Martin Shkreli’s pharmaceutical company, Phoenixus AG, has filed for bankruptcy and plans to sell off its assets to pay off its debts after being consumed by competition from generic medicine and battered by legal battles.
Vyera Pharmaceuticals’ Files For Bankruptcy
The company along with its affiliates such as Vyera Pharmaceuticals, filed for Chapter 11 in Delaware in a decision made by independent directors who were chosen by a court-appointed receiver who seized possession of Shkreli’s shares in August.
According to the documents filed by Lawrence Perkins, the chief restructuring officer at Vyera, the demise of the company and its affiliates was mainly caused by Shkreli.
In an affidavit, Perkins said, “Upon information and belief, Shkreli’s actions have caused serious reputational harm to [the companies] and have hampered [their] ability to, among other things, open certain bank accounts, successfully commercialize new products, and either raise capital or consummate the sale of various [company] assets.”
However, based on the documents submitted by the company, Vyera reportedly attributed the decision to declining profits, generic medicine competition, and ongoing legal disputes over whether the business blocked competition on a drug called Daraprim.
The company additionally stated that it plans to use its Chapter 11 bankruptcy filing to restructure one of its subsidiaries which is currently developing a new drug.
The Rise and Fall of Martin Shkreli’s Pharmaceutical Empire
In 2014, Shkreli established Vyera under the name Turing Pharmaceuticals with the main goal of obtaining exclusive medications that treat serious illnesses in small patient demographics, which he would then sharply mark up in price to make a profit.
As such, in August 2015, he paid $55 million for the rights to Daraprim, an anti-parasitic medicine that treats a rare disease called toxoplasmosis. Shkreli then went ahead to unexpectedly increase the price from $17.60 per tablet to $750, a more than 4,000% increase.
When confronted about the price hike, he allegedly used multiple anti-competitive tactics to defend his move including preventing generic rivals from accessing the active ingredient, pyrimethamine, which was required for them to obtain regulatory approval and enter the market.
In December 2015, Shkreli was indicted for securities fraud by federal authorities where he was charged with orchestrating a Ponzi scheme that involved Retrophin, a different pharmaceutical business he established, as well as two hedge funds he had previously managed.
While this slightly tampered with the Daraprim scam, the company continued to run the business and make profits since despite receiving a seven-year prison sentence after being found guilty in 2017, Shkreli continued to oversee the Daraprim project at Turing while incarcerated using a smuggled cell phone.
During this time, the company did not reverse the price increase hence Daraprim generated between $55 million to $74 million in revenue for the corporation from 2016 to 2019 ranging from average net prices of $228.00 to $305.00 per tablet after discounts and coupons.
Surprisingly, Shkreli kept his control until January 2020 when the Federal Trade Commission(FTC) and several state attorney generals filed a lawsuit against Shkreli and Vyera alleging that they had violated antitrust laws.
According to Perkins, this damaged the company’s reputation and it went on to choose a new board and management and cut ties with Shkreli.
Perkins further reported that in 2020, the market saw the introduction of a number of generics that still cost hundreds of dollars per tablet even after discounts. However, this reduced Vyera’s total net earnings to $21.2 million and $9.5 million in 2021 and 2022, respectively.
This year, the company has only recorded $1.35 million in net sales of Daraprim so far compared to a $6.3 million net income loss.
To aid in offsetting the debts, the assets of Vyera and another affiliate, Orpha Labs AG, were put up for sale by the board earlier this year. Still, Perkins claimed the board did not think the company’s ideas were actionable and would not have alleviated its cash flow issues hence they filed for bankruptcy.
Nonetheless, Phoenixus seeks to restructure Orpha Labs because the company is working on a treatment for an “ultra-rare congenital immunodeficiency disorder” that if it is effective, may eventually pay off all debts.
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