It’s been a decade since Martin Shkreli became the most hated man in America. In August 2015, Shkreli raised the price of Daraprim – an antiparasitic essential for immunocompromised patients – from $17.50 to $750 per pill. Hillary Clinton tweeted about price gouging; Congress hauled him before committees; journalists dubbed him “Pharma Bro.” He was eventually sentenced to seven years in prison.
Here’s the thing: he didn’t go to prison for raising the price. His conviction was for securities fraud at his hedge fund – conduct that predated Turing Pharmaceuticals and had nothing to do with drug pricing. The DOJ sentencing documents don’t mention Daraprim once. The 4,000% price increase was, and remains, perfectly legal.
So let me offer a defense of Martin Shkreli – or rather, a diagnosis of a system that makes his conduct defensible. Shkreli’s real transgression was saying the quiet part out loud: that businesspeople have vast discretion over life-and-death pricing decisions, with no legal obligation to show mercy. His “crime” was stylistic, not substantive.
As my Berkeley colleague Robert Reich observed at the time, it is easy to go after bad guys, much harder to go after bad systems. A decade later, some things have changed, but the fundamental legal architecture has not.
Drug Innovation and Pricing Power
As Amy Kapczynski has argued, the lion’s share of the drug pricing problem traces to legally constructed monopoly power. The law grants exclusivity for defensible reasons: the Orphan Drug Act provides seven years of market exclusivity for rare disease drugs, where small patient populations wouldn’t otherwise justify R&D investment. Hatch-Waxman provides five years of new chemical entity exclusivity; pediatric exclusivity adds six months. These can stack.
The theory here is sound: temporary monopoly as reward for innovation. Pharmaceutical R&D is risky, expensive, and long-horizon, and the empirical literature does find a relationship between expected revenues and R&D investment. The U.S. has served as a laboratory of drug development for the world.
And yet: the current system doesn’t optimize for innovation. It optimizes for pricing power. As Talha Syed has argued, the conventional wisdom that pharmaceuticals present an especially strong case for patent-based monopoly pricing is triply wrong: the industry isn’t uniquely R&D-intensive, monopoly pricing is an inefficient funding mechanism, and the innovation it produces is distorted toward profit rather than therapeutic value.
A 2022 JAMA study examining 60 FDA-approved drugs found no association between R&D investment and treatment costs at launch. If companies can maximize profits through marginal variations on existing treatments, “killer” acquisitions, or raising prices on old drugs rather than developing new ones – they will.
More broadly, the current legal architecture systematically fails to constrain abuse. The Medicare Modernization Act of 2003 forbids the HHS Secretary from instituting any price structure. Antitrust law provides no backstop: the FTC and DOJ have stated that excessive pricing alone does not violate U.S. antitrust law, and the Supreme Court confirmed in Verizon v. Trinko that charging monopoly prices is “an important element of the free-market system.” When Shkreli invoked his obligation to maximize shareholder value, he was invoking what Lynn Stout called “the shareholder value myth” – the widely held but legally unfounded belief that directors must maximize share price. The business judgment rule gives boards enormous discretion, but that discretion runs in one direction: the law permits aggressive pricing, shields it from challenge, and creates no duty to patients.
The Discretion Problem
This brings us to the core of the problem: the system grants discretion over life-and-death pricing decisions to businesspeople who face no legal duty to patients and every market incentive to extract.
I used to work with large biotech companies as a law firm associate. If one of those clients had asked me if they could do what Shkreli did, I would have had to say: yes. Find an orphan drug with a small patient population and no generic competition; jack up the price. The law permits it; the market rewards it. The only constraint is reputational – and Shkreli proved even that can be managed if you’re willing to absorb the heat.
I find myself sympathetic to the underlying bind. If you’re an executive facing board pressure, where exactly do you draw the line? At 100%? 500%? 3,999%? The law provides no guidance. There is no principled line – which is why it’s perverse to ask businesspeople to invent one.
Turing Pharmaceuticals, for instance, offered patient assistance programs: free Daraprim for low-income uninsured patients, $10 copay caps for the commercially insured. But notice: Shkreli had no obligation to offer these. They were voluntary – and conveniently served as PR cover while the real extraction happened elsewhere.
These programs also had critical gaps. Hospitalized patients were ineligible while in the hospital. Medicare patients were legally barred from receiving copay assistance, leaving them exposed to the full cost-sharing burden while taxpayers absorbed the rest. Grady Memorial, Atlanta’s safety-net hospital, saw toxoplasmosis drug costs jump from $50,000 to over $1 million.
The fact that these inflated costs were largely paid by insurers is not the exculpation it appears to be. As economists Emmanuel Saez and Gabriel Zucman have put it, employer health insurance premiums are “a giant hidden tax on workers” – borne by all of us through suppressed wages and higher premiums. And we all pay into Medicare. When Turing raised Daraprim’s price, it wasn’t extracting from some abstract pool. It was plundering the commons – twice over, from workers and taxpayers alike.
The More Things Change
Though Shkreli’s conduct was lambasted in the court of public opinion, other companies had already recognized the strategy’s potential. Valeant turned this strategy into a business model, increasing Isuprel’s price by 525% the very day the deal closed, raising Syprine from $652 to $21,267, and hiking Cuprimine nearly 6,000%. Jazz Pharmaceuticals raised Xyrem by 841% over seven years.
Questcor took H.P. Acthar Gel from $40 to nearly $40,000 per vial by quietly obtaining orphan drug designation. Gilead skipped the price raise; they simply launched Sovaldi at $84,000 per treatment (“Let’s hold out position… whatever the headlines”).
Some of these companies eventually faced consequences for illegal behavior. Questcor’s acquiror Mallinckrodt paid a $100 million FTC settlement; Valeant executives faced fraud charges. But none were prosecuted for pricing. The legal violations were always technical or adjacent. The prices themselves remained untouchable.
Ten years later, there has been some meaningful reform. As a result of the Inflation Reduction Act, Medicare can now negotiate prices on select drugs, with the first ten seeing reductions of 38–79% in 2026. But these reforms remain partial. The IRA covers only Medicare and only drugs on the market long enough to lose exclusivity protection – 9 years for small molecules, 13 for biologics. The core architecture – government-granted monopolies, prohibited negotiation, no duty to patients – remains intact for most drugs.
As law makes these markets, law can remake them. But right now, we have a system of unlimited discretion, fragmented regulation, and continued reliance on shame to constrain the Shkrelis of the world. And Daraprim, it’s worth noting, still costs $750 per pill.
