John Arnold is legendary for turning contrarian bets into heaps of money. The soft-spoken Texan was a whiz kid trader at Enron before its fall. He then ran his own hedge fund, specializing in energy trading. Before he turned 34, he was a billionaire.
He can afford his prescription drugs.
But Arnold, now a philanthropist with a technocratic bent, has been investing considerable money lately into projects aimed at lowering or rethinking drug prices — a populist cause more often associated with activists and patients than a rich guy who made his name in finance.
Along with his wife, Laura, Arnold has been showering money on an expert class of wonkish academics, advocacy groups, and journalists interested in drug pricing issues. More recently, the couple agreed to pour what’s expected to be a seven-figure sum into a group seeking to sway November’s midterm elections by supporting candidates who promise to address drug prices — and opposing those seemingly committed to keeping drug prices the way they are.
When it comes to philanthropy, the Arnolds are the only major game in town on drug pricing at a time when other billionaires are flocking to fund politically charged work on hot-button issues like climate change and gun control.
But no one really seems to have a good idea of what exactly has motivated the Arnolds to take on drug pricing — or specifically what their endgame is to go about addressing it.
“What they’re trying to do is create a strong dialogue about what is going on — and if the status quo is not producing an affordable outcome, ask the question of how to change that status quo,” said Mark Miller, a health care expert who was recently poached by the Arnolds to help them expand their grant-making on drug pricing and other issues in health care.
The Arnolds’ supporters say the Houston-based couple is a vital counterweight to the mighty pharma lobby in an era of relentless price hikes and six-figure price tags, enabling substantive debate and rigorous research projects that might not otherwise find funding. But critics of the Arnolds’ drug pricing push (who tend to have ties to the pharma industry) say they’re troubled by what they describe as the outsized influence of a moneyed couple accountable to no one.
On health policy matters, John Arnold “sits at the chairman’s table of the lunatic fringe convention,” said Peter Pitts, president and co-founder of the Center for Medicine in the Public Interest, a think tank that receives the majority of its funding from pharma and biotech companies and consistently advocates for positions favorable to the industry’s interests.
Pitts, who worked at the Food and Drug Administration during the George W. Bush administration, called Arnold a “political puppet master” and a “bully,” saying he’s laser-focused on attacking the drug industry instead of other actors in the drug delivery system. (Pitts sits on the board of Bioethics International, a group that receives funding from the Arnold Foundation.)
“They are coming for people’s medicines in a way that is unscientific and undemocratic,” said Robert Goldberg, co-founder and vice president of the Center for Medicine in the Public Interest.
The couple’s main philanthropic vehicle, the Laura and John Arnold Foundation, has awarded nearly $1 billion in grants across a wide range of sectors since 2011. Of that money, $49 million has gone to grants in the pharma category, which includes drug pricing and other industry issues, according to David Hebert, a spokesman for the Arnold Foundation.
The Arnolds also fund a group known as the Action Now Initiative; that’s how they’re funding the push to sway the midterms, which is being run by patient advocate David Mitchell. (Unlike the Arnold Foundation, the Action Now Initiative is a 501(c)(4) organization that can participate in politics and influence elections.)
The initiative, founded in 2011, just started spending money on drug pricing efforts this year, according to its CEO Sam Mar. The focus so far: Funding Mitchell’s group to promote federal legislation called the CREATES Act that aims to block brand drug makers from delaying the entry of low-cost generic drugs. And backing what Mar described as “a number of state legislative drug pricing reforms.” Total spending on these campaigns for the first quarter of this year is not yet available, Mar said.
The Arnolds declined STAT’s request for an interview.
John Arnold, however, has made little secret of his views on the pharmaceutical industry. On Twitter, he has scoffed at the notion that high drug prices are critical to funding research (“garbage”), expressed skepticism about a single-payer health system (it “introduces other problems”), and weighed in on pharmacy benefit managers (they “create some perverse incentives” but “create negotiating leverage against the monopolies and oligopolies of the drug makers”).
In a TV interview with CNBC in October, John Arnold cast the drug industry as “example No. 1” of an area “where there is a market failure.” In his view, despite bipartisan agreement the “pricing mechanism is messed up,” the drug industry’s formidable political power ensures that the system persists.
The result, he said: “really bad public policy.”
The Arnolds’ money at work
If you’ve seen stories about drug pricing from Kaiser Health News; if you’ve read recent journal articles on drug pricing from researchers at institutions including Brigham & Women’s Hospital and Memorial Sloan Kettering Cancer Center; if you’ve seen a Facebook ad urging you to tell your elected representative to support the CREATES Act — you’ve probably seen firsthand how the Arnolds are trying to tackle drug pricing.
They’re following the same “philanthropic playbook” they’ve used to take on a wide range of other issues, said David Callahan, founder and editor of the digital media site Inside Philanthropy. First, the Arnolds invest heavily in research to try to get “an empirical handle” on how to solve a thorny issue. Then, they dive into politics and policy.
On drug pricing, they’re doing this in part by funding experiments in several states. In Colorado, Arnold Foundation grant money is being used to help develop a new payment model for chemotherapies and other injected drugs. In Delaware, the goal is to increase the state’s purchasing power by getting state agencies and hospitals to agree upon a list of drugs that doctors are encouraged to pick first. And in Oklahoma, the Medicaid program is developing an arrangement in which the amount it pays a manufacturer is tied to how well a drug works. (These efforts are separate from the Action Now Initiative’s state-level grant making.)
There are also plans to expand drug pricing work at the Arnold Foundation. Miller, who spent 15 years running the nonpartisan agency that advises Congress on Medicare, is planning to grow his team, currently just three people, through a combination of staff hires and consulting contracts.
Miller pointed to areas he expects to prioritize in future grant-making: How delivery devices, like inhalers or insulin pens, are used to extend a drug’s exclusivity period and keep its price high. How to generate competition and savings with biosimilars, which are like generics for living drugs. How pharmacy benefit managers, wholesalers, and pharmacies contribute to high costs — and whether there might be “alternative ways to think about how drugs get manufactured and put on a shelf in a pharmacy,” Miller said.
It’s not clear what the Arnolds’ specific agenda might be in these areas — or whether they have one. Miller noted the foundation’s grantees often disagree with each other.
He pointed to the $475,000 and $373,000 price tags of the two new CAR-T cancer therapies. Mitchell’s group deemed those prices cripplingly expensive — while another Arnold grantee, the Institute for Clinical and Economic Review, pronounced them cost-effective.
“If they have some master plan, that master plan is running in a lot of different directions,” Miller said.
Others note the Arnolds are being massively outspent by the industry they’re taking on.
The two big groups that lobby on behalf of drug companies — PhRMA and the Biotechnology Innovation Organization — set a new record last year by collectively spending nearly $35 million twisting arms in Washington. Individual drug makers spend tens of millions more each year. And every election cycle, the employees of individual drug companies collectively donate still millions more to friendly lawmakers.
The Arnold Foundation’s influence and funding is “still a drop in the bucket compared to the resources of the pharmaceutical industry to preserve the status quo,” said Dr. Vinay Prasad, a hematologist-oncologist at Oregon Health and Science University.
Prasad said he’s sometimes accused on Twitter of having a conflict of interest because he receives funding from the Arnold Foundation — a charge that he dismisses as nonsense. (The foundation funds Prasad’s work on overturned medical dogma but not his research on drug pricing.)
There’s an irredeemable conflict at play when drug makers give money to expert physicians, Prasad said, because that funding is directly tied to the company’s profits. By contrast, Prasad said, the Arnolds “have no skin in the game. They don’t benefit from, or not benefit from, companies selling drugs. … It’s merely that they believe it’s an important issue, and it’s an unsustainable model.”
Hebert, the Arnolds’ spokesman, said they are not trying to profit personally from the outcome of the drug pricing debate, saying they hold no short positions in the stocks of specific drug companies or long positions in the stocks of companies in other parts of the drug supply chain.
Pharma says really high prices are necessary to incentivize them to create new medicines in the future. Meanwhile, people are suffering now because they can't afford the ones that already exist. https://t.co/s45gDD0Uq0
— John Arnold (@JohnArnoldFndtn) February 11, 2018
The growth of a fortune
John Arnold, 44, is quiet, with a style that’s more Wall Street than Silicon Valley. In the past few years, he’s started sporting a gray-speckled beard that mostly disguises his famously boyish looks. Rolling Stone writer Matt Taibbi once pilloried him as “a lipless, eager little jerk with the jug-eared face of a Division III women’s basketball coach, exactly what you’d expect a former Enron commodities trader to look like.”
His resume also reads exactly how you’d expect. He was a math prodigy (it was reportedly evident by kindergarten), he had a Midas touch even as a teenager (the collectible sports cards business he started at age 14 earned him an estimated $50,000 by the time he graduated high school), and he zoomed through college (he got degrees in math and economics at Vanderbilt in three years).
But John Arnold really became a star, when, four days after his college graduation in 1995, he joined the energy trading operation at Enron. It was an era when natural gas prices fluctuated wildly, and he was better than just about anyone at predicting how they would swing: With an appetite for risky bets, he singlehandedly booked the company $750 million in profits in 2001, the same year Enron collapsed in a massive corporate accounting scandal. (John Arnold was never implicated in the wrongdoing.)
His reputation intact, he left the next year to start his own hedge fund, called Centaurus Advisors, that specialized in energy trading. Over the next few years, he built a frothy empire that at its peak managed $5 billion, most of it his own money. But after an uncharacteristic streak of financial losses in 2010, at age 38, he walked away from it all — turning his focus to spending all the money he had made. (Forbes now estimates his net worth at $3.3 billion.)
His wife, who went by Laura Elena Munoz before their marriage, is by all accounts an equal partner in their philanthropy and advocacy work. At 45, she too has a sterling resume: She earned an undergraduate degree from Harvard and a law degree from Yale before becoming a corporate lawyer.
Aaron Dorfman — president and CEO of the National Committee for Responsive Philanthropy, a left-leaning watchdog group — sees Michael Bloomberg as the Arnolds’ closest cousin. They both worship data. They both tend to weave together political and philanthropic spending. And, Dorfman said, “both of them sometimes annoy people on both the left and the right.”
I’ve now been called the next Koch brother by the far left press and the next George Soros by the far right. I’m an equal opportunity special interest pot stirrer.
— John Arnold (@JohnArnoldFndtn) March 19, 2018
The Arnolds’ political donations skew leftward — making them an outlier among the richest of the rich in their hometown of Houston. They once opened up their home to host a fundraiser for then-President Obama. They’ve also sent checks to support Chicago Mayor Rahm Emanuel and Planned Parenthood’s political wing. (Laura Arnold is widely believed to be more liberal than John Arnold, according to Callahan.)
At the same time, the Arnolds have funded causes that are anathema to some on the left.
In 2016, they spent $360,000 to pay for a private company to provide an unusual service to Baltimore police: a plane that spent hours flying over the city and taking more than a million photographs in an effort to build a massive digital library that might later help investigators. The surveillance program was so secretive that not even the city’s mayor knew about it.
The Arnolds have also angered some in the education world for pumping money into aggressively expanding high-performing charter schools. The couple advocates for a decentralized model in which schools are thought of much like stocks in a portfolio, where those that succeed should multiply and those that fail should close.
Getting into the news business
The Arnolds waded into the biggest controversy of all when they took on public pensions.
As with so many other things, John Arnold saw the system as a broken market, where benefits for teachers and other public employees were bloated and governments were given all the wrong incentives. To try to fix it, the couple poured funding into research and pumped money into political campaigns such as a failed 2014 measure in Phoenix that would have given city employees 401(k)-style retirement plans instead of traditional pensions.
Incensed unions saw Arnold not as a reformer but as a robber baron trying to take away their members’ hard-earned retirement benefits. The vitriol got so intense that Governing magazine called Arnold “the most hated man in pensionland.”
The Arnolds didn’t do much to change that impression when, in 2014, their effort to fund media coverage of the issue backfired. The Arnold Foundation gave a $3.5 million grant to a New York PBS affiliate for a series probing whether public pensions are sustainable. But faced with backlash, the broadcaster returned the grant, saying it wanted to avoid the appearance that its editorial integrity was compromised by the Arnolds’ agenda.
Critics of the Arnolds have also raised questions about the couple’s support for journalism about drug pricing.
They point to news articles produced by Kaiser Health News journalists on the topic of drug pricing that have appeared in the pages of prominent newspapers — without disclosing in those publications that Kaiser Health News receives funding for that coverage from the Arnolds.
Kaiser Health News consistently notes at the bottom of its drug pricing-themed stories on its website that its coverage of the issue is funded in part by the Arnold Foundation. But when other publications re-publish those stories, the corresponding disclosures about the Arnolds don’t tend to be republished. A STAT reporter identified at least eight such examples from the past year in publications including the Washington Post and the New York Times, as well as in STAT. The stories cover subjects like a proposal from the Massachusetts Medicaid program to negotiate discounts on the drugs it buys, as well as a campaign by the drug maker Mallinckrodt (MNK) to exert influence in Washington amid troubles stemming from a multiple sclerosis drug price hike.
The Arnold Foundation has given Kaiser Health News two grants totaling $1.26 million, including one that’s funded through this year, to do “investigative journalism projects on drug pricing.” Kaiser Health News publisher David Rousseau said he sought out the grants, which have no other stipulations beyond the topic area, because journalists wanted to do more work on the subject.
At Kaiser Health News, the grant funding from the Arnolds goes into a larger pot of resources that’s allocated as needed by newsroom leaders. “There’s no one-to-one correspondence between a grant and a story,” said editor-in-chief Elisabeth Rosenthal.
Both Rousseau and Rosenthal said they have never faced or bowed to pressure from the Arnolds — or even heard from the Arnolds about their coverage.
Of the disclosure about the Arnold funding on Kaiser Health News’s website, Rosenthal said, “We put it up because we want to be transparent, and our partners can do what they want with it.”