Former Turing CEO Martin Shkreli, who has become the poster child for unfettered ambition and greed in the pharmaceutical space, has struck a nerve with increasingly frustrated Americans about the sometimes astronomically high cost of drugs. And the latest chapter in the Shkreli saga, Thursday's congressional hearing, has only made matters worse.

The investigation into Turing, along with Valeant (VRX), has brought the sector's drug-pricing practices into the public consciouness at perhaps the worst moment possible -- during presidential campaign season. The iShares NASDAQ Biotechnology Index (IBB) and the SPDR S&P Biotech ETF (XBI) have both fallen about 30% since their July 2015 highs, reflecting, in part, uncertainty over pricing and regulation.

Hillary Clinton's September 21st tweet condemning high prescription drug pricing for the sector included a link to a New York Times article on Turing. This tweet, which caused a sell-off in the broad biotech sector, reflects the conflation of industry-reform considerations and the drama surrounding Turing and Valeant.

In the rush to peg Turing and Valeant as representative of the larger biotech sector, investors and commentators have lost sight of the complexities of the industry's incentive structure.

Rep. Elijah Cummings (D-Md.), ranking member of the committee probing drug pricing, pointed out in connection with the Turing and Valeant investigations that price hikes are prevalent throughout the industry, bringing in important, but distinct, industry-wide considerations. "Tactics are not limited to a few 'bad apples,' but are prominent throughout the industry," he said.

The Turing and Valeant distinction

Turing and Valeant have turned the entire biotech and pharma model of research & development investment on its head. Instead of embarking on traditional drug development, involving hundreds of millions of dollars in research and development, Turing and Valeant bought up companies with cheap drugs and significantly raised their prices.

After Turing paid $55 million to acquire the anti-parasitic drug Daraprim -- which is also used to treat HIV -- it raised its price more than fifty-fold to $750 per pill. And Valeant's controversial serial acquisitions were based on a strategy of pushing up prices of the acquired rugs. On May 21, Valeant interim CEO Howard Schiller, who was CFO at the time, wrote in an e-mail that about 80 percent of sales growth in the first quarter came through price increases, according to the congressional memo.

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