Editors' Pick: Originally Published Friday, Dec. 18.
Martin Shkreli resigned as chief executive officer of Turing Pharmaceuticals Friday following his arrest on charges of securities fraud.
"Turing is a mess," said one investor in the company involved in the talks which led to Shkreli's exit.
Under Shkreli's direction, Turing hired more than 150 people in its New York office and spending, including exorbitant salaries, was out of control.
"This company needs to be cleaned up" like Shkreli's previous drug company, Retrophin (RTRX) , the investor said.
Ron Tilles, Turing's chairman, was named interim CEO, the company said Friday.
Shkreli was arrested and arraigned Thursday on seven counts of securities fraud and conspiracy. Federal prosecutors accuse Shkreli of using Retrophin to repay investors who lost money in his now-defunct hedge fund, MSMB Capital Management. Shkreli pleaded not guilty to the charges and is now out on bond.
Shkreli was also fired from his CEO post at Retrophin in September 2014. Some of the same investors who backed Shkreli in Retrophin also invested in Turing. Once again, they're working to salvage their investments.
Turing was founded in 2014 but gained notoriety -- and heaping piles of criticism -- earlier this year when it bought the rights to a 50-year-old infectious disease drug, Daraprim, and raised its price from $13.50 per pill to $750 per pill. Almost overnight, Shkreli became the poster boy for pharmaceutical industry greed -- a bad-boy image he embraced on social media, the press and during live-streaming video episodes from his New York apartment.
Shkreli claimed that the revenue generated by the higher price of Daraprim would be used to fund research into new drugs, but most of the spending to date at Turing has gone to hiring scores of "business development" employees who sit in front of Bloomberg terminals in the New York office, according to people who have visited.
"He was running Turing like a hedge fund," said one investor.
Turing is a private company and therefore under no obligation to make its financials public. In November, however, Shkreli released partial financial results in an effort to demonstrate that Turing was serious about developing new drugs.
Turing generated $5.6 million in revenue for the third quarter from the sale of two drugs, including Daraprim, and reported a net loss of $14.6 million. Research and development costs for the quarter totaled $7 million, according to the company's press release.
"Our research and development organization, led by Dr. Eliseo Salinas, has surpassed my expectations in advancing TUR-004 for epileptic encephalopathies and TUR-002 for depression with the FDA," said Shkreli in the Nov. 12 third-quarter financial press release.
An internal accounting of Turing's finances distributed to investors at the same time, obtained by TheStreet, provides more details on the company's spending.
In the third quarter, Turing' operating expenses were $21.3 million, including $14.2 million spent on selling, general and administrative costs, leading to an operating loss of $15.6 million.
Through the nine months of 2015 ended on Sept. 30, Turing's net product sales were $5.9 million but total operating expenses were $34.3 million, including $22.6 million in SG&A and $11.5 million in R&D. Turing's net loss for this nine month period was $27.7 million.
Turing had $6.5 million in cash on hand at Sept. 30.
An investor involved in the talks to remove Shkreli from the CEO post told me that getting spending under control at Turing was a priority. In particular, he questioned the R&D expenses, which he said were unjustifiably high for a company which hasn't moved a drug into clinical trials.
"There are companies with drugs in phase III studies that have R&D expenses lower than Turing," he said.
Shkreli is also the CEO of KaloBios Pharmaceuticals (KBIO) , a publicly traded biotech company. Shkreli took over KaloBios in November by buying up 70% of the outstanding shares while the company was in the process of shutting down. Efforts to remove Shkreli as CEO of KaloBios and find a replacement are underway, according to people familiar with the matter.Trading in KaloBios was halted Thursday after news of Shkreli's arrest was made public. The stock has not reopened.