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Will Martin Shkreli's arrest affect drug prices?

Turing Pharmaceuticals replaced CEO Martin Shkreli after the 32-year-old pharma bad boy, known for hiking prices on vital drugs, was arrested on criminal charges that could lead to decades in prison. But that does not mean that Shkreli's arrest will suddenly bring a halt to high prices for new drugs or substantial increases in the price of older drugs for which pharmaceutical companies acquire the rights. It won't.

Martin Shkreli departs U.S. Federal Court after an arraignment and his being charged on a federal indictment filed in Brooklyn on Dec. 17, 2015.
Lucas Jackson | Reuters
Martin Shkreli departs U.S. Federal Court after an arraignment and his being charged on a federal indictment filed in Brooklyn on Dec. 17, 2015.

The U.S. government does not control the price of drugs; the market does, which is what makes the U.S. such an attractive pharmaceutical market. For all the outrage recently directed at Shkreli by members of Congress and certain presidential candidates, that basic way of operating is unlikely to change. That's as it should be.

But if he goes to prison, Shrkeli's role in the pharmaceutical industry will end during his prison term. Federal prisoners are barred from directing a business while they are incarcerated. While he is an inmate, Shkreli's influence over drug prices will be exercised only by way of the decisions of those in the industry whom he hired or inspired. But he will cease being a market maker or mover.

While she was in federal prison for five months, Martha Stewart is reported to have exerted a form of control over her eponymous company through trusted associates that remained in place while she was gone. The charismatic Shkreli undoubtedly has loyal surrogates inside and outside of his company to continue his ways of doing business.

His influence over the broader pharmaceutical market will persist, even as he is sidelined for now as a pervasive media poster child for a particular approach to that market.

If he beats this wrap, Shrkeli may emerge a different man than he was. Even the prospect of prison concentrates the mind of a white collar professional in a way that few other contingencies can. That is why the government increasingly focuses on prosecuting individual executives for corporate crimes.

The prospect of jail deters misconduct – even misconduct not directly related to the charges at hand -- in a way that the prospect of fines doesn't. Maybe this experience will harden Shkreli, maybe it will humble him, maybe it will have a different wholly unforeseeable effect altogether. The fortunes of a man, a company, an industry depend to an important degree on the answer. Indeed, he already intimated in a Wall Street Journal interview that Turing may change the way it does business, though he gave no details.

Shkreli undeniably affected the pharmaceutical industry in a way that made him an irresistible topic of discussion for pharmaceutical industry watchers and business ethics instructors alike. Shkreli's legal battles arising from events before the price hikes will not change that. Whether Shkreli wins or loses this battle, his impact on the price of drugs is not over.

He's a young man. He'll be back.

Commentary by Dan Eaton, a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is a professor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law. Follow him on Twitter @DanEatonlaw.