Page 385 - The Case Lab Book

On February 1, 2011, in a naked short sale on an account it held with
Merrill Lynch, MSMB Capital sold short 32 million shares of Orexigen

Therapeutics stock at about $2.50 per share the day after its price plunged
from $9.09, when the Food and Drug Administration (FDA) declined to
approve the drug Contrave. The stock price rebounded; MSMB could not

cover the position, although it had told Merrill Lynch that it could. Merrill
Lynch lost $7 million on the trade and MSMB Capital was virtually wiped
out.

Shkreli founded Retrophin (investing $4 million) in 2011 under the MSMB
umbrella and ran it as a portfolio company with an emphasis on

biotechnology, to create treatments for rare diseases. His initial idea for
Retrophin was to purchase two drugs from Valeant, Cuprimine and
Syprine, which are used to treat Wilson disease, an inherited disorder that
causes severe liver and nerve damage. His plan, he said, was to jack up

the prices. But the deal fell apart. Syprine, which had about $200,000 in
sales per month in the fall of 2012, now has sales of $10 million a month,
an increase that is due purely to price increases by Valeant. Cuprimine is a

similar story

During Shkreli's tenure as CEO, the company's employees used alias

Twitter accounts to make gangster rap jokes against critics of Shkreli and
encourage short selling of other biotech stocks.

In 2011, Shkreli filed requests with the FDA to reject a new cancer

diagnostic device from Navidea Biopharmaceuticals and an inhalable
insulin therapy from MannKind Corporation while publicly short-selling both
companies' stocks, the values of which dropped after Shkreli's

interventions. The companies had difficulty launching the products as a
result, although the FDA ultimately approved both.

Moreover, Shkreli often advertised his short positions on an investing
website called Seeking Alpha, where he encouraged others to follow his
lead. In March 2012 he took on San Diego-based Cytori Therapeutics,

criticizing “regenerative” treatments it was developing to use stem cells to
rebuild damaged tissue. “Regenerative medicine is a meaningless and