Sector News

Martin Shkreli resigns from Turing Pharmaceuticals

December 21, 2015
Life sciences

Martin Shkreli has resigned as chief executive of Turing Pharmaceuticals after his arrest on securities fraud charges, the company announced on Friday.

Turing, a privately held company in New York, said that Ron Tilles, its chairman, would step in as interim chief executive.

Mr. Tilles, who will remain chairman, has spent most of his career at securities firms and other financial service companies, according to the description of him on Turing’s website. But he was a founder and worked in business development at Retrophin, Mr. Shkreli’s first pharmaceutical company, though Friday’s announcement did not mention his connection to Retrophin.

Mr. Shkreli’s arrest on Thursday was for activities in the past, when he ran a hedge fund and worked at Retrophin, not for anything at Turing. Turing became notorious for acquiring a 62-year-old drug and increasing the price fiftyfold, causing a public furor.

Still, his arrest and indictment made it untenable for him to stay as chief executive of Turing, according to one Turing investor.

“I don’t see how he can run this company anymore,” said the investor, who asked not to be named because of his company’s policy against speaking to the media. “There’s no way it doesn’t hurt the company.”

Federal officials described Mr. Shkreli’s crimes as a quasi-Ponzi scheme in which he used money from Retrophin to pay off money-losing investors in his hedge funds. An F.B.I. official called his business schemes a “securities fraud trifecta of lies, deceit and greed.”

In court on Thursday, Mr. Shkreli pleaded not guilty to the charges of securities fraud and was released on $5 million bail. After months of frequent Twitter activity and live streaming video, Mr. Shkreli was initially relatively quiet after his release except for one post on Twitter in which he said, “Glad to be home. Thanks for the support.”

But by Friday afternoon, Mr. Shkreli, unshaven, started to live stream again, including playing online chess and guitar. He said many people had reached out to support him, but added that his lawyers had forbidden him from talking about the criminal case.

“I’m good, I’m good. Thank you guys. I missed you, too,” he said. “Sorry I couldn’t live stream yesterday. I had a lot going on.” He said he was changing his Twitter profile to reflect that he was no longer chief executive of Turing.

A spokesman for Turing said neither Mr. Tilles nor Mr. Shkreli would be granting interviews.

Mr. Shkreli’s arrest immediately raised questions about his future not only at Turing but at KaloBios, a publicly traded California company that he gained control of in November, by leading an investor group that acquired the company’s shares on the open market.

He had already ignited controversy there by announcing that KaloBios had acquired the rights to an inexpensive drug used for decades to treat Chagas’ disease in Latin America. He said KaloBios would try to get the drug approved in the United States and charge tens of thousands of dollars for a course of treatment.

The agreement to acquire the rights to that drug has not officially closed, however. A spokeswoman for Savant Neglected Diseases, the small company that was selling the rights to KaloBios, said Savant was now meeting with its lawyers about the matter. That suggests Savant might be reviewing options for withdrawing from the deal.

KaloBios had announced it was going out of business before Mr. Shkreli bought his stake in the company.

After Mr. Shkreli’s investment in KaloBios became known, the share price shot up from under $2, the price he paid for most of his shares, to more than $40 at one point. The shares closed at $23.59 on Wednesday and did not trade on Thursday and Friday because of the arrest.

The investigation into Mr. Shkreli remains active, according to a law enforcement officer who spoke on the condition of anonymity because the person was not authorized to speak publicly about a current inquiry. That means that investigators and prosecutors may be looking at all of his post-Retrophin transactions, including the acquisition of KaloBios.

KaloBios has not said anything publicly since the arrest of its chief executive. The board of KaloBios is now controlled by members of Mr. Shkreli’s investor group, so he might not be ousted. However, if he is convicted of the charges against him, he will probably not be able to serve as an executive or director of a publicly traded company.

Stephen Brozak, president of WBB Securities, a boutique health care investment bank, said it would be difficult for a public company to continue with Mr. Shkreli at the helm. But given that the company was out of money and options before he came along, it would also be difficult for it to survive without him.

“The irony is they can’t live with him and they can’t live without him,” Mr. Brozak, whose company has no relationship with KaloBios, said. “They were starting to sell the furniture before this happened.”

Mr. Shkreli’s resignation from Turing led to some speculation, or hope, that the company would lower the price of the 62-year-old drug that it acquired in August. The drug, Daraprim, now costs $750 a pill, up from $13.50. It is used to treat toxoplasmosis, a parasitic infection that can cause brain damage in babies and people with AIDS.

“We hope that Martin Shkreli’s departure will mark the end of Turing Pharmaceuticals’ reckless price hikes on lifesaving medications,” the Human Rights Campaign, a group fighting for equal rights for gays, lesbians, bisexual and transgender individuals, said in a statement.

Turing sent a letter to health care providers on Friday, assuring them that Daraprim would remain available and that the company’s financial assistance programs were still functioning. The letter did not mention anything about lowering the price.

The Turing investor said he was surprised when Mr. Shkreli took over KaloBios, because it diverted his attention from Turing. If Mr. Shkreli found a promising drug, for instance, which company, Turing or KaloBios, would get the opportunity to acquire it?

“This company deserves some competent, full-time, mature, not crazy, management,” the investor said.

He said Turing already had a good roster of drug candidates it could develop. But he was concerned that employees would now leave and that Mr. Shkreli, who owns a substantial stake, would continue to exercise influence at the company.

By Andrew Pollackdec

Source: New York Times

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