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This weekly column offers opinions on the latest pharmaceutical industry news.

Martin Shkreli, the pharma bad boy who everyone loves to hate, is gaming the system again.

In his latest maneuver, Shkreli led an investor group that last month bought a majority stake in a drug maker called KaloBios. The South San Francisco-based company was developing cancer drugs. But under Shkreli’s control, KaloBios quickly purchased the rights to a half-century-old medicine for treating Chagas disease, a parasitic infection that can cause life-threatening heart problems. The drug, called benznidazole, is standard treatment in South and Central America, where the disease is most common. But in the United States, no therapy for Chagas disease has ever been sold.

KaloBios plans to seek regulatory approval from the Food and Drug Administration in about a year. And if approved, Shkreli, who gained notoriety at Turing Pharmaceuticals for his price-gouging tactics, is expected to jack up the cost of benznidazole for the US market more than 100-fold — to a price on par with expensive hepatitis C treatments that cost anywhere from $63,000 to $95,000, according to a filing with the Securities and Exchange Commission.


“This is an example of abusing a government program that is supposed to spur development of medicines for neglected diseases,” said Judit Rius Sanjuan, the US manager and legal policy advisor for Doctors Without Borders. “It could be a nightmare for some patients.” (Shkreli did not respond to a request for comment.)

Even though there are relatively few people in need of treatment for Chagas disease in the United States, Shkreli will likely get a big payday from an eight-year-old federal program designed to encourage companies to develop medicines for certain “neglected” tropical or rare diseases.


The program awards vouchers that entitle companies to expedited reviews of a medicine — six months, instead of the standard 10. Those extra four months can translate into big bucks if a voucher is applied toward a blockbuster medicine, and companies can sell vouchers to other drug makers, often for hundreds of millions of dollars. In August, a voucher fetched $350 million, a record price.

Providing incentives to encourage drug makers to develop medicines they might not otherwise is laudable. But Shkreli is exploiting a massive flaw in the program that gives drug makers a big windfall without actually spurring medical innovation. This gaping loophole in the voucher program will end up hurting patients and taxpayers, and Congress needs to close it.

Federal lawmakers created the priority review system in 2007 in hopes that companies would develop medicines for tropical infections. Later, the idea was expanded to rare pediatric diseases. By and large, the effort is viewed as a useful tool, and Congress recently expanded the list of diseases for which vouchers can be awarded.

Yet these vouchers don’t require investment in a new or improved drug. In fact, two of the three vouchers the FDA has so far handed out for neglected tropical diseases were for medicines that were already in use for years in other countries. Rather than spark research and development into new drugs, some incentives are going to companies that simply buy old treatments and usher the medicines through the FDA review process.

Last year, for example, Gilead Sciences paid $125 million for a voucher that was originally awarded to Knight Therapeutics. The deal came a few months after Knight gained FDA approval for a medicine to treat leishmaniasis that was already used overseas and was largely developed by the World Health Organization. Now, KaloBios is positioned to pull off the same exit strategy.

To be fair, Shkreli did nothing illegal. He spent $2 million to acquire benznidazole — the same as what he paid recently for the only copy of an album by the rap group Wu-Tang Clan — plus he agreed to pay up to $20 million more for royalties on sales. He is simply manipulating a system in a way that may yield big profits for shareholders, a point he regularly talks up when asked to defend high drug prices.

Just the same, the events underscore a need to revamp the voucher program. Doctors Without Borders and other advocacy groups are urging Congress to amend the program so that drug makers are not awarded a voucher unless they undertake their own R&D. Some also want guarantees of affordable pricing before a voucher is granted.

Such fixes are needed. Right now, the financial prospects for some drug makers seem to receive more priority than the needs of patients.