Martin Shkreli is apparently still pulling the strings on his pharmacological empire from his prison cell phone. The reports raise tough questions about what else he has going on.
The infamous Pharma Bro loves his online presence so much that he’s found a way to get a working phone in federal prison.
It makes sense. He’s 35 and would otherwise be locked out of the generational conversation as long as he’s locked up through at least 2025 for securities fraud.
People find ways around the system. He uses his brains to get online and share his thoughts.
That could be a problem if he’s tapping prison resources to run his business.
Behind bars but not barred
Shkreli can theoretically even serve as an officer or director of a public company while in prison. That’s not an issue.
The terms of his SEC settlement only ban him from associating with financial intermediaries, apparently in an effort to keep him away from running a conventional Ponzi scheme.
After all, that’s what he reportedly did when he bought into a publicly traded drug company and used the proceeds to repay investors in his hedge funds.
Reading between the lines, he can’t run a hedge fund any more. But even the intermediary bar is subject to waiver if he makes restitution and applies to rejoin the industry.
And in the meantime there isn’t even a temporary officer ban. If he wanted to and got the offer, he could step in tomorrow and run Microsoft or Disney.
Meanwhile private corporations are completely within his reach. As long as his holdings are off the public market and everything else respects the normal legal limits, he can shuffle the assets with impunity.
Think of Shkreli’s current footprint as something like a private equity firm focused on drugs instead of companies. He acquires drugs and drug candidates. The money they make feeds back into the portfolio.
As long as there aren’t any public investors, SEC filings or intermediary associations, there are no clear constraints.
Where it gets dicey is that conducting any form of business at all is a breach of prison rules. Outside communications are an even stronger infraction.
I get the feeling the Pharma Bro doesn’t actually care about obeying the institutional handbook. He’s more concerned with keeping the money flowing when he gets out.
On that basis, he’d rather call the shots himself than trust proxies on the outside to make the decisions his way.
We get it. He practically invented this business model. Cutting him out of the loop raises the risk that everything will grind to a halt while he’s on the inside.
Can’t take the “Bro” out of the pharma
The challenge he’s willing to break prison rules to solve is simple.
None of the people he’s appointed to run his company in his absence think like he does. He hasn’t trained them in his processes and evidently doesn’t have a lot of confidence in their skills.
He’s already fired multiple CEOs and changed the name of the company several times since his fall from grace.
What was once Turing Pharma became Vyera and is now Phoenixus, which formally absorbed the old Turing intellectual property at the end of January 2018.
Phoenixus is based in the old Turing office space in Switzerland. The building is evidently a kind of commercial hotel, with neighbors like a manicure parlor, shoe store and bike shop.
The directory still has Turing listed. It’s a long way from the days the company shared a New York address with embassies and massive military contractors.
But as the details get nebulous, the model remains as vibrant as ever, at least (again) theoretically.
The existing drugs are still making money at their heavily enhanced price points. New ones are moving through the clinical review process.
It looks like any other pharma company, only outside the public market. Shkreli brags that it’s worth close to $4 billion, or will be when he gets out of jail.
More recently, he’s reportedly turned down offers to sell out at under 3% of that price, so even if he’s bluffing, he’s committed.
The danger, of course, is that his interest in the company can still be seized to satisfy his $7 million asset forfeiture judgment.
It all depends on valuation. Say he controls 40% of the enterprise. At a $10 million current valuation, he loses it all. At $150 million, he stays in charge.
And at a notional value of $4 billion, peeling off a $7 million stake isn’t even a scratch. He stays the principal and keeps calling the shots.
I’m not sure there’s any value at all here without Shkreli adjusting the drugs in the portfolio. The existing programs would get liquidated and end up back where they were: off patent, a target for any politician eager to grandstand on pricing practices.
It’s almost within the regulators’ interest to let him keep doing what he’s doing in order to keep adding value to the shares the state will eventually inherit.
They didn’t ban him from participating or even from directing the company. Elon Musk, are you listening?
