In Pursuit of Innovation

Kacee Mae Ochalek & Adam Tyler Pescheck

Spring 2018

Written Case Analysis Prepared for the Lubar School’s Business Ethics Case Competition
Introduction

Analyzing the actions of Turing Pharmaceutical through the lens of business ethics, one can to

understand the ethics of decision-maker, Shkreli’s actions through his just need to provide profit

returns. Shkreli, in blatant neglect to the consumer was in fact, acting in the only way that

provided innovation to the people who need it most, those relying on the life-saving

drugs. While it’s wrong to create struggle and inability to afford medication to the consumer, that

idea draws attention to America’s blatant gaps in health care, not the direct actions of Turing or

Shkreli. Turing’s actions sustain the American peoples right to public health - by increasing

standard of life for those in need of drug therapy through constant R&D - by which their high

product prices directly contribute to Turing’s ability and necessity to garner more investment and

thus, better drug therapy.

Case Summary

Shkreli, Turing’s former CEO, is most noted for his actions in the third quarter of fiscal year

2015/16, where he increased “the price of… Daraprim, [Turing's patented drug used to help treat

Toxoplasmosis] from US$13.50 to $750.00 a pill” (Bodhanwala, & Bothra 1). Prior to this,

allegations of improper handling of settlement money and securities fraud taint Shkreli’s

reputation. (Bodhanwala, et al., 2).

Shkreli was not alone in his actions. The 2016 RX Price Watch Report, noted substantial rise in

retail prices of prescription drugs, industry wide. Further, Daraprim, was distributed through a

closed network – where generic competitors could not compete. This allowed monopolistic

control for over 3 years (Bodhanwala, et al., 2).

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Analysis

While it’s easy to castrate Shkreli's action as unethical, it’s important to criticize his actions

through the lens of the profit-focused society of America, today (Ubel, 2014). Philosopher and

critique of contemporary culture and religion, Friedrich Nietzsche said, “if you gaze long into an

abyss, the abyss also gazes into you” (97). Applying this to the case, one may view the actions

of stakeholders as a direct reflection of their environment. Big Pharma held to a standard only as

high as was set by those that came before them. Nietzshe begins his above sentence with, “He

who fights with monsters should look to it that he himself does not become a monster” (97).

Instead of looking to Shkreli to fulfill the role as monster, we instead look to Big Pharma and

lack of government regulation as the true monstrosity behind the unethical decision making in

the pharmaceutical industry.

Extraordinary Price Increase

In the same quarter that Shkreli increased Daraprims price, Turing released financial statements

revealing that they were operating at a net loss of over $14.6 million dollar in general, as well as

for the Daraprim program (Turing Pharmaceuticals AG). Shkreli’s professional past

offers insight that leaves the public unsurprised at his immoral practices, like his proposed salary

increases at Turing or neglect to develop a better toxoplasmosis therapy. When operating at a net

loss, it’s not in the stakeholder’s best interest to raise salary. R&D is an integral part of Turing's

success, and it’s reasonable to request that the profit gained from a price increase is used to

innovate better toxoplasmosis therapy, one must note that Daraprim has been successful for

decades, leaving no obvious need for a new drug. The price increase is thus justified by a need to

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operate at a profit. At the time, Turing “had another half-dozen programs in preclinical

development and had raised $90 million in funding to execute the clinical plans (LaMattina).

Considering Inflation

It’s easy to point at Daraprim price increase in relation to inflation as a red-flag against Shkreli’s

ethical decision making. Brand-name-drugs increased at a rate of 2-3 times that of general

inflation over the past decade (Hemphill, 225). With Daraprim, we see price increase more than

100%. The pharmaceutical industry sees price hikes frequently. (Bodhanwala, et al. 2). Though

price increases seem exorbitant, increased cost of R&D is ignored by the public. Between 1995

and 2007, average cost for drugs developed slated at ~$2.6b; In 2003 the cost of drug

development equaled $802m. Implying that real term costs rose by 145% "caused by

larger... complex trials...and higher failure rates.” Thus, one can point to the increased real term

costs as an explanation for the rise. With lives on the line, blame cannot be put on cost, instead

on consumer’s ability to bear higher costs to increase ability to further R&D for more

sophisticated therapies.

America’s Blatant Gaps in Health Care

One can look to geopolitical and socioeconomic dynamics as a way to understand the reasoning

behind Big Pharma and Shkreli’s actions. (Kushnick).

One may be eager to offer Shkreli as a scapegoat, one man cannot stand alone as the “only thing

preventing a broken system from being fixed” (Sanneh). During his congressional hearing with

the House Committee on Oversight and Government Reform, Legislator Cummings, asked

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Shkreli, former CEO of a “relatively minor” company to “change the system.” A contradicting

statement coming from a “firm believer in government power to improve industry through

regulation” who is wrongfully placing blame on the individual, instead of looking to government

and Big Pharma (Sanneh).

Contributing to political and socioeconomic dynamics, one must understand that most developed

government policies across the world include strict stoppages against unreasonable price

increases. America offers no equitable solution (Why drug prices).

Maximizing Innovation

Additionally, it is found that price controls, created through government regulation, work against

“ethical goal of maximizing number of lives saved" (Hemphill, 232), creating drug shortages.

Price controls take away Big Pharma’s incentives to invest in new therapies, leading to

inadequacies for patience relying on access (Maitland).

Oppositely, continued innovation leads not only to better therapies but also discovery of research

knowledge useful to the common population (Gericke et al., 2005; Maeder, 2003).

Other critiques came from Daraprim’s distribution that excluded entry of a potential generic

competitor (Bodhanwala, et al., 3). In theory, generic therapy cuts down cost to the consumer, it

leads to detrimental effects to the healthcare plane. When generic therapies enter the market they

take away from the ability of innovative producers to recoup their investment, an integral part of

their solvency (Hemphill, 229). If Turing, cannot maintain solvency, they will no longer produce

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the drugs as quickly or at all, leading to drug shortages and ultimately, loss of viable life

(Koba).

Conclusion

Analyzing the ethics of Shkreli’s actions through his just need to provide profit returns allows

Shkreli to reenter society not as an alien but as a martyr. Stanford University health economist

agrees, "It would be unfair to portray them as greedy or irresponsible if they charge what they

can get” (Drug Prices). Keeping a lens of the ability of Turing to advance the life of its

consumers, one must consider the balance of the many stakeholders as they attempt to bring

products to patients expeditiously… expand access, encourage continued innovation, and

maximize shareholder value” (Hemphill, 230). Shkreli acts not in ignorance to inflation, the

blatant gaps in U.S. healthcare, the weight of the price bore by insurance companies and

consumers, but instead as a visionary for pharmaceuticals, pushing past the negligence and

bureaucracy that government prevails and instead creating realistic prices in consideration of

increasing costs of R&D to provide innovation to pharmaceutical therapies.

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 Work Cited
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“Drug Prices: What's Fair?” Bloomberg.com, Bloomberg, 10 Dec. 2001,

www.bloomberg.com/news/articles/2001-12-09/drug-prices-whats-fair.

Gericke, C. A., A. Riesberg and R. Busse: 2005, ‘Ethical Issues in Funding Orphan Drug Research

and Development’, Journal of Medical Ethics 31, 164–168

Hemphill, Thomas A. “Extraordinary Pricing of Orphan Drugs: Is it a Socially Responsible Strategy

for the U.S. Pharmaceutical Industry?” Journal of Business Ethics, vol. 94, no. 2, 2009, pp. 225–

242., doi:10.1007/s10551-009-0259-x.

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infamy.” The Washington Post, WP Company, 1 Aug. 2017,

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catapulted-pharma-bro-martin-shkreli-to-infamy/?utm_term=.25e486cae1ea.

Koba, Mark. “The U.S. has a drug shortage -- and people are dying.” Fortune,

fortune.com/2015/01/06/the-u-s-has-a-drug-shortage-and-people-are-dying/.

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Nietzsche, Friedrich Wilhelm. Beyond good and evil ; and the genealogy of morals. Barnes & Noble

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Sanneh, Kelefa. “Everyone Hates Martin Shkreli. Everyone Is Missing the Point.” The New Yorker,

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