug does $1.2 million in sales. It is woefully 
underpriced and would not stop selling at orphan prices. With 
new pricing, we estimate sales of $20 to $40 million, almost 95 
percent EBITDA margins at these prices. Would be an annuity for 
some time.'' Then he adds, and I quote, in an e-mail to you, 
``A hundred-million dollar present to you this morning, 
correct?''
    Now, I take it that what he means when he says the drug 
would not stop selling at orphan prices, he means that the 
price of Thiola could be drastically increased. It would not 
affect demand. Do you understand that is what orphan prices 
are? Do you want to see the depositions?
    What are the pages, guys? What are the pages for the e-
mails. Here we go.
    Mr. Wichman. Senator McCaskill----
    Senator McCaskill. It is Exhibit 10, Exhibit 10 in your 
book. This is a back-and-forth e-mail from you and Mr. Shkreli 
on May 3, beginning at 8:41 a.m. This is where your e-mail 
begins, on page two of the exhibit. ``It sounds like no lose, 
to put it mildly. Don't have to run a model on this one this 
weekend to give you my opinion,''and listen to your opinion. 
``Funny that these small companies still haven't realized you 
can raise price aggressively and nobody gets too upset. 
Obviously, it depends on the product, but I figure this dynamic 
may not last forever. You need to maximize opportunities while 
you can. In the real boring spec pharma space, I kind of look 
at HZNP Horizon versus Depo,'' which is the Wall Street--I do 
not know which company that is. Who is depo?
    Mr. Wichman. Depomed.
    Senator McCaskill. Depomed. ``Own and like both companies. 
Have nothing but good things to say about Depo, but Depo is 
very cautious and conservative while Horizon says this price 
dynamic might not last forever, at least on these reformulated 
pain products, so let us maximize our cash-flows now and 
diversify it over time. It is not like people are giving 
companies gold stars for charging slightly lower prices. 
Thanks, guys, for charging 500 a prescription, not 800. In that 
land, the generics are not your competition and do not even 
try. Anyway, it is different in orphan land and probably more 
sustainable. It seems like at this point these little guys 
would get the idea they could push things a bit. How can they 
ever make money with that model? Bottom line is I will not get 
too excited, but it sounds very intriguing.''
    You guys are discussing the business model that I want 
everybody to own up to here, finding an orphan drug that has 
inelastic demand and jacking the price up for a period of time 
before another generic can get in the space, or maybe the 
demand is so low that another generic never gets in the space 
and people like the Weston family just suffer.
    Mr. Wichman. Thank you, Senator McCaskill. I, first, would 
like to provide a little context and clarify that at the time--
the e-mail you are talking about, the background, it was 
actually a number of weeks prior, we had been approached by 
Barclays, along with a number of other investors, about a 
completely different acquisition. This was the--$190 million--
this was another acquisition. It was a--we had been working for 
a number of weeks on this, modeling this acquisition, doing our 
diligence, and that was the focus heading into the e-mail you 
are referring to.
    Senator McCaskill. Yes, and then we go into, ``The deal we 
are working on''--this is from Martin Shkreli to you, about 3 
minutes later--``the deal we are working on is very simple and 
Manchester-like. We would pay $1 million to acquire a drug 
called Thiola, which is the only treatment for a rare disease 
called cystinuria. The drug does $1.2 million in sales. It is 
woefully underpriced and would not stop selling at orphan 
prices.'' Now, orphan prices means jacking the price way up, 
right?
    Mr. Wichman. Higher prices.
    Senator McCaskill. Yes, and orphan prices is a term in this 
area where you know you can really jack up the price because 
there is not competition. You have got a monopoly. That is why 
it is called an orphan, right? It is all by itself.
    Mr. Wichman. Right.
    Senator McCaskill. It would be annuity for some time, and 
that is where he says, a million dollar present--``a $100 
million present for you this morning.''
    I would say I will be happy with that--this is what you 
say. ``I would say, I will be happy with the one I know about, 
but I am always open to more as long as you guys have the 
personnel and time and expertise to handle it all.'' Then he 
goes, ``Steve is the best.'' It goes back and forth, and then 
you say, later on, May 3, Saturday, May 3, ``Yes, fair enough. 
Once this deal closes, I'll go back to being less a pain in the 
ass. Sounds good on Steve. A ying and yang perhaps, and hope 
the other stuff works out. Assuming this looks like a done deal 
this weekend, I'd love to discuss a little of how you will 
convey it to the street. I--"
    Mr. Wichman. Senator McCaskill, I apologize. I was 
referring to a completely different deal there. I was not 
referring to this deal that you are discussing. That was a 
completely different deal that we were doing the work on.
    Senator McCaskill. Okay.
    Mr. Wichman. That never happened.
    Senator McCaskill. Okay. Well, I think that the essence of 
these e-mails, if you look at all of these e-mails, is that you 
are really engaged with Mr. Shkreli back and forth, I mean, 
minute by minute. How are you going to present the deals, you 
know, pricing, and I know you did not follow him to Turing. I 
know you said, enough, and I will give you an opportunity to 
say why. I mean, this would be the chance you would have to say 
you thought the guy was flaky or something.
    Mr. Wichman. Maybe, first, a comment on those e-mails, 
because again, a lot of those e-mails referred to a deal we 
were working on with Barclays and other investors 
confidentially and a deal that never happened.
    In the context of multiple weeks of discussion, Mr. Shkreli 
mentioned a product I had never heard of before, product 
Thiola. He mentioned it. It was a Saturday morning. I was home 
with my kids. I provided some snap observations about the 
industry and the dynamics as they were at the time, and I think 
it is very important to point out that when--as a fund, when we 
are looking at maximizing opportunities, we are not talking 
about maximizing price alone. I do not believe you can be a 
successful company by simply maximizing price, and just again, 
to give context, after this conversation, we went back to 
talking about this other deal that never happened. I did not 
hear about Thiola. I did not think about Thiola until the end 
of the month, but when we talk about maximizing opportunities, 
we are talking about we make long-term investments where we--
where companies maximize access for patients, and I think it 
has played out where Thiola is now used in approximately twice 
as many patients as it was at the time of the acquisition. You 
maximize improvements in manufacturing. Our understanding is 
Thiola had not actually been supplied to the market for a lot 
of 2012. There were supply shortages. There was bare bones 
manufacturing. The supply was improved when Retrophin acquired 
the product. There was improvements potentially in the actual 
formulation of the drug.
    Our--again, we did the work multiple weeks later, once we 
actually heard that this is a real deal, and this is a drug 
that patients take, our understanding is, eight to ten pills a 
day, potentially as many as 16 to 18 pills. Retrophin has said 
publicly that they are working on the next generation version 
of this drug that could be far more convenient for patients, 
and as mentioned before in my opening statement, Retrophin is a 
company that spends significant amounts of money on R&D in 
particular----
    Senator McCaskill. I listened. I understand all of that, 
and I--you have plenty of opportunity to put anything in the 
record you want to put in the record, and we will have more 
questions.
    I think it is really clear when you read these e-mails in 
context, when you read them all, it is very clear what is going 
on, and I am not saying that there is anything inherently evil 
about wanting to make money. I am saying that the business 
model that finds an orphan drug with an inelastic demand and no 
competition and the ability to jack up prices--and I am going 
to quote you, and it may not have been about this deal, but 
these are your words, Mr. Wichman. ``I hear you on the pharma 
mentality. It is ironic how it took two companies, Jazz and 
Horizon, the brink of insolvency to decide they should 
aggressively play the price card, and Questcor is obviously a 
poster child. For the heat and bad PR they took, didn't work 
out so badly in the end, did it. Not every deal and not every 
product will work out.''
    I mean, I guess what I am trying to tell you is, the 
overarching message of this hearing is that we have places in 
the pharmaceutical industry that are gouging families like the 
Westons for quick profits, big profits, and I am assuming you 
guys get stock options and bonuses?
    Mr. Smith. I think we have made all of our financials-----
    Senator McCaskill. I am asking you.
    Mr. Smith. I think we have submitted it to the Committee--
--
    Senator McCaskill. You will not tell me? I do not have it 
in front of me. I would like to hear it.
    Mr. Tilles. No bonuses.
    Senator McCaskill. Stock options?
    Mr. Tilles. There is an employee option plan.
    Senator McCaskill. Yes, and I am sure Mr. Shkreli got stock 
options. You said he did not take a dime. He got no stock?
    Mr. Tilles. Oh, no, stock? Yes, options----
    Senator McCaskill. Yes, and he can trade that stock, and I 
think that stock has been pretty valuable from what----
    Mr. Tilles. Oh, I am sorry. You meant Retrophin. Sorry. 
Sorry. Thought you were talking about Turing.
    Senator McCaskill. Yes. I mean, he--I do not think anybody 
is saying----
    Mr. Tilles. I did not----
    Senator McCaskill. I do not think anybody buys a $2 million 
album of Wu-Tang if they do not have any cash on hand. It 
looked he had more cash on hand in December than your company 
did, so I think he turned out--I think he came out just fine in 
the deal.
    Mr. Wichman, I guess if you can provide more information to 
this Committee about how we do a public policy that stops this, 
but does not stop meaningful R&D in this space, because I think 
that there are hucksters out here trying to make a quick buck 
because they see these orphan drugs and they know that the 
people who need them are going to need them no matter what, and 
you can say all you want to about a penny a pill, but this 
family and millions of other families like that, for lots of 
different drugs, are facing exorbitant price increases that the 
market does not really bear out because there is not 
competition.
    Mr. Wichman. Thank you, Senator McCaskill. I would just 
add, on--and, again, Broadfin did not invest in Turing. With 
Thiola, in particular, we have talked to physicians. We have--
we attended the Society of Nephrology meeting late in 2014 to 
understand how they were looking at Retrophin and how this was 
working out, and our understanding, and it is not 
comprehensive, but the physicians we have talked to have been 
very happy with how this has played out.
    Our understanding, again, based on public information, is 
approximately--there are now twice as many patients on Thiola 
as there were at the time that this product was acquired, so 
you know, I cannot speak to other products, other acquisitions 
that we did not make, but----
    Senator McCaskill. Well, we will take a look at the IMS 
data on that drug, and what was the price increase there, what 
percentage?
    Mr. Wichman. It went from, I believe, $1.50 to $30 a pill.
    Senator McCaskill. Yes, $1.50 to $30 a pill. I do not know 
how that helps get more people the drug. It is 
counterintuitive. I feel every once in a while in this hearing, 
every time you guys say, oh, we are going to jack up the price 
and we are going to have more utilization, and meanwhile, the 
University of North Carolina is helping them get through a 
crisis because the insurance companies have now figured out 
that--in fact, one of the people involved in this said--I think 
in one of his e-mails--the insurance companies just absorb it. 
I think it was from you, Mr. Wichman. I think you said that the 
insurance companies just absorb it, or maybe Mr. Shkreli, but 
in one of the e-mails I read in preparation for this hearing.
    I am way over my time and my Chairman has been very patient 
with me. Thank you all for being here today. We are not done. 
We are not done, so better grab while the grabbing is good 
because something is going to happen.
    The Chairman. Today's hearing is the second in the 
Committee's investigation. As the Ranking Member has just 
indicated, our investigation is ongoing and will feature 
additional scrutiny on others of the four companies in 
particular which have been our focus.
    Today, we have examined a business model used by Turing and 
Retrophin to target certain drugs for acquisition in order to 
generate huge profits. As we have seen, the business model at 
both Retrophin and Turing involves identifying a sole source 
drug that is the gold standard for treating a particular 
condition, preferably one that serves a small patient 
population, then putting that drug into a closed distribution 
system, if it is not already there, and then hiking the price 
as high as it will go.
    We have seen, thanks to the Westons and thanks to the 
infectious disease specialist who testified, that real people 
are being hurt by the access issues created by the closed 
distribution system, which prohibits generic competitors, and, 
of course, by the egregious and unacceptable price increases.
    Committee members will have until Monday, March 28, to 
submit additional questions for the record.
    I want to thank our witnesses today, and I also want to 
thank our Ranking Member, in particular, as well as all the 
Committee members who participated in today's hearing.
    This hearing is now adjourned.[Whereupon, at 1:00 p.m., the 
Committee was adjourned.]

           
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                                APPENDIX

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                      Prepared Witness Statements

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                       Statements for the Record

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